Jeremy Warner's Outlook: There's one thing you can count on with the politicians talking numbers

Click to follow
The Independent Online

It was a bad day for the Government's election campaign yesterday as judged by the headline economic news. Unemployment was up and the International Monetary Fund said in its world report that either taxes would have to rise or spending would need to be cut to prevent the public finances spiralling out of control.

As they launched Tony's Little Red Book, ministers were meanwhile again boasting of Labour's economic performance and pledging no increases in either income tax or VAT. As ever, there was no such promise on national insurance, still in theory a hypothecated tax to pay for social security but in reality now just part of general taxation.

Still, no matter. The underlying message was clear: the economy is safe in Labour's hands and taxes don't need to rise. On the face of it, the unemployment figures and the IMF suggest otherwise. Or do they? Scratch the surface and both of them are actually more supportive of the Government's case than they seem.

The unemployment figures first. Judged by both the claimant count and the preferred International Labour Organisation measure, which includes those seeking work but not claiming benefit, unemployment is rising. Yet bizarrely so is the amount of employment, which in the three months to the end of February, rose by 148,000, this despite the continued erosion of manufacturing jobs.

The paradox is explained by the fact that the economically inactive proportion of the population - those of working age but unwilling or unable to work - is shrinking.

So even though unemployment seems to be rising, the Government is for the first time able to claim it has met its target of having 75 per cent of the working age population in employment while setting a new target in its manifesto of 80 per cent. As ever when politicians start talking numbers, the figures don't quite stack up, but broadly speaking, the statistics do seem to back the Government's claims. Of the previously inactive, particularly deep inroads have been made into women in the 25 to 35 year old age bracket. Men above the age of 50, on the other hand, are a growing cause for concern, which doesn't augur well for the costs of long-term benefit.

All grist to the mill of Tory claims that tax rises are inevitable in a third Labour term? The IMF waded into the election debate yesterday by seeming to confirm this contention. What you won't read in the headlines, however, is that the IMF judges the general health of the public finances to be among the best in the G7, with debt as a proportion of GDP lower than the US, Japan, Germany and France. The IMF reserves much heavier strictures for others. In other words, though things may look bad, relative to others they look good, even taking account of the Government's ambitious spending plans. Labour's spending is getting the country less into debt than many of its peers are doing overseas.

Most members of the public, including me, have become completely bemused by the level of political debate on tax and spend, an arcane subject at the best of times but argued with growing passion and venom as the election approaches. The underlying truth is that both Labour and Tory plans for tax and spend are hopelessly unrealistic unless massive cuts in the cost of bureaucracy can be achieved.

The difference is only one of degree with the Tories planning for deeper cuts than Labour. The Lib Dems have at least had the decency to acknowledge that higher spending will require higher taxes, but even their plans are to some extent based on finding the holy grail of cost savings in the civil service.

Past experience suggests that these are much more difficult to achieve than the politicians ever imagine. This is because in the public sector there is no monetary incentive for improved efficiency, in the same way as there is in the private, or competition to drive productivity improvement. Creating banks of worthless public sector jobs is part of the inescapable lot of the politician, whatever their political persuasion. The present Government seems to be a master.

There's little doubt that the Tories would be better at executing the looked for cuts than either Labour or the Lib Dems, if only because small government is part of their ideology. Yet they too will struggle to achieve their promises. In truth there is not much of a choice facing the electorate on tax and spend. All three main parties on present form seem to prefer higher spending over lower taxation. It's a racing certainty they will also all need to raise taxes to pay for it.

BHP sees sense on iron ore prices

For some months now, Chip Goodyear, chief executive of BHP Billiton, has been in a standoff with one of his major customers, the Chinese, over prices for the coming year for iron ore production. Others have settled for much less, but Mr Goodyear wanted more than 100 per cent.

Since soaraway demand from China is the main factor behind the present super cycle in commodity prices, and for the consequent renaissance in the mining industry, Mr Goodyear's demands always did look greedy and counter productive.

Australia and Brazil account for more than half the world's production of iron ore. The Chinese didn't take kindly to Mr Goodyear's attempts to hold them to ransom. China's 16 biggest steel mills seemed perfectly willing to go through with their threat to cut production rather than pay Mr Goodyear's prices. It rarely pays to alienate the customer in this way, even when a monopoly producer. Yesterday Mr Goodyear finally saw sense and joined his rivals in agreeing to a "mere" 71.5 per cent increase.

To be fair, there was reason behind his demands. Australia is closer to China than Brazil. Transport costs are therefore not as high. BHP's case for a 100 per cent rise was that its end use price to the Chinese would still be no higher than that of Brazilian producers. Chinese steel makers were having none of it. What's the point of buying Australian if its the same price as the Brazilian equivalent.

The blast furnaces of the newly reawakened Chinese dragon are a boon for Mr Goodyear and the world economy alike. It's probably not such a great idea to try and quench them. Commodity prices will eventually fall back again. Mr Goodyear can expect little mercy when they do.

Comical choice for Metronet

It's one thing to sack John Weight as head of Metronet the public private partnership company created to maintain and renew two thirds of the London tube. But to bring in a Jarvis executive in an attempt to restore confidence after the chaos of recent months looks almost comical. To be fair, the new man in the hot seat, Andrew Lezala, wasn't responsible for the mess at Jarvis. Indeed he was very much the person brought in to clear it all up.

Yet with the PPP for the Tube fast turning into a public relations disaster, he is perhaps an odd choice to put the project back on track. Mr Weight was sacked in part for recent engineering failures, which have caused repeated commuter delays on the tube. But he has also fallen seriously behind schedule on the renewal programme. The whole point of the PPP was that the private sector would supposedly be better at bringing the necessary capital spending in on time and to budget.

Metronet is severely testing both assumptions. It will gall many to admit it, but Ken Livingstone, the London mayor, may have been right about the tube. It would have been cheaper, safer and more effective to finance the upgrade through a London Underground bond.