The debt crisis

The new government has lined up behind the Conservative proposal in the General Election. They say they will cut earlier and faster than Mr Brown was planning in his deficit reduction bill. I agree they need to do just that.

In their Coalition Agreement they say:

” The parties agree that modest cuts of £6 billion to non front line services can be made within the financial year 2010-11….Some proportion of these savings can be used to support jobs”

They need to go further than that. I hope they will put in place policies on recruitment and replacement that will start to yield more substantial savings and productivity gains outside the protected areas of teachers, nurses, doctors and other front line personnel. I hope they will press rapidly on with welfare and other economic reforms to get more people back to work to cut the benefits bill.

The BBC and others are trying to re-open the debate about the balance between tax rises and spending cuts. The Coalition has so far been clear that the bulk of the deficit reduction has to come from spending cuts. They should not waver on this fundamental point.

The only way out of this crisis is to get faster growth in the private sector, creating more jobs to boost living standards and take some of the burden off the publlic sector payroll. Trying to protect existing levels of public sector employment and public sector unemployment support by taxing more could have the opposite effect, making it more difficult to maintain private sector employment levels, forcing more people onto benefit and making the deficit worse.

The government needs an enterprise package to boost employment as well as cost reductions in the overborrowed public sector. Higher tax rates on business, earnings and savings would drive things in the wrong direction. Lower tax rates often yield more revenue because they boost earnings and investments. We also need banking reform, so that the banking regulations are no longer forcing the banks to lend just to the government and not to the productive private sector. Bank regulation is still hopelessly pro cyclical, reinforcing the downturn somewhere near the bottom of the cycle.

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76 Comments

  1. Martyn
    Posted May 13, 2010 at 9:00 am | Permalink

    I see today that Spain has announced a 5% reduction in public salaries.
    Should the UK not do the same – bite bullet, as it were?

    • Robert K, Oxford
      Posted May 13, 2010 at 10:20 am | Permalink

      Yes. Many private sector incomes have fallen by a lot more than 5%, whether through job losses, short-time working, less overtime or smaller commission or bonus income. Those living off savings have also fallen sharply as interest rates have dropped. The public sector needs to get real. And that's without even beginning to talk about pensions

  2. Mick Anderson
    Posted May 13, 2010 at 9:02 am | Permalink

    Why does the Ministry for Culture, Media and Sport exist? If memory serves, it is what was derided as the "Ministry of Fun" when John Major created it.

    With the economy prostrate on the floor, why do we need to spend money on something that appears not to be mission-critical?

    Jeremy Hunt is reported as asking the department how savings can be made. Might I suggest that they start by considering dissolution?

    • Stuart Fairney
      Posted May 13, 2010 at 9:37 am | Permalink

      I would add to that the the Department for Business, Enterprise and Regulatory Reform and the Department for Innovation, Universities and Skills

      What can a government bureacrat possibly tell anyone about entrepeneurial culture? being the very oposite of it themselves. I've been to a few government business link type meetings and I found myself thinking "Why are you here"

      Of course that would mean fewer politicos who got to call themselves minster, so don't hold you breath,

      • alan jutson
        Posted May 13, 2010 at 1:43 pm | Permalink

        Stuart.

        I have been to some of these meetings as well.

        I can confirm your views are very accurate, they all seem to have come from salaried positions.

        None that I know have started, or run their own businesses, and so do not have a clue about real life budgets, and risking and spending your own money.

      • A. T.
        Posted May 13, 2010 at 4:57 pm | Permalink

        Thirded. As a high tech SME MD, I confirm that these bodies are a waste of time and public finds.

    • Stuart Fairney
      Posted May 13, 2010 at 9:59 am | Permalink

      And I should of course add the Scots and Welsh secretaries, they have devolved assemblies for heaven sake!

    • Robert K, Oxford
      Posted May 13, 2010 at 10:18 am | Permalink

      Spot on

    • John Wrexham
      Posted May 13, 2010 at 9:58 pm | Permalink

      As the DCMS funds our national museums, supports our theatres, and through English Heritage looks after most of our ancient monuments which are the biggest attractions for our tourist industry which keeps huge numbers of people in the private sector employed, then you could make the case that it is mission critical. whether there is a better way of achieving the same or better ends is up to Jeremy Hunt to find out and deliver.

      • Mick Anderson
        Posted May 14, 2010 at 8:11 am | Permalink

        Many of us on this blog would argue that the private sector is more cost-efficient at keeping people employed than the public sector.

        It's very inefficient to gather money in taxes, only to pass it through a few layers of Government before handing out in subsidy. At the very least, the money is processed by the Treasury, Mr Hunts department, then the Quango that hands the money out.

        Far better to not take the money in taxes in the first place, and leave it in the private sector. Fewer civil servants equals smaller costs.

        If you want to encourage companies to restore and maintain a tourist attraction, remove VAT on the cost of restoration, and allow the end result to have a favourable tax status when the paying visitors start arriving. It's a far more efficient way of looking after the countries heritage.

        As for the Olympics, I understand that this is ostensibly a commercial project. Perhaps the next big event (a potential World Cup is topical) should be fully sponsored by a bank or an oil company. If there's a profit, let them keep it (taxed, naturally). If it makes a loss, that's probably going to be a drop in the ocean (sic) to them.

        Even when the Olympics has been completed, you can bet that Mr Hunt will fight tooth and nail for the depatmental budget not to be cut correspondingly.

  3. PHM
    Posted May 13, 2010 at 9:57 am | Permalink

    i agree with Mick. i don't know what te DCMS is for, personally, but the scope for big cuts – as it was for Canada ten years ago – is deciding whole areas where government should not be involved. this effort is hampered every time a minister goes on the media, in response to some story or another, and says 'something must be done' and promptly forms a quango. as we know; these never go away. we a re being bribed with our own money and it has to stop. but politicians won't stop – we must tell them to do so. all to often people do not seem to understand this basic truth.

  4. Mike Stallard
    Posted May 13, 2010 at 10:01 am | Permalink

    I have been visiting our local hospital recently.
    There are a lot of people marching up and down in civvies clutching bundles of paper. Why? Haven't they heard of computers? In the Intensive Care ward, each patient has one nurse each. There is a bottle neck here and a lot of people seem to be called into hospital, undressed and given an expensive pair of stockings and then sent home because there are not enough beds in IT.
    (Attack on porters removed-ed) (Lots of young unemployed men round here). The cleaners are mostly thin, middle aged women. The toilets are spotless as are the wards and there are red bottles of cleaner for the hands everywhere. All operatives, as in Brave New World, have different coloured clothes. Consultants and Managers wear stripey suits just like politicians on TV.
    So, tell me, how does a politician in a stripey suit sort out the people who are desperately needed and "front line" from the drongoes?

    • alan jutson
      Posted May 13, 2010 at 1:53 pm | Permalink

      Mike

      "How does a politician in a stripey suit sort out people who are desperately needed and "front line" from the drongoes"?

      Simple: Ask the Nurses who is needed.

      Management Consultants do this all the time, they cost a fortune, interview all of the managers, then interview some of the workforce.

      The report is then prepared in a very nice cover, a board meeting is held, a presentation given, an invoice is submitted, and the Directors then shelve the report.

      The answers are always in house, but the people at the top do not communicate with the people at the bottom, and its the people at the bottom who are actually doing the job that can see most of the problems.

      Since our new Foreign Secretary used to work for a large firm of management consultants, he should know the score.

      I am sure JR does as well.

      • John Wrexham
        Posted May 13, 2010 at 10:36 pm | Permalink

        Good stuff, alan

  5. English Pensioner
    Posted May 13, 2010 at 10:01 am | Permalink

    No doubt the BBC are worried that they could be part of the spending cuts! A freeze on the TV licence fee, for say 5 years, would go down well with the general public.

    • simon
      Posted May 13, 2010 at 4:02 pm | Permalink

      I don't know what pensions arrangements the BBC has .

      Needs to be made clear that if they have a short-fall in years time that the taxpayer will not bail them out .

      Pensions benefits need to be reformed immediately .

  6. pauper
    Posted May 13, 2010 at 10:03 am | Permalink

    "Words are the daughters of men, but things are the sons of heaven." Even so, words are important. I think it would be wiser to talk much less about "cuts", and more about "getting money back into the real economy", "getting government off people's backs", "helping hard-working people in the most direct way possible" and suchlike phrases. The language of "cuts" versus "investment" is completely bogus and should be dropped immediately.

    After all, was it not an even greater Liberal statesman than Mr Clegg, who advocated "letting the people's money fructify in the pockets of the people"?

    • lola
      Posted May 13, 2010 at 12:55 pm | Permalink

      Eggsaktly

  7. Norman
    Posted May 13, 2010 at 10:09 am | Permalink

    I read through the list of proposals today – can't say I was very enthused about a lot of them, there also seemed scope in a few of them for creation of new quango's.

    Also heard on the radio this morning the scary prospect of the printing presses being fired up again to use more of our savings to help fund government spending (not by a politician I'm glad to say so I'm hopeful this is just empty speculation).

    The best way to support jobs, as you say, is to cut taxes on business. I hope the Corporation Tax cut isn't being taken off the table, that would be devastating news for any conservative thinking person as for me it was the defining policy in the manifesto.

  8. APL
    Posted May 13, 2010 at 10:12 am | Permalink

    Mick Anderson: "Why does the Ministry for Culture, Media and Sport exist?"

    It was Major's attempt to nationaizie those activities. And yes it should be abolished, along with the arts council at the same time as the BBC license fee is abolished.

    Will Socialist Cameron do it? Not a snowball's chance in hell.

    Good bye too to DEFRA, we could start to cut away the legs of the occupying force – the EU if it can't collect information and diseminate its orders it would be impotent.

    Will Socialist Cameron do it? Hell will freeze over first.

    In this coallition administration the first imperitive is to appear a cohesive unit, with out the preferement and graft from the big ministries of state that would not be possible.

  9. Robert K, Oxford
    Posted May 13, 2010 at 10:17 am | Permalink

    Very true.
    There is an extraordinary disconnect in government. Where does this figure of GBP 6bn of savings come from? What earthly difference will that make when you have a debt mountain in the trillions and an annual gap between income and expenditure of GBP 170bn? The new Culture Secretary was being interviewed on Newsnight last night. He was asked something like: “How much are you prepared to cut from your budget?” to which the response was “well, maybe 10%”. Ten per cent? How about scrapping the department altogether? Why loot money from someone who is trying to put food on their table so it can be spent on someone else running round a racetrack or playing a violin? It's a remarkable feature of government that as soon as ministers settle in they see a major objective to be securing funds from the Treasury. The only politician I have seen who has set out a record of successful departmental cuts is JR in this blog, claims that I happen to believe. Yet look at biographies – Wikipedia for example – and all you see of his tenure as Secretary of State is ridicule over the Welsh national anthem. The pro-big-state spin has dug itself in deep.
    When someone loses their job or their income collapses because business is poor, they don’t just cancel the newspapers. They sell their car and use a bike, they scrap holiday plans, they shop more cheaply and turn off the heating; they may have to sell their house. Today’s new Cabinet needs to get a grip on reality. They should all recognise that they are spending 20% more each year than they are receiving in income, and in any event the proportion of income they are extracting from the private sector is far too high.
    Many politicians have this belief that unless they are in control of the purse strings nothing good will happen. The reverse is true. The state needs to be pared back radically. Six billion doesn’t even touch the sides.
    PS, sorry for not being more concise, John.

  10. Nick
    Posted May 13, 2010 at 10:28 am | Permalink

    I am with you on this Mr Redwood. Indeed I would go further – there is no reason why the state should be bigger than about 30% of GDP. However, team Cameron failed to adequately oppose Labour policies (presumably for fear of being labeled "nasty"), so the electorate is unprepared for the cuts that must be made, so the Tories will get the blame. There is one thing Labour is vastly better at than yourselves: propaganda.

  11. Acorn
    Posted May 13, 2010 at 10:31 am | Permalink

    I have quoted before from David B Smith's report to the IEA. His theory that once the tax take gets above 40% of factor cost GDP; it seems there is a cusp, that represents an approximate upper limit to the sustainable taxable capacity of the economy. Above this level the private sector goes into limbo. I think we are currently at about 42%. Taxes are only covering three pounds in every four pounds of government spending; the rest is borrowed.

    It would appear that we are on the limit for taxation; spending cuts should be circa 100% of deficit reduction. Not the 80:20 factor I read of. See Chart 3 in the following:-
    http://www.iea.org.uk/record.jsp?type=book&ID

    Keep in mind that if VAT goes up, the "headline" GDP figure will go up. Because it is the market price measure, not the factor cost measure. It is a good trick, the economy will not have improved by a bean.

    • lola
      Posted May 13, 2010 at 12:58 pm | Permalink

      Yes. In fact a VAT rise will cut business revenue.

      • Stuart Fairney
        Posted May 13, 2010 at 4:27 pm | Permalink

        The Lib Dem proposal for VAT on new homes will destroy my business on the day it is introduced.

        • alan jutson
          Posted May 13, 2010 at 5:10 pm | Permalink

          Stuart

          I cannot believe that they will put 17.5% tax on new houses (currently Zero)

          The 40% CGT (may be 50%) on the profit of refurbishing Properties will also be a hit for individuals, as you already pay 17.5% tax on all materials and labour used.

          The Federation of Master Builders, and other trade organisations have been campaigning for years for a 5% vat tax on refurbishment/improvement without success.

          Reason for wanting a 5% Vat rate. It encourages homes to be improved, and it gives a genuine registered builder (who pays tax) a near level playing field, when having to compete on price, with a black economy cowboy (who pays little tax)

          Given the current state of the construction industry, you would think they would want to encourage those who are registered builders, and who pay tax, rather than load the dice in favour of the cowboys who do not.

          But I guess thats what you get with Liberal thinking.

  12. John
    Posted May 13, 2010 at 10:34 am | Permalink

    The biggest controllable expense of any organisation is the payroll.

    All organisations, but particularly those where length of service determines pay-grade and perks rather than merit, build little fiefdoms of mediocrity where headcount affects the pay of managerial and supervisory staff. Inbuilt then is a culture of increasing headcount and budget in order to fluff up establishment and claim higher reward, which has priority over and is contrary to efficiency.

    The first step should be a radical payroll reduction in ALL State controlled public services, Government departments and quangos to cut away this institutional bloat. And for the household gods' sake, START with the NHS the State's biggest payroll.

    Fewer people falling over each other doing the same thing leads to better effectiveness at lower cost = efficiency.

    Why is it politicians can only imagine that to get more out, you need to spend more and so spending less must result in less?

    Next step, privatise provision of healthcare and education thus eliminating the payroll from the State's books altogether.

    Margaret Thatcher did both these things scaling down and selling off the old nationalised industries.

    It seems universally agreed that the State cannot run an airline or a phone company, why does it think it can run health and education despite all the years of evidence to the contrary?

    This led to higher unemployment in early Thatcher but this diminished as the private sector became reinvigorated. Yes dole money costs the State, but does not have the attendant costs of keeping those same people in jobs where they produce little or nothing, and it is short term not entrenching an old problem long term.

    This is of course unpopular and takes guts and a few brains, so the Toff-ee Coalition of the Dubious Brothers is unlikely to get its hands dirty, being more concerned as they are with saving the Planet and wagging their tails in Brussels which is less of an intellectual challenge for them.

    • The Voice of Truth
      Posted May 13, 2010 at 1:21 pm | Permalink

      Quite agree – the question needs to be asked whether any government service, department, quango is absolutely necessary for 'survival i.e can we do without it?. If we can, then bingo give it the chop – the soft option is to cut governemant salaries and pensions by 20%. Our financial position can only be tackled by either huge productivity increases resulting in high GDP growth (unlikely in th ecurrent global environment) , serious cuts – yes that means 30-40%, or notionally by inflating as all current Governments and institutions (EU) are doing, which has a HUGE implication for long term interest rates and ultimately growth.ther is no easy option , no cheap way out and thepoliticians and institutions who helped get us into this mess should not try and tell us there is! Simply we can't afford what we have anymore. That is the grim reality and we better get used to it.

    • John Wrexham
      Posted May 13, 2010 at 10:34 pm | Permalink

      If only life were so simple. Private education was appalling and shambolic until the Board Schools were established in the 1870s, then it had to buck its ideas up. Luckily that didn't matter as Britain ruled a quarter of the world and fixed the terms of trade in its favour. Neither situation applies now. It is bizarrely the existence of the state education system that keeps the private schools on their toes – they have to be excellent or who would pay the fees? At the same time, the private sector shows what the state sector could achieve if it wasn't held back by vested interests, wacko ideas, anti-elitism, and a large sector of the population who frankly are interested in being educated. As long as the average wage is about the same as the fees for a public school, i can't see that privatising our schools will be a vote winner or a real solutuion to the problem. Pretty much the same applies in health too.

      What we need in health and education is a new culture of public service, not people who are obsessed with so-called performance indicators aka the current NHS chiefs. nor is making as much money as possible and off loading their patients at the first sign of a problem aka the current private health sector a solution either.

  13. Javelin
    Posted May 13, 2010 at 10:42 am | Permalink

    I think in previous disussion a few people (including myself) said that in the first 6 months the new Government needed to make contractual reductions – such as pensions, outsourcing, capital expenditure – rather than job cuts.

    I'd also welcome the increase in tax on Capital Gains on housing to 40 (or even 50%) – to remove a market distortion and bring house prices back to a more affordable level. It was house price speculation that was the primary cause of the crash and investors still in that market need to understand that their role means a larger burden must fall on them.

    I'd also like to see symbolic cuts – such as reducing the number of BBC news teams from about 30 to about 5.

    • Mark
      Posted May 13, 2010 at 2:52 pm | Permalink

      CGT on housing would simply stall sales. Why crystallise a tax bill that means you could only afford half a house to move into? Rent instead, and rent your own house out.

    • John Wrexham
      Posted May 13, 2010 at 10:46 pm | Permalink

      How can we create an enterprise economy if when you go out and work and make money you are taxed more on your earnings than if you sit on your backside and profit from the housing market bubble.

      When this country stops thinking dealing in a product that is purposely kept in short supply owing to a cabal between the state and property owners, then we will have a chance of creating a dynamic and entrepreneurial society.

  14. MaxVanHorn
    Posted May 13, 2010 at 11:11 am | Permalink

    John please tell Dave…tax up, revenue down. Tax down, revenue up…how difficult is this…even a 'Limp' must understand.

  15. Mark
    Posted May 13, 2010 at 11:12 am | Permalink

    Looking at the appointments and policy announcements so far, it seems that the biggest risks come from Huhne's oversight of energy that seem destined to fail to grapple with our supply problems while imposing huge costs that will cripple industry and impoverish consumers; and Cable's anti business and banking stance. I hope in the small print there are provisions to reshuffle and change policy in the light of experience.

    The CGT proposals need to be properly thought out. There is a great risk that it simply becomes a tax on realising wealth to meet bills if there is no indexation relief. Perhaps just toying with the ideas will cause a surge of receipts as people crystallise gains ahead of the new rules. Taxing income of hedge fund managers that has been transmuted to capital gain for tax avoidance is one thing: but a swingeing tax on private wealth is quite another.

    • simon
      Posted May 13, 2010 at 6:09 pm | Permalink

      We build nuclear power stations even though have no long term plan for disposing of the waste so why should government unilaterally saddle UK coal powered power stations with carbon capture ?

      This idea that you can capture carbon dioxide and pump it into porous rocks through old oil wells without expending enormous amounts of energy in the process is wishful thinking .

      Far better to allocate what would be spent on carbon capture to those areas of renewable energy generation which can make a significant contribution to solving our energy problems .

      Much like the relationship between public sector and private sector , the biggest bang for the buck has got to be in tackling the demand side .

      If our industrial sector is to grow consumer energy consumption will have to be reigned in in the short term .

      Simple things like educating people to turn their heating down 5 degrees farenheit and put a decent jumper on would stop an awful lot of energy going straight up the chimney .

  16. Neil Craig
    Posted May 13, 2010 at 11:16 am | Permalink

    Geowth is necessary & relatively simple to achieve. Cut regulations that prevent economic activity (the elfin safety Executive who kill 100s of times as many people as they save, allow people to build houses mass produced rather than mandating Victorian building techniques, cut all the "environmental" regulations that ensure public building projects in Britain cost 13 times what they do in the rest of the world; allow the building of new nuclear plants which can provide power at 1/4 the present average & 1/10th windmills'). None of that would cost anything, indeed it would save 10s of billions in administrative costs.

    Unfortunately the LudDims may veto the last 2.

    Actually cutting business taxes, particularly corporation tax comes next.

    Economic freedom + cheap energy = fast growth

    • John Wrexham
      Posted May 13, 2010 at 10:50 pm | Permalink

      If nuclear power is so profitable, how come it has always been subsidised? I am for nuclear as we need to diversify our energy sector, but you have bribe private companies or rather the French state electricity company to go anywhere near it.

      • APL
        Posted May 14, 2010 at 10:39 am | Permalink

        John Wrexham: "how come it has always been subsidised?"

        Ask the same question of so called renewables. Wind generation is subsidised by a tarif levied on all electricity users. Nor is it particually green, and neither efficient.

        Nuclear has the merit of once being commissioned into use of being able to provide a steady known supply into the grid.

        It's subsidies are required it is largly a result of restrictive planning laws imposed by government.

        (Personal allegation about someone removed-ed)

      • Neil Craig
        Posted May 14, 2010 at 11:47 am | Permalink

        Well because it hasn't. This is simply a myth. In the early days some governments did put money into all things nuclear as a way of getting the Bomb but that is no more subsidy than building our bomber fleets during WW2 was subsidy of the aircraft industry, though it certainly helped it grow,

        In fact nuclear pays enormous amounts to governments both in taxes & in the decommissioning fund which appears not to have been kept separate but spent by the government (some of it on subsidising windmills). On top of that the nuclear industry has to pay the "carbon levy" despite not producing the stuff.

        We are not bribing the French to build nuclear plants here. The exact opposite is true. The French recently paid the British government £12.5 billion for our aging plants The main rerason for doing so was noy the plants themselves but that state regulation would only allow them to build new plants on the sites of (most of the) old ones. There is no technical reason for yhis it is simply government dictat.

        French nuclear cost 1.7p per kwh to produce, about 1/4 of our average & 1/10th of windmills. I am confident that if the regualtory regime was only as restrictive as in comparable industries that price could be halved. Nuclear, of course, has a safety record thousnads of times better than any comparable method of generating power.

  17. Nick
    Posted May 13, 2010 at 11:21 am | Permalink

    Fiscal incompentence carries on with Ant and Dec.

    6 billion of cuts

    Deficit is 160 billion

    Funding needed 154 billion.

    Interest only mortgage og 154 billion is 7.7 billion a year

    Onward into the mire ….

    Nick

  18. Lindsay McDougall
    Posted May 13, 2010 at 11:23 am | Permalink

    One strategy is to get all the increase in the total tax take out of the way by using VAT as a regulator in this financial year. The objective – using the criterion of 4 parts expenditure cuts to one part of tax increases – would be to raise the total tax take to 38.5% of GDP. From 2011 onwards, we would rebalance taxation as desired, maintaining it at 38.5% of GDP.

    I don't believe that natural wastage on its own will be sufficient to get the public expenditure cuts required. We shall see. The crunch will come in FYR 2011/12.

    Will the coalition please confirm that eliminating 'the bulk of the structural deficit' during this 5 year parliament means reducing the deficit by about £100 bn in 2010/11 prices?

    Our problems are now being addressed. Whether the EU and the Euro zone's real problems are being addressed is doubtful. There seems to be no limit to the amount of money that the federalist fanatics in France and Germany are prepared to throw at Club Med. As I said earlier, let the PIIGS default and leave the Euro zone, and let us raise our glasses to the Bundesbank.

    Greece does have an alternative to defaulting. It can reschedule its debts over a longer pay back period and borrow at market rates. It would mean that they would endure pain over a longer period of time.

  19. Gareth
    Posted May 13, 2010 at 11:25 am | Permalink

    Perhaps it is time someone told the BBC they aren't supposed to be half the TV and radio industry and a subsidised finishing school for media studies students.

    Let it have adverts on radio and telly except for BBC1 and slash the licence fee by two thirds. That's £2 billion pa saved.

    • BillyB
      Posted May 13, 2010 at 2:18 pm | Permalink

      wouldn't that just take advertising trade away from the commercial channels and/or lower ad costs and quality?

      lets not. I like my advert-free zone

      • John Wrexham
        Posted May 13, 2010 at 10:54 pm | Permalink

        Good stuff, billy. we all need an escape from boring annoying bl***y adverts! plus how many media studies studies actually make it into media as they don't have specialism that the real media actually require.

    • APL
      Posted May 13, 2010 at 6:07 pm | Permalink

      Billy B: "wouldn’t that just take advertising trade away from the commercial channels "

      Not necessarily, the BBC could operate on a subscription basis.

      Billy B: "and/or lower ad costs and quality?"

      Yes, but I don't care, or I object to being compelled to pay for something I do not necessarily want.

      And as to the avertisements, use your digital recorder and skip them when they come on.

      And, I am sick to the back teeth of the partial news reporting.

      • John Wrexham
        Posted May 13, 2010 at 10:58 pm | Permalink

        Lots of people object to Britain having a nuclear deterrent, would you give them a refund as well? Perhaps we should pay for Trident on a subscription basis? At least with the license fee, we know where the money is going unlike say VAT, National Insurance, Road Tax, Fuel Duty etc etc etc.

        • APL
          Posted May 14, 2010 at 8:50 am | Permalink

          John Wrexham: "Lots of people object to Britain having a nuclear deterrent .."

          You make the case that the BBC defends us from our enemies and I will happy to consider your comparison. Otherwise it is just silly.

          By the way there is a case that the BBC has done exactly the opposite, that is undermined the United Kingdom.

          Yes, we are on much better terms with the former Soviet Union.

          But our relations with Iran are deteriorating yet Iran has not only expressed an intent to obtain nuclear weapons but also an intent to use them. Iran and North Korea are both allies once Iran has its own warheads and the means to deliver them, there is a good chance North Korea will have access to them too.

          I don't agree that in an age of nuclear proliferation by rogue states we should choose this time to decommission our weapons.

          If we left the European Union we might be able to abolish VAT too. National Insurance should be abolished as it is a tax on Jobs, agree we should abolish Road Tax.

  20. alan jutson
    Posted May 13, 2010 at 11:28 am | Permalink

    Good to hear DC say they have inherited the worst financial mess in history.

    Lets get it on record so there is absolutely no fudging by the spin masters, by publishing the full and horrible facts with a totally independent Audit, which includes all of the off balance sheet borrowings, PFI, civil service pensions etc etc.

    The title: Labours Legacy.

    Clearly too early to make any real judgements or comments, but let us hope John, that you have some input or influence into some of the policies even if it is behind the scenes. If they do not use your Business, Banking, Financial, and past Cabinet experience, I fear they will be making a big mistake.

    • BillyB
      Posted May 13, 2010 at 2:13 pm | Permalink

      hear hear ! – to publishing off-balance sheet stuff.

      but wait – wasn't PFI a Tory wheeze?
      and the state pensions have always worked this way…

      still – its time to quantify the liabilities though, otherwise we are being deceived as to the state of the real problem

      • John Wrexham
        Posted May 13, 2010 at 11:01 pm | Permalink

        PFI is just another manifestation of having your cake and eating it. Or paying on the never never as it used to be known. PFI has also created a client state of so-called private sector companies that just milk the poor bleeding tax payer for as much money as possible for as long as they can, step forward Metronet, National Express and most of the construction industry.

  21. lola
    Posted May 13, 2010 at 11:31 am | Permalink

    Yeah. Right. And raising the VAT rate is going help. Not.

    Plus raising the CGT rate on shares! What are my 'little old lady' clients going to say when their income is cut – again.

    There are about 6m people turing up for wages in the 'public sector'. About 1.4m of these do something valguely useful – teaching, doctoring, nursing, soldiering, policing etc. Call that 25% of state 'workers'.

    About 330,000 leave state payroll each year. Say 25% of those are 'the doing something usefuls' which leaves about 240,000 non jobs that need not be filled. Call that 1/4 million.

    Freeze all recruitment for 5 years, that's 1.25 million less bodies advsiong me on how much fruit to eat or stopping me filling up a 20L jerry can with fuel (yes, really). Say that the on cost of each of those is about £50,000 pa. That works out a spending reduction of £62.5Bn. It'd me twice that of course because all the jobsworths wouldn't be around buggering it up for the rest of us.

    Simples.

    You're in power now Mr R so there's no place to hide. So get bloody on with it.

    • John Wrexham
      Posted May 13, 2010 at 11:05 pm | Permalink

      Your little old ladies will have their annual capital gains allowance so they'll be fine, plus as other taxpayers are paying your clients' heating bills, pension, tv licence, bus pass, health care and social services, i don't reckon they are doing too badly.

      • Lola
        Posted May 17, 2010 at 10:01 pm | Permalink

        Nope. They have seen their income reduce since Brown came to power plus the return on their (modest) investments have been depressed by Darling Brown Balls mad policies. Furthermore if this were not the case they would be quite happy to look after themselves without the heating allowance, tv licence, bus passes and so forth. They are being uncessarily taxed purely to make them dependent on Darling Brown Balls.

  22. Andrew Duffin
    Posted May 13, 2010 at 11:42 am | Permalink

    £6Bn? Outside certain protected areas?

    This is hardly even a rounding error; I suppose it might placate the markets for a few weeks, but it hardly solves the problem.

    To be fair, it's probably only a holding operation, but even so, there is a worrying lack of any sense of urgency. We could cut by £60Bn and still be short of what's needed.

    And I have a nasty feeling that these "protected areas" of teachers, nurses, doctors, Motherhood and Apple Pie, etc, will turn out to include all the bureacrats who work anywhere near those people.

    It's not a convinicng start, but perhaps it's all that can be done (or even said) at present.

    Much much bolder measures are going to be needed, I believe.

    • John Wrexham
      Posted May 13, 2010 at 11:07 pm | Permalink

      It's easy. Cut the public sector in Northern Ireland down to the size of the rest of the UK and then hold a referendum on whether they want to be part of the UK or the Irish Republic. We could half the structural deficit overnight as long as they vote for Dublin.

  23. JohnRS
    Posted May 13, 2010 at 12:54 pm | Permalink

    @Mick

    I see it has even more "fun" to micromange than its predecessor as the full title is now "Culture, Olympics, Media and Sport".

    If cuts need to be made the way to do it is not to salami slice each budget so we end up just doing the same as before but everything gets done less well. The most effective method is to decide what is core and stop doing the rest – completely.

    I would suggest that in the current environment "COMS" is non essential and should be closed down in its entirety and not tweaked and fiddled with.

    • John Wrexham
      Posted May 13, 2010 at 10:09 pm | Permalink

      We'd save more money and deliver more, if we let the 'front line' deliver. Schools, universities, hospitals, councils, police etc should manage themselves. Instead of constant supervision by quangos operating from the centre which costs a lot and tends to stifle initiative, we should bolster accountability to users and give more power to the electorate, the NAO and the Audit Commission to hold public sector managers' feet to the flames if they are not delivering value for money and an improved service.

      We also have to educate the public that complaining about the 'post code lottery' discourages innovation in the public sector as we will only see improvements if we free people to do their best, rather than force them to do the same as the rest.

  24. Ian Jones
    Posted May 13, 2010 at 1:03 pm | Permalink

    Not to worry, we will be inflating away the debts. 4.8% RPIx last month, lets see what its got to now.

    I see the Bank of England is now saying inflation wont fall until next year, how much longer do they think they can fool people?

    Disgusting.

    • Mark
      Posted May 13, 2010 at 2:58 pm | Permalink

      Recent months have been more like 8% annualised. Next figures on 18thMay.

  25. James
    Posted May 13, 2010 at 1:55 pm | Permalink

    John, what are your thoughts on the 55% rule – I think its quite undemocratic – Should be 50% + 1. 55% just seems very gerrymandered and if it is introduced must only be introduced for this parliament only – though I don't think it should be intorduced at all.

    • John Wrexham
      Posted May 13, 2010 at 10:11 pm | Permalink

      Iain Dale is right on this one.

  26. BillyB
    Posted May 13, 2010 at 2:06 pm | Permalink

    With interest rates at an all-time low, and consequent savings made on mortgage repayments being available for consumer spending – why isn't the enterprise economy roaring away?

    Maybe because its dead.

    Surely an "enterprise package" John, is just a weaselly way of saying "subsidy" for our uncompetitive industry… and meanwhile our jobs leak overseas

    Reply: No, I do not favour subsidies. I favour tax cuts and less regulation.

  27. Robert K, Oxford
    Posted May 13, 2010 at 2:31 pm | Permalink

    I meant to add. One way of reducing the deficit is to sell useless state assets. Let's start with the BBC, which should be auctioned off to the highest bidder. See Charles Moore in the Telegraph for all the arguments you need.

    • DBC Reed
      Posted May 13, 2010 at 6:00 pm | Permalink

      Tell you what sell it off to Rupert Murdoch.Private sector cartels good: public sector bad.

    • John Wrexham
      Posted May 13, 2010 at 10:16 pm | Permalink

      As the BBC is about the only institution that holds the United Kingdom together, I wouldn't recommend selling it off. Traditionally the Conservatives have been a patriotic party, but with policies like this, we might as well run up the white flag, put up a for sale sign on the white cliffs of dover and hope that one of the less dubious sovereign wealth funds decides to buy us. Hard to believe that at the start of the 1970s the Gulf States were a British protectorate, now they have wealth and a balance of payments surplus of which we can only dream.

      • APL
        Posted May 14, 2010 at 10:44 am | Permalink

        John Wrexham: "As the BBC is about the only institution that holds the United Kingdom together "

        Haw haw!

        If that is all that is holding the UK together, perhaps it is better we disolve into our constituent countries.

  28. Andrew Gately
    Posted May 13, 2010 at 2:35 pm | Permalink

    The problem regarding the deficit is very large.

    Like most people on this site I think that we pay enough tax and to balance the books we need to bring spending down.

    In the short term this is just not possible so taxes need to rise, but why do we have to raise taxes in the same way as new labour by fiddling with various taxes and making the tax system more confusing and cumbersome. This is exactly what we don't need if we are to encourage entrepreneurs to kick start the economy.

    The most sensible way in terms of simplicity and minnimum cost to businesses of raising tax is by raising the basic rate of tax. Once the cuts in spending have taken place then the basic rate of tax can be reduced.

    The tax system is already on its knees following Brown lets keep Cable away from it and start repairing the damage rather than adding to it,

  29. Tony Wood
    Posted May 13, 2010 at 3:28 pm | Permalink

    John,

    Good to see you mention the need for an "enterprise package". The new Coalition has a great opportunity to be radical: how about low tax/red tape free zones in which all the strangling regulations and disincentives are removed for new business start-ups – and giving existing businesses the chance to opt in too?

    We are an inventive nation. Given the opportunity and freedom from regulatory treacle I think people will create new businesses and jobs that are simply beyond the imagination of bureaucrats.

    I'd like to see you have a role here!

    • John Wrexham
      Posted May 13, 2010 at 10:21 pm | Permalink

      Unless you make the whole of the UK a low tax/red tape free zone, then this policy would just be the latest in a long line of well meaning but generally underachieving regional development policies that have been enacted ever since the Great Depression.

      We could really encourage people to go out and work and be entrepreneurial by ending all the tax benefits that encourage people to invest in 'bricks and mortar'. We have created a spiv economy where it's too easy to make money out a product that is purposely kept in short supply. Meanwhile real entrepreneurialism is not supported at all.

  30. JimF
    Posted May 13, 2010 at 3:42 pm | Permalink

    Spending cuts taking the majority of the deficit reduction?
    Inflation, taxes and (slight, inflationary) growth more like. Compromise is the way this Gov started and compromise is the way it will continue. No hard choices. It's not the Cameron way.

  31. Hugh
    Posted May 13, 2010 at 4:03 pm | Permalink

    John.

    As I remember Brown bottled Public Sector Pensions reform a few years ago.

    Do you have details of how much goes through the books each year for public sector Pension Costs.

    Much of course is unfunded, and pay as you go, so this may effect the figures, but maybe fairer application of private sector rules would show up the problem in stark relief. My memory is that a former employer used to add more than 20% of the salary bill within department budgets.

    If one third of this was renegotiated to be taken from the payroll total rather than the gross budget we would be looking at a useful gross total reduction.

    All the Best

    PS you are much more usefully employed producing ideas than executing the daily grind of departmental meetings.

  32. Simon2
    Posted May 13, 2010 at 4:59 pm | Permalink

    I see the BoE are hinting at low rates for a long time to come. This is disappointing diven the newed housing boom and inflation. The longer we keep rates at 0.5% the longer the economy will remain lop-sided and the more people will be up to their necks in debt. We cannot mollycoddle the hopelessly overborrowed forever.

    The CGT tax change to 40% was a positive start to the new administration, I hope to see more positive things in future such as a scrapping of house price inflationary shared ownership schemes.

    • John Wrexham
      Posted May 13, 2010 at 11:09 pm | Permalink

      Good stuff, Simon

  33. A. T.
    Posted May 13, 2010 at 5:01 pm | Permalink

    An unfair question to Mr. Redwood, but one that will be asked sooner or later. How far to the centre/left can Cameron go, before you break ranks ?

  34. FaustiesBlog
    Posted May 13, 2010 at 5:56 pm | Permalink

    Can selected civil servant groupings not be offered redundancy packages that would enable them to become self-employed, with a sufficient financial cushion?

    If start-ups are offered a year's tax holiday and the slashing of red tape, perhaps many civil servants will find this to be an attractive option. The savings on perks (expenses, office space and equipment, pensions, etc.) might be significant.

    Why not make QUANGOcrats justify their jobs, and reapply for them? There must be a lot of dead wood, "jobs for the boys" and lefties in QUANGOs which could give the government a headache in coming years.

    The Conservatives should consider withdrawing funding from fake charities (like ASH). If they really are charities, they should engage in fund-raising in the manner of charities in previous decades. Quite often, the figures these fake charities use to 'justify' their funding are spurious.

    • John Wrexham
      Posted May 13, 2010 at 11:17 pm | Permalink

      The charities sector needs a thorough overhaul as it's as rotten as the state of denmark in shakespeare's hamlet. The sector divides into organisations actually engaged in selfless work for the benefit of others and those who use the sector as a tax haven to avoid making a more useful contribution to society ie their money.

      Labour's reform made a bad situation even worse (no surprise there), so while private schools have to leap through hoops to say education is a common good, the uber rich use charity law to avoid tax or launder money as the accountancy regs are so lax compared to company law and we have a proliferation of charitable organisations that seem to exist solely to leach off the state, lecture the public or think up new wheezes to justify their continued existence.

  • 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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