Taxes to rise?

Today we are being softened up for the Budget. Treasury briefing has been allowed out of the dark back room, to tell us the blindingly obvious – the nation’s finances are in a much bigger mess than they have been letting on. We read that the deficit might rise as high as £150 billion next year. Hold on a minute – hasn’t the Treasury noticed they have already borrowed more than £150 billion this year, so that would be a small reduction!

The media keep on falling for the spin. How on earth could a tax rise to 20% VAT fill the “black hole”? How could just £500 each fill it when the debt burden is already so huge, and when we have six greedy banks to maintain in the lifestyle to which they have become accustomed? £500 extra from each taxpayer is only around 10% of the anual deficit. We are not going to get out of this massive overspend with a few “tough” tax increases. We need a root and branch reform of how much we spend and what we spend it on, beginning with a huge dose of reality for our nationalised banks which are literally too large for the state to subsidise on the current scale.

Nu Labour has changed the language to try to disguise or support the spending. They call spending “investment”. Investment now includes the spin doctors salaries to tell you school results are great, and the adverts to warn you to pay your taxes. In Labour’s newspeak a £157 billion borrowing programme in 2008-9 is a £78 billion deficit. An “Independent” Central Bank is one which is required to change the inflation target to keep interest rates down, and one which is asked to print money like there’s no tomorrow. “Child poverty” is another newspeak concept, meaning parent poverty.

Labour introduced the idea of child poverty because calling the problem “parent poverty” would have led to more questions about what the correct response to it should be. Instead of tackling welfare reform so people were equipped and incentivised to work, the government preferred creating a complex system of benefits which did not succeed in reducing parent poverty by the promotion of more and better jobs in the way intended.

To get out of the current financial mess we will have to dismantle parts of the rambling and expensive government administration, beginning by the removal of most unelected regional government. We will need to tackle welfare reform, so more people are equipped to work and incentivised to get a job. We need to cut back on the ferocious spin machine. What is the point of all those Treasury briefers, if they fail to tell us the truth about the financial mess, and fail to warn early enough that we are running out of money to pay the bills?

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28 Comments

  1. TomTom
    Posted April 6, 2009 at 7:43 am | Permalink

    Re-engineering requires the introduction of Zero-Base Budgeting (ZBB) into all public bodies. It is time to start proper budget procedures and have the so-called “Finance Directors” doing a strategic job with focus on what is essential and what is “nice to have” and the latter includes perk cars.

    Too much money is spent on the basis of log-rolling rather than a critical assessment of need. In fact Jobs should be analysed in terms of which are required by Statute – and which Statute – and which are discretionary – which are “Assistant to” ancillary jobs and why, and who controls pay and promotion of those ancillary jobs.

    Then there should be a look at functionality. the reason Edward Heath had for local govt reorganisation was “efficiency” in service provision – but many of those services are outsourced making metropolitan districts less efficient than confederated borough councils or urban district councils where salary levels were lower.

    Salary costs correlated with budget size and grow exponentially whilst the calibre of professional decreases with politicisation. Thus are domestic empires constructed.

    • Acorn
      Posted April 6, 2009 at 2:45 pm | Permalink

      TT. As much as I would like to see a Zero Base Budget exercises in the public sector, it will take years, it is a huge task to take on. You really have to go back to the primary and secondary legislation that sowed the seeds for empires to flourish. Particularly in local government. Officers spend weeks working out what the legislation actually means and how it applies to their type of council. You would be surprised how often the new legislation overlaps or contradicts other bits of legislation.

      At least the government got something right last week, (my opinion based on experience). They created nine new Unitary Councils out of forty four Districts / Counties and did away with 300 senior posts including 35 Chief Execs.

      The sooner the remaining forty percent of England’s population is converted to Unitary the better, (just like Scotland and Wales). One Council covering everything local; representing a third to half a million people with confederation among Councils to supply Fire; Police etc services for economy of scale where it makes sense.

      How many MPs do you need for, say, 140 English Unitary Councils for a new English parliament? How about introducing Land Value Tax to fund them, (replacing Council Tax; Business Rates and Stamp Duty)?

      I must get back on those pills again, I keep having these day-dreams.

  2. Ian Jones
    Posted April 6, 2009 at 7:46 am | Permalink

    Its ok, Mr King will print the money to buy the debt! Problem solved!!!

    It has always been Labours agenda to massively increase spending above taxes and then slowly let taxes catch up in the belief people would be happy to pay for better services. However, they didnt bank on the fact they would have to bail out the banks and that the services only slightly improved as the most of the cash went on pay.

    Labour can borrow from the IMF but in the end the truth will out and the people will realise their living standards have to fall massively. Even taking all the economic growth for the next 10 years wont fill the hole.

    Communism has arrived!!!

  3. Brian Tomkinson
    Posted April 6, 2009 at 7:48 am | Permalink

    What happened to the idea that we needed a fiscal stimulus? Now we are being softened up to part with more of our money in taxation which is fiscal tightening – the opposite of a stimulus. Nothing surprising really as it is clear that no one in government has a clue about what they are doing or how to manage the economy. Sadly, listening to Geoorge Osborne on “Today” this morning didn’t inspire confidence that he has much idea either. He also confirmed indirectly that the longer the election is delayed the better from his view point. Pity for the rest of us.

  4. Vincent Diaz
    Posted April 6, 2009 at 7:53 am | Permalink

    Hi John: While I can not disagree with you insisting in “dismantling parts of the rambling and expensive government administration”, I do have a wee question about the ” removal of most unelected regional government”:

    Is unelected regional government an English thing?

    Thanks, Vince.

  5. Paul Round
    Posted April 6, 2009 at 8:21 am | Permalink

    A good and well-reasoned article, as always.All your views have my support bar one.You say get rid of “most” unelected regional government.It must all go.There should be no spending of taxpayers’ money without democratic representation.This is what our ancestors fought, and in some cases died, for.Tjat is why we also need elected Police Commisssioners instead of Home Office controlled careerists, more elected Mayors and local government wholly financed locally.

  6. alan jutson
    Posted April 6, 2009 at 8:22 am | Permalink

    Your post today is spot on.
    The real situation is being hidden behind a world of nonsense words and phrases.
    The shame of it all is that we can no longer rely upon any form of Government Department to come up with the correct state of play of the Country’s finances.
    For the last 11 years Gordon and his ilk, have systematically, confused their own Party Members, the Electorate, the Civil Service, and the Media with a complicated miss mash of systems, regulations, intitiatives, benefits, taxes, grants and the like, to a degree that I am surprised he even knows himself what is going on.
    It has been said before that we need to get back to basics with our Benefits and Tax systems, not only to save the rain forests, but to get some understanding, sanity and control back into the system.
    let us hope you have such a Plan.

  7. Man in a Shed
    Posted April 6, 2009 at 8:22 am | Permalink

    I’ve long complained about the media’s acceptance of Labour spin on investment.

    Its a typical trick from New Labour to try to make opposition to an idea impossible.

    In fairness Conservative commentators should have been banging on about it for the last 10 years.

    They may have failed to tell us the truth about the financial mess, but the MOD is rumoured to be buying all the riot control equipment it can lay its hands on and the Bank of England pension fund has moved to index linked gilts and out of equity.

    This tells us more about what’s round the corner than any ministerial announcements.

    The underlying problem is the lack of patriotism/backbone in senior ministers and civil servants who put loyalty to career and party above what should be their first loyalty to the crown and its subjects.

    • mikestallard
      Posted April 6, 2009 at 4:07 pm | Permalink

      What are your sources for your fourth para, please?
      Not attacking you: I just would like to know as it is such an important statement!

      Reply: Listening to Children and Families Ministers and Work and Pensions – there were more than 5 million adults of working age without a job before the recession hit. The governemnt itself admits it has not succeeded in getting parents into work on the scale needed.

  8. oldrightie
    Posted April 6, 2009 at 8:43 am | Permalink

    What is the point of all those Treasury briefers, if they fail to tell us the truth about the financial mess, and fail to warn early enough that we are running out of money to pay the bills?

    The point of all Labour’s advisers is to tell us all how wonderful this non-government of zero talent really is. If this lot put half the effort into running the Country as they do feathering their own nests, we might just be a little better off.

  9. RD
    Posted April 6, 2009 at 9:07 am | Permalink

    Poor Baby P was delivered into a world of parent poverty and look at how we failed him. The system of protection we created did not deliver. It failed. His death was another failure of this government’s policies and actions; and not the only one. Let’s not forget Dr David Kelly’s.

    While members of this government claim (inadvertently, apparently) for expenses on porn films and with an alarming attention to detail for an 88p bath plug, I wonder where the sense of morality has gone. To history is my conclusion.

  10. Neil Craig
    Posted April 6, 2009 at 9:19 am | Permalink

    £150 billion is just over £5,000 out of every wage packet in the country. The case for cutting government spending is no longer a matter of intillectual debate but of urgent public necessity.

    On the other hand government spending has gone up over £200 bn, after deducting for inflation, since Labour got in solvency is clearly possible.

  11. Denis Cooper
    Posted April 6, 2009 at 10:12 am | Permalink

    Which are the “six greedy banks”, “nationalised banks which are literally too large for the state to subsidise on the current scale”?

    RBS, Lloyds and Northern Rock make three.

    Bradford & Bingley (about fifteen times smaller than RBS) and Dunfermline BS (about seven hundred times smaller than RBS) no longer exist – they’ve been seized and broken up.

    I guess that if Northern Rock had not been the first to fall, it too would have been seized and broken up.

    RBS should be forced to disgorge NatWest – and in fact I’d quite like to go back to being a customer of the Westminster Bank, as I was originally.

    Lloyds should be relieved of HBOS, which it only took on as a favour to Brown, and HBOS in its turn should then be broken up.

  12. Nick
    Posted April 6, 2009 at 10:25 am | Permalink

    But John, even cutting the spin doctors isn’t going to close the gap.

    I’ve been asking lots of people the same question for a while. The left’s view is that we have to spend money irrespective of the consequences. We can’t cut nurses pay, that would be wrong, but its acceptable to cut other people’s pay.

    157 bn is about 25% of government spending (650 bn). You need to cut government spending quickly by that amount just to get it under control, or the debt will grow. That is just the short term credit card debt. It ignores the long term liabilities such as all the unfunded state pension schemes.

    Only after you’ve done this can you get taxes down.

    Saying you are going to freeze and allow growth to deal with it doesn’t work. Lets be optimistic and say 3% growth in the economy, and freeze government spending. It will take 8 years to get the PSBR to zero. In the process the size of the debt will have increased by over 110% of GDP. Vast amounts of cash will just go in servicing past debts.

    That’s the reality of the situation, you have no choice but to slash the state. You will have to raise taxes, and I suspect you are currently on the wrong side of the Laffer curve. If you have to I suggest a debt tax. A bit like NI, it appears as a new line on your pay slip. A good name for it would be Labour tax. It is hypothecated to paying off the liabilities.

    Nick

  13. Jim Pearson
    Posted April 6, 2009 at 11:37 am | Permalink

    Mr Redwood what about making the statistics people independant of Government, and reportable to Parliment instead. Could stop alot of the spin straight away. Oh and if you do get into power, would you please make a nice bonfire of the printing presses that the Prime Minister/World saviour loves so much. As for the budget, god help us, cos I can’t afford Gordon’s generosity. Keep up the good work.

    • SJB
      Posted April 6, 2009 at 1:27 pm | Permalink

      Nearly 100 MPs are members of the government with many other MPs (of the governing party) seeking advancement or patronage of one kind or another. Consequently making bodies report direct to Parliament will make little difference because the institution is dominated by the government. By contrast, the US has a true separation of powers.

  14. Susan
    Posted April 6, 2009 at 11:51 am | Permalink

    Mr R, you question the failure of the media to report issues properly; I suppose it’s because they’ve become commentators and presenters rather than reporters of fact or investigative journalists. Many of them become the story themselves, eg Robinson; Marr & Peston, and it’s an easy life – so many media parties to attend with the back-slapping ‘in-crowd’.

    Neither the media nor the government are going to tell the truth: the media because it isn’t in their best interests and the government because they are frightened and “pathologically incapable”. This is why the Conservative Party must fight harder for column-inches and airtime to present its policies. Or, better still, all Conservative MPs should begin their own blog (comments allowed) and post a few YouTube videos. The internet is where the Conservatives can be in front of ‘the curve’.

  15. Victor, NW Kent
    Posted April 6, 2009 at 11:51 am | Permalink

    I did a rough calculation today and found that Labour is putting every man, woman and child in the UK in further debt at the rate of about £8 a day or, say, £2500 a year.

    A child born today inherits not only its share of existing national debt but if Labour is unchecked will own a further £40,000 of debt by age 18.

  16. Freddy
    Posted April 6, 2009 at 12:09 pm | Permalink

    Is it a coincidence that this comes straight after the end of the personal tax year ?

  17. Tara
    Posted April 6, 2009 at 12:59 pm | Permalink

    You are right that a massive reform on how we spend our money is needed. A suggestion for one simple cost saving that could be made is the onslaught of government sponsored advertising by agencies. The complexity of the services delivered by government or the tax system now in place has led the government to think that they need to educate everybody on how to use them or fill in the forms. While listening to a commercial radio station recently of the 20 or so adverts in one hour 2/3 of them were government sponsored.

  18. dan
    Posted April 6, 2009 at 1:39 pm | Permalink

    John – do stop calling them ‘Nu’ Labour. They are just Labour, and any other nomenclature will enable the Labour Party to wriggle off their own hook.

  19. rugfish
    Posted April 6, 2009 at 1:57 pm | Permalink

    The UK economy is leaking quite badly. So much so, that according to the Institute for Fiscal Studies it will take a decade to fix. The IFS releases a report today showing that our government has placed us in so much debt that a Freeze on Public spending is needed for 5 years along with tax hikes and reductions in public spending for a decade just to plug the holes in Labour’s leaky UK bucket in order to restore public finances back to the balance Brown had when he entered office as Chancellor back in 1997!

    What a complete bunch of hapless prats!

    Chancellor Alistair Darling admits he got it wrong as the government releases a gloomy report which shows he’s spent 2.7% MORE than he predicted in his last budget, equating to a deficit of £39 billion EACH YEAR which he has to get us to find between now and 2015/2016 just to balance the UK books.

    Yet The Times reports that Darling / Brown have no intention before the next General Election to address the deficit, which they say shows no determination to take tough decisions to repair the economy. They live in hope they can get through the General Election, THEN foist massive cuts and tax increases on the nation whilst remaining in office another 5 years. What a bunch of ‘pathetics’ they are to put party before the state of our nations economy and before the people who will undoubtedly remain bewildered that they have to pay for this. Instead of announcing a stringent number of cuts to their plethora of wasteful expenses, MP’s and public sector gold plated pensions, public spending on such things as ID Cards and National Computer systems which serve no purpose, they want us to pay for all that whilst voting the clowns in again.

    When is the media going to see through this Labour scam and start chasing the b*****s out of office so a decent bloke can make a start on Labours waste which will inevitably have to be repaid by the taxpayers, and in more ways than just taxes by a competent government? Of course if left alone to deal with this situation which Labour puts off until AFTER a General Election, then it makes them look like Mr Nice Guy’s and the new competent government look like Mr Nasty’s when they begin to tackle the immeasurably incompetent economic problems that Labour will so freely leave behind yet once more.

    VAT and Income Taxes will be increasing. A shift in our position in Europe should ensue. Cutting of Quangos which we can’t afford. Job losses of big wigs on big money who make a living from sitting on their big fat a***s using their big mouths and telling the rest of us how we should feel lucky to have them, and all these things and lots more are URGENTLY required to stop that leak Labour made for us!

    • alan jutson
      Posted April 6, 2009 at 2:52 pm | Permalink

      The Labour Budget trick will be the same as it has been for a number of years.
      False figures about the real state of the economy.
      The devil will be in the detail.
      An increase in various taxes to take place from 2010 -2011, 2011-2012, announced so as it looks like they have taken action to balance the books (so whats the problem).
      Then a small givaway, (but blown up out of all proportion, like the 10% tax rate) with the excuse that it will help to stimulate the economy, with some Platitudes and Promises about helping hard working families.
      Result a very, very small tax benefit for some this next year, with massive Tax rises compulsary for the next government (after the election) which are required to help balance the books.
      Real result:
      The Conservatives, if they get in, will be so tied up with attempting to stop bankruptcy, to fix the economy, and to cutting some Public Service jobs and waste, whilst the automatic Darling Tax rises are applied.
      Social unrest may well then happen and they may only ever serve one term.
      Once again they will have the label of the nasty Party.
      Hope it does not happen this way, and that Labour are out of it for many years, but they seem to have so much of the Media in their pockets at the moment that such fiasco could happen.
      The Conservatives have a big, big mountain to climb in convincing the Media and the General Puiblic that they have a coherent plan that works.
      They need to action that Plan now (if they have one) to give it time to sink in.

  20. Savale
    Posted April 6, 2009 at 2:30 pm | Permalink

    Yet more leftrightism.

    John Redwood went along with the rest of them in calling for ever less regulation of the financial sector.

    Take a look at Norway:

    Less child poverty: focussing on child poverty rather than parental poverty works because it generates public support for fairness and focusses attention on important services like those Sure Start provides rather focussing only on incomes.

    Greater income equality: but incomes do matter too and frankly only weirdos want more wealth to pay to fill up their homes with consumerist nonsense when we don’t pay enough taxes to look after the elders in our communities.

    No major subprime liabilities: their banks didn’t loose their heads with short term greed.

    A sovereign wealth fund worth billions: whereas Thatcher blew all our oil revenue, the Norwegians were much more canny and tucked it away in sovereign wealth funds to pay for infrastructure projects when the economy goes through downturns.

    But does John Redwood want us to be more like the Norwegian model? No, he’s just another economic neocon in love with the US. So much like Brown then!

    A planned economy during the war and the reconstruction that followed rescued us from the depression of the 1930s. We need a planned economy now to restructure as an environmentally sustainable global economy. And thank God this time we don’t have to fight a horrific war first.

    Whether they call themselves Labour or Conservative, Socialist or Capitalist, it is time we stopped listening to the letrightists. All they offer are competing versions consumerism – now a dangerous and dead philosophy. When the Berlin wall came down, it fell on both sides and we are now finally realising it.

  21. mikestallard
    Posted April 6, 2009 at 4:23 pm | Permalink

    We all realise that the State has to be cut back urgently.
    We all know that Mr Brown has absolutely no intention of doing it.
    BUT can the Conservatives do any better?
    Lots of their memorable noises come from before the crash, so they are out of date. Other noises have been dismissed as “ultra right’ therefore idiotic. Dan Hannan’s excellent assessment of the NHS today on Fox is an example of this.
    Let me be frank. David Cameron comes across as good mannered, passionate and yet surprisingly uninspiring. So does George Osborne. Very few of the front bench inspire me. Even people whom I admire, like William Hague, or Mr Gove are almost completely invisible.
    When Mrs Thatcher was fighting for power, she certainly inspired me very much.
    When Mr Blair was fighting for power in the mid 1990s, he was always on the attack, presenting himself and his party as whiter than white, more conservative than the Tories etc etc.
    Mr Cameron is deliberately not doing this. I very much respect him for that. He does not – for all his faults – appear to me like a man who ought to be selling second hand cars.
    On the other hand, he doesn’t much resemble Mrs Thatcher either. Remember Edward Heath? Mr Cameron has a much better media presence. But his policies hardly do come over, you know.
    The huge problem is, therefore, can we trust the Conservatives really to cut back the State, really to restore the Police, the Schools and the Health Provision to some sort of sanity? And what about our once excellent armed forces?
    The sober truth, and let’s be honest, is that we just do not know.

  22. Jen Cook
    Posted April 6, 2009 at 10:19 pm | Permalink

    We need much greater scrutiny of the deals made between government and the bankers. If Bill Moyers’ interviews with William Black and William Greider are anything to go by, the banking system, government regulators and minders are colluding to hide massive fraud.

    Should we be paying for this heist? Shouldn’t the culprits be in jail?

    Please see these two great interviews:

    1) Moyers interviews Black (economist & ex-regulator in the S&L era):

    http://www.pbs.org/moyers/journal/04032009/watch.html

    2) Moyers interviews William Greider (best-selling author) on the Geithner plan:

    http://www.pbs.org/moyers/journal/03272009/watch2.html

  23. Citizen Responsible
    Posted April 7, 2009 at 1:10 pm | Permalink

    “Nu Labour has changed the language to try to disguise or support the spending. They call spending, investment”.
    I heard Peter Hain talking on the radio yesterday. He must have used the word “investment” about 5 times when he actually meant “spending”. His closing remark was, “It would be wrong for the government to reduce investment now.”

  24. Adrian Peirson
    Posted April 8, 2009 at 5:27 am | Permalink

    It’s really very simple, we have to get back to work, we have to build things so we can trade them with other nations, they are saving banks, but not REAL industries.

    What exactly do Bankers do, they are not REAL industries, they are meant to support Real industries, who is it that does the work in this country, it is the people, but who has all the wealth, it is the False Industries of Banking.
    Our banking system is a a scam, it’s prime puropse is to syphon the wealth of the Nation, of the world, Upwards into the vaults of a few thousand wealthy elites.
    Take the person who has owned his home for 10 yrs but loses his Job and the Bank reposesses his home.

    The Bank, lent the homeowner £100,000 to buy the house, yet Banks operate on the principle of Fractional reserve banking, so the very most they lent him was £10,000.

    The Homowner on the other hand has but in £5000 Per annum over the past ten yrs.
    That’s £50,000 worth of his Labour, yet he loses his home, who put more into the house.

    We need to abandon Usary and go back to a sound monetary policy, one which cannot be conjured out of thin air by Govts and Bankers for THEIR advantage.

    http://www.youtube.com/user/campaignforliberty

    http://www.youtube.com/user/campaignforliberty

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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