Incisive and topical campaigns and commentary on today's issues and tomorrow's problems

According to the Office of Budget Responsibility, real wages will be rising from 2013-14 onwards. For the current financial year they forecast a 3.9% increase in wages and salaries, compared to a 2.7% rise in the CPI inflation measure and a 3.2% RPI increase. In the next few years they also anticipate a useful positive gap between wage growth and price rises.

As Alastair Heath has recently pointed out, there has been no transfer of income from wages to company profits. The squeeze has come from higher taxes on employment, so government has been the “winner” and people on wages and salaries the losers.

Maybe the Labour party does not believe these forecasts. Or maybe they just  needed to say something  different when the economy started to grow, disproving their pessimistic past forecasts about the impossibility of recovery. They lighted on the continuing squeeze on living standards that had been at its most intense during the Great recession in 2007-9. It may just be a short term campaign, which they will end as wages rise and real incomes go up.  The problem for them is that once again their forecasts of gloom will look poor if the OBR is correct and real wages do now start to rise.

The government should not be complacent. People want a recovery. They are more inclined to trust the government than the opposition on the big arguments about debt and deficits. They agree with the Coalition approach that reform is needed to make work pay, and action has to be taken to stop debt spiralling out of control.  They also understandably want the squeeze on individuals and families to come to an end. If work is to be worthwhile, it is easier to accept the work discipline if there is a good prospect of earning more  and being able to spend more next year than this.

Quantitative easing and ultra low interest rates have favoured borrowers at the expense of savers. They have helped the highly leveraged company, not the strongly  financed group. They have tended to help the young where they borrow and hit the old where they have deposits, help the spender and hinder the saver. The government needs to show how it is going to balance things a bit more. The savers deserve some reward as prudence should not be a crime. The hard working families the governemnt likes to talk about want a vision of how they can participate fully in the wealth of the nation and the growth of the economy.

Ministers should dust down ideas for wider ownership. As the economy grows so more profit will be made and more assets will go up in value. This needs to be a process which enriches the many, not just the few. I will look at more ideas in future blogs on how this can come to pass.

             The Office of Budget responsibility now endorses what I have been saying for the last three years. Public spending is rising in real terms as well as cash terms. Here is the latest OBR Report on the subject:

“Real government consumption remains strong…The latest ONS data indicate that government consumption grew by 1.7% in 2012 in real terms.  It continued to hold up 0ver the first half of this year (2013)…real spending grew by a cumulative 0.8% in the first three quarters…”

They also argue that employment declines in the public sector will be more than offset by rising private sector employment, and will increase public sector productivity:

“Relative to its level at the start of 2011…. we expect general government employment to fall by round 1.1 million by the start of 2019, with around 0.5 million having already taken place.”

Some of you have pointed out that EU spending apparently rises by £10 bn between 2013-14 and  2017-18.  Any rise is unwelcome. As the OBR report makes clear, half of this revised forecast is the result of a change of accounting practice, which strikes the EU spending out elsewhere in the figures and puts it in in the EU contribution line.  The underlying rises in forecast net of the accounting change  are £1.3bn 2013-14, £ £0.6bn 2014-15,  followed by £1.5bn, £1.2bn and £0.5bn, a total of  £5.1bn.

The profile of EU contributions is erratic, falling to £7.3bn in 2014-15  from £8.7bn in 2013-14, rising  to a lower figure than 2013-14 in the next two years before falling again to £7.3bn in 2017-18. The downward pressure on the Eu budget has helped, but the overall figures are still too high at a time when cutting spending in less desirable areas should be a priority.

          At the height of the controversy over MPs expense claims in the last Parliament, it became fashionable amongst MPs to want to create an independent body which would settle MPs pay, expenses and office support without any interference or votes by MPs.

          At the time I argued against in the many private  discussions and debates we had about how to proceed. I pointed out there had been past attempts to take MPs’  pay out of politics by linking MPs’  pay to a civil service grade or a basket of “comparators” for the job. Each of these attempts had been adandoned when the comparator pay advanced too quickly, leading to demands from the public that MPs did not take the rise the automatic system would award. MPs usually agreed, avoided the unpopular rise, and looked around for another way to determine  pay at a more acceptable rate.

          So it came as no surprise to me that this time an independent body proposes an 11% pay rise for MPs in 2015, just after a period of substantial public sector pay restraint which so far MPs have rightly shared.  The public who express a view are strongly against any such rise. Party leaders are aghast, understanding the impact any suggestion they support such a rise could have on their own and their party’s standing.

         The  party leaders are urging IPSA to think again. Yet it was the party leaders who were keenest on the idea of an independent IPSA in the first place.  IPSA has until 2015 to consider. It will fall to the new government elected in 2015 to decide what to do. If that government does nothing, and IPSA presses on, MPs will receive an unpopular rise, balanced in  part by meaner terms on pensions and expenses. If  the government wishes to stop this, it either has to abolish IPSA, or override their pay decision by amending the law in some way that would allow this.

         I think we are rediscovering an old truth. The  pay of MPs is a highly charged political matter. In the end MPs are forced  to settle the matter themselves, and explain to people how and why. The independent regulator does not seem to have prevented continuing controversy. If the MPs ride out the storm by stressing IPSA’s independence, that will still be seen by some as the MPs themselves wanting and getting a pay rise.

          “Growth up, borrowing down, what’s not to like” was one of my Autumn Statement headlines last week. The Sunday Times came up with a similar headline for their main commentary piece on the economy this Sunday in the Business section.  A happy  coincidence, or the power of Twitter?

         I have been fortunate indeed to receive a second leaked letter from the heart of government. Dr Spendlove is writing to his boss, Dame Lucy, about civil service preparations for the next government…

Dear Lucy,

          I am concerned that the Lord Chancellor and the Welfare Secretary are putting too much pressure on us  to proceed in ways that could be illegal under European Union laws and our Treaty obligations. I can assure you I am making clear to Ministers, and through the Attorney General’s advice, that we must not knowingly trigger infraction proceedings against the UK by being insouciant towards the European requirements on fair access to benefits. Nor must we drift away from our strong commitment to human rights, as manifest by the UK’s signature on the European Convention and the subsequent buttressing of this position through EU law as well. The protections we put in with colleagues in other European countries in the Amsterdam and Lisbon Treaties should  work well. The UK would both look bad and would ultimately lose if Ministers persist in challenging the settled position on these matters.

          Thinking of these important issues has led me to suggest that we should soon start contingency planning for the next government to be elected in 2015. Whilst in current conditions we must plan for a  variety of outcomes, we know the measure of the Conservative and Liberal Democrats through their Ministerial positions in coalition. We will continue  to brief Conservative  Ministers of the crucial importance of keeping to EU law in the context of what they are wishing to do already, and suggest to them they should not have high expectations of what is achievable in the renegotiation they wish to undertake.

         The current opinion polls point  in the direction of a Labour government with a substantial majority, with the anti Labour vote split three ways between the Conservatives, Liberal Democrats and UKIP. Of course this could change and we must not take a view that is anyway partisan. However, I think we can conclude from what we see so far that a government which wishes to seriously disrupt our European relati0nships is not very likely. It does look as if Eurosceptic voters have decided to split their forces in a way which may make them irrelevant to the conduct of proper government. Things will  be more difficult if there is a majority government that holds a referendum on membership of the EU.

         I appreciate it is quite early to seek permission to talk to the leading Opposition party about their programme and transition to government in the event of their winning. However, with European elections coming up and  the temptation for vote hungry parties to say things that are simply unrealistic in the European context, I wonder if we should not put out feelers now? If the official Opposition party, ahead in the polls, remains committed to the UK’s  current relationship with the EU and is not pledged to a referendum, it will make matters much easier from the point of view of the continuity of orderly government.  I think they should know the realistic assessment of the strength of the UK negotiating position that we have drawn up to guide Ministers who are too eager to suppose we can suddenly reduce EU competences.

        Conservative Ministers of course believe they can win a majority thanks to economic recovery, their offer of a referendum  and other government successes. We will continue to serve them faithfully , by reminding them of the realities of office  in a full member of the EU at a time of growing need for international solutions to the big problems like climate change and the mobility of labour. The Liberal Democrat Ministers we serve usually accept the EU legal advice seriously and willingly.

On Wednesday I met leading BBC people at the Commons. They told us of their commercial successes with Dr Who and Strictly Come dancing, and tried to whet our appetite for their Christmas schedules with a long advert for their leading programmes.

I asked them how they defined public service broadcasting? They said they saw their popular commercial shows as a crucial part of that, yet these shows could just as easily have been invented by ITV and shown on a commercial channel.  Many are sold to commercial channels elsewhere in the world to be shown. I am still at a loss to know what their definition of public service is, and how it differs from Downton Abbey or ITV News. Why is East Enders public service, and Coronation Street commercial?

The BBC has always experienced a difficult dilemma over public service definitions. If public service is educational or uplifting programmes for a minority, it runs the risk of the majority no longer wishing to pay for it by a tax. If it is very popular programmes to keep the majority on board, it is difficult often to distinguish these from commercial product.Why does that need a poll tax?

I raised with them a more interesting issue which has often been raised here. How do they think tv will evolve in the years ahead, as more and more programmes and content is delivered by internet? Will they reach a point where many more people no longer watch any live tv, and so they will claim they should not have to pay a tv licence?

The BBC management recognised the issue, and said come the next dialogue about the licence fee they might need to reconsider the definition of the taxable service. That should be an interesting debate.

Free enterprise offers us the hope of a better tomorrow. Conservatives like me want more people to succeed, more people to enjoy rising living standards, more people to own homes and shares and other items of value. My opponents’ caricature that Conservatives promote low pay for the many and greater inequality for the few is the opposite of the truth. Conservatives want greater prosperity for all, but accept there will continue to be inequalities in a free society.

Many socialists, in contrast, want to make us more equal by taxing those who are successful more heavily. They wish to regulate the private sector more, take more of its profits away, and punish those who work hard and pioneer new ways of doing and making things. The price of greater equality is far less freedom. They think this a price worth paying. When taken to extremes you end up in a world like communist eastern Europe prior to 1990. Even in such egalitarian societies the powerul political elite make sure they escape the privations of the many, with a privileged lifestyle that money could not buy.

I am not a natural legislator. I think we have too many laws, not too few. I am happier repealing laws than inventing new ones. MPs have in boxes full of lobby inspired campaigns to tax people and companies more, to stop them doing things, or to make them do things they are reluctant to do. The friendly socialist responds to these pressures by offering more tax breaks, subsidies and public spending programmes to move the world in the direction they want. The unfriendly socialist prefers to do it by criminalising more conduct and taxing more revenue.

One of the most pleasant surprises I have had doing the job of an MP is to discover that jealousy is not such a popular or universal emotion as many socialists seem to believe. Voters did not queue up to abolish by ballot the remaining grammar schools, even though most of them knewtheir children would not benefit. Many voters accept that a good entrepreneur who has worked hard and taken risks to make his or her money should be able to enjoy a decent proportion of the fruits of their labours. Most voters want to be able to pass some money on to the next generation, rather than wishing to make each generation start again with the state pocketing the gains of the dying. Most people want to own their own home and are pleased if it goes up in value. There is no desire for more people to be tenants of the state.

It is true that jealousy can come into some popular views, allied sometimes to a sense of fairness. Many share my view that state employees, whether in a subsidised bank or a great quango, should not be rewarded as if they were in the private sector on a performance bonus taking big risks with private money and subject to sudden loss of job if they get it wrong. Others dislike high pay however it is earned and whoever pays for it. Some dislike high pay selectively, condemning it for bankers but accepting it for footballers or the Governor of the Bank of England.

As a believer in free enterprise I am an optimist. During my life so far I have seen many people and whole societies become much richer and better served by the power of innovation and by the energy of the marketplace. We have been liberated from washday by the washing machine, from long walks to work and play by the car, from loneliness and boredom by the tv and the internet. Many more people now have better paid jobs, and no longer have the back breaking physical work of their grandparents.

             The documents connected to the Autumn Statement include an interesting table which shows that the majority of the additional deficit reduction the OBR is now forecasting will come from increased tax revenue.

              In 2014-15 an additional £9.6bn of tax is 77% of the extra deficit reduction (compared to the March position). In 2015-16 £13.2bn of extra tax is 79% of the extra deficit cut, and  in 2016-17 ££14.5bn of extra tax is 91%.(OBR Table 1.3 p.14).

              Some of this revenue is the result of the higher growth forecasts, but some of it comes from the so called anti avoidance measures. These are tax rises of one sort or another, altering the way existing  taxes are levied. The government aims to get more tax from people and companies who are currently paying the correct amount under current tax law, so they are in that sense tax rises.

           Many will say because they are called anti avoidance measures they are all justified. Nonetheless these new tax measures need examination to see who they take more tax from, and what economic impact that will have. If you stop a legal way of avoiding tax you may also stop certain types of economic activity that depended on the favourable tax treatment.

          Meanwhile the Chancellor correctly underlined the fact that the structural deficit remains obstinately high. The reason for that is very simple. Current public spending has continued to rise in real terms, with a starting position in 2010 where there was an inbuilt large structural deficit from high spending.

             If these forecasts are correct, the UK state debt (excluding pensions) peaks at 80% of our GDP instead of at 85% under the March 2013 Budget plans. Most of this is down to these further increases in tax.

          As expected, the Autumn Statement produced a new independent official forecast for  the economy. The OBR expects growth to be faster, and extra borrowing lower as a result. By 2018-19 the government aims to be repaying debt.

            The forecast also anticipates a substantial increase in new housing,  with modest house prices rises peaking at 7% in 2015-16. Real house prices remain below the 2007-8 high throughout the next five years.

           Public spending continues to go up in cash terms, though at a slower pace than before. Next year the government aims to spend £12.7bn more , after a £15.9bn increase this year in adjusted Total Managed Expenditure. Net additional borrowing falls from £111 bn this year to £96bn next year.

              Savers will be pleased to know the official forecaster expects short term and longer term interest rates to rise steadily over the next five years. They pencil in 4.2% on average gilt stocks and 3.1 % for short rates by 2018-19. They foresee share prices rising gradually every year, consumer spending to rise, and commercial property prices to rise gently as well. Real incomes start growing again from 2014.

               They are likely to be right about the direction of travel for the next couple of years. Their 2010 forecast was far too optimstic whilst their Budget 2013 forecast was far too  pessimistic. Maybe this one will be nearer the truth.

                I would be surprised if things turned out as steadily as they expect after 2015. Normally adjustments take place more rapidly than officials recognise.  Interest rates on government debt have already risen more quickly than official forecasts anticipated.

              The individual decisions in the Auutmn Statement did not make much difference to the figures. The big changes have occurred thanks to faster growth, bringing  down the likely extra debt burden substantially. By 2017-18 debt is estimated to be £80 bn lower than in the March 2013 forecast.

Conservatives are in many ways better placed to cut poverty than Labour. If you are keen to let more people succeed, to build businesses and create jobs, you will do more to eliminate poverty than if you want to tax enterprise into submission. If you believe in competitive markets, you offer people more choice of good value goods to boost their living standards, and more opportunity of employment.

The Conservative assault on poverty revolves around helping equip everyone to have a job, and creating the economic conditions where more jobs are created for them.

It is also based on the idea of wider ownership. One of the big divides in our society is between those who own their own home and those who do not. Helping more people to own their own home brings to more people the wealth effect of home ownership. In old age there will be no rent to pay. There is an asset to support them should they need to go into a nursing home, or an asset to pass onto their children.

Ensuring more people have pension and other savings will also erode the them and us culture that divides our society into those who have some financial wealth and those who have none.

The Autumn Statement needs to allow more people to succeed and enterprise to flourish. It needs to lift spirits, not threaten more taxes and controls. I will write again today when we have seen the details.