Posts tagged "George Osborne"

Eurozone avoids double-dip recession as Germany makes up for losses

Unexpectedly strong performance by Europe’s biggest economy helps compensate for weaker output in Greece, Italy and Spain

The crisis-hit eurozone avoided a double-dip recession by the narrowest of margins in the first three months of 2012 as an unexpectedly strong performance by Germany compensated for plunging activity in countries wilting from tough austerity programmes.

Underlining the two-speed nature of the 17-nation single currency area, the 0.5% expansion in Europe’s biggest economy helped to compensate for weaker output in Greece, Italy and Spain.

Growth in the eurozone stagnated in the first quarter of 2012 following the 0.3% decline recorded in the final three months of 2011 – just avoiding the two successive quarters of falling output that would have officially signalled a double-dip recession.

Analysts warned, however, that the respite could be short-lived, with the latest flare-up in Europe’s long-running sovereign debt crisis likely to damage growth prospects for the rest of the year.

Figures released in European capitals on Tuesday showed that Germany – which accounts for 27% of eurozone GDP – bounced back from a 0.2% drop in output in late 2011, while France followed growth of just 0.1% with a quarter of stagnation in early 2012. In the year to the end of March 2012, Germany grew by 1.2% and France by 0.3%.

Other countries to post quarterly growth included Finland (1.3%), Austria (0.2%), Belgium (0.3%) and Slovakia (0.8%).

But tough austerity measures took their toll on Italy, where the 0.8% quarterly drop in output was the third in a row; Spain, which saw activity decline by 0.3% for a second quarter; and Greece, which reported that the economy was 6.2% smaller at the end of the first quarter of 2012 than a year earlier.

The Netherlands also posted a third consecutive quarter of negative growth, with activity down by 0.2% in the first quarter of 2012.

Overall, the eurozone economies have shown no growth in the past year, while the 27-nation European Union has seen output increase by just 0.1%.

Chris Williamson, economist at Markit, said the outcome had been slightly better than the forward-looking surveys of business activity had indicated. “However, the better outcome largely reflected a surprisingly strong GDP gain in Germany, and the rest of the region is clearly struggling, with marked downturns taking place in the periphery. The business surveys also suggest these downturns gathered momentum at the start of the second quarter.”

Williamson added: “The diverse economic trends across the region highlight the policy dilemma at the European Central Bank, where downturns in the periphery suggest more stimulus is required, but such stimulus would risk stoking inflation in stronger-performing Germany.

“However, given the signs of weakness spreading from the periphery to Germany in recent months, the likelihood is the German economy may soon also succumb to weak consumer and business confidence, resulting in a more even picture of economic weakness across the region in the summer.

“Germany is still likely to remain the best performer, but that may not necessarily mean it will not also see a contraction of GDP in the second quarter.”

With UK trade figures on Tuesday showing exports to Europe down by £800m in May, the chancellor, George Osborne, said: “This is a time of considerable uncertainty in the eurozone economies and that uncertainty is undermining the entire European recovery. I think we are reaching a point where we have got to make a decision to see the eurozone stand behind their currency.”

Ed Balls MP, Labour’s shadow chancellor, said: “With Germany, France and the eurozone as a whole avoiding recession, it’s now clear that Britain’s double-dip recession was made in Downing Street by David Cameron and George Osborne’s failed economic policies.

“In the 18 months since George Osborne’s spending review, Britain has been outperformed by most European countries. And without exports to Europe and the rest of the world Britain would have been in recession a year ago. The chancellor has now run out of excuses for why his reckless and unfair policies have failed.”

Clegg dismisses regional public sector pay plans

Deputy PM says no plans for regional pay bargaining are in place and he will not allow north-south divide to be exacerbated

Nick Clegg has poured cold water on plans to impose regional pay bargaining in the public sector, saying he would reject any action that exacerbated the north-south divide.

Speaking at an event in north London to set out his plans to help disadvantaged children, the deputy prime minister said: “Nothing has been decided, and I feel very, very strongly, as an MP in South Yorkshire with a lot of people in public services, we are not going to be able simply, willy-nilly, to exacerbate a north-south divide. There has been ludicrous scaremongering, particularly by the trade unions, when there is no proposal on the table at all, and in very specific cases it was done by a previous government.”

He said the government was looking only at some localised bargaining in the public sector, along the lines of the previous Labour government’s reforms in the courts service.

He added: “I think people should be reassured we are not going to rush headlong in imposing a system from above, which if it was done in the way sometimes described would be totally unjust because it would penalise some of the people working in some of the most difficult areas.”

George Osborne, the chancellor, has suggested local pay bargaining should become a major part of public sector pay, and pay review bodies have been asked to draw up proposals for localised pay markets. Clegg’s remarks suggest, however, thast there would be resistance to proposals that could lead to long-term pay freezes in the north.

Clegg was speaking at an event to highlight his plans to implement the pupil premium, aimed at narrowing the attainment gap between rich and poor children. One of his proposals has been to allow schools that are not academies to pay more to teachers working in challenging areas and schools, a freedom so far given only to academies.

He said he wanted schools to become engines of social mobility, and that the pupil premium was one of the policies that would define his time in office.

His goal was “a more socially mobile Britain where ability trumps privilege, where effort trumps connections, where sharp elbows don’t automatically get you to the front”, he said.

The pupil premium, which the National Union of Teachers has denounced as unfair and ad hoc, is additional funding given to schools on the basis of the number of children on its rolls that have been on free school meals in the past six years. It is worth £600 for each child on free school meals, and by the end of the parliament will cost £2.5bn a year.

Clegg denied it was cash given to schools to plug gaps left by other spending cuts.

In his speech, Clegg tried to balance the need to make sure schools were accountable for how they spent the extra cash with allowing them freedom from narrow goals. He said he wanted to show that teachers do best when Whitehall steps out of the way. “We won’t be telling you what to do, but we will be watching what you achieve,” he said.

All schools receiving the pupil premium will from this autumn be required to set out the progress they are making to narrow the attainment gap. Clegg said they were more likely to be labelled a failing school by Ofsted, the school inspection body, if the gap was not narrowing.

He warned: “Schools need to know that in assessing their performance Ofsted will be looking forensically at how well their pupil-premium pupils do.”

He said that if the school’s pupil-premium population was failing, more probably than not the whole school would be judged to be failing. “There is only one freedom we are not giving schools,” he said: “the freedom to fail.”

He claimed success against the odds could be achieved, saying: “There are now 440 secondary schools – one in five – where disadvantaged pupils are doing better in their GCSEs than the national average for all children.”

He announced new funding for summer schools as well as sabbaticals for teachers to develop successful academic projects that narrow the attainment gap. He claimed the summer school concept was already proving popular, with as many as 70,000 11-year-olds attending, or seven out of every eligible 10.

Clegg also announced extra cash would be available to support pupil-premium pupils who left primary school without the expected level-four literacy skills. The cash is designed to help children suffering at the point of transition from primary to secondary school, seen as a point when some children fall behind their peers. He said he expected schools would want to use the money for small catch-up classes or one-to-one tuition or vouchers for literacy tuition, which parents could spend.

In a shift from some coalition rhetoric, Clegg went out of his way to praise teachers, saying he was disturbed at the weekend by a survey showing a third of teachers felt undervalued.

“When all the odds are stacked against a child – hardship, low confidence, parents who can’t cope – it is teachers who step in and make the difference, teachers who go above and beyond the call of duty, day in, day out to give those families hope, teachers who help these children unlock the doors that otherwise hold them back,” he said.

Nick Clegg dismisses regional public sector pay plans

Deputy PM says no plans for regional pay bargaining are in place and he will not allow north-south divide to be exacerbated

Nick Clegg has poured cold water on plans to impose regional pay bargaining in the public sector, saying he would reject any action that exacerbated the north-south divide.

Speaking at an event in north London to set out his plans to help disadvantaged children, the deputy prime minister said: “Nothing has been decided, and I feel very, very strongly, as an MP in South Yorkshire with a lot of people in public services, we are not going to be able simply, willy-nilly, to exacerbate a north-south divide. There has been ludicrous scaremongering, particularly by the trade unions, when there is no proposal on the table at all, and in very specific cases it was done by a previous government.”

He said the government was looking only at some localised bargaining in the public sector, along the lines of the previous Labour government’s reforms in the courts service.

He added: “I think people should be reassured we are not going to rush headlong in imposing a system from above, which if it was done in the way sometimes described would be totally unjust because it would penalise some of the people working in some of the most difficult areas.”

George Osborne, the chancellor, has suggested local pay bargaining should become a major part of public sector pay, and pay review bodies have been asked to draw up proposals for localised pay markets. Clegg’s remarks suggest, however, thast there would be resistance to proposals that could lead to long-term pay freezes in the north.

Clegg was speaking at an event to highlight his plans to implement the pupil premium, aimed at narrowing the attainment gap between rich and poor children. One of his proposals has been to allow schools that are not academies to pay more to teachers working in challenging areas and schools, a freedom so far given only to academies.

He said he wanted schools to become engines of social mobility, and that the pupil premium was one of the policies that would define his time in office.

His goal was “a more socially mobile Britain where ability trumps privilege, where effort trumps connections, where sharp elbows don’t automatically get you to the front”, he said.

The pupil premium, which the National Union of Teachers has denounced as unfair and ad hoc, is additional funding given to schools on the basis of the number of children on its rolls that have been on free school meals in the past six years. It is worth £600 for each child on free school meals, and by the end of the parliament will cost £2.5bn a year.

Clegg denied it was cash given to schools to plug gaps left by other spending cuts.

In his speech, Clegg tried to balance the need to make sure schools were accountable for how they spent the extra cash with allowing them freedom from narrow goals. He said he wanted to show that teachers do best when Whitehall steps out of the way. “We won’t be telling you what to do, but we will be watching what you achieve,” he said.

All schools receiving the pupil premium will from this autumn be required to set out the progress they are making to narrow the attainment gap. Clegg said they were more likely to be labelled a failing school by Ofsted, the school inspection body, if the gap was not narrowing.

He warned: “Schools need to know that in assessing their performance Ofsted will be looking forensically at how well their pupil-premium pupils do.”

He said that if the school’s pupil-premium population was failing, more probably than not the whole school would be judged to be failing. “There is only one freedom we are not giving schools,” he said: “the freedom to fail.”

He claimed success against the odds could be achieved, saying: “There are now 440 secondary schools – one in five – where disadvantaged pupils are doing better in their GCSEs than the national average for all children.”

He announced new funding for summer schools as well as sabbaticals for teachers to develop successful academic projects that narrow the attainment gap. He claimed the summer school concept was already proving popular, with as many as 70,000 11-year-olds attending, or seven out of every eligible 10.

Clegg also announced extra cash would be available to support pupil-premium pupils who left primary school without the expected level-four literacy skills. The cash is designed to help children suffering at the point of transition from primary to secondary school, seen as a point when some children fall behind their peers. He said he expected schools would want to use the money for small catch-up classes or one-to-one tuition or vouchers for literacy tuition, which parents could spend.

In a shift from some coalition rhetoric, Clegg went out of his way to praise teachers, saying he was disturbed at the weekend by a survey showing a third of teachers felt undervalued.

“When all the odds are stacked against a child – hardship, low confidence, parents who can’t cope – it is teachers who step in and make the difference, teachers who go above and beyond the call of duty, day in, day out to give those families hope, teachers who help these children unlock the doors that otherwise hold them back,” he said.

Queen’s speech: George Osborne to outline banking reform plans

Government to press ahead with banking reform and Vickers recommendations – with further details released next month

The government signalled its determination to press ahead with banking reform in the Queen’s speech but intends to provide more details on 14 June when George Osborne delivers his Mansion House speech.

The white paper outlining how the government intends to force banks to erect a ringfence between their high street and investment divisions will be published alongside the chancellor’s set-piece speech next month.

Kevin Burrowes, UK financial services leader at PwC, said: “Formally signalling intent to pursue ringfencing helps eliminate uncertainty but, in reality, the banks are already well aware this would be pursued by the government. All banks are already undertaking enormous changes to their business models in light of trading outlook and pressure to generate acceptable returns for investors for the increasing capital that has to be invested.”

In the speech, the Queen said that “measures will be brought forward to further strengthen regulation of the financial services sector and implement the recommendations of the independent commission on banking“.

The commission, chaired by Sir John Vickers, also included recommendations on bolstering competition among high street banks by making it easier to move bank accounts. There were also proposals about “depositor preference”, which would allow savers to get their money back when a bank goes bust before other creditors – a move that is intended to reduce the need for taxpayer bailouts. Despite lobbying by the banks for this to be avoided, the government is expected to press ahead with change.

While the Vickers legislation is expected to be passed by 2015, the banks are likely to have until 2019 to implement the artificial ringfences.

David Wootton, lord mayor of the City of London, said the City would work with the government on implementing bank reform: “The City looks forward to working closely with government to ensure that these reforms – particularly ringfencing – are sensibly implemented in a way that delivers a stable and secure banking system, but does not hinder economic growth.

“Clearly, the taxpayer should not be asked to underwrite bank bailouts again but we must also guard against hindering the UK’s capacity for future growth.”

Banking sector reforms to be set out by George Osborne in June

Chancellor’s plans likely to be announced in Mansion House speech and white paper on 14 June

Reforming the banking sector is expected to be a key theme of chancellor George Osborne’s Mansion House speech next month as the government reaffirms its intention to force banks to erect ring fences around their high street operations.

Osborne is likely to publish the long-awaited white paper on the Independent Commission on Banking’s (ICB) proposals on the same day – 14 June – in a battle against time to fulfil his promise to legislate for the proposed overhaul during this parliament.

The white paper, is expected to be signalled in the Queen’s speech on Wednesday when she sets out the government’s legislative agenda for the current sitting of parliament.

At last year’s Lord Mayor’s dinner at the Mansion House in the City of London, Osborne had talked about the “British dilemma” – a banking sector that was so large that it could put the economy at risk – and endorsed the proposals by the ICB, chaired by Sir John Vickers, for a ring fence around high street banks.

While the white paper is likely to outline the intricacies of how wide and how high the ring fence around high street operations needs to be, it may also push ahead with a controversial reform known as “depositor preference”. Banks have campaigned against this plan which puts savers first if a bank becomes insolvent.

Banks are also expected to be forced to make it easier for customers to shift their accounts in an effort to bolster competition on the high street.

Draft legislation is now likely in the autumn. Osborne has previously said he will get legislation through by the end of this parliament but give banks until 2019 to implement some of the more substantial plans.

A Treasury spokesman said: “We said that we would legislate to fully implement the independent commission on banking to make Britain’s banking system safer by the end of this parliament and we are on track to do that.

“We’ve consulted on the best way to take forward their recommendations. We will publish detailed proposals in a white paper next month. These far-reaching reforms will help solve the dilemma of how Britain can be home to one of the world’s leading financial centres without exposing British taxpayers to the massive costs of those banks failing.”

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George Osborne comes under pressure to appear at Leveson inquiry

Chancellor called on to tell inquiry into press ethics about his role in appointment of Andy Coulson

The chancellor, George Osborne, is facing pressure to appear in person before the Leveson inquiry into media ethics to explain his role in the appointment of former News of the World editor Andy Coulson as David Cameron’s communications chief.

It emerged on Friday that Osborne, who is understood to have persuaded Cameron to take on Coulson in July 2007 in order to sharpen up the Tories’ press operations, would only be submitting a written witness statement.

Cameron and several cabinet ministers, including business secretary Vince Cable, culture secretary Jeremy Hunt, justice secretary Kenneth Clarke and education secretary Michael Gove, are all expected to appear in person.

Paul Farrelly, the Labour MP who sits on the department of culture, media and sport select committee, and who has been one of the leading critics of News International and its political influence, said Osborne should appear to explain the appointment.

“The recruitment of Andy Coulson to 10 Downing Street was clearly a colossal mistake. George Osborne was instrumental in that deployment,” he said.

Coulson, who was taken on by Cameron having quit as News of the World editor after one of its journalists was jailed in 2007 for phone hacking, will appear before the Leveson inquiry on Thursday. He moved with the prime minister to Downing Street in May 2010 after the general election, eventually resigning in January 2011. Rebekah Brooks, the former News International chief executive, will appear on Friday.

Farrelly said Leveson could summon Osborne. “It’s really important that this inquiry gets to the bottom of politicians’ links with the press, including the Murdoch empire. George Osborne really should be examined in person about the reasons he felt Andy Coulson was an appropriate person to become the PM’s chief of communications.”

Farrelly pointed out that before he resigned, Coulson had been at No 10 for seven months while News Corp’s buyout of BSkyB had been on the cards.

Lib Dem peer Lord Oakeshott, who tabled parliamentary questions about Coulson’s appointment, also said Osborne should appear. “George Osborne recruited Andy Coulson to a key role at Cameron’s right hand and worked with him every day at the heart of government. Nothing happens in No 10 or No 11 without Osborne’s say so,” Oakeshott said. “Leveson without Osborne would be like Hamlet without the prince.”

UK must go green to stimulate growth, says Chris Huhne

Former energy secretary’s intervention comes amid growing concern over how to recover from double dip recession

Former cabinet minister Chris Huhne has issued a stark warning that the UK’s economic growth strategy will not work unless the government pursues “green growth” by investing in industries such as energy efficiency and clean energy.

Writing in the Guardian, Huhne says: “Much of our economic debate implies we must choose between going green or going for growth. That view may be the opposite of the truth. There is now hard evidence that the real choice is between green growth or no growth at all.”

Huhne, who resigned as energy secretary in February while he fights charges that he asked his former wife to take points on her licence for speeding, does not criticise the government and declined to name those he says are portraying green policies as a barrier to growth.

However, senior Liberal Democrats in the coalition have privately complained that some Tory colleagues have been obstructing policies such as the green deal and new building regulations to make homes and offices more energy efficient, as well as the powers of a new green investment bank.

Huhne’s intervention also comes amid growing concern about chancellor George Osborne’s strict austerity cuts in public spending, with critics arguing that he should be spending more to boost growth.

Pressure rose last week when official figures showed a second successive quarter of falling economic output – meaning the UK had entered a double-dip recession for the first time since 1975.

This week’s cabinet meeting spent 45 minutes on the issue. The prime minister’s spokesman later denied ministers discussed a change of tactics, but he said there was a conversation about the importance of making sure existing investment schemes did go ahead as planned – suggesting, perhaps, there was some unease about the pace of recovery.

Huhne’s argument focuses on an unprecedented situation where developed countries are in recession while energy and materials prices are rising. In the past lower demand from rich nations would have reduced the price of such key commodities, but now they are being driven higher by growth in Asia “on a scale never before experienced in economic history”.

Despite the promise of new energy sources such as shale gas, it would be “rash” to bank on prices falling in future, writes Huhne.

“Energy-saving is the win-win: it has the potential for job creation (for example in household improvements) and it supports growth by cutting bills and boosting spendable income,” he adds. “But there must be a wider agenda for resource efficiency too – recycling metals, repairing and reusing.

“There is a facile view that our green commitments – to tackling climate change, avoiding air and water pollution, protecting natural habitats – are an obstacle to growth. The message of the commodity markets is surely different. Resource-hungry growth could rapidly stall due to commodity price rises, simply because so many of us now want it. If we want sustainable growth, we do not have a choice. We must go green.”

Top rate tax cut would have ‘very large cost’

George Osborne’s plan to cut rate to 40p under fresh scrutiny as ex-cabinet secretary Lord O’Donnell reveals optimum rate is 48p

Ministers have been informed that the optimum top rate of tax – which would bring in the most money for the exchequer – is 48p in the pound, it has emerged.

The disclosure by former cabinet secretary Lord O’Donnell makes it much harder for chancellor George Osborne to cut the top rate to 40p before the next election, as he is reported to want to do.

Osborne used his budget in March to cut the top rate for people earning over £150,000 from 50p to 45p, citing figures suggesting the higher rate introduced in April 2010 was bringing in far less income than originally forecast because high earners were able to move income to different years or locations.

However the Office of Budget Responsibility report says that the government’s calculation of how much less income higher top tax rates bring in is “reasonable and central”, and suggests the loss of income from cutting it to 45p would be negligible.

However the report goes on to state the calculations imply that the “revenue maximising” top rate of tax would be 48%, or 48p in the pound. In addition, however, it warns repeatedly that all such estimates include “significant uncertainty”.

The report was published in March but the detailed calculation only emerged in an interview with Lord O’Donnell in House magazine.

“It would suggest that under that model a move from 45 to 40 [pence] would have a very large cost,” added O’Donnell.

Cutting taxes for the highest paid elite is an especially sensitive issue during the tough austerity cuts the government is implementing to cut the budget deficit.

Economic conditions are also likely to remain difficult, after the most recent growth figures, which put further pressure on the chancellor, showed the UK and entered a double-dip second recession.

O’Donnell also told the magazine he was still considering applying to be governor of the Bank of England when Sir Mervyn King retires next summer [2013]: “I’m going to think about that and make a decision nearer the time,” he said.

He also criticised the lack of specialist knowledge among ministers’ special advisers, adding: “Too many come from a media sort of PR background.”

O’Donnell, who was cabinet secretary and head of the civil service from 2005 to the end of 2011, also suggested that Osborne, not civil servants, should take the blame for the “omnishambles” which have dogged the government since the budget in March.

“You basically make the decisions in which case you’re accountable,” said O’Donnell. “I’ve never heard the chancellor say anything other than I am responsible for tax decisions.”

The Treasury has previously said reports that the chancellor is keen to cut the top tax rate further is only speculation.

In praise of … Iain Duncan Smith | Editorial

The welfare secretary has emerged as the last man in cabinet standing up for the poor

The quiet man stopped turning up the volume and switched to listening mode. Ousted as Tory leader, Iain Duncan Smith lent his ears to tenants on troubled estates, and then had two thoughts. First, the poor were worth worrying about; second, broken benefits could be fixed by integration. The latter proposition will be tested (perhaps to destruction) with his universal credit next year. As for the first, IDS sermonises, but warm words have, up until now, been undermined by the cold deeds of cutting £18bn from the benefit bill. This weekend, however, the welfare secretary publicly said “thus far but not much further”. In the Times, he rejected George Osborne’s demand for another £10bn on explicitly moral grounds. It’s a shame he didn’t find his bottle earlier, of course, but as Cameroons turn callous and Lib Dems sit limply by, it is an irony that the last man in cabinet standing up for the poor is a pillar of the Tory right.

Lib Dem describes Tory cuts plans as ‘self-harm’

Lord Oakeshott speaks after Tory MP Liam Fox lauds George Osborne and calls for sacking of workers to be made easier

A growing rift between the coalition partners over how to respond to the recession became apparent on Friday when senior Liberal Democrats described plans for 5% spending cuts as “economic madness”.

They also ridiculed Conservative rightwinger Liam Fox’s call for employers to be given new rights to sack workers without fear of unfair dismissal claims.

In a Daily Telegraph column, seen in advance by the Treasury, Fox called for further labour market deregulation. The former defence secretary said: “Deficit reduction without labour market reform is like driving with the handbrake on.”

He reminded Lib Dems – who have 57 MPs to the Tories’ 306 – that their party represented only one sixth of the coalition.

As such, he said, they must expect Tory economic ideas to be dominant. He also said that if growth were not achieved by the next election, Lib Dems could expect an unhappy date with the electorate in 2015. Fox welcomed “the news that the chancellor is considering a further round of spending cuts as a sign that reason and responsibility are returning to the Treasury”.

He said that if cuts were made to security but the overseas aid budget left untouched, that would infuriate many Conservatives.

Fox also supported the decision to increase the UK commitment to the IMF by £10bn, a statement that will be especially welcomed by George Osborne.

But Lord Oakeshott, one of the most articulate exponents of Lib Dem economic thinking, hit back.

He said: “With growth invisible to the naked eye, it will simply be a form of self-harm to engage in another round of unplanned spending cuts such as the recent proposed cut of 5%. It would be a form of economic madness. Liberal Democrat ministers would not stand for it and nor would some Tories.”

He added: “The idea that simply making it easier to sack people will create growth is just foolish. What we need is fresh efforts to get the banks to lend, something that is under the chancellor’s control, and we must get capital spending rising through a massive housebuilding programme. That will create jobs.”

Osborne has already signalled that spending cuts will have to continue into the next parliament to meet the government’s fiscal targets, and suggested on current plans there will have to be another £10bn in welfare cuts.

That suggestion has not been welcomed by the Department for Work and Pensions, which believes it has already delivered on cuts and should not be asked to bear the burden of a second round of cuts in a spending review that is likely to take place next year.