Rip off government is causing inflation – it’s time to stop it.

The government is worried about the persistent inflation rate in this country, at a time when we really need to cut interest rates to stimulate the economy and take some of the pressure off borrowers.

It has the answer to the problem under its own influence, as much of the high inflation rate is coming from public sector taxes and prices. Today we hear of the campaign to resist the 2p extra tax the government is proposing this April on petrol and diesel. This follows a totally unnecessary extra 2p on fuel last autumn.

These increases are vengeful against motorists and hauliers. The government’s tax take on fuel has soared anyway, thanks to the big increases in market prices which gives the government more revenue automatically from the ad valorem tax. If the government still believes fuel burn by travellers is the only part of the carbon dioxide problem it wishes to curb, it should recognise just how far its taxes and the Middle East oil situation have jacked prices up. People now need to be given time to adapt, to buy their more fuel efficient vehicles and scrap the older ones. They cannot afford to change their vehicles because the government is squeezing them too much, and they cannot afford the sky high train fares either.

The government has also stoked the inflationary fires by its mismanagement of the nationalised industries. Postal charges have surged, as a result of the government taking so much other government business away from the Post office. The very well paid management they have put in has decided that using monopoly pricing power is the easiest way to pay their bonuses, so the rest of us are suffering.

The nationalised railway track company has pushed up its costs and charges hugely since it came into public ownership. This is now being partly passed on in much higher fares to passengers for many journeys. The nationalised railway is no longer thought a suitable means of carrying much of the post around the country. We have the ridiculous sight of one nationalised industry refusing to use another on grounds of cost and efficiency, with the Minister when I last asked explaining to me that was the reason! You would have thought a government which defines being green as going by train would at least make the nationalised post go by train.

A whole series of fees and charges are regularly shoved up by more than inflation as the government seeks back door ways of taxing people. Local government too is on to the same trick, with its planning, building regulation and other fees. Council taxes are just about to go up by much more than the 2.1% inflation rate of the government’s official figures.

So what should the government do, to curb inflation? Instead of penalising us with high interest rates for its own inflationary actions, it should have a period when the costs government imposes go up by less than 2.1%, not by more. They could start by:

1. Announcing no further 2p increase in fuel taxes this spring.
2. Cutting fuel duty by the amount needed so the total tax take came out in line with the original budget figure, before the huge increases in prices we have seen in recent months swelled the total.
3. Telling Post Office management they should cancel the postal price increases and make up the money by efficiency gains. If they cannot, they should change the management to someone who can. It would not be difficult to do so in such a badly led organisation.
4. Putting the railway track company back under private sector discipline, to grapple with its bloated costs and inefficient use of contractors. In the meantime tell the regulator to prevent the above inflation fare increases, and stop the attempts by Network Rail to charge the rail operators too much for its poor service.
5. Reducing the costs imposed on local government, by cancelling much of the performance and best value regime, which in total cost Councils much more than £1 billion a year. Then demanding that they get their Council Tax increases down.
6. Putting a freeze on all other costs and charges imposed by the public sector for the next thirteen months to assure people the public sector is turning off its inflation machine.

Only if the government takes action like this can we regard it as serious in its stated wish to curb inflation. Only if it does this will the Bank of England have sufficient scope to lower interest rates, as it needs to do to tackle the Credit Crunch. We live under a rip off government. Please give us a break.

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9 Comments

  1. APL
    Posted February 11, 2008 at 1:16 pm | Permalink

    JR: "The government is worried about the persistent inflation rate in this country, at a time when we really need to cut interest rates to stimulate the economy and take some of the pressure off borrowers."

    John, this is a cruel joke surely?

    The government is a monopoly supplier of Sterling, it controls every aspect of the sterling zone.

    It controls the amount of the currency in circulation.
    It controls the foreign debt obligations on the sterling zone.
    It controls (supposedly) the interest rate, within the sterling zone.
    It controls (abuses) its monopoly position to debase the value of the currency – in the process it destroys the value of the savings and the pensions of the old and vulnerable.

    Your phrasing implies the government is the victim of inflation. But in the current environment of sleaze surrounding Parliament, it bears remembering that:

    People who have saved for their own pensions are unlikely in the current economic environment to have an index linked pension to the true rate of inflation. MPs, ministers and Civil servants do.

    People who have saved for their own pensions actually have cut back on their discretionary spending today to save for their retirement tomorrow. By and large MPs and civil servants have not.

    In your blog entry, there is only a passing reference to cutting back on taxes. Why isn't the Conservative party making the case to allow the public to spend or save more of their own money?

    Why don't the Conservatives put forward a tax cutting policy, or promise to raise the tax threshold and remove millions of low paid out of dependency on Gordon Brown's despicable tax credits by abolishing the whole rotten system.

    It is after all a socialist system designed to extend the control of the state over the individual.

    Just a while ago on another blog you were not concerned about inflation. Have you changed your mind?

    Why doesn't the conservative party put forward a policy of abolishing tax on individual savings completely?

    reply: My comment is that the government is concerned abnout inflation, not me. I want them to realise they are a big part of the cause of it and to sort it out. I still believe the Bank should be fighting slowdown with lower interest rates, not past inflaiton with higher rates. Of Course I remain an advocate of lower taxes.

  2. Rose
    Posted February 11, 2008 at 1:49 pm | Permalink

    Why hasn't the opposition continually reminded the public that GB changed the measurement of inflation when he took office in 1997?

  3. Tony Makara
    Posted February 11, 2008 at 1:57 pm | Permalink

    John, the propsals you make are all good, but we will still be subject to imported inflation if rates are cut, Particularly foodstuffs from Europe. Will a future Conservative government work to make us less dependent on imports? The more imports we take in the more difficult it becomes for us to cut rates and we are forced to adopt a strong pound economy, which in turn weakens liquidity. What do you see as a way out of this dilemma?

    Reply: We need to rebalance the economy by sorting out the public sector productivity issues and reducing the proportion of our money and other resources used in the public sector as the economy grows. This will allow more scope for import substitution.

  4. David Hannah
    Posted February 11, 2008 at 4:05 pm | Permalink

    As usual, the elephant in the room does not get a mention. We have some of the highest food prices in the world, largely due to the EU

  5. Brian Tomkinson
    Posted February 11, 2008 at 5:58 pm | Permalink

    I agree that this government is ripping off the people of Britain but I disagree with your general lack of concern about inflation. Firstly, what is the true measure of inflation? Not, I would suggest, the CPI introduced by this government. Anyone living in the real world, which probably excludes most MPs, knows that energy prices are rising at double digit rates, petrol is over

  6. Posted February 11, 2008 at 8:16 pm | Permalink

    The last tax hike in fuel duty was 1.25 pence a litre, not 2p, and that was the first increase for some years. The cost of motoring has been falling relative to other transport costs.

    At the moment its cheaper to drive than take a train, even with only one person in a car. We need to put up the cost of car use and reduce the public transport fares, and invest heavily in better trains and buses.

    But privatising the transport companies has meant more cost for less service, but lots of profits for the corporations.

    The thing with inflation is the government chooses what goes in the basket of goods, and they arent choosing the things that are going up like oil, gas and mortgages. Why not campaign on that.

    Reply: Government has put up the cost of car use massively in recent years, but unfortunately it has made such a mess of running the trains they have got dearer. We are short of train capacity so forcing people off the roads makes little sense.

  7. mikestallard
    Posted February 11, 2008 at 8:31 pm | Permalink

    I am just reading about the Great Inflation in Germany in the 1920s. Same problem: the government was not in control.

  8. Steven_L
    Posted February 12, 2008 at 2:41 am | Permalink

    Does #5 include the "Charter Mark"? I've thought for a long time that this cost should be itemised seperately on council tax bills.

  9. Atlas shrugged
    Posted February 12, 2008 at 5:31 am | Permalink

    Well John you certainly deserved your biscuit with this one, but I think about almost 11 years too late, if you keep it up you may get a little pat on the head from mummy.

    Of cause the bloody government has caused inflation thats what socialist government get elected to do. That and seriously mess up just about every single thing they can possibly get their hands on.

    I know your hands are tied but to us out here what we want is at least ONE CONSERVATIVE MP to go for the jugular. If for no other reason then it would all make us feel better.

    All this pussy footing about just gets us all depressed. I can understand why Cameron keeping it very cool. But not every single Conservative member.of Parliament.

    It also makes you all seem lazy. to the extent that you dont really want to be in government at all. Which is understandable given the BBC and the absolute chaos that this country is now in, but try to sound like you really care, at least sometimes.

    Thump the table, get excited, threaten the buggers with a swift slap if they dont call an election by yesterday.

    You personally may have"never have had it so good," but there is many rapidly becoming very angry indeed out here in the real world.

    The mood is changing fast I suggest you go with the flow.

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    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.

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