Once again they are wrong.

The coalition agreement has stated that a referendum is only applicable when more powers are to be transferred from the UK to Europe, there is no suggestion that this will be the case. Secondly the main issue is for the Euro zone to get its house in order as it is critical to the world economy.

Instead of sniping from the sidelines the UK should be working as hard as possible to steer the Euro into a long term sustainable position, rather than taking sticking plaster solutions. I do agree that inevitably we will need to decide whether the UK is in or out, but now is not the time, there are bigger issues at stake than our own sense of world importance and self rule. We either want to be in “the club”, have peripheral membership but refrain from constant attempts to have things on our term all the time or get out completely.

Lastly, although the City is important to the UK economy, we do seem to bend over backwards for the financial sector and are prone to their lobbying tactics, when more important is the rebalancing of the economy. Come on actions not just words on a new economy.

There will be many questions asked of the police response and whether they could have done more to prevent the problems, but that I feel is an operational question and to be honest they’re damned if they step in and damned if they don’t.

I would, however, like to focus on 2 aspects, firstly my thoughts on why the riots may be spreading and secondly why it’s even happening.

Firstly the advent of social media, 24 hour TV is making it much easier for groups to get together and copy events happening a few miles away. There is no way that any of the riots (Tottenham being the possible exception) are related to the death of Mark Duggan or a social / political comment. Groups / gangs saw what was possible and replicated them in other areas. London in the suburban areas is very quiet as I write with most restaurants and shops closing early and with heavy police presence there may not be the violence of the past few days. However, in Manchester and Birmingham, there are fresh areas to target and the gangs there want to show what they can do.

So if this is not an explicit social action what is it? I believe that what we’re seeing is decades of failed policies by successive governments for social mobility and increasing opportunities for those in the poorest parts of our community. Being poor doesn’t mean you riot and thieve, being poor doesn’t mean you don’t know what is right from wrong, but for many too many generations have given up. They see no change in their lives from their parents.

It’s not easy to change if the parents have given up we need to encourage the children, but with no role models and lack of ways to channel their energy, many of the poorest youths today are not being the citizens we want them to be. If I was to come back with a stolen TV my parents or guardians would march me to the nearest police station, for these kids it won’t happen.

It means more targeted resources for the poorest children at school, more youth and sport centres to keep them occupied and be with role models. Better careers guidance to show them what is possible. Increased investment for apprenticeships and the government paying for everyone to have the opportunity to sit exams up to A-Levels. That means that someone who has dropped out of school at 16 but realises they want to turn themselves round at 25 can get A-Levels at a college, not pay for it themselves, which can be a struggle.

David Cameron’s words that “you will feel the full force of the law, and if you are old enough to commit these crimes you are old enough to face the punishment.” sounds good, but in the long run it is completely wrong.

The youngest arrested, so far,is 11 years old, is it the 11 year olds fault he was caught up in this or the social factors he’s brought up in? Is his whole life now going to be determined by this one event? It is also why we need restorative justice and to ensure criminals are rehabilitated.

How many people would employ people who can not read or write very well? How many would give them a job if they have been in prison? Too often prison is a revolving door with short jail sentences doing nothing, what hope for those who want to go on the straight and narrow, what does it mean for their kids? Re-equip those who want to learn and be a part of society by ensuring they can read and write, learn a basic skill and be employable.

We are all guilty of creating the environment in which we now live in. The riots are wrong, but we should all be doing more to ensure these events never happen again.

As for the GDP figures released last week, I’ve seen many figures in industry and government stats, change very quickly. I don’t think we should panic, but we should be prepared to change path (obviously politically the Chancellor will never say that as it gives the opposition a field day).

As I mentioned in a recent job interview with an economist – there’s always choice, it’s how you’ve decided to set the parameters that define your choice.  He agreed, not sure whether I’ll get the job though!

Anyway, Richard Lambert, outgoing Director General of the CBI, has already raised the immigration cap being introduced, as bad for business, and is a view the Liberal Democrats support. Now as part of the “clampdown” on immigration, Post Study Work Visas (PSW), are being scrapped. PSWs allow foreign graduates of British universities to stay and work in the UK for two years after the end of their degree.

The reforms, suggested by Immigration Minister Damian Green, would toughen entrance criteria and make it almost impossible for international students to stay on and look for a job in Britain after their course has ended.

The UK border agency claim the policy’s aim is to ensure “that only genuine students who are committed to their academic study come to the UK, with a presumption that upon completion they will leave promptly.”

However, the impact of tougher immigration controls on the British higher education will be extremely damaging to the education sector, as the same thing has happened in Australia. They cracked down on PSW, but this reduced the attractiveness of Australian universities to international students and it’s been estimated to cost Australia £2bn and eventual job losses of 35,000 over 3 years.

Encouraging international students to study in the UK is a large part of a universities income, even more important, when universities are asked to find more money away from Government than ever. Properly funded universities help all UK students.

From a business point of view, they also appreciate the ability to choose the best graduates to work for them. Of course there’s the counter argument that you want “British jobs for British graduates”, but if graduates are good enough, businesses will hire them, it’s not like international graduates bring a cost saving and in fact, many don’t even stay long term.

The liberal, and sensible solution to the employment of graduates is to ensure that the UK graduates entering the workforce all have the skills businesses need. That may require more careers help for undergraduates – bearing in mind many international students will be amongst the best from their respective countries.

The reason why is what we’ve agreed on in the Coalition Agreement. The argument that we’re breaking promises, principles etc. was lost when tuition fees was not negotiated as a red line during the 5 days after 6th May.

All the MPs who are getting hot under the collar now had a chance to state that tuition fees had to be non-negotiable at the time of the coalition talks. They didn’t, if they did they didn’t complain hard enough to our team of negotiators.

We, as members, had a chance to reject the Coalition Agreement if we felt that tuition fees were that big an issue. We didn’t. Some members like Linda Jack and David Rendell did voice their concerns and voted against, I admire them for that.

It was obvious to all that once tuition fees was dependent on the Browne review a rise would happen, to claim otherwise is naivety at best, downright wishful thinking at worst. Our role then is to get as best a deal as we can, to make it as progressive as possible.

We have done that, the proposals mean no fees up front, payments starting at £21k, 30% of future students will actually be paying less for their Higher Education than under the current system. A graduate tax is virtually the same proposal except there is no cap or guarantee that the money will only be spent on Higher Education.

If we want to be a party of protest, snipe from the sidelines and see none of our policies implemented then we can go back to that, but I want to see Liberal Democrat policies implemented and you can only do that in government. We are now in Government, we must govern.

What was more interesting to me (or dismaying) as an economist (but very much lapsed one) was the extent the political aspects decided the economic decisions. This is never unusual but given the unique financial situation interesting.

2010 Comprehensive Spending Review being delivered

I won’t touch on if the cuts are necessary or not except to say that as Labour were overspending when the economy was in a boom, therefore not saving for a rainy day, when the recession struck our borrowing rocketed and we ended up with the worst structural deficit of the G20, and gave us less room to carry out some of the fiscal expansionary policies of other countries such as Germany and France.

So on the political aspect, the key was the Prime Minister was determined to stick to as much of his electoral promise as possible, this makes sense politically to ensure manifesto promises were being kept. However, this causes a few economic problems:

• NHS, one of the largest government spenders, was ringfenced
  • This meant other departments cuts had to be increased
• Universal benefits were not looked at
  • I really felt, as Vince Cable said, that everything must be reviewed (this was in relation to tuition fees) then the idea of the well off receiving Winter Fuel Allowance, free TV licences, free bus passes and even a state pension to be absurd. However, the grey vote are more likely to vote and have strong lobbying powers so this was always a dangerous territory
• Income tax would not increase, under any party
  • One way to fill to ensure spending could be protected, but seen as deeply unpopular, even though it could pay for Higher Education and protect some of the social housing
• Due to the above welfare was targeted, which although needs to be reviewed, was taken further than expected
• The child benefit political hit was in exchange for the Liberal Democrats hit on tuition fees, even though tuition fees was much more symbolic to the Liberal Democrats than child benefit to the Conservatives

So what did I make of it?

Well I really felt the Conservative need to protect the NHS and universal benefits restricted the options available. I would have:

• Ringfenced no department except International Development (peanuts in the grand scheme of things)
• Scrapped universal benefits for well off pensioners
• Put a little bit more money into capital investment projects
• Ensured a coherent plan on housing, both private and social, as the new proposals are clever in encouraging more housing associations to build property at commercially viable rates, there is no proposal to ensure enough housing does get built. One of the key problems of the past 30 years.
• Probably would not have brought forward the rise in pension age for everyone to 2020, fundamentally wrong for women in their 50s.

I was a little surprised that more was not made of the fact:

• Total government expenditure is still rising to 2014/5
• The rate of growth is declining
• Total public sector expenditure as a % of GDP will be at the same level as 2006/7.

The problem with all the above points is the NHS is growing in real terms so everyone else gets less of the pie. What I can’t work out now is how we’ll get enough money to increase the income tax threshold again, although it is in the coalition agreement so should happen.

Although all this presure on the government is forgetting one thing as “Liesandstats” commented on the Guardian today….

“In the interest of fairness it might be worth pointing out that the last government in the shape on Mandelson commissioned this report which at the time was reported as a ruse to kick the subject of university funding into the long grass until after the election. It was also Labour that introduced tuition fees in the first place in England. University education was free in England up to 1998 when labour introduced a £1000 charge and then upped that to £3000 in 2003.

Its simple you need to decide your finding priorties and make sure your MP knows them. We can waste billions on Afghanistan, Trident but you can’t educate your children.

I suggest you either move to Scotland or go abroad to take a degree it will be a lot cheaper in the long run.

The worrying thing in Scotland is if Labour get in next May we will be in the same boat as you couldn’t really put a fag paper between their policies and the Tory/Lib coalition if they had been returned to power.”

He paid tribute to Labour’s achievements, but also made several attacks on its past like:

• An unjust war on Iraq
• Student tuition fees
• Attack on civil liberties
• Loose regulation of financial services

Is it me or is Ed Miliband saying that the Liberal Democrats have been right all along on these issues? Does he want to join the Liberal Democrats?

Actually of a bigger tactical note is he’s making both an attempt to move to the centre as well as appeal to Liberal Democrats voters and open a flank for potential co-operation in the next parliament should there be a hung parliament. The other risk for the Liberal Democrats is of being squeezed, even more reason to continue to shout about the Liberal Democrat policies being implemented.

Of course we need to see policy announcements but the speech sets a tone, but that can change over time, David Cameron veered from soft and cuddly to right wing depending on his own political situation.

It’s only day 3 of Ed Miliband’s leadership but he’s certainly shown over the past months something his brother David Miliband never had – balls. And I don’t mean having to work with Mr Yvette Cooper!

One such by-election is for a new local councillor for Earls Court due 16th September. The team are working hard canvassing, understanding residents key issues and delivering leaflets (of course!). I’ve been down to give a hand but the team can always do with more help (especially during the morning to deliver to mansion blocks).

Simon Hughes is making an appearance this Saturday to help with the campaign. If you want to help and can do something in the next 2 weeks please contact Robin Meltzer – robin.meltzer@hotmail.co.uk.

So who’s right?

Actually – as in statistics, both are.

The IFS is right to point out that there are benefit cuts and housing rule changes which will have a bigger impact for low income families, especially if they don’t work. They are also looking at the full impact up to 2014.

The Treasury’s work is looking only at the impact up to 2012, but more importantly it includes the dynamic impact of tax changes (increased income tax allowance, economic growth) to change the poverty trap so it makes it more worthwhile for those not working to work, which will improve income.

So comparing the two analysis is rather like comparing apples with pears. The IFS doesn’t assume any dynamic changes  and is over a longer period, but the Treasury does assume dynamic changes and over a shorter time frame.

For my previous comments on the Budget click here