Thursday, 21 October 2010

The mighty Brad Delong wades in on the CSR

J Bradford Delong, world renowned Professor of Economics at Berkeley, is one of my favourite economists; his witty, polymathic blog has been essential reading throughout the crisis. Having held a senior position with the Clinton administration, it is probably fair to describe him – in American terms – as centre-leftish. He is not a socialist.
Brad looks at Britain and ponders what elements of spending will grow to offset the massive fiscal contraction announced in yesterday’s CSR. Brad notes that the ConDems haven’t told us. Brad concludes that the reason they haven’t told us is because they are ‘clueless dorks’.
Brad Delong is one of my favourite economists.

Wednesday, 20 October 2010

On the Spending Review

Some views on Gideon’s Spending Review statement. I’ve ignored statements repeated from the June Budget and areas where others are far better placed to comment than me e.g. pensions.

(Gideon) Today’s the day when Britain steps back from the brink.

(Me) The brink of what? And at what point were we supposedly close to the edge?

When we confront the bills from a decade of debt.

This is factually wrong. There has not been a decade of (public) debt as Labour ran a surplus in the early years of the  last decade. If by a decade of debt he means rising private debt then 1) he should have made this clear and not left the heavy implication that he was talking about the Government; 2) remind us what he was saying about this pre-crisis (he was of course committed to matching Labour's spending plans) and 3) inform us what his prescription is for high household debt – we  can only assume it is to be dealt with through high unemployment and increasing economic insecurity. I bet it's not rising real wages.

We are going to bring the years of ever-rising borrowing to an end. We are going to ensure, like every solvent household in the country:

  • that what we buy, we can afford;
  • that the bills we incur, we have the income to meet;
  • and that we do not saddle our children with the interest on the interest on the interest of the debts we were not ourselves prepared to pay.

Save me mammy! I need a strong, strong drink. How many times do we have to endure this brazen household budget crap. If you can be bothered reading another discussion on this matter you will find one here and here.

Tackling this budget deficit is unavoidable.

Nobody denies this is the case – it is a question of how and when you go about it; stripping demand from a fragile economy, when unemployment is high, there is a strong risk of deflation and interest rates are up against the zero bound is not an evidenced based way of reducing a deficit. It really isn’t.

The decisions about how we do it are not. There are choices.

Thank you Lord! 

And today we make them.

Ah well…..

Investment in the future rather than the bills of past failure. That is our choice. We have chosen to spend on the country’s most important priorities – the health care of our people, the education of our young, our nation’s security and the infrastructure that supports our economic growth.

Er…. the capital budget for Education is being cut by 60% over the SR period and the resource budget is being cut by 3.4%. The capital budget for health is being cut by 17% and the rise in the resource budget is 1.3%; insufficient given health faces higher inflation (due to the cost of drugs etc).

On transport infrastructure: the SR claims that spending on transport infrastructure will be higher at the end of the SR period than in 2005-06. But is it sufficient? Is the balance between road and rail appropriate given climate change targets? I think we’ll hear a lot more about this area over the coming days.

On science: the science Budget will remain static and, in the context of the SR, this is a good thing. However, still amounts to a 10% real terms cut over the SR period. Tim at TUC is noting that some key projects have not been explicitly protected in the SR.

We have chosen to cut the waste and reform the welfare system that our country can no longer afford.

What was that you said about ‘choices’ Gidders?

We have, at £109 billion pounds, the largest structural budget deficit in Europe.

Now let me see, I wrote something about this in a recent paper. Ah yes,

ConDem ministers make great play of the Office of Budget Responsibility’s estimate of the structural deficit.  Of course, the structural deficit is a ‘theoretical construct, relying heavily on contentious assumptions’. Only by changing the assumptions was the figure made worse than under labour. The OBR clearly states that the actual deficit is less than Alistair Darling estimated at the PBR 2009 and March 2010 Budget and the rate of growth higher. So the overall economic position is better than previously predicted, not worse. The focus on the structural deficit is therefore intended to obscure the success of more expansionary policy during the recession.”

Accepting the Chancellor’s assertion as true, it hardly equates to the UK having the worst fiscal position in Europe – and this is the impression he is trying to leave with his audience.

This at a time when the whole world is concerned about high deficits, and our economic stability depends on allaying those concerns.

If by ‘the world’ he means global financial markets, he is wrong. As the STUC has pointed out consistently (see here and here), markets consider a range of factors when determining whether a country is a good risk: stock of debt, maturity of debt, prospects for growth and so on. Two things are manifestly clear to anyone actually prepared to study the evidence 1) that markets have judged the UK as a good risk throughout the current crisis; and 2) markets are not rewarding austerity.

We are paying, at a rate of £120 million a day, £43 billion a year in debt interest. This at a time when we all know that that money would far better serve the needs of own citizens than those of the foreign creditors we borrow from.

Nominal figures only. Wonder why?

The IMF estimates that on current policies debt interest payments will rise from 1.6% of GDP in 2007 to 3.1% in 2014 (estimate was produced in November 2009 when the current year deficit was projected to be some £20bn more than eventually transpired). This represents a significant rise of around £15bn a year. However it must be placed in context: the average for advanced G20 nations is projected to be 3.5% of GDP in 2014; 4.5% in the US; in the UK the net interest payment share of GDP was above 3% in the 75 years between 1916 and 1991.

And also, WE GENERALLY DO NOT BORROW FROM FOREIGN CREDITORS. This is true in Greece and Ireland where around 80% of sovereign debt is held by foreign investors. In the UK around 80% of debt is held internally; by the Bank of England and you and me through the pension funds which hold our savings. 

And that is why last year the IMF warned this country to accelerate the reduction in the deficit. That is why the OECD, the Governor of the Bank of England, the CBI all agreed with them.

I’ve written about the IMF here. It is important to stress that the IMF has been thoroughly inconsistent on the matter as has the OECD: one minute calling for deep and rapid austerity and highlighting the dangers the next. In any case their record on macroeconomic management is so desperately poor that they beg to be ignored.

The action we have taken since May has taken Britain out of the financial danger zone - the immediate reductions to in-year spending to buy us a breathing space in the sovereign debt storm - The emergency Budget in June was the moment when fiscal credibility was restored. Our market interest rates fell to near record lows. Our country’s credit rating was affirmed

Evidence please Gidders? We were not in the danger zone and had plentiful breathing space (at least another 50% of ‘fiscal space’ according to the IMF). Read Martin Wolf, the FT’s Chief Economic commentator,

Markets have also been remarkably relaxed about funding these deficits: interest rates on index-linked gilts have been 1 per cent, or less, for more than a year; the yield on 10-year gilts has remained below pre-crisis levels and is now close to 3 per cent; and spreads over German bunds have been 1 percentage point, or less, throughout the crisis.

The government argues that borrowing costs have been contained only because of its commitment to austerity. In fact, spreads over bunds have stabilised since February and fallen by just 0.2 percentage point since the election. This suggests that the coalition’s strong fiscal stance has brought modest credibility gains. What would have happened if Labour had won we cannot know.

The creation of an independent Office for Budget Responsibility to bring honesty back to official forecasts

Well maybe, just maybe, under Chote – but the OBR was a disaster under Budd. Surely no-one can claim otherwise?

But I made it clear that spending reductions rather than tax rises needed to make up the bulk of the consolidation. That is what the leading international evidence suggested worked best.

Lazy Gidders, you fail to cite this evidence. And you do not consider the relevance of this ‘evidence’ to our current situation i.e. arguing that spending cuts worked for Canada in the 1990s is irrelevant. Totally.

I’ll cite some evidence of my own. In their paper, ‘The Boom not the Slump: the right time for fiscal austerity’ Arjun Jayadev and Mike Konczal debunk the evidence used to promote the ‘contractionary is expansionary’ argument. They find that:

  • Countries historically do not cut their deficits in a slump, instead addressing these problems during a non-recessionary time;
  • When countries cut in a slump, it often results in lower growth and/or higher debt-to-GDP ratios. In very few circumstances are countries able to successfully cut during a slump, and this happens only when either interest rates and/or exchange rates fall sharply;
  • There is no episode in which a country facing the same circumstances as the United States (recent recession, low interest rates, high unemployment) has cut its deficit and succeeded in reducing its debt through growth;
  • There is little evidence provided by Alesina and Ardgana [who had published an influential paper used to support the growth through austerity agenda] that cutting the federal deficit in the short-term, under the conditions the United States currently faces, would improve the country’s prospects. It may even make the United States’ situation worse.

It is worth noting that the conditions noted for the United States (recent recession, low interest rates, high unemployment) all exist in the UK at this time.

The House will note that current spending is rising not falling over this period.

So what? The depth of the cuts is revealed in your own SR document.

Debt interest payments will be lower by £1 billion in 2012, then £1.8 billion in 2013 and £3 billion in 2014 – a total of £5 billion over the course of this Spending Review.

You do not know this. If, as we strongly anticipate, unemployment continues to rise and revenues stagnate, the deficit will not fall – despite the cuts.

I can now tell the House that capital spending will be £51 billion next year, then £49 billion, then £46 billion, and £47 billion in 2014-15. This is about £2 billion a year higher than I set out in the Budget. Given the contractual obligations we inherited from the last Government, doing anything else would have meant cutting projects which would clearly enhance the economic infrastructure of this country.

DUH…as my 10 year old daughter would say.  Those troublesome contractual obligations eh?

In real terms, public spending will be at the same level as in 2008.

Won’t feel like it if you’re a benefit recipient will it. Meaningless anyway as Richard Murphy discusses here.

First, reform – that in every area where we make savings, we must leave no stone unturned in our search for waste and we must deliver changes necessary to make our public services fit for the modern age.

On this basis, reform of the financial sector must come first. For it was the banks which ‘wasted’ money on a gargantuan scale.

Second, fairness – that we are all in this together and all must make a contribution.

This is just provocative. I’ll have to leave a detailed discussion of the distributional analysis till another day.

There will be a focus on helping British companies win exports and secure jobs at home, and with the help of the UKTI we will attract significant overseas investment to our shores.

A ‘focus’? We continue to await the Coalition’s growth strategy.

There is nothing fair about running huge budget deficits, and burdening future generations with the debts we ourselves are not prepared to pay.

There is actually. In our letter to Gidders in advance of the SR we argued:

“The STUC argues that is also unfair to bequeath future generations a smaller less stable economy and a legacy of persistent long-term unemployment. Long-term youth unemployment is rising rapidly across Scotland. Research demonstrates very clearly that prolonged periods of unemployment while young badly affects future employment prospects. Scotland continues to pay the high social and economic costs of the recessions and labour market policies of the 1980s and 1990s”.

How ironic that it was the last Labour Prime Minister himself who once observed that the “public finances must be sustainable over the long term. If they are not then it is the poor ... that will suffer most.

He was wrong and so are you. But he did say long-term.

Mr Speaker, I completely understand the public’s anger that the banks that were so appalling regulated over the last decade, and whose near collapse wrought such damage on the economy, should now be contemplating paying high bonuses.

Gidders, please furnish me with your speeches, press notices etc arguing for tougher regulation of the banks during your time in opposition.

We neither want to let banks off making their fair contribution, nor do we want to drive them abroad.  Many hundreds of thousands of jobs across the whole United Kingdom depend on Britain being a competitive place for financial services. Our aim will be to extract the maximum sustainable tax revenues from financial services. We will assess what those maximum revenues could be – not just in one year, but over a period of years.

In other words, we will continue to pander to the financial services lobby?

We have already decided – in the face of opposition from the previous government – to introduce a permanent levy on banks. The legislation will be published tomorrow.

I will await the detail before commenting.

We will also need to address the situation under the last government where the gap between the taxes owed and the taxes paid grew considerably. So in this Spending Review, while the HM Revenue and Customs budget will be expected to find resource savings of 15% through the better use of new technology, greater efficiency and better IT contracts – we will be spending £900 million more on targeting tax evasion and fraud. This additional £900 million is expected to help us collect a missing £7 billion in tax revenues.

This is wholly insufficient; emphasising that the ConDems are just not serious about the tax gap.

That does not mean we are letting the health department off the need to drive forward real reform and savings from waste and inefficiency. Productivity in the health service fell steadily over the last ten years, and that must not continue.

It fell because more people were employed to provide higher quality personal services. I’m going to blog separately on public sector productivity and the guff that is routinely spouted on the matter very soon.
By restoring macroeconomic stability we have brought certainty to businesses.

No you haven’t. From the Bank of England’s Agents’ summary of business conditions October 2010 published today:

  • ‘Private sector employment intentions had eased slightly after improving earlier in the year. Contacts remained very cautious about expanding the labour force’

  • ‘Credit conditions had continued to improve marginally for larger and less highly-leveraged contacts, but demand for credit remained weak’

  • ‘Housing market activity had stayed weak after the summer. House prices were expected to stabilise or fall slightly’

Businesses aren’t daft – they can see the cuts leading to a collapse in demand which will affect their markets.

By cutting business taxes we are giving business the freedom to compete.

Is he seriously saying that UK businesses have hitherto not been ‘free to compete’?! We're the 5th best country in the world in which to do business say the World bank.

And funny how someone who is so concerned about the deficit can be so complacent about reducing revenues.

Lower-priority programmes like Train to Gain will be abolished.

A low priority for you and your pal Vince Gidders but not for the workers it helped to upskill.

So today, even in these straightened times, we commit public capital funding of up to £1 billion to one of the world’s first commercial scale carbon capture and storage demonstration projects.

Wow. Genuinely good news. Would have been madness to end the competition but, well, he’s a wee bit mad isn’t he?

Yesterday, protestors scaled the Treasury urging us to proceed with our idea for a Green Investment Bank. We will go ahead. I have set aside in this Spending Review £1 billion of funding for the Bank, but I hope much more will be raised from the private sector and the proceeds of future government asset sales.

Holding fire on this till I see the detail.

The licence fee will be frozen for the next six years. This deal helps almost every family and is equivalent to a 16% saving in the BBC budget over the period, similar to the savings in other major cultural institutions.

It doesn’t help my family. We have no cable or satellite services and rely heavily on the BBC (CBBC and Cbeebies yeh!). The insignificant cash saving will not come close to offsetting the inevitable deterioration in quality.

Stephen Boyd - STUC

Monday, 18 October 2010

Seeing crazy patterns

Not so very long ago, you were only a considered a serious person if you believed that the unleashing of a deregulated financial sector was a prerequisite for economic success in the globalised economy of the 21st century.

Not so very long ago, you were only a considered a serious person if you believed that bankers’ pay represented fair reward for skill and effort expended in a (near) perfectly competitive labour market.

Not so very long ago, you were only a considered a serious person if you believed that the self-interest of corporations and the individuals who managed them negated the need for regulatory oversight.

Not so very long ago, you were only a considered a serious person if you believed that the shrinking of the manufacturing base was an inevitable (desirable even) consequence of globalisation.

Not so very long ago, you were only a considered a serious person if you believed that the triumph of the Anglo-Saxon model of capitalism was inevitable given its superiority over any other form of economic organisation.

Now you are only considered to be a serious commentator on economic issues if you accept that public spending must be slashed on Wednesday.

Anyone see a pattern here?

Stephen Boyd

March and Rally 23 October, Edinburgh

The countdown is on for our march and rally on Saturday in Edinburgh!  
We are meeting in East Market Street at 11am and march off is at 11.30am. The rally will then take place at the Ross Bandstand at 12:30.
So far we are getting really good support for the March and lots of organisations across Scotland have signed up to support the rally. To show the breadth and depth of support for the campaign we are planning on showing clips of our supporters speaking about the better way for Scotland. Some of those you will see are:
·        Oxfam
·        Scottish Women’s Budget Group
·        Govan Law Centre
·        Faith in the Community
·        Church Action on Poverty
·        NUS
We also have contributions from trade unions including UNISON, PCS, EIS, UCU and USDAW. The STUC equality committees for young workers, black workers, disabled workers and women have also made films.
It should be a really good day so I hope you can make it along.
Spread the word!

Helen Martin- STUC

Being ‘businesslike’ with the truth

I wrote this in a recent blog:

“I am so sick of the ConDem’s comparing the Government to either households or businesses. The country is not a company. The country is not a household. This is what’s known as the fallacy of composition and it is explained here”

However politicians and media pundits lacking the curiosity, motivation or wherewithal to get to grips with complex arguments find the superficial plausibility of the household budget model impossible to resist: these are tough times…individuals, households and companies are tightening their belts and paying down debt…it is only proper and fair that Government should do the same.  And so on.

It cannot be said often enough that this argument is nonsense. I guess that most of its political and media advocates recognise it as such but find it too politically useful to dispense with. In any case, there appears to be no limit to what people think they can get away with when discussing the current state of the economy. Two examples:

1) Osborne’s appearance on Andrew Marr’s show at the weekend: what did he say? Well, that before the election, the UK was on ‘the brink of bankruptcy’; that interest rates on UK debt were ‘similar to Spain and Portugal’; that ‘Britain was on the edge of the economic abyss…people round the world were questioning whether the UK could pay its way in the world’.

I’m sure people around the world were asking this question - it would seem that the answer they arrived at was that the UK certainly could pay its way! That is why interest rates on UK debt have remained comparatively (historically and internationally) low throughout the crisis. On his assertion that interest rates on UK debt were similar to Spain and Portugal, he is just being clever with the dates; note he doesn’t mention Greece despite his constant repetition of the ‘UK is the next Greece’ mantra throughout the election campaign.  

But he couldn’t mention Greece because rates were far higher in Greece than for the UK. Similarly, when the extent of the Eurozone’s troubles became apparent, the rates on Irish, Greek and Portugese debt surged. The fact that this didn’t happen in the UK has nothing to do with the Coalition. I’ve written about this here and the STUC’s pamphlet ‘Avoidable, Unfair and Regressive’ covers similar ground in more detail.

Osborne is being downright deceitful; there is no other way to say it. He thinks he can get away with it because the media is largely compliant and the public generally disinterested/bored with apparently technical economic matters. He is probably right – for now. This is why the STUC’s There is a Better Way campaign is so important in disseminating the arguments against cuts; arguments that are evidence based and learn from economic history.

2) The letter from 35 ‘business leaders’ in today’s Telegraph in support of the Coalition’s budget proposals: as we said in today’s STUC press release the economics of the letter are puerile and the partisanship blatant. I’ll ignore for now questions over:

·        the tax status of the individual signatories and their firms;
·        their knowledge of public services which they don’t use or need;
·        the representativeness of this small sample of UK business dominated as it is by minimum wage retailers.

…and focus on the economics.  Consider this:

Everyone knows that when you have a debt problem, delaying the necessary action will make it worse not better”.

Yep, it’s that old household budget thang again! ‘Everyone’ does not know this. Hey, even Robert Peston finds it appropriate to mock this absurdity. And there’s more:

“The cost of delay would result in almost £100bn of additional national debt by the end of this parliament alone”…”Reducing the deficit more slowly would mean additional borrowing every year, higher national debt and therefore higher spending on interest payments

And condemning hundreds of thousands of people to unemployment (1m say PWC – half in the private sector) will improve the public finances? The truth is that it’s impossible to put a definitive figure on the national debt 4 to 5 years in the future when the actual figure depends on so many unknown unknowns. But a worsening of the public finances due to higher unemployment, lower demand and lower revenues is the likely scenario if the cuts proceed as outlined in the June Budget. The confident assertions contained in this letter are designed to disguise the paucity of its economic arguments.  

What we have to remember is that people who have been successful at running a company, are very, very rarely well placed to advise on the economy of a nation. The proof is in the statement above. On the question of business people expounding on economic issues, Paul Krugman concludes thus: ‘Economics and business are not the same subject, and mastery of one does not ensure comprehension, let alone mastery of the other. A successful business person is no more likely to be an expert on economics than on military strategy’.  The pamphlet he wrote on the subject is to be recommended; particularly for those politicians unable or unwilling to accept his premise.

Thursday, 14 October 2010

Why be in someone else’s Government?

There’s no escaping it, this week has been a difficult one for the Lib Dems. We had the Browne review on Tuesday which very imaginatively recommended removing the cap on tuition fees. By mid afternoon we saw Vince Cable, one time political heavy weight, conducting one of the most humiliating changes of position I have ever seen. Of course now he supports the Browne review recommendations and his justification? The economic situation means that there simply is no other option. Sound familiar?
In their election campaign the Lib Dems ran on a platform of free education for all but because there was a recession on, they proposed to phase out tuition fees over 6 years rather than scrapping them over night. Here’s Nick to explain more 
But now we see the leaders of the Lib Dems, not only arguing for tuition fees but actively raising the debt burden that young people will face if they want to get an education. This is more than just a U-turn. That is someone else’s policy.
And it’s not the first time we have seen this from the Lib Dems while they have been in coalition. I am sure we all remember this picture (although I am sure Nick would like to forget)

Hum there does seem to be a trend emerging.
The Lib Dems have one view the Tories have another.  Dilemma! Oh no it isn’t the Tory view simply gets swallowed by the Lib Dems and all is right with the world.
But why? What’s in it for them? Is the allure of Government so strong that they will support any policy, even the opposite of what they say they believe in? Is power the ultimate prize so much so that it is valuable as an end in itself?
And to think there was a time when we all thought that the Lib Dems might actually take some of the sting out of Tory policies. (Ah those heady idealistic days)
But seriously what are they getting for their trouble? They can’t honestly think they are creating a fairer Britain, as they rip up state funded education at all levels (remember free schools) and preside over ruthless and ideological cuts to public services that are quite likely to devastate our whole economy.
I can only think of one thing that they are actually getting out of all this: a referendum on voting reform. Yes, they are getting the chance to ask the country to make coalition Governments a reality forever and perhaps for them this does make this soul sacrificing process worthwhile. They would, after all, hold the balance of power for the foreseeable future.
But all this makes me wonder, what happens if they lose this referendum? What happens if one term is all they get before being cast out to be the junior opposition for another fifty, sixty, even a hundred years?
Will their shot at Government have been well used or will their lasting legacy be easily summed up by a satirical poster?

Helen Martin- STUC

Wednesday, 6 October 2010

No, I do not buy the big society

The ConDem leader’s speech provided much less material for this particular
Better Way
blogger than Gideon’s lesson in mendacity. Nevertheless, a few nuggets caught my eye:

Cameron Quote You [Labour] want us to spend more money on ourselves, today, to keep racking up the bills, today and leave it to our children – the ones who had nothing to do with all this – to pay our debts tomorrow? That is selfish and irresponsible”.

I agree that out children never had anything to do with this but NEITHER DID WE!!

Let’s get the economics out of the way: when the economy is operating so far below capacity, when unemployment is high, when the proximate risk is deflation not inflation, when interest rates are already close to zero, when export markets are stagnating…worrying about the deficit is wrong headed. I know this is counter-intuitive to many people; there is a plausibility about the ‘hard times call for hard measures’ approach. But if we want out this mess, if we want unemployment to fall and the economy to grow then Government has to move to fill the output gap. Of course it is neceessary for Government to target this investment in ways that 1) keep people in work and 2) improves the prospects for long-run sustainable growth.

And now for the morality: why is it a bad thing to leave our children higher debt (assuming for a moment that higher spending at this time would worsen the long run fiscal position - it wont) but ok to leave them with a smaller, less stable and more unequal economy  and (assuming that some people have children who are already in or about to enter the labour market) their life chances ruined by prolonged periods of unemployment while young?   

Cameron Quote: “Too many people thought: "I've paid my taxes, the state will look after everything."

Does anyone actually thinks along these lines? I mean really? I never hear normal people talking about ‘the state’. Never.

Cameron Quote: “The old way of doing things: the high-spending, all-controlling, heavy-handed state, those ideas were defeated. Statism lost ... society won. That's what happened at the last election and that's the change we're leading”.

On the one-hand we have the ‘all-controlling state’. On the other we have Labour failing to regulate the City properly? Nothing like consistency of argument. I know the media are on your side but really…

Cameron Quote: From state power to people power. From unchecked individualism to national unity and purpose. From big government to the big society”.

He can’t stop himself…from the ‘all controlling state’ to unchecked individualism’ in one easy move. Hilarious.

Cameron Quote: “Many government departments will have their budgets cut by, on average, 25% over four years. That's a cut each year of around 7%. Of course, that's big. But let's remember, a lot of businesses have had to make the same or bigger savings in recent years”.

I am so sick of the ConDem’s comparing the Government to either households or businesses. The country is not a company. The country is not a household. This is what’s known as the fallacy of composition and it is explained here.

Cameron Quote: “I'll always remember what the owner of a small business told me once. He said "when I was starting out the government didn't lift a finger to help me. Then as soon as I start making money they're all over me trying to take it away." That is completely the wrong way round. We need to get behind our wealth creators”.

Government doesn’t lift a finger? I beg to differ.

Government 'helps' small businesses by providing:

1)                             Property rights – it provides the legal system and security necessary to protect private property. This is why there is no such thing as a ‘free’ market. This is why there must always be taxation. This is why the ‘tax is theft’ argument falls at the first hurdle;
2)                             The education and health services which provide small businesses with a pool of skilled and able labour;
3)                             A range of other services which help expand labour supply –childcare services for example;
4)                             The infrastructure without which businesses of any size could not function – roads, energy networks etc;
5)                             A supportive regulatory environment – I will come back to this below;
6)                             Business support services – advice, export support, links with academia etc. This can amount to not very much if you are opening a small store on the local high street. If you are spinning out a firm from academia developing products with global potential this can amount to an awful lot. This is as it should be;
7)                             Direct subsidy – R&D and innovation grants, SME loan funds, skills training support, investment grants etc.

The list is not exhaustive.

Why do politicians of all stripes fell compelled to pander to the most feral elements of the small business lobby? It is bad at UK level (thanks David for providing a neat quote in this regard) but, if anything, worse in Scotland. The view that small businesses are over-regulated and over-taxed is so deeply embedded that to challenge it in a public forum invites ridicule.  

There is a lot of international comparative evidence on the regulatory and taxation ‘burdens’ (I hate, hate, hate that word in this context) and it confirms, quite unequivocally, that the UK is a good place for small businesses. See World Bank Ease of Doing Business Rankings for a start. The OECD and IMF have often assessed the UK as having the product and labour market regulatory ‘burdens’ (eeek!) in the advanced economies. Business taxation in the UK is consistently shown to be around the median for OECD nations. What do Cameron and his apocryphal small business owner mean by Government being all over small businesses trying to take their money away?! This is really silly stuff.

It might not matter if it ended with daft party conference speeches.  But this pandering to small businesses undoubtedly inevitably results in bad policy; it means we end up with a regulatory environment that is not only bad for workers, communities and the environment but it forces firms down low road competitive strategies with negative long run consequences for jobs, productivity and growth. I’ll change my mind on this when I meet the small business lobbyist who admits that final demand matters in an economy.

In Government circles, despite what employers might tell you, it is taken for granted that small businesses, with their limited resources, simply can’t cope with regulation of any kind. At the same time it is assumed that our dynamic small business sector will drive GDP and employment growth. Doesn’t quite add up does it?  

If nothing else surely if we could expect to have emerged from the crisis with a slightly more sophisticated understanding of how public, private and voluntary sectors work together to create wealth. The view that one sector crates wealth and the other spends it can hardly be sustained in the aftermath of a crisis in which the public stood behind the private to the tune of £1.25trillion.

Cameron Quote “Slashing red tape”.

He thinks this is a good thing apparently. Does he clarify what he means by red-tape? Of course he doesn’t…because worker, consumer and environmental protection measures are popular with the public.

It’s also, again, misleading. The ConDem’s are not slashing red-tape; they have introduced the risible policy of ‘one-in, one out’ – what one Guardian writer memorably described as the ‘nightclub bouncer approach’ to business regulation.

In all fairness, this is a Lib Dem initiative. It is suitably bizarre. If a regulation is no longer required then it should be scrapped – with appropriate consultation with those who might be affected. If a regulation is required, then it should be retained.  

Stephen Boyd