Given there is no sign at all that the Conservative’s disastrous 2010 campaign is likely to improve, this question of the economy’s performance with a minority governmetn will continue.

A note from CitiGroup puts the case for the prosecution:

There is no consensus across the parties on fiscal policy, while Lib Dem voters disagree with the Conservatives on fiscal policy and prefer Labour’s policies on most other key political issues. Lib Dem voters would rather go into coalition with Labour than the Conservatives. We suspect that a hung parliament would only be able to implement and sustain major fiscal consolidation if boxed in by a market crisis. Gilts and sterling remain vulnerable.

The author acknowledges Nick Clegg’s recent vow ‘not to take any risk with UK plc’, and suspects that they LibDems will not cooperate unless given the Holy Grail of electoral reform in return.  Which the Conservatives will never grant.

Clegg is getting annoyed:

“David Cameron and George Osborne are stoking up fears in the markets, actively trying to destabilise the pound and reduce the government’s ability to borrow. It’s like a protection racket: vote for us or our friends in the City will lay waste to your economy, your savings and your job.”

Too right.  Chris Cook in the (you guessed it) FT has a more nuanced summary of how things might pan out:

the threat of the LibDems pulling the plug on a government is overstated. The third party would, very quickly, be seen as co-culprits for the administration’s programme. So the LibDems would be stuck with them. If they then caused the fall of the government, they would be blamed for the chaos that follows … So the path of short-term naked self interest – the most powerful force in politics – would almost always be for the LibDems to back the administration.

The Lib Dems have the most to gain and the most to lose from the hung parliament situation.  Their incentives are unambigiously in the direction of fiscal responsibility.   No-ones goes around thinking “I can’t vote Lib Dem – they are too serious about the deficit”.  A period where the LibDems hold the sensible middle of the debate: between diehard romantic deniers on the Labour benches, and blinkered trapped-in-the-1980s CutNowCutHarders on the other side, could gain them real credibility with a public worried about the difficult, um, balancing act that needs to be performed.

Then I would say that, wouldn’t I?

Jackie Ashley’s column praises Nick’s round-the-country efforts and also holds sensible advice:

They should boldly say they will back whichever party produces an economic plan closest to their own, and will allow that party to produce a budget and essential legislation. But they will not go into coalition. They will keep their integrity, vote on issues according to their principles, and be ready to fight a following election on that record.

This doesn’t mean the choices will be easy.  Hey, just look at the horrible alternatives for cutting – which of these seem attractive in a recession? Well, maybe that VAT on finance and the carbon tax …


7 thoughts on “More on Sterling

  1. I think most people – or at least most people who have any interest in politics beyond politicians’ hairstyles – have come to the conclusion that bankers in general and the bond markets in particular, not the politicians, run the country.

    The real danger is that the Conservatives get in and prove to be incompetent. (Well, it has happened before…) Given that none of the other parties would attract the markets the likelihood then is that they would look for some kind of coup to instal a régime that would be prepared to shrink the economy to a sustainable size (probably about two-thirds of what it presently is) and deal firmly with any social unrest.

  2. Surely it’s not in the Lib Dem’s interests to enter into coalition with anyone after the Election? Hasn’t Clegg bascially said as much? Surely in a hung parliament scenario (in the unlikely event that that occurred) the Lib Dems would sit it out and allow someone a minority administration? The Labour Party will be in chaos (probably terminal chaos) if it does not form the administration, and the Conservatives in chaos (probably terminal chaos) if they don’t form the administration. Since they would be natural candidates to replace whichever Party does not form the administration, why would the Lib Dems either (a) shore up, say, Labour by keeping it in the administration when otherwise it might collapse; or (b) over-identify itself with the Conservatives through coalition with them, when if the Conservatives had a minority administration and Labour collapsed, the Lib Dems would (wrongly, in my view, but that’s another story) consider themselves the natural alternative opposition?

    1. I think your diagnosis is right. They can’t ally with the Conservatives formally, IMHO, because too many of the activists regard them as the spawn of Satan. Nor with Brown, because too much of the country regards HIM as Satan himself. Noone wants to go into the polls saying “vote for me and you can be sure Brown will stay in.”. Not even some Labour candidates!

  3. There’s a conceptual problem with a “comprehensive carbon tax”. That being that few seem to understand that a carbon tax, as a concept, is about a “correct” level of taxation. And that correct level may or may not be higher than the one we have.

    No, I don ‘t go as far as the Taxpayer’s Alliance and claim that we are already over taxed….or at least, not necessarily so.

    However, look at total emissions….in the 500 million, 600 million tonnes CO2/e range or so. Higher if you try to measure emissions embedded in imports.

    At the standard sort of carbon tax rate of £30 a tonne or so (and recall, this is in fact a very high rate indeed according to the literature. Stern is very much an outlier and not just because of discount rates) we’re in the what, £ 15 to £ 18 billion a year as the correct total carbon taxation for the country.

    A very good case can be made that we’re already taxed that much. Whether we are or not really depends on how you consider the fuel duty escalator. Introduced in 1993 “to meet our Rio commitments”. If we take the first blush meaning of that, to tax carbon, then we are already paying around and about the correct carbon tax.

    Yes, I know that beef production is properly taxed for methane from cow burps, diddly diddly, all sorts of things aren’t properly taxed. But the gross level of taxation might well be right.

    So while we can get better at carbon taxation, this will mean lowering some carbon taxes and raising others.

    Thus no pot of (extra) money.

    And as I say, this is the conceptual problem with Pigou taxes. They do not mean “tax more”, they mean “tax correctly”. And there’s absolutely nothing that says that “correctly” is not the amount we already tax….or even less than it. As opposed to the “more” which everyone always seems to think it is.

    1. I remember reading that in a Policy Exchange document – Towards better transport, perhaps? I should not be so flippant about offering up carbon taxes without expecting some come-back.

      There are surely other taxes on undesirable activities they could introduce. Like a tax on blogging ….

      1. “There are surely other taxes on undesirable activities they could introduce. Like a tax on blogging ….”

        I knew there was a reason I was non resident……

      2. But imagine the money it could raise ! Obviously there would be no adverse consequences at all it would only come from BAD people.

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