The government still dithers over tax and spend

Yesterday government Ministers queued up to appear on TV and radio programmes to tell us they are “listening”. We were told to await the Autumn Statement patiently to see if their listening extended to understanding why people are against the big hike in Vehicle Excise Duty which they defended in the Commons recently when the Opposition told them to drop it. I guess the conjunction of Labour MPs in a queue to rebel on this issue – somewhat late, considering the amount of parliamentary time it has already enjoyed- with an orderly queue of lorries protesting on the A40 in London was sufficient to give us the benefit of hints in interviews that there could be change in the air.

This leaves us with two problems. The first is that we have learnt, from long experience of this media savvy government, that what counts is not what they say but what they do. A straightforward government that deserved more respect would have come out yesterday and said “Yes, the new higher oil prices change things. We will cut fuel duty and cancel the VED increases as a result.” Instead, we have backtracking from No 10 saying these Ministers went too far! The second, is, how will they pay for any concession they are finally forced to make?

If the government had control of its spending it would be easy to offer something off fuel duty, as they will be collecting so much more tax from VAT on fuel anyway. They could offer us the amount of the extra tax back to show their “sharing of our pain” had produced some response. They could also offer to cancel the worst of the VED increases, by using the substantial windfall revenue they will be getting from North Sea oil.

Unfortunately the government does not have control of its spending, and it is finding it expensive to remedy the obvious economic and political errors of the error-strewn last budget of Mr Brown, and the first budget of Mr Darling. There is the £2.7billion of cost of alleviating the 10p income tax band abolition. There is the £24 billion offered to support Northern Rock, and all the contingent liabilities which may well produce losses for the taxpayer to fund. It has been an expensive few months.

What the government needs to do immediately is to take action to get better control over its own costs. It should not be sacking teachers and nurses, and should not be mean to the police in denying them their Independent Pay review increase. They should be getting very tough on civil service and quango staff numbers with a full recruitment freeze, they should be market testing more of the administrative functions of government, and as they are so concerned about how much energy the rest of us use they should go on a drive to cut energy use in the public sector to combat the surge in bills.

We need to cut the tax bill on people. To do so we need to curb spending. Curbing spending is now very easy, because administrative staff numbers are so high, quangoland is so bloated, and the core public sector is profligate. Instead we have a government which is still spending on itself like there’s no tomorrow, whilst losing its authority to raise the money to pay for it all.

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14 Comments

  1. mikestallard
    Posted May 28, 2008 at 8:05 am | Permalink

    I once knew a family that was in debt. They lived in a large house in Norwood. They smoked and drank generously. They had expensive holidays on narrow boats. Their children did not want for anything.
    When the debt deepened, did they cut back? No. They borrowed money from their friends to pay the bills, but, more important, for smokes.
    One day, their house was repossessed and suddenly they found themselves in the street. The odd thing is that it came so suddenly and they were surprised!

    I hope you appreciate this little parable…….

  2. Posted May 28, 2008 at 9:06 am | Permalink

    I don't know why there's this attack on quangos on a Conservative site: they were seen in their heyday as a way of keeping things at arm's length from central or local government and bringing in much-needed "private-sector expertise."
    To quote an academic paper "Quangos: what's in a name" by Greve,Flinders and van Thiel, hardly an incendiary text and available on the Net: ".. emphasis on delegation, disaggregation and contracting out into the private sector led to to the transfer of functions from traditional government bodies to a new range of quasi-autonomous task specific bodies.This allowed the introduction of a variety of new management styles and procedures largely derived from the private sector (Ridley 1996)"
    Some of these management styles included ,as far as I can see, croneyism & elitism in selection of members, inflated salaries and over-use of consultants.The latter characteristics passed over into local government: The thinking became:"These people are in charge of multi-million pound budgets; they must be paid the commercial rate for the job; we must attract the best of the limited number of top people"
    The truly conservative thing would be to return these functions to the modestly paid Borough Treasurers etc and their small staffs who administered towns and other responsibilities from tiny offices with typewriters, simple arithmetic and no computers.

  3. Richard
    Posted May 28, 2008 at 9:41 am | Permalink

    Gordon and Alistair are meeting with "leaders of the Oil and Gas industry" to "discuss ways of lowering fuel prices".

    Presumably he's going to impress them with his grasp of the situation by encouraging them to lower their prices so that they don't make as much profit.

  4. Posted May 28, 2008 at 11:23 am | Permalink

    The most remarkable thing about this whole mess is that not a single minister yesterday doing the media rounds actually proposed doing the obvious thing, i.e. cutting taxes and spending.

    Astonishingly, we heard "sell your car if you don't like it" from one minister, along with proud boasts that future tax increases had been delayed a few months, and that French tax other things (QED this tax rise is okay??). Not one of them could actually bring themselves to say "tax cut"

    And several of the leftist commentators actually seem to be rejoicing in the destruction of our haulage industry, urging Gordon to "stand firm" on the green agenda.

    Well, if that's the battleground they choose, good luck to them in the next election.

  5. Matthew Reynolds
    Posted May 28, 2008 at 12:27 pm | Permalink

    The aim I think must be for the Tories not to match Labour spending plans of 2% p/a real-terms growth in public expenditure ? A waste ridden £620 billion a year public sector with a PSBR threatening to hit £150 billion p/a is why we are in this economic mess . Annual real terms government spending growth of 1% for at least five or sixe years is essential if we are to avoid anymore to debt interest charges ( a tax on future generations ). Eire has trimmed the fat from its government sector while in Washington President Bush allowed federal spending to get out of hand and his approval ratings rarely exceed 30% while the GOP faces a rout in Congressional elections ( they have lost three by-elections in previously safe Republican districts so far this year ). Eire has prospered as a result of their public spending cuts paving the way for lasting tax reductions .

    In the UK we must as John Redwood suggests get tough with QUANGO’s & civil service budgets and matching the very public spending plans that have done so much harm would be madness . We need more value for money on what is already being spent – taxpayers have suffered enough ! If the Lib Dems want targeted cuts in taxation & public spending then such ideas must be popular – what is George Osborne and for that matter David Cameron waiting for ?

  6. David Eyles
    Posted May 28, 2008 at 2:57 pm | Permalink

    It is becoming abundantly clear that this government have not just allowed spending to get out of control over the last two budgets – they have no idea how much is being spent and upon what. And that situation has been getting steadily worse over the last ten years.

    It's not just the quangos. Take the MoD for instance. What seems to be happening is that image conscious civil servants, possibly colluding with ministers, are shunting money around so fast that the auditors cannot keep up with it. So no-one can tell if the spending for many projects is being counted once, twice, three times or (most likely) not at all.

    They do not know how many civil and/or public servants they employ directly. They do not know how many consultants and outside contractors they employ. They do not know how many committees they have and how much they are remunerated. They are clueless about the present and future pension commitment the taxpayer will have to stand.

    When the time comes for a change of government, the Tories will be forced to take a very long time just to get to grips with the scale of the problem. It will take even longer for the taxpayer to recover from the damage that this government has done to the nation.

  7. John
    Posted May 28, 2008 at 5:05 pm | Permalink

    You're wasting your time trying to educate the Nasty Party, John. You can talk common sense to them till you're blue in the face and they still won't get it.

  8. mike
    Posted May 28, 2008 at 5:07 pm | Permalink

    I'm slightly off topic but I was wondering what do you suggest an incoming Conservative government should do about PFI spending.

    Presumably, these are legally-watertight contracts which any administration is committed to paying out for over the next 30 years (and assume Mr Brown, as is his wont, went to some trouble to lock a succeeding administration into that commitment).

    Not much room for negotiation, then. Horrendous penalties for early termination.

    The question is: Are you stuck with this multi-billion pound set of gorillas on the balance sheet?

    Reply: Yes, with some of them. They will need review to see how we can manage the risks better.

  9. William B.
    Posted May 28, 2008 at 6:09 pm | Permalink

    One aspect of government spending which received little attention but, in my opinion, deserves more is the use of consultants both on matters of policy and matters of administration.

    It is hard to believe that the civil service does not already contain people with appropriate knowledge and experience to assist government on almost any issue without the need for any additional expenditure. But where additional expertise is needed I see no reason why it must always be paid for at premium rates.

    A lesson can be learned from the way Parliamentary Select Committees gather expert opinions and advice. When a matter is being considered they invite contributions from the public and receive detailed and highly informative submissions from genuine experts. Such submissions are made free of charge because people consider their contributions to informed debate that can help improve law-making to be a matter of public service.

    I know not whether this is a practical suggestion, but why not prevent government from hiring any external consultants without the consent of the relevant Commons Select Committee? It would certainly focus minds on whether there is any genuine need for paid external help.

    In a similar vein we saw recently a most bizarre situation in which companies bidding to take over Northern Rock had their costs paid out of the public purse. They would not have been bidding at all if they did not see a potential profit and I see no reason why such a normal business cost should be paid by taxpayers.

  10. David Jensen
    Posted May 28, 2008 at 11:37 pm | Permalink

    Dear Mr Redwood,

    You talk as if your party in government has acted with perfect hindsight. I have no direct experience of government but have seen a lot. You guys are all the same. "this lady's not for turning!"

  11. adam
    Posted May 29, 2008 at 1:30 pm | Permalink

    the government have defended the jump in profits of the oil companies

    so much for the peoples representatives.

    the oil crisis is fake.

  12. John
    Posted May 30, 2008 at 8:19 am | Permalink

    I'm sure I read somewhere recently that Transport for London employs 16 people on salaries of over £150,000 a year. That's more than the Prime Minister is paid! As a voter and taxpayer I wonder if such largesse extends to other Government bodies and Quangos.

    I cannot believe that the Government cannot find a 15% cost saving in it's budget easily. Even a saving of 10% would amount to over £60bn at a time where taxpayers are having to make drastic economies to cover the increased costs of mortgages, fuel and food (and tax!)

    But despite a Government clearly incapable of managing it's own costs, I remain to be convinced that the David Cameron would be strong enough to take a suitably large knife to Government spending. I know that is something Mr Redwood believes in strongly, but he's not leading the Conservatives. Cameron dances around the subject when he should be making a commitment.

  13. Donitz
    Posted May 30, 2008 at 11:01 am | Permalink

    I do not believe that the only credible political party are doing enough to make the public aware of how much they are being TAXED by the socialists.

    As an example a "Champagne Socialist" friend of mine who is a well respected doctor involved in neuro research within the NHS in Cambridge stated "if we increased income tax by only 1p in the pound we could have the NHS we all deserve".

    I tried to explain to her the economic principle of a taxation bell curve that if taxation is too high the tax take is actually less as more people avoid paying or refuse to work. She seems totally oblivious to the rampant tax and spend of Labour.

  14. Posted May 30, 2008 at 3:24 pm | Permalink

    John, well done for saying this Curbing spending is now very easy, because administrative staff numbers are so high, quangoland is so bloated, and the core public sector is profligate. But will the next Tory government follow this advice?

    Reply: I trust so – David Cameron made a good speech on waste recently

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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.

    Promoted by David Edmonds on behalf of John Redwood both of 30 Rose Street Wokingham RG40 1XU

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