Tuesday, 5 March 2013

A polite bribe

In my last post on the economy (http://getwd50.blogspot.com/2013/03/in-tight-spot.html)  I looked at how Gordon Brown tried to cajole the electorate into voting Labour with a massive increases in tax credits prior to the 2010 election (£87 Bn) and it nearly paid off.  Considering the economic back drop at the time to run the Tories as close as they did was a good effort.  David Cameron needs a similar strategy - but he has less wriggle room and the Liberal Democrats breathing down his neck. 

To have any chance at the next election he needs to give the hard pressed middle income earners some help on disposable income and also support savers.  Before we look at his options let us first consider the voters, and for simplicity sake let's divide the electorate into three groups - not easy as you can see:


1.   Idle Idiots - these are those either too stupid or rich to vote or too idol think about their options (die hard tory and labour voters).   It's possible UKIP might appeal to the stupid group in the same way that the BNP sometimes get's non-voters interested. Anyway we can ignore this group as being too fickle and tough to convince.
2.   Brown Brothers - these are the people who benefited most under Labour.  Mostly in public services or on welfare they got lucky with tax credits, state pensions and ridiculously generous pay increases.  Again, we can ignore this group they will never vote Tory
3.   Dave's Darlings - Predominantly working in the private sector or retired with some savings of their own. These middle income earners have been the main target for the austerity measures.  This group have been hit hardest by the changes to VAT, child benefit and private sector wage deflation.  Pensioners and those near retirement have been further penalised by the effects of QE and the resulting low interest rates that have killed investment returns on savings.

If we put Dave's Darlings together with the core Tory vote there is a chance the Tories can remain the largest party in the House of Commons.  To do this David Cameron needs to find a way of improving disposable incomes for this the third group, without scaring off the financial markets.  

Reducing income tax is too costly and scatter gun, so probably the best way to help middle income families and the economy would be to cut VAT and this needs to be done with some thought so we don't suck in too many imported goods.  I would cut the standard rate to 15% and zero rate on a targeted basis - domestic energy (down from 5%) building work (to drive employment), meals out (to help local businesses and give us all a lift).

Secondly I would try to help savers who have had a terrible run.  I would offer government backed corporate bonds for both Lloyds and RBS with a three year fixed rate return of 10% p.a.  The offer would apply to any UK resident where there is no top rate tax payer in the family, a maximum investment would be capped at £5k.

The money raise by the bonds would be used to accelerate the restoration of these banks for a 'Privatisation' (selling off the government stake) at the end of this year and the money raised could be use to pay for the VAT reduction.  I would also give any corporate bond investor a guaranteed discount of 15% on the flotation price. If each bank raised £10 bn, 4 million savers would have a chance to make £500 a year, or £1,500 over three years.  This would have the additional benefit of mending these two banks which have been holding the whole economy back. These two measures would appeal directly to the Tories primary target market turn Dave's Darling into loyal supporters

So come on Dave there's enough time - but only just enough!


David Cameron arrives at the European Council summit in Brussels. Picture: Getty




Blog Archive

Subscribe Now: Feed Icon