Month: October 2010

That headline woke you up. No, I am not about to change my views on the Euro and European government, nor am I about to agree with Ken on matters constitutional. I just think he is making some sense of our overflowing prisons, of our ineffective criminal justice system, and of the need to achieve more for less in that crucial area.

I have said before that we send too many people to prison. Prison should be mainly for those who represent a threat to our personal security. It is the only place for mass murderers, rapists and perpetrators of serial violence. The public needs to be protected from such people.

It’s record at reforming or deterring lesser offenders is not good. In some cases jail itself can be a school for burglars, an introduction to drugs and confirmation of a life of crime for the inmates. It can make it much more difficult for the person on leaving to go straight and find a decent job. Finding tough penalties beyond the prison gates, and making criminals pay their victims for redress where they have stolen and damaged property might work better. Making prisoners work from or in prison is also a good idea, as long as the prison service does not drive firms out of business through offering cheap labour in the wrong places. Criminals should be made to work harder and pay more back than average taxpayers, not let off working altogether. It was their absence of the work habit that led many of them to a life of crime in the first place.

Instead of building more jails we ned to use the ones we have better, concentrating their places on the serious criminals. We also need to ensure drugs and other bad habits do not pentrate the prison walls. Where necessary prisoners need to be weened off drugs through a strong programme.

Will there be “cuts” when total public current spending is planned to increase by £92.5 billion over the next five years, rising every year during that period? Apparently so.

I guess there will be four sorts of cuts.

1. Sensible cuts because we do not need the public sector to do certain things. The end of ID cards, regional government and some quangos fall into that category for me.

2. Cuts in large planned increases in spending which the Labour government left in the plans but never had the money to carry through. Much defence procurement lies in this category. Labour kept reducing planned spending growth in defence, but left a long wish list of items they wanted to buy for a future date.

3. Cuts brought about by poor public sector management. Clearly there will be parts of the public sector that cannot manage within overall cash increases of 15% over five years. They are getting their retaliation in early, and claiming they will need to cut all sorts of things in order to live within the new tighter spending controls. It would be good if Ministers and Councillors would challenge this more, and show how it is possible to do a good job within the moderate cash increases available.

4. Cuts brought on in certain departments because other programmes are going to grow, taking up more of the increases in the totals than their proportion of spending. The EU budget, Overseas Aid, Health and debt interest programmes might all fall into this category.

So what can the government do to manage the process better?

1. The government should do more to explain that spending overall is rising, not falling. That makes public sector management easier, and should help morale. Too many people think the overall budget is being cut by 25% in cash terms, which is simply ludicrous.

2. The government should explain that Labour’s preferred medicine of more taxation is not feasible. Tax revenue is planned to go up by £176 billion a year in Year 5 compared with the last Labour year. That is a massive increase, which requires growth and good performamce from the private sector to deliver it. Taxing more would make it impossible.

3. Reduce the number of protected areas – especially by telling the EU that the EU budget and the UK contribution should go down, not up, in current circumstances. Sell more assets to reduce the amount of new debt taken out, thereby cutting the amount to be spent on interest on debt.

4. Find new ways to encourage and lift public sector managers so they can deliver good services for the modest extra sums on offer. Stop the language of gloom and cuts.

Mr Jememy Hunt has stirred up a big debate over family size and benefit incomes. He is saying people need to take responsibility for their own decisions, whilst his critics say that the state must act as the insurer of last resort whatever choices people make.

In the end it comes down to what the neighbours think. There is no state money, only the money that taxpayers send the government. Mr Hunt is inviting us all to reconsider what it is fair and sensible for the neighbours to pay.

The question is easy to answer in many cases. Most of us are very ready to pay for a neighbour who is seriously ill, disabled so they cannot work, or elderly. None of us wish to pay for a neighbour who has substantial capital of his or her own, a rich husband or wife, or the ability to take a job on offer that would pay their bills. We do not wish to keep anyone in champagne and luxury cars, but do want to help those in trouble have decent food, clothing and a home.

As Mr Hunt has discovered, it is the cases in the grey areas that are difficult. A benefit system has to set out rules for everyone that are fair and straightforward. It also has to handle a very wide range of circumstances, all of which are slightly different.

I would be interested in your thoughts on Mr Hunt’s points. How do we send the right message about what the neighbours will pay for? What if any are the limits of benefit payments for an individual family? How do we protect the children whilst telling the adults they have to show some responsibility?

David B Smith’s latest figures show the following shares of government expenditure in the economies of differing UK regions:( the characterisations are mine)

Very high spenders, low overall incomes and performance

Northern Ireland 80.9%
Wales 76.9%
North East 73.5%

High spenders, better incomes and performance

North West 64.6%
Scotland 61.4%
Yorks and Humber 60.5%
East Midlands 53.9%
South West 52.8%
East 44.3%

Lower spenders, higher incomes and world matching performance

South-east 40.0%
London 39.1%

(General government expenditure as a percentage of GDP at basic prices derived from HMT sources)

It is not surprising that the regions with the highest proportion of government spending to GDP are the poorer regions. They get more government subsidy because they are poorer. What is depressing is the order of the lists has remained very static over many years, despite the large extra sums routed into the poorer regions to try to make up the gap. Indeed, in the Labour years, London, the richest region receiving the least public money as a proportion increased its lead in average earnings and general prosperity substantially.

Regional policy needs to be thought through anew. Labour proved beyond doubt that hurling ever larger sums of taxpayers money at people, Councils and businesses in the poorer regions did not enable them to catch up with the more successful parts of the country. Meanwhile the areas starved of the public spending bonanza did well throughout the last decade apart from the 2008-9 period when the Credit Crunch did universal damage.

The aim must be to build bigger, stronger and more successful private sectors in those parts of the country that are still well behind London in income levels and growth. There is only so much the state can do. It can help educate people. It can ensure good communications and the supply of the planning permissions and permits to those who want to run businesses in those areas. It will then find that lower taxes and a sensible level of regulations make better recruiting sergeants than a fistful of subsidies.

It was good to hear the scientific establishment today concede what some of us have been saying for a long time – that changes on the sun can have an impact on our climate. I look forward to sun variations being included in models forecasting changes to earth temperatures.

In the meantime two commonsense policies suggest themselves. It is still a good idea to press ahead with fuel conservation and fuel efficiency measures. We need to reduce our dependence on imported fossil fuels, given the rising demand for these supplies from fast growing Asia and given the political instability in some of the producing regions.

It is also important, given the government’s aim to rebalance the Uk economy with a bigger manufacturing sector, that we do not impose extra burdens on the use of fuel here in the UK compared to our competitors. Exporting fuel use to rising industrial powers does not cut global emissions, but does cost us jobs.

On Tuesday at Conference I spoke to a Policy Exchange audience about taxation. I explained that we needed to maximise receipts from existing taxes to help bring the deficit down. I argued that current rates of CGT and Income Tax will not do this.

I reminded people about the work I did, and the Adam Smith Institute did, at the time of the CGT debates. The evidence from the USA and the UK suggests strongly that a rate no higher than 20%, and maybe as low as 15%, is needed to maximise CGT receipts. The Chancellor, in his budget, for the first time committed the Treasury to the view that tax revenue does fall off above a certain level of tax. Clearly if you set a 100% CGT rate you would collect very little.People and companies would await a lower tax and lobby like mad for it. The evidence shows CGT revenue has usually fallen after increases above 20%. The Treasury says 28% is around the perfect rate. I beg to differ.

The same is likely to be true of the marginal rate of Income Tax. In a footloose and competitive world no country can get away with unduly high marginal rates of Income Tax. People and businesses simply relocate to avoid them. I suspect 50% is above the optimum rate for collecting maximum revenue. Doutbless the perfect rate is higher than the 15-20% for CGT, but is unlikely to be above 40%.

On the same platform with me was David B Smith. He presented some new figures he has been working on, to argue that the UK as a whole is now on the wrong side of the Laffer curve – that its total tax rate across all taxes is too high to optimise the revenue. He is as critical of plans to raise VAT as the rest of the tax rises.

What is worrying about his numbers is the state of the UK economy they reveal. The government sector has risen by 15.9 percentage points as a share of national output in the last decade. This was the largest such rise in the OECD and the biggest ever such rise in the UK in a single decade. Mr Smith thinks it makes a UK recovery that much more difficult. With the government taking more than half of national output, the tax squeeze on the productive sector is very great.

I hope David Cameron will move us on from “cuts” and constant reminders of the deficit crisis inherited from Labour. I think all with ears to hear know the financial inheritance was dire and the country was fast running out of credibility to carry on borrowing. Those that disagree are not about to change their minds.

Today we need to hear that important public services can be maintained and improved, given the extra money to be committed to them. We need to know that the government intends to manage the public sector through a period of slower growth in spending. The government needs to do more, weeding out areas of undesirable and wasteful spending, cutting back their administrative overhead substantially in accordance with their stated plans. It needs to show that the public sector can do more for less and deliver better quality services for the cash available.

Yesterday’s promise of welfare reform from Mr Duncan Smith sounded fine at the high level of intention and vision. The success of the plans will rest with the detail. Most important is how Mr Duncan Smith intends to ensure that people who can work do work, or at least how they can increase their chances of the elusive job offer. The terms on which benefit is offered and witheld are crucial. In the end a series of sensitive and difficult judgements have to be made by officials acting to implement the new policy.

The move to a single benefit paid to people out of work, and in part continuing as an in work top up where needed also sounds fine. It depends on a new universal national computer programme to be devised, and a complete means test bringing together the various means tests around the current benefit system. Again there remains the issue of how it will be set up, paid for, tested and made to work.

The one big cut many of us would like to see is a big reduction in the cost of benefits to the unemployed because many more are back in jobs. Putting in place the two pledges – more money if you get a job, and no money if you turn one down unreasonably – as quickly as possible must be central to making that happen.

The more progress the government makes in cutting the avoidable costs of welfare by promoting jobs, the better. The more reassurance the PM gives to those who need good health facilities, good schools, and access to income because they are disabled or ill, the better. Labour will with certain public sector unions fight a campaign claiming it is cuts all the way and the vulnerable will suffer. Mr Cameron has to show he will not let the vulnerable suffer, whilst at the same time squeezing out the waste and worse from the system.

I think the government has done enough to warn people that they inherited a mess in the public finances, and that tough decisions have to be taken.

As readers of this site know, the deficit reduction programme hinges on collecting large extra sums on tax revenue, which in turn requires reasonable levels of sustained growth. The government needs to turn more of its attention to creating the conditions for that to happen.

Yesterday evening I was discussing how the UK could enjoy the manufacturing revivial Mr Osborne says he seeks. It will take urgent action to allow and assist the banks in financing more industrial investment, expansion and new ideas. It will require a strong Freedom Bill which includes sufficient cost reduction through the removal of less desirable or ineffective regulations. It requires a more competitive tax regime on company and personal income. I will be talking about that this morning at the Policy Exchange event.

We need to hear more of the plans to involve, engage and assist the public sector workforce. The government is about to embark on large reforms in a wide range of public service areas. It needs to take its staff with it, and to harness their energies and talents to the task of delivering more for less.

We need a policy for wider ownership, for enterprise, for savers. We know the bad news – now let’s hear the good news. Let’s see how the government can help create a society were working is rewarded, where savers are no longer penalised, where more come to own and participate in the economic life of the nation. Let’s build more bridges between public and private sectors, and let more people work for the public service through small business, employee buy outs and other means of encouraging employee participation in the success and quality of the service.

I hope to catch up with the website later today – it has been a hectic 36 hours at Conference.

I have been reading Michael Ashcroft’s account of the work he and his team did in the marginal seats in the run up to 2010 election. It is not much like the press accounts I have seen of it. Far from laying into former colleagues, or complaining that the Conservatives did not win, he provides a rational and balanced analysis of what went right and what went wrong in the long and short campaigns.

His figures show that Conservative candidates did do better than the national swing in the target seats where he helped them put in the extra effort. Hard work works. Those who said he wasted his efforts were wrong. He defends himself against the charge that he sought to buy an election. As he points out, all parties could have run targetted campaigns as the Conservatives did. Money does not always buy success, as the Referendum party proved in 1997, and as Labour showed in 2010.

He also goes a long way to reinforce my view that running a campaign based on negatives about opponents is not the way to electoral success. His polling showed that many more people had a dim view of Mr brown and the government he led than wanted to vote Conservative. The Conservatives did need to explain what they were going to do, and to show they understood the wishes of the people and complexity of the problems we face, more than they needed to demolish Mr Brown again.

I only found myself in disagreement over one issue – tax. Lord Ashcroft believed that offering tax cuts would not work. Yet he concedes that when the Conservatives did offer specific tax cuts, no matter what they were , they polled well and helped raise the national poll ratings of the party. He claims more general tax promsies would not have been believed. That would depend on what was also said about economic growth and public spending. He could have added that in 1997 Mr Blair was adamant Labour would not raise taxes, and did much to campaign against the tax increases Mr Major had introduced. This was an important argument which helped Labour’s victory.