Labour governments end in economic chaos

Labour governments typically devalue the currency, run out of money, and preside over industrial chaos. Welcome to the spring of discontent.

The 1945-51 government devalued the pound from $4 to $2.80. The 1960s Labour government devalued it from $2.80 to $2.40. The 1970s let a floating currency float down. This government has recently allowed a 25% devaluation in a free float, taking us down to $1.50.

Each Labour government greatly increases borrowing. The 1960s Labour government introduced an austerity budget just before it lost office to start to correct its own mistakes. The 1970s Labour government was forced into spending cuts by the IMF when they needed an international loan to keep them going. This government has announced major spending cuts for after the next election, recognising that its deficit is way too high.

The 1960s and the 1970s Labour governments both tried to reform Trade Union Law to limit industrial action, but both failed and gave up reform. It was left to the 1980s Thatcher government to push through what they had not managed to do. The 1970s government ended in the winter of discontent, when public sector unions went too far and left public services in chaos. This spring we face a travellers nightmare, with industrial action threatened on the railways and at BA.

Management needs to be fair, clear and realistic in what it expects and what it offers. Unions need to understand in the private sector that it is highly competitive out there, and that higher pay and bonuses need to reflect higher revenues and higher productivity. In the public sector we need to spread the word that all must do more with less – or less with less where the service is marginal or not needed.

Some time ago I predicted a squeeze on living standards as a result of this government’s economic policy. Labour tried briefly to spin that I wanted a fall in general living standards, or was recommending it be Conservative policy to have such a fall. Because they have clung to office they are inflicting the fall that was made inevitable on people whilst they are still Ministers. Last year the private sector saw pay rise by a mere 1% with prices now shooting up by several times that rate. Now it is the turn of Labour’s public sector, offered similarly poor fare for the year beginning this April. They have run out of money. They are not bluffing. It was inevitable given their poor management that it would come to this. You end up with bigger public spending cuts with Labour, because they lose control of the money.

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48 Comments

  1. Slightly Green Conservative
    Posted March 20, 2010 at 7:28 am | Permalink

    You’re saying what I’ve said and thought for years. I remember the Labour government of the seventies – dreadful! The result of Labour always leaving us in a mess is that when the Conservatives do get an election win they are always landed with having to take drastic action to get the economy right, and usually not thanked for it by the media or voters. Contrast with the strong economy Tony Blair was lucky enough to inherit!

  2. Javelin
    Posted March 20, 2010 at 7:30 am | Permalink

    The message needs to be simple “Labour spent more than we earned on rubbish projects.”

    We are now in debt and not only have to cut the rubbish projects just to get on an even keel but we also have to cut else where to pay back the debt.

  3. Norman
    Posted March 20, 2010 at 7:32 am | Permalink

    Haven’t you been following the news this week Mr Redwood? Why all this negativity? Things are actually looking up so much so that the Chancellor may be able to have a giveaway budget. Borrowing for February was only £10bn rather than the £13bn forecast (still the worst February ever).

    Borrowing next year may only be £170bn rather than £177bn (assuming interest rates of 5% this will add around £8bn pa to the wasted money pile).

    I honestly can’t see how this debt will ever be able to be paid off and it’s being spun as good news and talk of giveaway budgets!

    Labour really are living in a fantasy land.

  4. Pat
    Posted March 20, 2010 at 9:25 am | Permalink

    Labour, and any socialist party, exist to favour a sectional interest- supposedly the working man, though I've seen little evidence of that lately. In order to gain office, and then stay there they need a majority in the country. To obtain this they try to favour as many sectional interests as possible (working class, the arts people, education, racial minorities- any coalition they can cobble together to make a majority, and always excluding those well able to look after themselves- they're looking for "victims" to "save"). In order to maintain this coalition they need to reward it for its support, to "save" those "victims". That inevitably leads to putting those capable of supporting themselves at a disadvantage- and hence reduces their ability to support others. Eventually the country's income declines, expenses go up and we land up in trouble- as someone once said they run out of other people's money.

  5. Stewart Knight
    Posted March 20, 2010 at 9:47 am | Permalink

    Unions need to understand in the private sector that it is highly competitive out there, and that higher pay and bonuses need to reflect higher revenues and higher productivity. In the public sector we need to spread the word that all must do more with less – or less with less where the service is marginal or not needed.

    The unions know this already, but you have a legion of sad little men with inferiority complexes who are not good enough to make it big in any other world other than the unions, a bit like Prescott though he was given his leg up as a sop to these same little men.

    Little unintelligent men who will wield power and don't care the consequences as their goal is to merely wield the power.

  6. alan jutson
    Posted March 20, 2010 at 10:04 am | Permalink

    The first two paragraphs sum it up perfectly.

    Perhaps this is a message for the Conservative bill board posters.

    We have never had a Labour Government who have managed the finances properly.

    They all spend more than income raised by taxes.

    Four times out of Four they have virtually Bankrupted the Country

    Many people forget recent history, so for those who have forgotten or never knew its worth repeating historical fact.

    LABOURS NOT WORKING, IT NEVER HAS.
    LABOUR SPENDS NOW, YOU PAY LATER.

  7. Stuart Fairney
    Posted March 20, 2010 at 10:17 am | Permalink

    All true enough although I would just say that the 1945-51 devaluation was inevitable who ever was in power, because of post war bankruptcy.

    Sure, the government made its share of mistakes like the mass nationalisations and good old Clem handing jet secrets to his socialist buddies the Russians (later used in Mig-15's against British troops in the Korean war!! what's the word for someone who betrays his country and puts his own troops in greater danger?), but £1 = $4 was not sustainable at that time.

  8. Antisthenes
    Posted March 20, 2010 at 10:18 am | Permalink

    I do not have your intellect or wealth of knowledge on matters political, but even I could have written this piece, not with the same eloquence or your grammatically correct English. So if I know these facts and I am just one of your common or garden plebs and these facts are in the public domain and observable and the terrible consequences of voting Labour into government are so obvious that even a half wit should be able grasp that voting for Labour is not in their interest or the countries. Why are the Labour party so often voted in? I can only speculate on the answer to this baffling conundrum from believing that come election time Labour are stuffing ballot boxes (not as unlikely as one might think considering the postal vote is so open to abuse and has been seen to have been abused). Or Labour voters are just plain stupid but that can not be it as highly intelligent people have been known to vote for them. I do not know the answer all I can say is there nothing stranger than folk and what motivates them is as unknowable as the question of why we exist at all.

  9. Javelin
    Posted March 20, 2010 at 10:43 am | Permalink

    I attended a presentation yesterday entitled "Inflation – the only way is up" at the Global Investment Bank I work in. They said FX falls, debt and imported inflation is now out of our control. All three would follow their course but all three point to inflation remaining above 3%. The senior economists argued that there is a mental block at the MPC. The only way is up.

    • lola
      Posted March 20, 2010 at 5:38 pm | Permalink

      Thing is, we've already had the inflation, now come the price rises. Inflation is a function of money. Price rises are a result of inflation, not its cause. Brown, deliberately in my view, abandoned control of the money supply to fuel the real estate asset bubble and his spending binge. The money supply grew well in excess of GDP, a convenient but not necessarily accurate way of guaging the over-expansion. Hence we have far far to many pounds chasing about. This trashes the commdity value of each £, pushing up prices of services and things that are priced in these silly £'s. This is not 'inflation' aka a rise in the general price level driven by the absense of supply. We can buy pretty well whatever we want when we want it. It is a rise in the general price level driven by the drop in value of the £ in your pocket as a result of their oversupply. The currency has been 'clipped'.

    • Stuart Fairney
      Posted March 21, 2010 at 12:06 pm | Permalink

      I would be most interested to see this presentation if it is available? (and not commercialy sensitive of course)

  10. waramess
    Posted March 20, 2010 at 11:33 am | Permalink

    Simple. Cut public spending and cut it hard. There is no other way out.

    This is no longer a question of party politics it is a matter of necessity.There is no more room left to consider tax increases or cutting the cost of Civil Service biros you will need Civil Service heads.

    The resolution of the debt problem and the need to reinvigorate the economy leave no other options open. Now it is a nice resolution to a rather messy problem but, will the Cameronians have the bottle?

    • Simon
      Posted March 23, 2010 at 4:54 pm | Permalink

      There isn't an appetite for hard decisions in the UK any more is there .

      Actual public sector pay cuts and redundancies will be minimal and in return for keeping industrial action under control Police will expect inflation busting rises on top of their terms and conditions which are far in excess of that required to recruit and retain staff of the requisite quality .

      British Airways and some public departments need to be decimated to wake the lucky ones who survive up and make them think twice before resorting to industrial action . What a great opportunity to purge the trouble makers .

      The incoming government has the perfect opportunity to replace index linked defined benefits pensions with defined contributions pensions .
      The rhetoric suggests there will be a fudge along the lines of keeping defined benefits relative to career average rather than final salary .

      • waramess
        Posted March 26, 2010 at 6:48 pm | Permalink

        Does it not make you want to weep? I feel more deeply depressed for this country than even in the Wilson Callaghan crisis and the subsequent Heath, so called, rescue.

        There is a way out of this mess and there is a way to reverse the decline of our economy but the short term vision of the failed barristers and union leaders who now seem to dominate our elected representatives in politics, and who seem to be "in it" for their own pockets rather than for some burning desire to deliver sanity back to society, will ensure it remains forever elusive.

        Or is this too idealistic? Should we all be "in it" for our personal gain? Should we now accept that shallow marketing will rule our lives? Do we now have no Margaret Thatcher who will arise to deliver us?

        Margaret Thatcher was by no means perfect. We do however need her now, more than ever

  11. Acorn
    Posted March 20, 2010 at 12:36 pm | Permalink

    Spot on JR; what else can you say? Is it written somewhere that all Socialist governments must end this way? Are we destined to keep electing them? The current favourite media expression of "lessons will be learnt" is starting to annoy me; we never do!

    BTW. If you haven't caught up with her yet have a listen to Janet Tavakoli's interview on C-Span last year. She is a straight talker; apolitical and gives a good description of the credit crunch technicals.
    http://www.youtube.com/watch?v=WA20Am0pwtA

  12. Martin
    Posted March 20, 2010 at 1:02 pm | Permalink

    While I appreciate there is an election coming, it would be interesting to see all Government borrowing figures over the years.

    Regarding the 1970s inflation under Mr Heath was so bad that a certain Minister of Education had to put up student grants by £20 per annum! I'm sure I once heard Lord Tebbitt sympathise with Mr Healy on Sky about the difficulties of sorting out inflation inherited from Mr Heath. Some folk might even argue it was well into the early 90s before inflation that started around 1970 was tamed.

    I for one am disappointed that so little emphasis is being given to the need to stop inflation taking off again. The public sector is of course trimming services and not costs. Take the BBC – they have trimmed a couple of radio stations – not reduced their internal costs. This is inflationary. We pay the same for less.

    • Stuart Fairney
      Posted March 21, 2010 at 12:10 pm | Permalink

      I honestly think there is a huge temptation for all parties to tolerate inflation for some years to shrink government and private debt. Interest rates I fancy will stay at real negative values for some while.

  13. Nick
    Posted March 20, 2010 at 1:30 pm | Permalink

    The problem is that the Tories never solve the problem. Even you are admitting its a cyclical problem.

    What is needed is this.

    1. Doomsday book of all the debts.
    2. Labour tax to pay for the debts. On every pay slip.
    3. Referenda to state that from no onwards, no new borrowing. None.

    No new borrowing means paying off debts as they mature. It means no more ponzi schemes for pensions. Only existing liabilities will be honoured if possible.

    Personally, from the debts I think that the UK government is bust.

    0.8 trillion on gilts
    1.1 trllion on civil service pensions
    1.5 trillion on state pension
    0.4 trillion on PFI
    0.2 trillion on guarantees etc

    Add on state second pension ,….

    However, even this underestimates the problem. If you have no state pension, you are probably on benefits. When you add up the Minimum Income Guaratee, Housing Benefit, Heating, … its about 12+K a year, income tax free.

    That's a promise made that will be hard to renege on. The end result is that the 1.5 trillion in state pension liabilities is in reality around the 4-5 trillon mark, because of no savings. It's unaffordable. The government's really running at 12-15 times income on their debts.

    The lies to watch out for are these.

    1. Other countries are worse. Yep, Shipman was a worse mass killer compared to the Yorkshire ripper. Should we let Sutcliffe off the hook?

    2. Historically its been worse. Actually it hasn't. In the past the government hadn't taken money for people's retirement. The real liabilities were lower, much lower.

    3. The use of percentage of GDP. The assumption here is that the government owns everything. All your income, 100% of it is available for their debt problem.

    4. The Argentine solution. If you have a pension fund, what better for the government than to take 5% of it for a good cause. After all, if you have 100K in a fund you are rich. Except, you aren't 100K doesn't even buy a state pension.

    5. The retirement age theft. For every year the retirement age is raised, the government is stealing over 5K off a pensioner.

    Nick

    • Simon
      Posted March 23, 2010 at 5:09 pm | Permalink

      I broadly agree with your prescription .

      The iniquity of the unfunded or partially unfunded element of public sector pensions should be the first cut of an incoming conservative government . Defined contribution pensions have to go , within weeks .

      • Nick
        Posted March 23, 2010 at 7:44 pm | Permalink

        Defined contribution or defined benefits? The public sector pensions are defined benefits.

        So how to change the public sector pensions?

        My approach would be this.

        1. Offer public sector workers an offer between cash now and pension later.

        2. If you take the cash now, you are signed up for a no strike deal.

        3. If you are on a no strike deal, your vote for any strike is automatically no.

        4. If you go on strike, you lose the extra money going forward.

        Now I suspect most will take the extra cash on their wages.

        The trick is to set the level of extra payment below the cost of the pensions. ie No further acruals, and a lower cost.

        Set it at the level where there are sufficient takers, and the civil service will have a hard time striking. Not enough votes.

        Next effect is that you can directly compare state versus private wage levels.

        Nick

        • Simon
          Posted March 25, 2010 at 6:02 pm | Permalink

          Nick , great reply .

          Being able to compare state versus private wage levels is completely reasonable and obviously desireable .

          DB are difficult to fully fund and at the moment we don't even attempt to do that . Instead we push the risk on future generations which is in fact my main objection to them .

          Even if the level of upfront payment is not pitched below the costs of pensions , it may be worthwhile doing :-
          – Once a government is paying current public servants a much higher basic salary , it will be much more difficult for them to justify ramping up the public sector as has just happened .

          – It would remove a division which has opened up in our country by putting the majority of people back in the same boat .

          – Pensions are pretty inflexible . Not much use if your health changes .

          Q1 – For existing employees with more than 5 years service , the back loaded nature of public sector pensions (ie the final salary aspect) meen it would be virtually impossible to persuade them to exchange it for cash now wouldn't it ?

          Q2 – What level do you think basic pay would have to be increased by to make it attractive to teachers ? police ?

          Presumably it should be an increase to basic pay which should not carry through to an increased rate for overtime .

          Q3 – Should DB schemes even be open to new recruits ?

  14. Robert George
    Posted March 20, 2010 at 1:52 pm | Permalink

    John , Your first five paragraphs summarise the primary subject of the election campaign. Cameron et al should hammer these points home again and again and again.

    Bang the simple message into the nations skull, Labour cannot ever manage the nations economy

  15. Sally C.
    Posted March 20, 2010 at 2:15 pm | Permalink

    I can't understand why people aren't overtly annoyed with this government. We are all worse off due to the devaluation of Sterling and clear signs of an emerging problem with inflation. Perhaps when petrol prices go up again soon, due to the tax increase, we may see some anger. The people who are hurt most are the poor, savers, and people on low or fixed incomes. How Gordon Brown, Alistair Darling and Mervyn King can sleep at night is beyond me.

    • yorkie boy
      Posted March 20, 2010 at 10:30 pm | Permalink

      Sally C

      The economy is like a dinosaur which takes ages to die after receiving a fatal wound.

      Anyone who studies the economic facts knows how rapidly we are approaching irreversible disaster but most people don't yet see the problems associated with an unbalanced economy and spiralling debt.

      Tens of millions of people are still living off borrowed money, either personally or via the state.

  16. Denis Cooper
    Posted March 20, 2010 at 4:23 pm | Permalink

    Accepting for the sake of argument that Labour governments always run out of money – although this one has ingeniously managed to put that off for a year by getting the Bank of England to print more – what is the corresponding dictum for Tory governments?

  17. kevinH
    Posted March 20, 2010 at 4:25 pm | Permalink

    Conservative governments seem to also end in chaos – they end in a Labour government!

    • David H
      Posted March 21, 2010 at 1:04 am | Permalink

      Is it possible that we shall soon see polls sugesting that the two main parties will be B*NP and U*KIP with the L*ib Dems as kingmakers?

  18. Antisthenes
    Posted March 20, 2010 at 5:32 pm | Permalink

    In a previous comment on this page I owned up to being just one of your common or garden plebs, so tend to see things in rather simplistic ways. What I have been pondering about of late is that we know Labour governments are incompetent but are they not also proving that they are also involved in (questionable-ed) activity? Is not this information we have of the government taking tax payers money and giving it to UNITE and UNITE giving money to Labour who also happen to be the government seem a bit fishy to you? I am sure if I took money from Mr A and give it to Mr B and Mr B gives it to Mr C who is actually me but wearing a different hat I would end up in (trouble-ed). But as I said I am just a pleb so what do I know.

  19. Posted March 20, 2010 at 5:56 pm | Permalink

    The country is in a economic mess. Gordon Brown would say it is none of his doing. The Labour Spin Doctors might try to imply that you, Mr Redwood, are saying that the worsening of the deficit & national debt is 100% down to them.
    It is important to be able to split out the worldwide impact from the Labour government's

  20. Andy
    Posted March 20, 2010 at 8:30 pm | Permalink

    John, You are spot on as per. However it seems to me what is required is radical reform. In a way what is needed is to destroy Labour's 'client base' – the public sector. That means shrinking the size of State. Question is how to do it.

  21. yorkie boy
    Posted March 20, 2010 at 10:25 pm | Permalink

    Inflation up.

    Unemployment up.

    Borrowing up.

    Savings down.

    Trade surplus turned into trade deficit.

    Industrial production down 13% – first decadal fall since the Black Death.

    Coal mining output down over 75%.

    1.8 million fewer manufacturing workers but the smae number more employed in the public sector.

    Bankrupt bankers getting the highest pay rises in the country.

  22. Kevin Peat
    Posted March 20, 2010 at 11:40 pm | Permalink

    I remember in 1997 we were all heartily sick of the Conservatives – particularly over the instantaneous effects of Maastricht – windscreen washing gangs in London, anyone ? That's when we had a sense that our country was being betrayed. Yes – well into a Tory government. Regardless I voted Conservative but when Blair got in I felt a sense of hope that I was wrong about Blair and that there might be some improvement.

    The present Conservative party is no good. It shrinks from hard policies as soon as supporters retreat – the party should stand and fail on the truth rather succeed on lies. I think it will take the bankrupting of Britain to teach its people how to hold politicians to account. It may be the ruin of us but so too is the drip-drip erosion of our culture, laws and freedoms which has taken place under both parties.

    • Kevin Peat
      Posted March 20, 2010 at 11:47 pm | Permalink

      I really think that something drastic needs to happen for something drastic to be done.

  23. Posted March 20, 2010 at 11:43 pm | Permalink

    The country is in an economic mess. Gordon Brown would say it is none of his doing. The Labour Spin Doctors might try to imply that you, Mr Redwood, are saying that the worsening of the deficit & national debt is 100% down to them.
    It is important to be able to split out the worldwide impact from the Labour Government's economic ineptitude.

    I did some simple calculations comparing two situations (all as a % of GBP)

    1) An actual (Labour) one where in 2007, at the top of the cycle there was a budget deficit of 3.5% and a national debt of 44%.
    2) A fiscally prudent (Prudence) one where budget deficits had not been incurred in the good years, so in 2007 the budget surplus was just under 30%

    Let us assume under both scenarios, there is a similar worsening of public finances of 8.5% of GDP, so under Labour it peaks at 12.2%, under Prudence 8.6%.
    Under a Labour the national debt peaks at 87% of GBP in 2015, under Prudence 48% in 2013.
    Under Labour we have a structural deficit of at least 6% of GBP, under Prudence, 2%.

    In other words the Labour Spin Deficit is a near doubling of the National Debt and a structural deficit of £90bn that must be eradicated. Under Prudence it is less than £30bn.

    The reasons that I am far too generous to Labour I will go into later on my blog. But this is a starting point.

  24. Adrian Peirson
    Posted March 21, 2010 at 12:38 am | Permalink

    I'm beginning to think its all deliberate.

  25. Posted March 21, 2010 at 1:45 am | Permalink

    It happens everywhere.
    Labour governments borrow and spend, right wing governments stop wasting money and pay off the borrowings, then Labour gets back in and the circle continues. My friend in Australia assures me that exactly the same happens there, both at state and national levels.

  26. adam
    Posted March 21, 2010 at 4:37 am | Permalink

    this is a great post

  27. Kevin Peat
    Posted March 21, 2010 at 8:44 am | Permalink

    BA staff are the opitomy of service excellence and professionalism and have always been held up as an example. The railways have been remodelled (with much success) on their attituded. Alarm bells should be ringing here. So what's gone wrong ?

    They are not unionist dupes or activists – they are good-looking, educated, moderately well paid and well spoken people to whom many aspire to be. They have simply seen the behaviour of bankers and politicians in contrast to the treatment of factory workers at companies like Cadbury's and decided that sacrifice and acquiessence in industrial negotiaion does not pay. Like me they've had their hard-earned pensions raided too. Like me they see that the dole is not such a scary option from the examples set by people in their immediate neighbourhoods.

    Your analogy of the prudent housekeeper in your explanation of macro economics is out of date. In our street we are the prudent housekeepers. In our street it is our kids having to make do with second hand and go without foreign school trips. We can't actually afford school dinners but nor do we qualify for school meals. Prudence is what makes you broke nowadays. Besides; government budgeting differs from household in that a householder cannot set money values or interest rates – so the analogy is always a rather simplistic one.

    So our country spends more than it earns. Whose fault is that ? Who made our country (against the will of the people) an open market to all comers for education, healthcare, welfare, jobs ? Who enabled our great industries (against the will of the people) to be sold off ? Who ceded our law-making (against the will of the people) to Europe ? Who dimantled our borders (most definitely against the will of the people) to put massive strain on our public services and infrastructure ?

    There are things that governments of all hues could have been doing to prevent this breakdown between the hard-working productive classes and the ruling middle-class elite. And be under no illusion – the schism between conservative, taxpaying people (small 'c') and the ruling elite is wide and dangerous. I doubt that the police have enough shields – much less that there is going to be the money to pay them to hold them.

    Most of the destinations to which our best emigrate are protectionist (Canada, Australia in particular.) These countries operate some form of serious points system for admission which means that all newcomers must add value to the country. They are also fiercely patriotic and protective of iconic industries and culture. They do not offer unconditional welfare to anyone who turns up and they do not suffer criminality lightly.

    Their economies seem to have done rather well from this arrangement.

    Like BA staff I would naturally vote Conservative and am not stupid (unless you want to call your core voters stupid) but something did go drastically wrong under the last Conservative administration and Britain continued its social and cultural decline. The economy looked good at the time but what was it based on ? A free for all ?

    • JimF
      Posted March 21, 2010 at 3:03 pm | Permalink

      Good blog reply. People forget (but not our host I'm sure) that Mr Redwood was actually pretty anti- the Major dithering and caving-in to quasi-socialist and EU phile policies. His frustration with this limp and loose administration resulted in his putting himself forward as a leadership candidate.

      Major, who these days speaks sensibly, was a withering ditherer as PM, and he let these people in. This should concern us now because history could easily repeat itself on the next leg down.

      In many ways, this period of economic rot started with us trying to stay in, then falling out of, the ERM. Had that devaluation been used to construct a proper industrial policy, prior to a world economic boom, rather than to let a false "chancer" economy based on property prices and bank "profits" continue, just maybe this would be a different Country now.

      Our choice now is to start this process of re-industrialisation from the lower bas we now have, or to remain a "trading" "chancer-based" economy where gains and losses are made on the toss of a coin, the purchase and sale of a house, loan-sharkism and the gap between rich and poor increases further still.

  28. ps
    Posted March 21, 2010 at 10:13 am | Permalink

    Labour prime ministers also have a history of assisting in wrecking the country. Brown, Blair, Callaghan, Wilson, Attlee, Macdonald. Their socialist agenda/pandering to their core vote and lack of regard for the long term best interests of the nation set them apart from other prime ministers.

    I guess this is another reason history is being rewritten by Brown & his cronies.

    Your article should be the message taken to the election. How do you get it across to the electorate when the transmission system (the BBC) is so lacking objectivity? (can you get 10m bumper stickers given out with friendly newspapers with the message " Labour are a bloody disaster, vote conservative"?)

  29. Ian
    Posted March 21, 2010 at 10:53 am | Permalink

    Each of the historical scenarios you outline do have very different contexts, and I struggle to make the link between the deliberate skewing of the value of bad debt [e.g lehman] which was a significant catalyst to the banking meltdown, and the current governments policies. I and many others like me are lost trying to make sense of a global event that largely seems to have been born American economic policy under a Republican administration in terms of voting decision for the UK.

    Reply: The UK Credit Crunch was made in the UK by bad monetary and banking policy here, and was worse than the crisis in the US

  30. Bazman
    Posted March 21, 2010 at 6:12 pm | Permalink

    Can't pin the blame on the unions this time. Mainly caused by and unregulated banking system allowing an elite to do what they like. Don't hear that one much from mainstream politicians, but I'll bet any Tory government will scrap the minimum wage/tax credits and have everyone bidding for their own jobs though. Letting the market solve the problem. I wonder where the price of gas, electricity, petrol and especially banking would be without all this 'competition'?

    • Stuart Fairney
      Posted March 22, 2010 at 8:30 am | Permalink

      You honestly believe the banking system was unregulated?

      Tax credits? In order to claim the working family tax credit you need never have worked, been a family or paid tax; the whole thing is an Orwellian concept writ large and a chaotically implemented one at that.

      Ever wonder what the price of petrol would be without all this tax?

      The cost of banking falls as more banks compete. So nationalisation and mergers drive costs up.

      If you want cheaper electricity (or any electricity!) support the building of nuclear power stations not windmills.

      Minimum wage? If the state decided the minimum price of a pint of beer should be enforced at £5.60, would you drink more, less or the same? So it is with employing people.

      • Bazman
        Posted March 22, 2010 at 11:13 am | Permalink

        No minimum wages or tax credits? Work or starve. Work until you drop. Same old story, except when the rules apply to the people making them. Like bankers. You would have to pay for stronger policing without any wage floor. Indisputable fact of life that the Thatcher government tried to suppress.
        The regulation of the banking system was so weak as to be non existent the proof is in what happened. No if's or buts. Tax is a on petrol is way to high, but like banks the utility and oil companies are running a cartel and running rings around the regulators.
        Windmills are a subsidised scam making a few people rich. Nuclear power will be a bigger one as it is to expensive and nobody can come up with an accurate figure per kilowatt if you include decommissioning or an accident. This will intimately be paid for by the taxpayer and be as private and competitive as the railways another scam and scandal on the mug taxpayer.
        Fake and hidden private ownership of state facilities run for the benefit of a few so called businessmen that if it where ever really in the private sector would not even exist. They are not businessmen but are managers paid by the government to run a state funded company as efficiently as possible. In the same vain, the local council leader is not the 'Chief executive like he is head of Toyota or the like and does not deserve more wages than the Prime Minister.
        Have think about how the state gets ripped off by private and not so private companies and how State organisations pretend to be private companies. The minimum wage and tax credits just pale into insignificance, except maybe to your prejudices and dogma

        • Stuart Fairney
          Posted March 22, 2010 at 12:49 pm | Permalink

          I do not regard starvation as a likely outcome for anyone in the UK, with or without tax credits or minimum wage. Indeed, if you simply get out of the way, you would be surprised just how high wages may get as the economy powers ahead.

          As for "You would have to pay for stronger policing without any wage floor" this is an implicit threat of violence ~ pay for stronger policing or give in to demands backed by threat ~ I will pay for the cops.

          I don't wholly disagree with you latter comments. I am not sure which one of us this surpises more.

  31. Roger360
    Posted March 22, 2010 at 3:52 am | Permalink

    John

    Please explain to me why the Bank of England are driving down the pound. As an importer I follow it closely and every time sterling stregthens, someone from the BOE pops up to make an adverse comment on the UK economy. Usually Mervyn King, but Kate Barker, Andrew Sentance or inevitably David Blanchflower ( is this man a Russian plant left over from the Cold War?) do the trick. Why is the economic community so focused on a weak pound? In my business studies, we were alwaays taught that a strong currency forced you to be competitive in the world – a weak currecny was the easy wa out.

    Reply: I assume because they think it will help exports and reduce imports. it is certainly making us all poorer by the day.

    • JimF
      Posted March 22, 2010 at 5:28 pm | Permalink

      I'm trying to make Sterling less relevant in our dealings. We used to import, pay USD/EURO/YEN, sell mainly in Sterling and mount up our profits in a Standard Life STG account paying 5% interest to pay Corporation Tax and VAT from.
      Now we make more product ourselves instead of importing, as a % of turnover, so higher gross margin, pay Sterling costs here, sell in EU/CHF/USD (even in UK), and keep deposits in these currencies to pay our taxes from. By the time taxes are payable we need fewer Euros to pay them.
      That way we keep our head above water and play the BOE at its own game. The problem is our customer base is shrinking in the UK, so we're going overseas in part or whole anyway in the next year or so anyway.

  32. Posted April 21, 2010 at 1:37 am | Permalink

    I REALLY liked your post and Labour governments end in economic chaos | John Redwood blog! It took me a little bit to find your site…but I book marked it. Would you mind if I but a link back to my site?

4 Trackbacks

  1. […] Labour governments end in economic chaos | John Redwood […]

  2. By Microsoft MCSE Study In The UK – Insights on March 21, 2010 at 4:55 pm

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  4. By Doomsday or Better World on April 27, 2010 at 11:18 am

    I have heard people talk about the Mayan Calendar being accurate on other things, so they think this will be accurate as well. Who knows what will happen in the year of 2012 on December 21st. No one can predict the future. Sure, we can theorize and mak…

  • 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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