You and I have to repay Gordon’s debts

The current political battle is over how soon we start to rein in the deficit. Labour says we must not do so too soon. Doing anything before the election is to them too soon. The Conservatives say start now and get on with it.

The government says ending the large deficit “early” would jeopardise the recovery. Yet their own figures shows that the UK has been the last out of recession and has the most feeble recovery of all despite receiving such a collosal “fiscal stimulus” and monetary boost. Indeed, over the last five years the government has nearly doubled the money supply, and doubled the national debt, only to achieve absolutely no growth in the UK economy. Who does believe on that evidence that their stimuli bring growth? The 1981 and the 1992 recessions ended when the government took action to cut the deficit.

If you look at what the public are doing, they believe the way to tackle excess debt is to pay some of it off. The private sector, families and businesses, were too deeply in debt in the boom. They are busily paying it off or reducing it at the moment. They do not think the best strategy is to go on borrowing more to “borrow themselves out of the crisis”. So why on earth does the government think it can defy gravity and borrow its way out of its own debt crisis? As Greece has shown in the last week, markets can extract a large price on any government that thinks it can get away with huge borrowings. First they make the debt very expensive, then they refuse to lend as much as the compulsive borrower wants.

Conservatives need to explain to people that when we are told the public debt is increasing and this is a good thing, that debt is our debt. As a French King once said “L’etat, c’est moi” . We have to remind our government that we are the public and the public debt is unfortunately ours. We are the state and we will be made to pay the interest and then repay the capital. They need to say that previous recessions only ended when the government stopped overspending and left some money for the rest of the economy to use.

Commonsense says when you are this deeply in debt you need to stop borrowing. It also tells you that the way to do that is to limit your spending. You can have too many five a day officers and Chief Executives of quangos. So bring on the economies before we all drown in a sea of debt.

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75 Comments

  1. Posted February 1, 2010 at 8:24 am | Permalink

    I watched Cameron being interviewed on the Andrew Marr show. He made no mention of quangos. These unelected bodies are very high in the worries of people to whom I speak. In my opinion, it just goes to show how out of touch he really is.

    • Posted February 1, 2010 at 8:47 pm | Permalink

      This is not just you. In this week's Spectator (very loyal Conservative mag) exactly that charge was made too. The poster said it all; is this man the heir to Blair?

  2. Posted February 1, 2010 at 8:48 am | Permalink

    I've remarked before about the fallacy of the 'fiscal stimulus' argument. Gordon keeps telling us that his borrowing and spending is bringing us economic growth. But if it were really true that government borrowing and spending brings growth, then why aren't we doing it more?

    Labour keep telling us that the deficit isn't an issue, yet they have limit their borrowing and spending. It may be limited to £175bn, but if you follow their arguments to a logical conclusion then a deficit of £200bn, or £250bn, or £400bn would bring even greater growth.

    Sadly, just as disgraceful is the failure of the Leader of the Opposition to convince people that the recession, deficit and anaemic return to growth are the fault of Gordon. Is it amazing that in this global recession, Australia never joined in?

  3. Posted February 1, 2010 at 8:49 am | Permalink

    We all know that the present government is totally incompetent. We all know that the trouble is that one man, who has an appalling track record, is in total charge.
    The question we face as voters is simple: is the next lot any different?
    If they try and run the government in the same way with a team of executives riding roughshod over everyone else and not getting either excellent and respected Whips or themselves into the tea room to rub shoulders with our representatives, then we are not going to get anywhere.
    And not getting anywhere means joining Greece and Spain as banana dictatorships.

    • Posted February 1, 2010 at 10:32 pm | Permalink

      What is so frustrating is that Cameron & Hammond – both sincere if rather faint-hearted men it seems – keep talking about 'cuts' with the objective of 'sending the market a signal'.

      Is it not important to cut waste and expenditure in order save taxpayer pounds in the long long haul back to a balanced budget?

      And watchng the Daily Politics today why does it take 4 questions for Hammond to say 'We plan to reduce the deficit by 2014 by MORE than Labour's stated 50%'. Even then he couldn't bring himself to use English as plain as this.

      Keeping one's powder dry is fine in the main but the Tory leadership is looking simply evasive. As we said earlier today, we don't like the way this is shaping up. Get a grip!

    • Posted February 2, 2010 at 11:29 am | Permalink

      personally if I knew it would get rid of Brown and his bunch of incompetent(s) (word left out) I would vote for a chimp.

  4. Posted February 1, 2010 at 8:53 am | Permalink

    "Commonsense says when you are this deeply in debt you need to stop borrowing."

    If only we had a few more politicians with commonsense.

    Stopping borrowing does not equal slightly ease off the massive, unsustainable debt that we are currently running up. Reading the comments from the Conservative leadership over the weekend I really wonder if the Conservatives saying 'start now' is simply political posturing or whether we really will see policies of the kind implemented in at the start of the 80's on both sides of the Atlantic.

    One thing is for sure, if the next government does pussyfoot around the issue the decision will be taken quickly out of their hands so the main issue isn't that we reduce borrowing it is how do we reduce our borrowing and, ultimately, our debt – increase revenue via tax increases or stimulate the economy with tax cuts in the private sector. One would hope this is the defining Labour vs Conservative issue.

    • Posted February 1, 2010 at 2:05 pm | Permalink

      Agreed. An announcement closer to the election date, that the Conservatives will cut taxes and thereby allow all of us to spend more of our own money as we see fit, would be very appealing to a broad range of the electorate. A low flat rate of tax for businessses ( along the lines of the 10% flat rate of tax for businesses in Dublin) would attract a lot more foreign investment and thereby create jobs. An immediate freeze on public spending and pay would probably be sufficient for the markets, then the new government could get to grips with more radical action to cut waste.

      • Posted February 1, 2010 at 4:23 pm | Permalink

        I agree with most of that save for the idea that merely cutting waste will be sufficient. The state needs to be culled en masse and the perfect financial cover is available right now.

  5. Posted February 1, 2010 at 9:56 am | Permalink

    Is it possible that even the most dyed in the wool socialist recognises that they can incrementally borrow no more. It will be a herculean task to simply fund the existing debt.

    Our problem now, and this is feared even by Keynesians, is that when the stimulus stops we will continue with the recession where it left off.

    The nitro glycerine of rising interest rates has already been flagged , but worse, we go back into a recession heavily indebted and with no spare resources to help those most disadvantaged.

    Devaluation of sterling will reduce the impact of the debt but it will leave us all poorer and not help our exports which have been so sadly neglected over the past twelve years

    It would seem that we now face the most damaging recession in our history caused by the folly of Gordon Brown, and he thinks that he has the good fortune to blame an incoming Conservative government for withdrawing the stimulus.

    No matter what happens it would seem inevitable that with the quality of the current leadership of all three main parties we will be unable to avoid the so called double dip so, maybe we should just think the unthinkable and let Brown in for another four years just to ensure the blame gets pinned exactly where it should be.

    • Posted February 3, 2010 at 11:00 pm | Permalink

      How bad would things be after 4 more years of lying Labour. A total economic meltdown with anarchy and mass poverty & joblessness is not inevitable under a conservative government, with Labour I am sure it is!

  6. Posted February 1, 2010 at 10:19 am | Permalink

    You are always lucid and sensible in your blog posts. If only your leadership were the same.

    This weekend we have heard David Cameron saying that there will be no "swingeing" pay cuts (I'm not sure what the word swingeing means, but I've worked out what he means from context).

    This is appalling. The electorate are now asked to pick between Labour with a policy of "do absolutely nothing until after the election, and then we'll have a little bit of cutting", or Tory with a policy of "we can't do anything until after the election and then we'll have a little bit of cutting".

    "Swingeing" cuts is exactly what the country needs. A deficit of 200 billion pounds is not going to be dealt with by tinkering around with the paper clip order.

    The private sector (me included) have suffered pay cuts. I have personally lost
    – Private pension
    – Health care
    – Sick pay
    – I have had no pay rise for two years.
    While I can't say I'm delighted, I am pleased to be working for a company that took action to save itself when recession hit. The company I work for cut staff harshly and quickly early on. That action is what saved the entire company. Those poor souls that lost their jobs are being spat on by both Labour and Tory who refuse to impose that same pain on the public sector, leaving the private sector (through the loss of their jobs) to pay for it.

    You all (your leadership in particular, since it is likely that you'll be in power) need to grow some balls and start explaining to the electorate that you are going to cut the public sector to match the private sector. That it is unfair (Labour's favourite word) for those in the private sector to be suffering at the expense of the public sector. You want inequality? There it is. If you think those measures will be unpopular you don't deserve to be politicians.

    – Cuts between 0% and 20% applied progressively according to salary. None of us are going to be upset at a 200,000 a year council CEO getting his wages cut by 20%.
    – MPs should take the pay cut too. Lead by example and apply the cuts to yourselves just as much. That will give you the moral authority. (Back to my example: our managing director is paying himself one pound a year)
    – Measure every public sector worker by this measure: number of contacts with a member of public every day. Managers can add up the total underneath them and divide by 20. Anyone with a public-number less than 10 can be made redundant. I have friends who work in the public sector, and they work in departments were there are ten people doing the work, and there are two managers. That kind of waste is appalling. This doesn't happen in the private sector.
    – Sick pay. My wife is a librarian. Never have I heard of such appalling sick pay abuses. Sickness rates are 14%! I understand that that is not unusual for the public sector. In other words; 14% of the staff are there only to cover for those that are sick. The private sector rates are significantly lower.

    If you lot (the Tories I mean) started a campaign making these direct comparisons, you would have no trouble making the cuts popular. Tell the world that if they are finding times hard, that is because the public sector won't get off their backs.

    You will know the above better than I; I don't doubt that you are utterly ignored by your teflon-coated leadership. I can only hope that the response of the markets to any watered down action on the deficit will provide the necessary wake up call before the UK ends up as Greece/Iceland 2.0

    • Posted February 2, 2010 at 12:22 am | Permalink

      Well said that man, superbly articulates the anger many of us feel after the lame performance of your leadership this weekend. Take a look at the latest ComRes poll with the gap down to 7%, don't Cameron and his crew realise that if people think they are mimicking the Labour approach then they might as well vote for the real thing? We deserve better than this

    • Posted February 2, 2010 at 6:43 am | Permalink

      Ron Paul in one of his books recently highlighted the over-manning in the public vs private sector. From memory, the New York public school system employs about 6,000 bureaucrats to run their schools. The catholic diocese educates about 20% of the number the state does in NY. Can you guess how many they employ to achieve the same outcome…

      ~ ~ 29 !

      The noises Mr Cameron has been making give me no confidence he has the willingness, (much less sees the necessity and advantage) of taking the action needed to roll back the state.

      Again, it seems to me to be a massively popular policy being ignored by all the major parties and thus we are again, effectively disenfranchised.

      • Posted February 2, 2010 at 8:29 pm | Permalink

        It is difficult to make comparisons with the USA.The American health sector carries a deadweight of bureaucrats just to do the billing and then there is the private health insurance industry which is massive while Big Pharma does n't exactly bring in the medicine at low cost,hence all the trips to Canada made by those on long-term medication.Look at how
        efficient everything American is.

        • Posted February 3, 2010 at 3:31 pm | Permalink

          The systems between our two countries are of course very different, but what I was comparing was private vs public education in the USA.

  7. Posted February 1, 2010 at 10:35 am | Permalink

    The polls are pointing to a hung Parliament as the self-interested of Government workers realise they may lose their jobs under the Tories. Even Labour realises it has to roll back the state to prevent a Gilts crisis.

    Manchester Uni say 57% of new jobs since 1997 were Government funded. 79% in the North East and 81% of womens jobs were too. Manchester Uni are saying the UK is anemic and incapable of creating enough private sector jobs.

    How can we pull ourselves out of recession if we cannot create private sector jobs? The conditions are not right for real job creation. Savings will not help that, even cutting Government jobs will not help that.

    Stuck in recession with no new private jobs. Being forced to cut Government spending and jobs to keep interest rates down. Inflation being imported out of our control. A hung Parliament to produce a dithering Government.

    Crisis what crisis?

  8. Posted February 1, 2010 at 10:38 am | Permalink

    There is plenty of scope for economies to be made and you can just guarantee that it will be the essential frontline services being made to pay the price. This is because:

    – the State employees with higher pay scales and the most clout will want to preserve their own jobs.

    – it is yet another opportunity for them to cause offence to the taxpayer as they seem to love doing.

    I'm pretty sure that public opinion – rather than being ignored as some think – is taken on board and that policies are devised to deliberately run counter to it.

    We have an establishment which hates the British – therefore we are growing to hate the establishment.

  9. Posted February 1, 2010 at 10:48 am | Permalink

    JR: "Conservatives need to explain to people that when we are told the public debt is increasing and this is a good thing, that debt is our debt."

    The question I keep asking is why your party is so poor at doing so!

    • Posted February 1, 2010 at 1:06 pm | Permalink

      The answer is: which person is responsible for communicating economic policy in David Cameron's shadow cabinet? If you think George Osborne alone – then you blame him. Or, is his hand forced, by David Cameron, who may not want to scare voters …

      • Posted February 1, 2010 at 5:53 pm | Permalink

        Which is worse, scaring the voters or scaring the gilt markets? Today, Philip Hammond, Shadow Chief Secretary to the Treasury, declared that the Conservatives start on reducing the deficit in 2010 would amount to the grand total of £1billion!!! Insignificant in the scheme of things. What scares me is that no one has the courage to be honest about dealing with the debt crisis before the election (except of course our esteemed host). I become more convinced that in a perverse way they would all like the IMF to be called in to tell them what must be done so that they can hide behind them when making their "tough choices".

        • Posted February 1, 2010 at 6:23 pm | Permalink

          I was a teenager in the '70s, and I keep getting this dreadful feeling of deja-vu………

        • Posted February 1, 2010 at 6:52 pm | Permalink

          Most voters don't like the truth, I'm afraid. Well the truth will come to voters if they don't acknowledge the fact we can't go on the way we have been…

      • Posted February 2, 2010 at 9:10 am | Permalink

        Cameron is obsessed with tactics as Nornan Tebbit points out in his article in yesterdays Telegraph

        Ever keen to woo middle England with soft socialist policies he misses the point completely. Britain has always had a right wing electorate that have occasionally been won over by the charisma of a socialist leader. In my time it was first by Wilson who was pitted against Home and next Blair who was fighting a badly wounded Major.

        If Cameron continues to peddle soft socialism at the cost of all else then he risks losing the election: we already have a socialist party, and we don't like it much.

    • Posted February 2, 2010 at 10:14 am | Permalink

      There are a few political facts: –

      1) He can't say he is going to cut spending by 20% because no Government worker is going to want to vote Tory. But saving money is not an all or nothing monolith- there are plenty of words and shades that can be described.

      2) He must achieve all his cuts and show benefit by the end of the first term. He must break the civil services instinct to grow. To do this Cameron must tackle the senior management – and take the heart out the civil services strategic vision.

      Then there are the financial facts

      1) Spending must fall be about 20% to stop the gilt markets raising interest rates. Interest rates and inflation will be rising uncontrollably over the next five years – due to global demand

      2) Global competition will increase over the next 5 years meaning profit (and taxes) will be harder to come by. We cannot rely on retail keynsianism like we did in the last 10 years.

      Then there are the implementation facts

      1) It's easier to change the small print on things like pensions and contracts to save money in the first two years. There are plenty of wasteful projects, contracts and quangos that can be easily removed. Conservative councillors know of lots of local Government waste. Ministers need to recriut as many MPs as possible to delve into the the details of their departments to look for waste.

      2) A large percent of the 20% can be lost through natural wastage. There is enough experience in the Conservative party to know how to restrucutre and lose jobs with the least impact.

      I think a 20% (30% is too much) reduction is possible.

      Then there is the REALLY hard bit – which is to replace them with real sustainable jobs. Then comes the other difficult bit – to start spending more money again, but this time more efficiently in real investments this time.

  10. Posted February 1, 2010 at 11:14 am | Permalink

    Did anyone see the Politics Show yesterday where Mandelson was interviewed. It was a party policitical broadcast for the Labour Party. Mandleson was simply asked open questions and allowed to say what he liked!

    • Posted February 1, 2010 at 4:25 pm | Permalink

      Are you telling me that the BBC, the state funded broadcaster that I pay for, on pain of prosecution is not fair and non-partisan? I just can't believe it,

      No wait…..

  11. Posted February 1, 2010 at 11:50 am | Permalink

    The current ding dong between the political parties about when to start to cut spending is all a waste of breath. My information, from a reliable source, is that the civil service is planning to cut departmental spending in 2020-11 by very significant amounts – such as 20% to 30% – starting next April.

    The only point that I can see is to generate a soundbite advantage. The reality is very different.

  12. Posted February 1, 2010 at 12:01 pm | Permalink

    Quantitative easing does not create debt so lets have some more of that.But not given to the banks in cheques or electronic payments with nothing whatsover behind them but given to the people preferably in time-limited cash withdrawal cards that have to be spent and not used to inflate property prices ,the British vice. Or the Guv could pay for big infrastructure projects with QE cheques ,then because land values will rise they could validate the operation by taking money out again with LVT.Not a zero-sum process because society will benefit from the real wealth of the new infrastrucure created,which everybody can access because they will be able to move in to the enriched areas,not banned by the usual apartheid of high property prices.

    • Posted February 1, 2010 at 1:16 pm | Permalink

      A land value tax simply replaces the Ricardian rentier by the state. If the state extracts the full Ricardian surplus then you have pure communism. High property prices are caused by the copious availability of apparently cheap finance (apparently because the real cost will mostly be imposed before the loans are paid off either through high interest rates, or through capital loss).

      QE at present means that the government pays its bills without having borrowed or taxed the money to do so: it is debasing the currency. Selectively, that benefits its employees and contractors at the expense of the rest of us. The decline of the Roman empire was hastened by just those tactics. Giving everyone "free money" will just ignite the fires of inflation faster while racking up debt on imported goods.

    • Posted February 1, 2010 at 4:55 pm | Permalink

      QE is just another name for a tax on savers and pension funds. The money printed means existing money buys you less as the extra money bids up the price of what you want to buy. At the moment this is offsetting deflation so the "inflation" number is no too high but we are seeing significant inflation in assets.

      The message of QE is that you should borrow as much as you possibly can to buy your house as the Bank of England will bail you out everytime and if you save you will end up paying for it. The UK is a busted flush.

      • Posted February 2, 2010 at 11:19 am | Permalink

        All very well but the Guv's tactic in paying for new money with unsecured cheques in only what the banks do now.You don't think that banks debit a saver's account when they advance a new loan do you? Its an entirely new sum of money that they have created.Anybody else issuing a cheque with nothing to back it would be arrested.
        The Guv is just getting in on the act,doing what the banks do.The solution is to nationalise the banks properly and to use interest rates as a tax on money creation and replace taxes on work and enterprise.
        Now that the banking system has foundered, like sinking the Titanic without hitting an iceberg, it is about time hard facts were faced about where money comes from.The banks don't find it under gooseberry bushes.

    • Posted February 2, 2010 at 6:55 am | Permalink

      1. Spending does not create wealth. It is only possible as a by-product of production and savings. Anyway, what if everyone just used their time-limited cards to buy imported plasma-screen TV's, how would this help the economy?

      2. Government has no money per se and QE is merely a stealth tax.

      3. Hence government infrastructure projects, as well as stripping money from the private sector and destroying jobs or stopping them being created, are notoriously prone to political mis-allocation as well as horrific cost over-runs.

      4. Recession is when the economy corrects mis-allocation of resources, thus it needs to be allowed to remove failing companies via bankruptcy, not have them supported by taking cash via taxes of otherwise sound companies, which of course enfeebles them.

      Thus recession is not the problem it is the solution, the boom of excess consumption was the problem, this is the hangover; you cannot cure the hangover by drinking more! You merely delay recovery.

      • Posted February 2, 2010 at 12:23 pm | Permalink

        How does the government building infrastructure destroy jobs?How does it strip the private sector? New railways and roads bring people into areas and their spending reaches private sector entrepreneurs.
        A lot of this argument smacks of Ludwig Von Miserabilism ( founded on the acute observation if you don't have much money around you won't have much inflation.No shit ,Sherlock!)As to the suggestion that recessions are necessary to clear the market: this is no better than the old Malthusian idea that we need wars to cull surplus population.

        • Posted February 2, 2010 at 1:53 pm | Permalink

          Because money is only a measure of wealth, not wealth itself, so increasing the amount of it merely dilutes its worth. So when a government does anything it has to get the money from somewhere. If it takes say £10B to build a road, that £10B is not available to the actual wealth producers. It also pushes up the cost of remaining funds.

          Now this is not to say road building is bad per se, it's just when the government does it, its usually mis-allocated and massively more expensive than if it were done by the private sector. Think of all the government infrastructure projects coming in under budget like the Millenium Dome, Scottish parliament building and the Olympics for example.

          You are correct, inflation is a monetary phenomena. You seem to disparige this rather than offer evidence to the contrary.

          You say recessions are not inevitable at the end of an unsustainable inflationary boom but fail to say why you think a permanent boom is possible.

          Comparing Von Mises to Malthus seems nonsensical.

  13. Posted February 1, 2010 at 12:26 pm | Permalink

    "Labour loads us with another £500 million debt every day – Go now"

    A slogan I would like to see the Conservatives use.

    To prevent future governments doing this I would like to see a Bill of Rights restricting government plundering of the economy. Milton Friedman did some at the end of his book Free to Choose including a balanced budget. http://a-place-to-stand.blogspot.com/2009/03/cons

    I would also add the right of the people, by referendum, to decide what proportion of GNP the government may spend. I have reason to believe, if given the choice, the median choice would be underv 20% – that couldn't be reached in 1 go but public spending could be absolutely capped , in all departments & reduced in some till economic growth caught up.

    • Posted February 2, 2010 at 12:17 am | Permalink

      I agree with the balance budget.

      if you want to blow 16 billion on expensive elephants like cross rail, save up for a while. It won't change the economics, its not viable.

      However how about going the whole hog. Lets put politicians under the cosh of the electorate.

      1. All bills have to be approved by the electorate. Taxation included.

      What does that mean? It needs to be cheap, and referenda by proxy is the way.

      You nominate an MP to be your proxy. Ideally, at least one MP will over the proxy vote to be cast according to your wishes, where you vote over the internet. That way they can be controlled.

      If they pork they lose nominations.

      We can abolish the House of Lords and save the 2,000 pounds a minute that it costs to run the place.

  14. Posted February 1, 2010 at 12:27 pm | Permalink

    Mandelson was pressed into action early this morning in Attack Dog mode after the seeming confusion of the Cameron message over the weekend.
    Surely the leadership is not losing its way after the dividing lines were so well drawn? Let's hope they have their reading glasses on and are focused on this site right now!

    Why does DC never seem to refer to the enormous WASTE when he's charged with 'slashing spending and jeopardising the recovery'? Why doesn't he pin the government on the ridiculous jobs for which they are still recruiting? And the over-indulgence of the Quangos? Etc ad nauseum…
    Come on David – get your act together again!

    Anyone from the real world of business knows that the soft underbelly of waste is the first target of any cost reduction program and we must start NOW.
    Are we seeing the signs of too little experience by our leadership in this real world that many of us – including the author here – know full well?

  15. Posted February 1, 2010 at 12:58 pm | Permalink

    A succinct and timely article, John. Along with a number of other commentators I must admit that I was disappointed to hear Mr. Cameron taking an apparently very relaxed view on the budget deficit. I have no idea if he really means what he said, or if he was just talking politics. To judge by the declining support for your party in the polls, this is not a wise tactic. Voters genuinely need to see some of the fabled 'clear blue water' between the two main parties, or many swing voters will simply decide to stick with the devil they know, God forbid. Fiddling in the margins with issues like inheritance tax, or protecting yourself against burglars, is at best of marginal interest and at worst quite irrelevant to many people. You folk need to give the electorate some real meat to chew on, or else I am very afraid that the status quo will win the day in May, and we will be saddled with Gordon Clown for another 5 God-awful years.

    • Posted February 1, 2010 at 7:59 pm | Permalink

      Yes, I just don't get this proclivity that Cameron has for making a fuss about (relatively) nothing. Why has he so much to say about so little?
      Or maybe he's relying on the luck of being Chicken Little in a story I used to read to my children; quite apposite-

  16. Posted February 1, 2010 at 1:03 pm | Permalink

    Why is David Cameron backtracking, as his comments seem to suggest? It seems to be a simple case of trying not to scare voters. I don't know … maybe if people are stupid enough to vote for more QE in the mistaken belief that the housing bubble can get 'back to normal' … then they really will be in with a shock. All bubbles go through phases, we've had the euphoria phase, we've had the drop off, now we're going through the "back to normal" … G Brown and Co. need to time their election very carefully, because the "back to normal" phase won't last long.

  17. Posted February 1, 2010 at 1:54 pm | Permalink

    You and I will never repay Gordon's debts, because the increased taxes to do it will merely make us either leave, or take an extra hour's leisure rather than do that extra hour's work. The scandal of living in the UK for me has never been the level of taxes, but how little benefit contributing taxpayers derive from them. Socialists cite the Nordic welfare states – but the big difference here is that many benefits are universal, and money is spent on infrastructure that all can use and see. In the UK, all that happens is that the government pisses the money away on a pointless quangocracy and the subsidisation of feckless lifestyles in the name of political correctness. Same goes for international development; why not cancel the whole of this lining of the pockets of kleptocratic 3rd world dictators and give the money to UK Universities, or to the defence budget.

    No, whether it's another 5 years of Brown, or 5 years of the new Timid Tories, eventually the debt will be inflated away 70s style, which is where we are back to politically.

    History repeats itself. First as tragedy, and then as er, more tragedy……

  18. Posted February 1, 2010 at 3:02 pm | Permalink

    LVT? – I like that idea – why does it get so little coverage?

    • Posted February 1, 2010 at 6:17 pm | Permalink

      Because all the political parties, bar the Co-operative Party and the Green Party, are scared stiff of doing anything that might stem the flow of unearned capital gains AKA house price rises to the homeowner bloc vote that determines elections.LVT is just a variation on Council Tax but up to date and on land values only.Because you get insults from the right like" its pure Communism "see above(rather an insult to those who suffered the ill effects of Sovietism I'd have thought) and attacks from the left (because its not Communism,funnily enough), we have to forgo a simple tax that would depress the amount of land value people have to pay for somewhere to live: about 100k a pop on top of what you pay for your bricks and mortar.You also have to forgo free infrastructure since infrastructure ,particualrly roads and railways puts up the price of surrounding land and LVT can collect enough of it to pay for the projects.
      Things have got to change in this country.

  19. Posted February 1, 2010 at 3:04 pm | Permalink

    http://www.bbc.co.uk/blogs/dailypolitics/andrewne

    How do we untangle ourselves from this enormous debt ?

  20. Posted February 1, 2010 at 3:33 pm | Permalink

    Alas, we cannot repay the debts. There is already a large fiscal defiicit and the government has shrunk the tax base by permitting large scale tax avoidance and evasion by many of those who would contribute a great deal in any normal society. For those of us who cannot take advantage of these arrangements we cannot spend more because we do not have it to spend and our real incomes have been cut and will be cut still further as the hidden inflation takes its toll. We are now a nation of debt slaves in one form or another.

    • Posted February 1, 2010 at 4:45 pm | Permalink

      Tax avoidance is perfectly legal.

      The best way to stop it is to simplify the tax code. However, our masters constantly add more and more complexity, and are then surprised that the richer amongst us can afford accountants that can steer a yacht through the created holes.

      It is the duty of every citizen to avoid tax when they can. Otherwise what is the incentive for a government to simplify taxes?

    • Posted February 1, 2010 at 6:13 pm | Permalink

      Demetrius, why do you think small businessmen like myself employ a clever accountant? Could it be because we resent the fruits of our labours being looted by incompetent governments? Could the fact we get nothing useful back in return have something to do with it? Why should I work to the benefit of the workshy? Or to promote a view of society that I disagree with? Go ahead, close more of the so-called loopholes – it will have no effect. I will just work less hours, or eventually leave the country for a place with proper property rights. Whatever you believe, I don't believe that all the money in the economy belongs to the government, and I should be grateful they allow me to keep some of it.

      Labour have not shrunk the tax base by permitting large scale avoidance or evasion. They have shrunk the tax base by ruining the real economy with punitive taxation, regulation and bureaucracy, whilst at the same time encouraging an orgy of debt fuelled speculation and unsustainable consumer spending.

      And therein lies the reason why I am "Fed up with Socialism"

      • Posted February 2, 2010 at 8:07 pm | Permalink

        Too right, the money does not belong to the government and racking up tax rates is asking for evasion and to force business into more active avoidance. The balance is to have reasonable equity in what you pay related to what you get. I recall all the many and various devices of the mid 20th Century when rates were very high and the disincentives that arose. A very substantial problem now is that the big money has gone offshore and that the government has handed all the advantages to that small group at the expense of working business, especially the bedrock smaller firms. If they wave goodbye to the large taxpayers and then impose more on those who are left inevitably action breeds reaction. You indicate the size of the mess that can result. For Andy yes, a tax code is all the better for being all the simpler.

  21. Posted February 1, 2010 at 5:50 pm | Permalink

    Again, there is a common theme in many of the posts here. Is the Tory leadership up to the job?

    Maybe it's all one big act of being a bit naive and a bit "nicey nicey", but seeing George Osborne yesterday on TV one does have to wonder whether he has the gravitas/guts/maturity/depth of understanding to deal with this. The same for Cameron. These two seem like lads in a mens' world, and will either go down or have to be led along in government by more experienced puppeteers.

    On the other side of the ring we have people with the guts to keep their foot on the accelerator until they crash, in the name of a "fairer society" as they see it. So long as we all crash and burn, they don't care. There'll always be a cosy job somewhere for them "serving" the public. And there'll always be people who'll go along for the thrills until the crash.

  22. Posted February 1, 2010 at 6:04 pm | Permalink

    Leerd Mandelson today re David Cameron and George Osborne – Laurel and Hardy .

    Watch for this being repeated at PMQs and ad nauseum by Ministers.

    The Tories have to wise up to the fact that they are being mocked and made a laughing stock.

    Like the 'sleaze' of the 90's it will resonate.

  23. Posted February 1, 2010 at 7:21 pm | Permalink

    maybe if we didnt have so many (foreign-ed)outsourcing companies stripping the country of its intelectual property, paying minimal tax in this country, abusing their staff and visa system, and displacing brits from the tax paying workforce by flooding the country with workers engaged in unfair practises

    then maybe that would help a little

    still waiting to hear what the conservative immingration policies are for the election, do let me know if you find out

    just a thought

    Reply: They have pledged much tighter controls on numbers and borders.

  24. Posted February 1, 2010 at 7:23 pm | Permalink

    As usual todays blog makes much sense.
    The problem is that every time a conservative cabinet minister pops up with something to say they appear to have changed their minds. I am afraid that Cameron is showing every sign of having no policy at all and every indication that he is totaly unsuitable to run the country. Given his background in PR it beggars belief that he could have sanctioned the apalling poster that was launched with such a fan fair. I thought it had been financed by the Labour party!
    We have one of the worst governments in modern times yet the opposition are starting to make labour look good again. I could cry!

  25. Posted February 1, 2010 at 7:51 pm | Permalink

    At a guess I would say that 80% of the right of centre blog contributors are dismayed by Cameron and cannot understand why he is choosing to shoot over the bar from 3 yards out time and time again. Comparisons have been made with Heath and there are similarities with Wilson. Lord Home came close to winning in 1964 when turnout was 77%, the Liberals were close to extinction and there were no spoiling parties. This mendacious government is going to test DC's uncertain policies to breaking point.

  26. Posted February 1, 2010 at 8:43 pm | Permalink

    I think Mr Cameron is wobbling a bit on this debt issue and George Osborne (And yourself) give out a much clearer message to the public.
    What is more I don’t think that this rather woolly message will benefit the Conservatives and will, and is, being seized on by the media.
    We’re slow pulling out of recession – I think at 0.1% it’s too marginal to call the recession over, as it must be within rounding errors.
    The UK is too dependent upon the City. More needs to be done to promote manufacturing, evident in our balance of payment figures, but not by s dishing out grants to various causes, but by encouraging the best and the brightest to make this a career choice.
    Funny how when I was a kid, the BOP figures were deemed to be so important that they were flashed on the TV screen in the middle of programmes, now they barely get a mention. Economists now seem to think that if you can afford the deficit it’s Okay

  27. Posted February 1, 2010 at 8:50 pm | Permalink

    FROM: Ian Pennell, ALSTON, Cumbria.

    Dear John Redwood, MP

    After a tranche of recent Opinion Polls showing the Conservative lead over Labour narrowing, it is clear that the British public as a whole are not so sure that the Conservative Leadership has what it takes to rebuild the British ecocomy. David Cameron's performances against Gordon Brown in PMQs have, of late, been rather poor, so it would seem and the electorate must be aware of that.

    People are neither too enamoured of our Leader when he backs off commitments on spending cuts at every sign the polls (or other events) seem to go against him. Making policy on the hoof does not mark David Cameron out to be a good prospective Prime Minister, only courage and sticking to ones guns against short term opposition does that. That does not mean that some good, popular policies are not necessary; they are very much but it means that we need a few well-costed and well thought through policies which we need not to waver from.

    There are quite a few reasons why the Conservatives are slipping back into hung parliament territory. I can assure you, Sir that spending cuts is not the main reason. It is the economic recovery, with people thinking that Labour has helped bring the country out of recession combined with the lack of a clear, attractive narrative from the Conservatives. There was a survey, the results of which were published the other day in the Daily Telegraph, which concludes that Britain as a whole has become more right-wing over the last 15 years or so. It means that the electorate are not so anti-conservative in their thinking that our Leader David Cameron seems to think or fear! And he needs (quickly) to take that on board.

    The TaxPayers Alliance published a book titled "The Bumper Book of Government Waste: 2008" a couple of years back showing clearly how fully £100 billion could be slashed from public spending without harming essential public services. From that £100 billion, £50 billion could be used to cut the deficit, £30 billion to plug the spending gap Labour has allegedly found in the cost of Conservative policies to date and the remaining £20 billion would fund a 5 pence cut in income tax for everybody in this country. Tax cuts win votes and they are uniquely Conservative. If David Cameron announced the cuts suggested in the TaxPayers Alliance publication to fund the suggested policies there may be a short term drop in the polls, but if David Cameron stayed the course he would find the Conservative lead rise to much higher than before.

    Three main things would happen with such a series of policies. International investors and the intelligent citizens of Britain would be reassured that the Conservatives are serious about reducing Britains debt. Secondly, Labour's attempts to tear apart Conservative economic policy would be forestalled. And finally, millions of families and businessmen and women will have a very strong reason to vote for us.

    David Cameron and the Consertvative Leadership need to get this Taxpayers Alliance book and start seriously getting their act together over debt reduction and tax cuts. Time is running out fast and many loyal Conservative Members (me included) will be thoroughly disenchanted with our Leader if we lose the forthcoming election and permit Labour five more years to totally mess up the British economy!

    The Conservative Leadership must stop trying to make the Party totally immune to all Labour attacks and spend more time tearing into Labour's mismanagement of the economy with much greater zeal. Labour accuse us of having a £30 billion funding gap; what about their £178 billion funding gap!! They attack us over a possible VAT rise (which we have not confirmed yet!), we should attack them over the NI increase, the 10% tax on low-paid workers, numerous stealth taxes and raiding pension funds- the cheek of it; we cannot, MUST NOT allow Labour to get away with it.

    Sir, I am worried about where we are going. Tell Sir David Cameron to get his act together quickly, before we lose the election and Britain goes down the pan. Tell him he has to up the game in policy, to be braver and to attack more in PMQ- and WIN. And do Sir give Sir David Cameron a thorough dressing-down if he loses any more bouts at PMQ.

    Best of luck!

    Ian Pennell

  28. Posted February 1, 2010 at 8:52 pm | Permalink

    So it's a choice between Dave's Dithering Timid Tories and Gordon's spend spend spend New Labour apparatchiks. What a depressing future Britain faces. May the good Lord help us all!
    Whenever I read the Redwood blog I usually find myself saying yes, yes, yes! Why oh why aren't these the commonsense policies the Conservatives are daily communicating to the British electorate?
    Where has the real Conservative party gone?

  29. Posted February 1, 2010 at 11:25 pm | Permalink

    John

    We really do need to know if David and George are on the same wavelength as you.

    Recent comments suggest they are not. Please reassure us and ensure their public statements do the same.

    Pepole want change not muddled thinking – make it clear and the polls and more particularly the election itself will ensure change is achieved and the last 12 dreadful years can begin to be unravelled.

    Comments such as Andy's (9:19am) show how important change is.

  30. Posted February 2, 2010 at 12:13 am | Permalink

    One of the reasons why Labour has run up this debt is they had to polugh millions into the NHS to save it from collpase when they came in in 97 they wouldn't have had to do this if you hadn't of ruined it

  31. Posted February 2, 2010 at 12:32 am | Permalink

    I fancy that "fed up with Socialism" is right. The debts will not be poaid for. UINlikely though it may seem now, the debt will probabaly be eroded away throuigh inflation. Too many people have a vested interest in this solution, just as housing shortages persist because too many have a vested interest in house price inflation. I do not expect prices to rise at 10 per cent a year but 4-5 per cent over 10 years will make a big impact on debt (while sapping the economy with high money interest rates),

  32. Posted February 2, 2010 at 3:15 am | Permalink

    We should have started reducing public expenditure as soon as property prices started declining some 18 to 24 months ago, keeping monetary policy reasonably loose but not too loose.

    No one believes that the next government will leave the 2010/11 budget deficit at the same level as the 2009/10 level. If Labour wins, they will carry out deficit reduction mainly by means of tax increases, with VAT, income tax and NI all going up.

    I trust that a Conservative government will reduce the deficit mainly by means of public expenditure reductions. Over the course of the parliament, the real reduction will need to be in excess of 20% overall. Because debt interest will be increasing, the money available to the spending departments will need to be reduced by 23%.

    I am a bit worried that the Conservative front bench appear to be wobbling on the need for serious expenditure reductions – and it isn't doing them any good in the polls. Be resolute; it will pay off.

  33. Posted February 2, 2010 at 8:38 am | Permalink

    Official interest rates remain at 0.5% – meanwhile, in the real world "Bank loan rates hit 9-year high" (http://www.telegraph.co.uk/finance/personalfinance/7127712/Bank-loan-rates-hit-9-year-high.html).

    Some people are saying we need to keep interest rates low. It would be nice if we had low interest rates to keep in the first place.

  34. Posted February 2, 2010 at 9:04 am | Permalink

    I would like the Tories to say now, that any decisions made by this government between now and the general election will be subject to review. Say it now – make it obvious that nothing Gordon Brown does from now on is binding on them.

  35. Posted February 2, 2010 at 10:37 am | Permalink

    The only Conservative campaign I have *ever* over-heard being discussed in the pub was the Born with Dad's eyes, Mum's nose, Gordon Brown's debt campaign.

    We need to hit the electorate with this again and again.

    Labour will say (and spend) anything to hold onto power. ( Just see Brown's death bed conversion to voting reform ). And if they see the argument moving towards debt reduction they will say that also. But it will be harder to do this once the official campaign starts.

    We need to be brave and honest. I think that's what the electorate are looking for.

    • Posted February 2, 2010 at 8:40 pm | Permalink

      Young British people are saddled with a 100k mortgage debt for the land beneath their own houses. I know Land Value Tax enthusiasts,like myself, can get on people's nerves through repetition,but do you really think that it is good idea putting this burden on people's backs,for the good of our own children, young people or the whole economy?

      • Posted February 3, 2010 at 9:15 am | Permalink

        Don't you think that restricting mortgages to say 3 times income and 85% LTV (65% for BTL) wouldn't be rather more effective than say doubling Council Tax?

        • Posted February 3, 2010 at 12:50 pm | Permalink

          Believe you me writing hymns of praise of LVT is as tiresome and boring as it must be to read them. I wrote a celebration of the centenary of Henry George's LVT masterpiece Progress and Poverty in 1979 in a proper magazine.Thirty years later and I'm devoid of and hope and trolling right wing blogs (the left-wing ones are really too thick and up themselves) trying to get a word in edgeways.
          But LVT, it almost pains me to say,is much better than Council Tax,although Council Tax could be made over by being deducted from Income so its not so obvious; being on the land value only: and being honestly up-dated.The difference with LVT is the use or lose it aspect: because it targets unused land-banked sites,it encourages building houses so it is one tax that increases production.There are a quarter of a million unused plots for houses in the UK with extant planning permissions.
          I also think LVT has given me an Internet addiction (like Derek Smalls of Spinal Tap) .
          Restricting mortgages to low income multiples is perfectly sensible,but all restrictions of the right to buy are anathema to the main political parties.

      • Posted February 3, 2010 at 4:04 pm | Permalink

        I mentioned LTV, not LVT! House prices got out of control due to lack of proper lending criteria allied with a range of factors that promoted Brown's Ponzi scheme, and appealing to people's short sighted greed (as all Ponzi schemes do).

        Hoarding of land banks by developers is a problem (and IHT is in part a cause of that problem) that is mainly the result of our Byzantine planning system, including such gems as Sec.106 agreements. I can think of a variety of mechanisms that might help that don't involve land tax – e.g. giving third parties a right to buy land at the undeveloped price if work hasn't been done within a set period of planning permission, or giving land a low permitted collateral rating in a bank balance sheet. Interaction with planning law is important. There was much criticism of Brown's PGS mooted scheme, and other planning gain taxes have proved impractical.

        • Posted February 3, 2010 at 8:41 pm | Permalink

          Blimey.This is like a collection of land value tax howlers! I mentioned land value tax first off so I was referring to that,not your reply to it.
          PGS the brainchild of Kate Barker was the complete opposite of LVT.It was due to be levied the moment builders started developing sites so it was madly dysfunctional.It actually inhibited developers from developing as opposed to lVT that would make it imperative that they got off their speculating chuffs.
          Taking back unused planning permissions is fine by me-its what they're now doing in China where they're also using 20% Land Value Tax.Fine but I don't expect you're very keen on statist solutions.
          I don't think you can blame Brown for the banks' rush to saddle people with whopping great mortgages,with 50% for the land under the bricks and mortar.They did the same in the US under Bush to catastrophic effect.We're paying for the American property bubble bursting,not ours.
          Section 106's are a straight quid pro quo.Local authority hand out a licence to have your land go up X100 in value,you pay a bit back.
          If I was paid for the number of times I answered these calumnies of LVT I would be a very rich man.
          BTW how does Inheritance tax cause land banking;that is a new one?

        • Posted February 4, 2010 at 11:26 am | Permalink

          We are paying for our own property bubble which is far greater than the US one (our prices tripled after Brown changed the rules and dropped specialist oversight in favour of the FSA, theirs only doubled after Clinton dropped the ball permitting NINJA loans and promoting HELOC – Bush merely carried on the fumble). Brown also changed the inflation index to CPI – specifically to exclude any housing element, and stuffed the MPC with cronies like Kate Barker, Stephen Nickell and "Danny" Blanchflower who could be relied upon to ignore the asset bubble and its causes. The Barker Review is a masterpiece of economic falsehood, assuming that house prices could only ever go upwards in real terms, and completely ignoring the role of the supply of money and leverage.

          Banks were of course willing accomplices, because bonuses could be earned by increasing turnover. However, with proper regulation there would have been no 125% mortgages on six times the income written into the form – unverified. Developers would not have gotten away with recording fictitious sales prices in the Land Registry and making side payments in order to drag punters in. Valuers would not have become part of this seedy game. What did government do after many of the elements were exposed by Panorama in 2003? Nothing, but pouring more petrol on the flames.

          IHT and land banking: IHT causes assets to be sold to meet it – a distress sale. Often developers seem to wind up as purchasers, tipped the wink by a friendly solicitor (who may even be executor) or estate agent. They also tend to have an advantage in having access to funds to buy larger properties, which may have become dilapidated under ageing owners and thus less mortgageable. Part of the world how it is, rather than how economists assume it to be.

  36. Posted February 2, 2010 at 10:38 am | Permalink

    PS Its time some one reminded the electorate that the National Debt and Deficit aren't the same thing.

    Labour know people are confused and make shameless use of this ignorance.

  37. Posted February 2, 2010 at 11:31 am | Permalink

    "The Conservatives say start now and get on with it."

    This does not align with what your Party Leader was saying yesterday.

    The implication he managed to give was that nothing special will done for a while, if he is lucky enough to win the election.*

    If he were trying to make everyone think there is no real difference between his party and Labour, he could hardly make it any clearer.

    * which is no longer looking like a foregone conclusion, and can you wonder?

  38. Posted February 2, 2010 at 1:55 pm | Permalink

    Question for our host:
    Does anyone in the inner circle ever get to read this and the comments?
    Or are they all in the back room, plotting cleverly and thinking about what they will do/get when they are eventually (and it seems inevitably) elected?
    Pride cometh…..
    Oughtn't you to show them?
    Or do you ever get to see them?

    Reply: The key players have all had a copy of recent poostings on tax, the deficit and the battle of the soundbites.

  39. Posted February 3, 2010 at 11:40 am | Permalink

    No, I don't have to repay Gordon's debts.

    I can just leave. I am finishing a doctorate in hard science and I will have no trouble in finding a job.

    Living in Switzerland pays double the current UK salaries for jobs I'm looking into and the SwissGov only demands half the tax that the UKGov does.

    It isn't ever a problem to fly back from Geneva to the UK – easyjet flights are very cheap, in fact cheaper from Switzerland to the UK than from the UK to Switzerland because of… lower taxes.

    So I go, with regret, to greater opportunities abroad. I have a duty to look after my family's best interests. All services work better over there and I greatly improve the quality of life for myself and my loved ones. I'm not fleeing an oppressive regime, but looking at opportunity. This country no longer offers relative opportunity – why would anyone hang around to earn Weimar Republic pounds?

    Don't underestimate the power of this brain-drain. The only real value added to any economy is when people take new ideas and harness them into new products that improve human life through efficiency savings. Most of the UK economy is government employees buying lunch from private companies. The industrial sector is small in the UK but is huge internationally. We must urgently restructure our country towards allowing for reward in this real industry, value part of our economy. This includes curing the UK of the disease of house price inflation. The policy of encouraging people to borrow money to invest in inflation can only ever blow up in our faces. Imagine if all that wasted effort had been invested in productive activities.

  40. Posted February 24, 2010 at 6:59 pm | Permalink

    When you have the government pump borrowed money into the economy, don't forget that in the act of borrowing you are also withdrawing that same amount of money from the economy. $X in and at the same time $X out. You only improve things if the money withdrawn is put back in a more productive use than it would have been put by those who loaned the money– and sufficiently more productive to more than cover the interest bill for the borrowing. You can't make the water rise in a swimming pool by taking buckets of water out of one end, and then dumping them back in at the other end.

  • 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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