Sunday, July 26, 2015
Cuts: the big bad wolf's howl is worse than his bite
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

Sometimes I think that when George Osborne looks in the mirror each morning, he thinks: “Now how can I put the wind up the Labour party today?” Then, while holding that thought, he goes on to: “And how can I put the fear of God into people working in the public sector?”

A few days ago, the Treasury produced a 24-page document called ‘A country that lives within its means: Spending Review 2015’. Signed by the chancellor and his Treasury chief secretary, Greg Hands, this was not the spending review itself; that will not be published until November 25.

No, it was the Treasury’s opening gambit in the coming negotiations between it and the spending departments. Unlike in 2010, when the coalition’s first and most important spending review was a bit of the back of the envelope affair, the chancellor does not want to be accused this time of not following proper procedure.

Actually procedure has become a lot more formal during the time I have been following these things. There was a time when to extract from the Treasury, or more likely from disgruntled Whitehall departments, what the mandarins were demanding was gold dust. Now it is set out in black and white in an official document.

Osborne and Hands have asked “unprotected” departments to model two scenarios, of 25% and 40%, for real-terms reductions in their so-called resource budgets. Even in an official document, that is big news. The BBC led on it all day.

Does it mean, as some have suggested, that the Treasury is setting a target for cuts that can never be achieved? Does it mean an ideologically driven plan to shrink the state beyond recognition, so people have no choice but to use the private sector?

Sunday, July 19, 2015
Bank ponders a rate rise as job market changes gear
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

Things are getting rather interesting. In the past few days we have had what looks like a concerted attempt by the Bank of England to prepare people for an interest rate rise in the coming months, coupled with an equally explicit effort by Janet Yellen, chairwoman of the Federal Reserve Board, to say America’s rates will also soon be rising.

Mark Carney, the Bank of England governor, travelled up to Lincoln to tell the world that the decision on interest rates would move into sharper focus around the turn of the year, which most people interpreted as signalling the first rate rise since 2007 and the first move in any direction since 2009.

And yet, on the face of it, the numbers have been going against the idea of a rate rise, certainly in Britain. Inflation, having popped up to a heady 0.1% in May, subsided to zero in June. “Core” inflation dipped slightly and British Gas has announced the start of what might be a new round of energy price reductions with a 5% cut in gas prices. Though inflation will rise as we get towards the end of the year, it is not about to race away.

Even more tellingly, the latest job market figures were a lot softer - at least as far as employment and unemployment were concerned – than expected. Could the Bank, having held off from raising rates when jobs were booming possibly do so when employment is slipping and unemployment going up?

The answer is that it depends, and it depends on two things: whether the latest figures were a temporary blip and whether, if they were not, they signal a change of direction we should celebrate, or be worried about.

Saturday, July 18, 2015
Something Will Turn Up
Posted by David Smith at 03:45 PM
Category: Thoughts and responses

My new book, Something Will Turn Up, is about Britain's economy over recent decades, and into the future. This excerpt gives a flavour of where it and I started, in the industrial heartlands of the West Midlands.


I was born at 24 Coronation Avenue, County Bridge, Staffordshire. The address sounds almost rural. It was, however, part of a small estate just off the busy Walsall Road, which then carried most of the traffic between Walsall and Wolverhampton. It was in the heart of the industrial West Midlands, the Black Country, the towns neighbouring Birmingham whose prosperity was built on coal, iron and every type of metalworking and manufacturing. Our back garden sloped upwards to a small rockery and fence, beyond which the land sloped down again to a canal, the Bentley Canal, built to carry coal barges to feed furnaces.

The Black Country, described by Samuel Sidney in the 19th century as a place where no birds are seen, and “furnaces continually smoke, steam engines thud and hiss, and long chains clank” had changed by my childhood but not by that much. The throb, hum and thud of industry were all around. The Clean Air Act had passed into law but its effects were yet to show through. The autumn and winter smogs were choking. You could get stranded a few miles from home. My school, Walsall Road, had two sources of distraction. One was that it was a spot where passing trolley buses regularly lost contact with the power supply, their poles becoming detached from the overhead wires. The other was the noise from the factory across the road. I never found out exactly what it did but its sound will stay with me forever. Think of a giant drum kit, a slow bass beat interspersed with a high-hat, at maximum volume, and you have something like it. Black dust and iron filings blew into the corners of the playground, from any number of nearby factories.

None of this is meant to suggest it was a grim existence, far from it. An industrial landscape was and is fascinating, from the smoke billowing out of giant chimneys to the fire and steam glimpsed through foundry gates. Industry was all around us, and we expected it to be. It was the source of prosperity. Manufacturing kept food on the table, and more.

In the 1950s Britain was a world leader in manufacturing; 40% of workers, 9m, were employed in manufacturing. A further 900,000 were coal-miners. Manufacturing contributed at least a third directly to Britain’s gross domestic product (GDP) and much more if its indirect contribution was taken into account. In 1950 Britain had a 25% share of world manufactured exports, more than war-ravaged Germany. France and Italy put together.

Britain’s manufacturers sold to the world, and mainly the world beyond Europe. Since the industrial revolution the country had run a manufacturing trade surplus. In the 1950s the manufacturing trade surplus was often as much as 10% of GDP. Britain was no longer the biggest economy in the world but it was still a manufacturing powerhouse. ‘Made in Britain’, or ‘Made in England’, were badges of quality. Britain’s manufacturers did not just dominate the economy, in many ways they were the economy. The big manufacturers, Guest Keen and Nettlefolds (GKN), ICI (Imperial Chemical Industries) and GEC (the General Electric Company) were household names.

Individual ambition serves the common good
Posted by David Smith at 03:30 PM
Category: Thoughts and responses

My remarks on being awarded an honorary doctorate by the University of Nottingham, at a ceremony on Friday July 17.


Vice Chancellor, distinguished guests, ladies and gentlemen, parents, family members, academic staff and fellow graduands. If I’ve missed anybody out, I apologise. It is a great pleasure and honour for me to be here. My sincere thanks to Professor Kevin Lee for his magnificent oration. It is a strange and rather wonderful experience to have such an oration, at least when you’re still around to hear it. My great thanks too to the university for conferring on me the enormous privilege of this honorary doctorate. I don’t have words to describe what an honour this is for me.

Listening to Professor David Greenaway, your vice-chancellor, on the importance of attending your graduation ceremony, for yourself and for your family, struck a chord. Like him, I didn’t, and have regretted it ever since. A second degree a little later partly filled the gap. But it wasn’t the same. So well done all of you for attending this ceremony. And most of all congratulations of your degrees, and the hard work you put in to receive them.

Fellow graduands, you have, I think, all studied economics, so let me say how I think a particular version of the law of comparative advantage applies to you.

Firstly, you have studied at one of the greatest universities in the world. Nottingham isn’t the oldest but it is one of the very best, and carries that excellence to its campuses in Malaysia and China, both of which I have visited.

Secondly, as befits a great university, you’ve benefited from a superb teaching staff, some of whom are here today.

And thirdly, you have studied economics, which of course is the best subject you could have chosen. Some of you will work as economists, or teach the subject yourself. Many of you will move away from pure economics in your careers and other endeavours. But I can assure you the economics you have learned will stand you in good stead. Economics makes you think in a particular way, a logical way, a problem-solving way and an imaginative way. You have the comparative advantage of having studied economics.

Wednesday, July 15, 2015
Something Will Turn Up
Posted by David Smith at 03:00 PM
Category: Thoughts and responses


My new book, Something Will Turn Up, is published on Thursday July 16. More about it here soon but, in the meantime, here is the descrption from by publisher, Profile:

Overcoming economic decline, inflation and mass unemployment have challenged successive Chancellors of the Exchequer. One of Britain's leading economic journalists explains why some of them have made a better fist of it than others.

As the prevailing winds of the global economy have changed, so Britain has been buffeted from boom to bust and back again. But how much is our country's economic landscape shaped by the huge forces of international capital - and the hope that 'something will turn up' - and how much by the individual men and women at the heart of our economic policy?

David Smith forged his career as a leading economic journalist during the country's traumatic transition from the 'workshop of the world' to the playground of international financiers. Something Will Turn Up is his account of the chancellors, prime ministers, Bank of England governors and senior officials Smith has encountered and interviewed over the last five decades, and their impact on the realities of modern British life since the war. Smith leads us through the mire of government policy and long-term trends with wit and clarity to paint a vivid, personal picture of how we got to now - and where we might go from here.

Sunday, July 12, 2015
Osborne gambles on a pay rise to cushion the cuts
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

Five days on from any budget is always a bit of a challenge, particularly one that has been picked over more intensely than most. Fortunately there is still a lot to say on George Osborne’s first budget of the new parliament.

Let me first give thanks for a measure that was not in the budget. Three weeks ago I wrote that a cut in the very top 45% tax rate alongside welfare cuts would send out the worst possible signals. The chancellor was being urged to do it by some senior Tories but fortunately resisted the temptation.

The other omission, which was much less welcome, was sensible tax reform. There was nothing about merging income tax and National Insurance but instead a continuation of the coalition policy of lifting the personal income tax allowance, combined this time with raising the higher rate threshold. Merging tax and NI would help the lower-paid more, while messy aspects of the income tax system remain, including the 60% marginal rate that kicks in at £100,000.

The tax changes that were in the budget, including the new £1m inheritance tax threshold for couples on homes (though not until 2020) and restricting mortgage interest relief for buy-to-let landlords to the basic rate, added to the complexity of the tax system rather than reduced it. Neither the Institute for Fiscal Studies’ Paul Johnson nor me are champions of buy to let, but he is right when he points out that owner-occupation has tax advantages over being a landlord, and will have even more now.

Wednesday, July 08, 2015
Three messages from the budget
Posted by David Smith at 04:00 PM
Category: Thoughts and responses

For a long time during George Osborne's seventh budget it was quite hard to detect a unifying theme, or even a set of themes. As the first Tory-only budget for nearly two decades, and the first of the new parliament, it was in danger of appearing bitty and unfocused. Watching in the House of Commons, there were moments of Gordon Brown-like micro detail that had the chancellor's audience drifting.

It came together in the end, most notably with a living wage announcement intended to soften the blow of £12 billion of welfare cuts and demonstrate that the government is on the side of "hard working" people. In case that left some on the Tory side a little uneasy, the other big end-of-speech announcement, the commitment to spend at least 2% of GDP on defence, went down very well.

As an initial response, there seemed to be three messages:

- deficit reduction can be achieved at a more sensible pace, without risking credibility. The roller coaster spending profile of the March budget was never going to survive serious scrutiny, and it has gone. Achieving the budget surplus that is intended to be the future norm will take a year longer; instead of 2018-19, 2019-20, when a £10 billion surplus is projected.

- as well as being politically popular (though it has had a mixed reception from business), the new national living wage, which will begin at £7.20 an hour next April - for over-25s - rising to more than £9 by 2020, is a kind of super minimum wage. Just as the BBC is taking on some of the welfare bill by funding free TV licences for the over-75s, so business in general will effectively take on some of the costs of welfare, particularly tax credits, by paying more.

- For a government that said fiscal adjustment would come through spending restraint, there are some chunky tax increases in the budget. The new dividends tax will eventually raise more than £2 billion a year, vehicle excise duty reforms nearly £1 billion and increasing insurance premium tax from 6% to 9.5% £1.5 billion. Most of the burden of adjustment will still be on spending, together with the clampdown on tax evasion and avoidance, but these are decent revenue raisers.

More at the weekend.

Sunday, July 05, 2015
Syriza dreamers snuffed out growth and made a difficult situation worse
Posted by David Smith at 12:00 PM
Category: David Smith's other articles

From The Sunday Times, July 5 2015

At the start of this year, things were looking up for the beleaguered Greek economy. Economists polled by Consensus Economics predicted growth of 2% this year, following last year’s modest 0.8% expansion. Unemployment, while still sky-high, had edged lower. There was a flickering light at the end of the tunnel.

That has now been blown out. The latest Consensus Economic assessment is that Greece will experience a small outright recession this year, a consensus forecast that could get a lot worse in the coming days and weeks. Nor can this be blamed on what is happening in the wider eurozone. Forecasters have become more optimistic about eurozone growth in recent months, raising their 2015 forecast from just over 1% to 1.5%.

The gloom has a single explanation. The election of the Syriza government in late January, and the chaotic months of negotiation with Greece’s creditors that followed, plunged the economy into uncertainty and snuffed out the embryonic recovery. The closure of the banks last week, inevitable once the Greek government announced a referendum for today on a bailout package that has since expired, was the final chaotic act by a government that has set new standards of incompetence.

The battle between Alexis Tsipras, the Greek prime minister, and his country’s creditors has been seen in some quarters, including in Britain, as David versus Goliath, dignity versus dictatorship, growth versus austerity, democracy versus the faceless bureaucrats. It could have been all of these things. When Syriza won power it brought with it to the negotiations with its creditors a lot of goodwill. It immediately won a fourth-month extension on its €240bn (£170bn) bailout, which dwarfs the other eurozone rescues, for Ireland, Portugal and the Spanish banking system.