Cutting public spending does not stop recovery

Labour are still at their old game. Their response today to David Cameron’s warnings about the deficit is more of the same. In their economic song book more public spending and more borrowing equals a stronger economy. On that basis why then is the UK economy so weak? Can’t they see that the UK is on its knees with record levels of public spending and borrowing? Shouldn’t that lead them to ask if all that spending and borrowing is such a good idea?

Let’s try once again to explain our plight. The UK has been living beyond its means for too long. Labour’s disastrous money policy and banking regulation meant too many people borrowed too much in the private sector, leading to the blow up of the private credit system in 2008. The private sector was suddenly and abruptly made to live within its means when they switched the credit off. Pay was slashed, jobs destroyed, companies went bust, factories and shops closed.

Labour then transferred many of the dodgy debts to the taxpayer, and added yet more public sector borrowing, learning nothing from the debt crisis in the private sector, but trying to replicate it in the public sector. People were recruited – often for non jobs – pay boosted and new programmes opened, all on borrowed money.

We can’t go on like this, for two good reasons. First, the lenders will run out of patience, and in the end force up the interest rates we have to pay and cut the credit. That’s what they’ve just done to Iceland, Ireland, Greece, the Baltic republics, Hungary and a host of other countries. Second, all that borrowing has to be repaid at some point. Spending more you have borrowed does not stimulate the economy if you borrow the money from within that same economy. Borrowing from British savers is like taxing them. It takes their money away from them so they cannot spend it on job creating activities.

The world does not owe us a living. There is a huge transfer of economic activity underway from west to east. The UK and other western countries are not competitive enough to withstand the super competitive activites of India, China and other emerging market countries. The rest of Euroland is not competitive enough to withstand German competition.

There is unfortunately no subsititute for a country like the UK working harder to earn its preferred living standards. There is only so much we can borrow to put off the necessary adjustment to our economy. The UK economy needs to make and produce more to sell in world markets and needs to produce more of the goods and services we ourselves need in an efficient manner. It’s no good flexing the credit card one more time when you are nearly bust. You need to get a better paid job and start paying off the mortgage.

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57 Comments

  1. Brian Tomkinson
    Posted June 7, 2010 at 9:11 am | Permalink

    Of course they are still singing from their old song book. They won’t publicly acknowledge their irresponsibility. They are determined to make it appear that any reductions in public spending and tax increases are down to the coalition government. They will paint you all as people who are inflicting pain for ideological reasons and not because it is an inescapable consequence of their actions. As I wrote yesterday, these same people are due to receive severance pay for their wilful and vindictive economic irresponsibility. They hope to bask in the glory of opposition to what they see as your forthcoming unpopularity. The reward they see as their re-election next time.

  2. gac
    Posted June 7, 2010 at 10:15 am | Permalink

    To listen to Labour spokesmen now it is though the last 10 or so years of their profligacy and 'lies' never existed – and if it did, then it must have been somebody else in power.

    Politicians! don't you just love em?

  3. Matt
    Posted June 7, 2010 at 10:24 am | Permalink

    All very well, but it’s surprising that with lower rates and the huge depreciation of sterling that UK exports seem to be languishing.

    It’s difficult to move from the conclusion that much of the manufacturing base here is no more, go to any major northern city and there are big wastelands of old industrial sites, with weeds growing on them.
    Much of the infrastructure has gone, the best graduates shun manufacture.

    Many of these areas, where the youngsters once had apprenticeships are sink estates, with high crime levels and drug taking. The best that the kids can do is to get a job in McDonalds or Tesco.

    I don’t think that handing out grants to local business helps at all, but the government needs to do more to promote manufacturing and export. If we gave the same attention to industry that we give to agriculture there may not be a problem.
    These are long term problems with long term solutions needed.

    In the short term it may be beneficial to try and induce overseas investment to relocate here, preferably by relaxing employment legislation, but then Mr Blair handed our “opt out’s” back years ago.

  4. Kevin Peat
    Posted June 7, 2010 at 10:33 am | Permalink

    "All incoming Governments blame the previous administration for economic problems." Mr Cameron's exhortations that we must cut spending wafted aside by the BBC reporter as breezily as that.

    One saving grace is that Mr Clegg is at the PM's side as he goes through the books – it makes it much more difficult for Labourites to accuse the Tories of making it all up.

    Labour really do have the luvvy media on their side – the Thatcher era is still labelled as the era of greed … it had nothing on the period of record debt and acquisitiveness which has just ended. But yet again, the broadcast media let Labour off the hook Scot free.

    Watch for a resurgence in satirical comedy – it's the socialist's weapon of choice.

  5. nonny mouse
    Posted June 7, 2010 at 11:23 am | Permalink

    It's all a matter of the blame game. Labour are calling them 'Conservative Cuts' even though they would have been making the same cuts and the reason for making the cuts is Labour mismanagement.

    The problem is that we are still living in the political territory created by Labour. We need to reshape it to suit our own needs. Labour are masters at wording things to form the narrative to their own advantage. For example, 'Labour efficiency savings' vs 'Conservative Cuts'. 'Investment' vs 'Borrowing'.

    We should get out of the habit of calling it 'the deficit' and always call it 'Labour's deficit'.

    We should stop calling it 'cuts' and start calling it 'realignments to live within our means' or 'reductions to what we can afford' or (hopefully) something more snappy that doesnt have the negative conotations.

    We need to move towards a balanced economy. Balanced in exports vs imports, balanced in spending vs income instead of borrowing, balanced in cost vs benefits so we have fairness for tax payers.

    I dont have the right words, but hopefully somebody can come up with a new narrative that moves away from the negative word 'cuts' towards something like 'realignment' which is more positive (i.e. good thing to do).

    • THE ESSEX GIRLS
      Posted June 7, 2010 at 3:04 pm | Permalink

      Dear 'Nonny'

      A good blog. Like you we recognise the psychological and tactical value of well-aimed phraseology. In fact the absence of any in the Tory election campaign drove us potty as regular readers here may recall.
      We still yearn for a Tory to say – "It ain't what you spend it's the way that you spend it. THAT'S what gets results!" which would answer much Labour sniping as soon as it is drearily trundled out.

      And – "WE'RE CUTTING OUR CLOTH TO FIT OUR BUDGET".

      As for CUTS…'Economies' or 'Savings' are words we all regularly use and understand. 'Cutting Waste' is another we all relate to.

      The term INVESTMENT has been sorely debased by Brown & Co. We long ago argued for dividing CAPITAL investment from other expenditure and limiting the term to direct infrastructure and equipment with a recurring use.

      The difference between the 'deficit' and the 'debt' is becoming clearer to most we think. However the 'BUDGET GAP' to us explains the difference between current income and expenditure more clearly.
      We have argued that this gap should be published on a simple monthly media chart headed 'REDUCING LABOUR'S LEGACY' so that the nation's 60 million contributors can see and be part of the success we have.

    • John Wrexham
      Posted June 7, 2010 at 7:57 pm | Permalink

      Good comments, nonny. It's definitely Labour's deficit and who could have predicted that the City and the Labour Party would form a double act to sink the UK economy?!!

      You could describe some of the cuts as 'savings' ie you aim to deliver the same service but at a lower cost. however, if you have politicians saying we want to cut services, then i am afraid they are always going to be branded as 'cuts'.

      The issue the right of the party have to decide is are we cutting the deficit because we have to live within our means or are we cutting spending because public spending ipso facto is a bad thing?

      Our whole culture favours Labour's use of language when it comes to credit and debt because we are encouraged to borrow by banks and by retailers every day of our lives. Some people live on benefits, but far more live on credit; it's just that the latter eventually pay them back, though now with IVAs we are encouraged to not even bother doing that.

  6. Labour paul 2
    Posted June 7, 2010 at 11:26 am | Permalink

    To here all you tories go on about how much debt we are in makes me sick. What did you want us to do? Did you want us to let millions more to lose there jobs, houses and even savings. If we hadn't took action this is what would have happened. Yes we are in debt and we have to deal with it but I make no apoligies instead I will promote are record. We have the best education and nhs systems for decades. Crime is low and unemployment is lower now than under the last tory recession. We saved peoples savings and we gave the poor hope of making something of themselves. We acted whilst the tories sat on the sidelines. If they had been in power the recession would have been worst. And what's even worst Osbourn hasn't got plan to cut debt he's nicking the canadians.

    • TimC
      Posted June 7, 2010 at 1:38 pm | Permalink

      If you knew the difference between 'there and their' or 'are and our' we would be more impressed at your hymn to Labour education!

    • Martin
      Posted June 7, 2010 at 1:48 pm | Permalink

      Re savings – we now have Negative real interest rates on Savings.Anyone who has saved for a rainy day is finding their savings are dribbling down the drain of inflation.

      You have to realise that the Government's borrowing is close to our credit limit. We have to start chopping the deficit. if we do not we will have no headroom for any future problems.

      Millions of private sector workers have lost their jobs. Too often the perception was that Labour only cares about public sector workers. Why didn't Labour do something like the Kurzarbeit scheme the Germans have to try and help private sector workers and their employers?

    • alan jutson
      Posted June 7, 2010 at 1:54 pm | Permalink

      Labour paul 2

      "What did you want us to do"

      Tell the bloody truth would have been a good start.

      Your Party spun so many webs of lies, that in the end it could not tell truth from fiction.

      The real truth is now coming out in published diaries kept by all those who disagreed with the Policy at the time, but were frightened, too timid and did not have the courage to speak up at the time.

      No nobody wants people to be sacked, because it means less tax take to spend on those in real need, but to make up jobs (1,000,000) in the Public sector we are led to believe (Labours figures) just to keep people busy whilst doing nothing to increase its services is lunacy.

      NHS operating better, not from my or my families experience, or from those who I know (and there are many) who work in it,

      Education better, have you interviewed those who want a job, many cannot even spell properly or even add up correctly.

      Banks going bust, yes, so who changed the regulations in 1997 to allow it to happen. Please remind yourself it was dear old Gordon who gave powers to the FSA to oversee the Banks. The same FSA who had watched for years Insurance Companies fail to fullfill their obligations in the 80's and 90's with miss selling etc. etc.

    • nonny mouse
      Posted June 7, 2010 at 2:10 pm | Permalink

      Paul, the deficit and debt make us sick too. What do you want us to do about it? Ignore it and hope it goes away like Labour were proposing? If we dont fix the economy then the markets will stop lending us money and the whole country will be forced into an even worse state.

      Of course the deficit should go up in a recession. The problem is it went up from 3 to 11 percent not from 0 to 5 percent. Gordon's own golden rules said that the budget should be balanced over the economic cycle but he borrowed money even in the good years.

      Of course jobs need protecting in a down turn, but the problem is Gordon created lots of public sector non-jobs instead of creating private sector jobs that earned money for the country. Labour is the party that throughout history has always left office with higher unemployment than when it entered it.

      The real crime here is the welfare system that trapped people into poverty. Labour hid the true number of people out of work by putting them on incapacity benefits and made work unappealing by taking away benefits as soon as people start work. The irony is that they started down the road of welfare reform in 1997 when Tony Blair had Frank Field working on the issue, but Gordon blocked it and got him fired. Why did it take a Conservative Prime Miinster to recognise Frank Field's talents?

      Of course we had to help the banks, but Gordon should never have got into the situation in the first place by splitting banking regulation into three different organisations, none of which actually realised what a risk the banks were running.

      You say 'we have the best education for decades.' – let me tell you straight, as an employer the quality of adults coming out of the education system has never been worse. They cant read or do basic math. We need people trained in engineering and science. Instead we get people who take media studies. Do we really need to be teaching people to watch TV?

      The only way the Labour government could claim success was by dumbing down examination standards so that an A grade today is the equivalent of a C grade from twenty years ago. Tony Blair started down the road of education reform but Gordon blocked him. Michael Gove is now taking the academy system and letting all our schools benefit.

      You say 'we have the best nhs for decades.' – yes, the NHS is something to be proud of, but the Conservative party were the only party to guarantee to keep raising the money going into the NHS. Labour would have cut it and were also wasting billions on IT systems that did not work which the Conservatives will use for front line care.

      You say 'we saved peoples savings' – tell that to all the people like me who saw their pension funds raided by Gordon to pay for the wasteful spending. Tell that to all the people who owned shares that lost value due to Gordon overseeing the deepest recession since the 1930's.

      You say 'we acted whilst the tories sat on the sidelines'. Thats true, because Labour were in power and the Tories were in opposition. Labour got us into this mess. Only a Tory led Government can get us out and back to the well run economy like the one the last Tory government left in 1997.

      I hate to break it to you, but Labour lost the election. They lost due to the mess they made of things, just like the mess they always make when they get into power.

      Now, are you going to keep repeating the lies that Labour fed to you over the past 13 years or are you going to join us and help fix the country and make it a better place?

    • Kevin Peat
      Posted June 7, 2010 at 2:13 pm | Permalink

      Believe the 'tractor stats' pumped out by Nulab if you want to, Paul.

      I think it better for people who've had a proper education to decide whether or not our education system is 'the best system for decades.'

      (Taking your comment at face value)

    • paul a
      Posted June 7, 2010 at 2:56 pm | Permalink

      Ha ha ha.. I love Satire.

      After 13 years of Labour, there are 9.8 million of working age without a job.

      Labour created 2.1 million new jobs ( all in the public sector ) yet 1.7 million of those jobs were filled by overseas workers.

      The NHS (has a poor record on infection and deaths in hospital-ed)

      As for education, just try running your post through a spell checker.

      We have on balance sheet debts of £800 billion off balance sheet liabilities of between another £1-4 trillion and a deficiet of £160 billion

      Pensions were stolen and savings are worth nothing

    • GrassyKnollington
      Posted June 7, 2010 at 3:01 pm | Permalink

      Absolute nonsense, Mr Redwood has already addressed your points. Everything you state is false. What we have is a "recovery" built on sand, and the only thing worse than your averments is your attempt to construct a sentence.

    • THE ESSEX GIRLS
      Posted June 7, 2010 at 3:16 pm | Permalink

      Did you and Liam Byrne go to SpecSavers together?

      You probably got the free pair of identical rose-tinted lenses?

      You and your NuLabor chums have wasted our money on a gargantuan scale of naievity, self-indulgence, ineptitude and greed and, after 13 years of failure in doing much apart from feathering your nests, you should give others more responsible and qualified the opportunity to mend your mendacity sir!

    • TORY TOFF
      Posted June 7, 2010 at 7:07 pm | Permalink

      'Paul'

      You don't live in Fife do you and, like me, prefer to use a pseudonym?

      Just wondered as I recall hearing something along these lines at PMQs before the speaker was rumbled by the electorate.

    • Bickers
      Posted June 7, 2010 at 7:49 pm | Permalink

      Paul, you need to stop taking the NuLiebore tablets

      I suggest you look at independantly compiled reports of where the UK now sits in a number of World league tables and you'll find that under your lot the UK has tumbled down those leagues.

      NuLiebore created the illusion of success by borrowing record amounts of money that was very poorly 'invested' by incompetent ministers and their 'off balance sheet' quangos.

      You can try and spin it for all your worth but our children and grand children are going have to pay for you party's disasterous tenure.

    • John Wrexham
      Posted June 7, 2010 at 8:02 pm | Permalink

      We can debate till the cows come home ( to the last dairy farm in britain) whether Brown is UK plc saviour or nemesis, but the more important issue is who picks up the bill now. My view is that the City got us into this mess and it has to play its part in getting us out. We can give the City more leeway once they have repaid their dues, but up to now all we have seen from our politicians is a lot of talk in public and very little action as the masters of the universe return to their bad old ways.

      • waramess
        Posted June 8, 2010 at 12:19 pm | Permalink

        Except of course the City did not get us into this mess. The original sin was with the government and the FSA for not keeping an eye on the banks' debt to equity ratio whilst allowing them to continue expanding the money supply through the fractional reserve system.

        A bit like blaming my shoe for stepping into dog mess.

  7. Oik
    Posted June 7, 2010 at 11:39 am | Permalink

    We, and those Labour supporters who are keen to see their party of choice form another government, should watch very carefully which candidates for the party's leadership use this opportunity to argue against spending restraint.

    In Britain we have had the benefit of observing Greece, Ireland and the like as canaries in the mine shaft. There can be no remaining doubt that balancing the books is the most pressing priority for the country- the Lib Dems wasted no time in acknowledging this after the election, as their own (and Labour's) policy had been overtaken by events.

    David Milliband and Ed Balls have proved themselves to be completely ignorant (or contemptuous) of economic reality. They have demonstrated that there are no circumstances in which they could be trusted with their hands on the treasury. Labour party members and MPs should therefore eliminate them from the race for the leadership at the earliest opporunity, and save the country the job in a few years' time.

  8. Nick
    Posted June 7, 2010 at 11:48 am | Permalink

    Matt is correct to point out that our manufacturing exports are feeble despite the low pound. And he is correct that the cause is the reduction in our manufacturing base and infrastructure (by 'infrastructure' I do not mean roads etc, but the network of specialist engineering needed to back up any production process).

    Engineers have been warning about this for decades, because it takes decades to build up such a capability. There are "holes" in our capacity to produce what the market wants which can now only be filled by imports.

    You want to manufacture a spare part for a production line in a hurry? You can't. Even if you can find a machine shop and heat treatment, you will have to wait a week for the steel to come in from the continent. In the end why site a production facility where there is no back up? Answer – you don't. So the cycle of losses goes on.

    • John Wrexham
      Posted June 7, 2010 at 8:11 pm | Permalink

      We need a government that can create an education system that prepares the next generation so that it has the skills to pay its way in the world. We can't all rely on success in the X factor to earn a living.

      It would be great to see a government that backs elitism in education. Our society seems to accept that you have to be the best in sport, entertainment, music and the arts, but when it comes to education especially in maths, languages and science, training and skills,we want to go at the speed of the slowest boat.

      Meanwhile the government spends loads of cash on the least able pupils, while presiding over an education system that limits and holds back the most talented young people. Our young people have got to compete in the global village, unlike previous generations, and that means giving them all the tools in the box, not holding them back in order to keep a few educationalists happy.

  9. alan jutson
    Posted June 7, 2010 at 12:26 pm | Permalink

    Just listened to the Speech By David Cameron.

    At last some realism, passion and commonsense, spelt out in a clear and concise manner, using language that everyone should understand.

    Yes, the financial situation is worse than many (outside of this site) thought.

    Yes we have been as a Country living beyond our means for years.

    Yes we cannot go living beyond our means any longer.

    Yes it will take a generation (at least) to put things right.

    Yes it will mean pain for many for years.

    Labours response, its all made up and not true at all.

    If the media do not wake up now to the fact that they had been spun a web of lies for years, then they never will.

    At last I have some confidence that we might have a government who at last understands the problem UK PLC is in.

    Now what we want to here is a sensible plan for action that encourages and rewards those who work to work harder, and those that do not work at the moment to seek work (difficult though that may be at present)

    I look forward with interest to the Budget.

    • alan jutson
      Posted June 7, 2010 at 1:39 pm | Permalink

      oops typo "hear".

  10. Ex Liverpool rioter
    Posted June 7, 2010 at 12:57 pm | Permalink

    We must devalue & soon
    Mike

    • simon
      Posted June 8, 2010 at 11:06 am | Permalink

      Devaluation is another form of partial default isn't it ?

      It is not going to help those elements of our debt which are held in other currencies .

      We have devalued massively over the last 24 months but our balance of payments has not responded much .

      Costs have gone up for manufacturers which have no option except to source materials from overseas .

      How much further do you suggest we go , parity with the dollar , halve the value of a pound even ?

  11. FaustiesBlog
    Posted June 7, 2010 at 1:57 pm | Permalink

    Of course Labour knows that the country is on its knees due to profligacy and borrowing. Their gambit is to convince the public otherwise. They know that the public at large is economically illiterate and rely almost entirely on who is seen to win the argument. That is why the BBC has been such a thorn in the Conservatives' side over the past decade – because they supported Labour's argument and presented it as "conventional wisdom".

    The job for the Conservatives, therefore, is to win the argument and to be seen to do so. That means getting the BBC onside (or preferably wrapping its knuckles for its obvious partiality).

    The Conservatives will have to discredit Keynsian economics. There are countless articles and papers which do a wonderful job of that, not least originating from those espousing Austrian Economics. Mises.org, for instance.

    Why doesn't the government enlist the services of Lew Rockwell, Peter Schiff, or other Austrian Economics proponents? The advantage is that they have a huge audience and have been proved right in their predictions more often than any other economists.

  12. Johnny Norfolk
    Posted June 7, 2010 at 2:52 pm | Permalink

    Its just fantastic how so many believe this tripe from Labour. they just do not want to face up to the real world and want to live a dream life.

    • DBC Reed
      Posted June 8, 2010 at 9:10 am | Permalink

      Labour may not be very coherent,hardly surprising since they are leaderless, but the fundamental arguments of the Conservative nasties:the private sector has collapsed – its only fair to collapse the public sector as well;government finance is like the family budget -you can't live beyond your means are woefully inadequate if not actively dangerous.Most people believe in the traditional British mixed economy and rather expect the public sector to cover for the private sector when it gets in trouble (and vice versa).Similarly most people are aware that governments don't have to borrow from private sector banks and lending institutions:mechanisms like QE conjure up money from nowhere,just like the private sector banks do every day of the week .

      A lot of this cutting mania is from right-wing zealots trying to get rid of the public-sector altogether , and now is their long awaited opportunity.(One simple cut would be to bring back the Army from abroad and re-constitute it as a Citizens Defence force for mainland defence only-.But I would not be so disingenuous as to suggest that this does not proceed from non-economic arguments).

      Also why are we trying to "pay back" this debt so quickly? Ordinary sensible people ,with this amount to pay down ,would do so over twenty years.

      • Mark
        Posted June 8, 2010 at 11:13 am | Permalink

        I don't think you begin to understand how big our problems are. It isn't remotely a question of even starting to pay down government borrowing: it's a question of reducing the rate at which the amount we owe is growing. GDP is about £1.4 trillion – which is about the same as the amount borrowed by households on credit cards and loans and mortgages. It's somewhat less than government borrowing via gilts, treasury bills, BoE support for banks and PFI that totals over £1.6 trillion. Government also has liabilities for pensions that are excluded from those figures that are commonly assessed as being worth another £1 trillion. Private sector business is borrowing a further £1.2 trillion in the UK (i.e. excluding loans to overseas subsidiaries).

        Household borrowing appears to have stabilised (having grown rapidly from 1997 to 2007 due to Brown's cheap mortgages Ponzi scheme), and there has been some repayment by industry. Government borrowing continues to increase by £150bn a year, excluding any increase in pension liability, PFI and BoE liabilities that are considered off balance sheet for now. Only if that is reduced to net repayment would there be any repayment of government debt. No-one is suggesting we are likely to reach that point any time in the next decade.

      • simon
        Posted June 8, 2010 at 11:19 am | Permalink

        How quickly do you think the government is trying to pay back the debt ?

        It's talking in term of taking 4-8 years before the country is even living within it's means and can start to pay back the debt .

        To pay it back over 20 years would require running a surplus of about 4% of GDP ie £175 billion of spending cuts/growth per annum starting now and continueing for 20 years .

        I expect your proposal to print our way out of it will be what happens in practice .

      • Johnny Norfolk
        Posted June 8, 2010 at 10:42 pm | Permalink

        I refer you to my original comment. Oh and by the way money does not grow on trees.

        • DBC Reed
          Posted June 9, 2010 at 11:14 am | Permalink

          A very original remark !Money does grow on trees in the metaphorical sense of being easily produced.Banks create money by the pyramid of loans.There is no reason why governments can't do something similar.This is what QE is all about.The gov should remove this hose pipe of credit to the banks and apply it to the public services.

  13. Citizen Responsible
    Posted June 7, 2010 at 2:55 pm | Permalink

    Alastair Darling was on BBC Radio 4's World at One today. He said, “The Tories seek to blame the last government to pave the way for the things they always wanted to do”. I turned him off after that.

    • Paul B
      Posted June 7, 2010 at 10:10 pm | Permalink

      Had you continued to listen, I doubt the BBC interviewer would have challenged him on that point either.

      The mob on BBC 5 Live are just as bad. I rarely listen any more.

  14. Norman
    Posted June 7, 2010 at 3:22 pm | Permalink

    Talk of paying down debt is fantasy and will be for a long, long time. Our best hope is to cut spending enough so that we can service our interest payments, hopefully not borrow any more (although the next Labour government, whenever that will be, will scupper this part of the equation as sure as eggs are eggs) and let inflation magic away the principle over a lifetime.

    The really scary thing about the position we now find ourselves in is that we have already shot our bolt – when the next recession hits, unless the current government can lay a solid foundation for long term growth, then we may find ourselves in the position of Greece – unable to raise enough funds through taxation and no one willing to lend us any more money.

  15. English Pensioner
    Posted June 7, 2010 at 3:33 pm | Permalink

    I may not be an economist, but reducing government expenditure or "Taking money out of the economy" as Labour puts it seems a god idea for boosting the economy.
    If I have money in my pocket, I am likely to spend it. Quite likely the Government may not approve of what I spend it on, but however I spend it it will involve buying something which must help support jobs.
    Contrary-wise, if the government spends the money, it may help keep someone in a job, but the chances are the job will be totally non-productive, such as going through the contents of my waste bin to see what I throw each week! I'm sure that the country will run just as well without this useful bit of knowledge.

  16. ps
    Posted June 7, 2010 at 3:45 pm | Permalink

    John,the fact that labour spent so much and achieved so little is great cause for hope.

    Is the public going to actually notice a vast reduction in service levels when labours additional spending is removed?

    If the spending cuts coincide with reductions in costs, higher productivity and the removal of stupid red tape and other unnecessary hindrances there is a good chance that this could be a win win situation.

    Also as you have previously pointed out where the department/quango etc achieves little it should disappear altogether.

    One sad legacy of Labours pork barrelling of its own heartlands with government spending is that these are going to be the areas most affected in terms of job losses and the areas most in need of a free market solution to generating future jobs growth.

  17. Mike Hall
    Posted June 7, 2010 at 6:16 pm | Permalink

    Thank God Labour are out. Their policy seemed to be head in sand, feather one's own nest and to hell with the taxpayer. They inherited a very good position in 1997, which was gained from some considerable economic pain (ERM noted, however!!). Growth was then squandered year after year, and when that ran out they carried on with ever more borrowing knowing full well they wouldn't have to deal with the consequences. Labour I think actually rely on the Tories sorting it out, becoming unpopular and letting them back in to do it all again. Well, Labour party here is one vote you will never get, whatever happens. I'd sooner have my arm hacked off with a blunt spoon than let you rule again.

  18. Bill
    Posted June 7, 2010 at 7:54 pm | Permalink

    Want a cut?

    A guy from the council came to the industrial unit and offices, plant hire company,

    to check if anyone was smoking – to fine them it seems.

    He put some no smoking posters up.

    It’s enough to make you take to smoking.

    Looking at your cluster map – a few people are reading your blog in the Maldives and Seychelles (Can you believe it!) weather must be bad there.

  19. FaustiesBlog
    Posted June 7, 2010 at 8:19 pm | Permalink

    Of course Labour knows that the country is on its knees due to profligacy and borrowing. Their gambit is to convince the public otherwise. They know that the public at large is economically illiterate and rely almost entirely on who is seen to win the argument. That is why the BBC has been such a thorn in the Conservatives’ side over the past decade – because they supported Labour’s argument and presented it as “conventional wisdom”.

    The job for the Conservatives, therefore, is to win the argument and to be seen to do so. That means getting the BBC onside (or preferably wrapping its knuckles for its obvious partiality).
    The Conservatives will have to discredit Keynsian economics. There are countless articles and papers which do a wonderful job of that, not least originating from those espousing Austrian Economics. Mises.org, for instance.

    Why doesn’t the government enlist the services of Lew Rockwell, Peter Schiff, or other Austrian Economics proponents? The advantage is that they have a huge audience and have been proved right in their predictions more often than any other economists.

  20. no one
    Posted June 7, 2010 at 9:16 pm | Permalink

    Re "a country like the UK working harder"

    Actually the UK needs to act a whole lot more cleverly, its not all about how hard you work

    We are like a big record company finding itself in the age of downloads and half the students in the world downloading stuff for free

    We as a country invent some of the cleverest stuff on the planet yet lately we have leaked it to other parts of the world like a sieve

    We really need to protect our IP much better

    Lots of examples, look at the BMW and Ford ownerships of Rover/Mini/Jaguar/Land Rover. Lots of the best patents and techniques have ended up being owned and used by far flung parts of the BMW and Ford empires and now parts of the Tata Indian empire. Much of this IP was really leading stuff, we've just thrown it away.

    Look at the software we write that is running on lots of PC's in India and China with next to none of it properly licensed.

    Look at the hundreds of thousands of Indian nationals in the country on work visas learning our leading project and design techniques and leaking it back to their home country where they undercut us massively.

    We can only compete as a high wage high skill economy if we protect our IP a lot more effectively.

    If hard working Brits in a factory invent a new production process how do you think they feel when the company is bought by an Indian company and the techniques get rolled out in the Indian factory?

    We throw away our ability to compete all the time these days, and we need to reverse this trend quickly or we will be a 3rd world country. The world does not owe us a living but it does owe us our licence fees on our IP and it does owe us the corresponding rights.

  21. Tawnya
    Posted June 7, 2010 at 10:42 pm | Permalink

    To here all you tories go on about how much debt we are in makes me sick. What did you want us to do? Did you want us to let millions more to lose there jobs, houses and even savings. If we hadn’t took action this is what would have happened. Yes we are in debt and we have to deal with it but I make no apoligies instead I will promote are record. We have the best education and nhs systems for decades. Crime is low and unemployment is lower now than under the last tory recession. We saved peoples savings and we gave the poor hope of making something of themselves. We acted whilst the tories sat on the sidelines. If they had been in power the recession would have been worst. And what’s even worst Osbourn hasn’t got plan to cut debt he’s nicking the canadians.
    +1

    Reply It's our debt and we have to pay interest on it and repay it. Borrow too much and you make the problem worse, not better. Greece shows you lose more of your public sector if you don't take the problem seriously early enough.

  22. Ian
    Posted June 7, 2010 at 11:23 pm | Permalink

    I am a public sector worker and am getting increasingly frustrated that the public sector seems to be the scapegoats for the banking sector causing global chaos. Why should a public sector worker suffer whilst the banks and shareholders continue to make massive profits? Surely those who got us into this mess should also make a sacrifice? The only fair way is to raise tax for everyone, this way all workers, public and private will share the burden.

    • simon
      Posted June 8, 2010 at 10:58 am | Permalink

      The last government did massively increase the headcount and pay rate of the public sector beyond that which could be afforded . This is not your fault but was a problem in itself even without the banking crisis .

      Would you be prepared to earn 8% less than you were making 3 years ago to protect the jobs of your fellow workers ?

      I have nothing in common with the banksters but that is what myself and millions of others are having to do .

      It doesn’t seem fair that the public sector should have been awarded pay rises out of everyone elses reduced income .

      Wouldn’t it also be fair for everyone to have access to the same pensions scheme as the public sector even if that meant that benefits would be reduced/contributions have to increase ?

      If everyone was in the same boat we’d soon have proper pensions provision for everyone .

    • alan jutson
      Posted June 8, 2010 at 1:15 pm | Permalink

      Ian

      Do not take it personally.

      The fact of the matter is that many in Private industry, and certainly in Construction, have seen their income drop by 40% or more for the past two years.

      Many in factories are on short time, many have been made redundant,

      Self employed people have the cost of finding their own work paying their own insurance (public liability) do not get paid for holidays, sickness, or have a single penny paid into their own pension schemes by anyone else but themselves.

      The public sector (everyone all taxpayer funded) has increased in the last 10 years by about 1,000,000 people, with what result ! The same services now just cost more, so its time for a reality check on numbers, on wages, and on Pensions.

      Just please bear in mind that ALL public servants are paid for by the tax those in private competitive industries pay.

      Yes the Banks did get us into some trouble, but it was the Government who came up with the taxpayer funded solution which hammers everyone, including those of us who are paying for all of the public servants as well.

  23. BillyB
    Posted June 8, 2010 at 12:21 am | Permalink

    What of those who haven't participated in the credit binge, have worked hard and paid their taxes, and would like a positive return on their savings? It seems to me that the prudent are footing the bills of the feckless. Colleagues of mine who took out huge tracker mortgages have effectively been granted a huge take-home pay-rise with the drop in interest rates and are still set to make tax-free capital gains on their property in due course. And as to the banksters gambling debts being picked up by yours truly – what lessons does this give to the prudent? We are the mugs. Who will speak up for us?

  24. Andrew Gately
    Posted June 8, 2010 at 12:46 am | Permalink

    This country is financially illiterate and I think David Cameron is going to have a job on his hand explaining how we should balance the books.

    The simple fact of the matter is that Labour have created an extra million public sector jobs that we cannot afford.

  25. DennisA
    Posted June 8, 2010 at 1:22 am | Permalink

    One news item showed the Canadian experience, when they blew up a hospital which it was said should not have been built in the first place. Please, please, can we do the same with the Welsh Assembly Building and the Scottish Parliament Building? Please?

    On a different note, we really should be looking closely at what goes on under the name of overseas aid. We are effectively funding massive bureaucracy in the UN, the IMF, the World Bank, which is totally unaccountable and unauditable. We are also funding climate propaganda overseas via the British Council.

    John says "The UK and other western countries are not competitive enough to withstand the super competitive activites of India, China and other emerging market countries."

    (Story about a particular company deleted as they deny it)

    We are also helping to fund brand new coal fired power stations in India which qualify under the CDM, but if we build such plants here then we have to pay for carbon emission permits.

    At a time when incomes will stagnate and taxes may well go up, we are to be saddled with higher and higher energy costs to satisfy the blue-greens. USwitch.com say that average annual bills have already doubled from five years ago, heavily influenced by the cost of the Renewables Obligation. I know this to be true from personal experience.

    Now we are to be saddled with the feed in tariffs, paying people to produce piddling amounts of electricity from toy windmills and inefficient solar panels, even for that which they use themselves. So the poor will pay taxes to the more fortunate who can avail themselves of this scheme.

    Not content with that, the juggernaut rolls on and we are committing to even more insanity: Back in the early months of last year, EU leaders signed off a target of 20% cuts from 1990 levels by 2020, rising to 30% if a global deal emerged at the Copenhagen summit that would see other countries and other blocs taking a commensurate share.

    The EU says that a 20% reduction from 1990 levels would cost $58 billion per year to 2020. Fortunately, no deal was agreed at Copenhagen, but hey, the new UK government supports 30%, which would cost $97 billion per year to 2020. They even say they will aim for 80% by 2050, by which time of course they will not have to explain to a future generation how they destroyed their country and its economy for a theory.

    These targets are laughably insane and unachievable without closing down the UK completely and reflect the naive bidding war between politicians, who claim “we can be greener than you can”. The figures probably way understate the real costs as they try to sugar the pill by saying it is only a small percentage of GDP.

    This is fantasy money. It doesn’t exist. If the major economies of the EU haven’t been successful in reaching their 5% Kyoto cut so far, in spite of major subsidies for renewables, how are they going to manage 20% or even 30% in the next ten years? Just attempting to reach these pie in the sky figures will destroy already fragile economies.
    Oh, I forgot, green jobs, Vestas from Denmark, Statkraft from Norway and GE from the US.

    Apparently we have beaten our own Kyoto target by 6% because of our dependence on foreign gas, whoopee. Spain missed their's by 33% and Denmark by 25%.
    http://www.danishenergyassociation.com/Statistics
    "In Denmark, two thirds of the fuel consumed in large “central” power plants is coal."

    "Yet the coal is a stable energy resource. The world’s coal reserves will last for 130 years whereas natural gas will last for 60 years and oil for 40 years."

    No worries about carbon emissions there it seems.

    It's all pain for no gain, as India and China continue to replace our emissions and industries with their own, with our blessing. We are even penalising our own oil industry:

    Latest ETS proposals ‘like extra tax on UK energy production’ http://www.pressandjournal.co.uk/Article.aspx/173
    Aberdeen economists point to substantial cost increases as a result of carbon scheme, Published: 11/05/2010

    "Proposals for the latest phase of the European emissions trading scheme (ETS) would mean costs similar to an extra tax on UK oil and gas production. This emerged in a new study by Professor Alex Kemp and Linda Stephen of Aberdeen University, published today.

    The report said there would also be an increase in operating costs, and the net increase in costs overall would be very substantial. The study added that UK output would be replaced by production from other countries."

    Then of course there is our net EU contribution……….

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

      "130 years whereas natural gas will last for 60 years and oil for 40 years" – bogus figures if ever I heard any. based on what assumptions?

      • DennisA
        Posted June 8, 2010 at 9:00 pm | Permalink

        I agree. That is what the Danes are saying but my reason for quoting them was the way in which they are promoting coal as the core fuel of their energy policy for the future.

  26. Bob
    Posted June 8, 2010 at 9:25 am | Permalink

    If you would take time to review the facts about Labour's record, rather than listen to Mr C's quite wild and innacurate assessment of blame, you will see that level of debt during their tenure (as a % of GDP) was below that of the US, France and Germany.

    Mr Cameron likens our situation to that of Canada's, which is a completely invalid comparison; during the 1990's Canada had gross debts of around 3x times that of the UK's – peaking at almost over 150% of GDP, when our's was below 60%. In terms of debt, we can be more accurately compared to Germany, rather than Canada.

    France and Germany are both heading for gross debt levels of 80%-90% of GDP by 2011/12, similar to ours. Was Labour responsible for their debt also?

    Of course they weren't; France, Germany, and many other nations as well as the UK suffered a sharp recession starting in 2007, leading to a massive loss of GDP of some 5%. No Government of any persuasion, as evidenced by the rising debt level in all leading nations, can ride through a recession of that nature without a severe impact on its finances.

    Do you think if Mr Cameron were in power from 2007, we would be any better off today? No, we would not!

    Reply: The UK's public debts and liabilities are already 200% of GDP

    • Bob
      Posted June 8, 2010 at 11:13 am | Permalink

      "The UK’s public debts and liabilities are already 200% of GDP". Really? The previous Goverment's own audited data does not show debt at anything like 200%. And "….according to the IMF, the UK's debt levels as a percentage of its economic output will be 98.3% in 2014, lower than the US (108.2%), Italy (128.5%) and Japan (245.6%), and only fractionally higher than France (96.3%)."

      You may be justified in stating that private debt (i.e. household borrowing) is in excess of 200%. In fact the last figures I saw (I think from the IMF) assessed the UK's gross private external liabilities as over 400% of GDP. But this is not the same as Government borrowing.

      Reply: See previous blogs on this – state debt and liabilities are over 200% – add in PFI/PPP, banks, pensions etc

  27. waramess
    Posted June 8, 2010 at 10:01 am | Permalink

    What the Labour party are saying is to some extent true. It depends on where you are trying to get to and how deep your pockets are.

    The Labour borrow and spend policies are premised on reflating the bubble and hoping at some point the private sector will take over. Like the gambler who borrows and bets on a particular number on the roulette wheel, timing or an endless supply of funds is everything, and in this case it seems not to be working.

    So, when the government stops spending there must inevitably be a downturn and maybe a steep one if the private sector fails to take over, which it seems it will not.

    On the other hand if the aim is to rebalance the economy to a prosperous and sustainable level then the bubble will need to deflate and there are those who will get hurt. The recession need not be long but it will be only fair to acknowledge it will happen.

    The risk for the Conservatives will be their inability to defend their actions against the accusations of the Labour party that it was the cuts that caused a recession, because that is exactly what will happen.

  28. Javelin
    Posted June 8, 2010 at 2:32 pm | Permalink

    I've posted on this site several times the views of the trading buddies that an absolute minimum of £50bn be cut this year in the June budget – followed by another £25bn in the winter budget. Followed by another £25bn, another £25 and so on until the debt is cleared.

    Fitch today has warned the same today.

    I have expressed severe doubts that it is possible for George Osborne to cut the budget sufficienty to prevent a credit down grade – due to political, contractual, legal and logistical reasons.

    I have also thought that it would be shrewd politics to have the most painful cuts in reserve so that if the rating agencies threatened a down grade that these reserves be used. I suggest the reserves are a 5% cut in all civil service wages above £20K a year. I would suggest Osborne claims his hand has been forced by the rating agencies.

    Given the pound fell a cent off the back of Fitches announcement I also think the markets have NOT priced this political activity into future FX or interest rates.

    The days following the emergency budget are going to be very interesting.

  29. christina sarginson
    Posted June 15, 2010 at 11:19 am | Permalink

    Oh dear, I have enjoyed reading your blogs John until now and I feel this blame culture which the government forcing onto the public at the moment is not really necessary. Firstly just to remind you the Tories did not get a majority vote and have to work IN PARTNERSHIP with the LIB DEMS so really just get on with it and stop blaming the Labour party for the problems.
    Secondly most people in this country do work very hard. I did work in the public sector (NHS) previously and I know there is some slack there, but I worked very hard to achieve the goals for the hospital trust and I know there were a lot of others who did and still do.
    Thirdly the last comment about getting a better job and paying the mortgage off is a little bit like Marie Antoniette famous phrase when the poor French peasants had no bread and she suggested they eat cake. Just a word of warning you need to remember what happened to her.

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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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