What do we need to do to strengthen the recovery?

We need a change of approach to the banks, tax rates on savings and earning which optimise revenues, a different approach to managing and explaining public spending, and a more upbeat message from the government.

Today I wish to concentrate on what fascinates and preoccupies modern politicians the most – the message. The Coaliton government was right to get over the point that the UK’s debt is too large and growing too fast. They were right to stress the need for more rapid and purposeful attempts to cut the deficit, the rate of debt increase. They have brought long term government borrowing rates down, which is good news.

That is now achieved. The UK does not today stand on the brink of a Greek crisis, as markets are currently persuaded that the government will bring their finances back under control and the deficit will be financed without too much strain.

Today the challenge is to reassure savers, investors, companies and job creators that the economy will grow sufficiently to make new investment and job creation worthwhile. The task to is to show that the UK is truly open for business. That means welcoming expansion of banks and business consultancies as well as steel works and car plants. It means countering the idea that public spending is about to be slashed by 25% when the figures show otherwise.

This morning I heard some new forecast that 500,000 jobs will be lost in the private sector as well as 500,000 in the public sector as a result of the “cuts”. There was no counter to this, no explanation that in any healthy growing economy jobs are lost as well as gained, no-one asking how many new jobs would be created on the other side of the account. There was no-one saying that even this forecast did not imply 1 million people were about to be made redundant.

The government’s strategy depends crucially on growth. Their deficit reduction rests on the assumption that tax revenue will be £176 billion a year higher in 2014-15 than it was last year. For that to come true the government needs to send a positive message to enterprise that the public spending controls will be introduced and exercised sensibly, and that job creation and risk taking will be rewarded, not taxed away.

The public debate in recent weeks has been all about how to cut fair shares of a cake which is too small. We need to spend more time helping bake a bigger cake, and less time squabbling over the crumbs of the old one.

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54 Comments

  1. Alan Jutson
    Posted October 13, 2010 at 10:02 am | Permalink

    Your right. It is time for a new message, but trouble is we have not had the truth yet from the last one "Live within our means" "we need to cut the deficit".

    Guess we have to wait for the spending review announcements to confirm exactly the savings/cuts plan and its implications, before we can then get to grips with a more upbeat message.

    Much as I agree with your comments about being positive Trying to be positive before you have announced the bad news for some, leads to total and utter confusion and a mixed message for all.

    Let us just get on with it.

    • Chas
      Posted October 14, 2010 at 3:29 am | Permalink

      I think you mean "you're right". It is a shortened form of "you are right." "Your" is a possessive pronoun, as in "your socks" and is quite different…

      • Alan Jutson
        Posted October 14, 2010 at 10:13 am | Permalink

        Thanks for the lecture.
        Engish not my strong point.
        Have given myself a slap on the wrist,
        Will try and do better next time.
        But I do pay taxes, and do have a point of view.
        What is yours?.

      • Pete soakel
        Posted October 14, 2010 at 4:08 pm | Permalink

        Sometimes grammar can be twisted when writing in comments – itsa new way of communicating innit?

  2. simon_555
    Posted October 13, 2010 at 10:06 am | Permalink

    A house price correction. Until then people will NEED to get into masses of debt to get anywhere in life and others will decide it's not worth working if it requires a well above average salary for even the most basic accomodation.

    • Colin
      Posted October 13, 2010 at 11:15 am | Permalink

      Whilst that is vital for the long term economic viability of the country, it is not going to help short term growth.

      People with mortgages are still going to paying off the debts of large house prices.
      People who were feeling rich because they had lots of theoretical equity in their house would not have it anymore and will probably spend less.
      People who are heavily invested in letting portfolios will see their net worth tank and will probably spend less.

      • simon_555
        Posted October 13, 2010 at 5:47 pm | Permalink

        "People with mortgages are still going to paying off the debts of large house prices."
        — they still will be whatever the prices of their house,

        "People who are heavily invested in letting portfolios will see their net worth tank and will probably spend less"
        — so what? The number of BTLers pales in comparison to the numbers who will benefit from lower prices. Investments go up and down, BTL shouldn't be guaranteed by the tax payer.

        We need to start thinking long term not just keep papering over the cracks with short termist policies.

      • Mark
        Posted October 14, 2010 at 12:45 am | Permalink

        Paying off existing debt will happen regardless of the level of house prices. Mortgage affordability is determined by the principal outstanding and the interest rate relative to income, not the house price. Since 2000, we have been borrowing abroad to fund our mortgages (the customer funding gap – difference between domestic deposits and domestic lending – was zero back then, and reached £750bn at the peak of the credit crunch), and therefore we have been paying the interest on them abroad too. It did not help the country to mortgage itself to outside interests, although we used the money to fund our purchases of foreign goods and services – our trade deficit.

        Spending is only economically useful to GDP if it doesn't simply suck in imports or go on foreign holidays. People may feel less wealthy if they're not spending, but the reality was they had been spending their wealth by borrowing against it. Cutting house prices and mortgage borrowing will actually improve the country's position as a whole, because less interest will be paid abroad. Moreover, as lower property prices feed into lower rents and new mortgages the reduced living costs make our workers more competitive with those overseas. Banks will also benefit from cleaning out their lending books, rather than being viewed with hostile suspicion as being at risk because house price correction is still arond the corner.

        Property wealth is largely illusory for owner occupiers – they can only realise it by selling up (or at least downsizing). Highly geared BTL portfolios are indeed risky in terms of asset value: their strength as businesses depends on rental yield relative to costs. Rents are likely to fall less sharply than house prices (at least once the effects of the cap on housing benefit has worked its way through the system).

        Overall, although those whose incomes and wealth are tied up in property will lose out, for the economy as a whole lower house prices are almost certainly a positive.

    • Stuart Fairney
      Posted October 13, 2010 at 11:51 am | Permalink

      Without wishing to be rude, you think a further fall in house prices, putting more people in negative equity, reducing their disposable income and putting further strain on banks will somehow "help" an economic recovery?

      • simon_555
        Posted October 13, 2010 at 5:40 pm | Permalink

        Yes, I don't think the number of people who spend depending on the current value of their home is very large.

        Everyone who buys a house in future would have far more disposable income to spend. Think how much more money people would have if they paid half as much for their house. High house prices are slowly bleeding people dry.

        After all that's happened I don't think the banks will be allowed to go under if house prices drop.

      • Iain Gill
        Posted October 13, 2010 at 6:01 pm | Permalink

        No we definitely need lower house prices, we are uncompetitive because folk cannot afford to work here, many of our best people move abroad and this is one of the reasons

        The way the tax and social security system protect wealth held in houses also needs sorting as it distorts the market

      • simon
        Posted October 13, 2010 at 11:20 pm | Permalink

        Stuart ,

        House prices are over valued in many peoples opinion and the B.O.E's .

        The UK will become a much tougher place to live , people will have to save more for their old age and there will be less to spend on houses so prices will have to go down .

        Once they reached bubble proportions it was already too late to stop innocent people getting hurt because the damage had already been done .

        I have immense sympathy for people who bought at the top .

        Are you suggesting even more savers money be thrown at propping up the housing market ? What happens when that course of action is exhausted and prices are still dropping ?

        • Stuart Fairney
          Posted October 14, 2010 at 12:52 pm | Permalink

          Opinion of value is irrelevant, it is the equilibrium point of interchange between buyers and sellers that determines value.

          That said, I agree with much of your post. If anyone is foolish enough to ask for my advice, then the BOE is abolished and along with it the MPC and fiat currency, the gold standard is restored. Interest rates find their equilibrium point as a result of market forces not some committee of 'experts' I might also ease the supply side of the commodity itself, ie houses, by way of more planning consents.

          There would never be bailouts of anyone or anything, banks, people, car plants. steel works or anything else. That said, there wouldn't be corporate or property taxes either so we would probably find a bouyant economy.

          I regret, none of this will happen and we will remain, limping along, trumpeting 2% pa growth while China and India (our new masters in just a few years) achieve 10%. It doesn't have to be this way. The solution is easy and for the existing political class, quite unthinkable as we trott along the road to serfdom.

      • StevenL
        Posted October 14, 2010 at 1:19 am | Permalink

        Recessions are supposed to purge the system of bad debt, and bad debt is supposed to be written off. The credit/business/economic cycle is the natural state of affairs in a capitalist economy.

        All the bailouts for bad debtors and bad banks have done is serve to prop up a broken system and maintain the very same dangerous and problematic imbalances that led us here, encourgaing a long economic stagnation.

        Rising house prices does not equal GDP growth, whereas building more houses to meet demand would create more goods and services in the economy and grow it.

        The home-owner-ists will be the death of Britain.

  3. Brian Tomkinson
    Posted October 13, 2010 at 10:36 am | Permalink

    Confusion reigns in the absence of clear messages and, more importantly, action. We are given a daily prophesy of the effects of the cuts which have not yet been made. The sooner the action begins the better. In a very short period of time Sir Phillip Green has identified billions of savings due to the inefficient way the public sector is so-called managed. We certainly need to encourage growth and one of the best ways is to stop wasting taxpayers' money and leave more for them to save and spend themselves.

  4. simon
    Posted October 13, 2010 at 10:53 am | Permalink

    The new European Free Trade Agreement with India is due to be signed in December which will open the gates to hundreds of thousands of Intra company transfers to UK .

    Indian shell companies will be on sale in the back of the Evening Standard at £250 a time so British companies can become Transnational by buying one and replace their British workers with Indians on British soil .

    Forget "the message" , Politicians elected by Citizens to represent Citizens . Transnational corporations are capable of taking care of themself .

    The whole country is sick of continually being betrayed Mr Redwood .

    Those readers whose jobs are safe will enjoy tax rises to subsidise the transnational's use of cheap labour by paying for the benefits of the British person's job they displace and for the schooling of the Indians children and their healtcare as well .

    The housing , travel and subsistence costs of an Indian worker on an Intra Company Transfer can be recorded as a business expense – ie an untaxed benefit . A UK worker has to pay for this out of already taxed earnings .

    The majority of new jobs will go to immigrants who aren't even here yet .

  5. oldtimer
    Posted October 13, 2010 at 11:08 am | Permalink

    I agree with what you say but with one caveat. Let us wait to see the commitments to firm actions first. So far we rely on words about "cutting" government spending and the deficit. As everyone knows actions speak louder than words.

    My assumption is that the government wants to get bad news out of the way first, fixing the blame on the last government. Next years budget would then be the time to signal changes to the tax system. At the moment all is negative and seemingly calculated to prolong the hair shirt policies. If it lasts too long – including the 50% rate – then it will be much more difficult to recover a sense of optimism about the future. At the moment I am pessimistic.

    • Paul B
      Posted October 13, 2010 at 8:28 pm | Permalink

      oldtimer,

      I think we've been lined up for "savage" cuts but, when they are announced, they won't be that bad.

      We'll find out next week I suppose!

  6. GJWyatt
    Posted October 13, 2010 at 11:19 am | Permalink

    Hard budget constraints are a good thing. They encourage efficiencies and innovation in all areas of life. That helps longer-run growth. But there is the difficult temporary side effect of unused or underused resources, i.e. unemployment, to overcome. We need imaginative policies to oil the creaking labour and capital markets, housing included. Spray-hosing QE money around will either just loosen the constraints which force us to work better, or create inflation. It may even do both.

  7. Rob Calhoun
    Posted October 13, 2010 at 11:29 am | Permalink

    John – I'm intrigued to know your opinion on the theories which Fred Harrison has on taxing land rather than income. It seems illogical that the spending power of this country is so impacted by the rise and fall of house prices rather than the productive economy. I entirely agree with a low tax, low touch state, but having read his book, though it would take guts to implement, I struggle to see an argument against it. Or is this just another case of the establishment spouting one thing, but actually not wanting to change the Status Quo?
    Rob Calhoun

    • Simple Soul
      Posted October 13, 2010 at 11:59 pm | Permalink

      There can be no such thing as a tax on land. It all has to come from an income somewhere. That is why rates (rateable values) were set at a notional value for rent. Is this what you are suggesting?

  8. Neil Craig
    Posted October 13, 2010 at 11:41 am | Permalink

    We need the prospect of low cost power – ie nuclear rather than windmillery – & nuch less H&S & "planning" regulation. Economic freedom plus cheap power guarantees economic success.

    • simon
      Posted October 14, 2010 at 10:44 am | Permalink

      Lower cost power to whom ?

      The middle men or the consumers ?

      At the moment price drops are not passed onto the consumer . The situation is currently worse than when it was nationalised .

  9. norman
    Posted October 13, 2010 at 11:49 am | Permalink

    Where is the money coming from to fuel growth? Simply saying 'greedy bankers' is a red herring.

    When government takes over 50% out of the private sector how can companies thrive and where is the rewards for aspirational risk takers?

    Stop taking so much money out of the (real) economy. Cut taxes, cut regulations. Actions speak louder than words.

  10. Stuart Fairney
    Posted October 13, 2010 at 11:49 am | Permalink

    Could you issue a clarification about the moderation policy? Some of my posts never seeem to make it through and I can't understand why in one or two cases. Others are delayed for days.

    • Rose
      Posted October 13, 2010 at 6:33 pm | Permalink

      Blog too popular?

    • Alan Jutson
      Posted October 13, 2010 at 6:55 pm | Permalink

      Stuart

      I agree, clarification would be useful as a number of mine have also failed to materialise at all, and certainly could not in any way be thought to put anyone at risk of anything..

    • Paul B
      Posted October 13, 2010 at 8:29 pm | Permalink

      Agreed. That would be useful!

  11. forthurst
    Posted October 13, 2010 at 12:11 pm | Permalink

    There is bound to be volatility in employment in moving from profligacy to sustainability. The issue is not how many posts are removed but how many new posts are created and who gets them.and whether loss of income in this country can be translated into increases of income from abroad and, besides, a 5% turnover in four years is modest

    Let's try to ensure that all new posts are not filed by foreign workers with yet more idle to be a drain on the Exchequer. What is good for a business may be very bad for the country in terms of yet more skilled workers on the dole and those who need reskilling left to moulder.

  12. electro-kevin
    Posted October 13, 2010 at 12:36 pm | Permalink

    Laws which tip in the favour of litigious employees are a hindrence to recovery.

    Scrap no-win-no-fee lawyering.

  13. THE ESSEX BOYS
    Posted October 13, 2010 at 1:06 pm | Permalink

    The problem of the poor presentation of a relevant general election message – criticised by your contributors here after you published the party’s proposals on 11th March, 8 weeks before the election – is continuing in government.
    We wonder if this a matter of too many cooks or one of the chief presentation chef (whoever he is!) not having a feel for what his customers need to satisfy their appetites. After October 20th we agree that a little less salt and more sweetener is sensible.

    We then need a simple graphic to illustrate progress. It would be published in the media monthly along with the borrowing figures announcement to show how the Labour deficit pit is slowly being filled with sensible economies and increased tax contributions.
    Alongside would be a hillock to show how the economy, hopefully, is being expanded by steady growth. A peg would mark the point at which the economy fell into a hole as a first growth target.

    CONTINUED BELOW

  14. THE ESSEX BOYS
    Posted October 13, 2010 at 1:11 pm | Permalink

    CONTINUED

    We still maintain that cuts in WASTE and not services should be a constant theme and all that hard detailed work is motivating to the common sense driven public.

    In our view there remains a problem of getting constructive ideas through to Tory High Command. In Birmingham Sayeeda Warsi announced to applause that the Policy Forum is up and running again. Do you know anything about that and how we might contribute, John?

    • David Price
      Posted October 14, 2010 at 8:04 am | Permalink

      Activities that you can't afford are simply that, whether they consist of waste or services or both. Priorities need to be fully defined so anything below the line is cut for clearly justifiable reasons – if you want to keep a school canteen then you have to decide which fire engine gets mothballed or how many hospital beds to close etc.

      As to waste, people should be sacked for instigating and promoting wasteful expenditure, not simply moved sideways or made redundant. It seems one man's waste is probably another man's pet project, but the taxpayer can afford neither.

  15. Stuart
    Posted October 13, 2010 at 1:21 pm | Permalink

    The best, most positive message and the real way to stimulate growth?

    Cut taxes, that's all.

  16. Bill
    Posted October 13, 2010 at 1:39 pm | Permalink

    “The terrible financial situation that we inherited”

    Said by every member of the government at every opportunity.

    Point made – stop it – (for a while) it frightens the horses, winds the media up and sets the weather.

    Talk about the opportunities that will arise as a result of the government policies, in time.

  17. Lottery Balls
    Posted October 13, 2010 at 1:46 pm | Permalink

    What is needed is some banks who lend to business and some proper competition in business banking and tax rates that encourage people (and investment) to come, stay and not leave. I see no sign of this anywhere.

    Bring you money here and give it all slowly over to the Government or loose it as inflation eats it away — the brilliant UK sales message.

    We also intend to reduce regulations sometime (but at the moment more and more is becoming law all the time).

  18. Rose
    Posted October 13, 2010 at 4:29 pm | Permalink

    Simpler, flatter taxes; ditto for benefits.

  19. Deborah
    Posted October 13, 2010 at 4:29 pm | Permalink

    Do you not think your signature on Douglas Carswell's amendment against the rise in EU contributions might also help?

    Reply I have made clear I will not be voting for any increase in EU contributions and will support any sensible amendment.

  20. gac
    Posted October 13, 2010 at 5:06 pm | Permalink

    Listening to the 'new' shadow chancellor this week it is clear that the terms 'deficit' and 'debt' are being deliberately linked to mean the same by Labour. Aided by some of the media it is clear that much of the public are taken in hence blaming the banks and bankers for all our woes. The Unions also use this as a platform – our members did not cause the deficit/debt problem so they should not be made to suffer etc etc.

    The coalition front bench need to jump on this each and every time it is uttered/suggested.

  21. AlteFritz
    Posted October 13, 2010 at 6:36 pm | Permalink

    The cost of making a mistake in dealing an employment problem is potentially ruinous for many small businesses. The overlap of equality and unfair dismissal legislation is over complicated. Many businesses really are deterred from employing people by fear of what might happen, particularly if they need to downsize in a hurry. There is a case for pruning back the undergrowth of legislation to encourage employment.

  22. Johnny
    Posted October 13, 2010 at 6:44 pm | Permalink

    When cuts in Public Sector Staffing are made, this Government needs to be ready for their big "fight back" Senior Civil Servants are famous for leaving on huge pensions and then taking their old jobs back, at more money as Consultants.

    Redundancy payments to Public Sector workers may also be cripplingly high. We need to remember that these so called "Civil Servants" have held the keys to the Public Purse for fifty years or more and will not let go lightly. The Public Servants themselves are no friends of the UK Taxpayers. They look after their own, first and last. They feel a srong sense of entitlement to job security and blank cheques, wherever possible. Reason and fairness are not considered.

    Value for money and genuinely looking after the Tax Payers interest are very foreign concepts to these people who feel now under threat by the rest of us.

  23. Martin
    Posted October 13, 2010 at 7:29 pm | Permalink

    "UK is truly open for business"- well why on earth was the third runway at Heathrow – proposed by a private company with private money blocked by the Government?

    Open for business does not mean

    1) stacked over Clacton or Didcot for half an hour.
    2) queueing for half an hour to get on the one take off runway at Heathrow.
    3) meaningless security checks that cause passengers to miss connections at Heathrow
    4) a security checker at Heathrow who shouts at passengers who can't speak English

    That carry on tells the world that our priorities are elsewhere.

    • rose
      Posted October 14, 2010 at 2:31 pm | Permalink

      Heathrow is in the wrong place and it would have meant throwing good money after bad.

  24. Bazman
    Posted October 13, 2010 at 7:43 pm | Permalink

    Break up the banks and call the bluff of people threatening to leave Britain. We don't respond the threats should be the mantra of the government.

    • simon
      Posted October 14, 2010 at 10:36 am | Permalink

      Bazman ,

      What we should be concerned about is the number of regular people who are not threatening it but actually going ,going, gone .

      Typically people earning less than £100K and entrepreneurs who would create the employment to benefit the man in the street .

      They don't want to see the grim end of Britain as we knew it , they cannot afford to be relieved of their hard earned gains , too scared to employ anyone due to legal pitfalls of equality , elf and safety and other regulations .

      Can't bear to watch their children be condemned to a life of unemployment . Want them to receive a better education and to be able to retire with dignity .

      Want to find a country where the politicians act in the interest of the citizens and don't betray them at every opportunity to the EU and big corporations .

      Want them to be free , not slaves of the EUSSR .

      • Lottery balls
        Posted October 16, 2010 at 9:29 am | Permalink

        Spot on.

  25. Iain Gill
    Posted October 13, 2010 at 9:20 pm | Permalink

    watching you live in parliament

    great stuff

  26. Johnny
    Posted October 13, 2010 at 10:01 pm | Permalink

    We need to rebuid hope and then support peoples dreams for their futures. The main vehicle in that game is "Trust" How does this Government and the Banks which precipated this crisis of confidence motivate the British People to trust any of them again? We know that our standard of living may never be the same, but we do not wish to lose the results and savings of a life time of hard work and diligent study. Government must demonstrate by its decisions that it is being FIRM but FAIR with its actions being consistant and in real British Interests not just in those actions which make great Media Headlines fro a day or so.

  27. Home Guard
    Posted October 13, 2010 at 10:02 pm | Permalink

    Worth a few million a day for the recovery
    reopen near 10,000 pubs,clubs,bingo halls,discos,dance halls ,casinos
    bookies and assorted hospitality venues,re employ near 70,000 and make
    a few million a day on wet sales. Seems obvious to most.
    Another 7-800 near to closure ,saved, would'nt be out of place neither.
    Might also fill some massive punctures in the Big Society Project
    Just a thought from an ex Tory (48 years)

  28. David
    Posted October 13, 2010 at 11:02 pm | Permalink

    We need to go much more strategic in the plans for pulling the country out of the current problems, focusing on technolgy, IT, science & small business/entrepreneurship. The issue of 25% cuts still needs clarity – most people assume this is immediate & on an annual budget basis, as opposed to 6% per year over 4 years. Given that the government would not be talking of 25% annual cuts as 100% cuts (over 4 years), why on earth have they decided to talk about 25% cuts now, giving so much negative ammo to the BBC/Guardian et al & creating such a negative feeling across the country that it is becoming a self fulfilling negative prophesy, leading to an economic tail-spin.

  29. simon
    Posted October 13, 2010 at 11:29 pm | Permalink

    Repeal the Harriet Harmons equality law which the House rubber stamped a couple of months back or at least pass a revision saying it doesn't apply for companies with less than 250 people .

    Every small business man (oops person) I've spoken to has told me they cannot afford to leave themselves open to being bankrupted by a job applicant taking legal action so are not going to create any new jobs .

    They can't afford to have a lawyer present at every job interview like you have in your surgery's John . Why should they bother ?

    They can't even say "Good Morning <candidate> how are you today" incase the applicant may have a health problem type "protected characteristic" .

  30. simple soul
    Posted October 13, 2010 at 11:51 pm | Permalink

    It may never happen, but the quickest way to recover is through a ringing boom in London and the South East based on London as world centre for financial services.
    Package A – the Redwood Reforms – to take the heat out of the financial sector question:
    a) Year-by-year reduction of stamp duties on securities from current levels to zero, over 5 years.
    b)The Law of Redwood's Fork. Let employees choose between bonuses + tax at an enhanced higher rate (55% to 60%) on their whole income, or taking their pay wholly in form of salary taxed normally.
    c)Bust price-fixing anti-competitive charges on unit trusts
    d)Cancel pro tem projects for high speed trains, giving cash and priority to London commuter and tube routes.
    e) Build Schiphol size airport – Thames estuary, or Exeter airport, or near Norwich for Liverpool St, or South of York for Kings Cross.

  31. Trev
    Posted October 15, 2010 at 12:45 am | Permalink

    Why is your home page directing me to some rubbish advert??

    Reply: I believe it was hijacked yesterday but this I am told has now been corrected by the service provider.

    • Mark
      Posted October 15, 2010 at 10:04 am | Permalink

      It appears to be hijacked again.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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