Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday, 7 January 2015

If Clegg had become Chancellor

Just suppose George Osborne had been run over by a bus the day after the election and in his grief Cameron had given the Liberal Democrat leader a proper job. The reason for concocting this fantasy is that people still say to me that George Osborne - given the situation at that time - had to do more about the deficit. It is only in hindsight (following the 2011 insights of Paul de Grauwe, followed by OMT in 2012) that we know the Eurozone crisis was special and so UK austerity was unnecessary. I do not accept that view, but the point I want to make in this post is that even if you do, it does not excuse Osborne’s actions.

Suppose that in 2010 we had had a UK Chancellor who was seriously worried about market reaction to the deficit, but who was also concerned about the recovery. What might they have done? (I cast Clegg in this role, although Vince Cable might be able to play it with more conviction.) The first thing Clegg might have done is to get the ‘huge’ deficit number in perspective. Here is the data.

UK Net borrowing requirement, % GDP (Source OBR)

The size of the deficit in 2009/10 (10.2%) was unprecedented, but not so very different from the deficit in the ‘ERM recession’, and of course the 2009 recession was much larger. So panic was not required. (The nice Mr. King was already buying lots of government debt, so there was no chance of running out of money whatever the markets did.)

The second thing Nick Clegg might have done is ask Mr. Budd (temporary head of the newly created OBR) how confident he was about the forecast recovery. Alan Budd would have done what all good forecasters do, and emphasise how uncertain macro forecasts are. So there is a real possibility that the recovery might come to a halt, Nick might ask. Absolutely, Alan would reply, particularly given what is going on right now in the Eurozone. He would then ask Mr. King how confident he was that Quantitative Easing could save the day if that possibility came to pass. Mr. King would in all honesty say that while they would do their best, he had virtually no idea what impact this new monetary instrument would have, so he could not guarantee anything.

So Mr. Clegg is left with a dilemma: any action taken to reduce the deficit might put the recovery at risk. But all was not lost. First, the clever Rupert Harrison who used to advise George before that unfortunate accident had come up with quite a nifty fiscal rule that required hitting a target for the current budget in five years time. This had two advantages. First, austerity could be back loaded to give the recovery the best chance of taking off. Second, the rule did not include public investment. Now the chaps at the Treasury said that the multiplier from public investment was pretty high, so Nick asked them to keep those public investment numbers up for at least the next three years. (He might have added, given his colleagues knowledge, be sure to increase work on flood defenses.)

But both the guys at the Treasury, and Mr. King, might have said that postponing all the deficit reduction until after 2011 would not be credible. OK, Nick might have replied, but what should I do straight away: cut spending or raise taxes? The Treasury people would have said that if the aim was to protect the recovery, tax rises - particular on the better off - would be preferable, because some of those would come out of savings rather than reduce demand. So raise taxes first, perhaps on just a temporary basis, and replace them with spending cuts later on. Which taxes, Nick might ask? At this point Mr. Harrison might recall a conversation he had had with an Oxford academic. If you want to impress the markets that you have got what it takes to control the deficit, do something straight away that incurs large political costs. Did he have a specific suggestion? Nick asks. He did suggest increasing inheritance tax, Rupert responds sheepishly, but I think he had George in mind at the time. Sounds good to me, says Nick.

OK, I’m getting carried away here, but I hope you get the idea. An austerity plan could have been devised which tried to protect the recovery as much as possible. In particular, public investment could have been kept high, but what actually happened was it was cut substantially. What we got were fiscal actions that seemed to completely ignore the fact that we were just emerging from an unprecedented recession. When interest rates are at the Zero Lower Bound that is bad policy making and it had large costs.


39 comments:

  1. I heard Ed Davey say yesterday that for the 2015 election, the Tories plan to cut too much, and the Labour Party plans to borrow too much - while the LibDem porridge is just right.

    I again put this from DeLong blog May 06, 2011 :

    "Nick Clegg Sold His Birthright for a Mess of Pottage..and then did not get any pottage. Alternative vote goes down to defeat in Britain. Not only did he sell his birthright, he sold his honor, his party's policy preferences, his self-respect, and any claims he may have had to be addressed as a sophont as well. Now he needs to resign, apologize, give all he has to the poor, and take up a life of anonymous service to others."



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  2. As usual, you omit the political timetable point.

    As with any hypothetical government (ie if Labour had won) the electoral cycle required that the cuts be front loaded. So, Osborne's plan (and Clegg's) was to make the nasty cuts (and to make nasty changes like tuition fees) early on, then in the later part of the Parliament recovery would allow them to coast to victory. That was why they had the Fixed Term Parliaments Act: the coalition had to go the full five years if the plan had any hope of working (almost all governments decline in popularity.)

    As a matter of history, three things (not one) went wrong. First, as you say, the ez crisis hit. Second, commodity prices, in particular oil, shot up. Third, tightening of banking regulation operated as de facto monetary tightening. This meant that the fiscal tightening had a worse impact than was expected. We never went into a double dip, we now know, but growth was pretty pitiful.

    Once those three factos disappeared, or at least eased, growth returned in the Spring of 2013. We are however at least a year behind where Cameron/Osborne/Clegg expected to be, which is what is making the 2015 election so close. [Other political factors are relevant of course. The bizarre election of Ed Miliband, the collapse of Lib Dem support post the enactment of tuition fees, and the rise of Ukip.]

    This is a localised example of the problem of trying to use fiscal policy in the way you would prefer in a representative democracy. Cuts are determined by the political timetable, not the economic cycle. We see the same pattern in many different times and places: fiscal tightening in the early years, relaxation closer to the election. We were, in a way, lucky with the timing of the crash as it came in the later years of a Parliament, meaning the economic and political imperatives aligned.

    So no, nothing would have been different under Clegg, and things would have been little different under Alistair "Cuts Worse than Thatcher" Darling who said pre-election that Labour's plan was also to cut sharply.

    http://news.bbc.co.uk/1/hi/uk_politics/8587877.stm

    The other problem with using fiscal policy is that it is much harder politically to cut recurrent spending than it is to cut investment spending. Sacking teachers, cutting nurses pay, and even cutting social security so that more people are forced to use foodbanks is harder than not filling in potholes.

    So, whilst most would accept, I think, that we now know that cutting investment spending in 2010 was a mistake in economic terms, and those who said so at the time are allowed to shout long and loud about it (as you do), I am very doubtful whether any other path was politically open.

    [As an aside, it is also a bit odd to claim that taxes didn't go up under Osborne, when they have. That Capital Gains was at 18% under a so-called Labour government is extraordinary.]

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    1. It would appear that you miss the the entire economic and political point of the argument even though SWL has been carefully explaining for many months (years?) now.
      There was no political contraint at all on the timing and pace on fiscal consolidation given the economic arguments outlined.
      The economics first - no threat from markets, no chance of turning into Greece, fiscal consolidation when at the ZLB a terrible idea in theory and practice, and as SWL and other empirical studies suggest, taking a much slower/delayed approach to austerity would have allowed the UK economy to recover far sooner, and then be in far stronger position to undertake the necessary fiscal consolidation (optimally more of a balance of tax rises and cuts to G, rather than so heavily towards cuts in G).
      The negative economic impact of this more considered, better timed fiscal consolidation is likely to have been far, far less than it has been, with people far more able to 'absorb' the cuts because of the likely stronger, growing economy and associated rising tax receipts (as opposed to stagnant/falling tax receipts), also suggesting the extent of the cuts required if done later is likely to have been considerably less than it was when done in a weak economy.
      Thus leaving the government in a strong position politically for the election, able to boast of their correct and effective economic management over the past 5 years, which has cushioned the UK economy and its people from what would have been far deeper, more damaging cuts which would of delayed the recovery for years, cost the economy many, many billions in lost output, not to mention the social misery imposed on millions of people. (all of which of course did happen).

      In brief, the sound economic arguments negate/disprove the political constraint argument, since the quicker recovery and resultant stronger economy which can more readily and easily absorb cut to G and any tax rises, would likely remain strong enough going into the election.
      As it is, the disasterous policies not only delayed recovery for years, but also has meant falling/stagnant income tax receipts and the apparent need for years of more cuts to come, illustrating the self-defeating nature of undertaking fiscal consolidation in a weak economy which is also at the ZLB. Knowing this, especially from 2011 onwards, allowed other paths to be politcally open - unless of course the whole point of the exercise is the ideological pursuit of a much smaller state, irrespective of the economic damage done in the process.

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    2. Ignoring the guff.

      "In brief, the sound economic arguments negate/disprove the political constraint argument, since the quicker recovery and resultant stronger economy which can more readily and easily absorb cut to G and any tax rises, would likely remain strong enough going into the election. "

      To quote S W-L

      "So austerity leads to some years where growth is less than it would have been otherwise, followed by later years where growth is more than it would have been otherwise."

      That was also the calculation that Osborne/Clegg/Cameron made. Darling made the same but was not in a position to act on it. We see the same calculation made over and over again by politicians in representative democracies in lots of different times and places.

      I don't think that everyone else is quite the fool you think are.

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    3. If everyone was to "ignore the guff" as you put it (the guff you refer to here being the straight forward economics you often struggle with), then you would have nobody ever replying to your comments.
      Its telling how you immediately launch into attacks on those they disagree with and so often write with a completely misplaced, inappropriate tone of superior knowledge - which is ironic given the evident lack of knowledge and understanding you demonstrate on here. The way you continuosly 'correct' SWL and firmly believe he hasn't considered or thought of something glaringly obvious in his posts is nevertheless entertaining, especially when you bear in mind how much he has to dumb-down some of his posts or even re-word them more simply just so you are able to understand what he's suggesting. Not to mention how often he has to remind you to read the post again given the incoherence of your comments.
      I had no idea you were privy to the inner thoughts and medium/long term decision making processes of the government, where you so definitively write "That was also the calculation that Osborne/Clegg/Cameron made".
      You cannot say this because you do not if this was true. But its a nice example of the writing with an air of 'superior knowledge' point though.
      So lets go along with your idea for just a minute.
      In 2010 Cameron and Osborne think to themselves that deliberately flatlining the economy for 3 years and the untold costs/losses, not to mention the long-term economic damage, is our best course of action politically, because after a while (did they know when exactly?) the economy's growth rate will pick up and they'll look great. OK...
      Remember you are referring to people who were citing the mythical 90% fiscal cliff as a reason for austerity, and that fiscal consolidation in a depressed economy could actually lead to growth.
      Or, as SWL suggests, was it that they took completely the wrong policy option (as the evidence shows) out of a number of possible options open to them in 2010, realised their mistake and the economic and political damage their policy choice was causing sometime during 2012, when they significantly eased up on the fiscal consolidation (again, as the evidence shows), which then resulted in the economy picking up? It surely couldn't have been this could it??
      As you claim, it must have been the former and all have been calculated in advance, eh SH?
      To quote another incoherent argument, "I don't think that everyone else is quite the fool you think are"! Outstanding.








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    4. SpinningHugo, surely your baseline counterfactual cannot be that were Brown to have won in 2010 that similar stagnationist economic policies would have been pursued. Surely.

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    5. Anon
      Darling promised 'Cuts worse than Thatcher'. What Osborne actually did, as opposed to what he said he would do, looks very much like the Darling plan. There is of course a significant difference between someone who cocks up and another person who would also have cocked up given the same opportunity (see also the UK pre-crash).

      Simon
      I am not sure I can follow most of that.

      I do think that Osborne had quite deliberately ended the fiscal tightening by the end of 2011, and that that is one of the factors that has led to recovery (not the only one). So, talk of 'sticking to the longterm economic plan' is just rhetoric. Talk of ;austerity' is similarly hyperbolic. I have, as you know, been critical of those critics who failed to point out this change of course until long after the impact had become apparent.

      Do, of course, feel free not to reply to my comments if you don't think it worth your while. I promise I won't complain.

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    6. SpinningHugo, you go out of your way to claim that your arguments are better grounded in political realities. As such, please defend such expertise and elaborate. Given Labour's ideological commitments, policy perspectives, and constituency interests, how can one plausibly believe that they wouldn't have gone substantively less far and less fast? Four words clipped from a Darling comment simply won't suffice. For the sake of argument let's accept your description and stipulate but trivial differences between Darling's final budget and Osborne's that followed. What story do you prefer that would have seen Labour vehemently resisting the implementation of a Plan B (well before Osborne's Plan A' or B or whatever it is known as)?

      P.S. And if I am correct in understanding what you are referring to regarding the UK pre-crash counterfactual, the analogy is being abused. In the instance, the highest ranking Tories in opposition were opposing "light touch" regulation from the right. Ideology, policy, and constituency interests were aligned. So, criticizing the consequences that eventually followed is and was outrageous hypocrisy. The opposite obtains for the case at hand.

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    7. You are, I think, asking me to do the impossible: prove how Labour would have behaved if they had been in government. I can't. I can point at Darling's plans to halve the deficit in one Parliament, and the promises to enact deep cuts. I can speculate that Labour too would have (rightly) also put up CGT, probably not cut the top rate of income tax, or put up allowances quite so much, but that is all. There would have been some softening at the edges, and we wouldn't have had the ridiculous waste of Universal Credit under IDS. But the differences would have been of that order, not significant differences in overall fiscal policy.

      All anyone can do is judge by what Darling said, and by what Osborne did (eg how early on he abandoned fiscal tightening despite the rhetoric of Plan A). We certainly shouldn't be blinded by the fact that the job of oppositions is to oppose into thinking that they would behave differently in practice.

      A nice example of this phenomenon is tuition fees. Tuition fees were opposed by the Tories and Lib Dems in opposition, brought in by Labour in 2003. The raising of the cap on tuition fees in 2010 was brought in by the Tories and Lib Dems, opposed by Labour.

      In government parties have a very narrow range of viable options, whatever they say in opposition. These choices at the margin only really have make big differences over many years. The possibility that Labour would (or could) have carried out as loose a fiscal policy as S W-L would have preferred in the early years of this Parliament is, in my view, completely far-fetched.

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    8. SH, I thank you for agreeing to play the game, but I really don't think you have engaged in the proper spirit of counterfactual analysis. Of course, no proofs are expected, as they are indeed impossible. However, one should and can provide a richer argument than effectively restating initial conditions.

      To begin, it is certainly not the case that "all anyone can do is judge by what Darling said..". (Would Darling even have remained Chancellor?) One can be well informed by all sorts of other evidence. At a minimum, rules say you should address the consequences that would have been expected to attend exogenous intervening events, like, say, the negative demand shock from the first round of the Euro crisis? Contrary to the Tories who it should not be forgotten were contemporaneously sympathetic to the EU-Austerians, from all that is known or can be most reasonably inferred, Brown himself and those advisers whose opinions he valued would have taken these events very seriously indeed, and it strains credulity that they would have reacted with the same passivity. And in the instance their range of viable options were certainly not so narrow.

      As for whether Labour would have carried out as "loose" a fiscal policy as our convivial host would have preferred, well that is a bit more speculative, but what is far-fetched is that a Labour government would have cultivated stagnation in the way their successor's did (and have).

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    9. "I am not sure I can follow most of that"
      I'm 100% sure you don't recognise the descriptions of your approach to commenting - in the same way a politician (eg. Osborne) would genuinely be unable to acknowledge or recognise someone describing him as being dishonest and deceitful. But re-read your comments, compare them to most others, and you surely can't help but notice unlike yours, most others take a genuine, open-minded enquiring tone, free from thinly veiled insults and attacks, without an attitude of possessing a superior knowledge to others (when in reality the opposite is true).
      As for not being able to follow the rest, it cannot be much further simplified though it served to demonstrate the ridulousness of your claim that undertaking front-loaded fiscal consolidation was the only political option in 2010, and specifically that it was "the calculation that Osborne/Clegg/Cameron, made" with them knowing that there would enormous economic damage, to be followed by a period of much improved growth prior to 2015 election; and thus it was a political master-class by the three stooges.
      This is laughably implausible and of course not supported by any evidence whatsoever.
      They made a terrible policy mistake, realised only after they had cost the UK economy countless billions and when it was beyond doubt that continuing consolidation at the original pace and extent would also be politically costly, they called off Plan A.
      I don't reply to your comments because it might "be worth my while". Think of your comments as being a sort of negative externality on this otherwise outstanding blog site, with my replies going some way to help mitigate them.



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    10. "All anyone can do is judge by what Darling said, and by what Osborne did".

      More succinctly, the point is ... no. You can only judge what Darling said against what what Osborne said.

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  3. Inheritance tax accounts for 0.6% of tax receipts. Even ignoring the (rather strange) fact that it is such an unpopular tax, how much of the hole do you think it could have plugged?

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    1. That was not the point. If you are really worried that the markets might think you will default, you need to demonstrate that you are repaired to suffer unpopularity to raise the taxes that will plug the deficit. So inheritance tax is symbolic in that sense. If a Chancellor is prepared to raise that, they have what it takes to plug the deficit.

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    2. That strikes me as a very odd argument. Symbolism might work with the electorate (and incidentally I regard it as the main argument in favour of the 50% tax rate) but it's hardly going to fool bond investors.

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    3. Assuming bond investors want to see large tax increases and/or large spending cuts to eliminate the deficit, I don't see why tinkering with something completely inconsequential will convince them that you have the guts to do the big stuff just because the trivial thing happens to be unpopular. By that argument relaxing controls on immigration would have the same effect.

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    4. Because it shows you are prepared to do what it takes IF NECESSARY. At the time, as I said, large tax increases were not necessary.

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    5. It shows that you're prepared to do something trivial but unpopular in the current political context. If I were a bond investor the amount of confidence this would give me that you might be prepared to do something large and unpopular at some undefined point in the future, in a different political context, would be precisely zero. As I said, symbolism might work with the electorate but it isn't going to fool bond investors.

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    6. Please tell me EXACTLY what will happen if UK doesn't reduce the deficit. Who or what has the power to take on a Central Bank (BoE) in its own currency, that it is the sole ISSUER of. The central Bank can never go broke in its own currency. The Central Bank can make a loss buying in assets, it can operate with that loss for ever and a day.

      Mind you, if we were dumb enough to be using someone else's currency; like everyone in the Eurozone, it would be a different story. Imagine setting up a system where 19 central banks do the fiscal policy and one (ECB) issues the currency and runs monetary policy! OK, that has got an outside chance of working; but then, the IMF comes up with "austerity", in the form of the stability and growth pact, which stops dead any fiscal stimulus; which made the Germans very happy.

      If there is any doubt about the power and efficacy of fiscal stimulus compared to monetary stimulus in a "balance sheet recession", you only have to look at where the US economy is now (fiscal stimulus = 5.9% of 2008 GDP).

      Compare that with the UK economy (1.5% of 2008 GDP). Admittedly, the UK spent much more bailing out its Banks than the US. Fiscal stimulus in the Eurozone? According to the Germans, they put in 50% of it and the total was a lot less than 1% of 2008 GDP.

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    7. Don't you see that the size in fiscal terms does not matter. What matters is the political cost. As you said, the political cost associated with raising inheritance tax is large compared to its fiscal cost. Judging default is all about trying to guess how much political cost a government is prepared to incur. So if a government does something that incurs a large political cost, then that at least suggests that it would be prepared to continue in that way if necessary, by raising less unpopular taxes by more.

      In contrast, if a government starts by just raising the less unpopular taxes, the bond market trader can always say default is still possible, because we are reaching the limit of what the politician is prepared to do.

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    8. The bond market has no power whatsoever over a sovereign fiat currency. The central bank can dictate interest rates across all maturities if it wants, not just short term rates.

      Bond markets are purely parasitic elements of a sovereign fiat currency. If you are a Greece and you can't "print" your own money, because you are using someone else's currency, then an FX or Bond vigilante CAN screw you in the parasitic, secondary, spiv markets.

      There is only one stage worse than USING someone else's currency and that is BORROWING in someone else's currency. Ask Argentina.

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    9. that at least suggests that it would be prepared to continue in that way if necessary
      That's where I fundamentally disagree with you: I don't think it does. We're operating under the assumption here that what is important is that the government will be prepared to enact serious cuts or tax rises at some point in the future if this becomes necessary. If I were a bond trader I would be deeply cynical about politics (because I would not be stupid) so I would regard this trivial, symbolic gesture as, well, a trivial, symbolic gesture, and remain as concerned as before about the government's ability and willingness to enact real tax rises/cuts at the time if they became necessary. Frankly if you wanted to win the confidence of a bond trader it would be more effective to replace Clegg and his symbolic 'tough choice' over inheritance tax with a proper old-school nasty Tory doing nothing.

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    10. The bond market has no power whatsoever over a sovereign fiat currency
      Tell that to James Carville.

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    11. Heh, you've just got to love the bond vigilantes - "Masters of the Universe".

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    12. George Soros did pretty well selling Sterling I seem to remember, and Alan Budd famously told Mrs Thatcher "You can't buck the markets".

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    13. That was betting against a fixed exchange rate, which is different.

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  4. A LibDem as Chancellor (it really should have been Vince Cable, PhD (Econ)). What a fanciful idea. But going with your premise, there would of course have been a mansion tax, and I doubt the 50% tax rate would have come down so quickly. The only reason there are statistics to prove it was not effective was because it only lasted for one year, and those it affected were at high enough levels of employment that they could defer their bonuses until the next year without hurting their income needs.

    I think you are right the LibDems would have stimulated the economy more, after all, the deficit as a proportion of GDP would also fall if GDP went up (it would be interesting to see a chart showing this without the effects of austerity) so stimulating growth and not talking it down, as was consistent Tory policy for at least the first three years of Government, could have given people more confidence to go out and spend: scared people keep a tight hold of their money.

    Would there then have needed to be politically damaging spending cuts later in the Parliament? With higher GDP, a consequently lower deficit figure, and increasing tax receipts as more people kept good jobs which would again stimulate growth, it may even have been possible to avoid austerity completely, even produce tax rebates of some sort.

    In 2010, austerity was trumpeted by Conservatives worldwide as the solution to the Great Recession, Europe followed the example of the UK and increased austerity. OK, maybe Germany had a hand in that and led the way there, but without an external example to show as 'leading the way' they may not have been able to persuade so many other EZ countries to follow their example. That is why the UK needs to be IN the EU; turning our back on our natural leadership role in that place means they are prone to follow rather more pessimistic German leadership, which has been to the UK's great cost, according to George. It isn't just about the simple costs and benefits, it's about the amount of influence the UK has to alter its own fortunes by changing the minds of those who affect its prosperity. Nick Clegg would have understood this, but it seems few Tories want to.

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    1. those it affected were at high enough levels of employment that they could defer their bonuses until the next year
      And the next, and the next... and then they could (and would) move. This is why London is full of French people. Soaking the rich has to be part of the answer but it's not enough on its own.
      The idea that Germany was following the UK into austerity is bizarre. Germans in general, and the Bundesbank in particular, sometimes seem to regard inflation as the only economic evil in the world.

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    2. "And the next, and the next... and then they could (and would) move. This is why London is full of French people. "

      Not that discredited argument again. I wonder where they'd all go?!

      And there has been lots of French people in London for decades.

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    3. There are a number of places they can go. Switzerland is the number one choice. I personally know lots of French people who are here for tax reasons. The tax advantage has been present for a long time. And lots of people left France in anticipation of the 75% rate that never appeared.
      I'm not arguing that everyone would leave: of course that's not true. But many would, and others would find other ways round paying the tax. But even if you make optimistic assumptions about how much you can raise by hiking the top rate of tax, it just can't generate the sort of numbers you need.

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    4. "Switzerland is the number one choice"

      That's interesting because a huge number of people commute from France to Geneva, for example, because of the high cost of living in Switzerland. I guess that affects the rich a bit less, though.

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    5. Quite. If your earnings are in the millions every 10% off your tax rate pays for a lot of food and electricity.

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    6. JD, I think the USA taxes the investment income of US citizens irrespective of where it is earned or where those US citizens are living. I think that sort of rule is crucial in order to avoid just the problem you describe. To my mind the ideal tax would be an asset tax paid by citizens irrespective of where the asset was held, where the citizen was resident or what form the asset was (so the same for cash, real estate, stocks, bonds, art, whatever).

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    7. I'd agree, stone. The idea that a UK citizen can enjoy the protection of the state, but be resident in Monaco for tax purposes, is one of the many loopholes that should be closed immediately.

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    8. An interesting idea but as way of plugging the deficit in the middle of a financial crisis and recession it strikes me as just a touch risky.

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    9. "And the next, and the next... and then they could (and would) move."

      No, they wouldn't. Switzerland has been actively marketing itself as a replacement location for Hedge Fund managers for years now, and of the 30 odd it has seriously propositioned less than 10% actually moved. When you think of the Nationalistic tendencies and inadequate foreign language skills of the many barrow-boy trader/bankers, the desire to keep all things British in their life and avoid "socialist Europe" the very idea they would abandon Blighty is even more fanciful than Nick Clegg as Chancellor. If they could have gone, they would've gone already; even places without language issues for them, such as the US, which wants good finance people, and pays highly for them but the barrow boys want to stay in London. Saying otherwise is scaremongering poppycock.

      "The idea that Germany was following the UK into austerity is bizarre."

      I didn't say that, I said "Europe followed the example of the UK and increased austerity. OK, maybe Germany had a hand in that and led the way there, but without an external example to show as 'leading the way' they may not have been able to persuade so many other EZ countries to follow their example." The position of the UK here was what persuaded the doubters to go with the German view. If the UK had said austerity was wrong, do you really think the French, Italians or anyone else would have agreed so easily with the Germans?

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    10. Not everyone earning over £150k a year is a 'barrow-boy trader'. If you think that people don't make decisions about where to live on the basis of tax regimes, you are just plain wrong.
      But in any event my point is not that everyone in this category is going to leave: of course they aren't. And actually I accept your point that the data we have on the 50% rate are flawed by the fact that it was only in place for a year: almost everyone moved the bonus date. But by hook or by crook a lot of people will find ways round paying this tax (whether by moving or other methods), as they always do, and it will not raise as much as you think. And more fundamentally, even if it does, it won't be enough.
      If the UK had said austerity was wrong, do you really think the French, Italians or anyone else would have agreed so easily with the Germans?
      Bluntly, yes. They might have kicked a little bit more and screamed a little bit louder.

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