Mr Cameron was wise not to have a general  reshuffle for almost two and a third years. There is a good case for stopping them in future.

The problems with reshuffles are legion.  If you try to make lots of changes all at the same time, it only takes one change to go wrong and then the whole process becomes rushed and can looked muddled. There is not time  to think it through and square all the people involved. When Iain Duncan Smith refused to be moved from DWP, and Nick Herbert turned down an alternative job,  there had to a be hasty redrawing of the lists.

The reshuffle gets people excited or worried ahead of the date, and then allows them all to relax thereafter. It is the oppposite of continuous review and continuous improvement that is more normal in the private sector. The boss only has real authority in the run up to the big change over.

Concentrating all the moves at once means a lack of thought for many of them. People may be  put into jobs they do not want or they are ill equipped to do. They may be put into a job with a potential conflict with something or someone  else in their life the PM knows nothing about. These days many MPs have wives or husbands with important jobs and have to be careful about family conflicts of interest.

In  summary it is all too easy to make mistakes, and all too difficult to correct them once the media spotlight is watching everyone’s move and trying to eavesdrop on every meeting.

So what could be done instead? Whilst I think there are too many Ministerial changes, I am not against change. It is an important part of motivating and managing. Some new people need to be brought in and some older people be asked to retire. Some should be promoted, and some given a chance to shine at the same level in a different department.  It needs to be linked into a system of personnel management that makes sense, that avoids unpleasant surprises, and allows those making the big decisions to make them at leisure, reflecting on them and talking it through with the interested parties.  A sensible system would have mini reshuflles from time to time to tackle a problem or highlight an issue, which were properly managed, were no surprise to those involved but were a surprise to  the press and public.

Let us take one of the most controversial cases in this reshuffle, the case of the Transport Secretary. When the government reconsidered its stance on the Third runway for Heathrow, that should have led on to discussion with the relevant Ministers on how to handle any change of policy and how to deal with the constituency interests and views of the then Transport Secretary. If the government  has decided to make a third runway at Heathrow a likely option, despite past promises, then of course they need to shift the Transport Secretary and explain why they are doing it. If they have no such intention the best way to deny the rumours is to keep her in post.

Making her move part of a general reshuffle does not persuade people it was just one of those things, unconnected to Heathrow. Rightly or wrongly they will think it is about that. It leads directly to the strong views of Zac Goldsmith and wider issues with handling MPs from both Coalition parties who have strongly defended the old policy.

When appointing new Junior Ministers it would  be better to say to them the typical experience would be 4-5 years as a junior Minister. They should be told they will probably have a couple of departments during that time, unless they are keen to stay in  one which they know well and are strongly committed to. They should be told promotion comes only  to some, with ideas on how the Minister can shine to make promotion more likely. They should be told they will be given plenty of warning if they are to be dropped. They should have regular reviews with their Secretary of State whose job should include mentoring and supporting the junior Ministers.

Cabinet members should have regular meetings with the PM or a senior Cabinet Minister responsible for them. The Chancellor could look after the Chief Secretary, Transport and DWP. The Foreign Secretary could look after defence and Overseas Aid. Cabinet members should always know what is expected of them and their departments, and be told at regular intervals how well they are doing and what needs to be improved.  When the PM thinks it is time to bring their stay in Cabinet to a close there should be an orderly process of management to avoid embarrassment and last minute decisions.

There will occasionally be times when urgent action is needed or surprise is a necessary weapon of management. In  most cases Ministers would appreciate knowing where they stand and being able to manage expectations. They would keep it quiet if it were handled well and was obviously in their mutual interest to do so.

I think it a sad loss that Charles Hendry has left the government.  He had a good command of his energy topic and was the voice to “keep the lights on” in energy policy formation. So too it is sad to see the end of Bob Neill, a local government Minister with a love of  localism and a good knowledge of the Council world. Tim Loughton was a model Children’s Minister and Michael Fabricant a natural in the whips office. Gerald Howarth was a round peg in a round hole in the Defence Department, a job he loved.

 

 

            If you call spending “infrastructure” or ” investment” it gives a   magic halo to it in the UK debate. Mr Brown was well aware of this. He called much government current spending “investment” as he sought to reassure people that his fast growing state financed by big increases in debt was sustainable and desirable.  If it was all “investment” it implied there would be  a pay back, that we need not worry about the debts.

            The difference between investment or capital spending and current spending is clear in many cases. Building new school buildings is capital spending, because those buildings will be available to the public sector for their educational purpose for many years after the money has been spent. Conversely paying the teachers’ salaries is current spending, because this month’s pay only buys this month’s teaching. Next year you will need to pay them next year’s pay. Mr Brown called teachers’ and lecturers pay an “investment” in the future of the young people they were teaching, which is true. That does make the spending capital or investment spending in the normal sense.

          In the private sector the difference between capital spending and current spending is central to the compilation of company accounts. There the difference is clearer. Capital or investment spending is different and necessary. It is spending on  the plant and equipment you need to make future goods. There is a profit or cash return on it. Successful investment allows you to make and sell more goods to people bringing in more cash and profit to your business.

                     Capital spending can be for growth. You add extra factory space and equipment because you need to make more. It can be for better efficiency. You replace obsolete plant with more modern, which allows you to produce goods that are better and cheaper. It can be replacement. Your old machines are worn out. These different reasons produce different answers in terms of how much extra cash and profit the investment will generate relative to its costs.

                    It can be different in the public sector. Much capital expenditure yields no extra revenue or profit. A new office building for the civil service is usually just an extra cost, though it may be desirable or necessary. A new High speed train will add more to the costs of the railway than it will add to the revenues, increasing the need for current subsidy. An extra or new school  may be welcome, but it too simply increases the costs of educational provision by the interest on the extra debt.

                 The problem with public capital provision is how you allocate capital between the different sectors in the absence of a popularity or profit test from the market. Free enterprise companies can decide easily to put more capital investment into supplying ipads than into supplying record players, because that is what the market demands. The car industry can decide to spend more capital on expanding production lines for popular cars and shutting down lines for the unpopular ones.  In government there is no accepted measurement of the relative popularity of a new road or railway line for potential users, and many other issues crowd in  to complicate such a decision.

                  The outgoing Labour government decided to slash public capital spending to start to get the deficit down. The Coalition only reinstated a modest proportion of the cuts.Now it is popular to say we need more public capital spending to stimulate the economy. We need to be careful about such slogans. White elephant public sector projects, borrowing huge sums for projects that are going to be very costly and not very popular with users, is not a good idea for a heavily indebted country to embark on. I will look in a later post  at what is sensible by way of a capital programme.

Here is a copy of a letter I have today recieved from Damian Green, which details the latest immigration figures:

Dear Colleague,

I thought it would be helpful for you to have the details of the latest immigration figures, which show the real difference our tough policies are making. There has been an overall fall in net migration, and the number of visas issued is at its lowest since 2005. At the same time, we are able to support the growth of tourism in the UK.

The key points are:

Net migration is falling as our reforms take effect. It is down by 36,000 between December 2010 and December 2011, with 26,000 of this fall occurring in the last quarter. The latest figure, 216,000, shows the scale of the challenge we inherited and is still much too high, which is why we have continued to introduce policies to bring it down to the tens of thousands by 2015.

The numbers for visas issued, which are more up to date, covering a period to June 2012, show:

• Student visas down 30%
• Work visas down 7%
• Family visas down 10%.
Grants of extension to stay are down 11% in the year to June 2012, and settlement grants fell by a third over the same period.

Apart from our commitment to reduce the numbers we are also determined to make the system more selective and the evidence of our success is emerging in these figures. Despite the fall in overall work visas, skilled work visas rose 4%. There was a 3% increase in tourist visit visas, and in the vital Chinese market we saw a 28% increase in visitors. This shows that immigration control is compatible with the growth agenda.

What these latest figures show is that the reforms we have introduced across all the major routes of immigration are beginning to bear fruit. We will be relentless in pursuing these reforms.

Yours sincerely,

Damian Green

 

              Much of today’s politics takes the form of campaigns waged by big businesses and their PR advisers. They draft standard emails and letters for people to send to their MPs. They get friendly MPs to table motions and pose questions to supplement their campaigns. They brief the media.

                  This Parliament the most successful by far, if measured by the number of people sending in the standard email, has been the campaign to cut Air Passenger Duty. This summer many individuals and families have taken to the air for their holidays, or have flown on business, only to find that APD is now  a large sum. It is even more noticeable if you have taken advantage of cheap fares from low cost airlines, or from early booking, as it can add a large sum to the total cost as a proportion of the original fare.

                   I have no time for high taxes of any kind. There are all sorts of taxes I would like to see lower. Nonetheless it has surprised me that out of all the unpopular tax impositions on people it should be APD that has attracted such a high level of criticism.

                   It implies that the government’s proposed switch of taxes from  taxing “goods” like work and saving to taxing “bads” like pollution and carbon dioxide emission has not proved as popular as they hoped. APD is one of the few ways they have been following this policy, along with higher fuel duties on petrol and diesel which are also proving very unpopular.

                     I doubt if the government  are about to give in and cut APD. They would be wise, however, to call a halt to extra “green” taxation. It is encountering a lot of consumer resistance. The problem with APD is that for the better off it is yet another modest attack on their lfiestyles which they probably afford to pay. For people on low incomes it may be the straw which breaks the camel’s back. APD is now at a level where it may stop someone  flying altogether. That, of course, was the stated intention. It does not make it popular, and in a democracy the voices of the people  have a role to play.

 

             There is understandable frustration that the Uk economy is not growing. It  gives everyone interested in economics and government policy the opportunity to fly their favourite kite, offering it as a solution to the big question of how do we achieve a decent rate of growth. There is a danger in such a situation. Some of the ideas mooted have little or nothing to do with promoting growth. Some will be positively harmful. Yet they all get a showing on the media because it is the fashionable topic.

               Recently we have heard the idea that we need a wealth tax. I know of no countries that have taxed themselves into greater prosperity. We already have three wealth taxes in this country – Capital Gains Tax, Stamp Duty and Inheritance Tax. Income Tax is steeply progressive, with the top 1 % of income earners paying 25% of the total tax take. The Chancellor is right to rule out the idea that an additional wealth tax would solve the problem.

                 We have also been told that building a third runway at Heathrow would do the job. As critics of this scheme have pointed out, even if the government did suddenly accept this  proposal, no construction work would take place  this side of the election, given the long delays which the planning process would impose. There is a big issue over London’s airport capacity which the government needs to solve, but this is no quick fix for growth in 2o13.

                  The Chancellor lets it be known that he is not suprised to be unpopular. He did in Opposition regularly predict just this development. He also used to predict that by now Conservative MPs would be queueing up to ask him to go easy on the cuts, pleading  with him to spend more. Instead, more Conservative MPs are pleading with him to control public spending, and offering him list after list of items they would like to see cut, usually starting with some of the items in the overseas aid and EU budgets and going on to cutting subsidies to nationalised businesses.

                   This autumn will see, we are told, a new Bill to promote economic growth. It needs to centre on curbing the appetite of the state for more spending and regulation. It needs to allow the private sector to supply the broadband links, the new roadspace, the power stations and the gas and oil flows from domestic sources that we need to power an industrial and commercial  recovery.

 

          I am not an American. Nor am I a Republican. I can come to US politics with the neutrality of the foreigner, knowing it’s not my personal business and knowing I do not have a vote. I also come to US politics knowing that what the US says and does still matters in the world. It falls to US citizens to hold the debate and make up their minds, but their actions will have an impact on us all.

          In the run up to the last Presidential election I commented here on the skill of Mr Obama’s campaigning, and the attractions of his messages of hope and change. I personally liked his promise to close Guantanamo Bay and to move away from the excesses of some Neo Con interventions in  other countries. I predicted he would win the nomination against Mrs Clinton, and predicted he would go on to win the Presidency.

         Since he took office there has been  disappointment. Many have felt their hopes dashed or dented by  his actions and inactions. It proved too difficult to close Guantanamo Bay. Interventions in the Middle East continued. The economy has not performed as well as Americans would like. Obamacare has proved deeply divisive with his fellow countrymen and women.

                   Mr Romney and his advisers understand this mood. Mr Romney’s campaign launch speech on Wednesday repeatedly talked of a sense of disappointment and let down with the President.  He summed it up by saying “You know there’s something wrong with the kind of job he’s done as President when the best feeling you had was the day you voted for him”

                    Crucial to the Romney offer is the ringing jibe which summarised his speech:

“President Obama promised to begin to slow the rise of the oceans and heal the planet. My promise is to help you and your family”

                       It will be interesting to see who now has the mood of the people. Mr Romney senses that high flown utopianism, whether green or otherwise, is no longer wanted. More people sense it does not work, or think it is not based on good science  or cannot be achieved, whilst many think it has meant a worse deal for them. He offers them lower taxes and more reward for working. He offers them more jobs and better business conditions. He offers them cheaper energy.

                          The election is too close to call. My guess is Mr Obama has to come up with something new and special to counter this homespun appeal to voters’ self interest. Their self interest has, after all, taken a battering from recession and credit crunch. Maybe they don’t mind the fact that Mr Romney has made a lot of money in the past. They might like him to help them make some too.

 

               Mr Draghi has recently tried to find a third way. He thinks making Euro member states choose between belonging to a country called Euroland or leaving the currency altogether is too stark a choice. He thinks there is a middle ground where they can have a single currency without a  single government and single budget.

             So how does he think this can be brought about? He is realistic enough to say the present framework ” left the Euro area insufficiently equipped to ensure sound economic policies and effectively manage crises”. He says there does need to be more common government, but it can fall short of a proper unified state with major transfers of cash from rich to poor.

              He seeks, when speaking to the Germans ” true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self policed. …we need guarantees of competitiveness… The euro area is not a nation state where persistent cross regional subsidies have sufficient popular support…there need to be powers at the centre to limit excessive risk taking by banks…. there also needs to be a framework for bank resolution…”

            When speaking in Spain this becomes creating four building blocks for  a “Genuine Economic and Monetary Union”. ” 1) An integrated financial framework, a so called banking union   2) a form of fiscal union that recognises our deep economic interdependence  and the need for collective action 3) an economic union that supports the competitiveness of the Euro area as a whole….4) a political union

               He is describing the same agenda in different terms to audiences who want very different things. There is, however, at the heart of Mr Draghi’s two versions an inherent contradiciton on the issue of subsidies and transfer payemtns around the union. The language in Spain implies they are on the agenda, and the language in Germany says they are not.  “Economic interdependence  and the need for collective action implies solidarity payments from rich to poor”, when he is telling the German audience they will not have to make such payments. Which is it to be? The answer will then  tell us how tough the budget discipline on each member state has to be. There remains the small issue of how the EU manages to impose the discipline.

              The truth is there is no middle way. If the Euro is to work it will take substantial transfers from rich to poor, as well as a common fiscal and banking policy. That means a state called Euroland replaces the member states in very important areas of policy. It also means German surpluses have to be partly  taxed away for the benefit of the poorer areas, with the rest  transferred by the banking system to where they are needed.

   

                On Monday evening I turned on the tv to see the beginning of a report on the work of a platoon of our troops in Afghanistan. I was not planning to watch it all, but I became gripped by it.

                It was a simple  long statement of what it must be like to serve for several months on the front line against the Taliban. The Lieutenant in charge came over as thoughtful, very concerned for his troops,  and well aware of the big responsibility that rested on his shoulders. The soldiers came over as brave and long suffering, prepared to carry out orders to the best of their ability and well aware of the dangers they were placed in. They were, as MPs never fail to say, a credit to our nation, brave and conscious of their duty.

                  The officer in charge was allowed to put some of his thoughts about the campaign, the strategy and the problems of managing his troops to camera. He did so loyally, without sounding too critical of the high command nor seeking pity for the violence they faced.  His testimony, however, raised serious questions about the mission and the tactics being followed.

                  Their main task was to keep open a tarmac highway as a major route  between cities, suitable for commerce. When the British platoon took over from the Americans, they decided they needed to undertake foot patrols to demonstrate to the Taliban that they could control the ground. They soon discovered they were vulnerable to casualties from snipers as well as from IEDs, and opted to carry out most of their work from heavily armoured vehicles on the highway. They did not and could not police the ground as they wished.

                       They were then instructed to engage the enemy by luring the Taliban forces into firing at them so they could return fire.  They did this though they had understandable reservations. The instructions do not allow them to fire first on the enemy. This is a precaution, as the enemy does not wear a uniform or other easily identifying mark, and blends into the local terrain and local communities in ways which make  attacking them hazardous. Trying this led them to trigger ieds with  hidden trip wires. They decided not to undertake these tactics again owing to the risk of loss of life.

                        We then saw a “routine” operation seeking to clear ieds from near the highway, with soldiers on foot doing this under cover from the men remaining in the heavily armed vehicle on the highway. This led to another casualty. Soldiers moving out from a  vehicle needing to sweep every piece of land to check for explosives before they step on it are highly visible and vulnerable to concealed enemies and to concealed bombs.

                        Finally we learned that locals were blown up by an ied just off the highway, when UK troops closed the road temporarily to check its safety. A local group decided to ignore the instructions and drive on the land close to the road. This led to improved relations with local villagers who blamed the Taliban for the deaths, and made it a bit easier to police the area. The Lieutenant privately mused on how these deaths had happened owing to the presence of foreign troops to try to keep the road safe but making it a target for Taliban ieds.

                        The Lieutenant’s questions were worrying, and need to be addressed by those issuing the orders.  How feasible is it to patrol areas close to Taliban territory?  Is it wise to draw the Taliban into a fight when our troops are not allowed to initiate firing or get ahead of the enemy in action? Can you fight against an enemy which is embedded into local communities you are trying to protect?  How can you succeed in a hearts and minds campaign in the villages when most overseas soldiers do not speak the local language, and when you are outnumbered by the Taliban? Can the presence of foreign troops become an incitement to more violence by the Taliban?

                     The US and UK high commands have announced the departure of troops in 2014. The Afghans have by n ow had many years to train their own police and soldiers. Isn’t it high time we put our troops back into relatively safe bases, using them just as advisers? Isn’t it time to bring most of them home? Why should we risk more lives in these difficult conditions, now our departure has been announced?

 

Both the outgoing Labour government and the incoming Coalition government pledged to make work worthwhile. Both agreed that the best kind of spending cut was a cut in welfare benefits because out of work people had found worthwhile jobs.

Some opponents  unfairly quip that Conservatives want tax cuts for the rich and benefit cuts for the poor. They claim that Conservatives think the rich need incentives and the poor need pressures to earn. The truth is kinder and more prosaic. Conservatives want tax cuts for people at all income levels. We want tax rates that mean the rich pay more, and tax rates which mean the poor pay less. Indeed, the Coalition government with the agreement of both parties in it  has driven hard to exempt the first £10,000 of income from all Income Tax, and will doubtless get there soon. Imposing a zero rate for lower incomes is a sign that the government  wants people on low incomes  to pay no tax, not that they wish to penalise them.

There remains the more difficult issue of benefits, which has taxed governments of all persuasions. Labour in office has agreed with means testing benefits, and agreed that getting people into work is designed to get them off benefits. The Coalition government, determined to make it more worthwhile to work, then increased out of work benefits by more than twice the rate of increase of pay this year, which has set back the task of making it more worthwhile working.

The problem with means tested benefits is they have to be withdrawn, and the act of withdrawal recreates disincentives to work harder or at all. Most people agree that if you move from unemployment to working, you should lose some of the benefits the government is paying you when out of work with no income. Most people agreee that it is a nonsense to pay benefits to people with good incomes, or with substantial savings and other resources. The nice question is how do you get from benefit dependence to self support without creating a large disincentive?

You can either have a few people facing a high rate of withdrawal of benefit, the sharp cliff approach, or a lot of people facing a less dramatic rate of  reduction of benefit as it is taken away more gently. If the range of income that faces benefit withdrawal also attracts standard rate income tax, then the combined rate of tax and benefit withdrawal can be high and can act as a disincentive.

There is no way of avoiding one or other of these approaches to benefit withdrawal. The more people that can be exempted from Income tax the better, as then the benefit withdrawal loss is not compounded  by income tax loss. There has not been enough study of what rate of benefit withdrawal is possible without acting as a major deterrent to working for an income. Those settling the rates of withdrawal have to bear in mind the costs of getting to work as well as the loss of state income. The  simple truth is that all income levels the system works best if there is a fair and substantial incentive to work more, work smarter or work at all.

 

              When the government announced its two year pay freeze I asked some questions and pointed out that different departments had different ideas about what constituted a pay freeze. Whilst some thought it meant not paying individuals more, others thought individuals could still move up within grades and receive seniority or performance related enhancements. I suggested to Cabinet Office  Ministers they might like to come up with a common definition and enforcement across the civil service.

              Today’s FT reveals that they did not, and explains how some departments are more generous than others. I am in the process of collecting information to write on the general topic of public sector pay, but now find the FT has done some of the work for me which is most revealing. The net result of the pay freeze is public sector pay is increasing at around the same slow rate as private sector pay overall.