Comments on: Halve interest rates and cut wasteful spending

By: David Belchamber

David Belchamber — Sat, 19 Jul 2008 11:43:07 +0000

I don't know whether you have read Barack Obama's book "The Audacity of Hope" or can get hold of a copy. At the bottom of page 153 (in my paperback) there is a quick summary of the situation that the USA faced after the Depression with a description of what the New Deal subsequently did to repair the damage.
It seems exactly the recipe that is required for Britain today.

By: Neil Craig

Neil Craig — Sat, 19 Jul 2008 11:19:31 +0000

80% of council spending is covered by the rate support grant. That means if councils could cut their overall spending by 20% there would be no need for arguments on what sort of local tax is needed. To do this would require central government to cancel a lot of local government's statutory duties & need to fill forms for central government to collate etc but is clearly possible.

I would like to see the RSG funded on a set figure per constituent rather than, as seems at present, being proportional to spending & the council's political clout. This would mean that councils spending above the average would have steeply higher council tax & competent ones zero (or even negative) which would concentrate minds wonderfully.

By: Mark Wadsworth

Mark Wadsworth — Fri, 18 Jul 2008 21:16:23 +0000

John, I'm glad you mentioned the LibDem's proposals for Local Income Tax (in reply to Newmania above).

But let's face it, local councils have to pay for police, street-lighting and refuse collection etc somehow. Which would you prefer – a Land Value Tax (to replace Council Tax and Business rates and all other property- or wealth-related taxes) or local income tax?

The former would be simple, keep property prices low and stable and wouldn't discourage economic activity; the latter would be heinously complicated, it would do nothing to dampen booms and bust in the housing market and would act as a brake on growth?

Reply : I want lower spending and to keep the Council Tax. We could start by getting rid of all those so called Chief Executives and their large offices which Councils never needed before the Bains Report.

By: Matthew Reynolds

Matthew Reynolds — Fri, 18 Jul 2008 19:26:43 +0000

We need a pepetual two year inflation target of 2% on the RPI-x measure with greater independence for the Bank of England to fight rising prices . We need drastic cuts in QUANGO's to ensure that public spending growth is below 1% in real terms p/a for five years to make sure that the PSBR is cut year on year – so that big government and excess public borrowing do not impede hopes of an economic upswing . Basic rate payers aged under 65 need Â£240 p/a tax refund while all pensioner households need a Â£600 winter fuel payment while fuel duty goes down 15p a litre . BBC privatisation , the QUANGO cuts and extra tax revenue due to high oil prices could fund each measure to get more money to those suffering from Labour's high inflation economy . The UK should opt out of as many EU regulations as possible to stimulate small business growth while replacing IB & JSA with a payment designed to slash economic inactivity would stop QUANGO cuts adding to the dole queues by getting many of the economically inactive into work . Short term measures to help those in need and longer term policies to balance the budget , fight inflation and boost employment levels will I think be a sound response to the present mess . Boosting capacity in transport , energy and water would boost employment levels now while giving us an infrastructure designed to support the return of economic prosperity .

By: Matthew Reynolds

Matthew Reynolds — Fri, 18 Jul 2008 18:26:43 +0000

We need a pepetual two year inflation target of 2% on the RPI-x measure with greater independence for the Bank of England to fight rising prices . We need drastic cuts in QUANGO’s to ensure that public spending growth is below 1% in real terms p/a for five years to make sure that the PSBR is cut year on year – so that big government and excess public borrowing do not impede hopes of an economic upswing . Basic rate payers aged under 65 need Â£240 p/a tax refund while all pensioner households need a Â£600 winter fuel payment while fuel duty goes down 15p a litre . BBC privatisation , the QUANGO cuts and extra tax revenue due to high oil prices could fund each measure to get more money to those suffering from Labour’s high inflation economy . The UK should opt out of as many EU regulations as possible to stimulate small business growth while replacing IB & JSA with a payment designed to slash economic inactivity would stop QUANGO cuts adding to the dole queues by getting many of the economically inactive into work . Short term measures to help those in need and longer term policies to balance the budget , fight inflation and boost employment levels will I think be a sound response to the present mess . Boosting capacity in transport , energy and water would boost employment levels now while giving us an infrastructure designed to support the return of economic prosperity .

By: mikestallard

mikestallard — Fri, 18 Jul 2008 17:39:09 +0000

Did you read Charles Moore in the Spectator this week? He said that, if he has any sense, David Cameron's first budget will along the lines of Mr Howard's in Australia – harsh. There are so many things to do, as you rightly point out.
The Chancellor today peddled the usual lie about being handed a weak heavily indebted economy in 1997. I was as shocked as ever.
And, according to Global Europe the Northern Rock fiasco was not all the Chancellor's fault:
"Worries about breaking the Takeover Code â€“ which became statutory in 2006 as a by-product of EU legislation â€“ caused the Bank of Englandâ€™s reluctance to act as an â€˜honest brokerâ€™ to Northern Rock.
Â· The imprecise wording of allegedly relevant directives, especially on insider trading, delayed and hampered decision-taking in the critical weeks in August and September 2007 when Northern Rock sought help from itâ€™s regulator, the FSA, and the Bank of England.
Â· The EUâ€™s rules on state aid caused concern in the Treasury, which led to the inappropriate imposition of a deadline for a private sector rescue and the repayment of the Bank of Englandâ€™s loan.
Â· The heavy redundancies at Northern Rock were justified in terms of compliance with the EUâ€™s state aid rules, not in terms of their costs and benefits to the British nation."
This is released today by Global Vision (Tim Congdon).

By: Mark Wadsworth

Mark Wadsworth — Fri, 18 Jul 2008 17:12:33 +0000

What should be emphasised again and again is that "teachers, nurses, police, doctors and service personnel" make up less than a quarter of the people in taxpayer funded jobs. What on earth do the others get up to? What do they do?

By: Richard

Richard — Fri, 18 Jul 2008 13:51:44 +0000

Another hearty meal of government fudge for lunch. Of course the golden rule was breached years ago by keeping PFI off the books.

By: bill Quango mp

bill Quango mp — Fri, 18 Jul 2008 13:43:56 +0000

Not even proposals from this failing administration.
Mr R.. what are they afraid of that they don't even try to have some ideas on what to do? Just fingers crossed and hope the iceberg isn't going to do too much damage.

By: Charlie Bardswell

Charlie Bardswell — Fri, 18 Jul 2008 12:50:11 +0000

John,

I've been reading your column for some time with great interest. I broadly speaking agree with you. However your policy prescription slightly concerns me. Whilst I agree on the need to cut waste (who wouldn't) the other suggestions, I struggle with –

Asset sales in the current economic climate would surely lead to sale of assets at a discount to their true realisable value, not least because it would be known that the government were desperate to raise cash and therefore bidders would push down the prices further.

As for cutting interest rates, currently it is banks, not the bank of England who have high interest rates as spreads have widened. My concern is that my cutting rates now we would end up in a liquidity trap – i.e. the cuts would make little or no difference to the forthcoming recession, but limit the possibility for cuts when recovery becomes an option. I believe that this mistake has been made in America already. The side effect being to lower the currency (an effective loosening) and stimulating inflation as well as capital withdrawals. It is also worth noting that with the CPI expected to rise to 4-5% real interest rates will be velow 1% shortly. On an RPI basis, they will presumably turn negative.

I could not agree more that we are in the current situation because of past policy mistakes, however the situation is what the situation is and I feel it is now inevitable that we accept that there will be a recession and focus our efforts on mitigating the consequences, rather than cling to a belief that we can prevent it.

Al the best and keep up the good work and the good blogging!

Charlie

Reply: thanks for the kind words. If we cut rates it will price mroe people into being able to borrow or to maintain their borrowings – what you need to do to stave off recession. Selling assets at current levels is not as good as selling them last year, but the government has no easy choices. I would rather they sold assets than cut out necessary spending. They need to cut waste and sell assets as the deficit is so large.