Delivering A First Class Service?

Ten years ago, a First Class stamp cost 27 pence. From next week, it will cost 60p. In just the past two years, the price will have increased by 50%. Royal Mail desperately needs to increase its revenue to preserve its universal service – but such price hikes also represent a gamble on the future of communications in Britain.

Charging the same price to deliver mail anywhere in the UK, from London to Lerwick, is a founding and fundamental principle of the Royal Mail, but this has brought it under threat from more modern forms of communication. It is just so much quicker, easier and cheaper to send an email or a text message, and doing so is no longer the preserve of the young and affluent.

Postal services have benefited in some ways, though, from changes in society’s behaviour in the 21^st century. The growth of internet shopping has been a boon for parcel delivery services – and although this sector is more competitive, Royal Mail’s universality gives it a crucial edge, particularly at the lower end of the market.

And the company is looking to exploit this advantage in its new pricing model, which sets a flat rate of £2.70 for all packages weighing less than 750g; this means a 35p cut at the high end of this bracket, but a 70% increase in the cost of posting a large but lightweight item.

The focus of media attention regarding these price changes has inevitably been on the headline figures for first- and second-class stamp prices (the latter is rising to 50p, five pence short of an inflation-linked regulatory cap designed to protect those on the lowest incomes).

But the biggest impact will obviously be on small businesses, which will still have little option but to rely on Royal Mail to serve their UK customers. Many will see spiralling costs that will have to be passed on to their customers, who will themselves be feeling the same squeeze.

And this is the risk that the Royal Mail is taking. As prices rise, demand falls – the challenge is to find the optimal price level to maximise revenue. That the regulator has given the company the freedom to pursue this goal is a good thing, but such freedom must not be abused.

Research suggests that 75p for First Class is the tipping point beyond which only a (shrinking) core of customers would continue to buy stamps – and only because they have no alternative. But the acceleration of prices over the last few years could be equally damaging.

There is also another, implicit flaw in the universality model, which becomes more threatening to its survival, the higher its prices rise. It is that by charging a delivery from one end of the country to the other at the same rate as one being made across town, the former offers better value for money than the latter.

Thus, short-distance customers are effectively subsidising long-distance ones. As the stakes get higher, so do the gains that can be made from finding alternative methods of communication where they are most readily available – in urban areas – which in turn is where Royal Mail’s biggest customers are and where its potential profits are easiest to come by.

And profits are a sore point for this company. In the last six years, while postal volumes have declined by 25%, Royal Mail has lost around £1 billion. These are losses on a scale that price rises alone are not enough to reverse – the company needs major reform to improve efficiency.

But all the while it must maintain its unique selling point, highly valued by its customers and effectively responsible for its continuing survival in the 21st century. The longer we want to continue using it, the more we will have to pay for it.

More Than Just A Race

To proceed with it would legitimise a brutal regime, say some. To halt it would empower extremists, say others. The sport of Formula 1 has never seen anything like this before.

Alas, this weekend’s Bahrain Grand Prix is set to go ahead as scheduled. Fears about safety and security that led to the postponement and eventual cancellation of last year’s race have (but for one unfortunate incident yesterday) largely diminished – but moreover, such practical worries have taken a back seat to issues of principle.

There is no doubt that playing host to the F1 circus is a boon for Bahrain, its economy and its rulers. Interested tourists and dedicated sports fans alike will flock to the island. However, the media circus that goes with it has re-focused the eyes of the world on a troubled Middle Eastern state that has otherwise been forgotten in the wake of events elsewhere, not least in Syria.

For years, resentment has simmered among Bahrain’s Shia majority at the (Sunni) royal family’s grip on power. They have long believed they are neglected, politically and economically. Last year’s Arab Spring seemingly inspired this movement to push for change, but it was the police’s appalling crackdowns on peaceful demonstrators early last year that stoked the conflict.

The government has not handled the situation well. An internal independent inquiry into alleged abuse of civilians by the police has gone largely unheeded, with human rights groups still restricted or barred. Meanwhile, the protests have got larger, more frequent and more bitter.

Marches in Bahrain used to be about economic and social improvement; seeking greater equality and political participation. Now the aim is an end to repression, the release of political prisoners and even the overthrow of the regime. Demonstrations are still largely peaceful – until the first sign of trouble arises, sparking a brutal police response, at which point conflict escalates rapidly.

The government insists that it is plotting a route out of the current crisis towards accountability and democracy. It hopes the staging of the race will demonstrate this as well as boosting the nation’s economy, to the benefit of the whole 1.2m-strong population. Given that Bahrain has been on the F1 calendar since 2004, and was humiliated by last year’s no-go, this is questionable.

The government also fears a possible end result if the Islamists are allowed to have their way – Bahrain is desperate to avoid becoming a theocracy like Iran, its neighbours across the Gulf. Even the rise of the Muslim Brotherhood in Egypt represents a warning to the ruling regime.

The challenge for the world’s media will be to stick around long enough to see whether either of these outcomes emerges. The likelihood is, though, that as the shiny racing cars roll out of town, so will the TV cameras – a country in violent transition just doesn’t sell the same as a country (Syria) in all-out civil war does.

There is also a fear that the international glitz and glamour of the ‘show’ will distract from the difficult reality faced by most ordinary, native Bahrainis – especially in a country where more than half of the population are wealthy, Western (probably race-going) expatriates.

Sport and politics have never mixed well. Formula 1, however – for all its internal wrangles and occasional scandals – has historically managed to avoid being seen as more than just a motor race. Its handling of the issue last year was not ideal, but the right decision was made in the end.

This year, the sport has taken a gamble that it is desperate to win. No wonder Mr Ecclestone insisted today that people’s complaints “are nothing to do with F1”. If only it were that simple.

Adding Fuel to the Fire

Don’t panic.

The events of this week have demonstrated that those are two words that, when uttered by a government minister, are guaranteed to spark chaos and confusion.

Francis Maude’s inexplicable intervention (jerry cans and all) in the tanker drivers’ dispute transformed the distant prospect of a strike into an urgent crisis – at least in the perceptions of the media and (therefore) the public. Now the news bulletins and front pages are full of the imagery of the panic-buying of fuel – long queues outside many petrol stations, and makeshift closure signs outside others.

The immediate hope must surely be that today’s guarantee of no strike action until after Easter will reassure even the most irrational motorists; next week, journalists’ attention will no doubt shift to the conciliation talks that might yet avert any industrial action at all.

Just about everyone has an interest in seeing those talks succeed. The drivers want to reach a deal they can be satisfied with, their employers are keen to avoid disruption; with the economy still fragile, the last thing the government needs is for much of the country to be brought to a halt, and Labour will be desperate to avoid being torn between the interests of voters and unions.

The evidence of the last few days would make anyone think the two main parties were battling to exceed each others’ self-inflicted embarrassment. David Cameron hardly set the record straight when asked about his own minister’s ill-judged comments, while Ed Miliband was too busy tucking into sausage rolls to comment.

As Conservative faces got redder with every dried-out petrol pump, Labour threw them a lifeline by handing a comprehensive victory in the once rock-steady Bradford West constituency to none other than ex-Labour MP George Galloway.

All of this has been seen as taking the sting out of revelations at the weekend about so-called ‘cash for access’ – just as last week’s rare Friday policy announcement on minimum alcohol pricing did for the Budget. Although the Tory party dealt swiftly and decisively with the man responsible, the suspicion that Mr Cruddas was a mere whistle-blowing rogue remained.

Today, though, Miliband followed Cameron’s lead by publishing details of meetings he has had with major donors since becoming leader, only to find that his most regular guest has been Len McCluskey – the boss of Unite, the very union at the heart of the fuel strike saga.

Then, of course, there’s the case of the woman who suffered severe burns when decanting stockpiled fuel whilst cooking her dinner. It could have happened (and probably does happen) any time – but in this week of weeks, the cruel irony was too good for journalists to resist.

Political parties mired in funding scandals; threats of petrol shortages; Galloway back in Parliament… it’s been a worrying week.

But don’t panic.

Osborne - Economist or Politician?

Ahead of the Budget statement next week, speculation is growing that George Osborne is set to announce a lowering or even the scrapping of the 50p tax rate. The government is bracing itself.

It’s no secret that the Conservatives are opposed in principle to the so-called “additional rate”, applied to an individual’s taxable earnings above £150,000, which was introduced by Labour shortly before the last election, to compensate for declining revenues from lower earners during the economic downturn (the Sage will resist the temptation to suggest other motives).

The argument goes that the income-generating effect of the higher tax rate is weakened by its deterrence effect – the prospect of paying half of almost all of one’s income in a single tax is potentially driving successful entrepreneurs overseas. It might be unsurprising that the business community is united in opposition to the policy, but that makes for a very powerful lobby.

Analysis of the additional income raised compared to initial estimates has been undertaken, and the Chancellor says any decision taken will be made on the basis of this evidence. What we do already know is that paying the additional rate increases the average overall personal tax rate, from the 23% faced by higher-rate taxpayers, to a whopping 40%.

However, as with any fiscal policy, the politics are as important as the economics, and to deliver what will inevitably be described as ‘tax cuts for the rich’ would surely be near-suicidal – not only for the Tories, but arguably even more so for the Lib Dems.

Desperate to avoid becoming the co-plotters of such a bombshell, Nick Clegg, Vince Cable and Danny Alexander are pushing for any easing of the tax burden at the top to be mirrored by one at the bottom, for example through a further increase to the personal allowance for basic-rate taxpayers – which the coalition is committed to raising to £10,000 by the end of the Parliament.

Ultimately, the effects of the 50% rate are as much psychological as economic. It can encourage high-earners to fiddle their figures, for example by turning personal income into capital gains – a tactic employed by so-called ‘one-man’ firms in both the public and private sectors. It can also serve to reassure those on lower incomes that the rich are (mostly) paying their fair share.

With the Tories apparently determined to scrap the 50p tax rate at some point, the Lib Dems’ ideal scenario – and Osborne’s easy option – is for it to be left to another Budget in another year. But the Chancellor is also under growing pressure from business – and is known to favour bold decisions and the political confrontation that they generate. What will he do? The jury is out.

***

Meanwhile Ed Miliband made a rare announcement today – an actual Labour policy. He pledged to “guarantee” a 6-month minimum-wage job for every long-term unemployed young person. If only he’d shared the detail with Harriet Harman before she went in front of the TV cameras...

The irony is that a similar scheme (the Youth Contract) is already in place under the coalition government, and has already been criticised by Labour for failing to give young workers real, sustainable job prospects – once the state support disappears, the argument goes, so does the job.

In any case, isn’t it funny how many policies would be paid for by Labour’s tax on bonuses?

Experience - Welcome to Work, Kids

The past week’s row about government-funded work experience has been a disturbing exercise both in the hypocrisy of pressure groups and the enduring persuasiveness of the tabloid media.

Before today’s inevitable and sensible concession by the government, one would have been forgiven for thinking that the programme was some radical experiment of labour economics, when the crux of all this fuss is merely the concept of an internship.

“Unpaid forced labour” said some; “slavery” screamed others. Of course, the government’s defence that the scheme is voluntary is not without its flaws since the scheme does financially penalise those who see out the first week but later pull out.

But why is a state-funded incentive for firms to give the young unemployed a potentially vital start in the world of work coming in for so much criticism… and why now?

The Get Britain Working scheme has been in action since January last year, and according to official figures more than 30,000 people have taken part, of whom half were off jobseekers’ allowance within a month (whether as a result of their participation or otherwise).

But controversy has been stoked recently by the withdrawal of firms like Burger King and Matalan due to nothing more than “public concerns”. These concerns focus on the theory that companies taking on voluntary workers through the scheme are motivated purely by profit – that they expect their unpaid recruits to do the same job as ordinary workers, thus saving on wages.

This theory worked – at least until today – because firms knew that it was in the interests of the scheme’s participants to put up with whatever they were given because of the threat of penalties for withdrawal. Alas, that threat has now (belatedly) been removed.

However, what astounded ministers most was the admission by some of the companies pulling out that their decision was driven by media coverage of the scheme and, essentially, its impact on their PR – the ambitions of a growing number of young workers were being hindered by the usual headline-hungry press and a minority of misguided activists, they claimed.

Indeed, the position taken by groups like the ironically-named Right To Work is baffling. Everyone agrees that – like it or not – getting in is often the hardest part of getting on in the world of work, and that any opportunity for real work experience is therefore highly valuable; ‘soft skills’ may be a much-maligned buzz-phrase but employers increasingly believe in them.

Yet in an era of a so-called ‘lost generation’, a group claiming to be on their side is piling the pressure on governments and firms, jeopardising employment schemes and making demands that simply cannot and will not be met.

So what if the work is unpaid – the harsh reality is that employers would not risk taking on the burden of employing someone with that background unless there was something in it for them. It is in governments’ interest, too, to step into the private sector and implement schemes that might present a short-term cost but offer a long-term gain in the form of lower welfare bills.

“One battle won but the wider fight goes on” was the response of Right To Work today. Others such as the TUC – not exactly a friend of the Conservatives – hailed the removal of sanctions as a way of ensuring that the scheme won’t be exploited by firms.

As those who have been there know, experience usually comes at a cost, so those threatening to kick away the ladder would do well to maintain a sense of perspective.

New Reforms, Same Old Story

The House of Commons takes a mid-term break this week. David Cameron and some of his Cabinet ministers must be quite glad of it.

If last month’s assault on Alex Salmond and his independence referendum plans was meant to signal a year of bold and decisive moves to deal with some of the intractable issues facing the Westminster government, that strategy hasn’t lasted very long. Just six weeks into the new year two of its flagship reforms – to health and welfare – are once again tying the coalition in knots.

With any such public-service reform, often the stiffest resistance a government faces is not to the nature of the change it proposes, but to the idea of change itself – just ask Tony Blair. And if New Labour-style reform wasn’t ambitious enough, the current administration is attempting to implement it whilst squeezing budgets and tackling stubbornly high unemployment.

Hence Andy Burnham’s TV interview this morning about the Health and Social Care Bill. The Shadow Health Secretary shrewdly uttered a few headline-grabbing phrases about the Prime Minister like ‘facing the fight of his life’ and ‘putting political pride ahead of others’ best interests’, as well as the usual sentimentality about the traditions of the NHS.

However, the substance of Burnham’s position is that he supports doctor-led commissioning – one of the primary features of the Bill (and one that is already being rolled out anyway – the legislation is merely catching up with reality). What he really opposes, besides the supposed introduction of a market in the NHS – tabloid rhetoric for giving patients more choice (another principle that is already in practice across the country) – is the timing of the reform.

He calls it a “catastrophic mistake” to combine the financial pressures being placed on the NHS, not only by deficit reduction but also by demographic change, with fundamental restructuring. But when the government’s response is to claim that the reform would itself save money, the debate becomes a stalemate.

The same is true of changes to the welfare system. In one corner is a government aiming to cut costs, incentivise employment and stimulate economic growth by making life on benefits much less rewarding, pitted against an opposition claiming to be on the side of those hit hard by the downturn, for whom government support is a vital safety net – for which they have paid.

This sense of society’s entitlement to everything that governments have previously offered is what makes change – no matter how rational – so politically difficult. No one who works for what they earn would argue that those who don’t are entitled to an equivalent standard of living… until that job disappears and suddenly one’s self-interest changes; that is human nature.

Sadly, the likely result is the one that satisfies nobody; the one from which nobody gains – half-hearted or watered-down reforms that waste time and money, sap political support and merely paper over the cracks that were intended to be filled, shifting the problem into the future and the burden of solving it onto future generations.

And so it will be this coming week, when the Lords – whose half-term is, bizarrely, delayed by a week – debate healthcare and welfare reforms and vote on a number of amendments the like of which have already been rejected by the Commons.

The legislative ping-pong is worryingly reminiscent of that which has hobbled President Obama’s first term in the White House. David Cameron will be aware of the same risks facing his own authority, and the possible impact on his place in history. Just ask Tony Blair.

American Politics in Paralysis

Redistribution has always been a dirty word in American politics.

When Republicans and the right-wing press accused Barack Obama of advocating it during the last presidential election campaign, the Democrats’ then-candidate was forced to frantically deny this apparently fair interpretation of his otherwise unashamedly liberal policies.

Americans, it is said, traditionally believe that the extreme wealth of an elite band of (mostly) successful businessmen is not something to be envied and combated – as in the case of Britons’ fury at bankers’ bonuses, which has been freshly stoked this week – but to be admired and cherished as the legitimate reward for pursuing the American Dream.

The financial crisis, however, appears to have changed that attitude in at least some quarters of American society.

Not only did Barack Obama employ “fairness” – code for the equalisation of opportunity if not outcome – in his last State of the Union address before the election but, more remarkably, a row about low effective-tax rates may have cost the leading contender for the Republican nomination a victory in the South Carolina primary that hasn’t backed a loser in more than 30 years.

Obama’s speech was about as close to a verbal manifesto as it gets in the US, so numerous were the bases that he covered. But the forceful defence of his record in office and the defiant pledge to fulfil not partisan but American values are what will be remembered (and re-played).

His opponents accused him of class warfare – just as they did four years ago. Back then, the accusation penetrated; this time, it was blunted by a sense of hypocrisy.

Here is a party whose refusal to accept that austerity means tax rises as well as spending cuts, pitted against another that fails to realise the opposite, has brought the federal government to the brink of shutdown more than once since its success at the mid-terms. And yet the same party is now embroiled in a row because one of its candidates is deemed not to pay his fair share in taxes.

This internal wrangling, and inability to unite behind one man and one vision, is made all the more frustrating to neutral observers by the open goal that will be missed if the party does not get its house in order. Despite recent signs of ‘green shoots’, America largely remains trapped in a jobless recovery, with federal budget deficit figures that defy belief.

President Obama came to office on such a wave of optimism and fresh thinking, but his tenure has promised too much and delivered scandalously little… which was inevitable, of course.

On foreign and security policy – the failure to close Guantanamo, the premature departure from Iraq, the war without end in Afghanistan, the complete lack of progress on Israel/Palestine, the absence of a strategy for dealing with Iran, the reluctance to commit to Libya or endorse the Arab Spring… the list of examples of promises broken, values betrayed, is long.

On the domestic front – the fixation with an unpopular, unworkable and unaffordable universal healthcare programme (albeit one that was effectively piloted by a certain Republican governor in Massachusetts) that led to the neglect of policies that could have made the economic downturn shorter and less severe; the absence of leadership in its aftermath as Congressional stalemate allowed growth to stall, unemployment to stick and government spending to balloon.

Surely even Labour would win an election in these circumstances… if they, likewise, could find a leader they can believe in. But when opposition parties fail, the real loser is democracy itself.

Independence - the Will of the People?

A week after the Prime Minister ratcheted up the pressure on his Scottish counterpart, the Westminster and Holyrood governments remain poles apart – and there is little prospect of the much talked-about talks, due to take place this week, making much difference.

Objects of disagreement range from the timing of the independence referendum, the number of questions and the number of answers, to who will administer the plebiscite and who can vote in it – not to mention, of course, the desired outcome.

But who is winning this unscheduled political heavyweight bout? And who has the most to lose? While David Cameron and Co are relishing the opportunity to put pressure on Alex Salmond to put his money where his mouth is, the latter – ably and vocally assisted by his deputy, Nicola Sturgeon – has seized the moment in his own way.

Displaying impressive statesmanship and framing the discussion in typically patriotic terms, Salmond has nonetheless been forced to ‘name the date’, seemingly against his greater wishes (though staging the vote after celebrating 700 years since Bannockburn and hosting the great and good of the Commonwealth was surely an inevitable and irresistible prospect anyway).

For his part, Cameron has made a bold statement of authority – not only that a Holyrood-run referendum would not be constitutionally binding, but that it could be open to legal challenge (with only one likely winner). The assumption up to now was that, in practice if not by law, the democratically expressed wish of the Scottish people would be impossible to ignore.

The Scottish government thinks it can still have it that way. That seems unlikely… unless they defy Westminster’s insistence on a single-question, two-option ballot paper. Although seeking independence, the SNP are open to a third way, a solution that all indications suggest is currently the will of the people they govern – so-called ‘devo-max’.

The coalition would rather the question be one of ‘in or out’ – a halfway house (so the argument goes) would perpetuate the economic and social uncertainty. This is bluster – the real reason for the Conservatives opposing a multi-option referendum is the fear that introducing a second alternative to independence could split the pro-union majority of parties and of voters.

The Nationalists, on the other hand, have calculated that even this result – substantially increased autonomy for Scotland, leaving little more than foreign affairs and perhaps monetary policy in the hands of Whitehall – wouldn’t be a bad one for themselves or the country in the long run… and may convince more unbelievers of the viability of an independent Scottish nation.

Ironically, there seems to be more fervour for Scottish independence in the rest of UK than exists north of the border, and by taking the initiative in forcing the issue into the national spotlight, the coalition has begun the new year in assertive and savvy fashion (conspiracy theorists even claim that a House of Commons without Scottish representation might be an eternally Tory-led one).

All of which puts Ed Miliband in another awkward place. While his new Scottish lieutenant, Johann Lamont, has the straightforward brief of harrying the First Minister in the Holyrood chamber, being united but divided from his despatch box foe is proving tricky for the Leader of the Opposition - cue more soul-searching and inward preaching from Labour over the weekend.

Indeed, soul-searching is what both parties to this week’s much-anticipated talks might have to engage in. For the SNP – is it rational to make a nation hold its breath before confronting such an historic moment in its history, for the sake of sentimental statecraft? For the coalition – is it fair to deny the Scottish people their most-desired option, for the sake of democratic neatness?

Phone Hacking - Words That Matter

Amidst all the fallout from the latest exchanges in the great European talking shop (and the dawning realisation that, once again, nothing meaningful has actually happened), it has been an extraordinary few days in the phone hacking scandal.

Last week, Glenn Mulcaire, the private investigator jailed four years ago for hacking the phones of celebrities as well as royal aides, was arrested on separate, similar charges. He maintains that he merely acted on the instructions of his employers at the News of the World.

Then on Monday came the bombshell that threatens to undermine the extraordinary public interest that led to the closure of a major newspaper and the setting up of a lengthy public inquiry. Police now believe it “most likely” that the voicemail messages that disappeared from Milly Dowler’s phone during the time that she was missing were deleted automatically.

This does not rule out the possibility that outsiders listened to the messages, causing them to lapse, but there is no denying that it was the accusation of a cynical act of hunger for new journalistic evidence that caused the explosion of outrage and soul-searching in the summer.

The two sides of this particular case are now ranged against each other, engaged in a war of words as each insists on the integrity of their case, disputing the significance of the revelation.

The row plumbed new depths last night when the Dowlers’ solicitor received a phonecall in which a Daily Mail journalist allegedly asked whether the family would be repaying a slice of the compensation they received from News International.

The accusation is disputed but has been aired under oath.

Meanwhile, the Dowlers themselves previously claimed a “clear recollection” of being told by police that the News of the World was responsible for the deletion of the messages. The Guardian’s initial publication of the claim may be under scrutiny, but it seems they weren’t the only ones sticking their neck on the line – the Met continues to come out of this badly.

Then the boss of News International was once again thrust onto centre stage. Yesterday, it emerged that James Murdoch admits to having received and read an email predominantly relating to the case brought against the News of the World by PFA chief Gordon Taylor.

However, he pleads ignorance of the attached chain of emails that includes evidence of the broader extent of phone hacking at the paper – beyond a ‘single, rogue reporter’.

The email was sent by the paper’s then-editor, Colin Myler, and the damning sections were written by its lawyer, Tom Crone; both insist that Murdoch’s story is false – that the infamous ‘For Neville’ email containing evidence of hacking was explicitly brought to his attention.

Today, that accusation was also made under oath.

The pressure on Mr Murdoch is growing – not least because he continues to tinker with his story in response to fresh information uncovered by the police investigation. But this week’s events show that even what we consider certain is actually shrouded in doubt, and that even those who we trust to give us the facts cannot always be relied upon.

These latest twists and turns in this saga raise as many questions as answers. Europe might be the crisis with no solution; this is the scandal with no limits. To the media (ironically), they are the gifts that keep on giving.

Cameron's Economic Headaches

He may have been spared his usual shouting match at Westminster this week but David Cameron has nevertheless suffered two major headaches in the past few days.

It doesn’t take a hardened conspiracy theorist to be suspicious of this week’s apparently unplanned and unexplained Commons ‘mini-recess’.

After all, Wednesday was the day the latest unemployment figures were released, and they painted a bleak picture of the state of the British economy and its short-term prospects – fears backed up by the Bank of England’s latest downward revision of its influential growth forecast, announced on the same day.

Ed Miliband said it at Prime Minister’s Questions when the previous figures were released last month and it’s a theory that is gaining traction with every pessimistic analysis and every screaming headline – surely the deficit cannot adequately be tackled while the government’s welfare bill continues to rise?

How can the government have a ‘credible plan’ for debt reduction without a credible plan for economic growth?

It’s a persuasive argument, and the government cannot fail to be worried by the persistence of the jobless recovery. The longer it goes on, the more entrenched it becomes, as habits and attitudes harden amongst prospective employers and employees alike.

However (although no minister would dare to admit it), since the main cause of the stubbornly high unemployment is the failure of the private sector to step in where the public sector has retreated, a cold-blooded realist might argue that the current position is merely an inevitable, and thus largely expected, consequence of the government’s austerity policies.

Unemployment a price worth paying, and all that.

In all honesty, the success of the strategy cannot and should not be measured at this stage – because of particular external influences but also because it’s a plan not for a year but for a Parliament or even an entire economic cycle.

Nevertheless, the electorate’s growing impatience with, and declining trust in, the government is understandable, given the harsh reality that has now set in. At least we no longer hear talk of when the cuts will ‘begin to bite’ – they have now well and truly taken hold.

This should offer rich pickings for the Opposition – and their message is, finally, starting to get through. However, by advocating more tinkering with VAT, more borrowing to invest in long-term infrastructure projects and more tax breaks for small firms, Labour (already hobbled by their economic legacy) are leaving themselves wide open to accusations of fiscal irresponsibility.

And if the Prime Minister was tempted to waiver in his dedication to his own tough strategy – on whose basis his party won the most seats in last year’s election – this week’s other, even more serious, crisis would have reminded him of the dangers of the alternative path.

Today’s meeting in Berlin with Angela Merkel may have failed to “make any progress” (her words) on areas like a financial transactions tax and the role of the European Central Bank, but it also reminded the two leaders of where their natural political like-mindedness brings agreement – on the importance of retaining the single market and of reducing sovereign debt.

Today also saw the return of Spain to the melting pot of investors’ paranoia – bond yields (i.e. the country’s cost of borrowing) rose even above those of Italy, as fears grew about the level of private borrowing in Spain, which is as much a cause for worry as Italy’s national debt.

And all this just two days before Spaniards give their verdict at the ballot box, and shortly after Italy’s government – with its once seemingly impregnable figurehead – collapsed.

The stakes are high for everyone.