Author Archives: Tim Leunig

Opinion: A four runway hub airport?

Flying isn’t something most people do for fun but connections are good for business and prosperity. Thankfully the Committee on Climate Change says that aviation can expand without risking our ambitious climate change targets.

Hub airports are particularly important. They draw in passengers from a range of places, making flights to many destinations viable. The one flight from Wuhan to Europe – to Paris – relies on transfers at Charles de Gaulle. That flight gives Paris a head start in attracting the European HQs of firms from Wuhan. I want …

Posted in Op-eds | Tagged and | 80 Comments

Tim Leunig writes… Housing priority Number 1: reversing the rise in the age of first-time buyers

Sir Adrian Montague’s report on housing, published earlier this week, calls for a larger private rented sector. This is a very bad idea because being a private renter is the least popular tenure choice in Britain. Only 2% of people wish to be private renters, compared with 82% who want to own, 14% who want to live in social housing, and 5% in other tenures (see here for details). I bet that Sir Adrian is not a private renter.

The private rented sector has its place, most notably for young people who have yet to settle down. But thanks …

Posted in Op-eds | Tagged and | 39 Comments

Opinion: What the Tory backbench rebellion means for parliament

Failing to get reform of the House of Lords through the Commons shows a parliamentary asymmetry. There are enough Tory backbenchers to defeat the government, but not enough Liberal Democrat backbenchers to do so. One party’s backbenchers have de facto veto power, but the other’s do not.

There are three responses to this constitutional oddity.

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Taxpayers’ Alliance report on tax – good in parts

The Taxpayers Alliance and Institute of Directors have just produced a 417 page report on the British Tax System. Some parts are good, some are plain silly.

Let’s get the silliness out of the way first. The report says the tax to GDP ratio should be 33%, and marginal tax rates (including employers’ national insurance) should be no higher than 30%. They believe this will spur growth. The reality – sadly for right-wingers – is that there is little evidence that even French tax rates preclude high levels …

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Opinion: Vince Cable right to abandon penalties on early student loan repayments

Vince Cable has done the right thing, for the right reasons.

The new student loan system requires well off graduates to pay a higher rate of interest on their loans – up to three percent above inflation. This helps to cover the government losses on loans to graduates who end up on low incomes – overwhelmingly women working part time after having children – as well as making the system more progressive.

Cable was worried that well off graduates would pay off their loan early, to avoid paying the interest charges. He commissioned his department to look into creating early repayment …

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Opinion: How we’ve been going wrong for the last 20 years

Social mobility means more than whether people are in the same income group as their parents. It also means that the lives of people “below” look more like those “above” them as time goes on.

Most of the twentieth century saw a clear demarcation between blue and white collar workers. Blue collar workers were paid less, and their lives were much less secure. They were more likely to be on short-term contracts – labourers were often hired by the day. Their work involved a greater risk of injury, and thus loss of work. They were less likely to have unemployment insurance and a company pension. The employment conditions for white collar workers were much more reliable – and that, as much as the difference in income, meant that white collar workers were able to buy a house, giving them a security not enjoyed by blue collar workers.

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Opinion: Education matters in tackling social mobility

Social mobility is core to the Coalition and Nick Clegg personally. It means that your birth plays little or no role in determining your life outcomes. It is the opposite of feudalism. Economic mobility is an important part of social mobility. Where you end up economically is determined by your ability and hard work, for sure, but also by whether you get a good education, good advice, and – for some – by whether you inherit.

Government should concentrate on what it can do, in this case education. Kids from poor backgrounds generally do much worse at school – and so they end up poor later on. Government can improve school results for such kids relative to others: Labour did it – a bit. There is big variation in this across the country, so every local authority except one should be ringing up those who are doing better and learning from them.

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Tim Leunig writes: The problem with Labour’s proposed tuition fees cap

Ed Miliband has seized the initiative at the start of his conference, announcing that Labour would cap student fees at £6,000 per year. This policy is superficially attractive, and is clearly designed to win over LibDem supporters who remain angry at the rise in tuition fees.

Today I have published an analysis of Labour’s proposal. It uses the Business Innovation and Skills graduate income “ready reckoner”, which is based on data from the ONS Labour Force Survey. The underlying data are as good as they can be, although of course predicting graduate incomes in 30 years time is a dangerous …

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Tim Leunig writes: Riots, Justice and Reconciliation

Natasha Reid, a 24 year old graduate, was in McDonalds in Enfield on Sunday night. She noticed that Comet was being looted, and went in and helped herself to a £270 television. There is no suggestion that she caused any damage, or was violent in any way. She realised that what she had done was wrong, and handed herself in to the police.

She has been found guilty, and will be sentenced on 1 September. District judge Elizabeth Roscoe told her that her remorse would ‘very much go in your favour’ but warned that she could still face prison because of the ‘serious nature’ of the case.

That would not be appropriate. What Natasha Reid did was wrong, but, bluntly, since she got home with the television, and does not appear to have been caught on camera, she could probably have got away with it. She chose to confess, a remarkably brave thing to do given that sentencing was likely to be harsh.

Posted in Op-eds | Tagged , and | 67 Comments

Tim Leunig writes: Why are utility companies hitting the poorest hardest?

Global gas prices are going up, and prices for UK consumers are going up too. Gas suppliers are raising prices by around 18-20%.

Consumer price rises are inevitable when the wholesale price goes up. But my supplier, E.ON, has structured its price rises to hit the poor more than the rich. They are doing this by raising the cost of gas much more for small users than large users.

They have raised the price of the first 2680 kWh by 46%, but the price of additional units by only 15%. This means that the poor – and the green – will see …

Posted in Op-eds | 27 Comments

Opinion: Cameron should be as ruthless as Murdoch‏

In shutting the News of the World, the Murdochs have shown themselves to be ruthless. Their ruthlessness changed the story, although it has not killed it.

David Cameron needs to be as ruthless. So long as the Murdochs have a powerful media presence, his hiring of Andy Coulson and his closeness to Rebekah Brooks are real issues. The retoxification of the Tory party is underway.

Cameron should announce that he was lied to by Coulson, and that the level of rot can only have happened if people at the top were not managing the paper properly. It was Brooks and …

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Opinion: The cap doesn’t fit, so don’t wear it

This week the £26,000 absolute cap on benefits is back in the news. To many people £26,000 sounds like a lot of money. It is, after all, the average wage. The idea that anyone out of work should get more than the average family appears offensive. That is why this policy plays so well with the public – and make no mistake, it does.

But the claim, repeated by the Department for Work and Pensions, that this policy is needed so that people on benefits do not get more than those on average earnings is a lie. People …

Posted in Op-eds | Tagged | 77 Comments

Opinion: MPs have the power – so how do we involve the members?

It is 1946, and Labour have just won a landslide under Clement Attlee. Harold Laski, head of Labour’s National Executive Committee, tells Attlee that he must not sign a peace treaty at Potsdam, because it is the NEC, not Attlee or the parliamentary party, which is the sovereign body of the Labour Party. Attlee replied that

You have no right whatever to speak on behalf of the Government. Foreign affairs are in the capable hands of Ernest Bevin . … a period of silence on your part would be welcome.”

Now imagine the Liberal Democrats win the 2010 election. For financial – or other – reasons the party leadership decide to defer or abolish our pledge to abolish tuition fees.

Posted in Op-eds and Party policy and internal matters | Tagged , , , , , and | 19 Comments

Oil prices: understanding the past, predicting the future

A year ago I predicted that “oil prices will not end 2008 materially higher than they are today, and that they will be at least a third lower in 5-10 years.”

The first prediction was right, in spades – I will write again in 5 and 10 years time about the second.

The prediction provoked a short but high quality exchange in the comment column. Not everyone agreed: Nick Rouse wrote of a “primitive economist’s models that bear no resemblance to reality” while in May, Mary Matthews wrote that “Boy, did you get it so wrong”, before adding “Economists cannot predict the future and trying is a waste of time.” (NB: I respect the fact that neither of you hid behind Anonymous in your commenting).

Economists’ predictions will always have large error bounds because we are trying to predict the aggregate results of individuals’ idiosyncratic decisions. But oil producers and users need to think about likely price trends when making investment decisions. Forecasting is necessary.

Predicting that a price will fall when it is more expensive than usual, and demand and supply are elastic, is likely to be right. As petrol prices rose in the forecourts, people cut back. The number of miles driven fell a little, sales of fuel inefficient cars fell (particularly in the US, where the price rise was highest in percentage terms), and people slowed down on the motorway, quite dramatically. In addition, the prospect of getting more than $100 a barrel for stuff that had been worth much less only a year before led oil producing nations to increase supply.

Demand fell, supply rose, and today Bloomberg report that West Texas Intermediate is $48.58 and Brent is $49.23. These are lower than long term prices, since at these levels deep water exploration, and Canadian and Venezualan oil shales will not be profitable. But oil prices may not rise this year, for three reasons.

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Why British universities need student fees

Following the debate for and against university fees, LSE lecturer Tim Leunig gives his take on that contest.

What are the benefits of going to university?

Going to university is profitable for individuals, on average, and for any given A-level grades. Although a handful of degrees (e.g. medicine) are particularly profitable, once you take into account A-level grades, most subjects are equally valuable (classicists earn more than media studs grads because classicists generally have better A-level grades).

Second, the “profitability” of going to university remains even as graduate numbers have increased. This tells us that demand for graduates is elastic: if …

Posted in Op-eds and Party policy and internal matters | 47 Comments

Finance and economics: what we have learned, and what still needs to be done – part 6

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts, bank lending, fiscal policy, interest rates and tax policy. Today’s final part looks to the long term future.

Getting the long term picture right

In its panic and determination to “do something now” government must not forget its role in securing the long-term underpinnings of the economy. There are three areas in which Britain has serious problems.

Our education system fails …

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Finance and economics: what we have learned, and what still needs to be done – part 5

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts, bank lending, fiscal policy and interest rates.

Tax policy

The rapid deterioration in the fiscal position should worry us all. The British tax system is much more pro-cyclical than people previously thought, so that tax revenues fall dramatically even when the downturn is relatively small. (Remember, the economy has only just started to decline, so the fall in tax revenue so far …

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Finance and economics: what we have learned, and what still needs to be done – part 4

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts, bank lending and fiscal policy.

Interest rates and the Bank of England

The Bank of England’s monetary policy committee has done well. They did not rush to cut interest rates when inflation still looked to be a real threat (don’t forget that this summer saw the highest level of inflation for a decade). But as soon as there was a serious prospect of …

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Finance and economics: what we have learned, and what still needs to be done – part 3

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. So far the series has covered bank bailouts and bank lending.

Fiscal policy

Much has been written about the need for a fiscal boost. The debate has been poor, with politicians and the media muddling up underfunded tax cuts, tax cuts funded by spending cuts, and tax cuts funded by rises in other taxes. The last two have no impact in this context, and will not be considered.

Underfunded tax cuts, or unfunded …

Posted in Op-eds | Tagged | 13 Comments

Finance and economics: what we have learned, and what still needs to be done – part 2

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next. Yesterday was bank bailouts, and today…

Bank lending

It is important not to resume borrowing levels of two years ago. Indeed, we can calculate the optimal level of mortgage lending. Net lending should equal the value of new houses built, minus deposits on those houses, plus the same for houses bought by newly-formed households, and those moving to larger houses, minus regular capital repayments on the existing mortgage stock. Housebuilding rates are low …

Posted in Op-eds | Tagged | 3 Comments

Finance and economics: what we have learned, and what still needs to be done – part 1

This week Liberal Democrat Voice is running a series of articles from Tim Leunig about the economy – how we got here and what we should do next.

Bank bailouts

The economic downturn was precipitated by financial problems. This is a sign of a successful financial sector: they are there to bear risks other people do not want to bear, and are correspondingly prone to crises from time to time. Since the underlying rationale of a bank is to borrow short and lend long, the threat of bank runs will always be with us.

Banks in Britain needed government assistance to distinctive reasons. …

Posted in Op-eds | Tagged | 9 Comments

Vince wows the IFS

On Monday Vince Cable gave the 2008 Institute for Fiscal Studies Annual Lecture. (The Telegraph, among others, has highlighted his speech).

This lecture is the sort of thing that Chancellors and members of the monetary policy get to give, not opposition politicians. It says something of the respect with which Vince is held by serious economists that he was invited to deliver it. And did he deliver. This was a serious speech, by a serious economist, for serious economists. If that’s you, read it in full.

For most people it was a speech about bubbles, going back to the Tulip …

Posted in News | 12 Comments

Nick Clegg: “Long live the pound”

OK, I admit it, I have misquoted Nick’s speech to the LibDem City Forum last month – but not by much. This was the most Euro sceptic speech by a LibDem leader in living memory.

Let me quote him precisely: “the UK is enjoying the benefit of currency flexibility and the devaluation of the pound against the Euro is giving a stimulus to manufacturing.” Doesn’t sound like someone who wants to join the single currency, does it? He acknowledges that things may change, but he doesn’t exactly go out of his way to make it sound likely: “conditions may …

Posted in Europe / International and Op-eds | 11 Comments

“A New Deal for the City: Liberal Democrat Proposals” reviewed

Nick Clegg’s speech to the LibDem City Forum was sufficiently interesting to make the BBC news homepage. Nick acknowledged that Vince wrote it – a deserved tribute to Vince’s credibility. Nick highlighted David Laws, Chris Huhne, and Susan Kramer as evidence that we have “the strongest team of economic expertise in British politics today”. True, but why are none in economic portfolios?!

Here are some of the proposals.

The good

1. The depositor protection system doesn’t work – as the Northern Rock queues show. It needs reforming – although Nick didn’t say how.

2. Bank charges should be transparent. Yes! But …

Posted in Op-eds | 15 Comments

How big does the pupil premium need to be?

In 1996 a group of Oxford academics produced a book called Options for Britain. It was intended as a thought piece for an incoming (Labour) government. 12 years on, and with less clarity as to the makeup of the next government, we are working on a new volume along the same lines. To that end I have spent the last three days in Oxford at a policy conference.

The concept of pupil premium is was widely supported in the education session. I asked the obvious question: How large must the pupil premium be for the child of Somalian immigrants …

Posted in Op-eds | 33 Comments

Clegg: “I’m an economic liberal”

Nick Clegg gave his first speech on the economy yesterday, and for those of us who call ourselves “economic liberals” it was an enjoyable occasion. There is much to discuss about the 3500 word speech but I am going to concentrate on the big picture and discuss what it means for the party as a whole. I will return to other sections in future articles.

There was considerable criticism that Nick said little about his approach to the economy during the leadership election. It is clear from his speech today that there is little if anything that separates Nick …

Posted in Op-eds | 94 Comments

What will happen to oil prices?

This is the first of a regular series of columns from economist Tim Leuning.

January is the time for predictions. Every year economists make them. Sometimes we are right, and sometimes wrong. Some predictions, like inflation, are easy, but others are not. The oil price is not.

For fifty years, 1921-71, the oil price was fairly stable at c. $20 a barrel (in today’s terms). That was surprising: the price yo-yoed in the mid-nineteenth century and was fairly volatile 1880-1921. But neither the booming 20s nor the great depression, a world war, nor a post-war boom seemed to affect oil prices at all. Oil prices were one thing you just did not have to worry about.

Posted in Op-eds | Tagged | 15 Comments

Vince or Redwood – who do you think’s more credible?

Poor old John Redwood. He is upset at the way that the BBC treats him compared with our very own Vince Cable. On his blog he complains that the BBC are nicer to Vince than to him.

But let’s be clear here. Ming has made Vince our Shadow Chancellor. David Cameron has not appointed John to any position in his cabinet.

Do we really think that the Tories want to see John Redwood on television more often, treated with the respect that he thinks he warrants?

Posted in News | 20 Comments

Recent Comments

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