Sunday, 23 March 2014

Money and stuff - and why the government are so out of touch.

There have been two significant stories this week, worth a comment. Firstly, of course, is the budget. The significant aspect of this is the "beer and bingo cuts". The government were widely ridiculed for an advert they put out about this:

There have been, of course, a whole lot of spoofs of this, but even in its original form, it is astoundingly patronising. What is more, it is pretty meaningless. a penny off a pint will not be noticed by many people, and that is assuming that the cut is passed onto consumers. The reduction in bingo tax will also not be felt significantly - some of it will get passed on, but some won't, I suspect, meaning that the real beneficiaries will be the major bingo companies like Mecca.

I don't want to dismiss bingo, but it is - at least in terms of the physical bingo halls - mainly pensioners. It is not for the currently hardworking. Even those who benefit will see a small reduction in the cost. The cost of a session, it would seem, varies between £3 and £20. So the savings from this huge government giveaway are between 30p and £2.00, assuming that the entire reduction is part of the price, and is passed on. I suspect the reduction is more likely to be under a pound. It benefits the companies that run bingo, but not the people who participate in this, at least not to a significant degree.

Which of course means that the governments huge giveaway amounts to pretty much nothing, and their ridiculous, patronising advert says it all: You minions, we will allow you a smidgen more beer and circuses.

The other big story of the week about money is the student loan situation. The story is here, but the maths of it are tricky, so I want to simplify it somewhat. A few years ago, the government raised the maximum fees that universities could charge from £3000 to £9000. They said at the time that they didn't expect most of the universities to raise their fees to this level. This was, of course, hopelessly naive, and most institutions have raised their fees. What a surprise. This was supported by the LibDems, who had promised not to raise tuition fees, and had gone back on this, losing themselves the support of a very large proportion of the student population - their chances of winning this back in a generation is very low. They committed political suicide, so how has it worked out?

What has recently emerged is that this change in fees - and the related change in student loan levels - will not get any more money back. The changes in the system, meaning that graduates don't pay anything until they are earning £21K, as well as the significant changes in the job market for graduates, mean that the money returned is no more than with the lower level of fees.

The system is complex, because it is not a "loan" in the sense that it has to be payed back - it is written off after a number of years. It is very much like a tax on graduates, based on income levels, and until a certain maximum level is paid back. The reality is that these "loans" are rarely paid back with full interest. The expected default rate is now estimated at approaching 50% - that is, nearly half of the money loaned will have to be written off and not paid back.

So the government has actually committed to paying an extra £6000 per student for tuition, with very little payback. It would have been better, politically, to have simply given this money, without the political suicide of the fee increase. The increase is simply costing the government more money, and there is no payback - except the negative payback of the political damage caused. Which means it has all been a complete mess.

What does this all mean? It seems to me that the government is really struggling to understand the basics of managing the economy. These sort of amazing blunders are coming to define the government - a sort of well-meaning buffoon approach to management that has done Boris Johnson so much good. That is not the way to manage a country. It is loveable for a short while, but not acceptable.

However, this is not just incompetence. This is calculated, malicious incompetence. This is buffoonery to hide the fact that this government is systematically mismanaging to take money from the poorer, the deprived, and give it to the wealthy. We are heading for a plutocracy, a way of ruling that does not work for many.

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