South Shields and local election results

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The results are now in for the local elections and South Shields by-election, as well as mayoral elections in Doncaster and North Tyneside.1 At first glance, UKIP appear to have risen from nowhere (in local election terms) to become a serious party, securing an average of 23% of the votes where they have put forward a candidate2 and making a net gain of 139 councillors. Arguably their effect has been deeper than just the number of seats won, as they may well have unseated Conservatives by splitting the vote – although this effect is difficult to measure.

On the other hand, UKIP failed to secure control of any individual councils, and still have fewer councillors than the independents who stood without party resources to back them up. Nigel Farage can certainly boast of success in the local elections, but it would be unwise to suggest that his party has changed the face of local politics based on one set of results which does not include Scotland, Wales3 and large chunks of England. Whether UKIP can hold on to these gains and build upon them is also in doubt – and history does not point in their favour. The Green Party reached its high point in the 1989 European elections,4 winning 15% of the vote – though the First Past the Post system in place prevented them from getting any seats.5 Since then, they have bobbed along near the bottom of the polls, occasionally surging forward but only in small areas such as Brighton, and never with any realistic chance of gaining sufficient widespread support to become a serious political force. The British National Party had a similar success in 2009, using fears about immigration and disgust at the MPs’ expenses scandal to secure two MEPs and three councillors. However, those results have since been almost completely reversed, with one MEP resigning the whip, and most of their councillors losing their seats in the 2010, 2011 and 2013 local elections.

The South Shields by-election ended up as a three party race, but this time UKIP completely displaced the Liberal Democrats and pushed the Conservatives into third place at the same time. Labour just held on to an overall majority of the vote share, slightly down on the general election result but still a safe seat.6 The results were nothing short of a disaster for the Liberal Democrats: vote share down 12 percentage points, only 352 votes and seventh place between the BNP and the Monster Raving Loony Party. This is even more disappointing given that the Lib Dems are usually good at fighting by-elections, where they can mobilise local activists to pound the streets, canvassing and delivering leaflets.7

Cameron can probably brush off the net loss of 335 councillors as mid-term blues, although a few individual results – such as losing Oxfordshire council to No Overall Control8 – are embarrassing. The rise of UKIP has panicked some Conservatives, with members of the No Turning Back group9 calling for a two-stage referendum package on EU membership.10 Personally, I think Cameron should stand firm and keep to his existing plan – which is bad enough as it is – otherwise he runs the risk of being held hostage by UKIP and the extreme Eurosceptics on his own backbenches.

Nick Clegg fell back to reminding people of the party’s victory in Eastleigh as proof that the party is still a relevant force in UK politics.11 However, that was a case of hanging on to what should have been a reasonably safe Lib Dem seat – previously occupied by a high profile MP – with a substantially reduced majority and collapsing share of the vote. As I have pointed out before,12 this is more a case of hanging on for dear life rather than a ‘spectacular victory’. For the moment, Lib Dem MPs seem more content with Clegg’s leadership than Conservative MPs are with Cameron’s, and Clegg has fewer credible challengers for the leadership, but that could change if things do not pick up soon. Having said that, if Clegg can make it through the elections to the European Parliament next year without too many losses – some of which he can blame on rising Euroscepticism and UKIP – he is probably safe until the next general election.

Ed Milliband is no doubt relieved that Labour held on convincingly to South Shields, as a poor result in his brother’s ex-constituency would have been a major media embarrassment. Labour also managed to pick up 291 councillors and, more importantly perhaps, control of two councils.13 The gains were not spectacular though – many Conservative and Lib Dem losses went to UKIP, the Green Party and independents – and Labour still has some way to go in convincing the electorate that it is a credible alternative.

Overall, these elections were a success for UKIP, though not to the extent suggested by the mainstream media, and the long-term success of the party is not guaranteed. Looked at across the board, the three main parties did as well or badly as could be expected and, with the exception of a few minor local embarrassments and a Lib Dem by-election disaster, there is little for their leaders to worry about in the short term.

UKIP and the local elections

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Less than two months ago, UKIP caused something of an upset when the party beat the Conservatives into third place at the Eastleigh by-election, and came within striking distance of taking the seat from the Liberal Democrats.14 With another set of elections just around the corner – a by-election in South Shields and local elections around the country – people are wondering if a repeat performance could be on the cards.

Mid-term elections are often difficult for the government of the day, but I think these may be different, for two reasons. First, the current government is part-way through an unpopular – though they would argue, necessary – austerity programme. Until recently, the government has been able to diffuse some of the dissent by promising that things will get better soon, but meagre growth, rising public debt and the introduction of yet more cuts (in real terms at least) have undermined that argument.

Secondly, the fact that we have a coalition government means that the electorate have to discount two of the three main political parties if they wish to register a protest vote. Whilst Labour should in theory benefit from the absence of the Liberal Democrats in mopping up the anti-government vote, I’m not convinced that the majority of the electorate are willing to support Labour – either because the memory of their economic policy failures are still too strong, or for ideological reasons. That section of the electorate can register their discontent through apathy – not voting or spoiling their ballot – or actively voting for another party. UKIP has three major advantages relative to the other contenders for the anti-politics vote: leadership, reach and respectability.

In terms of leadership – whether you like him or not – Farage has done an exceptional job of raising the profile of the party and making it appear like a mainstream political force. He is forever turning up on BBC Question Time – far out of proportion to UKIP’s representation in the country – and his press events are usually packed out. He is also the only minority party leader I can name off the top of my head – and I’m a self-confessed political geek.

When it comes to reach, UKIP is fielding 1,745 candidates – well ahead of the Greens (893), and independents (900).15 In many wards, if you want to register an active protest vote and can’t bring yourself to put a cross next to the Labour candidate, UKIP may be your only option.

Despite some of the comments made by individual members,16 UKIP is not as toxic as the British National Party, nor as outwardly crazy as some other fringe parties.17 Activists in South Shields report that some people are not ready to admit to voting UKIP,18 but so long as they put their cross against the right box on polling day that is all that matters. Furthermore, if the party does gain more representation, that in itself will provide credibility.

The advantage which UKIP has over Labour – as opposed to other minority parties – is that it has never been in government, nor is it ever likely to be. This means that it has not made any decisions which upset people – and decisions made whilst in government always upset some people – plus it can make populist promises on issues such as taxation and tuition fees, safe in the knowledge that it will never have to deliver on them. In many ways, it is in a similar position to the Liberal Democrats before the 2010 general election – although I doubt UKIP will be holding the balance of power in Westminister at any point in the near future.

I am not going to attempt to make a guess at the exact level of suppport for UKIP – either in terms of vote share or seat gains – as they are still an unknown force outside of European elections. I think it is unlikely that they will sweep to victory in South Shields – although Labour’s majority may well be reduced – or that they will gain control of a substantial number of councils, but they will probably cause a few upsets along the way. Whatever happens, Friday’s results are likely to make uncomfortable reading for at least two of the three main party leaders.

Budget 2013 review

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A couple of weeks ago, George Osborne announced another anthology of essays on how to further damage the UK economy – known in Treasury jargon as ‘a budget’. You can view the full details on the HM Treasury website, and I have extracted and commented on some of the more prominent measures below.

More cuts to corporation tax

Twenty one percent was still too high for the Chancellor, so he is going to cut corporation tax by another percentage point on top of those already announced. The problem is that Osborne seems to think that tax is the only competitive advantage that businesses care about. After the reduction to 20%, we will be on a par with Russia and Saudi Arabia. When was the last time you heard of a large multinational choosing to move to either of these countries for tax reasons? Even BP, which would have other potential reasons to move to Russia (e.g. the amount of oil and gas extracted there), has kept its headquarters in London.

What Osborne fails to realise is that the UK has many advantages which counterbalance any disparity in corporation tax. The English language, well established legal system, relatively low corruption, central timezone, liquid stockmarket and well educated labour pool all more than compensate than for a couple of percentage points in tax.

The other daft reasoning behind this idea is the data – Osborne claims this cut will mean the UK has the joint lowest rate of tax in the G20. This doesn’t include the Republic of Ireland, which has a much lower rate, and several large technology companies – including Facebook, Google and Microsoft – have their European headquarters there. If Osborne thinks that corporation tax is the key issue, why does he not cut the rate to match the RoI?

Finally, if your business is struggling to make ends meet, a cut to corporation tax will not help in the slightest. Generally speaking, companies are only taxed on their profits, so any company which is breaking even or making a loss will see no benefit from this change.

Help (sort of) with housing

Want to buy a house, but struggling to raise a deposit? Don’t despair, the Chancellor is here to help! Of course, there are catches involved. Most of the help is reserved for people who want to buy new build properties, where the Government will take a punt on house prices by giving you an equity loan of up to 20% of the price. If you sell at a loss, the Government will also take a hit – although this will of course never happen because we all know that house prices only go upwards.

The qualifying period for Right to Buy has also been reduced, from five years to three. Whilst I’m sure this will generate positive headlines in the Mail and the Telegraph, there is no mention of any funds to replace any housing stock sold in this way. All this policy does is reduce the housing stock available for social tenants – thus increasing the waiting lists. Right to Buy worked for Thatcher as an electoral gimmick – and in that sense it was a masterstroke – but we have seen the long term consequences of that policy, and they do not bode well for the generation that follows any sell-off of social housing.

The time has come for some direct intervention in the housing market. The total support in the budget for housing is supposedly £5.4bn. At current prices, that would allow the Government to buy at least one – and possibly two – of the big house builders quoted on the London Stock Exchange.19 Effectively, they would be nationalised, though shareholders would be compensated in full – as if the buyout was a normal corporate takeover. With these assets under state control, the Treasury could direct new houses to be built in areas of need, as opposed to where they would fetch the highest prices. The profit margin usually earned by these companies could instead be used to reduce the price of the houses – selling them more or less at build cost – hopefully making them affordable for first time buyers.

Overall, this was less of a bungle than last year – though that was hardly a challenge. However, Osborne is still bumbling around and showing no signs of having a grip on the economy. In the absence of a steering wheel, he’s decided to put his foot down and continue even faster on the current course. Will he run out of road before he runs out of petrol, or will Cameron put someone else in the driving seat?

Fallout from the Eastleigh by-election

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Thursday’s by-election result in Eastleigh was a mixture of the expected and surprises, as the Liberal Democrats hung onto the seat whilst UKIP appeared out of nowhere to push the Conservatives into third place. My prediction of tactical voting in favour of the Conservatives was wrong, as was the one about Miliband having cause to rejoice, though I believe I made the right call on the result being a disappointment for Cameron and a relief for Clegg.20

Victory for Farage

Nigel Farage was in a jovial mood on Friday – second place for the UKIP candidate and less than two thousand votes away from taking the seat. Although coming close to victory in a by-election is no guarantee of success in the 2015 general election, Farage will tell everyone that UKIP is en-route to representation at Westminister,21 and enough people may believe him for it to become a self-fulling prophecy.

A sigh of relief for Clegg

No doubt Nick Clegg sighed with relief when he saw the final voting tally, although describing the result as a ‘stunning victory’22 is putting a positive spin on things – ‘holding on by the skin of our teeth’ would be more accurate. The Lib Dem share of the vote collapsed by over 14 percentage points, to a level not seen since 1997. Various reasons have been suggested for the swing from the Lib Dems and the Conservatives to UKIP, from dissatisfaction with the Coalition’s austerity policy to the twin Lib Dem scandals of Chris Huhne and Lord Rennard – although Huhne’s fall from grace was nothing to do with the party, and Rennard has strongly denied all the allegations made against him. Fortunately the huge influx of activists in the weeks running up to the by-election seems to have paid off on this occasion, but the party needs to up its game before the next general election.

Dark times for Cameron

No matter how the votes landed, anything other than a Conservative victory was bad news for Cameron. Second place would have acceptable, although some backbenchers would have grumbled about any result other than a sweeping victory – and even then they would claim that this was proof that moving further to the right is the direction which Cameron should be taking the party.

The only consolation for Cameron is that UKIP failed to take the seat, albeit only by a fairly small margin. Such a result would have been truly disastrous for his standing within the party. As things stand, Cameron has his second favourite candidate in place – assuming he would prefer a Lib Dem over any party bar the Conservatives – and may be able to brush off this defeat as mid-term blues. In private, he can also blame Maria Hutchings, the Conservative candidate, who failed abysmally to connect with the electorate.

A bad week for Miliband

Even before the by-election, Miliband was making a hash of things with a poor performance in Prime Ministers’ Questions. After Cameron used several quotes from the New Statesman which criticised Miliband’s leadership (and Ed Balls),23 the Labour leader responded with: ‘the Prime Minister is scraping the barrel by quoting [the New Statesman]‘.24 Cue an intake of breath from the Labour backbenches and roars of laughter from the Conservatives. After a call to order by the Speaker, Miliband tried to get in a soundbite about a ‘downgraded Government, a downgraded Chancellor and a downgraded Prime Minister’.25 Cameron spotted the open goal though, and hit the back of the net when he pointed out that the New Statesman was the only newspaper to have endorsed Miliband in the Labour leadership contest.

In terms of the Eastleigh result, the Labour turnout was appalling. Whilst the fall in the absolute number of votes could be put down to a lower turnout,26 the negligible 20 basis points increase of the vote share was inexcusable. Part of this was down to the unfortunate choice of John O’Farrell as the Labour candidate, a comedian who is better left writing jokes for other politicians than attempting to appeal directly to the electorate.27 However, even a poor candidate should have been able to capitalise on a backlash against the two parties of government. Voters seem to be unwilling to trust Labour again – especially when an alternative protest vote is on offer – and this is a serious problem for Miliband and the party in general.

Why the Moody’s downgrade of UK debt is unimportant

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On Friday afternoon Moody’s, one of the three credit rating agencies, announced that it was downgrading UK sovereign debt one notch from the highest rating of AAA.28 Whilst this is embarrassing for George Osborne, who has staked his reputation on the UK retaining its top rating, there are plenty of reasons for this not to be a disaster.

First, all three rating agencies placed the UK on ‘negative watch’ some time ago, which means they expect the situation to get worse and that a rating cut may be around the corner. As a result, the debt markets were forewarned and the cost of any downgrade was already ‘in the price’, as commentators like to say – i.e. the price of gilts had already changed to reflect the likelihood of a downgrade.

Secondly, the factors which matter in the market for sovereign debt are size, length to maturity and relative credit rating. Although the UK has dropped a notch with Moody’s, it is still on the same level as the United States, so investors looking for a safe haven are hardly likely to desert the UK as a result of the downgrade. Furthermore, although some countries retain the AAA status from all three agencies, the UK has a relatively large amount of debt and a liquid market, meaning that investors can easily buy and sell gilts. Countries with a small amount of debt can be seen as riskier, even if they have a higher rating, because investors may struggle to find buyers if they wish to move their money out. In effect, investors may be willing to trade a perceived increase in credit risk for a reduction in liquidity risk.

The UK also has the comfortable position of having issued debt with long maturity dates – often 20 years or more – and outstanding debt has an average of 14 years to maturity.29 This is longer than almost any other country in the world,30 and means that we are not about to hit a cliff edge which requires us to repay the principal on large amounts of debt.31 Whilst this shouldn’t be used as an excuse to avoid tackling both the debt and the deficit, it does provide some breathing space, and means that there is no immediate need to panic over a ratings downgrade.

The threshold which a rating cut crosses is also important. A fall from AAA to AA1 is not as bad as dropping from A3 to BAA1. In fact, the only threshold which really matters is from BAA3 to BA1 – at this point bonds are no longer considered ‘investment grade’, and some funds (especially pension funds) may be forced to sell at this point, because their terms only allow them to hold investment grade debt.

Finally, remember that Moody’s is one of the agencies which rated securities consisting of sub-prime mortgages as AAA in the run up to the credit crunch. They have demonstrated their incompetence once before – on an enormous scale – not to mention the problems with conflicts of interest.32 We should take what they say with a pinch of salt – even if some investors do use the ratings as a guide to credit risk.

If you want evidence to support the view that the UK is not in an immediate debt crisis, take a look at the gilt auctions section of the UK Debt Management Office, which is responsible for the issuance of UK debt. The figure to concentrate on is the bid to cover ratio, which is an indication of the level of interest for a particular debt issue. Over the past two years, it has never fallen below 1.0, meaning that the issue was fully taken up. In many auctions, the ratio exceeded 2.0, meaning that there were twice as many bids as there was debt available. As with the maturity figures, this shouldn’t be used as an excuse for complacency, but neither should anyone panic.

In summary, there is no reason for anyone (except Osborne) to panic as a result of the downgrade. Don’t pay much attention to Moody’s, and pay even less to Ed Balls when he jumps up and down pointing the finger at Osborne, even though Mr Balls is partly responsible for the mess the country’s finances are in.

Of course, this decision is only unimportant from a business and investment point of view. Politically, it blows a hole in George Osborne’s case for austerity, much of which was pinned on the need for the UK to retain its AAA rating. Whilst Vince Cable has dismissed the cut as ‘largely symbolic’,33 you can expect renewed attacks on the government’s strategy (I’m being generous here and assuming they have one) over the coming weeks.

Eastleigh by-election: Party leader hopes

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Although there are fourteen candidates in the upcoming Eastleigh by-election – from the Beer, Baccy and Crumpet Party to more recognisable names (though no Greens) – this is primarily a contest between the two parties of the coalition government , with potential repercussions for the leaders of the three main parties.

David Cameron

Cameron probably has a lose-lose situation on his hands, due to the Conservative candidate, Maria Hutchings, who is generally considered to be on the right-wing of the party and a bit of a loose cannon – even allegedly being ‘hidden’ from hustings.34

If she wins, the victory will be heralded by Tory backbenchers as a sign that veering to the right is a clear route to electoral success, which may undermine Cameron’s policy of attempting to modernise the party. This would be a shame, as I think Cameron is taking the country in the right general direction on some social issues (e.g. equal marriage), despite the protestations from some backbenchers. On the other hand, if the Tories come second to the Lib Dems, Cameron may come under fire from MPs who are unhappy with being in coalition. Anything less than second place would be disastrous for Cameron, and would probably restart talks of a leadership challenge.

The upside of choosing a right-wing Conservative candidate though is that UKIP seem to have backed off – at least in terms of not putting forward a high-profile candidate such as Nigel Farage – and their supporters might be willing to back a Tory – albeit grudgingly – over anyone else. The marginal nature of the seat might result in some tactical voting, along the lines of ‘UKIP can’t win here, vote Conservative to keep the pro-Europe Lib Dems out’.

Nick Clegg

Victory for the Liberal Democrats would no doubt boost Nick Clegg’s standing within the party, which has taken a battering over the past year or so.35 Betfair currently has odds of 4/11 on a Lib Dem victory, although PoliticalBetting.com shows mixed results depending on which opinion poll you read.36 Clegg has been making regular visits to the constituency, suggesting that the party still views him as an asset, rather than a liability.

Support from activists on the ground is strong for the Lib Dems – they know they need to win this. I know people who have travelled from Manchester37 in order to join the campaign, and a Lib Dem member reported this week38 that over 200 activists were on the streets, knocking on doors and delivering leaflets.39 This is the sort of campaign where the strong local presence of the Lib Dems should help propel them towards victory.

In terms of timing, the party’s Spring conference two weeks after the by-election will provide an opportunity for Clegg to make a speech arguing that the current plan is working, or allow members to attack his leadership – depending on the result. However, unless the party’s majority is wiped out and there is someone willing to wield the knife, I think he is still safe as leader until the next general election.

Ed Miliband

Miliband has the easiest ride here, as no one expects the Labour candidate to win – although this pessimism, together with the cold weather, may make it difficult to rally local activists. Any increase in Labour’s share of the vote can easily be spun as a success story – all as a result of Ed’s leadership of course.

Miliband’s task is made even easier by the fact that Labour’s vote fell significantly in Eastleigh at the last general election, so a return to the previous results will look like a triumph. Anyone who looks at the numbers40 will see that Miliband has just put the party back where it was before 2010, but the general public will only see the ‘Labour vote share doubles’ headline.

Overall, Cameron is likely to be disappointed, Clegg will probably be alright and Miliband will rejoice. Heads are unlikely to roll in any event.

Autumn Statement 2012

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Today George Osborne, the Chancellor of the Exchequer, stood up in the House of Commons and delivered his autumn statement — effectively a mini-budget. I watched most of the speech and have now caught up on the coverage from various news outlets. If you want to read the speech in full, it can be downloaded from the HM Treasury website, and my analysis of some of the major announcements can be found below.

Personal allowance

This continues its gradual rise toward £10,000, which was a key commitment of the Liberal Democrats in their 2010 manifesto. This benefits the majority of taxpayers, and this time higher rate taxpayers will also be better off, as the higher rate threshold is only increasing by 1%. However, anyone who is already earning less than the allowance will not benefit, so it may not help those struggling to get by on a part-time job paying the minimum wage.

Employee shareholder status

An utterly barmy policy whereby employees can give up some of their important employment rights in exchange for £2,000-50,000 worth of shares in their employer, which will be exempt from capital gains tax. Roundly criticised when it was first announced, I expect this to be quietly shelved in a couple of years due to a complete absence of demand.

Pensions tax relief

Two restrictions on pensions tax relief were changed, the first being the lifetime allowance, which was cut from £1.5m to £1.25m and is unlikely to affect most people (if it does affect you, I’m afraid I have no sympathy whatsoever). The second was a reduction in the annual allowance, down from £50,000 to £40,000. Whilst this might still seem a large amount, some members of final salary schemes may find they hit the limit and have to pay a tax charge on the excess.41 However, there is an argument that if you are a member of a generous final salary scheme, you should bear some of the burden for repairing the nation’s finances.

Individual Savings Accounts (ISAs)

Two pieces of good news here. First of all, the annual allowance is being increased, allowing you to keep a bit more cash or shares out of the tax net. Secondly, the government is considering allowing shares listed on the Alternative Investment Market (AIM) to be held in ISAs, which is something shareholder groups have wanted for a long time.

Benefits uprating

Most benefits and tax credits will rise by 1%, instead of the rate of inflation. Since inflation (however you measure it) is almost always higher than this — and indeed the official target is 2% — this means a real terms cut. Any disability elements of benefits will however increase in line with inflation. Pensioners get a 2.5% increase in the basic state pension thanks to the ‘triple lock’,42 another key Liberal Democrat policy.

Fuel duty

The planned increase of 3.02p per litre on fuel duty has been cancelled, to the delight of the road lobby and the dismay of environmental groups. Despite being ecologically-minded, I think this was a sensible decision, given how essential a car is for many workers to commute. Of course, if we had proper public transport outside of London then an increase would be less of an issue, but that’s a rant for another day.

Tax avoidance

A huge range of measures to combat tax avoidance were announced, though it remains to be seen whether these will be successful or just skirted around by the firms of lawyers and accountants who specialise in this area. Personally, I’d bet on the accountants over HMRC.

Overall, for something billed as a ‘statement’, the Chancellor managed to cram in a lot of changes. I suspect the least affected will be middle earners who don’t claim any benefits or tax credits, as they will have a slightly higher net income due to the personal allowance increase, without suffering too much in other areas. Hardest hit will be those who rely on benefits or tax credits to meet their everyday expenditure, due to the uprating being lower than inflation. Millionaires might see the anti-avoidance measures as an attack on their income and wealth, but previous attempts suggest they don’t have much to fear. We’re still not ‘all in this together’.

Nick Clegg’s leadership woes

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Nick Clegg has led the Liberal Democrats since December 200743  – but for how much longer? Lord Oakeshott has recently suggested that the party needs to be ‘looking very hard now at both its strategy and management’44 – not an outright demand for Clegg to go but certainly a shot across the bows. This follows up on a recent poll by Lib Dem Voice, a prominent website for party members, which suggested that the party is split on whether Clegg should remain as leader until 2015.45 Martin Kettle of the Guardian thinks it is a question of ‘when, not if’ the party decides that Clegg should go, although I do not agree with his headline assertation that the ‘Lib Dems are ruthless’.46 On the other hand, Andrew Rawnsley thinks Clegg still has some time left to turn things around47 and the man himself seems prepared to tough it out.48

Much as it pains me to admit this, I agree with Polly Toynbee’s assertion49 that Clegg chose badly when he opted to become Deputy Prime Minister, and that he should have held out for one of the three Great Offices of State.50 DPM sounds like an impressive job title, but it has two major problems. First and foremost, the name makes it clear that Clegg is subordinate to Cameron, to be called upon only when the PM is away on important business or ‘chillaxing’ on holiday. Secondly, the other problem is that the office of DPM has the taint of Prescott’s tenure – a convenient place to dump any areas of government which no other minister wants to touch (usually with good reason). The job title might sound impressive, but it is largely a token gesture towards someone you can’t afford to exclude from the Cabinet, but at the same time you don’t want to hold any real power.

As might be expected, Lib Dem old timer (and past party leader) Paddy Ashdown has jumped in to defend Clegg.51 His opinions are still snapped up by the press, although to me he is to the Lib Dems what Major is to the Tories – a leader from the past with varying degrees of success, but no longer in any position of influence. His defence of Clegg looks backwards rather than forwards, trying to draw parallels with his time as leader  and arguing that opinion polls aren’t important. Whilst I agree with the latter point to an extent, it is the dissatisfaction of party members and MPs who will decide whether Clegg is removed as leader, not the general public.

In terms of replacing Clegg, should he decide to jump or be pushed, Vince Cable appears to be the media favourite, perhaps unsurprisingly given that he has the highest profile and the most senior government position after the party leader.

In many ways, Vince Cable reminds me of Ken Clarke. He’s been around a long time, is a bit of a maverick, and sufficiently heavyweight to get away with openly disagreeing with party policy from time to time. The public like him, the media look to him for opinions and quotes, and even his opponents have a grudging respect for his experience.

However, as with Clarke — who has stood for the Conservative leadership on numerous occasions — I think Cable’s chances of winning a leadership contest are slim, and he would be a poor choice if the party decided to elect him. Being likeable doesn’t make you a good leader, at least not by itself. No matter how popular a politician is now, their standing within their party and in the eyes of the public will begin to wane once they have to start making tough decisions. Furthermore, whilst I dislike judging people’s ability based on age, the fact is that Cable will be over 70 by the time the next general election is called. In the past, no one would have blinked an eyelid at this, but party leaders have been getting younger since 1997, and I think Cable would look outdated next to Milliband and Cameron. That’s not particularly fair, but in the age of 24/7 media, appearances matter.

If not Cable, then who is left? With so few MPs,52 there’s not a lot of choice to begin with, but let’s use the original Orange Book authors as a starting point:

  • David Laws: Disappeared from front line politics, but rumours of a return have been circulating recently. His expenses claims cost him a Cabinet position, but sufficient time may have passed for the party to forgive him that. Enthusiasm for economic reform may not endear him to some in the party though.
  • Ed Davey: Good all-rounder, holding a number of positions within the party and the government. However, he is currently only Secretary of State for Energy and Climate Change, and I don’t feel this gives him a good enough platform to launch a leadership challenge from. One to watch in the future though.
  • Chris Huhne: Has lost out twice for party leadership, but against Clegg the count was extremely tight, with some arguing that Huhne could have won if postal ballots had not been delayed.53 However, his current prosecution for allegedly perverting the course of justice54 makes it unlikely that he would be able to join a leadership contest if one were to be held before 2013.
  • Susan Kramer: No longer an MP (lost to Zac Goldsmith in 2010).
  • Charles Kennedy: Was popular with the public and enjoyed a high media profile when leader. Might struggle to gain support of MPs in a leadership election but has not completely ruled out the possibility of a return. An outside possibility at best.
  • Mark Oaten: Retired at the 2010 general election, and therefore no longer an MP.
  • Steve Webb: Shied away from running in the 2007 leadership election and decided (wisely, with hindsight) to back Clegg. Holds a high profile position as Minister of State for Pensions and might be more ready for the mantle of leadership than Ed Davey.

Not the most promising of lists. Whilst I think that there are one or two potential future candidates for leader, I’m not sure that any of them are ready and willing to take over in the middle of a parliament.

In conclusion, whilst I’m unconvinced either way about whether Clegg should go, I think it’s likely that he will lead the party into the next general election. There’s little incentive for him to jump, and I don’t think anyone in the party is ruthless enough to push him. The lack of credible and willing alternatives means Clegg runs a real risk of ending up like Gordon Brown – constantly undermined but never formally challenged, doomed to stumble on to a crushing defeat the next general election. A sad end for a leader who took his party into government for the first time in its history.

Student loans do affect mortgages

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A recent post on Lib Dem Voice entitled: Dealing with critics on our own terms – graduate contributions55 has left me cheesed off due to a number of inaccurate statements used to defend the rise in fees. However, the one which annoys me the most is this:

they [student loans] don’t count for mortgage assessment purposes

This inaccurate statement seems to be raised in every defence of the increase in tuition fees. It is true that a student loan won’t appear on your credit record,56 but it will be taken into account when calculating how much you can borrow. The reason for this is that lenders have moved away from simple multiples of gross salary and towards measuring your ability to afford repayments.57 Since loan repayments of any kind reduce your net income, they also affect the affordability of further credit and therefore how much you can borrow.

As a simple example, let’s use the Halifax mortgage calculator, from the UK’s biggest lender for residential property. I’m assuming a single applicant with a basic gross salary of £30,000 and no additional income. Under the previous scheme, the loan repayments were 9% of everything over £15,000 (£112.50/month),58 and the new scheme is the same rate but with a threshold of £21,000 ((£67.50/month).59 These are the amounts the calculator says you can borrow at the time of writing:

No loan: £120,000
Old loan: £99,330
New loan:  £106,436

It’s true that the new loan scheme will have a lower impact on how much you can borrow than the old scheme, but two important facts remain. Firstly, even under the new scheme the amount you can borrow will be reduced – in this example by over 10%. Secondly, the new loans will probably have interest charged at a higher rate,60 so they will take longer to pay off. This means you may be hit multiple times if you want to remortgage or increase the size of your mortgage, whereas under the old system you may have cleared your loan by the time you come to change your mortgage.

In case Halifax was an outlier, I also tried the same example with Nationwide, the largest UK building society. The figures were different but there was still a difference in how much you can borrow based on your student loan repayments.

In conclusion then, if you are trying to defend the rise in tuition fees, please drop the ‘student loans don’t affect mortgages’ defence, because it’s inaccurate and gives people the wrong impression.