Workfare is anti-free markets and a product of state corporatism

Firstly, can I point out, workfare is not slave labour; and it is insulting for the Left to suggests workfare is similar to labour camps in North Korea and China. The victims of the transatlantic slave trade did not work 9-5 hours and receive benefits from the government; in fact, majority died of exploitation and torture. Unlike those participating in Workfare.

But excusing the ignorance of the Left, Workfare is wrong and immoral. It gives certain businesses unfair advantage in the labour market and access to cheap workers. Company A does not have to compete with Company B,C and D IF the state is providing them with much needed labourers.  And benefit payments substitute the requirement of a potential minimum wage; therefore, Company A is allowed to bypass specific laws and competition requirements. Only because the government said it was OK.

How is that fair? Company B risks legal action and investigations, if it avoided providing the basic minimum wage to employees. Workfare is a prime example of the consequences and long term damage of government intervention. Unemployment data becomes irrelevant if the state is distorting job creation and the overall ability of the labour market to function.

Of course, the principle of Workfare is not really the problem. Providing the unemployed with work experience, whilst receiving benefits, is a good way to achieve responsibility and a sense of reward. But restricting them to certain businesses, who signed up to the program, is the controversial point. The Department of Work and Pensions decides who receives the free labour and when. The individual has little say in the process. In all, it is false job creation and a cheap method to bring the unemployment rate down; technically, these people are working.

Like the East India Company, Workfare is crony state corporatism and a product of ministerial favourtism. A select few of approved businesses have access to thousands of cheap labour whilst the rest have to compete for workers. Sadly, due to the rise of state capitalism, Workfare is the precursor to more government intervention and the decline of true free and competitive labour markets.

Welcome to 21st Century state corporatism.

 

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Fitch to downgrade UK debt? (Update)

In the last few minutes, chatter has begun on a UK downgrade from Fitch:

@Zerohedge Telegraph says Fitch will downgrade the UK’s AAA rating

@BergenCapital chatter of a fitch downgrade to UK

@russian_market Gold jumps on UK‘s AAA news

The price of Gold has increased since the rumour entered the market; there is no confirmation if this well be today, but Telegraph are reporting the downgrade is certain.

This was inevitable, due to the Coalition adding £300bn extra to the national debt. UK govt debt will hit 93% of GDP (anything above 90% is seen as incompatible with a AAA rating)

All eyes now on Moody’s and S&P….

UPDATE:

This tweet is from the Daily Telegraph:

Matthew Sparkes ‏@Sparkes

Despite what Twitter appears to be saying, The Daily Telegraph has NOT reported that Fitch is about to downgrade the UK’s credit rating.

 

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I hate to admit it, but Chuka Umunna is right about Vince Cable

Sabre rattling by Vince Cable and an “opposition within” approach in government is undermining the ability of the Department for Business to work productively across Whitehall, Labour’s Chuka Umunna has claimed.

…

Umunna added: “People I speak to in government tell me that Vince Cable’s sabre rattling – his “opposition within” persona – has compromised the ability of BIS [the Department for Business, Innovation and Skills] to work productively across Whitehall. This is disastrous for a department whose work is so cross cutting.”

He’s right, regardless of what you personally think of Chuka and Labour. Vince seems to be more interested in creating arguments, blocking ideas and criticising the Prime Minister than doing his job.

An example will be deregulation, which was an important part of the governments growth strategy – which Vince keeps blocking.  Coalition governments are meant to operate as a single unit, but one lonely figure is hell bent on opposing absolutely everything just to make a political point.

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A Living Wage is meaningless without tax reform

Back in May this year, I recommend the idea of a national Living Wage (voluntary, of course) as the next big idea for the coalition; it is a decent moral policy and helps to improve living standards, yet it would prove to be meaningless – if taxes are still too high.

Would a Living Wage make any difference, when the majority of individuals income are divided among Income tax, VAT, Fuel Tax, TV license, Nation Insurance, Council Tax, Road Tax + more? Probably not. Without significant tax reform, a Living Wage will only help to provide the state with more tax revenue; and is that really what the Living Wage is about – providing the state with more money?

The principle should be about people keeping more of their earners, not ensuring the ability to pay tax is increased. That extra income won’t go far with VAT a 20%.

Abolishing National Insurance, TV license and reforming Council Tax would have a far greater impact on disposable incomes; a Living Wage costs £12 billion (according to the IFS), which is the equivalent of cutting the basic rate of income tax to 16p.

Of course, a Living Wage stops the state from subsidising low wages with tax credits; it helps to bring down the welfare budget (currently £117 billion). Improving living standards is not just about wages, the debate also includes taxation and the size of the state, too.

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OBR: Govt ‘won’t hit debt target before 2017′

George, we have a problem.

A £1.06 trillion problem, that is set to become £1.4 trillion in 2015.

Nobody is addressing this problem – especially since the Treasury is distorting deficit reduction as debt reduction; deficit and debt are two separate things. The deficit is coming down, unlike the national debt.

Regardless of the spin, the government is not actually cutting public spending – it is set to rise to £750 billion in 2015. The structural deficit (long term) is what the government is cutting and bringing down, but the cyclical deficit is growing (see Labour’s borrowing clock).

In other words, the Treasury are taking some very dangerous short term risks on debt and cyclical deficit to erase long term problems i.e the structural deficit. But, what George Osborne won’t tell you is the short term failures can lead to devastating long term disasters. This is why debt targets are being abandoned; the short to medium term is irrelevant to the Treasury and forecasting.

Whilst the government plays politics, the national debt continues to get bigger and bigger.

If you think fiscal policy from 2010-15 is tough, wait until the announcements for 2015-20. The budget will have run continuous surpluses to bring the debt under the control.

Britain has a major debt problem that has not even begun to be addressed.

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Labour’s “fiscal prudence”? UK deficit before the crash

The red area is the deficit before the crash (hat tip @NickThornsby)

And Labour wish to ‘rebuild Britain’, again? I think not.

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Common sense (at last): Party members reject calls for economic U-turn

Deficit is down to under 8% (was 12% when we entered office), inflation is down and unemployment is coming down; let’s not forget, exports are up with non-EU countries – especially with the developing world. Sadly Liberal Left beg to differ, and still believe we should cuddle up to Labour (who have voted against majority of Liberal Democrat policies).

However, two things I will mention. From the BBC article:

Ed Randall, who proposed the amendment, said the Office for Budget Responsibility, which the government relies on for its economic forecasts, had become a “laughing stock”.

Ed Balls said it was one of the smartest decisions George Osborne made. Promised to keep it and grant the OBR greater independence. Even the credit rating agencies approve of its creation; adds greater credibility because the OBR is independent of government and the head is appointed by Parliament.

He said the Bank of England was “sitting on £30bn” that could be used to support growth and there was “so much more an intelligent and humane government can do”.

Which could lead to a rapid increase in inflation; that’s how QE works. And, secondly, allowing a central bank to pretty much run our fiscal policy is very illiberal. Not even Clement Attlee would allow such a monstrous policy to happen, and he centralised  20% of the economy.

Ironic, though, that Liberal Left are proposing ideas that even Miliband and Balls have both rejected.

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Opinium: Almost three in five Brits believe taxes in the UK are too high

• Almost three in five Brits believe taxes in the UK are too high (57%)
• Three quarters of UK adults think the Government should do more to close loopholes (74%)
• Almost half of Brits believe the Government spends the tax budget wrongly (46%)
• Two in five Brits do not have a sufficient income post-tax (42%)

Opinium Research carried out an online survey of 2,016 UK adults aged 18+ from 22nd to 24th August 2012. Results have been weighted to nationally representative criteria.

In reality, it is no surprise because people don’t like paying taxes. However, the government is planning to start releasing personal tax statements in 2014 (which will show how our taxes are spent) and this might help reduce/increase the scepticism on how the government spends our money.

Of course, the second no-surprise, is the little we have in disposable income. With the countless pages of taxation in this country, people are feeling suffocated; the Treasury should take this into account during simplifying the tax system. Regardless, though, people will probably still feel their income is significantly shorter after post-tax.

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The coalition might just be winning the economic argument

The recent YouGov poll highlights some interest findings on Britain’s views on the deficit and how to deal with it:

• 62% oppose increasing taxes to bring in greater tax revenues for the government
• 56% support cutting business regulation and employee rights to create jobs (interestingly, only 29% oppose)
• 44% are against borrowing more to reduce the scale of the cuts (35% support)
• And as little as 13% think its not important to reduce the deficit (75% think it is)
• The country is split 44-39% on whether or not to invest on infrastructure projects.

In July, 45% believed the government should change its strategy and slow down the pace of the cuts, to try and stimulate some growth. It is now 40%; the trend is starting to move towards the government position – the British public are slowly coming to terms with the government’s deficit strategy.

This might prove problematic with Labour, who still insist on “too fast, too soon”; their failure to provide any credible alternative, or even basic policies, probably has helped shift the tide of public opinion towards accepting the economic reality painted by the government.

60% say they think the government is doing badly with the deficit but, on specific points of the plan, the poll shows the public are not that sceptical in reality. A prime example of why polls should be studied in great detail and not taking the headline rates at face value. The devil is always in the detail…

It shall be worth paying attention to the YouGov poll in October to see if the trend continues. If it does, the Labour party needs to stop protesting and come up with an alternative. Fast.

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Forget Greece, IMF warns of the ‘American’ problem

IMF chief economist Olivier Blanchard says if the US fails to deal with “fiscal cliff” it could potentially be an “enormous shock” to other economies. [Telegraph]

The Obama administration probably will not be best pleased with the IMF’s recent ‘endorsement’ of the US economy and the policies of the current President. His rival, Mitt Romney, is jumping on this briefing and I expect the Republicans to provide as more oxygen to this report as humanely possible.

Overly, the report is quite chilling. A perfect economic storm is gathering.

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