CentreRight

Doing it all with tax rises is not an option

Andrew Lilico is Policy Exchange's Chief Economist.

Michael Portillo has said he does not believe that the Conservatives will succeed in cutting spending, but instead will use tax rises as the main mechanism to cut the deficit.  I want to tell you, in no uncertain terms, why that is not an option.

Without action, the deficit this year and next will be above £200bn — 14% of GDP.  According to the Treasury (which is backed in this by the OECD) just under three quarters of that is structural — about 10% of GDP; £140bn.  That is to say, even when the economy starts growing again, there will still be £140bn of deficit (around 20% of spending) that will not disappear.  Perhaps some of you want to suggest that we do not need to balance the books.  I don’t agree, but let’s concede the point for now.  Let’s assume we just need to meet the maximum deficit, for any one year, permitted by the Maastricht Treaty criteria for sustainability — let’s aspire to have that not as our peak deficit, but as our average deficit.  That means we could run an average deficit of about £40bn.

So, still £100bn to find.  Portillo says we can’t do that by cutting spending, because it will be impossible — one presumes he means politically impossible.  Does he really believe it would be politically possible to raise taxes by £100bn.  If we are naïve, and assume that we wouldn’t damage the economy by raising taxes on this scale, we can think a little of what that might mean.  We could raise the basic rate of income tax to 45p.  Or we could raise the VAT rate to 37.5%.  Or perhaps we could try a bit of each — raise income tax to “just” 35p and the VAT rate to “just” 33%.  Does Portillo believe that any of this is politically possible?

Why the Conservative Party should not spell out a list of explicit cuts

Andrew Lilico is Policy Exchange's Chief Economist.

Cameron and Osborne are coming under increasing pressure to spell out an explicit list of planned spending cuts.  Some of this pressure, naturally, comes from their political opponents, but there have also been lists of cuts propose by, among others Reform (£30bn) and last week the Taxpayers’ Alliance and the Institute of Directors (£50bn).  Whilst it is useful for think tanks to produce ideas for debate, I believe it is a mistake when they go further and demand of political parties — especially of opposition parties — that they spell out their own alternative lists.  I shall explain why.

First, we should note that the lists of cuts set out so far are simply not enough.  For headline public spending to fall by the £65bn or more required, core spending needs to fall by upwards of £100bn, because in the short-term there will be £35bn or more of additional spending required as a fairly unavoidable consequence of the recession and the consequent unemployment to come.

This point of scale is crucial.  If the cuts required were only, say, £5bn, it might make sense to identify specifically what they are intended to be.  But to cut £100bn means cutting across an enormous area of public spending.  To make cuts on this scale, it is vital that, before they are committed to in detail, bureaucrats in the relevant departments have the opportunity to fine-tune the scheme.  Otherwise, what will happen in practice is that some cuts “committed to” in opposition will prove undeliverable in government.  Once that starts to happen, then other departments or programmes scheduled for cuts will ask why they are being targeted when others on the supposedly fixed cuts list were spared.  The whole programme could quickly unravel.

Finkelstein is talking from the past - Spending must be cut now

Andrew Lilico is Policy Exchange's Chief Economist.

In this morning’s Times, Daniel Finkelstein continues a theme he has pursued in a recent series of exchanges with Tim Montgomerie.  He argues that public services reform will deliver savings, but that such savings take time to emerge.  He cites the example of changes to the retirement age for women, introduced in 1995 but only now yielding savings.

The implication, in his view, is that the proper procedure will be:

• Raise taxes to address the deficit problem
• Reform public services
• Down the line, public service reforms will yield spending reductions
• Since spending has been reduced, taxes can then be reduced as well

I believe that this is a point of view that does not properly recognise how much the world has changed since 2007/8.  Then, we were spending around 41% of GDP.  This was up from 36% in 1999 and the discussion was about how we had allowed spending to rise too fast during a boom period, “not fixed the roof whilst the sun was shining”, and spent a great deal of extra money on public services without reforming them with the predictable result that productivity returns in the public services were very poor.

The latest GDP data and their implications for future public spending

Andrew Lilico is Policy Exchange's Chief Economist.

This morning’s GDP data constitute a horror story for businesses, for unemployment prospects, and for the public finances.  Contrary to the expectations of only a few weeks ago that the second quarter might have been flat (neither growth nor contraction) or even of the consensus expectation this morning of a 0.3% contraction, GDP in fact contracted by 0.8%.  Government Ministers have attempted to spin this as a “considerable easing in the downturn”.  “Easing” of this sort, if sustained for the rest of the year, would result in a full year contraction of above 5.2% of GDP – worse even than the peak of the Great Depression in 1931.

It is clear now that in Q2 we have only the shrivelled yellow shoots of recovery, probably largely as the result of an inventory snapback (in the final quarter of 2008 and the first quarter of 2009, companies produced little and ran down their inventories to very low levels, so that in the current quarter it was necessary that firms should increase their production, just in order to avoid running out of stock).  Looking forward, it is now less likely that the third quarter will see growth, but my view remains that we will get growth in the fourth quarter and perhaps also in the first quarter of 2009.

This will mean that, going into the likely General Election period, the Government will be able to claim that growth has returned.  It will probably seek to take credit for this growth, as a result of Government policy.  It will be correct, and that is a problem.  Because the growth over those six month will, in my view, be the inevitable lagged effect of a one-off massive policy stimulus consisting of interest rate cuts of more than 5%, a doubling (perhaps by then a tripling) of the monetary base (the quantitative easing programme), and a £200 billion budget deficit.  If economic stimulus on this scale does not result in at least one or two quarters of growth then the economists might as well go home.

Cuts in the Budget go Much, Much Deeper than you Think

Andrew Lilico is Policy Exchange's Chief Economist.

Policy Exchange is currently engaged in a major programme on public spending.  Our first report considered the scale of the challenge, demonstrating that there is currently a huge surge in public spending (up £120bn in just three years) and arguing that there would need to be cuts of £55-£65bn from 2010.

A week or so after our report came out, the public spending debate blew up following Andrew Lansley’s comments that the 2009 Budget already implied cuts of 10% in departmental expenditure limits if NHS spending is ring-fenced.  Gordon Brown seized on these remarks, claiming that they indicated an intention by the Conservatives to cut all spending by 10% in contrast to what he claimed was Labour’s intention to keep raising spending each year.  Subsequent press commentary has exposed the blatant untruth at the heart of Brown’s claim.  For Labour’s own Budget scheduled a halving in the capital spending budget and cuts in departmental expenditure limits of 7% from 2011-2014.

But in fact much the largest cuts announced in the Budget have had almost no publicity at all.  Look at paragraph 2.81, p35 of the 2009 Budget.  This states:

This Budget puts the public finances on a path to achieve a cyclically-adjusted current balance in 2017-18. The cyclically-adjusted current deficit falls from 6.7 per cent in 2009-10 to 3.2 per cent of GDP in 2013-14, an average improvement of over 0.8 per cent a year... A further adjustment of 0.8 per cent of GDP a year from 2014-15 would eliminate the deficit on the cyclically-adjusted current budget by 2017-18.

What this says is that from 2014-5 to 2017-18, the 2009 Budget schedules fiscal tightening (tax rises or spending cuts) of 3.2% of GDP, that is to say, a little under £50bn.  Because this is about addressing a structural deficit, it won’t be corrected by the economy returning to healthy growth – this 3.2% is the deficit even when the economy is growing well.

Does this mean £50bn in tax rises or in spending cuts?  Well, the 2009 Budget contains explicit fiscal tightening made up of 80% spending cuts and 20% tax rises.  This is inevitable – historical and international experience suggests that it is impossible to achieve fiscal tightening on remotely the scale required by raising taxes (raising taxes causes the economy to fall deeper into recession and so revenues fall and so the deficit does not fall by nearly so much as the tax rises).  Thus we can reasonably assume that £50bn in fiscal tightening will be made up, as with the other fiscal tightening in the Budget, of about 80% spending cuts and 20% tax rises.  In other words, the Budget schedules about £40bn in spending cuts, Labour cuts of £40bn, from 2014-2018.

I emphasize again that these £40bn of spending cuts are in addition to the 7% cuts in departmental expenditure limits already being discussed (amounting to about £25bn) and the halving in capital spending (amounting to about £20bn).  If Conservatives are serious about spending less than Labour, we need to work out how to cut spending by more than £40bn, over-and-above the spending cuts of 7% in DELs and the halving of capital spending.  And the reality is that, with the ratings agencies having placed the UK on notice that our AAA rating will be under threat if a credible fiscal consolidation plan is not introduced by the next government, we will not be able to wait until 2014 before doing it.

The (in)significance of the inheritance tax pledge

Andrew Lilico is Chief Economist of Policy Exchange.

The current debate over public spending has involved claims by Conservative frontbenchers that departmental expenditure limits (DELs) will have to fall by 7% after 2011 and may need to fall by 10% in some areas — these figures, of course, being those implied by Labour’s 2009 Budget, a fact that a number of Labour minister appear not to grasp.  One only hopes that the Treasury ministers, in particular, will have a better grasp of their own figures shortly.  Of course, cuts of 7%-10% in DELs are neither nearly sufficient in the way of cuts nor is post-2011 rapid enough.  Labour’s own plans indicate that they would be likely to need to reduce their plans by a further £40bn-£60bn in today’s money (the Budget states that this will occur after 2014) and the Conservatives would be likely to seek additional cuts over-and-above this.  Furthermore, these cuts would need to happen more quickly than currently scheduled if the country is to avoid a gilts crisis that could come as soon as late next year.  But the message about the need for cuts is at least now being debated.

A number of Government ministers, notably Byrne and Balls, have suggested that Conservative plans are driven by the need to find funding for the pledge, announced in the autumn of 2007, to raise the inheritance tax (IHT) threshold to £1m.  Let’s examine that claim for a moment.

Changing of the guard

For reasons I think the Editor will explain in a ToryDiary soon, this will be my last posting on CentreRight qua CentreRight blogger Andrew Lilico.  I've been blogging on ConservativeHome for about two years now, first as a Platform contributor, then in the more elevated role of weekly Columnist, then for the past year more humbly as a CentreRight contributor.  I have benefitted from your sharp criticisms, found reassurance in your kind remarks, and been amused by your outrageous insults.  I hope to have made some small contribution to debate in the Conservative Party, and I am continually impressed by what the Editor and his team have achieved in making ConservativeHome the pre-eminent right-wing political website in Europe.

Fare thee well.

Abolish the right not to be tortured

If a government believes that it creates a right, then it will also believe that it is entitled to modify that right.  This is how we should understand the shameful discussions of recent years over when it might be legally permissible to torture someone, to render someone to another country so he can be tortured, to deport someone to another country knowing that he might be tortured there, and when our courts should accept evidence obtained under torture.  Since New Labour believed that it created the right not to be tortured with the Human Rights Act, it also believes that it can modify that right.

The solution is not to create some new "British Bill of Rights", for the problem is not that there is something wrong with the details of the Human Rights Act.  The problem was the whole concept that it is for governments to create and modify the right not to be tortured.  Thus, the solution is to give up that idea - to abolish the right not to be tortured.

Insofar as it makes any sense to talk of our having "rights" not to be tortured, these are morally or divinely or naturally given.  They are not creations of governments, and governments cannot take them away or modify them.  As far as a government is concerned, the question is not "Do my citizens have a right not to be tortured?"  Rather, it is "Will I allow my citizens to be tortured, and if so, when?"  I should not have a government-given right not to be tortured.  Instead, I should have freedom from torture which begins as a state of nature and is not eroded by the government permitting anyone to torture me.

On Capitalism

Capitalism is a system in which the providers of investment capital, the capitalists, are different people/companies from those that run/manage businesses.  That is its fundamental property.  (I focus here upon capitalism in its narrow investment sense, rather than upon the free markets that many consider the natural partner of capitalism.)

A private capitalist system (i.e. a system in which the capitalists are private citizens) is very attractive, for at least three kinds of reason:

• First, those that have money are not always those with the best ideas for how to use it.  Under a capitalist system, this does not prevent those with good ideas and talent from getting the opportunity they need.  If the provision of capital is diversified - if no one social group has control over the distribution of capital - as tends to happen under a private capitalist system, then a capitalist system is intrinsically the enemy of rigid class or caste structures.
• Second, under a private capitalist system most money tends to be invested depending on risk and return, rather than any other merit of projects.  This moral quasi-neutrality is a natural partner to a tolerant liberal society.
• Third, because those projects that will secure the highest returns can find investment capital under a capitalist system, risk-taking and innovation are facilitated.  This means that private capitalist economies tend to grow rapidly and evolve dynamically and richly (with a great variety of products and richness of ideas).

Could the next election be the end for the Labour Party?

In a spirit of idle weekend speculation, I offer you the following thought: Perhaps the Labour Party will never (say for at least two generations) win a British General Election again.

Quantitative easing - the practice

As widely reported, the Bank of England is intending, over the next three months, to purchase some £75bn of assets - mainly gilts - in an operation of quantitative easing (i.e. printing money).  The right-wing press and blogosphere seems highly disconcerted by this, even in some cases outright opposed.  I think it is right to be nervous about this policy, and I shall propose a refinement, but I support it nonetheless.

Talk of printing money (which is broadly the right way to describe what is happening) is liable to make us imagine that the Bank of England is increasing the money supply.  Consequently, of course, we suspect that that will lead to inflation.  Inflation may be a kind of solution to our woes - inflating away our debts - but (one might think) might the medicine not be worse than the disease?

Myners' pension reported as being with RBS

The Evening Standard reports that Lord Myners, who signed off for the government on the deal that gave Sir Fred Goodwin his notorious pension, himself has a pension with RBS valued at £4m.  Of course, since I want the government not to renege on its deal with Sir Fred (at least, not until after it has already reneged on its deals with bondholders in RBS), I have no objection to Lord Myners keeping his pension.  But can the same be said of others?  Presumably, since his pension is with an institution Vince Cable states is bankrupt and ought to pay no pension above £27,000, the same would apply to Myners?  Does Harriet Harman think it is "unacceptable and won't be accepted" that Lord Myners pocket a pension of £242,000 per year, benefitting from a failed institution?  Will the government be seeking every legal avenue available to see whether they can avoid making this payment to him?

Hat Tip: James Forsyth

Demonizing your opponents

With no apologies at all to Jenni Russell...

For 100 years anyone who thought themselves vaguely on the right has been able to rail against the worthlessness of Socialism. We deplored their devotion to the politics of class, their hatred of the market, their callous indifference towards all those who aspired to flourish in a tough, competitive world. We detested their xenophobia (cf anti-Americanism), racism (cf Kenyan Asians), sexism (seen many women Trades Union leaders?) and inverted snobbery. We knew, from grim experience, how willing they were to let the economy crumble and public services become at the same time poor in delivery and massively over-expensive to run. We exhorted (and still exhort) them to abandon their disgraceful politics - but remain comfortably certain that they never will.

Who on earth (or elsewhere) do they think they are?

Harriet Harman, speaking yesterday on the Andrew Marr show:

Sir Fred Goodwin should not be counting on being £650,000 a year better off because it is not going to happen. The prime minister has said that it is not acceptable and therefore it will not be accepted.

And it might be enforceable in a court of law, this contract, but it is not enforceable in the court of public opinion and that is where the government steps in.

What??  So now the Labour Party deputy leader does not accept the rule of law?  She simply does not care whether he's legally entitled to the money, because she thinks she has "the court of public opinion" with her and so little things like the law don't matter and she feels able to state categorically that his she-concedes-perhaps-legally-entitled pension "is not going to happen"!

This is terrifying.  What's she going to take against next, stir up public opinion in opposition to, and then over-ride the law if necessary?  Will she decide that I've been paid too much and just take away my property in the way she proposes to take away what she concedes might be Sir Fred's legally-defended property?  What about if someone does something she doesn't like but happens not to be illegal - is she just going to have them locked up because public opinion is on her side?  Is that where we are now in Britain - mob rule, and to hell with the law?

UPDATE (2.30pm): The Treasury and Number 10 appear to have been desperately rowing back on this this lunchtime, emphasizing that they will be bound by the law.  Good.  Is Harman's position now tenable?  Should she resign?

The rising role of the State

I've previously tried to convinced you that we should aim to have public expenditure in 2010/11 some £95bn or more less than the government's current plans.  I sense that few of you were really convinced.  So I want to express the matter another way.  Forget the niceties of fiscal management and complicated thoughts about sovereign risk.  Just concentrate on an idea I hope is politically familiar: the role of the State.

Click on the graph above to see it full size.  The government's current expenditure projections imply a truly astonishing rise in the role of the State over the next couple of years.  Even on its own figures in the pre-Budget Report (PBR) in November (see Chart B.2 on p209 here), and setting aside the support provided to banks, the government intends to raise public expenditure from 41% of the economy in 2007/8 to 44% in 2009/10.  This compares with 36% in 1999/2000 - a rise of 22% in the size of the state, relative to the economy, in just ten years.  But, of course, no-one believes those projections, because they were based on hopelessly optimistic growth forecasts.

Fred Goodwin's Pension

I'm not a lawyer, and I know no more about Fred Goodwin's pension than I read in the papers, but here's how it seems to me.  The government took over RBS.  It decided that Goodwin had to go.  Goodwin would have had some protection under employment law and might have contested his dismissal, and in any event even dismissal would have contractually obliged a payment to him equivalent to about fifteen months of his salary.  This might have been politically embarrassing, so intead Lord Myners talked him into taking early retirement in exchange for foregoing his fifteen months' salary payoff.

RE: Printing money now could lead this nation to fiscal and monetary ruin

I see there is quite a bit of concern about the Bank of England's quantitative easing measures, but I don't think it quite hits the target (i.e. I'm concerned about something different from other commentators).  Central banks engage in quantitative easing all the time - they just usually refer to it by the name "interest rate cuts".  For the way in which many central banks cut interest rates is to offer banks more money (i.e. print money), so the price of money (the interest rate) falls.  On other occasions they engage in "quantitative tightening" - i.e. interest rate rises.

The key interesting thing in the current situation does not relate to the principle of quantitative easing but, instead, to the form or method of it.  For once interest rates reach zero, one cannot employ the same methods to increase the quantity of money.  So if they are to engage in monetary easing, they have to use "unconventional monetary policy".

Against a house-building programme

I see in the press this morning that the house builders, some councils, and other usual suspects are lobbying for a huge house-building programme. They still want us to believe that house prices went as high as they did because of some kind of "housing shortgage". The census data clearly refuted the claim that there was any kind of housing shortgage in the UK - since the early 1990s we have consistently increased the number of houses faster than the number of households in every region of the UK. To those of us (such as myself) that pointed this out, they responded that we should ignore the census data as "misleading", because (they said) the rises in house prices clearly showed that there were "hidden households".

Well, guys, I know it's pointing out the obvious, but house prices are falling like a stone. Your story is kaput, dead, an ex-story, devoid of life, nada, nothing, The End, game-over-insert-coin. There never was any aggregate housing shortgage. There may have been some problems with what kinds of houses were built, but that's another story. And there was obviously a purchasing affordability issue (doh!) such that first-time buyers exited on mass circa 2004, but that was a symptom of prices being too high, not of there being fewer houses than households.  (I became blunt to the point of rudeness recently with a panel including Labour and Lib Dem MPs that tried to persuade us that there was a terrible affordability issue and that without a huge house-building programme prices would spiral upwards indefinitely, making home ownership an unattainable dream for the middle classes.)

House prices were not high because there were not enough houses being built. It...wasn't...true.

Against banning 100%+ mortgages

So, Gordon Brown now wants to discourage 100%+ mortgages.  This is no better an idea now than it was when Vince Cable suggested it.  It's a pretty daft idea in general, but even if you thought it might be a good idea at some point, now is certainly not the time for it.

On polygamy

This morning, Baroness Warsi argued that the government is failing to act adequately against polygamy.  She said "in this country, one married man is allowed to marry one woman".  In contrast, Manzoor Moghal, chairman of the Muslim Forum, asked:

Why would you not allow Muslims to conduct their affairs in their cultural, religious framework, without interference from the state?

Why should we take them to task for having a second, third and a fourth nikah [marriage] which is compatible with their religion?

I believe that Mr Moghal is broadly correct and Baroness Warsi misguided.

Two other ways to think about material public expenditure control

My post yesterday, proposing that we should not spend more, as a proportion of the economy, in 2010/11 than we did in 2004/5 - implying a £95bn reduction in 2010/11 plans - did not result in universal acclaim.  My suggestion there was that the public would accept that, since the economy might only be as big in 2010/11 as it was in 2004/5, we should not spend more than in that year.  My scheme was obviously an application of David Cameron's previous commitment that public expenditure should grow more slowly than the economy as a whole.

Let's try two other ways to think about matters:

• Even with only a 6%-7% recession, the economy in 2010/11 will be 10% smaller than was expected at the time of the pre-Budget report.  So it would not seem unreasonable if 2010/11 public spending were 10% lower than planned at the time of the pre-Budget report.  That implies a cut of £68bn versus those plans - or, to put matters another way, it implies that expenditure in 2010/11 should be about £6bn less than it was in 2008/9 - a £6bn absolute cut.
• Or try this: since we are going to have deflation, or at least precious little inflation between now and 2010/11, and since the economy is going to shrink considerably over that period, why would the public expect us to be spending any more in 2010/11 than was done in 2008/9?  A freeze versus the 2008/9 budget would imply a reduction of £62bn in the 2010/11 plans.

The government wants to tell us that to make these cuts would be crazy in the face of the Depression.  But that is because they want us to believe that expanding public expenditure is the only kind of fiscal policy possible.  I, of course, have argued that the only true fiscal stimulus is a tax cut.  Be that as it may, if we want to implement fiscal expansion - if, say, we want to borrow £100bn+ a year as the government plans - we could do that by cutting taxes versus a 2004/5 base (if you liked yesterday's proposal) or versus a 2008/9 base (if you prefer today's).  We don't need to raise public spending to implement fiscal stimulus.  We should not allow this depression to be used as an excuse for the government to raise the role of the state by expanding expenditure at a time when the economy contracts significantly.

Correcting the public finances: Back to 2004/5, so cut public expenditure plans by £95bn (for starters)

For obvious reasons, there is currently a debate about how to rectify the UK's public finances.  Apparently many people favour doing it mainly by tax rises; a few favour mainly public expenditure cuts; presumably almost everyone favours some combination.  To me, however, the debate seems to be starting in the wrong place.  As the economy grows, we raise public expenditure in real terms because, since we are richer, we can afford (and prefer) to spend more on health and education and defence and so on.  As the economy grows there is also a process called "fiscal drag" which arises because of tax thresholds - and so we tend to raise tax thresholds, also.

Now, however, the economy is shrinking.  So the very principles that suggested that before we should raise expenditure and tax thresholds now imply that we should cut expenditure and thresholds.  I personally still maintain my forecast of 6%-7% shrinkage in the economy before it starts to grow again, but since most of the risks are on the downside and since even when it starts growing the economy may not grow as rapidly as it was doing in the recent past, it would be prudent to plan for the economy shrinking by 10%.  Let's go for that.  That would take the size of the economy back to its position some time in 2004.  Let's suppose we reach that some time in 2010/11.  So I propose that the startpoint for the debate over how to rectify public expenditure ought to be the public expenditure and tax system of 2004/5.  That is to say, the first thing we should think about doing is cutting public expenditure (in real terms) for 2010/11 to its 2004/5 level and lowering tax thresholds to their 2004/5 levels, and then think about how we might vary the system from there.  As a headline, that implies cutting total public expenditure from its planned 2010/11 levels by about £95bn (and the NHS England budget by £25bn).  Furthermore, since the Conservative Party has rightly argued that Gordon Brown's expenditure plans at that point were extravagant, the debate should then be about how much further we should cut.

Freedom of speech includes the freedom to be gratuitously rude and the right to incite non-violent hatred

Iain Dale did a Total Politics interview with David Cameron.  One of his questions was "How will you defend the right to offend?"  Cameron replies:

This goes back to the 'do you listen' question because on the one hand you don't want someone inciting hatred of gays but on the other hand you want to live in a society where people don't feel their free speech is restricted if it is about humour. So there is a balance. We all rage against political correctness and there's lots of political correctness which is ridiculous- silly health and safety worries that stop children grazing a knee on an outward bounds adventure. We have got to get rid of that. But there's one bit of political correctness which is terribly important and that's about politeness. I have a disabled son and I don't want people to call him a spastic. You are a gay man, you don't want someone to call you a poof. If you have a black friend, you don't want someone to call them something offensive. It's about manners and I think what we've got to do is frame this debate in a sense of what is good manners and politeness and what is common sense.

This quote indicates what is to me a very disturbing notion of "free speech".  First, Mr Cameron does not in any way attempt to distinguish between what should be circumscribed by convention or manners and what should be circumscribed by law.  And since we live in a society in which "inciting hatred" of various forms - even non-violent hatred - is illegal, I consider it very important that our leadership should emphasize the distinction between what should be circumscribed by convention or manners and what circumscribed by law.  Second, Mr Cameron says "on the other hand you want to live in a society where people don't feel their free speech is restricted if it is about humour".

Presumably the setting of bonuses is the taking of operational control?

The government says that it has set limits for RBS bonuses.  I opposed this, of course, but wish to note something different on this occasion.  Presumably the setting of bonuses is the taking of operational control?  So presumably that will trigger payout on various RBS credit derivatives?  Do those that will be obliged to make these payments have sufficiently robust balance sheets and sufficient cash to do this?  Is the government prepared for what might happen next?

Is is "extremist" to believe there are limits to the value of democracy?

This morning's Today programme had two pieces, ahead of tonight's Panorama programme, about a plan to marginalise even Muslim preachers that previously might have been thought of as relatively "moderate" (e.g. they might vigorously oppose violence; they might preach that Muslims living in non-Muslim states should obey the law) if they teach that Islam is not truly compatible with Western democracy.  Is that the business of government?