Labour should listen to Will Hutton

Yesterday in the Sky debate with Will Hutton I was impressed by Will’s realism. Far from trying to argue the self justifying and unrealistic Labour line, Will concluded:

1. There is a serious banking problem, which has still not been solved or gone away
2. There is a UK government borrowing problem, and the government did fail to put the finances in order in the good times
3. UK banks are very large in relation to the National income and the size of the government’s revenues. We could have a small version of the Iceland problem, as banks here are more than 4 times GNP. There are limits to how much the government can support them as a result.
4. Government does have to keep confidence in the currency and its finances to maintain borrowing at sensible interest rate levels
5. The Shadow Chancellor is not the reason sterling is falling.

I hope I have been fair to him in this summary. My purpose of repeating this here is to appeal to all those government supporters who read and comment on this site to listen to these points. If Will and I agree about these things there is the chance they are right. Will’s agreement demonstrates these are not “right wing” criticisms, as Labour usually seeks to suggest when I put well meant and serious points to them.

My conclusions from all this are also pretty clear:

1. The government needs to take action to cut its borrowing this year. It can do so by changing its approach to spending on the banks. They can raise more of their capital for themselves, sparing the taxpayer. Will and others do not yet agree with this, but it is the cheapest and best way out of the government’s hole. The government should sell off Bradford and Bingley and Northern Rock as quickly as possible, taking its loss before it gets bigger.
2. Once this has been done the government should then cut taxes, putting more money into the pockets of those likely to spend more.
3. The government needs to widen the range of stocks its issues to finance its remaining debt, with more at the long end of the market and more index linked securities.
4. The government needs to pursue its Gershon and related savings more energetically. It should impose a staff freeze on administrative posts, and terminate index linked final salary pension schemes for new recruits.

I welcome the fact that the Conservative party is examining a changed economic strategy for the changed conditions. This strategy must include plans to deliver more for less throughout the public sector, building on the big three themes the party has identified for savings. It should also include lower taxes on income and enterprise, funded from the reductions in spending. There will be no proposed cuts in teachers, nurses, doctors, service personnel and other important front line public servants, nor should there be.

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13 Comments

  1. not an economist
    Posted November 17, 2008 at 10:31 am | Permalink

    Particularly refreshing was Hutt's comment that he was surprised to hear talk of GO being held to blame for the fall in sterling. He self evidently thought such comments were the utter tosh. I didn't expect to hear that from him. I admired his honesty on that as he could have taken the labour party just to score debating points against you.

  2. Acorn
    Posted November 17, 2008 at 11:48 am | Permalink

    On the money, as usual JR. Yesterday a friend said to me, "… do you know there are 43,937 pieces of primary and secondary legislation on the Statute Law Database" "Fair enough" I say. "Now tell me how much each of those Acts and associated regulations (SIs) costs to administer at central and local government level; particularly the one that allows someone to be prosecuted for putting his bin out on the wrong day with the lid four inches open". He said, "I have more chance of [the rest is unfit to print so I will save JR from having to delete it].

    Somewhere in government, someone must be doing the above exercise. When he/she publishes the information, think what fun we could have going down the list with a blue pencil writing "repeal" along side the ones which show poor value for money.
    http://www.statutelaw.gov.uk/ChronIndex.aspx

    • Andrew Forbes
      Posted November 18, 2008 at 12:17 pm | Permalink

      Need a new "bonfire of the controls". Howbout it John?

  3. Posted November 17, 2008 at 12:00 pm | Permalink

    I look forward to another Polemic from him, perhaps "The state were in now" with the strap line "this time its terminal"

  4. Lola
    Posted November 17, 2008 at 12:27 pm | Permalink

    In one statement – " This strategy must include plans to deliver more for less throughout the public sector" – you have identified the conundrum that has always intrigued me. Private business in a competitive and free market is all about businesses doing more for less every day. Yet government business appears to be the exact opposite doing less for more every day (or rather getting less for our money every day).

    Square that circle and we are on a winner.

    But you cannot. Governments allocate capital on predominantly politically opportunist whim. This always destroys capital. Hence the best answer is for the government not to spend any money at all, or as littles as humanly possible.

    So cut taxes and spending.

  5. Posted November 17, 2008 at 12:46 pm | Permalink

    On point 2 I would personally rather see tax cuts going on a cut in corporation tax. This is possibly politcally far less popular than taxpayers getting the money & possibly politically impossible for John to even advocate, but it would mean that economic growth was of the real sort – more productivity not just more of us spending. The 25% reduction in the £'s value is a manufacturing opportunity that should not be missed.

    On point 4 I agree but in particular would like to see massive cuts (100% would not be much overdoing it) in the H&E Executive & other regulatory bodies. They are what are responsible for public works costing 13 times, in real terms, what they used to – getting rid of this burden &/or building nuclear reactors would each provide a stimulus to match any tax cuts while actually having a negative fiscal cost.

    Reply: I do support Corporation Tax cuts to stop the drain of business away from the UK

  6. THE ESSEX BOYS
    Posted November 17, 2008 at 1:41 pm | Permalink

    Yes after a sticky start you two got on famously!
    It's refreshing when an 'expert' is prepared to concede and debate and the above is an accurate summary that will give Mr Brown little comfort.

    A good little article in yesterday's MoS was by Dan Atkinson who recommends that:
    "The best thing to do with your share of the promised tax cut…is to tuck it away against the moment the Treasury asks for it back again".

    It says much when we openly concede that the poorest must be targeted as they are the ones who will actually spend it – sadly on fags, booze and cheap imported toys. Perhaps Dan's advice should be passed on to them.

    One other amusing analogy worthy of quoting is that Brown's
    "recent behaviour resembles the operator of a dodgy fairground who, having ignored safety warnings for ten years, has seen his jerry-built attraction collapse amid carnage. Far from apologising, he expects to be thanked for helping direct the ambulances"!
    QUITE!

    Don't amusing but accurate analogies work well in explaining what's happening to the public at large!

    Incidentally he also mentions the failed 'Smithson Accord' of December 1971. Are there not a few lessons of history to be drawn? The circumstances seem very similar to now and mention of Heath's dark days may help prick Brown's bubble of current conceit.

  7. Alan Wheatley
    Posted November 17, 2008 at 5:45 pm | Permalink

    On Conclusion 2, cut taxes for those most likely to spend, it will be interesting to see what, if any, advice government offers to these people. Adopting the role of financial advisor is not without responsibility, and liability.

    As for those on low income, would it not be the advice of any reputable financial advisor to propose that any spare money should first be spent on reducing debt, especially if the tax cuts are short term? If such action were to be followed does this not undermine the reason for making tax cuts targeted at these people?

    I appreciate that I am equating "low income" to "in debt", but it seems this is so often the case.

    Alan Wheatley

  8. mikestallard
    Posted November 17, 2008 at 7:09 pm | Permalink

    "We could have a small version of the Iceland problem, as banks here are more than 4 times GNP."
    SMALL?
    Otherwise, what an excellent piece of advice.
    I do hope that George Osborne's team are reading your blog and taking heed.

    Reply Will said small because Iceland has banks many times more its GDP

  9. james barr
    Posted November 17, 2008 at 7:54 pm | Permalink

    John,

    Whatever happened to the "waste commission" undertaken by David James for Michael Howard. Surely it is time to dust it down. It must be lurking somewhere in Tory HQ!

    I watched the conversation with Will Hutton and was impressed by the amount of common ground. I don't suppose the clunking fist was listening though.

    Reply: The James proposals were published before the last election. I believe the leadership is now looking again at WASTE AND UNNECESSARY SPENDING.

  10. Susan
    Posted November 17, 2008 at 10:46 pm | Permalink

    I saw the interview and was glad to see how you picked the meat from Hutton's points. I know it's uncharitable of me to say so but he initially huffed, puffed, fluffed and tried to shout over you and AB. Once he realised it wasn't an argument he seemed to calm down and consensus was reached – on the problems if not on the solution. I thought it was a good interview.

    On the debate this afternoon – Brown's glib and facile response to your question was quite abject but at least the question was asked. May I also say that the govt's idea of spinning tax credits as a tax cut won't go down well with the majority of the electorate once the details emerge next week.

    To Alan Wheatley @ 4.45pm – "low income" and "in debt" don't equate at all. It used be that no-one liked to be pigeon-holed, ticked and boxed into a corner called 'poverty' yet our current govt has encouraged it; there's no wonder some people would rather take benefits or credits than work. My parents were ordinary, low income people and never owed a penny and I had ten years on a low income bringing up three sons after a divorce yet I never owed a penny. Pride and upbringing has a lot to do with it and that brings us back to parental education and state-schooling.

    Thanks to pc-speak there is no longer any shame in being on benefits. Being out of work and seeking employment is one thing but being out of work and living on the effort of others is quite another. It's time Conservatives recognise that pc-speak doesn't cut it and it's time to call a spade a spade and not a shovel.

  11. Adrian Peirson
    Posted November 18, 2008 at 12:05 am | Permalink

    So the Great Gordon thinks that by Borrowing money, he can give us all a Tax cut.
    So he Borrows £100Billion by issuing Gilts which the Banks buy and then loanaus £100Billion Pounds.

    Now these Gilts carry a 5 – 10 Percent interest charge, so this little Tax cut is not a cut at all, because we have to pay back in 5 yrs time £100billion PLUS the Interest, which by my reconing is around £120 Billion in five yrs time.

    These people must be stopped, our children already owe £1Trillion to the International Moneylenders.

    I'd ask you to point this out to gordon but it would be pointless, he either already knows this, or he doesn't, either way, he and anybody who thinks like him needs removing from office.

    It's almost as if he is actually working for them rather than the British People.

    Close down the ( Private ) Bank of Englland, Stop Borrowing money from the bilderbergers and Lets Print and issue our own money free of charge into the Economy, no loan to pay back, no interest, no national debt and no income tax to pay.

  12. Posted November 18, 2008 at 2:18 am | Permalink

    It seems the govt is going to give away cash to the "poor". I wouldn't call it tax breaks, when those getting the money won't be those paying the high taxes when it needs to be repaid. Sadly I probably earn enough to not be "poor" to get the handout, but not enough to be "rich" to avoid the taxes. Of course, I'll probably lose my job the week after the handouts, so maybe I won't have to pay the taxes after all..

    I'd go a lot further than stop final salary pensions for the statritariat, I'd give them a 10% pay cut and put them on a contributory pension at 65, obviously expediently to save thee conomy, but it needs doing, so why not now? Taxes could really be cut accordingly. They would only be going through what their neighbours in the private sector are going through.

    The inequality between those employed in the private sector and those working in the public sector, or those on benefits is going to become a major social & political problem.

  • 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.

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