#Budget2015: The Good, The Bad & The Ugly

Chancellor of the Exchequer George Osborne announced the government’s summer budget yesterday, to a generally negative reception from the general public.

Independent blogger Simon Wren-Lewis says that the budget “makes little economic sense”. But is the budget really as bad as people are making it out to be?

THE GOOD

First off, it would seem that the government is shifting its focus away from austerity; the Chancellor promised that there won’t be any cuts as severe as the ones seen between 2011 and 2013. Instead, attention has moved to increasing national productivity.

A cut in corporation tax down to 18% aims to make firms more profitable; the introduction of a living wage of £7.20 per hour (which will rise to £9 by 2020) and an apprenticeship levy on businesses, in combination with benefit cuts, is designed to eradicate the country’s ‘benefits trap’ – currently, people are better off on benefits than they would be with a minimum wage job.

By removing the benefits trap, UK unemployment should decrease further (it has already dropped to just 5.5%), thus increasing productivity and allowing us to expand our Gross Domestic Product (GDP).

Welfare reforms were, naturally, a major part of George Osborne’s speech. As aforementioned, the cuts to certain benefits aims to counter the benefits trap; a prime example of this is the ‘youth obligation’, whereby young people ages 18-21 cannot claim benefits – “you learn or you earn” said the Chancellor. But the reforms don’t stop there.

It was announced that greater support will be given to the elderly, vulnerable, disabled and also abuse victims. We also saw child tax credit being limited to two children per household (with exceptions for twins, triplets etc).

Housing benefit is to be reduced by 1% for the next four years, and there is now a four year freeze on tax credit.

Essentially, these reforms are meant to give further benefit support to those who need it the most, whilst simultaneously battling against those who abuse the system.

Speaking of abusing the system, George Osborne promised that £750m will be spent on fighting tax avoidance, and inherited non-dom tax status will be abolished.

However, perhaps the most significant announcement was the increase in devolved powers for Greater Manchester. The government aims to transform the city into a ‘northern powerhouse’, with the hope of re-igniting the regional economy. Whilst it is surprising that Westminster relieved power so readily, this could have a massively positive impact on economic growth.

THE BAD

Unfortunately, yesterday’s budget was far from being all sunshine and rainbows.

The Chancellor announced that a government budget surplus (whereby income exceeds expenditure) will be delayed until 2019.

Many analysts also feel that the poorest people in society have been targeted in the budget, with an unwavering devotion to the Right To Buy and a benefit cap of £20,000 per year.

But the news that came as an unexpected shock, and caused the largest uproar on social media, was the abolition of maintenance grants for university students.

The reasoning behind this is that universities are, currently, financially unsustainable. The government has done this in an attempt to cut down on their own expenditure.

Despite these grants being replaced with a loan expansion (which will allow students to borrow much more than they do currently), the issue of student debt is now a larger issue than ever.

University degrees are the cornerstone of well-paid, economically stimulating jobs. The removal of maintenance grants may force some potential university students to reconsider their options, which could damage the economy in the long-term.

THE UGLY

The final segment of the summer budget was, for lack of a better description, madness.

Despite seeing numerous strikes in the last five years over pay and pension schemes, the government has decided to freeze public sector pay at 1%, and announced that 430,000 more public sector jobs will be cut.

The public sector of the UK economy is a fundamental building block of our society. Education, transport, defence, the NHS… it’s all dependent on this specific workforce, who are given less recognition than they perhaps deserve.

To promise the safety of the NHS at the start of your speech, then announce cuts for it towards the end, is mind-blowing, and has made George Osborne look a tad foolish in the eyes of the media.

#EndAusterityNow… or should we?

Thousands of people have gathered in London today to protest against government cuts.

Starting outside the Bank of England, and finishing outside the Houses of Parliament, the rally intends to make the government rethink its austerity-focused economic strategy.

After the global economic crisis of 2007-08, the Conservatives made the decision to reduce government spending, in a bid to reduce the deficit. However, it is argued that this has had a hugely detrimental impact on economic growth.

An Oxfam report, titled ‘The true cost of austerity and inequality‘ states that “economic stagnation, the rising cost of living, cuts to social security and public services, falling incomes, and rising unemployment have combined to create a deeply damaging situation in which millions are struggling to make ends meet.”

The report goes on to say that “just one example among many is the unprecedented rise in the need for emergency food aid, with at least half a million people using food banks each year.”

Foodbanks continue to grow in popularity, a symbol of ever-expanding UK poverty.

In addition, these cuts have had a dramatic effect on numerous public services; despite pledges in the Conservative Party’s 2015 manifesto, the NHS continues to struggle under a tight economic squeeze. The education system is also under threat, with rumours circling of another increase in tuition fees.

This leaves us with a big question: are these austerity measures really working?

On the surface, it would appear that the answer is no. Today’s anti-austerity rally is strong evidence of the UK public’s distaste for government cuts. Supporting this are the public sector strikes we’ve seen in the past five years, most notably in November 2011 and July 2014 (both over pensions, pay and budget cuts).

Moreover, many would argue that the austerity measures have restricted economic growth, rather than encouraging it. Large cuts to government spending can lead to a fall in nominal GDP; an example of this would be Greece in 2011, who saw a 6% drop in GDP, meaning that there was less money available to help pay off the debt.

However, when an economy is so fragile, especially in an instance where national debt is so high (e.g. UK or Greece), increased government spending can have dangerous consequences.

Common sense dictates that if you’re in debt, this is not a good idea.

Austerity measures are typically used for one single purpose – cut down government spending in order to pay off national debt. The reason that this is such an issue is that, if national debt becomes too high, then the entire country can face economic meltdown, with a national market failure.

This is exactly what has happened in Greece; national debt reached €320bn, a figure which they were simply unable to repay, because the Greek government spent all of their money on public sector wages and the pension scheme.

By contrast, the UK national debt is £1.56 TRILLION.

In support of this,economist Tejvan Pettinger says that the primary motive behind austerity is “the morality that the government shouldn’t be spending money they don’t have.”

Furthermore, we must take into account the fact that the UK economy is now growing at a steady rate. Since 2010, we have only had 2 quarters of negative economic growth, wages are continuing to rise and unemployment is at it’s lowest in seven years (1.83 million).

Nobody can dispute the fact that austerity is squeezing everyone’s pockets, and it’s unfortunate that those who are slightly worse off are suffering the most. However, with the future of the economy still hanging in the balance, it’s probably the best option; the lesser of two evils, if you will.

Greek economy close to collapse

The economic proposals of the International Monetary Fund (IMF) and European Central Bank (ECB) are “absurd”, according to Greek Prime Minister Alexis Tsipras.

After five months of negotiations, Tsipras has slammed the EU, ECB and IMF for being uncompromising with their demands.

In an article for Le Monde, the Greek Prime Minister said that the stalemate in negotiations “is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people.”

The news comes as the Greek economy continues to near collapse, with officials in both Brussels and Athens conceding that, without their help, Greece can only support itself for another couple of weeks.

Alexis Tspiras has been in power for three months now, and the situation looks just as bleak as it did before the election; Greece is €320bn in debt, with the European bailout of €240bn, they still owe €80bn. In light of this, they have attempted to renegotiate the terms of their repayments.

However, the IMF has stood firm, saying that the Greek governments bailout programme is too vague, and thus, the repayments cannot be scheduled.

Alexis Tsipras had promised to renegotiate the austerity measures put into place by Europe.

Speaking on Greek TV, Finance Minister Nikos Voutsis said that “The four instalments for the IMF in June are €1.6bn, this money will not be given and is not there to be given… some parts of out program could be pushed back by six months or maybe by a year, so that there is some balance.”

In order to keep Greece within the Eurozone, the IMF and the ECB negotiated with Prime Minister Alexis Tsipras, leader of the Syriza Party. Advocating anti-austerity measures that would kick-start the Greek economy, Mr Tsipras arranged to pay the IMF in instalments, so that they could pay off their national debt.

However, this revelation that they do not have the financial capacity to pay the next instalment shows that they are struggling more than they may like to admit.

Unemployment in Greece is over 30%, with youth unemployment being twice as high (Eurostat)

On 5th June, the Greek government will pay €304m to the IMF; but many experts are wondering whether Greece will completely default on it’s debt.

There is still talk of Greece switching over to its own autonomous currency, in a move known as a ‘Grexit. Whilst this is still considered to be an unlikely outcome, something needs to change. Officials in both Brussels and Athens have conceded that, without their help, Greece can only support itself until the middle of June.

But how has this economic collapse come about?

The snowball began to roll when Greek inflation rates rose to 4% in 2000, and national debt started to spiral out of control. By joining the EU (and thus entering the Eurozone) Greece was able to stabilise it’s economy, by borrowing money at an easier rate.

However, this money was spent on increasing public sector wages and sustaining the Greek pension scheme (one of the most lavish in the world). This, in combination with an ageing population, tax evasion and hosting a €5.4bn Olympic Games in 2004, left Greece with a national debt which was higher than their GDP.

Alexis Tsipras promised much when he brought the Syriza Party into government; an end to austerity measures, a transition to an independent currency, and tougher attitudes towards Europe.

However, it would seem that his radical ideas need to be taken back to the drawing board, with Greece’s economic fate currently hanging on a knife edge.

UK General Election: what happens now?

The General Election has reached its conclusion, and we now have a Conservative majority in power.

Social media has erupted with the news, with Tory supporters singing Cameron’s praises and Labour voters threatening to leave the country. But is the situation as extreme as people are making it out to be?

Economy

On the surface, it would seem that the UK economy is in safe hands. Upon the announcement of a Conservative majority, UK shares increased, with banks reporting an increase of over 4%. The FTSE 100 grew by over 2%, and we heard reports of average UK house prices increasing by 1.6%.

During the last five, years, the UK has been through a major transformation, as the economy recovers from the global financial crisis of 2007-08. Now, we are at the point where the International Monetary Fund (IMF) and World Bank are placing us in a bracket with the USA and China.

However, dig beneath the surface, and cracks begin to appear.

UK foodbanks are, sadly, becoming increasingly popular.

Over a million people used foodbanks provided by the Trussell Trust Group in the last 12 months, an increase of 900,000 from the year before, and a study by Oxford University states that this figure will double in the next year.

The fact that so many people are so poverty-stricken that they must turn towards the foodbanks for help is a glaring issue in this country, which needs to be addressed.

National Health Service

The NHS has been a hot topic of debate throughout the election campaign; social media has been rife with accusations that David Cameron and the Conservative Party are ‘killing’ the National Health Service.

However, this is not necessarily the case. Chancellor of the Exchequer George Osborne has pledged an “absolute commitment” to increase NHS spending by £8bn per year (above inflation) until 2020. That being said, the move to privatise a number of institutions (with the end goal of improving standards) appears to completely contradict this idea.

This is a response to criticism that the UK’s public health service lacked funds and resources, after the government cuts which have taken place in the last five years.

Young people

Britain’s youth had a major impact on the outcome of this year’s General Election, with 58% of young people voting this year (an increase of 14% from 2010).

Young people could face yet another increase in tuition fees.

According to the British Election Study (BES), six out of ten people aged between 18-25 went to the polls on Election Day. But what does the result of the election mean for them?

Whilst maintaining in their manifesto that they seek to uphold the world-class reputation of UK universities, ex-Tory leader William Hague has said that they haven’t ruled out yet another increase in tuition fees.

This led to a social media storm, with many young people using online platforms to attack Conservative policies.

To say that some people were unhappy with a Conservative government is an understatement.

Party Leader exodus

The General Election was a complete and utter failure for three of the mainstream UK parties.

UKIP failed to live up to expectations at the polls, gaining just one seat (despite gaining 12.6% of all votes).

All three of these leaders had a rough night; Farage even lost in his own constituency (South Thanet)

The Liberal Democrats lost 49 of the seats they had won in 2010; a sign, perhaps, of the electorate’s dissatisfaction with Nick Clegg’s performance in the coalition government.

Meanwhile, Labour were looking to significantly close the gap between themselves and the Conservatives… instead, they lost 26 seats overall.

As a result, all three party leaders (Nigel Farage, Nick Clegg & Ed Miliband respectively) all resigned the day after. This could be seen as a show of dominance from the Conservatives, but it’s clear that these three parties all want to make a drastic change, in order to challenge the Tories in five years time.

The Dawn of Rainbow Politics

The seven main political parties came to blows last night, in the first televised debate in the run-up to this year’s General Election.

The two-hour long debate, broadcast on ITV, gave the party leaders the chance to answer a great number of issues raised by the general public, but also left us with more questions in our minds. The Southern Daily Echo even likened it to “a daytime TV quiz.

Economy

The evening began with Liberal Democrat leader Nick Clegg turning on Coalition partner David Cameron, slating his inability to bring fairness into the economy by putting heavier tax on the richest members of society.

Cameron responded by reminding the other participants that his ten-year-plan for the economy was on track, as evidenced by current GDP growth.

The Conservative austerity measures naturally became a topic of heated discussion. Labour Party leader Ed Miliband stated that “cuts will have to come, but we can do it in a balanced way.”

It seems clear that the Conservative plan is working for now, but as UKIP’s Nigel Farage pointed out, the UK is still at a £90bn deficit.

NHS

A focal point of this year’s General Election, the NHS came under heavy fire from all directions. Despite Prime Minister David Cameron claiming that there are 7,000 more nurses and 9,000 more doctors, Ed Miliband responded by saying that the NHS was “creaking at the seams.”

It is believed that the NHS needs an extra £8bn over the next five years; Mr Farage claimed that £3bn of this could be found by leaving the European Union.

However, the UKIP leader also stated that 60% of all people diagnosed with HIV in the UK were foreign nationals. This led to Plaid Cymru’s Leanne Wood accusing him of “scaremongering” much to the satisfaction of the live audience.

Immigration

This was Nigel Farage’s moment in the spotlight. As soon as this topic came up in discussion, he instantly became much more animated.

For the most part, Farage spent most of the debate shouting, and arguing unnecessarily

The UKIP leader demanded that David Cameron forces the issue of free movement in the European Union when renegotiating the terms of UK membership.

Ed Miliband admitted that Labour was responsible for the influx of immigrants; a bold move, but one that needed to be made so that the party can move forward with their policy.

However, it was Nick Clegg who shot Farage down in flames, reminding him that he had a German wife, and saying that the benefits of immigration should be controlled, rather than immigration itself.

Young People

In the 2010 General Election, only 44% of 18-25 year olds voted. The fact that many of them then felt cheated by the rising tuition fees is something which the politicians seemed key to address.

Ed Miliband reiterated Labour’s plan to lower tuition fees to £6,000 a year, saying that “I don’t want our young people drowning in debt when they leave university.”

The Prime Minister then explained how academies and free schools has allowed over a million children to be in OFSTED accredited ‘good’ or ‘outstanding’ schools.

Women in Politics

The female party leaders stunned a lot of political pundits with their performance

All in all, it was a successful night for the female political party leaders.

Nicola Sturgeon of the SNP had a fantastic night, getting her points across in an articulated fashion and, according to a YouGov survey, was the ‘winner’ with 28% of polling votes. It was made quite clear that she will aim to form a coalition with the Labour Party, as she agreed with most of Ed Miliband’s points and supported him in arguments.

Leanne Wood of Plaid Cymru was also on top-form last night; not only did she gain a round of applause for shutting down Nigel Farage, but she seemed determined to have her party represented throughout the debate. A prime example of this was her demand for an EU in/out referendum where all four countries must agree, rather than just having a UK-wide result.

Green Party Leader Natalie Bennett didn’t seem to have too much of an input, which was reflected in the YouGov polls; perhaps this was in fear of a repeat of her interview with Nick Ferrari earlier this year. However, when she did speak, she did a stellar job as well, thus keeping the Greens relevant in an ever-intensifying election race.

Conclusion

The UK General Election battle is certainly intensifying, but it is also widening. Nobody could have possible expected so many parties to be in the running for seats in Westminster.

In response to the idea that we are facing an era of ‘rainbow politics’ where numerous political parties have authority, it would definitely seem as though the ‘two-party system’ between Labour and the Conservatives is now at an end. Whether all of the parties involved in last night’s debate actually gain influence in Westminster, remains to be seen.

Apprenticeships need to be valued more

Apprentices are paid “exploitive” rates, according to the National Union of Students.

In a recent report, the Union claimed that apprentices cannot afford to travel to their place of work or study, or take any days off sick.

Currently, teenage apprentices in the United Kingdom work for £2.73 an hour. This means that for a 35-hour week (10am-5pm, Monday-Friday) they will earn £95.

The NUS claims that “Apprenticeships are often framed as a chance to ‘earn whilst you learn’. They supposedly offer a chance to gain a skill and a qualification whilst working in a ‘real ‘job with a wage. Yet for many apprentices their low wages quickly disappear on travel, rent and food.”

There are many different apprenticeships available to teens. But is there enough incentive to do them?

The government is considering raising apprentice pay by £1 an hour. Additionally, the three main parties have pledged their support for apprenticeship programmes.

However, it is obvious that this, realistically, isn’t enough. The National Union of Students say that this is a key factor in current youth unemployment figures.

Apprenticeship schemes should be giving people the opportunity to train a set of skills, in a working environment, under a decent wage. Unfortunately, the reality is that a McDonalds job is better paid.

These apprentices are training in specialist skills which are vital to everyday life. Engineering, plumbing, banking… it really raises the question: why do we, essentially, punish those who choose to do apprenticeship schemes?

It takes years of work and extensive economic knowledge to become a successful banker. So why do teenagers have to train for £2.73 an hour?

Its quite clear that there simply isn’t enough of an incentive to take up an apprenticeship. The pay isn’t good enough and there isn’t necessarily a guaranteed job at the end of it.

University students apply for loans which help them through their course. Within this loan is a grant, which doesn’t have to be paid back. Surely, it would make sense for apprentices to receive the same sort of grant, especially since they (typically) are contributing more to the UK economy, and at a younger age?

Additionally, apprenticeship schemes from established transnational corporations (HSBC, Atkins etc) should realistically offer jobs to those who graduate from these schemes.

Its about time that apprenticeships are taken seriously again; they contribute more to our society than we appreciate. The working people of tomorrow deserve the support today.

What’s going on in Greece?

With the election of Alexis Tsipras on 25th January, the economic situation in Greece became a matter of international importance, particularly within the European Union.

Prime Minister Tsipras is the leader of the left-wing Syriza Party, who are aiming to remove the austerity measures put into place on the Greek economy by the EU.

Alexis Tsipras, leader of the Syriza Party

History

The ‘Greek Depression’ which is actually still ongoing, came about after their economy collapsed in 2009. This happened because the country was in a level of debt 200% greater than the rest of the EU.

Consequently, the state folded, and European Union member states were forced to bail them out in May 2010, with the help of the European Central Bank (ECB) and the International Monetary Fund (IMF). This came in the form of a €110 billion loan.

The result of this was that austerity measures and structural adjustment policies (SAPs) were enforced, and government assets were privatised – all in the hope that the economy would recover.

What does this all mean?

Austerity measures are the same policies which have been put into place in the United Kingdom under the Conservative-Lib Dem coalition; they largely involve cuts to various public services (education, defence etc), in a bid to lower public spending and therefore pay off the debt.

Structural Adjustment Policies (SAPs) are used by the IMF to overcome deficiencies that are counter-productive to economic growth. These are long-term guidelines which aim to firmly re-establish a struggling state, however tend to ignore the imminent needs of local people.

The privatisation of government assets means that nationalised services (banks, health service and the like) are sold off on the stock market. This is designed to create market competition within these sectors, as well as create new jobs. Unfortunately, it doesn’t necessarily lead to economic growth.

Could Tsipras become a problem?

The election of Alexis Tsipras came about under rather strange circumstances. In Greece, Parliament has to elect a ‘President of State’. The deadline for this election was 29th December 2014; however, since nobody was elected, Parliament had no option but to dissolve, leading to a Snap Election.

The Syriza Party won a minority vote with 26.6%, and formed a coalition with the right-wing Independent Greeks Party.

The new government’s anti-austerity policy makes many investors uneasy; the reason for this is that, by going against the measures placed upon them, they threaten the long-term plan for economic recovery.

Alexis Tsipras has vowed to bring about change within what is now known as ‘Troika’ (ECB, IMF & EU). He believes that, due an improved outlook on economic growth, the measures are now inadequate.

Negotiations are ongoing between Tsipras, the ECB, IMF and EU states. Germany is the country most involved here, with Chancellor Angela Merkel leading the debate.

This cartoon accurately describes what the Greek economy could do to the rest of the world

The main issue is clear; if these austerity measures are lifted, it is possible that Greece will fall back into an economic recession. This is largely due to the fact that, without the SAPs, government spending would increase in an attempt to grow the economy more quickly.

However, the danger is that the state fall into debt yet again, which would have ramifications across the European Union (as they would have to be bailed out again).

In addition, the formation of a coalition with Greece’s most right-wing party means that all governmental decisions have to be passed by both parties; not only does this mean that they lack legitimacy in power, but we’ve seen with the UK coalition government that this is far from an effective solution. Imagine the difficulty when the two parties have utterly contrasting ideologies!

Conclusion

With the Greek economy starting to recover, it is clear that the measures currently in place are inadequate. That being said, it would be foolish to remove them altogether, purely because Greece is still a highly fragile economy.

The ideal solution here is to reform the Structural Adjustment Policies, so that the Greek economy continues to be protected, but can grow at a sustainable rate. It is hoped that the talked between Syriza and Troika reach a similar conclusion.