Will Vince Cable be the next Chancellor?

IN an election where the state of the economy is likely to be more central than ever to the outcome, it is not surprising that the identity of the next Chancellor is almost as burning an issue as that of the next Prime Minister.

From being seen at one time as a weak link in Labour’s armoury – not least by Gordon Brown himself who wanted to replace him with Ed Balls – Alastair Darling has unexpectedly emerged as one of the government’s few genuine assets.

Okay, so his third Budget ten days ago contained no new ideas and few positive reasons to vote Labour on May 6 save that of ‘better the devil you know.’

But that was not the point. Somehow, Mr Darling seems to have established himself in the public’s mind as that rare thing in 21st Century Britain – a politician who tells it like it is.

So the TV confrontation this week between Mr Darling and his opposition shadows Vince Cable and George Osborne was one of the more eagerly awaited events of the seemingly interminable pre-election countdown.

It was given added spice by the fact that Mr Osborne’s political trajectory has been almost the diametric opposite of Mr Darling’s over the past two and a half years.

Back in the autumn of 2007, he was the Tory hero whose bold promise to raise inheritance tax thresholds was seen as largely responsible for putting the frighteners on Mr Brown’s election plans.

But just as that IT pledge has become something of a millstone around the Tories’ necks in these more straitened times, so Mr Osborne has become increasingly perceived as their ‘weakest link.’

It was very clear from the Tory Shadow Chancellor’s performance in Monday night’s debate that he had been reading the findings of Labour’s focus groups which called him “shrill, immature and lightweight.”

But in his efforts to appear statesmanlike, he rather over-compensated, leading one pundit to describe he and Mr Darling as “the bland leading the bland.”

Instead, it was Mr Cable who earned the lion’s share of the audience applause on the night, for instance over his refusal to indulge in impossible promises on NHS spending.

So which one of them, if any, will be Chancellor? It’s not necessarily as straightforward a question as it may seem.

Sure, if Labour wins outright, Mr Darling will stay on. Mr Brown has already been forced to say as much, putting his old ally Mr Balls’ ambitions on hold once more.

But in the event of a Tory victory, or a hung Parliament, the situation becomes much less clear cut.

There have long been rumours in Tory circles that Mr Osborne won’t go to 11 Downing Street even if they win outright.

The talk is that David Cameron could give the job of sorting out the economic mess either to old-hand Ken Clarke, or to right-wing axe-man Philip Hammond.

Most intriguing is the fate of Mr Cable. Clearly he will not be Chancellor in a Lib Dem government – but could he hold the role in a Labour or Tory-led coalition?

The short answer to that is yes. For all Lib Dem leader Nick Clegg’s refusal to play the ‘kingmaker,’ securing the Treasury for Mr Cable is likely to be central to any post-election deal in a hung Parliament.

The opinion polls continue to point to this as the likeliest election outcome, with the Tory lead still insufficient to give them an outright majority.

The race for Number 10 clearly lies between Mr Cameron and Mr Brown. But in the race for Number 11, it is the Liberal Democrat contender who is in pole position.

The politics and the economics are inextricably intertwined

Opposition criticisms of the Pre-Budget Report as "electioneering" are fatuous and naive. Government denials that it is such are evn more so. Here's today's Journal column.

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Over the past couple of years, the Liberal Democrat Treasury spokesman Vince Cable has proved himself to be one of the most prescient, as well as one of the most popular politicians in the country.

It was he who first predicted the banking crisis, he who first advocated the nationalisation of Northern Rock – and he who told Gordon Brown he had gone “from Stalin to Mr Bean.”

Yet for all his undoubted expertise in economic matters, his criticisms of the pre-Budget Report unveiled by Chancellor Alistair Darling on Wednesday came over as rather naive and facile.

He charged Mr Darling with the grave offence of having unveiled “an election manifesto” rather than a national economic plan – scarcely surprising given that there is, er, an election happening in six months’ time.

Much of the debate over the PBR has thus far revolved around this point, with claims that Mr Brown overruled Treasury plans for faster action to reduce the country’s £178bn budget deficit.

The central accusation against the Prime Minister here is that he is allowing the politics of the situation to dictate the economics – and in so doing, putting the future economic health of the country at risk.

But although governments of both colour have certainly been guilty of that in relation to pre-election budgets in the past, I am not sure the two can so easily be disentangled in this instance.

To my mind, the differences between the parties are as much about the fact that Mr Brown has a genuinely different view from his opponents over how to tackle the recession, as they are about electoral politics.

For several months now, the main point at issue between the two main parties has been not whether spending cuts need to be made, but whether they should be made in 2010 or 2011.

In this sense, the PBR changed absolutely nothing. It merely made these already well-established dividing lines a little clearer.

Neither are those dividing lines in themselves anything new, being merely a modern-day re-run of the economic debates that have recurred since the original Great Depression of the 1930s.

There will always be those like Mr Brown who believe that increasing spending is the best way out of a recession, and those like Tory leader David Cameron who believe that simply makes a bad situation worse.

Hence, if the Prime Minister has his way, the cuts will come only once the economy has started growing again – as it is projected to do by 1.5pc next year and by 3.5pc in 2011.

As well as spending cuts, the fiscal tightening from 2011 onwards will also see a 1pc rise in National Insurance and a 1pc cap on public sector pay settlements.

This was reasonably smart politics by Mr Darling as it means an incoming Tory government is now committed either to carrying out a tax increase, or having to explain why they are making even deeper cuts.

He also scrapped his earlier proposal to increase inheritance tax thresholds, thereby challenging the Tories to axe their own controversial plan to raise it to £1m.

But if Mr Cable’s accusation of electioneering against the Chancellor was somewhat fatuous, Mr Darling’s denial of the charge was possibly even more so.

Indeed, it was about as disingenuous as Mr Brown’s claim to have cancelled the autumn 2007 election in order to “set out his vision” rather than because of a couple of adverse opinion polls.

The truth is, this PBR was designed to convey a very blunt message to the voters: “Things are bad, but they would be a damned sight worse with the other lot in charge.”

It may not be the most inspiring of election pitches, but as Labour discovered to its cost in 1992, it’s one that has often proved successful.

On reflection...they could have spent that money better

There's an old saying in politics that Budgets look different a week after they are delivered than a day after - and I guess Pre-Budgets are no exception. After initially praising the Chancellor's decision to cut VAT on Monday, I've revised my opinion somewhat. Here's today's Journal column.

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Thirteen months ago, Chancellor Alistair Darling stood up to deliver his first Pre-Budget report in the House of Commons in what was an atmosphere of political ferment.

Prime Minister Gordon Brown was coming under heavy fire after scrapping plans for an autumn election and the PBR – brought forward by a month from its normal November slot – was being seen as a chance for Labour to regain the political initiative.

In a bid to trump Tory plans to scrap inheritance tax for all estates below £1m, Mr Darling announced an immediate doubling of the threshold for the tax to £600,000.

But the attempted vote-grabbing manoeuvre backfired horribly, making Labour look like a government that had run out of steam and which was now reliant on the opposition for new policy ideas.

A year on, the stakes for Mr Darling were even higher. Against the backdrop of the worst economic downturn in decades, this year’s PBR needed to show that the Chancellor was the man with the plan with tackle the crisis.

Not only that, but Messrs Brown and Darling also needed to demonstrate that their plan was better than anything David Cameron’s Conservatives might come up with.

Well, the backlash against this week’s PBR has been nothing like the widespread public contempt that greeted last year’s, but neither has there been anything resembling a public outburst of enthusiasm for it.

It’s still relatively early days for Mr Darling’s Chancellorship, but if pressed for a judgement I would have to conclude that Pre-Budget Reports are probably not his strong point.

Sure, Monday’s statement had its good points, notably the decision to bring forward £3bn of spending on infrastructure projects and the earlier-than-planned increases in pensions and child benefit.

Welcome, too – at least as far as this columnist is concerned – was the long overdue decision to increase the top rate of tax on the highest earners, though only on those earning what for most of us is the undreamed-of sum of £150,000-a-year.

This has been predictably hailed by some as heralding the death of New Labour, but in truth, the 1997 commitment not to raise the higher rate of tax had become almost as much of an outdated shibboleth as the original Clause IV.

The essence of New Labour did not lie in adherence to any single policy stance, more the idea that different times require different solutions, and in that sense, the 45p tax move is as New Labour as they come.

Neither, in my view, can Messrs Brown and Darling be accused of lacking courage in bringing such a package before the voters.

The Prime Minister has been called many things over the past fifteen months - but the soubriquet which possibly did him the most damage was the one applied to him in the wake of the non-election debacle - 'Bottler Brown.'

Well, he certainly didn’t bottle this one. On the contrary, he has been completely upfront with the public both about the sheer scale of borrowing that is required, and the fact that it will require post-election tax rises to pay for it.

For Labour to try to turn the normal laws of politics on their head by promising both
tax increases and spending cuts if re-elected is a strategy so bold it almost deserves to succeed on that alone.

But for all its boldness, there was a huge unanswered question at the heart of Mr Darling’s plan, namely, whether it will actually work either economically or politically.

The centrepiece of the Monday’s package was not the aforementioned tax increase for the super-rich, but the £12.5bn tax giveaway via the temporary reduction in VAT from 17.5pc to 15pc.

The economic thinking behind this at least is clear. The government hopes it will encourage people to go out and spend, and that the resulting boost to the retail sector will somehow kick-start the rest of the economy.

Unfortunately, there is no evidence that a price-cut that amounts to a fiver off a £200 telly will have anything like the desired effect in this regard.

But if the economic case for the VAT cut is unproven, the politics of it seem even less clear-cut.

Just ask yourself for a moment, if you were Prime Minister and had £12.5bn with which to try and win the next election, what would be the most vote-winning policy you could come up with?

Well, I don’t think Gordon Brown has asked himself this question anything like as hard as he should have done – because I am quite sure the answer is not a 2.5pc cut in VAT.

A cut in direct taxation, that would have put money directly back in people’s pockets rather than making goods very slightly cheaper in the shops, would have been a far, far better option.

One person who seems to have realised this is North Tyneside MP and former Cabinet minister Stephen Byers, who asked a revealing parliamentary question earlier this year.

Mr Byers wanted to know how much it would cost to lift half a million people, a million and a million half out of income tax altogether.

Intriguingly, the answer he received showed that the cost of lifting a million people out of income tax for one year—by raising the personal allowance by £960—was £11.1bn.

Would that not have been a much better use of the £12.5bn at Mr Darling’s disposal? And would not the Tories have had a much harder time arguing against such a tax cut?

It is for these reasons that I cannot see this Pre-Budget Report as anything more than a missed opportunity for Labour.

Unlike some, I don’t view it as a suicide note to the electorate on a par with the party’s infamous “Shadow Budget” in 1992, but neither do I see it as the springboard for a 2010 election victory.

My hunch is that if the economy recovers, and Labour’s political prospects with it, it will be more in spite of this package than because of it.

Once again, a chance to regain the political initiative has been squandered – along with the taxpayers’ billions.

The collapse of the "progressive consensus"

Do centre-left governments have any room for manoeuvre on tax anymore? Here's my column in today's Newcastle Journal.

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Aneurin Bevan once famously described socialism as the language of priorities. It has been a fairly long time since the Labour Party talked about socialism, but at times like the present, it can't help but talk about priorities.

And few issues go more to the heart of what a centre-left government's priorities should be than the ongoing controversy over fuel taxes.

Is it the primary job of a Labour government, especially in times of economic hardship, to protect the living standards of the worst-off by trying to keep household bills as low as possible?

Or in this era of climate change, do governments of the left have a higher responsibility - to try to save the planet from the potentially deadly effects of the free market by curbing the use of fossil fuels?

The consensus of opinion within the wider public on this score has ebbed and flowed back and forth over the past decade.

Nearly eight years ago, in the autumn of 2000, New Labour's political hegemony was brielfy threatened by the eruption of the fuel protests, following the imposition of a "fuel price escalator" designed to curb greenhouse gas emissions.

Public sympathy at the time was initially with the protesters, though it evaporated pretty swiftly once they started blockading power stations and generally behaving like a bunch of 1970s flying pickets.

And over the ensuing years, opinion swung decisively back in the direction of the "green" lobby, to the point where any government which failed to do something to tackle car use risked being seen as irresponsible.

But that was before the credit crunch. The environment, which at one time was a big enough issue to persuade David Cameron to start cycling to work, has now slipped back down to its customarily more lowly place in the public consciousness.

Instead, we're back on the old, familiar ground of "the economy, stupid."

When the proposed fuel tax increase was first outlined in last year's Pre-Budget Report, inflation was still well under control and the effects of rising food and fuel costs had yet to be seen.

But nine months on, it seems, greenery has once again become a luxury that the nation cannot afford.

The pressure had been on Prime Minister Gordon Brown and Chancellor Alistair Darling over the fuel tax issue since the start of the year when the business and motoring lobbies first begun to hone in on it.

At one time, it might have been seen as a test of the government's resolve. I myself wrote in this column that the question of whether ministers were still prepared to make the case for the tax rise would show whether the Brown administration retained a shred of self-belief.

In the end, though, it was no great surprise when Mr Darling announced on Wednesday that the increase had been postponed once again. He probably had little option.

Indeed, with another crucial by-election for the government coming up in Glasgow East next Thursday, perhaps the only surprise was that he didn't do it sooner.

It won't stop there, either. Now that the government has u-turned on the fuel tax rise, expect it to come under sustained pressure to scrap the planned changes in vehicle excise duty to discourage "gas guzzling" cars.

When this idea was first dreamed up, the government probably had the so-called "Chelsea Tractor Set" in mind - a fairly convenient political target.

But in yet another example of the law of unintended political consequences, it turns out that the cars most likely to be hit by the proposed changes are overwhelmingly owned by the worst-off.

In the end, backbench Labour MPs are no more likely to let this happen than they were likely to allow the government to scrap the 10p tax rate.

I recently saw the planned changes to vehicle excise duty rather unfairly but amusingly caricatured on a satirical website as a spoof news item about Labour's "master plan" to restore its political fortunes.

"Labour will today unveil a detailed plan to alienate its last remaining pockets of support. The central plank of the party's strategy involves identifying the ten most popular family cars in Britain and then making them a nightmare to own," it read.

A “Labour spokesman” was quoted as saying: "We're going for the double whammy of making them too expensive to drive, but also impossible to sell."

Silly? Maybe, but it was a light-hearted way of making the serious political point that Labour simply cannot afford to antagonise its natural supporters any more than it already has done.

But the vehicle taxation issues are an illustration of a much wider political truth, that the government now finds itself in a position on tax where it has virtually no more room for manoeuvre.

Both Tony Blair and Gordon Brown have talked at length over the past decade about the need to build a “progressive consensus” in which people accepted that decent public services required taxes to be maintained at a certain level.

In fact the opposite has happened. People seem increasingly less and less happy to pay their taxes, with the result that the existing tax-take as a proportion of GDP is likely to come more and more into question.

It is this that has essentially brought about the Liberal Democrats’ near-total volte-face under new leader Nick Clegg from being a party of 50p tax rates to a party of tax-cutters.

Back in the early days of New Labour, John Prescott and others dreamed of using the tax system to bring about a major shift in public behaviour, making private transport progressively more expensive and using the proceeds to fund better and more accessible public transport.

However desirable this might once have seemed, the government’s inability to impose even small increases in fuel tax show that it has now become a political impossibility.

When Bevan talked about the “language of priorities,” there was a basic assumption that governments had the ability to choose between competing interests and concerns.

Increasingly, for this government at least, those choices no longer exist.

Should Brown sacrifice his Darling?

Nick Robinson posed an interesting question on the Today Programme this morning - for those who missed it, he has helpfully reproduced the entire script on his blog. But basically the gist of it was: should Gordon Brown sack Alistair Darling as Chancellor as part of a planned "autumn relaunch" of the government?

There will be those who will regard such a question as simply irrelevant, in that the plight of the Brown premiership is no so dire as to be beyond such rearranging of the deckchairs on the Titanic.

Others will argue that Mr Darling is scarcely to blame for the economic difficulties that have buffeted Labour moreorless ever since he took over the job. The Tories' line of attack would doubtless be that he is simply the "fall guy" for Mr Brown.

Both of these are fair points. But for me, the reason Mr Darling should be replaced is the same two reasons that he should never have got the job in the first place - one, because he is Scottish, two, because he is rather dull.

It was always going to be the case that, with Brown as premier, having another Scot in what is effectively the No 2 government role was going to be tricky. When that Scot has a reputation for being almost as dour as Brown himself, it was going to be doubly so.

It would have made a great deal more sense had Brown appointed David Miliband or Alan Johnson to the Treasury role as soon as he has taken over. A year on, they are probably now the two Labour ministers with the most popular appeal. If it is to give itself even a chance at the next election, the party must play to its strengths by promoting one of them - probably Miliband - to the Chancellorship.

At our best when we are boring

My initial verdict on last Wednesday's Budget - written in a hurry between finishing work and picking my wife up from a hospital appointment - was intentionally rather tongue-in-cheek. A more considered verdict appeared on Saturday's Newcastle Journal and can be read in full HERE.

Boring...but not bad

I had thought of doing a blog-boycott of this year's Budget, so narcoleptic was the content, but on reflection...there are some positives to be taken from Mr Darling's package from a progressive/green point of view.

As the driver of a Vauxhall Zafira who likes the odd drop of Scotch, I am probably going to be among the people worst hit by today's announcements, but I'm entirely content that it should be so.

The 55p a bottle increase in whisky duty will in fact cost me the princely sum of around £3.20 a year, which seems a small price to pay to help curb the binge-drinking culture and do my bit towards lifting 250,000 children out of poverty.

And although I only drive a people carrier out of necessity in order for me to be able to take my growing family away for weekends along with all their assorted clobber, I think it's only right that people like me should pay more to alleviate the effects of our environmental pollution.

That said, it was undoubtedly the most politically unexciting Budget since 1997, and some papers may well not even lead on it tomorrow. Maybe that's the government's intention though.

I liked James Forsyth's take on it at Spectator Coffee House. "I suspect that the government will be quite pleased if this Budget is nothing more than a one day story.....Darling must be hoping that by hopping on the Mail’s ban the bag bandwagon, he has guaranteed himself favourable coverage in at least one paper."

I have some sympathy for Mr Darling in that Gordon Brown really "stole" this Budget last year, by pre-announcing the 2p cut in income tax.

That said, had Brown not announced this a year ago, it is a fairly moot point whether it would have happened at all, as it's hardly now the time for big tax reductions amid all the "global financial turbulence."

Not Black Wednesday yet

This weekend's column in the Newcastle Journal naturally focuses on the political fallout thus far from the Northern Rock nationalisation, announced a week ago today.

The full version is on Behind the Lines as usual but the digested read is:

Labour did the right thing nationalising the bank, although, driven by an irrational fear of the n-word, they took slightly too long to get there.

The Tories' response to the crisis has been confused from the start, as a result of which the party has failed to articulate a credible alternative.

The public's reaction thus far demonstrates that this has not been Labour's Black Wednesday, although there remain unanswered questions over Granite.

All in all, the whole episode ought to mark the end of our love affair with financial deregulation.

The QT review

Last night's Question Time from Newcastle was understandably devoted to Northern Rock. Perhaps the most interesting thing to come out of it was the reaction of the audience. Even allowing for the fact that this is a Labour-supporting area, there was no great outpouring of anger against the Government, confirming me in my view that this is not currently being seen by the public as "Labour's Black Wednesday."

This week has been Vince Cable's moment of triumph after advocating nationalisation from the start, but he was surprisingly understated last night. Maybe this is what makes him such an effective operator. He also told it like it is, risking the wrath of the North-East audience saying "it is very clear that the Bank has to be shrunk."

By contrast, Derek Simpson, general secretary of Unite, played to the gallery and spoke up for the workers. It was significant, though, that he got the biggest cheers of the evening not for lambasting the government, but for saying that he "has trouble understanding Conservative policies."

That was not necessarily the fault of Tory panellist Alan Duncan, the shadow minister for Tyneside, but like David Cameron and George Osborne earlier in the week, he failed to articulate a plausible alternative policy, nor explain which of the six different policies espoused by the Tories since last autumn was curently in favour.

Spectator Political Editor Fraser Nelson made the point that Gordon Brown's regulatory framework had been at fault for allowing the situation at NR to get out of control in the first place, but without pointing out that the Tories have previously favoured even lighter regulation. I rate Fraser pretty highly as an operator but I thought this was a rather careless omission.

Ruth Kelly, for the government, was impressive in a quietly authoritative sort of way. Apart from one brief foray into Ed Balls-style spouting of economic bullet-points (someone should tell Labour that the political dividend from Bank of England independence has long since been used up) she seemed to be on her home ground talking about economic matters. Could she yet be the first female Chancellor?

The least worst option

Not surprisingly, the Tories are trying to have it both ways over Northern Rock today. One the one hand, they criticise the nationalisation of the Rock as a "disaster for the taxpayer." On the other, they criticise Gordon Brown and Alistair Darling for spending six months arriving at that decision. The two don't actually add up.

The whole reason the Government has spent the last six months exploring every other conceivable option for the future of the stricken bank was precisely because they were desperate not to have to nationalise it. For this reason, I am inclined to believe Alistair Darling when he says that the deal represents the best value for the taxpayer. Because if it didn't, they sure as hell wouldn't have done it for any other reason.

Let's also dispose of the idea - championed by Guido Fawkes here and here - that this is primarily about saving North-East jobs. If that was the case, the government would presumably have nationalised Siemens and Fujitsu when they crashed with significant impact on the regional labour market in the late 1990s.

The reason they didn't, of course, was because Siemens and Fujitsu, although large regional employers, were not banks, and there was no risk that their collapse would cause instability to spread throughout the country's entire financial system, which is the reason Messrs Brown and Darling have acted as they have done in relation to Northern Rock.

In fact, after ploughing through half a dozen Tory blogs claiming this is a worse political catastrophe than Black Wednesday, the death of Dr Kelly, and cash-for-honours rolled into one, I was somewhat relieved this afternoon to come across a "counter-intuitive" post from Hopi Sen in which he makes the following prediciton:

Northern Rock will end up making the Government money and be sold off at a significant profit (or have made a net contribution to public sector finances) before the next election.

The point is, there is actually just as much chance of this being right as the Tories' prophecies of doom. The answer is, we don't know, and we probably won't know for several years yet.

The Tories will doubtless go on claiming that this shows Labour has lost its reputation for economic competence, that Brown is a dud, that Darling should be sacked and so on. It may mean all of that, but it could also turn out to be the most brilliant piece of financial management in recent political history.

Move over Darling

A couple of weeks' back I asked readers on this blog who should replace Alistair Darling as Chancellor of the Exchequer. Such has been the pace of events since then that Mr Darling now looks like one of the government's more secure ministers but for the record the result was:

George Osborne 39%

Vincent Cable 17%

Ed Balls 11%

Jack Straw 11%

John Denham 5%

David Miliband 5%

Ruth Kelly 1%

Alistair Darling should keep the job 12%

The most surprising thing about this was not that Osborne and Cable were ahead of all Labour contenders but that Ed Balls should be regarded as the leading alternative Labour Chancellor. I continue to believe that Balls has been overpromoted as he is and should go back to being a backroom boy, or preferably, to writing FT leaders.

Anyway, a new week, a new poll - or two to be precise: Should Harriet Harman resign, and if so, Who should replace her as Deputy Leader of the Labour Party.

Who's next at No 11 and Soho Square?

To round off the week, two polls - one on the next Chancellor of the Exchequer, the other on the next England football manager. Steve McClaren has already gone, and another week like this one and Alistair Darling won't be far behind him. Not that either of them should have had the job in the first place.....

Brown is his own Chancellor

Who runs the Treasury? asks Ben Brogan a propos of Downing Street's leaking of today's partial U-turn on capital gains tax.

"No one seriously expected the new Prime Minister to surrender all interest in his old department, but recent weeks suggest Mr Brown still has an office there," he says.

I'm not sure Ben or anyone else should be terribly surprised by this. History shows there are two sorts of Chancellors - those who have their own independent powerbase, like Denis Healey, Ken Clarke and Brown himself, and those who owe their power entirely to the Prime Minister, such as Anthony Barber, Norman Lamont, and Mr Darling.

From this list it will be seen that the more successful Chancellors tend to be the former variety, which bodes ill for Mr Darling's tenure. I continue to take the view that Jack Straw would have been a more sensible appointment.