Public spending – the longer perspective

Most of the time Labour wrongly claims Conservatives cut spending. Maybe Labour claims are an appropriate topic on April Fool’s day.  These claims usually become more extreme and absurd at election time. I thought a few facts might help inform the debate.

Throughout the Thatcher years in office, 1979  to 1990, Labour claimed  the Conservatives  were making deep cuts. Total managed expenditure was £315bn in 1978-79, the last Labour year (in 2007-8 prices). In her last year in office spending reached £358.6bn (in 2007-8 prices). In other words real spending, spending after allowing for inflation, had risen by 14% during the Thatcher years.

John Major was also attacked for Tory cuts, though less personally than Mrs Thatcher. By the time he left government  in 1997, spending had risen to £410.8bn (2007-8 prices), a further real increase of 14.6% over his period in office. Conservatives always increased real spending on the NHS, appreciating the popularity of the free at the point of use principle behind this service.

Labour continued with real increases in spending during their time in office, boosting the rate of increase considerably  in the later years after a more prudent start.  The Coalition has increased total managed spending from £669.7bn in the last Labour year to £732 bn in 2014-15, a small real increase and a 9.4%  cash increase. The Coalition, like its Conservative and Labour predecessors, always increased the NHS in real terms.

The issue we should be debating is not the quantity of money overall, but what we get for the money we do spend. Instead of having endless debates about how much real increase there has been, and who might offer the larger increase, we need debates about who can get best value for the money we spend. The debates should be more  about what public service  we want, not how much do we want to spend. When you go out to buy things for yourself you do not insist on spending up to budget, or insist on a real terms increase in your spending. You try to buy what you want for the lowest price, and are pleased if you get something better for less.

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The Brexit debate


Last Thursday morning I debated Brexit with Alastair Darling at the National Institute of Economic and Social Research where we are both Governors (an honorific post).

I wished to get across two main points. No-one I know of a Eurosceptic persuasion wishes to damage our trade with the rest of Europe in any way. We believe we can have a different relationship which does  not entail us being part of their political and currency union, whilst maintaining strong trade links on decent terms. The second is that the UK has a large balance of payments deficit with the rest of the EU, which makes it even more likely the other member states will want to do all they can to protect and buttress trade with the UK, as they are the winners from it.

The minority of British  people who want to stay in the EU enough to argue it is a good idea to belong, nearly always go on about trade. There are few in the UK who argue for full participation, few who want us to join the Euro, few who believe in a political union, few who want common taxation and welfare policies at the EU level. I would have more respect for advocates of our membership of the EU if they did come out and say they wanted to belong to a United States of Europe, and if they would explain why they thought that was both possible and desirable.

I argued that whoever wishes to help form the government in May 2015 needs to recognise that the EU project is hurtling on to full political union, as they wrestle with the troubles of the Euro. They are out to complete a banking union, they are edging towards a welfare union, and already assert considerable control over budgets and economic policy on Eurozone members. The UK does not want any of that, so it needs to define a new relationship now. That relationship should be based on trade.

The UK is in a strong position to create a new relationship based on trade. We are the customers, as we buy so much from them than they buy from us. To those who say there are dangers if we no longer are round the table when they make up their laws, I reply that we are not round the lawmaking table when the rest of the world makes their laws,. We run a surplus with them!

Many businesses want to be able to export, but do not like all of the controls and regulations that have come from Brussels in recent years. Dear energy is one of the worst features of the EU regime, which hinder many businesses. For the sake of business, we need a relationship based on trade and market access, where we do not have to take all of the high cost and negative parts of the EU policies for our trade at home or with the rest of the world.

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Does Greece have a little list?

On Monday Greece is meant to produce her schedule of reforms to prove that the new government is serious about accepting the disciplines and rules of the Euro area. By all accounts it is taking time to produce much to go on the list. The government is much keener on measures which target tax avoidance and evasion, than on measures which cut spending. It is also willing to impose more taxes on the rich, for those  who  have stayed to pay.  Previous governments said they were seeking to cut avoidance and remove evasion, so it will be interesting to see what new ideas they come up with which might increase the revenue rather than make the position worse.

The truth is Greece is running out of money, and does need to borrow more. The EU has slipped them another 2bn Euro, and the European Central Bank has cut them a lot of slack, through its Emergency Lending facility. They have needed that, as there has been some flight of deposits out of Greek banks during the present period of uncertainty.

Greece needs money for a variety of purposes. The state needs more money to pay its daily bills, as it appears the primary balance or surplus has slipped away. The state needs money to repay debts owing soon. The commercial banks need money to deal with deposit outflows and to keep them liquid enough for their day to day operations.

Many Greek people need money. Out of work and squeezed too much, the voters have made clear they want change. The trouble is, the state has no extra money to give them, and the private sector is still badly hit by poor demand, lower incomes and by the tax demands of a state that needs more cash.

The government can see this, and wants to change the position somehow. It finds instead that creditors expect payment and the European institutions expect Greece to play by the rules. Greece lives on in hope that the EU will make an exception again for this country. The governments of Spain, Italy and Portugal are none too happy at any special treatment. Why should Greece be let off the controls if we have to keep to them, they ask? Ringing in their ears is the noise of new challenger parties in their countries, watching everything that Syriza says and does with a view to exploiting it.

I cannot ignore this drama. A huge amount is resting on it. The Eurozone is inching forwards economically at last. It is in the UK’s interest that their economies do pick up, and their citizens buy more goods and services. Greece could still damage all that. Cans kicked down roads too many times fall to bits.

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Health policy

In 2009-10, Labour’s last year in office, health spending (on NHS England) was £97.6bn. There have been rises each year since, taking the total to a forecast £111.8bn in 2015-16.  So much for the story of endless cuts.

There were cuts in the bureaucracy under the Coalition’s changes made in the first half of the Parliament. These changes were designed to require fewer administrators, freeing more money for clinical staff, and to allow more decisions to be taken locally by senior medics and senior administrators who know and understand their local health service.

The Conservatives are offering to complete their move of the service to a seven day a week service. Progress is being made in this direction. A Conservative government next time would complete the transition. GP services would be available at week-ends as a matter of routine, and there would be Consultant led services working in hospitals seven days a week as well. There is an extra cost for this, which the NHS is spelling out. The government has met their requests for extra money to cover this for 2015-16, and would meet reasonable requests in future years which will be negotiated budget year by budget year in the normal way.

Labour say there is a financial and privatisation threat to the NHS, but I see no evidence of this. Labour has not made an offer of better or more extensive service to the public. They concentrate on matters of internal organisation, and have decided to impose profit controls on any private sector contractor the  NHS might use. It is difficult to see how this might help, as any such contracts are only awarded after competitive tender to ensure a fair price, and are presumably only put out to tender where they think the private sector can do it cheaper and better. The NHS under the coalition is not under any new directive to contract out. In office Labour Ministers allowed substantial contracting out by the NHS presumably to achieve savings and improve performance.

There are two very odd features to Labour making the NHS the centre of its General Election campaign. The first is, the General Election is irrelevant to the NHS in Wales and Scotland, so why is Labour ignoring their vote in those two countries by talking all the time about NHS England? The second is, Labour has nothing new or positive to say about the NHS. It is not offering us a better service, not telling us how it will prevent Stafford style crises in the future, and not telling us if it will start to put patients first with better services. There is no evidence from Wales, where Labour does run the NHS, that it is better – far from  it.

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I cease to be an MP tomorrow. Once Parliament is dissolved all MPs lose office and cease to qualify for salary or expenses.
This website is not an MP website, but my personal website paid for out of my own income. I will continue to run it during the election period. Any previous reference on this site to my work or role as an MP remains on the historical record but relates only to my past role.
I become the Conservative Parliamentary candidate for the Wokingham constituency. I will use my local pages for the Wokingham campaign. There will be a daily piece on local and party matters. This will be my voice as Wokingham’s Conservative candidate.

I will  continue with the  general  blog as well. This will provide commentary on  UK matters  and on wider international issues as before. This will not be an official Conservative site, and will not change style because there is an election on.

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Can you live on a zero hours contract?

This is one of the sillier questions in modern politics. All sensible parties and politicians want people to have well paid jobs. We all recognise you need a decent income to meet all the household bills, and all main parties support a range of top up benefits to help those in low paid employment. No party recommends outlawing all zero hours contracts, as for some people and for some tasks these might make sense. All do agree that they cannot be used to break minimum wage laws, nor does working under such a contract render you ineligible for top up benefits and other state financial support.

Whether a particular zero hours contract is bad or not depends on its terms, and on how many hours of work materialise in practice. What is unfair would be lock in contracts  which stop someone working elsewhere when no work is available under the zero hours contract. Some people like their zero hours contract. Others see them as a steeping stone to a contract with specified hours. Labour often condemns them ,yet uses them within Labour Councils and Unions.

The answer to the question is simple. No, you cannot live on a zero hours contract if the rate of pay is low and the hours on offer are limited. If you are a student, if you want limited hours work, or if there other reasons why you are not seeking a fulltime job, a suitable zero hours contract might  work.

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Seats and votes – the two main parties start to rise

The last General election brought a new low for the combined vote of the Conservative and Labour parties. It was no wipe out or complete meltdown, Euro style, but it left the two sharing just 65% of the total vote. The remaining 35% of the vote meant 57 Lib Dem MPs and 28 others, mainly nationalist or regional party MPs, arrived at Westminster. The UK ended up with a coalition government no-one had planned or argued for.

The latest polls suggest that the two main parties are now polling around 70% together. That’s well up on 2010 and may lead on to further gains in vote share for one or both  as more people may wish to directly help fashion the choice between a Cameron and a Miliband led government.

The two main parties remain  close in the polls, and the vote going to others though down is now much more powerfully concentrated in Scotland in favour of the SNP. So on the present reduced 30% vote for others, the number of MPs from outside the two main parties could stay quite high  if the SNP gets 40 plus MPs to Westminster and if the Lib Dems still keep enough  of their seats.

The election should get more competitive from here, as the campaigns proper kick in with full manifestoes after Easter. Will UKIP supporters who want out of the EU really let a chance for an EU referendum slip through their hands by not voting Conservative ? Will recent Green voters stick with their new party? Will some  Scottish Unionists vote SNP in the hope of a still better deal for Scotland, or will they see the damage that can do to the Union?

What is for sure is that England can no longer be ignored. The politics of the next Parliament may well be dominated by the business of Scotland, which will also trigger the business of England.

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The cost of living

The UK used to have a bad inflation problem. UK politics in the 1970s and early 1980s was fought over rises in the cost of living and which party had the best way of  controlling it.

Mr Miliband wanted to take his party on a trip down Memory lane, by making a central issue out of what he called “the cost of living crisis”.

This followed hard on the heels of his forecasts that the UK economy under the present government would go into double and treble dip recession and would end up with worse unemployment than it had suffered under Labour government. He abandoned that attack as the news gathered momentum of many more jobs being created, and many people getting out of unemployment into work.

This week the government announced that the present rate of inflation is zero. For the whole of the last year prices overall have stayed the same. Forecasters expect prices to fall a  bit from here. Wages are rising, so people are now experiencing some increase in living standards, after the sharp fall in real incomes at the end of the Labour period in office, and the continued squeeze in the early Coalition years when inflation remained high.

The government and Bank do wish to see better pay rises and further progress in raising people’s spending power. For the time being none of this threatens low inflation, which remains as a welcome achievement which eluded most post war UK governments.


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Euro 2 billion to help Greece


The EU came to Greece’s aid, with Euro 2bn to ease the Greek “humanitarian crisis”.

It’s all part of their “too little, too late” strategy towards the Euro. Forcing Greece into the Euro prematurely was a mistake by Greece and the other members. Offering the new government 2bn Euros of charity is not going to tackle the underlying structural faults of the scheme, nor will it get Greece back to work. Once you have allowed unsuitable economies into your single currency scheme, the whole zone has   a problem as well as the problem country.

The recent meeting between Mrs Merkel and the Greek Prime Minister may have defused a few  of the extreme tensions between Germany and Greece, but it did nothing to resolve the fundamental issue – who will pay the Greek bills coming up. Mrs Merkel was doubtless  sincere in saying she wants Greece to experience economic recovery and rising employment, but such words create no jobs.

The Greek state and economy needs more money. The Greek PM says he does not want to borrow more, yet that is exactly what he has to do if the rest of the Euro area will not give him the cash he needs. The Greek commercial banks are dependent on support from the European Central Bank, and have had to borrow from the ECB to handle deposit loss. The Greek state needs to borrow more cash to pay its day to day bills, as it seems a tax shortfall once again leaves the government spending more than it raises in taxation. The Greek state also needs to find the money to repay some of the older borrowings as they fall due.

Greece cannot just print its own cash for its banking system as a country with its own currency can. Nor can the Greek state simply issue more Treasury Bills or bonds to borrow more to carry on spending, as all of Greece’s borrowings are under control as part of the loan agreement called the Master Financial Assistance Facility.  The truth is Greece can run out of money, and can be squeezed by borrowing rules, loan covenants and by the European Central Bank.

Mrs Merkel’s fine words about growth, and the EU’s 2bn assistance is a sign of some willingness to compromise. It is still way off the scale of the debt relief or new money that Greece needs to repair the damage to its recession ridden economy with mass unemployment at worrying levels.

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Buying a home


I was pleased to read in the week-end press that the Conservative Manifesto is likely to include a better right to buy offer for people renting from Housing Associations. We have been talking about this for sometime in  the Parliamentary party with Ministers.

I am also pleased that the more radical idea of gifting the properties to tenants who have paid rent and behaved well for a specified time period has been vetoed. It would seem to be very unfair on all those who have saved and struggled to buy a home in the normal way, or on those who have to rent from the private sector because they have not qualified for Housing Association property, that they have to help pay for free homes for those who do rent from the state.

There will be the usual left wing protests against this policy, as there were against Council house sales in the 1980s. They are already out and about saying it is quite wrong because it means fewer social homes for people to rent. It means nothing of the sort. The day after the purchase has gone through the same people are living in the same home. The home is not destroyed or made empty. It is still the family home. The only thing that has changed is the state has some of its money back from the sale, so it can reduce its debts or build a new property with the money.

The impact on state finances is usually positive. The new owner takes over the costs of maintaining and repairing the property from the Housing Association. The Housing Association saves costs and has a receipt which it can use for other purposes.

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  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

    Published and promoted by Thomas Puddy for John Redwood, both of 30 Rose Street Wokingham RG40 1XU

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