The latest polls show that the Conservatives are now losing their shine, following the Lib Dems down to unpopularity.

          It is interesting that Labour are 10% ahead, when most people agree that Labour left the country in a dreadful financial mess. Most of the problems the Coalition are grappling with come from the inheritance.

            It goes to show that  opposition to government  is not strengthening votes for parties on the side which wants spending cut and the deficit reduced faster. It’s good old Labour who are the main beneficiaries of the Coalition’s little local difficulties. For the purpose of this argument I accept the national opinion polls who do not forecast Respect taking off in other places. Labour agree that the deficit needs cutting, but disagree over the  timing and  magnitude of the adjustments.

            So what has gone wrong?

           The first problem must be inflation. As we discussed yesterday, the Bank’s failure to control price rises has led to a surge in domestic energy, fuel and other prices rises which have badly squeezed family budgets. This cut the purchasing power of family incomes.

          The second is the way the government decided to direct the squeeze  or the cuts to the private sector instead of the public sector for the first two years. Whilst people are  not clamouring for spending cuts, they do not like the high tax strategy imposed to try to pay more of  the public sector bills. Between the outgoing Labour government and the incoming Coalition government, we have seen rises in VAT, National Insurance, Income Tax above the standard rate, CGT, Stamp duty, petrol and diesel tax and others.  The reaction to freezing  the pensioner tax allowance is a symptom of the pent up frustration at ever rising taxes.

              The third is the inability of the government to make decisions that UK voters want, owing to differing views from the ECHR or Brussels. Votes for prisoners, asylum rules, extradition and a host of other matters leave the government looking powerless when the public expect them to be able to tighten things up.

                 Mr Cameron experienced a surge of popularity when he announced his intention to veto the budgetary treaty. Many people would like him to follow that up with demands for a new relationship for the UK. Mr Osborne experienced a surge in popularity when in opposition he announced a tax cut and flat taxes. In government has has been unwilling to follow it up,as he has so much spending to pay for.

                 The Conservative leadership said they wanted to rebalance things – to grow the private sector and get the public sector to concentrate on the essentials. That was a good idea. Maybe they should do more to implement it soon.  People are getting restless at the high taxes and the ever growing tentacles of EU and UK government. The private sector still needs more progress on tax, regulation  and banking reform to be able to grow at faster rates.

             Congratulations to George Galloway. The old fashioned virtues of beliefs, passion and consistency have powered Mr Galloway to an amazing victory. He has shown all the established parties that people can vote them out if they are fed up enough with them. I do not agree with a lot of Mr Galloway’s views, though I do think he was right to challenge the establishment wish to fight wars in the Middle East.

             The established parties will all explain it away as a one off, something that only happens in by elections. That is fine as a public position. In private they would all be wise to realise that there is discomfort with what is happening, and to adjust. Many write into this site telling me of this mood againsty the main parties, telling me UKIP will rise on the back of it. Not in Bradford West. Their 3% in this seat should lead them to  ask  some searching questions as well, just as their failure to win in Buckingham in 2010 where there were no main party candidiates was a warning sign about their approach of mainly  being an anti Tory party.

The government forecasts rising price inflation as measured by the Retail Price Index in the middle of this decade, following a further decline this year.

I regularly warned about too much inflation in recent years, and disagreed with the Bank of England. They were unable to see the inflationary consequences of their policies, which duly led to well above target price rises.  More recently I have agreed with them that inflation would fall this year, as the VAT increases dropped out of the figures and as we got some respite from the falling pound.

So it has turned out. Inflation has fallen a bit as hoped.  Whilst the official government forecasts say that target inflation, (2% on the CPI) will be just fine for the next few years, I think we do need to worry whether this is true. Could the official RPI forecasts be nearer the mark? Could the CPI also rise more than they think in later years?

This week we have been hit by further pressure on pump prices for diesel and petrol. Meanwhile, the near monopoly postal service, still in state hands, has decided on an enormous increase in prices.  We are being made to pay for the decline in traditional mail volumes, and for the continuing inefficiencies of the monopoly service.  The price rise is so high that there could be a sharp fall in volume of use, once the favourable effects of pre buying of stamps at the old prices wears off.

The post item is a one off and a small component of the general price indices. It is, however, a reminder that because the state still is heavily involved in our economic life, there remains plenty of monopoly pricing power that can be deployed against customers and taxpayers. We may see it in car parking charges from Councils, in licence fees, in energy taxes, in public  transport fares, in Council taxes from next year. If at the same time world monetary looseness drives up commodity prices, and UK money operations encourage a lower pound, we could find that inflation once again outperforms the Bank’s forecasts and targets. We may also be entering a period when the Chinese and other producers of cheap export goods for us want fairer prices for what they make.

The government needs to remember that high inflation in its first two years of office has depressed living standards. Fuel and energy prices have become central political issues, as they above all else have squeezed family budgets.  The government should pursue a more energetic competition policy to break up monopoly power and  allow new competitors in crucial services. It should also want the Bank to be vigilant about inflation, after such a long period of letting it be well above target.  With all that Quantitativbe Easing money out there, as the banks do mend so there could be a surge  of credit leading to more inflation. That is not today’s problem, or even tomorrow’s, but the Bank should be thinking well ahead to what can happen. The government itself now forecasts higher inflation and higher house price inflation in due course. They could be right.

Inflation is theft by other means. It may  not even be smart theft. Whilst it does erode the real amount the government has to pay back to those who saved and lent it money, as we saw over the last two years it can also depress demand and lead to the need for yet more borrowing. The recent inflation has depressed spending power and impeded recovery.

            Pastygate is a such a load of nonsense.

            A Labour MP is out to  say that because some top Tories have not recently bought and eaten a pasty they are uniquely out of touch with how others live. They say that Francis Maude’s ownership of a dining room makes him very middle class.

              Let me explain a little about the MP  lifestyle. The Commons meets in the evenings. It has dining rooms where you can buy a silver service dinner whilst waiting for a 10pm vote. I often see Labour MPs doing just that. At 8pm they sit down and tuck into three courses and coffee as their main meal of the day. It is modelled on country house life in the England of the 1930s, and similar to Oxbridge High table or officers’ mess dinners in the military.

               I daresay many Labour MPs also own detached houses which still sport dining rooms, or were originally built with such features. MPs who say some MPs are out of touch because of their  lifestyles should remember their own. On a minimum of £65,000 a year no MP shares in personal experience the money worries of someone on £10,000 or £20,000 a year facing the current inflation rate.

                 Living an MP’s life on an MP’s income does not, however, prevent a good MP understanding how others live and representing them well.  I felt best represented by a female Prime Minister. She could not experience any of the male  feelings and  wishes, yet she represented my outlook better than her male successors. A good MP or PM has sensitivity to the position and feelings of others. He or she has intuition and perception about how others live and what they are seeking to achieve. For much of the day you are dealing with the problems of others which are not your problem, which often gives you a better impartiality and fairness of judgement. You call on empathy. You think yourself into the position of the constituent.

                Modern life is thankfully far less class based than 1930’s Britain. Those same MPs who eat dinner at 8 in the Commons, might well buy a pasty and pint or  a sandwich on the run another day at a different time. Let’s break away from the old class stereotypes. By the way I have not bought a pasty for a long time. I do not think that prevents me from representing the pasty eaters. I  deal with both motherhood and apple pie, though I will never be a mother and have not bought a shop apple pie for months.

It’s good news that most of the old planning framework has been dumped. It was complex, unwieldy, and suited few. I had hoped to enjoy its replacement more than I did on first read through. It 65 pages and 207 clauses is a great improvement on what went before, but it’s not a clear and snappy read.

The five principles of sustainable development that overarch the whole are far from precise. As others have pointed out, this is a hand me down from the last government. It’s not clear how important they might be in any individual case, or how they will be interpreted.  The three aims are unexceptional. The economic aim is to allow all the building we need for a growing economy. The social aim is to make sure we have enough homes and other facilities. The environmental aims are various, including  protecting and enhancing the natural and built environment. The large question is how the possible conflict between protecting the countryside and finding enough land for new homes, offices and factories is to be resolved in case after case.

The government has listened to criticisms of its first draft. Brownfield sites are now usually to  be preferred.  Green belt protection is reaffirmed. Local communities can designate  land as local green space, giving it Green Belt like status within their communities for important smaller areas, as long as they do this through an approved plan.  There are new tighter  rules on traveller sites in another document, following recent controversies.  Car parking ratios are relaxed so new developments in areas where people need to use cars can reflect the reality of car ownership after years of artificial restriction on car parking. Town Centre lovers now learn that new shop development should occur in the centre, or on its edge, with out of town only if all else fails.

The big issue at the heart is how many homes should be built? This  still has  a plan led answer, where Councils have to assess demand for many years ahead, state a figure for the annual need for new homes, and then ensure five years supply of land plus a reserve is continuously available.  Planners find this notoriously difficult. Recent years have seen huge disruption to the plans on the downside, as mortgage money dried up in the Credit Crunch and as housebuilders reined in their activities. England will divide into those places which already have local plans, where the local plan will guide and restrict development as long as the five year supply of land is available, and the rest where the presumption in favour of sustainable development will dominate in decisions.

Existing local plans were of course often drawn up under the past government’s guidance, requiring higher housing targets.  I do not buy into the criticism of the document that it will restrict new planning permissions.  The aim is clearly to expand provision in places where there is demand by appealing to the presumption in favour of sustainable development in the absence of a plan. In the areas with plans, they anyway have quite high housing targets in them reflecting the past government demands.

I do not think housebuilding need to  be held up by a shorttage of land under this regime.  Local communities will need well crafted local plans in order to assert their own views on development, and in order to restrict development to acceptable locations. The issue for the housing makret, at least temporarily, is not land but is prices and mortgages.

               The resignation of the Conservative Treasurer has highlighted once again the vexed issue of money and politics. He had to go, as what he said was unacceptable. His departure poses a series of questions for all parties, who need to resume discussions over a reformed regime for party funding.

                I would start with a much tighter limit on how much each party can spend on its national General Election campaign. Strict spending control limits on constituency races works well, and means an individual MP in the UK does not have to spend the five years of each Parliament worrying about how to raise the money to fight the next election. In the USA politicians are much more preoccupied with fund raising for themselves.  It also means in the UK  that it is quite cheap for a serious challenger, allowing good contests. Tougher limits on national expense would cut down the amount a party needs to raise.

               A possible deal which the main parties  will be relucant to strike would  say that shareholders of public companies and Trade Union members should be asked to give any money they wished to give personally. Some think  public companies and Trade Unions could both be banned from sending money on behalf of members. Others simply want a limit on the total size of any donation, whether it comes from an individual or from an organisation.

                    I hope in all this discussion we will not ignore all the other ways people and organisations spend money to gain access . Of course it is wrong for any individual or organisation to think it can send in a party donation and secure a change of policy. A rich individual should no more be able to donate to the Conservatives and  get the Prime Minister to change his stance, than should a large Trade Union be able to send in a donation to the Labour party and then dictate policy to the Labour Leader. However, we should also look into the world of cash for access more widely.

                         Under the last government the public sector increased its lobbying of itself at taxpayers expense. Public sector organisations would invite MPs and Ministers to receptions, lunches, dinners and events to put over their need for more cash, or to explain what they were doing with all the cash they were getting. They sent the bill to the taxpayer. Is this a good way to spend public money?

                         Trade Associations, Trade Unions, large companies, charities all now have budgets to spend on contacting Ministers and MPs, arranging events to meet these decision takers. They  spend on adverts and  email, letter, postcard and web based campaigns. Is this cash for access and cash for influence, or just a necessary part of a flourishing democracy? Where does legitimate spending on getting your point of view across end, and undue influence and purchase of advantage begin? People who give money to political parties have always expected to meet the leaders and hear directly from them. They are not the only ones, as there is a whole industry in seeking access through spending. The beauty of the UK system is that you can secure access without spending a penny. Anyone of us has the right to access through our MP. Like the NHS this is a free service at the point of use.

       There are rumours that the government is thinking of selling a portion of its RBS shares at a loss. The danger of doing this is it will make it much more difficult to sell it off in pieces later, so we will not get the boost to competition and a better structured banking sector we could get if only the government would require RBS to split itself up. UKFI should not allow or encourage the management to do this. Taxpayers deserve a better banking industry for all the money they have been forced by the previous government to tip into it.

                  The Coalition economic strategy always proposed a squeeze on the private sector for the first half of the Parliament, brought on by tax rises and relatively high inflation, followed by more of a squeeze on the public sector in the second half as a backdrop to planned private sector growth.

                 The latest figures show just how big is the contrast between what has gone so far, and what is proposed in the second half of this planned 5 year Parliament.

                 Let’s take public spending first of all. The years 2010, 2011  and 2012 are estimated to show growth in real current public spending of 1.5%,0.3% and 0.5% or 2.3% over the three years. 2013  and 2014 are forecast to bring a real decline of 1.1% and 2.1%, or 3.2% in total for the two years. This produces a total five year figure of minus 1%.  This as I have said before is an unusual approach, with the increases put in up front, and the cuts left for the last year, an election year.

                 Then there is economic growth. The economic estimates say that the UK economy will grow 0.8% in 2011 and 0.8% in 2012, but will accelerate to 2.0% in 2013, 2.7% in 2014, and finally to a lively 3.0% in 2015.  The main driver will be a pick up in real household income, as more people get jobs and as wages start to go up faster.  After a fall of 0.2% in the first year, 1.4% in the second  and small growth of 0.2% in the third, real incomes are forecast to rise by 0.5% and 1.9% in the last two years.

               This welcome return to faster growth is also forecast to bring in a surge of extra revenue. Particularly interesting are the forecasts for Self Assessment income tax, where the top payers are well represented.  In 2010-11 this brought in £22.1 billion. This year a fall to just £20.1 billion is forecast, and next year a return to £22.3 billion. The following year they estimate  £22.9 billion, with a massive rise to £28.5 billion in the final year, when the full effects of the lower 45p rate will be felt and the better growth helps. I think they will be lucky to sustain  higher levels next year at the continuing  50% rate.

               Overall, Income Tax receipts stutter along for the first three years, with totals of £153.3billion, £152.6 billion and £154.8 billion. It takes off in the last two years, rising to £165 billion and then an impressive £179.4 billion.

               When I have helped turn round near bankrupt companies I have always taken the toughest actions at the beginning. I find people like to know how bad it is, and get the bad news out of the way. In the first few weeks you need to stop the money flowing out of the door. You need to stop hiring people, stop buying anything other than the essentials, defer the capital spending and  stop the daily deficit as quickly as you can.  You look for assets to sell if  the bank manager is knocking on the door for money. You can always spend more if you overdo the parsimony, but going back for a second round of cuts after the first treatment is not so easy and is bad for morale.

             I appreciate turning round a country’s finances is different, and coalition politics greatly complicates the management task. However, we do need to ask how strong are those forecasts of cuts to come, and how realistic are the estimates of much faster growth in the closing months of the 60 month plan?

              The first half has shown that carrying on spending and borrowing does not produce faster growth. It will be interesting to see if reducing the rate of increase in spending and borrowing is a better mix.  I certainly agree with the official forecasters that we should get more income tax paid once rates  are down a bit and thresholds up a bit. Curbing growth of spending in the public sector could be fine if at the same time the tax, regulatory and banking policies are really going to deliver fast private sector growth. It could all work well, but it will require strong action on banks, regulations, and government approvals for new projects to get things moving.

      The Budget Red Book not only forecasts a rising growth rate in the second half of the present Parliament, but also forecasts rising inflation and rising interest rates.

           The forecasts for the Retail price Index, the older view of inflation, says that this measure of inflation will hit a low of 2.3% in 2013, will rise to 3.6% in 2015 and to 4.0 the following year. Wages will also be rising , reaching a growth rate of 5.6% in cash terms by 2016.

            Against this background the forecast also assumes rising interest rates. Gilt rates are estimated to rise from a low of 2.3% in 2011-12, to 3.5% by 2014-15 and 3.8% the following year. The CPI stays on target despite these changes.