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

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

Cutting the deficit Number one priority Loss of Moody’s triple A rating – humiliating. eosborne/ /George-Osborne-no-let-up- in-plan-to-cut-deficit-after-AAA-downgrade.html eosborne/ /George-Osborne-no-let-up- in-plan-to-cut-deficit-after-AAA-downgrade.html

Moody’s downgrade friday-blame-changer/ friday-blame-changer/

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)

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 Tax loopholes Triple Dip Credit Rating Stagflation

Relationships that matter

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

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 MP Chief Secretary to the Treasury – Rt Hon Danny Alexander MP Financial Secretary – Rt Hon Greg Clark MP Exchequer Secretary – David Gauke MP† Economic Secretary – Sajid Javid MP† Commercial Secretary – Lord Sassoon *

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

Treasury Select Committee Questions new governor of the Bank of England – Mark Carney x?meetingId= x?meetingId=12544

Controlling the economy Fiscal policy 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 Stephanie Flanders series

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

Budget Process Finance Bill speaker designates it a ‘money Bill’ Budget is fast tracked through Parliament Speech regarded as first reading 2 nd reading must be heard within 30 days Scrutiny at committee stage 3 rd 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

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

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

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

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

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

Useful website Useful website itics/reporting-the-economy/ itics/reporting-the-economy/ nalism/subject-guides/business-and- economy/reporting-economy nalism/subject-guides/business-and- economy/reporting-economy

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

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

Global crisis ordon-brown-and-barack-obama-g20-r_news ordon-brown-and-barack-obama-g20-r_news

One view of the financial crash 008/sep/17/larry.elliott.hbos 008/sep/17/larry.elliott.hbos

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)

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

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

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

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

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

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)

Chancellor booed /sep/04/george-osborne-booed-paralympics- video /sep/04/george-osborne-booed-paralympics- video Can he recovered from a budget (2012) that was dubbed an omnishambles? Next Budget March – last one to have a chance of having an impact on the economy before the election in 2015

Krugman takes on opponents AKruzmkk AKruzmkk Economic Nobel Prize Laureate economist, author and journalist

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