Week 6 Treasury – the department with the power

1. Week 6 Treasury – the department with the power The Chancellor of the Exchequer – the real Deputy Prime Minister? Joy Johnson

2. Key texts • Morrison –Essential Public Affairs • Coalition Agreement • 22 Days in May – Laws • So you want to be a Political Journalist: ed Sheila Gunn, ch 17: It’s the economy stupid! Prof. Steve Schifferes • If time various books on the financial crash; inc. • Beyond the Crash: Overcoming the first crisis of Globalisation: Gordon Brown • The Gods That Failed; Larry Elliott and Dan Atkinson • False Dawn The Delusion of Global Capitalism: John Gray • End This Depression Now; Paul Krugman winner of the Nobel Prize in Economics

3. Levers of Power • Control of spending • Fiscal policy • Budget process • Comprehensive Spending Review • Independent Central Bank – Bank of England • Monetary Policy Committee • Office of Budget Responsibility • Office of Fair Trade • Privatisations • Private Finance Initiatives (PFI) – fund investment for infrastructure projects - Initially introduced by John Major • Embraced by New Labour as PPPs (Public Private Partnerships to fund schools hospitals etc – scandals now on how much they cost in the long term)

4. Issues • Cutting the deficit (number one priority for the coalition government as stated in the coalition agreement) • Growth • Public spending cuts • Reform of the Banks – tensions with Chancellor and Secretary Of State for BIS • Unemployment (particularly young people) • Inflation • Interest rates

5. Relationships that matter

6. Chancellor – George Osborne & his Liberal Democrat Chief Secretary Danny Alexander

7. Chancellor and his team • Chancellor of the Exchequer after the PM most senior member of the cabinet • Chancellor of the Exchequer – Rt Hon George Osborne MPChief Secretary to the Treasury – Rt Hon Danny Alexander MPFinancial Secretary – Rt Hon Greg Clark MPExchequer Secretary – David Gauke MP†Economic Secretary – SajidJavid MP†Commercial Secretary – Lord Sassoon *

8. Chancellor of the Exchequer • No 11 Downing Street • Dorney Wood • Treasury – Whitehall • Responsibilities : overseeing government’s public spending commitments by managing fiscal policy; managing the national debt; promoting economic growth; controlling domestic inflation and unemployment • Treasury select committee shadows the department

9. Treasury Select Committee • Questions new governor of the Bank of England – Mark Carney • http://www.parliamentlive.tv/main/Player.aspx?meetingId=12544

10. Controlling the economy • Fiscal policy and Taxation • John Maynard Keynes • 2 types of taxation – direct up front from individuals and businesses and indirect i.e. VAT • Income tax – progressive ability to pay • Regressive tax i.e. Indirect taxes • Corporation tax paid by companies on profits • Capital Gains Tax (CGT) paid by the owners of financial assets such as property • Inheritance Tax – death duties • http://www.open.edu/openlearn/tags/masters-money Stephanie Flanders series

11. Managing the economy • Highlight of the Chancellor and the government’s year the Budget and the accompany Finance Act • 20March budget (last one that cld affect economy before 2015 election) • Comprehensive Spending Review (CSR) the one last November fixed spending budgets for each Government department up to 2014-15.

12. Budget Process • Finance Bill speaker designates it a ‘money Bill’ • Budget is fast tracked through Parliament • Speech regarded as first reading • 2nd reading must be heard within 30 days • Scrutiny at committee stage • 3rd reading steamed through on same day as report stage then Royal Assent • Lords can’t interfere • Budget speech designed to forecast short to medium term movements in the economy 1-3 years • Announces new taxes, tax breaks, and or benefits to finance investment • Other measures of help to low paid, the elderly etc likely to be in short supply in the age of austerity • Leader of the Opposition responds (difficult Parliamentary occasion as there are likely to be surprises) • Debate on the floor of the Commons

13. Economic terms • Fiscal Policy – taxation and economic policy of a government • Post war – mixed economy • Thatcher years – privatisation – monetary policy (economist Milton Friedman) • New Labour adopted neo-liberal economics • Fiscal rectitude – cutting public expenditure and reducing the amount of government borrowing

14. Economic terms - globalisation • Neo-liberalism theoretically makes trade between nations easier. • Freer movement of goods, resources and enterprises • Light touch or no touch regulation, tariffs, restrictions on capital flow and investment

15. Economic terms cont • Gross domestic product (GDP) – total output of goods and services • Gross National Product (GNP) GDP + with net property incomes from abroad • Group of Seven finance ministers and central bank governors of the leading Western economies • Group of Eight • Group of Twenty following banking crisis

16. Economic terms cont • The national deficit – the annual difference between government spending and its receipts (mainly taxation) – government has to borrow to make up the difference • The national debt the accumulation of these annual deficits and the borrowing incurred to make up the difference

17. Economic terms cont • Inflation – rise in price levels which reduces purchasing power • Inflation used to be past scourge • “No more ‘boom and bust’” - hubristic boast of Gordon Brown then Chancellor of the Exchequer • Low interest rates to help stimulate economy • inflation going up • Governor of the Bank of England has to write letter to the PM saying why target of 2% has been overshot • Fear of stagflation – combination of high price inflation, high unemployment and low economic growth

18. Useful website • Useful website http://www.bbc.co.uk/journalism/briefing/politics/reporting-the-economy/ • http://www.bbc.co.uk/academy/collegeofjournalism/subject-guides/business-and-economy/reporting-economy

19. Crisis of capitalism • Lehman Brothers (September 2008) collapse triggered meltdown in the financial system

20. ATMs would have run out of money • Banks too big to fail • Gordon Brown then Prime Minister and Chancellor Alistair Darling part nationalised the banks RBS, Lloyds

21. Global crisis • http://www.dailymotion.com/video/x8uf7i_gordon-brown-and-barack-obama-g20-r_news

22. One view of the financial crash • http://www.guardian.co.uk/business/video/2008/sep/17/larry.elliott.hbos

23. Independent Central Bank • New Labour gave independence to the Bank of England in the first few weeks following their landslide first victory (1997) • Established Monetary Policy Committee chaired by Governor of the Bank (Mark Carney takes over from outgoing gov. of B of E Mervyn King). • Responsibility to set interest rates. Takes the decision out of the political arena • New Labour set up regulation system Financial Services Association (FSA)( (widely accused now to have failed when it came to the global banking crisis – new coalition govt abolished it)

25. Monetary Policy Committee • interest rates set by Bank’s governor and the monetary policy committee – tensions within

27. Business Innovation and Skills (BIS) • Vince Cable Secretary of State for Business, Innovation and Skills and President of the Board of Trade • Responsible for business and banking and regulation (lost out on Rupert Murdoch and News Corporation bid for BSkyB) tension with Chancellor on wealth tax (NB mansion house tax – Ed. M announced (not a manifesto promise yet) 10p tax rate to be paid for by a mansion tax over 2million) • David Willetts Minister of State for Universities and Science (attends Cabinet) • BIS select committee shadows department

28. Labour (official opposition) • mansion house tax – Ed. M announced not a manifesto promise yet) 10p tax rate to be paid for by a mansion tax over 2million

29. Office of Budget Responsibility • The Office for Budget Responsibility (OBR) was formed in May 2010 to make an independent assessment of the public finances and the economy for each Budget and Pre-Budget Report. • Shaky start chaired on interim basis, by Sir Alan Budd. • Chairman Robert Chote (formerly director of Institute of Fiscal Studies IFS respected independent think tank) • Growth Rates had to be revised down

30. Other Bodies & terms • Office of Fair Trading (OFT • Confederation of Business Interests (CBI) • Institute of Directors (IoD) • Trade Union Congress (TUC) • Privatisation – selling government assets • Part Privatisation – hybrid • Nationalisation – government owned • Utilities – essential services i.e. Water, gas, electricity privatised • Regulatory bodies i.e. Ofgas, Ofcom, Ofwat

31. Stock Exchange • Shares in public limited companies (plc) traded on global stock market – one of the biggest London Stock Exchange • Limited Liability companies • Private Limited companies • Public Limited Companies (plcs) – floated and listed on the LSE • Hostile takeovers (see Morrison for examples)

32. Chancellor booed • http://www.guardian.co.uk/sport/video/2012/sep/04/george-osborne-booed-paralympics-video • Can he recovered from a budget (2012) that was dubbed an omnishambles? • Next Budget March 20 2013 – last one to have a chance of having an impact on the economy before the election in 2015

33. Krugman takes on opponents • http://www.youtube.com/watch?v=_r-AKruzmkk • Economic Nobel Prize Laureate economist, author and journalist

34. Reading and question • Seminar reading essential public affairs for journalists, Morrison Ch 7 • Outline role of the Treasury and the mechanics of the Budget. Budget process