How do we encourage a faster private sector recovery?

Tonight I have been asked to talk to a group of Economists about the state of the UK economy.

I will start by praising David Cameron’s stated aim of creating conditions for a strong private sector led recovery. It is the best way to curb the deficit and raise living standards. It is no good cutting public spending without at the same time facilitating the growth of the economy and the provision of new jobs. The UK’s budget deficit has to be brought down. One of the main reasons it is so high is the large pool of unemployment with people sitting on benefits. We ned to tackle that as part of the deficit reduction policy.

So what should the government do to promote this recovery? They need to take action in four areas: tax, regulation, banking and public procurement.

Tax

If you want more of something you need to cut the rates of tax on it. The government is right to propose cutting National Insurance, the tax on jobs, and Corporation Tax, the tax on company profits. They also need to cut CGT, the tax on business success by entrepreneurs, and cut the higher rate of Income Tax, which is currently at a thoroughly unfriendly and uncompetitive 50%. We need to cut effective Income rates for the higher paid and for the lower paid.

Regulation

Regulation on Labour’s scale is another form of backdoor taxation and strangulation of enterprise. The British Chambers of Commerce have identified aorund £100 billion of extra burdens imposed on British business over the last 13 years. I have set out elsewhere how to start to bring this down. Mr Clegg’s Repeal Bill provides the mechanism to do so and must be used extensively to make an impact. We are driving business abroad to less regulated territories by our current stance. Much of the current regulation is the sledge hammer to miss the nut.

Banking

The banks do not currently have the capability to lend enough to fuel a good recovery. The government should tell the Regulator to become more counter cyclical. Relax the cash and capital requirements at this low point of the cycle and strengthen them as the recovery gets underway and as the banks make more profit.

PUblic procurement

Split up contracts and make sure specifications are friendly to UK based businesses bidding for public contracts. The public sector will still buy a lot even after the cuts. Make sure it buys British as often as possible at good prices which stand up to scrutiny.

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56 Comments

  1. Bill
    Posted June 1, 2010 at 8:10 am | Permalink

    I would only add that –

    The state of Heathrow may well inhibit business development in the south of England.
    Heathrow does require a third runway. Failure to grasp this nettle will give advantage to other European capitals.

    In the absence of sorting Heathrow out then another airport needs to be upgraded.

  2. mark randell
    Posted June 1, 2010 at 10:47 am | Permalink

    mr redwood.

    i must say that i was watching you on television this morning,
    and for a change i totaly agree with what you say regarding taxation. why on earth tax people to the hilt!!
    the more people are expexted to pay the more they will find away around not paying.
    please make the taxation more fair!!.

    best regards

    mark

  3. oldrightie
    Posted June 1, 2010 at 12:36 pm | Permalink

    I firmly believe you should have David laws old job!

  4. Liz
    Posted June 1, 2010 at 1:36 pm | Permalink

    Following your reasoning in the post queens speech debate, (impressive how you do it without even a post it note) how about zero corporation tax on manufacturing industries? (carefully defined of course.) This should attract industries which would in turn create spin off businesses and employment.

    If you just cut CT across the board a lot more one-man consultants, many of them incidentally getting money from the public sector, will form companies to avoid paying their share of income tax and national insurance. They're already in HMRC's radar with IR35 which is very messy and the new government has promised to look at it, but we don't want to make the problem worse.

    We need to be exporting to get money into the country. We don't just need more hairdressers, beauticians and accountants. Labour has of course never understood that.

    Moneyweek's free email today explained why Germany is successful. I don't know if they have tax incentives for manufacturing but they seem to understand that that is where wealth comes from.

    Moneyweek says : "German dole queues are already at their shortest for 17 months – which other country can claim that? Even the Bundesbank, Germany's central bank which isn't exactly known for its cheery disposition, reckons the economy will "expand robustly" in coming months on the back of the weak euro. "

    A weak currency isn't a problem when you export. In a sense its weakness is the seed of its strength.

    The other elephant that no-one is mentioning is that we did actually sign the "constitution" so our whole economy might soon come under effectively-German regulation. That could be a good thing, but I doubt it.

    • simon
      Posted June 1, 2010 at 6:58 pm | Permalink

      There are massive cultural differences between Germany and UK that financial and business incentives alone cannot overcome .

      For a start , in Germany Engineers are respected and valued .

      If you try to explain to most people in the UK that a good engineer should make as much money as a barrister , well qualified accountant or architect they will not get it , in Germany they accept it and revere them .

      Perhaps it is the vestigial remnants of the attitude of the upper classes in Victorian and Edwardian Britain who looked down upon people who had made good through "the trades" .

      When I went into software development about 22 years ago I.T. was viewed (by the mainly white middle classes) as an unglamorous career choice , not even considered a proper profession .

      How many people in our parliament came from a hard scientific background rather than professional Politics or Law ?

      UK PLC didn't do too badly with a Chemist at the helm a few years back and Quantum Chemist Angela Merkel has served Germany brilliantly .

      One barrometer of the changes needed will be when kids start choosing Maths and Science A levels and degree courses over soft social sciences .

      We've got a long long way to go if the UK is ever to become as attractive a destination for Engineers as Germany .

      • Paul A
        Posted June 1, 2010 at 9:55 pm | Permalink

        Simon,

        I'm sorry I just think your reasoning is nonsense. I do not think that Germans revere engineers any more than we do what they do is have a tax incentive scheme that encourages small to medium size engineering and electronics businesses.

        I've never, ever heard anyone complain that engineers are paid too much and I have to say as a networking and data comms engineer in the 80's I actually earned more than a barrister friend of mine.

        As to your Victorian hypothesis well, we are talking Brunel, Paxton, Sir Henry Cole, Thomas Telford etc etc …..Sorry the Victorian era was the golden age of British engineering !!!

      • The college tutor
        Posted June 2, 2010 at 9:38 am | Permalink

        I completely agree,

        I am helping my son revise for his GCSEs, the English, maths, French and geography are all pretty comparable with my o levels of 1981. The science is useless and dumbed down "debate" over vaccines and food additives. It is possible to get good marks without any scientific knowledge.

        Until science and technology are taught with rigor in schools, and engineers paid better than lawyers, we will have a lawyer based economy rather than a manufacturing based one. I could not encourage my son to do science A levels at present, unless he wanted to emigrate.

        • Chris H
          Posted June 2, 2010 at 1:12 pm | Permalink

          There is still a definite view in this country that engineering is a more lowly place to be, reflected by the pay in comparison to desk-bound jobs and "suit-professions" such as law, banking, etc. Administration seems to be always held in high regard, for some reason; I think it has some kind of "status" label for some people.

          Electronics sectors have been desecrated by shipping so much work off to the Far East, India, etc. My husband used to work on oil-company R&D stuff, designing, testing, assembling…….now he's stuck at a computer all day, writing reports, safety guidelines for equipment and other rear-end-numbing stuff. Much of the old "hands-on" work has long gone.

          Now I have a son due to graduate this month with a physics degree. No good asking him to become an accountant or shelf-stacker; science is his forte and nothing will change that. He's also a good programmer. But he doesnt yet have the personal confidence to seek work abroad; and is gravely concerned about the state of Europe anyway.
          Oh yes, and the degree was an absolute real hard-work job. Anyone who gets a physics degree has damned well earned it. No dumbed-down science here.

        • StevenL
          Posted June 2, 2010 at 9:06 pm | Permalink

          Which exam boards? Fancy scanning, posting, linking, naming and shaming?

        • Javelin
          Posted June 3, 2010 at 11:56 am | Permalink

          Agreed I have been helping my daughter with her science and the multiple choice questions were all about where to place environmentally friendly wind turbines and nothing to do with science.

          Note to Minister for Education : get the science papers for the past 3 years and grade each question on how scientific they are. Tell the examiners they won't get a licence unless they get 8 out of 10.

  5. Andrew Duffin
    Posted June 1, 2010 at 2:15 pm | Permalink

    “How do we encourage a faster private sector recovery?”

    Somewhat flippantly, I would suggest the simplest solution of all – stop taking peoples' money away.

  6. simon
    Posted June 1, 2010 at 2:53 pm | Permalink

    Points 2-4 have very little risk attached to them and are pretty much no-brainers .

    Taken together , the proposals would make Britain a pro-business rather than anti-business environment .

    My concern is that the debt is so enormous and growing so fast that we will get swallowed up before the growth starts to kick in .

    Take the tax reductions , I'm aware of the laffer curve but surely there will still be a lead time between cutting taxation and the tax take recovering .

    As a nation we can't bank on a recovery arriving on time and must savagely cut public expenditure and reduce future commitments now .

    The margins in most small businesses will not cover overheads like H.R. manager , health and safety officer etc to comply with regulation and legislation .

  7. paul a
    Posted June 1, 2010 at 3:00 pm | Permalink

    Totally agree with this John.

    The other thing I would add as a matter of urgency is the repeal of IR35. I would go further and put in place a simpler vehicle for the formation of one and two person businesses.

  8. DBC Reed
    Posted June 1, 2010 at 4:00 pm | Permalink

    At least Mr Redwood recognises that you can't cut the public sector without increasing employment in the private sector : am not sure that Mr Orange Book ,David Laws was really bothered with the second part of the equation.
    Similarly with the proposition that too many unemployed people are sitting on benefits.The real Nasties just want to remove the benefits not the unemployment. Without any recourse to the public sector ,in other words tying one hand behind your back, getting rid of unemployment is just about impossible.It is a pity that some Conservatives are so determined to get round the course with only a putter.
    Similarly although taxation is ,as you rightly observe, a matter of removing taxes on things you want, it is also a matter of taxing things you don't want.Another housing bubble fuelled by QE money is definitely not wanted.So big taxes on Capital Gains in houses including primary residences or LVT are absolutely essential.No messing this time.

    • Mark
      Posted June 1, 2010 at 6:03 pm | Permalink

      Bank lending to industry is being crowded out by lending to government and lending on mortgages. Indeed, government is effectively lending on mortgages via the BoE a sum that the CML reckons as £319bn, rather more than (and wholly additional to) the official QE of £198bn. A problem for banks is that falling house prices cause losses on their mortgage books. A problem for the rest of us is that we don't want the banks to lend more to inflate house prices, yet we don't want them to go bankrupt either. The £319bn is not yet officially part of the government debt – but it will become so if it can't be refinanced commercially. Mortgage lending is currently heavily subsidised by the very cheap rate at which money can be borrowed from the public or the BoE. Inflation is in danger of getting out of control, having risen sharply in recent months: annualised, the RPI increased at 12% last month. That makes all but credit card interest rates negative in real terms. We need higher interest rates, not CGT changes.

      • DBC Reed
        Posted June 1, 2010 at 8:11 pm | Permalink

        The CGT changes are targeted at property in this instance,although LVT which targets the thousands of land plots with extant planning permissions is a better levy. Should n't we be trying to leave interest rates low as a demand stimulus? And stop any cheap money being hedged into property by a stiff tax?
        Do n't buy the old 70's crowding out argument.The banks are being given up-front money by QE.That they don't spend it on business lending is their choice.I'd give it to the public services.Seriously.They'd at least spend it into circulation.

        • StevenL
          Posted June 2, 2010 at 9:13 pm | Permalink

          King called it 'balance sheet correction'. If you give the money to individuals it becomes a liability for the banks as soon as they deposit it. They are trying to increase banks capital, i.e. assets – liabilities. So they give it to the banks in the form of an asset swap.

        • Mark
          Posted June 3, 2010 at 2:15 am | Permalink

          Businesses aren't borrowing from banks because they don't yet see the investment opportunities that will give a good return (although some of the measures suggested by JR would help to provide that confidence). Banks aren't lending to businesses in financial difficulties because unlike with houses, writing down a business loan has little implication for any other part of the loan book. Banks aren't lending to banks because they still fear collapse of their mortgage books, as has been happening in several economies already – Spain and Ireland are currently under great pressure for this reason. Investors are seeking better inflation hedges than bank deposits that give negative returns.

          Clearly you understand that cheap money inflated the bubble, yet you consider it an economic stimulus. Not so: it offers temptation for sloth, especially when real interest rates are negative. Borrow against an asset and consume: repay later in depreciated money with no real interest rate penalty. That is where we have come from, with disastrous consequences. Head further down this road, and you'll see house prices double again as we run close to hyperinflation. That really would take us back to the 1970s.

    • simon
      Posted June 2, 2010 at 1:43 am | Permalink

      Redundancies in the public sector can be avoided but it will require a bit of realism .

      I've had to adjust to making almost 9% less than I was making 3 years ago before tax .

      The public sector should take a cut of circa 20% in return for continued employment .

      Anyone who doensn't like it can take there extremely generous severance pay .

      • StevenL
        Posted June 2, 2010 at 9:16 pm | Permalink

        I work in the PS, I'd take up to 15%, any more than that and I'd be better off getting a private sector job where there is less nonsense to do your head in.

        The thing is the unions will probably strike over a pay freeze.

        • simon
          Posted June 3, 2010 at 5:50 pm | Permalink

          Stevenl , I apologise for my original post being somewhat inflamatory .

          I've received in the main very professional from the health service , tax people and most of the public sector infact .

          Things are really really bad in the private sector and there are very few good jobs out here . Hang onto your PS job for grim life until the country gets back on track , if that ever happens .

          There is a division which has opened up as DBC Reed mentions but I don't think it's due to political stoking , it is innevitable given the gulf in terms and conditions in public and private sectors .

          Surely there cannot be any justification for public servants to have pensions schemes available to them which are not accessible to the majority of people in the country . The long term aim has to be proper pensions provision for everyone paid for by the beneficiaries and existing for their benefit , not the financial services industry .

          It's interesting you should place a premium of 15% on public sector remuneration .

          How many of your colleagues appreciate how bad it is for their private sector cousins ?

      • StevenL
        Posted June 3, 2010 at 9:57 pm | Permalink

        Simon, I'm a temp so will probably need a new job soon anyway. I don't have any debts or kids though so I'll be alright.

        I keep an eye on the utilities companies websites to see who is hiring for sales jobs and I reckon it is getting better. I don't know what the number of applications are like these days though.

        I'm not in the pension scheme and part of that is because of the uncertainty. Everyone knows our long term age-related liabilities don't add up but it's political dynamite given the demographics of the electorate.

        I don't know how many PS workers even think about these things. Contrary to what most tory bloggers believe you're more likely to find council workers reading celebrity gossip mags or the local rag than the Guardian. You'd be surprised at the number of Daily Mails about too.

        Most of them just left school or uni, got a job in the council and it's all they've ever known. To be honest I'd be glad to see the back of it in a way, it's not a very dynamic place to work and it's full of boring old codgers.

    • Chris H
      Posted June 2, 2010 at 1:32 pm | Permalink

      Why do we keep on getting people advocating CGT on primary residences? That would bring house sales to a grinding halt; no-one is going to hand over half the value of their home to government. If they did, how on earth would they afford to buy their next place? I bought for £50,000 some twenty-six years ago; no idea what it's worth now, say £250,000. I would be severely punished for having kept my home for so long, paying tax on probably £200,000 of it. So say goodbye to £100,000, leaving me £150,000. In my area I'd be lucky to buy a small two-bed flat for that, at today's prices. Forget it. I wouldnt bother moving, and neither would many other people.
      That's just stinking robbery, Mr Reed; I assume you don't own a house?
      Keep going like that and everyone would be broke, worthless….or maybe that's the plan?

      • DBC Reed
        Posted June 2, 2010 at 3:20 pm | Permalink

        Of course you could say charging 250k for a 50k house is some kind of robbery as well, but I would n't have the nerve to suggest anything so crass on this a staunchly Homeownerist site.(No wonder BTW that bank lending to industry is being crowded out by home loans if this amount of pure inflation has to be factored in.)
        But you are of course right about CG tax : it will slow down the property market.As I made clear above my preference is for LVT which homeowners dislike even more.But they elected the current government
        so we'll most likely get rising unemployment and inflating house prices.What are the figures?.80% of people under 30 in this country can't afford a house ?

        • Chris H
          Posted June 2, 2010 at 4:21 pm | Permalink

          I do not set the market rates for a house sale. Is it the fault of the ordinary person that the house prices have gone up? I didnt ask for my house to go up by so much, but I would look pretty stupid if I sold it for the original amount and then found myself without a home at all, due to everyone else obeying the market values.
          As for LVT that is a subject that few people even know about, let alone understand. It would have to be applied fairly and without prejudice, which is something I can't see happening. And how one starts trying to teach the average man in the street about the complexities of it is another thing entirely.
          I didnt vote for the current government either.

      • DBC Reed
        Posted June 2, 2010 at 3:39 pm | Permalink

        I suppose in a free country with a mixed economy people could go and work in the public sector when times were bad.Also a lot of private sector
        firms have contracts with the public sector so that source of steady income will go down the tubes come the big axe. ( I once tried to take a public sector organisation to court once: all the local solicitors declared they had a conflict of interest being already in this organisation's employ.)
        It's a pity the right-wing political parties have divided working people into antagonistic public and private sector camps when there is a community of interest.

        • nonny mouse
          Posted June 4, 2010 at 7:45 am | Permalink

          If the public and private sector camps are divided it is because the unions trying to fight the cuts.

          Dont blame the current government for dealing with the problems. If Labour had stayed in power they would have had to do the same thing.

          Labour reduced the impact of the recession by protecting the public sector, but at the cost of ruining the public accounts. The community of interest is fixing the defecit. The private sector took the hit earlier and harder, now the public sector needs to catch up with taking it's share of the pain.

  9. Antisthenes
    Posted June 1, 2010 at 4:10 pm | Permalink

    If the government follows your recommendations especially on deregulation then British firms will be far more competitive and should gain government contracts against any competition. However giving them special treatment ( "Split up contracts and make sure specifications are friendly to UK based businesses bidding for public contracts") would be unwise as you would undermine incentive to increase competitiveness and inflate cost to the tax payer.

  10. Sally C.
    Posted June 1, 2010 at 4:30 pm | Permalink

    I agree with you, but I would go further and say that we should go all out to encourage business creation in the UK. In order to encourage home grown businesses and attract foreign entrepreneurs we really need to undercut our competitors with a very attractive flat rate corporation tax. Ideally, we should give companies either a holiday from NI contributions or a much reduced rate of NI contributions for say 5 years. On top of that, we could offer a reduced rate of CGT (eg. 10%) on any portion of salary which is taken in the form of shares in the company, if held for 5 years. (At the same time, we have to stress our committment to reduce the top of income tax.) We then have to publicise the new conditions around the world and hope for the best.

  11. Rich
    Posted June 1, 2010 at 4:50 pm | Permalink

    John, I agree with much of what you write, but am wondering what happened to the Non-Dom tax? It was a good idea that appeared to allow the Treasury to raise much needed revenue without hitting industry or wealth-creators disproportinately, by focussing on those who chose to withhold their overseas earnings from the Exchequer.

    I would have preferred to see that introduced rather than the CGT hike, although I am sympathetic to Mr Cameron's aim to "spread the burden" of revenue-raising, and not focus solely on VAT like in the past (which does clobber low-earners).

    Another possibility would be to distinguish between different forms of capital gains so that CGT can be kept low for long-term prudent savers and pension investments, whilst short-term gain is taxed at a higher rate. Or indeed tighten up specific restrictions on CGT, so the rate is kept uniformly low, (thus not deterring any investments), but catching out those who merely use it to avoid income tax. I am sure there enough sharp minds at the Treasury to work on that!

    Reply: Labour introduced a non dom tax

  12. Acorn
    Posted June 1, 2010 at 5:00 pm | Permalink

    You will have noticed a parade of public sector trade union and similar vested interests on Radio 4 Today programme. Typical BBC bias. All claiming divine rights to taxpayer's money; purely in the interests of the nation you understand.

    There is no right to strike, just immunities from the consequence's of going on strike. The public sector union well will increasingly become unstable. It is going to need a Blow Out Preventer that works.

  13. nonny mouse
    Posted June 1, 2010 at 6:01 pm | Permalink

    >> Relax the cash and capital requirements

    The capital requirements were increased to ensure the banks dont go out of business. I'm not sure that reducing them so soon is a good idea, especially with the Euro area in melt down due to the risk of soveriegn debt. We wont be able to afford bailing them out again.

    Some ideas:

    There is a lot of unused commercial real estate available. Having a holiday on business rates for startup businesses might help.

    Exempt startups from paying minimum wage for 12 months for up to 5 people if they were long term unemployed. Possibly top up the earnings with the savings from unemployment benefit.

    Change the grant rules for RDA's and other schemes so that money goes to creating new businesses/employment rather than proping up existing businesses.

    Allow startup businesses to keep a part (1000 pound/quarter?) of their VAT return for a limited time. This would encourage some of the small businesses to register for vat even thought they are below the threshold which would increase the VAT take and pay for itself.

    Setup/sponsor a uk wide small business 'social network' website where small businesses can find customers, suppliers, business advisors and investors. Facebook meets Linkedin meets Dragons Den. (note: this should not be a government IT project that costs millions and doesnt work!).

    Encourage the BBC/Channel 4 to do a better job of promoting business innovation and showing success stories to motivate a new wave of entrepeneurs.

    Make 2011 the year of the startup.

    • Stuart Fairney
      Posted June 2, 2010 at 10:51 pm | Permalink

      "Having a holiday on business rates for startup businesses might help"

      Indeed it would, but why not follow the logic of your position? If a holiday would be good, wouldn't emigration be better? i.e. the total abolition of this dead weight on business.

      "Change the grant rules for RDA’s and other schemes so that money goes to creating new businesses/employment rather than proping up existing businesses"

      No. Abolish grants entirely and thereby reduce taxes, quangocrats don't know which business is a good one, but the market will find out soon enough.

      "Encourage the BBC/Channel 4 to do a better job of promoting business innovation and showing success stories to motivate a new wave of entrepeneurs"

      They could just abolish the BBC/Pravda altogether and the deluge of negative, leftie dross spewing from that entity may achieve your desired result by net gain.

      May I just say, I am not trying to be confrontational, I agree with much of your view, I would just drive a little further down the road.

      • simon
        Posted June 3, 2010 at 6:21 pm | Permalink

        Think you are on to a winner with abolishing business rates .

        There is a flashy office complex near Addlestone station on
        the old Plessey System's site which has been empty for over 10 years . At the very least if business rates are not abolished they should be rock bottom given the amount of empty office space around at the moment .

        Whilst grants are artificial , a number of car plants would not have been built in this country if it was not for Thatcher era grants .

        • nonny mouse
          Posted June 4, 2010 at 7:15 am | Permalink

          What you describe is definately a reason for having some sort of tax benefit for bringing abandoned buildings back into productive use.

          I believe that in California that sort of thing is at the discression of local government. They trade off lost income in the short term for more income in the long term by giving a few years excemption from local taxes. This also makes local governments compete with each other for investment which brings down business costs.

        • Stuart Fairney
          Posted June 4, 2010 at 11:57 am | Permalink

          I think it was Woking, where a relatively new office block was demolished as no tenants were in prospect but business rates continued to be charged.

          Quite unreal.

      • nonny mouse
        Posted June 4, 2010 at 7:10 am | Permalink

        I've never paid business rates because I always rented office space so I dont know how it works. How much money do business rates bring in and where does it go? I'm all for abolishing it as long as it doesnt mean taxes go up elsewhere. I'm guessing business rates pay for local infrastructure and are the equivalent of community charge. Maybe extend community charge system to businesses? Probably a bad idea. Personally I like the old lib-dem idea of a local income tax premium or a local sales tax (VAT) premium to replace community charge and business rates, but I doubt if that would idea fly.

        The real reason why grants (and RDA's) still exist is because of Europe. There are European funds available which need the UK government to match them before the money is available. Before I get the 'leave Europe' arguments I'm not defending it, just pointing out what is already there. In an ideal world we wouldnt pay money to Europe just to get it back again, but I doubt if that will change.

        I agree the grant process is rediculous but there is a need for getting capital to startup businesses. It used to be the case that local banks actually knew a fair bit about business. How about letting banks distribute the money, or have the good old bank branch managers disappeared? They could take a fee or just accept that they will earn from successfull businesses. I guess this is just an argument for a government insurance scheme for new business lending. Banks wont lend to startups because of the risk. Let government take the money from grants and use it to reduce the risk. I'm really looking for a more headline grabbing policy, the British public need inspiring to start businesses like they were inspired to buy houses by the Thatcher government.

        >>They could just abolish the BBC/Pravda altogether and the deluge of negative, leftie dross spewing from that entity may achieve your desired result by net gain.

        I actually like the BBC. I'm currently in the USA and I watch mostly downloaded UK TV because purely market driven TV programming is bland, least common denomenator crap. I just watched Question Time, which meets your definition of leftie dross, but the US has nothing like it.

        I miss programs like 'Troubleshooter' from the 80's. Modern TV has equivalents, and Dragons Den is interesting to watch, but TV could do a much better job of teaching good business management. Programs tend to concentrate on businesses that are failing rather than showing the best of UK business and how and why it succeeds where others fail.

        • Stuart Fairney
          Posted June 4, 2010 at 9:52 am | Permalink

          "How much money do business rates bring in and where does it go"

          Collected locally but sent to central government, distributed by what used to be called the Barnett formula since the 1970's. Used in my cynical view to push money up North to fund state jobs in Labour areas ~ I think.

  14. Josh
    Posted June 1, 2010 at 6:20 pm | Permalink

    Mr Redwood, would you agree with my proposal to cut the deficit with a 100% focus on spending cuts. If income tax rates are cut, with VAT, NI and Corporate Tax, consumer demand would explode and revenues would pour into the Exchequer. Interest rates could start to rise to tame inflation. Consumer spending held up well in this recession, so if it was given a helping hand by tax reform, it could melt away the deficit, and we could fundamentally reform the role of the state.

    • Stuart Fairney
      Posted June 2, 2010 at 10:52 pm | Permalink

      Yes, yes, yes and yes again.

      Chances? remote. Reason? We have a change of management not a change of government, if I may quote Farage.

    • simon
      Posted June 3, 2010 at 6:29 pm | Permalink

      Be careful what you wish for , doesn't it depend on what consumer demand explodes for ?

      If it's foreign imports like luxury cars we need to be looking beyond the 25 pence per pound which the treasury will collect to to the whole pound which is going overseas .

      We've had a banking crisis where the Govt was not interested in the health of the banks only the amount of corporation tax they paid .

      Simmilarly people ignored the warnings all the time they were getting great interest rates from Icelandic savings accounts .

      In complete agreement about trying to cut the deficit with a 100% focus on spending cuts .

  15. forthurst
    Posted June 1, 2010 at 6:30 pm | Permalink

    How about increasing the competances of potential entrepreneurs?
    Tony Blair has flooded the country with graduates in subjects which have been predicated on their inherent uselessness toward economic added value. At the same time the quantities of graduates in useful subjects like maths and science and engineering has declined and such as do graduate well from the best universities are very much attracted to the City where their debts soon vanish as the high life beckons and where their brains are retained and their academic skills are discarded

    A partial solution would therefore be to offer conditional bursaries to students who study e.g. mechanical engineering on the condition that they work for say seven years applyng the skill they have acquired. Presumably, some will become hooked on what they are doing and some may decide that they had the skill and confidence to create their own businesses.

    There is very little point in encouraging people to create a better mousetrap who have no relevant scientific training when there are millions of chinese with the same lack of education but the reqiuisite intelligence and entrepreneurial drive in China. There are a limited number of people with the potential to create exportable added value against all competition and it would be better if more of those were so engaged than designing new mechanisms for syphoning money out of other peoples pension funds into bonuses for themselves.

  16. Whistle
    Posted June 1, 2010 at 7:09 pm | Permalink

    In 1952,I was the ripe old age of 6, I knew nothing about politics.That year,the Coal Iron and Steel Treaty was signed by 6 Countries in Europe.This meant that,those six Countries would not go to war with each other again,it also meant that they would become the manufacturing base for the Treaty of Rome,signed in 1957.It must have been as clear as the nose on your face,that if we ever joined,we would lose our manufacturers,our world beating industries (TSR2 springs to mind) and everything that goes with it. Mr. Cameron is beginning(?)to see this lack of industry,but,nothing can be done until we exit the EU.

  17. Tim
    Posted June 1, 2010 at 11:27 pm | Permalink

    Encourage and facilitate working from home on the internet for would-be ex Incapacity Benefit claimants.

  18. English Pensioner
    Posted June 1, 2010 at 11:48 pm | Permalink

    When I worked on electronics as both a civil servant and in a government authority, our bosses always preferred to let contracts with the largest companies, even though quite often there were smaller companies who tendered lower prices. It was a blame avoidance move; "If something goes wrong and we've let the contract with a large company, it can hardly be our fault, but if we let it to a small company and it goes wrong, we take the blame for not having let it with a bigger company with more resources".
    The other excuse was that a small company "couldn't possibly do it for such a low price, they clearly don't understand what is involved".
    This sort of thing has to end; judging from what has happened with recent government computer contracts, it seems unlikely that they would have been any worse of going to a small up-and-coming company!

  19. Mike Stallard
    Posted June 1, 2010 at 11:54 pm | Permalink

    There are more saints in the world than you would think.
    Unfortunately the kind of people you need to gain money from outside to support the Welfare State to which we have all become accustomed do not get out of bed for peanuts.
    Hungry young head for the Public Sector, the football field or the banks where they can rise inexorably to the top and earn a lot of money, quite often abroad.
    Until it is possible for the young James Watt or the young Charles Darwin to gain a good life and become famous for their money making skills in manufacture here in GB, I regret that we will be still racking up an unpayable debt for some decades yet.

  20. John Wood
    Posted June 2, 2010 at 12:26 am | Permalink

    "The banks do not currently have the capability to lend enough to fuel a good recovery."

    Whilst this is no doubt necessary, it is important that money is lent on companies that can either export – to bring wealth to the country from abroad or who can reduce the cost of producing material goods – so that money in the economy goes further.

    For a bank to lend money to a firm in other circumstances is self-defeating as at the end of the day they want ALL that money back + some more – thereby reducing the amount of money in the economy (unless they relend it and the interest in a Ponzi scheme)

    Why not have banks provide money not as a loan but as equity in the companies they support?

    Or is that too risky for them?

  21. Golden Swiro
    Posted June 2, 2010 at 1:06 am | Permalink

    Economics is unbelievably complicated, but there are some things that should be self-evident.

    The private sector funds the public sector, so you can't grow the UK economy by growth in the public sector alone. Growth in the public sector has to be at least matched by growth in the private sector, otherwise we will not be sustainably affordable.

    You can, in theory, use the public sector to provide infrastructure for growth in the private sector. However, there are a few reasons why this is limited.

    1. It is more difficult than it sounds for example, it involves predicting the future.

    2. The public sector is not normally very efficient.

    3. There is often either a conflict of interest or a lack of a common interest in the needs of the private sector economy and the needs of the public sector decision maker. This is especially true in higher education where Media Studies is a cheap and popular course to offer relative to STEM (Science, Technology, Engineering and Maths) subjects upon which growth in the economy has come to rely upon.

    In short, the best way to invest in private sector growth, is probably to let the private sector hold onto more of its profits. This will inevitably lead to more private investment and more growth.

  22. Stuart Fairney
    Posted June 2, 2010 at 6:08 am | Permalink

    We could also have chief executives with the sense to appoint the right people to key positions.

    I know of a newly appoined Chief Exec who, faced with having to fill a key cost control position in his organisation somewhat unexpectedly, decided that 38-year old with experience in PR was a better appointment that another candidate with a wealth of experience in corporate finance.

    • nonny mouse
      Posted June 4, 2010 at 8:06 am | Permalink

      I think I know the organisation you are talking about. The problem was not the CEO, it was the share holders.

  23. Stronghold Barricade
    Posted June 2, 2010 at 11:20 am | Permalink

    The one rule that I would like to be introduced is the foreclosure rules that apply in the US

    Such that if the bank forecloses on a business or individual, the whole hunt for money stops with the repossession of the asset that the loans were based on.

    This then means that the financial institutions are actually responsible for the debt beyond asset sales, and might be more favourable to allowing a business to trade their way through, or come to some more benficial understanding.

    I think it would also introduce a caveat to bank lending by making them realise that they can not lend at such huge multiples, and this might also apply a brake to the housing market without actually causing a collapse. 5 years of nil growth in house price inflation might be very good for rebalancing the economy.

    Of course this kind of rule only affects the small businesses which are more generally badly treated in terms of credit. The large enterprises will be able to gain finance from the bond markets and other sources.

    I think it would also mean that serial entrepreneurs are lifted from the stigma of failed enterprise and encouraged to try again.

  24. Derek Buxton
    Posted June 2, 2010 at 3:36 pm | Permalink

    Your article was very good, except for one small point, you missed out on the bit where Cameron said it was going to be low carbon inspired work and full of "green things". To change the economy to that will cost a fortune, far more than the present deficit. That in itself puts all your good ideas to flight.

  25. ps
    Posted June 3, 2010 at 12:01 am | Permalink

    John, I think people need to be encouraged to take and be rewarded for taking risk in setting up productive enterprises. The risk/reward balance has been messed up over the last 13 years.

    The whole health & safety culture and detailed consultation along with over emphasis on spreadsheet analysis based on dubious assumptions has stopped people from "giving it a bash".

    The idea that you can de risk or should seek to de risk enterprise is actually enterprise stifling. We need lots of entrepreneurs trying all sorts of varied and wacky ideas. Some will work and be emulated by others. It also adds a fun element to starting and running businesses in the same way that gambling on horses or the stock market does!

    Those that start and fail will learn by their mistakes and stand more chance of succeeding in the future. They should be encouraged to dust themselves down and climb back on.(it sure beats sitting around on state benefits or doing a non job in the state sector).

  26. Duncan
    Posted June 3, 2010 at 1:41 am | Permalink

    @John – "They also need to cut CGT, the tax on business success by entrepreneurs"

    I cannot for the life of me see why this is the case. It's not as if the taxation of capital gains changes incentives to invest in a meaningful way (what, they would have been entrepreneurs at 20% but at 25% they're just going to sit home on the couch?) and as most capital invested by entrepreneurs belongs to third parties (investors, banks) rather than themselves the idea that it is better to keep CGT low because then successful (and by assumption 'better') entrepaneurs have more capital to invest in future schemes – which seems to be the standard argument – just seems implausible.

    I'm not saying you're necessarily wrong; I just can't see a plausible reason why you're right. A tax is harmless if it does not meaningfully effect behaviour. I can happily buy that NI effects behaviour, but there doesn't seem to be an obvious reason why CGT would.

  27. Amy B.
    Posted June 4, 2010 at 7:23 am | Permalink

    The Amyloidosis Foundation estimates that approximately 3,000 people are diagnosed with amyloidosis each year in North America and that blood cancers overall have increased more than 40% in the last decade.

  28. christina sarginson
    Posted June 15, 2010 at 9:03 am | Permalink

    I completely agree with your comments for a speedy recovery for the UK. As a small business owner and one who works for fairness and freedom (equality and diversity), I welcome the help that small business will hopefully get under the new coalition government. I have unfortunately heard these promises before so I will wait with some trepidation to see the outcome. Many small business have suffered from the recession and quick action is necessary so please don’t drag your feet.

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    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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