Will Brown say sorry?

Martin Bright has written on his new blog, The Bright Stuff, that "Whitehall officials have been ordered to make a compilation DVD of Obama's various apologies to the American TV networks to be studied by the Prime Minister."

This follows Barack Obama's frank admission that he "screwed up" over his attempted appointment of Tom Daschle. Obama has won plaudits for the good grace of his confession of fault.

If Bright is correct, it seems Brown's advisers have come to the decision that unless Brown makes a mea culpa, he is doomed electorally. With Labour polling once again under 30 percent, something drastic needs to be done. Labour cannot put all their eggs into the 'G20 summit meeting with Obama' basket which is likely to prove insufficient in any case - and they probably know this.

His advisers will have their work cut out, however.

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Brown continues to ridiculously boast that we are "best placed" to weather the recession; refuses to admit "British jobs for British workers" was a grave error of judgement; refuses to admit he was completely wrong to have said he "abolished boom and boom;" refuses to admit we are in a "bust" (though bizarrely will admit we are in recession - how are the two not one and the same?); and worst of all, continues with his strategy of blaming everything on America and not taking any responsibility for his actions over the past 11 years.

The latter is the most serious obstacle to any credible, wholehearted mea culpa.

The idea that Brown will give a humble, 'Obama-style' apology in a self-deprecating manner is difficult to believe.

First, the man is in denial. He seems to honestly believe he has done nothing wrong; that it was not his fault that Britain has the biggest Budget deficit in the world; that Britain is the most indebted country in the world; that he designed our regulatory system that failed; and that he failed to curb the excesses of our financial services sector and call time on debt and the over-supply of money in the boom years which lies at the root of our particular troubles.

Second, he is unlikely to apologise because it this a huge character flaw of his - the man simply does not do apologies. Psychologically he just cannot bring himself to admit regret or mistakes because that, in his mind, makes him look weak and vulnerable rather than strong. He will see any admission of guilt as an electoral gift to the Tories.

Third, if Brown decides to play against type and go ahead, or was persuaded to do so, I doubt it would work because Brown, to put it bluntly, is a lousy actor. If this was Tony Blair we were talking about, you just know he would be able to pull it off even if he didn't mean a word he said. Brown, on the other and, will be incapable of looking convincing. Brown will be unable to pull off a Blair-style "masochism strategy."

Fourth, any apology is likely to fall short of what is necessary because of Brown's unwillingness to give his opponents too much ammunition and thus will feel underwhelming. His opponents will attack him for conveniently glossing over certain issues. It will only work if it is fulsome but this would undermine his current strategy (see below). But if it was seen as only a part apology his critics would continue to raise the issues he avoided demanding a further apology. A part apology would be the worst of all words.

Fifth, and finally, a mea culpa would mean Brown would have to adopt a completely new strategy and he is unlikely to want to change course - because again it will look like he has been following the wrong path during the past few months (not to mention years). He would no longer be able to just blame America as he will have admitted some responsibility lies at home - and most importantly, with him. If he gave a full apology he would admit he borrowed and spent too much money; allowed the deficit to grow too large; failed to run a surplus in the boom years; failed to design a financial regulatory system that was fit for purpose; and failed to call time on household debt and the over-supply of money. If Brown admits to all that – which would constitute a full apology – then not only will he have just agreed with the Tory critique of him, but it will also mean he could no longer pursue his policy of borrowing and spending more money to fight the recession as he will have admitted they were some of the causes for Britain’s recession – the worst in the developed world, according to the IMF.

For these reasons, I’d be amazed if Brown did a full mea culpa. However, if he does go ahead, it seems clear to me that Brown can study all the Obama DVDs he wants, but unless he truly believes he is culpable his mea culpa will be half-hearted and consequently will do more harm than good.

My gut instinct is that any apology will be similar to the bankers' apologies yesterday. He will say he is sorry in a general sense, but downplay any personal failings. It would be more of an apology about what the government did not do - properly regulate the banks, secure global economic early warning system (blah blah blah) - rather than what he did do - debt, deficit, over-supply of money etc. This will enable him to say sorry but pin the blame on others in reality without taking any genuine responsibility for his own actions.

As i argued above, a part apology would be insufficient and ill-advised.

Mixed messages: Government all at sea on economy

When will this failed government make up its mind on the economy?

While Baroness Vadera sees "green shoots" of recovery and Tony McNulty sees 'light at the end of the tunnel', Ed Balls now says "this is the worst recession for over 100 years" and Alistair Darling has said we are "seeing the most difficult economic conditions for generations."

How can these conflicting views be reconciled?

And what about our Dear Leader? He seems in denial about the state of the economy and attacks anyone who points out the bloody obvious as "talking down the economy." Very convenient device that for shutting down debate and reducing his accountability!

The PM still ridiculously claims that Britain is "best placed" to deal with the downturn while the IMF, EC and the fate of Sterling tell us otherwise.

But even Brown seems confused. One minute he is telling us he has "saved the world" the next he is telling us we are in a "depression."

Brown seems to be hedging his bets and as a result is ending up in a right old mess. He wants us to believe that the recession and financial crisis is solely down to global forces. One might think therefore that he would be candid about the true state of the economy.

The problem, however, is that Brown refuses to risk all on his "global recession" narrative in case the electorate (rightly) pins some of the blame at his door. So Brown tries to cover himself by giving false optimism about the economy in an attempt to convince voters that his action will make the economy shorter and shallower.

It is a fudged strategy which shows that he lacks the courage of his convictions. The government, Brown included, are sending out too many mixed messages - worst crisis for a hundred years yet we are best placed, our leader is saving the world, government action will mean economy will start growing in third quarter of this year and green shoots and light at the end of the tunnel can be seen.

The government is all at sea on the economy!

Bank should NOT cut interest rates

The Bank of England's Monetary Policy Committee (MPC) will announce its interest rate decision today at 12pm.

My view is that it should NOT cut interest rates.

• Interest rates have already been slashed from 5 percent to a historic low of 1.5 percent and have had no real discernible effect other than helping those on tracker mortgages.
• It takes time for interest rates to feed through to the economy.
• The key issue is NOT the cost of money, BUT the availability of credit. An interest rate cut will not change this. Government needs to get the banks lending again.
• Cutting by 0.5 percent (as the City expects) will restrict monetary freedom of movement later if needed.
• Savers, the "innocent victims of Labour's recession," have been punished enough. Remember there are 60 percent more savers than borrowers in this country. Many who have retired rely on their saving's interest to supplement their income. Banks also need deposits and an interest rate cut could further disincentivise people from saving.
• Sterling has already lost a quarter to a third of its value against most currencies. This devaluation has taken place not just against currencies like the US Dollar, Euro and Yen but against currencies like the Thai Baht. How can it be that the pound has suffered against the Baht when Thailand has experienced such political and economic instability of late? An interest rate cut will further weaken Sterling. For those who argue that a weak pound will help our manufacturing base, i ask: what manufacturing base? We lost a lot of our manufacturing industry during the 1980s when Margaret Thatcher rightly restructured the inefficient and unproductive British economy, but manufacturing has gone into further decline during the 11 years of this Labour government.
• Finally, i would dispute the argument that an interest rate cut would instill confidence. It hasn't worked so far, even when the MPC slashed rates by 1.5 percent.

It's time the Bank of England took a a step back and held interest rates steady.

Government far too optimistic about economy

The government has been guilty of being far too optimistic about the economy.

The Chancellor, Alistair Darling, predicted at the end of November last year in the Pre-Budget report that the economy would start to grow again in the third quarter of this year.

We've had Business Minister Baroness Vadera, the former economic adviser and close ally of Brown, claiming in a Lamont-esque way that she has seen the "green shoots" of recovery.

We've had Margaret Beckett, the Housing Minister, say that she has seen an "upturn" in the housing market.

And we have seen Tony McNulty, the Employment minister claiming "there's light at the end of the tunnel."

Labour condemns anyone who claims that British economy is going from bad to worse as "talking down the economy."

But critics of the government are NOT talking down the economy - they are pointing out the bleeding obvious.

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Today we have been told that we are officially in recession. The economy contracted by 1.5 percent. Add that to the previous quarter's economic contraction of 0.6 percent and in just two quarters the British economy has shrunk by a huge 2.1 percent.

Unsurprisingly, both Darling and Gordon Brown are now shying away from repeating their ridiculous and hubristic growth forecasts of the PBR. Only the government thought the British economy would bounce bank so quickly. And remember the reason for their optimism - yes, the waste of money temporary VAT cut, their much trumpeted fiscal stimulus which is achieving sweet FA other than adding unnecessarily to our national debt.

Who now believes the economy will start growing again in the second half of this year?

Baroness Vadera sees "green shoots" of recovery on the day that 7,200 jobs were lost.

Beckett talks of an "upturn" in the housing market when the respected Ernst & Young Item Club warns that 2009 will see the biggest peacetime downturn in the economy since 1931, predicting a 16 percent fall in house prices this year and a further 6 percent drop in 2010.

And McNulty is the only person in the country outside of the Labour Party who can see "light at the end of the tunnel" after unemployment soars to close to 2 million, the national debt rises to the highest level for three decades and mortgage lending falls to its lowest monthly figure since April 2001.

Why is the government being so optimistic? Three reasons: 1) Confidence - it probably feels that if it talks up the economy then it could help improve economic confidence, and with it, recovery; 2) Electoral chances - Brown thought that if he could show the people that he was decisive and a man with a plan then they would back him, which they started to do for a couple of months but have since desserted ; and 3) Denial - a seeming unwillingless to accept economic reality and tell it how it is.

But this tragically comic. When all the evidence points to the economy getting worse and the recession getting deeper and longer, the government looks ridiculous by being so optimistic. This is not helping with confidence! The government is undermining what little economic credibility it has left and leaves them looking increasingly out of touch.

Brown, Darling and the rest of the Labour government are in denial. They seem so worried about what being honest will do to their electoral chances that they are ludicrously claiming to see "green shoots," "upturns," and "lights at the end of the tunnel" despite a barrage of worsening economic news.

If they cannot admit the true extent of our economic problems, how do they expect us to trust them that they have the answers to get us out of this recession?

Brown's political strategy & the general election

Brown’s strategic problem

Brown said again yesterday during PMQs that he had "no plans for an election." Of course this will not stop him calling one in 2009 if he thinks it will be in his interest to do so. Brown is careful never to rule out for definite an election this year. But if 2010 is when the next general election will be held, Brown has a strategic problem.

His current political strategy is based on contrasting his approach to the recession with that of the Conservatives - "doing something vs. doing nothing," as he likes to frame the debate. This is a battle that Brown seems to feel he is winning/can win.

The problem for Brown though is that he is running out of time as his current strategy would only work in a general election campaign if the election was held in early 2009. Only then could he put to the electorate a clear choice between the Labour and Tory approaches to the economy.

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2009 beneficial for his current strategy

Why? At the beginning of 2009, it is too early to categorically know which economic strategy would be best. Prime Minister Brown is still in the process of implementing his and Leader of the Opposition Cameron cannot implement his. Hence we have a stalemate as both sides claim they are right and the other wrong. Thus, in the first half of 2009, Brown would be able to have a general election campaign based on his favourite dividing line. The electorate would get to choose which economic approach to endorse to see them through the recession. Although the opinion polls still show an overall Tory lead (4-10 points), Brown leads on the issue of who is best placed to see Britain through the current economic crisis (though his lead is decreasing).

But at the moment Brown is shying away from really asking voters to choose his approach over Cameron’s as he has not yet called a general election, and keeps dismissing the prospect, obviously weary of the trouble he got himself into in the autumn of 2007.

2010 would see a shift in the current debate and electoral defeat

I said above that Brown was running out of time because if he waits until 2010, more than a year will have passed and the debate will have shifted away from his current strategy. The debate will cease to be about what to do (a choice for the electorate between two contrasting world views), and will have shifted instead to one about whether Brown’s economic policies have worked or not.

If Brown does indeed wait until 2010 to call an election, he will hope that a combination of his policies - fiscal stimulus, bank recapitalisation, business loan guarantee scheme, global co-ordinated action and very low interest rates - will have got the economy moving again, making the recession shorter and shallower. Under this scenario, Brown is the “saviour of the world,” well, at least of Britain, and he is duly rewarded by an appreciative electorate who return Labour for a fourth consecutive term.

However, that is an unlikely scenario.

By 2010 the economy will have deteriorated and will be in a much worse state than it is today with possibly as many as three million people unemployed.

Forget the Chancellor's growth forecasts that the economy will start growing again in the third quarter of this year, with steady, modest growth of 1.5 and 2 percent in 2010. Both Alistair Darling and Gordon Brown have been backtracking from these forecasts and Brown refused to endorse them when challenged to do so by Cameron during PMQs yesterday. Brown now says that whether the growth forecasts are met will depend on international co-operation which is strange seeing as Darling said the Treasury had settled on its optimistic growth forecasts “because of decisions taken in the Pre-Budget Report” – namely, the government’s much trumpeted fiscal stimulus would be responsible for making the recession shorter and shallower.

I’m hugely sceptical whether Brown’s policies will work – as is Brown if his lack of confidence in his own growth forecasts is anything to go by. His fiscal stimulus is unlikely to work as it is very modest at only 1 percent, the VAT cut is very likely to prove a waste of money and bringing forward big-spending capital projects is no panacea as it is slow and can lead to vast waste; the bank recapitalisation may have “saved the banks” but it did not get them lending; as such, we now have a business loan guarantee scheme that looks like it has arrived several months too late and at only £20 billion, is far too timid; global co-ordinated action should help the world economy; but very low interest rates will take time to feed through to the economy and besides, the problem is not the cost of credit but its lack of availability.

Even putting to one side these criticisms, and hypothetically assuming that Brown’s massive borrowing and ever growing debt to fund his economic policies are just what this country needs, the problem for Brown is that even by 2010, it might be too early to see clear, perceptible signs that his policies have been successful.

Moreover, up until now Brown’s actions have been viewed as a strength by the electorate but this could change as the months roll on if the action Brown takes fails to noticeably improve the economy. The more frantically Brown tries to look like a man of action, the weaker he could look because voters could conclude he is ineffectual and powerless.

Consequently, a 2010 election will take place against the backdrop of a harsh recession and most likely the apparent impotency of government. The 2010 campaign will be about whether Brown’s policies have succeeded or not. The Tories will point relentlessly at the revised growth forecasts as evidence that Brown’s policies have failed. Indeed they are already doing so. The Tories will seek to make the 2010 general election campaign about a government and Prime Minister who not only were partly responsible for getting us into this mess, but failed to get us out of it, and now will tax us for the privilege as fiscal discipline finally has to be brought to bear on the parlous state of Britain’s public finances. It is not difficult to see how the British electorate could conclude that Brown’s policies had failed – whether because they were wrong-headed or just failed to be seen to have worked. (A country can have moved out of a technical recession even though it still feels like it is still in one). I would therefore expect a 2010 election to lead to a comfortable Conservative victory.

2009 has to be an option – but watch the polls

If 2010 is not a favourable climate for the Prime Minister to call a general election, early 2009 is an eminently superior date. Not only will the economy not be as bad as 2010, but 2009 will allow Brown to put his current political strategy into play in a general election campaign. Therefore, Brown must still be eyeing a 2009 election as a strong possibility. Forget his denials to the contrary. The man is always the electioneer.

Scuppered by the polls, 2010 will lead to electoral oblivion

However, if the polls continue their current trend back towards the Conservatives, the 2009 option will be scuppered. No Prime Minister is going to call a general election because he thought it would limit the damage to his party if it meant it would lead to his own personal defeat. Ego would prevent such a defeatist attitude. All Prime Ministers would continue, clinging on until the last minute in the hope that something will come up to turn round their political fortunes. In this respect, one can envisage Gordon Brown and 2010 becoming for Labour what John Major and 1997 were to the Conservatives.

Growth forecasts dependent on global co-operation

David Cameron asked Gordon Brown today whether he was willing to repeat the growth forecasts made in the Pre-Budget Report.

Brown refused to do so instead claiming that whether they are met will depend on international co-operation.

This is interesting as this is not what the Chancellor told us back in November.

Then, Alistair Darling made bold, optimistic growth forecasts saying the economy will start growing again in the third quarter of this year, with steady, modest growth of 1.5 and 2 percent in 2010.

The reason for this was, in Darling's own words, “because of decisions taken in the Pre-Budget Report.” In other words, because of the government’s much trumpeted fiscal stimulus – namely, its VAT cut.

But now both Alistair Darling and Gordon Brown have been backtracking from these forecasts in recent weeks and they have come up with this spurious argument that it is all down to "international co-operation" whether the forecasts are met, and nothing to do with its own policies.

Therefore, we now have the situation where the government is trying to claim 1) that the recession is absolutely nothing to do with them but was the result of America and 2) whether we move out of recession is again down to whether those bloody foreigners pull their finger out.

You can see it now, Brown arguing in a soft, cosy interview with Andrew Marr on a Sunday morning that he did everything possible to save the British economy. Unfortunately, other countries did not pull their weight. Not only did they drag Britain into this crisis, they failed to lend us a hand and pull us out!

But this is a specious argument, with Brown trying to have it both ways. Brown tells us at every opportunity he gets how the Conservatives are "isolated" and "outside the global consensus" about implementing a fiscal stimulus. He did so again during PMQs.

Is he really going to ask us to believe that, on the one hand, every country in the world is establishing a globally co-ordinated fiscal stimulus, but on the other hand, he is going to blame these countries for not sufficiently co-ordinating their fiscal stimuli and thus are responsible for Britain failing to hit the government's optimistic growth forecasts and hence endure a longer, deeper recession?

If he is, the man is bonkers!

Either countries are signing up to an internationally co-ordinated fiscal stimulus or they are not. They cannot be both.The reason for the new spin from Brown – growth forecasts dependent on international co-operation – is that he needs something to counter Conservative claims that his growth forecasts will not be met because his fiscal stimulus is a failure.This is a problem of the government’s own making. Choosing to announce growth forecasts that were more optimistic than independent forecasters was a mistake heading into a recession. They created a rod for their own back by then tying their forecasts to the measures they took in the Pre-Budget Report.

Unfortunately for Brown, this new spin just will not wash (no pun intended).

Brown's fiscal stimulus has failed

Is the title of this post premature? I don't think so.

The centrepiece of Brown's fiscal stimulus was his £13 billion VAT cut, reducing VAT from 17.5 percent to 15 percent. Cameron has called the temporary tax cut an "unbelievable and expensive failure," and I see no reason to disagree. Why on earth Brown thought a meagre, regressive tax cut would help stimulate the British economy is beyond me.

With stores offering discounts of anything between 20 and 75 percent as the norm, a poxy cut of 2.5 percent is not going to entice me or any body else to whip out the plastic and go on a Brown-esque spending splurge. Instead, people have been spending as they were before the VAT cut was introduced and just pocketing the savings - however small. How is this a stimulus?

This of course favours the wealthier more than the poorer as it will be the wealthier buying the higher end luxury goods where 2.5 percent actually will equate to savings in pounds rather than pence. So much for Labour being the party of the poor, hey Gordon?

But what criteria should we be judging the fiscal stimulus by?

Helpfully, the answer was provided by the Chancellor of the Exchequer, Alistair Darling on the 24 November 2008 when he announced his Pre-Budget Report to the House of Commons. Darling said:

"... output will continue to fall in the UK for the first two quarters of next year. But then, because of decisions taken in this pre-Budget report, I expect it to start to recover and GDP growth for 2009 is forecast to be between minus 3/4 per cent. and minus 1-1/4 per cent."

So there we have it, from Eyebrows himself, "decisions taken in this pre-Budget report," such as the fiscal stimulus, will ensure that the British recession is shorter and shallower than it otherwise would have been and thus the British economy will recover in the third quarter of 2009. This is the criteria we must use to judge whether Brown has been the Saviour of Britain (never mind the world).

But hang on a minute, didn't Brown acknowledge at the weekend to Andrew Marr that the recession could last as long as two years? Yes he did.

And didn't Eyebrows himself insinuate, in an interview today with the FT, that his growth forecasts delivered last November were too optimistic and will thus have to be revised in this year's Budget? Yes he did. Darling said those projections were “based on the evidence we had at the time.”

Evidence we had at the time? Let me give him the evidence of this time... the government has gambled billions of pounds on a worthless, temporary fiscal stimulus that has failed to work based on Brown and Darling's own criteria for success - a short, shallow recession - and now Joe Public is screwed as we will be faced with higher taxes to pay for Labour's 1970s, big state, failed solutions. Brown's "doing something" equates to nothing short of an economic cock-up.

Not content with pouring billions of pounds down the drain in 2008, there have been reports that Brown is considering a second bailout and a second fiscal stimulus.

That is just what we need. The prospect of a second failure and even higher taxes to follow (on top of those already announced) to pay for Brown's desperate gamble to cling to power at whatever cost to Britain's economic recovery!

We need a general election before Brown does even more damage.

Cameron sets out vision of economic cultural shift

David Cameron set out earlier this afternoon a bold and ambitious vision for an economic cultural shift for Britain.

Cameron called for a wealthier, happier country that has a balanced, greener economy, is less materialistic and one in which government and its citizens live within their means, saving for a rainy day. He said he wanted Britain to become a contributor, rather than consumer, economy where standards of living and well-being increased hand in hand in a free market economy.

He offered a vision of the future in which the country would embark on a huge, ambitious, cultural shift by moving the economy from one built on debt to one built on savings. Cameron said he wanted to change the UK's economic culture from "spend, spend spend" to "save, save save."

To put meat on the bones of his new economic vision, the Tory Leader outlined two tax cuts worth £4.2 billion for savers. The first tax cut is a pledge to abolish the basic rate of tax on savings (costing £2.6 billion) and the second is to raise pensioners' personal allowance by £2,000 (costing £1.5 billion). Cameron said that the tax cuts would be paid for by restricting public spending increases in 2009-2010 to 1 percent in real terms which represents a £5 billion cut in public spending from what Labour has budgeted for.

Cameron is clearly returning to his favoured theme of “responsibility” and using the tax system to reward people for behaving responsibly. This builds on comments George Osborne made in an interview with the Sunday Times on the 28 December when the Shadow Chancellor said that he wanted to help people "who did the right thing in the age of irresponsibility."

In an interview yesterday with Andrew Marr, the Prime Minister seemed to be aware of his own vulnerability on the issue of dramatically reduced returns for savers as he said that ministers are looking at doing "more to help savers" in the run-up to the Budget. Savers really are the "innocent victims of Labour's recession." Interest rates have been slashed to help banks lend money and stimulate the economy but this has had the downside of penalising the very people who have behaved responsibly during the Brown boom and are not responsible for the financial crisis and recession. Savers are now having to pay for other people's profligacy, none more so than Brown's spendthrift ways over the past decade.

Cameron’s speech, the first of 2009, shows a clear political dividing line between Brown/Labour and Cameron/Conservatives. Labour is committed to state intervention to stimulate the economy while the Conservatives are calling for a smaller state and tax cuts. The new tax cuts announced today for savers is a substantial policy which helps counteract Brown’s charge that the Tories are the do nothing party. What is more, his tax cut will help those hurt by “Brown’s recession.”

Labour will no doubt attack the Conservatives claiming that the spending cuts would hurt front line public services [YAWN]. It is the standard response that Labour deploys every time the Conservatives pledge spending cuts and/or tax cuts. However, this time Labour will find it harder to win the argument. In 2005, the Tories pledged £35 billion of spending cuts to fund tax cuts. Labour denounced the policy. Fast forward to the 2008 PBR and Labour pledge to cut public spending by – you guessed it - £35 billion. Of course, when Labour reduce public spending it is cutting out waste but when the Tories do it, it is the loss of nurses, doctors and police. Come off it! Labour can no longer credibly argue that this is the case any more. This will not stop them trying, however, with their scaremongering aided and abetted by the “pro-big state” BBC.

But this time Cameron is helped by a factor that was not in play when his successors attempted this before – we are now in recession. This means that Cameron’s “responsibility” theme, living within one’s means, ought to resonate with voters. If voters have to tighten their belts, it is right and fair that a “culture of thrift” ought too to be at the “heart of government.”

This is supported by the polling evidence. Anthony Wells over at UK Polling Report has shown that borrowing continues to be a weakness of the government’s approach. In the most recent YouGov poll (14 December) 27 percent agreed with the statement that “it is right for the government to increase borrowing sharply at a time like this, in order to support the economy and stop the recession becoming too deep,” but 48 percent agreed instead with the statement “it is wrong for the government to increase borrowing so sharply: any short-term benefits will be less than the longer term costs to the economy and to taxpayers.”

My only concern is that Cameron could be setting himself up for a fall. The British have embraced materialism and have grown used to the credit culture where we buy now, pay later, constantly living beyond our means. There is nothing wrong with aspiring better things for a better quality of life for ourselves and our families but for too long now, encouraged by cheap, easily available credit, with have grown unaccustomed to earning the money to pay for it. Will the British want to undergo such a cultural shift? Cameron seemed to realise that his vision for the future was hugely ambitious when he said that it was not going to happen overnight and repeated his phrase from his Conference speech that he was “a man with a plan, not a miracle worker.”

But Cameron is right to claim that now is the time to be prudent and he is also right to call for a cultural shift in how the government and its citizens behave with money. Britain has the highest household debt in the history of the G7 and this surely has to change. No longer should we have unsustainable and irresponsible booms in which we all pay for the consequences in the subsequent bust. Even if the British are unwilling to change, the recession could once again work in Cameron’s favour. If ever there is a time to make such a shift it is in a downturn. During a boom, voters will be unwilling to do anything that threatens the good times, however worthy. However, during a recession, voters are faced with the consequences of a bust and therefore are more likely to be willing to adopt a much more pragmatic, responsible approach.

Even so, advocating a move from a consumer to contributor economy with “save, save, save” as its motto is very courageous and somewhat of a risk. Brown could promise the electorate that they can have the boom times back if they stick with him, especially if he can continue to convince voters (how, I don’t know!) that the recession is global in origin and nothing to do with him. Consequently, the future with Brown offers the bright attractive neon lights of “spend, spend, spend” rather than the boring fuddy duddy future Cameron is offering of “save, save, save.”

Cameron needs to convince people that spending more than you earn is not as good as it sounds. The problem he faces is that people like bright neon lights. People continue to flock to the casinos of Las Vegas despite the fact that gambling with a policy of “spend, spend, spend” – whether as an individual, family or as a government – is the road to ruin. Just ask the gambler... or the poor sods who lose their jobs as a result of Brown's "boom and bust" and the rest of us who have to pay for all the debt accumulated by Gambler Brown!!!

Paris: The most expensive city on earth!

Happy New Year! A belated one I must admit but I have just returned from Paris having visited the city for a few days.

I had a good time but, thanks to our Dear Leader's economic management, Spin Bowler is considerably poorer! To be fair to Gordon, Paris isn't cheap at the best of times but the pound's freefall in the currency markets, a direct consequence of the market's lack of confidence in the UK economy and the economic policies of the Labour government, have seen the pound and euro reach 1:1 parity.

The picture of the Heineken above is not just meant to symbolise cheer and merriment for the New Year. That particular bottle of 250ml beer cost a staggering 9 euros!!! That's right, £9 for a small bottle of beer. So thank you Gordon for that.

That beer was at the high end but the standard price of a pint of beer (well actually less than a pint as a pint is 568ml while they only served 500ml large beers) was 7 euros/7 pounds. It is fair to say I was not toasting Brown's name over the New Year period.

Enough about the cost of beer - important as it is. I really enjoyed Paris. Believe it or not it was the first time I had visited. The people on the whole were friendly (contrary to some stereotypes) and the architecture was impressive. It is a city with wonderful history and culture. It seemed far more spacious than densely packed London, and had grand, imposing, imperial buildings.

Perhaps the biggest disappointment of the trip though (other than the price of beer!!!) was the lack of a firework display on New Year's Eve. I'd read that the Champs-Elysees was the place to head to if I wanted to be at the centre of the party and view the fireworks display either above La Grande Roue - a very lame imitation of the London Eye - at the Place de la Concorde or above the Eiffel Tower. However, no such firework display materialised. The French obviously decided to do New Years on the cheap! Very Budget when one considers that London, Moscow, Sydney et al all put on a great show as usual. Tut tut!

ECB calls for fiscal discipline. You listening, Gordon?

Claude Trichet, the President of the European Central Bank, has said, in an interview with the FT today, that fiscal rules must be kept. He warned that fiscal indiscipline could undermine already fragile economic confidence and said it was not the time to tear up the rule book.

Are you listening Gordon?

As our Dear Leader, "Saviour of the World," is keen to talk about co-ordinated action and European unity, one might think he could be so persuaded by Trichet's words that he decides to resurrect his own fiscal rules from the dead, dust them off, and put them into practice.

But that isn't going to happen because Brown and Darling think fiscal rules are "perverse" - especially as fiscal discipline would prevent Brown from "doing something" and appearing as our decisive, man of action (or 'Superman' if you're Harriet Harman), irrespective of the fact that his fiscal stimulus is going to achieve exactly squat, other than add to our already huge levels of debt.

Should we join the Euro?

Predictably, now the Pound has weakened significantly against the Euro, approaching parity, the Europhiles have come out of hiding and have started to bang the drum once again for British membership of the Euro.

The Europhiles have dusted off their old discredited arguments and are deploying them again. Now we hear that Britain is too small and weak to go it alone and we need the protection of the Eurozone. Gordon Brown may have buggered up our economy but come on, we’re not as small and helpless as Iceland!

Perhaps the only worthwhile thing Brown has done in office is oppose joining the Euro and holding Tony Blair’s Euro ambitions at bay with his five economic tests which were purely political in purpose. With the current speculation about joining the Euro, Brown has let it be known that Euro membership is not even on the agenda, never mind being discussed.

But it is worth reminding everyone why Euro membership is not a good idea.

The key economic argument against Britain joining the Euro is its ‘one-size-fits-all’ monetary policy – it is EMU’s biggest flaw. The former Governor of the Bank of England, Eddie George, said he saw “the one-size-fits-all monetary policy as a disadvantage and a special risk. The same monetary policy is not optimal for every country at the same time.” Britain has had problems having a single interest rate which does not always suit different regions of the United Kingdom. Some have criticised the Bank of England for setting rates to suit a booming South East of England rather than the more depressed North. Eddie George made this very point when he said that “the Bank’s job is to maintain macro stability for the whole country, and discrepancies between regions and industries were regrettable but inevitable.” This very problem would be far more pronounced for Britain with monetary policy set at the European level by ECB rather than the Bank of England’s Monetary Policy Committee (MPC).

Across the Eurozone, the effects of the one-size-fits-all interest rate have and will continue to be larger because the variation of performance is greater. They will also be more significant because the political fall-out will be much bigger. If Britain joined EMU it would have interest and exchange rates set for the whole of the Eurozone rather than being tailor-made specifically for British needs. Basically the ECB currently chooses a ‘compromise’ rate for the whole of the Eurozone and therefore this would never be as consistently responsive to Britain’s needs as a monetary policy set by our very own MPC. Look what happened to Ireland when the ECB cut interest rates that led to an unsustainable boom.

This “one-size-fits-all monetary policy” would matter less if the Eurozone was an Optimal Currency Area (OCA). OCA theory was developed by the Nobel Prize winning economist, Robert Mundell. It states in the event of negative economic shocks, such as a world recession or oil price increase, a currency area will have the best chance of minimising the damage if the economies that are members are broadly homogenous and synchronised. This is because shocks will then be symmetrical; that is, they will affect all economies similarly and hence only a single economic response is required to stabilise all of the economies of the currency area. However, if there is no OCA then the shocks are likely to be asymmetrical which will mean that economies will need specific policies applied to them. This is exactly the problem that EMU faces. Although the EU6 (Germany, France, Benelux and Austria) comprise an OCA, the Eurozone as a whole does not. The IMF has stated previously that the United Kingdom and Nordic countries are situated outside a cluster of core economies centred on Germany and some of the Southern European economies have even less in common with the ‘core’ European economies but have joined the Eurozone nonetheless.

Britain’s economic cycle is somewhere between that of the US and the EU6. before the Euro should be considered, with all its political ramifications about sovereignty and democratic accountability, Britain’s economic cycle would have to be in sync with the Eurozone’s core which is not the case today. In fact there is no reason to suppose that the economic cycles of countries will ever be sufficiently synchronised so that all countries require the same interest rate at the same time to influence the level of output or the rate of inflation. For real convergence, some countries need to grow faster than others do, which means encouraging investment at the expense of consumption. This, in turn, requires lower interest rates in some countries than others.

If we joined the EMU it would not only be signing up to a currency area which lacked convergence, we would obviously be surrendering our monetary policy instrument and thus would be reduced to having to rely on Gordon Brown economics to help our economy. No longer able to respond to asymmetric shocks with supply side economics we’d be forced to result to fiscal policy to get us out of a sticky situation – the failed and discredited policy of trying to spend our way out of recession. If we joined the Euro there would be no leaving unlike the ERM on Black (or was it White?) Wednesday. We would be forced to adopt the economics of Gordon Brown forever.

I shudder at the thought.

Germans rubbish Brown's economic policy again!

After Peer Steinbrück, the German Finance Minister, ridiculed Brown's economic policy on Wednesday, another German politician has done the same.

This time it was Steffen Kampeter, who speaks on economic policy for Chancellor Angela Merkel's CDU party. This is significant because yesterday Ed Balls claimed the comments from Steinbrück had more to do with Germany's internal politics in its ruling coalition than the nature of the global response to the economic downturn. He said: "I think Germany will join the international consensus when their internal politics are sorted out." But, as i argued at the time, this was complete Balls. I wrote: "Peer Steinbrück is a member of the Social Democratic Party which is a left of centre party. If anyone in Germany's coalition government is going to embrace a Keynesian borrowing and spending splurge surely it would be Steinbrück and the SDP?"

Now Steffen Kampeter has entered the debate, describing the British government's moves to raise debt as "a failure of Labour policy" and completely dismissing Balls's argument. Remember, Kampeter comes from the CDU Party (Merkel's party) whereas Steinbrück comes from SDP. Kampeter said:

"Peer Steinbruck's comments have nothing whatsoever to do with internal German politics, as Prime Minister Brown has suggested. The tremendous amount of debt being offered by Britain shows a complete failure of Labour policy. In questioning the British government's approach, Peer Steinbruck is exactly expressing the views of the German Grand Coalition. After years of lecturing us on how we need to share in the gains of uncontrolled financial markets, the Labour politicians can't now expect us to share in its losses. The tremendous amount of debt being offered by Britain shows a complete failure of Labour policy."

It is true that Angela Merkel has supported a fiscal stimulus across the EU - something the Labour government has latched on to claiming the Germans agree with them - but she insists, like the Conservatives do in Britain (and the IMF), that it has to be fully-funded.

At the end of last month, Merkel expressed her disapproval to Gordon Brown’s drive to stimulate the world (FT Blog). She told the Budestag (German Parliament):

“Excessively cheap money in the US was a driver of today’s crisis. I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.”

She holds this view even though Germany starts from a position of a balanced budget and a trade surplus - unlike us. The Germans have always been wary of growth financed by debt. If only Gordon Brown had managed the British economy so that we were in such a good position to face this recession as our German neighbours - the world's 3rd largest economy.

So why are the German's gunning for Brown? Benedict Brogan reckons it is payback time for all the years Brown used to lecture the Europeans boasting about how great his management of the economy was. Now he is portraying himself as the saviour of the world, the Germans have had enough of his egotistical hubris and have decided to hit back, especially as they think his boasting is misplaced as the British economy is particularly vulnerable. Brogan wrote:

"The relish with which the German finance minister has mocked Gordon Brown's "crass Keynesianism" is delightful to behold. Years of resentment have come bubbling out, with devastating effect. Remember how Mr Brown used to enjoy lecturing the Germans and the rest of the EU for their economic failings? Well, the jack-boot is on the other foot. You can bet that Peer Steinbruck's outburst was in part motivated by a desire to rub the PM's face in his economic mess. Think of all those Ecofin summits when Mr Brown would deliver his lecture ahead of time through the media, and then either not turn up or leave in a rush without staying for lunch... The German offensive against Mr Brown is a reminder that there are quite a few out there who may endorse the principle of a fiscal stimulus package - but only if you can afford it."

I'm really warming to Germans at the moment... I'll be raising a glass to them this Christmas. Makes one feel proud to be European! ;)

Woolworths - stripping flesh from the bone

I popped into Woolworths earlier to see what all the fuss was about and it was a sad sight to witness the end of a high-street institution.

All items had a discount from 10 to 50 percent but many of the shelves were empty and were not being restocked.

The depressing sight looked like a hoard of scavengers pulling the last remaining flesh off the Woolworths bone - while it was still half alive.

With no credible buyer in sight it looks increasingly clear that it won't be long now until Woolworths is no more - and with it the loss of 25,000 jobs.

Gordon saves world? Nein! Say Germans

Government Finance Minister finally talks sense on the economy. Unfortunately he is German, not British!

On the day that Gordon Brown claimed he had saved the world (and I know it was a slip but he actually believes he has), Peer Steinbrück, Germany's Finance Minister, ridiculed Brown's fiscal stimulus economic rescue plan telling Newsweek magazine: "The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking."

Steinbrück also attacked credit-financed growth (which has been responsible for Britain's boom years): "When I ask about the origins of the [financial] crisis, economists I respect tell me it is the credit-financed growth of recent years and decades. Isn't this the same mistake everyone is suddenly making again, under all the public pressure?"

The outspoken German Finance Minister also attacked Brown's fiscal stimulus, especially his decision to cut VAT: "The speed at which proposals are put together under pressure that don't even pass an economic test is breathtaking and depressing. Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain's debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions."

When asked whether extraordinary times called for extraordinary measures (something Brown has repeatedly claimed), Steinbrück was scathingly dismissive: "It's the yearning for the Great Rescue Plan. It doesn't exist. It doesn't exist!"

And when asked about the politics of "doing something" vs "doing nothing" (as Brown likes to reduce the debate), Steinbrück said: "... I'd say the risk is greater of burning money without significant effects and in the end having a budget weighed down with even more debt."

So much for the global consensus, hey Gordon!

Brown claims he has been leading the world, travelling to summit after summit in an effort to persuade fellow world leaders that his "fiscal stimulus" policies should be repeated. But he hasn't even been able to convince Europe's largest economic power of the merits of his actions.

George Osborne, leapt on Herr Steinbrück's remarks: "This comment from the German finance minister totally demolishes Gordon Brown's central political charge that only the Conservatives oppose his expensive and ineffective VAT measures." Osborne also said, referring to Brown's claim to have "saved the world": "On the day he claimed to be saving the world, the world answered back."

I'd say Cameron and Osborne have somebody new to put on their Christmas card list!

UPDATE: Brown has said in an interview in the Sun (with Alan Sugar) that "we do need a lot of blunt speaking at the moment about what has happened." I wonder whether Gordon appreciates Herr Steinbrück's "blunt speaking?"

Deluded Blinky Ed Balls has also hit back saying the comments from Steinbrück had more to do with Germany's internal politics in its ruling coalition than the nature of the global response to the economic downturn. He said: "I think Germany will join the international consensus when their internal politics are sorted out." Err... Balls, what international consensus? Also, Peer Steinbrück is a member of the Social Democratic Party which is a left of centre party. If anyone in Germany's coalition government is going to embrace a Keynesian borrowing and spending splurge surely it would be Steinbrück and the SDP? As ever Ed, you are talking absolute Balls!!!

Who's interested in the economy, Prime Minister?

I've just found this gem taken from Hansard's coverage of the debate on the Queen's Speech.

Brown criticised the Tories saying: "It is absolutely clear that the Opposition have no interest in listening to what we are doing about the economy. It is also absolutely clear that they are obsessed with only one thing today, but we have got to get on with the business of helping move from the downturn to higher prosperity."

Then a couple of minutes later Tory MP Andrew Robathan stood up and asked Brown: "The Prime Minister accused the Opposition of not being interested in his speech. Could he explain why the Benches behind him are empty, whereas ours are full?"

Hilarious! Sometimes Brown can be a right plonker!

The politics of “doing something”

Gordon Brown is repeatedly attacking the Tories as the “do nothing” party. The opposition is undoubtedly vulnerable to Brown’s jibe because he is portraying himself as the “do something” leader. On the face of it, surely “doing something” is better than “doing nothing”? However, I believe Cameron is showing signs of developing a strategy to neutralise Brown’s attacks. Cameron is saying that Brown’s “do something” is effectively a costly dud; it will not work, will only lead to higher, unnecessary taxes and all because Brown knows that he has to be seen to be “doing something” otherwise he is finished politically, even if his “something” is an expensive waste of time, a “fig leaf” in the words of Vince Cable.

So why has Brown adopted this strategy?

1) DIVIDING LINES - For Gordon Brown, politics is about dividing lines; it is how he operates. His most famous and successful dividing line used at consecutive general elections against the Conservatives was “Labour investment vs. Tory cuts.” The Prime Minister now wants the electorate to embrace his new dividing lines: “Labour action, strength and fairness vs. Tory inaction, dithering, and unfairness.” Brown believes this strategy will secure him victory at the next general election. For this is to work, he will need to call an election in 2009 rather than hang on until 2010. The PBR had all the hallmarks of an old-style pre-election giveaway Budget with: more money for pensioners; VAT tax cut in a pre-Christmas giveaway; softening the potential impact of planned changes to vehicle excise; and making permanent the pay-out for a majority of those who lost out from the abolition of the 10p tax rate (though still ignoring a million people who have yet to be ‘compensated’). In a year’s time Darling is unlikely to have any money left to hand out pre-election bribes. This will especially be the case if his (optimistic) growth forecasts need to be downgraded yet again as seems likely. Whether Brown can call an election in 2009 in the midst of a recession and after all his election shenanigans for party political advantage a year ago is a moot point. John Rentoul reckons Brown has made calling a 2009 election harder on Sunday's BBC1 Politics Show, when he ad libbed: "I am not planning it at all; I do not think people would think much of me." We shall see…

2) FEAR OF IMPOTENCE FROM A BIG STATE POLITICIAN - Another reason why Brown has adopted a “do something” strategy is that he is an instinctive big State politician who thinks that the State always offers the best solution. He will have felt compelled to act because of this and also because he would not have wanted to admit his own impotence. Brown could have prepared Britain better for an economic downturn. Over the last 11 years he could have taken steps to prevent Britain having the world’s biggest housing boom. Remember in his 1997 Budget Statement he promised: "I will not allow house prices to get out of control and put at risk the sustainability of the recovery." He could have taken steps to ensure that Britain did not have the highest levels of personal debt in the world. And he could have taken steps to balance the economy so that it was not overly dependent on housing, finance and government spending. But Brown chose to do none of these things and instead chose to preside over an unsustainable boom with the largest budget deficit in the developed world. As a result of not “fixing the roof when the sun was shining,” he has been forced to abandon his fiscal rules – the bedrock of his economic policy – and borrow vast sums of money, leading to a doubling of the national debt to over £1 trillion in just five years time. Faced with a large budget deficit and no money Brown is unwilling to admit he is impotent to act even though he admitted back in 1997 as Chancellor that: “We have learned from past mistakes... you cannot spend your way out of a recession.” But that was then and this is now. Now, Brown is Prime Minister and fighting for his political life. He is returning to type as the instinctive big State politician, believing that if he “does nothing,” admits he did not prepare for a downturn and as a consequence is impotent in the face of the recession, he will be duly punished by the electorate

3) HE ACTUALLY BELIEVES IT WILL WORK - A further reason – and the least cynical - why Brown has adopted his “do something” approach is that he genuinely believes his fiscal stimulus will work. It will not come as a surprise that I do not agree. I think the centrepiece of his stimulus – the cut in VAT – will not work as I cannot see how it will have a great effect on behaviour, or any effect, to that matter. Why will a 2.5 percent cut make any difference when shops are already offering substantial discounts of 20 percent or more? Furthermore, only about half of the 2.5 percent cut translates into an actual cut in consumer prices, according to economists, and this is even dependent on retailers passing on the cuts rather than pocketing themselves. I understand why the government chose VAT for a cut because it is immediate and is designed to encourage spending because to make savings you have to spend money as VAT is a tax on spending but I strongly believe, for the reasons outlined above, it will have only a marginal effect at best and definitely not worth the £12 billion the government is borrowing to pay for its temporary tax giveaway. Brown would have been better off raising the tax free allowance of income tax for low income workers or cutting the basic rate of income tax. This would benefit low income and middle income workers most and these are the type of people who are feeling the pinch and are unlikely to save their tax cut as they do not have that luxury. Brown has made a costly mistake which although passes the “do something” test, fails the “do something worthwhile” test.

The Conservatives criticise Brown’s fiscal stimulus because they argue, quoting the IMF, that Britain, with such a large budget deficit, should not be going down this route, as a stimulus package is only for those with surpluses or relatively small deficits. The Tories thus argue the government is being irresponsible – both in not building a surplus in the good years and for borrowing even more money to fund a fiscal stimulus now in the bad years. They also argue that economic history proves that governments cannot spend their way out of recession. It failed in the 1930s when FDR tried it in the United States (only working with a shift to a war economy) and it failed during the 1990s when Japan tried it during their “Lost Decade.” The Conservatives also argue that tax cuts should be funded (paid for by cuts in spending and thus responsible) and they should be permanent. Brown’s fiscal stimulus essentially lasts only 13 months and then comes to end followed by permanent tax increases which is the last thing the economy will need when it is trying to recover.

That is the critique from the Right, but one can also criticise Brown’s fiscal stimulus from the Left. Brown’s stimulus basically amounts to 1 percent of GDP, which is what the IFS said would be the bare minimum. The IMF has called for a stimulus of 2 percent of GDP which in Britain’s case would equate to about £30 billion. Moreover, in the United States, President-Elect Obama’s advisers have been talking about a stimulus in the region of 3.5 to 5 percent of US GDP. The critique from the Left is therefore that never mind whether Brown has chosen the right way to transmit his stimulus to the failing British economy, the real problem with Brown’s stimulus is that it simply is not large enough to do any good anyway. If this US stimulus comes to pass it will be a bold move by the new President because America’s budget deficit and public debt are also at similar levels, proportionally, to Britain’s. When one looks at the measures Brown has announced from the perspective of the Left, he has been far too cautious – and fudged his stimulus. Not large enough to do any good, but large enough to claim he is “doing something.” Gerard Baker in the Times (25 November) has given an explanation for why Brown has chosen not to “go for broke” like Obama. He wrote: “The answer is that Britain is much more vulnerable to further meltdown in the financial system. As bad as it is, the total size of the contingent liabilities of the US banking system is probably no more than 30 percent of US GDP. In Britain the number is probably between 200 and 300 percent. If a large chunk of that eventually has to be met by the Government, the scale of the fiscal crisis would be awful in America but literally catastrophic in Britain.” I would add another answer. Brown does not like being branded “irresponsible” by the Tories and accused of putting economic stability at risk. Had he gone for a fiscal stimulus of 2 percent of GDP or more he would have opened himself up further to the “irresponsible” charge and a larger “tax bombshell” to follow. In the consequences, Brown compromised and took the middle road between “doing nothing” and “doing something worthwhile” leaving him with the worst option of “doing something costly and ineffective.”

How the tax system works

Suppose that every day, ten men go out for beer and the bill for all ten comes to £100. If they paid their bill the way we pay our taxes, it would go something like this:

• The first four men (the poorest) would pay nothing.
• The fifth would pay £1.
• The sixth would pay £3.
• The seventh would pay £7.
• The eighth would pay £12.
• The ninth would pay £18.
• The tenth man (the richest) would pay £59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by £20.' Drinks for the ten now cost just £80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the £20 windfall so that everyone would get his 'fair share?'

They realized that £20 divided by six is £3.33. But if they subtracted that from everyone's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

• The fifth man, like the first four, now paid nothing (100% savings).
• The sixth now paid £2 instead of £3 (33%savings).
• The seventh now pay £5 instead of £7 (28%savings).
• The eighth now paid £9 instead of £12 (25% savings).
• The ninth now paid £14 instead of £18 (22% savings).
• The tenth now paid £50 instead of £59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

'I only got a pound out of the £20,' declared the sixth man. He pointed to the tenth man, 'but he got £10!'

'Yes, that's right,' exclaimed the fifth man. 'I only saved a pound, too. It's unfair that he got ten times more than I did'

'That's true!!' shouted the seventh man. 'Why should he get £10 back when I got only two? The wealthy get all the breaks'

'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor'

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill.

And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

PMQs - Economy back on centre stage

This week's PMQs was a much calmer affair than the overly heated and disgraceful scenes of last week. Baby P was brought up again but only briefly and in a much more consensual way. The Labour benches went quiet unsurprisingly when Baby P was being discussed.

David Cameron used his first three questions to ask practical questions about what the government was doing to help small businesses get access to credit. He said that the Tories had supported the government's recapitalisation of the banks but that it was clear that the steps the government had taken were not having the desired effect. The PM said that the government was doing all it could to encourage banks to lend more but Cameron said the government should do more. Brown responded by claiming that a fiscal expansion was needed but the Tories were opposed. Up to this point PMQs was a pretty dull affair. Important issues but not much light generated - no change there then - and no heat given the subdued mood.

The proceedings picked up a little once Cameron moved on to the issue of taxation but still the two leaders were not firing on all cylinders. There was a little more heat between them but no more light. Cameron began by saying he knew how desperate Brown was to go on his borrowing binge (scheduled to be announced in the Pre-Budget Report on Monday), but everyone wanted to know how he was going to pay for it? He asked the PM whether taxes would have to rise as the Chancellor, Tony McNulty and Lord Mandelson have said? Of course Brown did not answer the question. Brown said we will need a fiscal expansion for small businesses to bring back growth into economy. He accused Cameron of calling for fiscal measures that would need a fiscal stimulus to pay for them - which the Conservatives opposed. Brown then called the Tories the 'do nothing' party.

Cameron scoffed that it was amazing that a former Chancellor could have forgotten the difference between fiscal and monetary policy. He asked again: how would the PM pay for his tax cuts and public spending? At this Labour MPs were shouting "Cuts" at Cameron and making scissor movements with their fingers. Brown stirred at this point. "Oh yes, oh yes, oh yes ... let me tell him about the difference between monetary and fiscal policy!" Brown said Cameron was only advocating the use of monetary policy to help people through the recession but that everyone around world was saying monetary action was not enough. He said only the government was offering real help and accused Cameron of being a 'lightweight'.

Cameron responded by quoting Derek Scott - Tony Blair's former economics adviser - which invoked a reaction from the Brownites on the Labour benches as Scott is a well known critic of Brown's. When Scott was asked whether it was true, as the government claims, that this recession was largely not of their making, he said "that is largely drivel." Cameron then moved on to words the PM might be familiar with, quoting Brown himself who had previously said: "Unfunded tax promises simply do not add up. They mean tax cuts before an election leading to tax rises after an election." That is what he said as Chancellor a few years ago, Cameron said. And in a good line, the Tory leader said: "If he doesn't agree with his Chancellor or Business Secretary, does he at least agree with himself?" Brown then said only a few days ago the Leader of the Opposition had said borrowing had to be allowed to happen, but then changed his mind. This was another blatant distortion by Brown who knows very well that Cameron was talking about automatic stabilisers. Nevertheless, Brown pressed on saying the choice for his government was whether to help people during difficult times or to do nothing like the Tories in the 80s and 90s. He finished by claiming that he would act while the Tories would refuse to act.

It was clear from the exchange that Brown wants to frame the debate about steps the government is taking to help people now while Cameron wants to talk about the future consequences of those actions. If Cameron can outline significant FUNDED tax cuts he should be in a much stronger position against Brown though of course will have to defend his flank against Labour charges that the Tories will be taking a slash and burn approach to the funding of the public services. What was also clear from the exchange is that unlike members of his Cabinet, Brown is refusing to engage on the question of how he is to pay for his increased borrowing and spending. Maybe all will be revealed in the PBR on Monday, but tax rises look inevitable. The Tories will continue to make this an issue and the longer Brown refuses to acknowledge the truth, the more evasive, shifty and dishonest he will look.

As for the exchange between Nick Clegg and Brown, the Lib Dem leader said he supported the bank bailout plan as he was told there were strings attached to banks. But what concrete evidence did the PM have to show it was working? Brown outlined the steps he had taken and was taking such as expanding liquidity to prevent banks collapsing through recapitalisation, getting funding for small businesses, and meeting with banks and building societies regularly to see what the problem was. Brown said that if it was necessary to take further measures these would cost money and he hoped he would get Clegg's support. This suggested to me that these "further measures" may be included in the PBR.

Clegg attacked what he said was a "complacent reaction" from Brown. He said the PM struts about on world stage telling other countries to follow his plan but his own plan was not working here. He said he bet the banks could not believe their luck that they had been bailed out yet were able to take their bonuses while avoiding lending to businesses. Clegg asked if Brown was too weak to get tough on the banks will he consider lending money directly to small businesses instead? Brown said it was untrue that banks were giving their directors bonuses. He said that every country in world was having the same problem with bank lending. He admitted that banks did have an adversity to lending, and said that this had to be changed.

VERDICT

Draw all round. Quite a subdued affair as a consequence of last week. Not much heat and even less light produced.