Different ways of taxing to cut the deficit

 

            What passes for political debate about the deficit and how to reduce it struggles to inform, because it is based on  the strange proposition that most of the reduction is occurring through spending cuts. The numbers show otherwise. Whilst there are cuts in planned spending, total  spending carries on rising in cash terms, so all the deficit reduction planned happens through increased tax revenues. The increases in VAT and National Insurance are an important part of delivering this tax based approach. As we have seen, the main reason increased cash spending delivers some unpleasant cuts  is the rising inflation. Bad public sector management in some Councils and quangos adds to the stresses.

            The poor public debate is made worse by many people misunderstanding the difference between debt and a deficit. A deficit means the debt is going up – the country has to borrow more money each year to pay for the excess spending, on top of the huge debts already built up. A lot of people including  media interviewers and commentators, seem to think that reducing the deficit is the same as paying debt off – if only!

            Last night on Channel 4 News the Snow interviews left the impression that increased VAT could be a short term measure to ” pay down the deficit”, and that once that was done the tax  could be cut again. The increased VAT on the government’s strategy is needed to meet some  of  the costs of rising cash spending that otherwise would have to be borrowed. Increased VAT pays off no debt. It does not even stop the debt increasing. It merely slows the rate at which the debt is increasing. The £13 billion a year increase in VAT is considerably less than the planned cash increase in spending over this Parliament.

              Labour’s approach is to say that even more of the job of deficit reduction should be achieved by increased taxes. As all the deficit reduction is being achieved by increased taxes this in effect means Labour wishes to increase spending more rapdily than the Coalition, and use extra tax revenue to pay for the extra spending. Labour wants extra National Insurance on top of the the planned increases the government is putting in. Of the two plans on offer, the Coalition one is preferable because it cuts the deficit more quickly, and avoids even higher taxes which would be job destroying. Better control of public spending, as often discussed on this site, would help the recovery. There is no substitute for the public sector doing more with less.

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54 Comments

  1. lifelogic
    Posted January 5, 2011 at 7:41 am | Permalink

    They increase the tax rates to try to increase the tax taken so businesses close, jobs go, people buy less, do more deals cash in hand, DIY or go abroad. Thus the tax take goes down. So the government puts the rates up again perhaps.

    A bit like John Major’s (now absurdly reinventing himself as a sort of TV sage for slow people) and his hugely damaging ERM fiasco. When the economy and the pound were weak against his arbitrary German Mark point he put up interest rates thus making the economy even weaker, countless homes repossessed by banks and the pound even weaker still. So up rates went yet again.

    If only these people understood simple positive feed back systems.

    Just fire the state sector and QUANGO people actually causing harm to the economy or at least doing no good there are plenty of them around and sort out pointless regulations with a general exemption law where the regulation is clearly pointless or worse.

    • lifelogic
      Posted January 5, 2011 at 3:08 pm | Permalink

      Perhaps a law that taxed at 100% any state sector pay and pensions above say £15,000 PA whenever state sector debt is above 50% of GDP might help concentrate the minds of the civil servants and encourage them to stop wasting money on almost everything they do.

    • lifelogic
      Posted January 5, 2011 at 9:41 pm | Permalink

      That people misunderstanding the difference between debt and a deficit does not surprise me. After all huge numbers throw their money away gambling on slot machines or buying lottery tickets and quack medicines, spend fortunes on pointless beauty products or think they are saving the world by driving a few bottles to the bottle bank in their Mercedes. What is surprising is that MP’s often seem to have a rather lower than average level of common sense still. After all most people know full well that the EU is a disaster, employment and equality legislation is counter productive, big government does not work and are deeply unconvinced by electric cars, wind turbines and all the global warming exaggerations pushed by the BBC and the state.

  2. Posted January 5, 2011 at 7:51 am | Permalink

    It is good to see repeated the reality of deficit vs debt. Even the Coaliton front bench seem to be happy to let the urban myth persist.

    To pay off debt we need more prosperity and less spending. To think one can just raise taxes and keep spending more is to be in denial.

    The government needs to not do more with less, but rather less with significantly less. We have too much government doing far too much. Yes, most of the “other stuff” – the apocryphal five-a-day coordinators – are small beer vs the NHS, welfare and Education budgets, but the latter areas are also where the government should be doing far less, namely ending the de facto monopolies in education and health. We have seen some sensible reality checks in welfare around housing, but one needs to dismantle the obstructions to prosperity such as regulation and taxation before getting too medaeval too quickly over welfare.

  3. Ellie
    Posted January 5, 2011 at 8:26 am | Permalink

    If higher taxes destroy jobs, why are we increasing VAT, or isn’t that a tax?

    This might help you grasp what you need, John.

    http://bilbo.economicoutlook.net/blog/?p=2916

  4. Mick Anderson
    Posted January 5, 2011 at 8:47 am | Permalink

    The Coalition is still dancing to the Labour tune about spending. Whenever they are accused of “cuts” (if only….), they start from the assumption that all current spending is “necessary” and “desirable”. It isn’t.

    Many of the things that Govenment fiddles with can be left alone. Some people will lose their “jobs”, but as I don’t see why I should be funding these labours through my taxes I really don’t care. The only person seen to be making any progress is Eric Pickles, and that’s not good enough for a party that claims to be “Small State”. Don’t just blame the Lib Dems – any Tory running a department has the opportunity to make both inroads on the deficit and a name for himself.

    If the money is being wasted, if the thing being funded is frivolous, if it’s simply carrying on the Labour waste then say so.
    Most of us will understand, and those who don’t probably don’t matter anyway….

  5. Nick
    Posted January 5, 2011 at 8:47 am | Permalink

    So lets see. 13.5 bn for VAT.

    165 bn deficit (or 240 if it carries on at the same rate as last month).

    That leaves 151.5 bn of new taxes.

    ie. It’s complete horse manure to think you can do it with taxes.

    What you need to do is to get people to grasp the mess. There you are arguing about a few millions for a book club whilst the real problem still exists.

    1. Publish the true debt figures. All of them. Civil service, state pension, state second pension, the lot. Don’t fiddle the discount rate either.

    2. Cut income tax to 10p

    3. Introduce a debt tax, say at 10p. [Level depends on the interest rate or accrual rate of the debts]

    So no change so far.

    4. Give everyone an annual statement of their share of the debt.

    Sit back. [Or go into hiding]

    People will be livid. I suspect a few MPs will be strung up. The poll tax riots will be minor. You can only get change if you tell the truth and stop lying through you back teeth as to the problem.

    Witness the program on the debts where MPs were interviewed. They didn’t have clue.

    • Stuart Fairney
      Posted January 5, 2011 at 11:56 am | Permalink

      “Witness the program on the debts where MPs were interviewed. They didn’t have clue”

      This for me was the most damning thing I have seen in a long while.

      • alan jutson
        Posted January 5, 2011 at 4:45 pm | Permalink

        Stuart

        “This was for me the most damming thing I have seen in a long while”

        Agreed 100%, and one of them interviewed was the current Shadow Chancellor.

  6. alan jutson
    Posted January 5, 2011 at 9:21 am | Permalink

    Your point about many peole not knowing the difference between a deficit and debt is absolutely true, as I have often found out when the subject is raised for discussion.

    Perhaps the reason why there is such ignorance is simple, people simply do not run their own affairs as they used to many decades ago, because they are not paid wages any more with cash, instead figures just enter a bank account and figures leave, with standing orders, direct debits, and cheques written. Add to that our friend the fantastic plastic, which can pay for almost anything at a swipe, and people are losing track of reality. Penalties for going overdrawn or short payments are also just figures to be added to a list of other figures, and Banks had been happy to contuinue to lend on the basis of house price inflation.

    I am often surprised at the number of people who simply fail to check a monthly statement, be it Bank, Building Society or credit card. So in short and in general, a huge amount of people do not practise any money management skills at all.

    In the days when cash was king you knew when you were running short, and most households budgeted in some way, even if it was money put aside in tins for various expenditure, (sure some older readers will remember this family practice)

    Simple accounting as mentioned in a readers post (the rise and rise of China) does not seem to be practised any more by most people. Hence we have a whole range of people including MP’s, Media interviewers, even Businessmen and women that lack this very simple skill.

    I cannot believe that Robin Day in his prime would have let politicians get away with the spin and false statements of the last two decades, and therein is the problem, those that should know the skill of forensic interviewing have failed to inform the general public of what is really going on.

    Politicians of all Parties have consistantly lied (intentionally or not) as to the true state of our Countries finaces and the solution to the problem.

    My fear John is that after all of the Media flack about cuts etc, the Government has proved by its cash increases in future expenditure that it intends to do nothing to reduce that expenditure. The Government had won the argument on the neccessity for cuts, but seems to lack the courage to impliment them.

    One is forced to wonder if George, DC, Clegg and the rest, really do understand simple accounting themselves.

  7. Posted January 5, 2011 at 9:26 am | Permalink

    It’s total madness for someone who is already badly in debt to continue to borrow even more money until they have paid off the debt. But for some strange reason, governments don’t seem to think that this simple rule applies to their finances. Unlike the individual who may be looking forward to an inheritance or even dreaming of winning the lottery, the only solutions for a government, other than paying the debts, are to either go bankrupt or to have massive inflation such that their debts decline in value faster than they are growing. To me the latter seems quite a possibility and as a pensioner I find this very worrying, particularly in view of the moves to link my pension to CPI rather than RPI, which in itself is an underestimation of the rate of inflation which applies to the elderly.

    • wab
      Posted January 5, 2011 at 11:40 am | Permalink

      The government is indeed seemingly keen to use inflation as one (“stealthy”) way to reduce the debt. But if you are so keen for the debt to be reduced explicitly, rather than via inflation, would you be happy for the State pension to be explicitly cut, rather than via the CPI change, as part of this effort? Basically, no matter how these things are done, pretty much everyone is going to suffer a reduction in living standards except for the people at the top (in particular the bankers, but also MPs), who caused the mess in the first place.

  8. Brian Tomkinson
    Posted January 5, 2011 at 9:27 am | Permalink

    Sadly, we now have three major political parties who can be described without fear of contradiction as addicted to tax and spend. The talk of cuts was instigated and encouraged by the coalition – a clear example of the continuance in government of Sir Humphrey’s rule of Inverse Relevance: the less you intend to do about something, the more you have to keep talking about it. The government’s plan has been clear to me for some time – taxation and inflation. If only we had a realistic group of politicians offering a different approach for whom it would be worthwhile voting. Added to this charade we now face the prospect of strikes and union militancy over ‘cuts‘. Those of us who lived through the 1970s debacles can see it happening all over again but this is one repeat we don’t want to see.

  9. Posted January 5, 2011 at 9:30 am | Permalink

    Really insightful article when you stick to basic facts.

    The politiking at the end is more problematic. Part of the problem in politics is that you guys always discredit what the opposition would do to justify your own actions.
    As someone who takes an interest from the sidelines, I become more and more disenfranchised, as the only alternatives seem to join the mad race to secure wealth for myself and forget everyone else.

    I agree that the public sector could be manage more effectively – managers should not be earning inflated saleries. But let us not forget that some private sector companies are allowed to be managed shoddy and when they mess things up, we (normal people) have to pay for their mess.

    The irony is that unless we take a closer look at what private companies are doing to our society, this country will continue to deteriorate.

  10. Steve Cox
    Posted January 5, 2011 at 9:34 am | Permalink

    An interesting and succinct summary, John. Isn’t it oversimplifying things, though, to say that all of the deficit reduction happens through increased taxes? That’s true in nominal terms, but in real terms high inflation will also cut the real value of the deficit as long as the rate of increase in public spending is lower than the rate of inflation (which at present levels it certainly is, I think). Is that perhaps why Mr. Osborne, Mr. Cameron, the Treasury and the BoE are so relaxed about 5+% RPI? They are happily beggaring savers and pensioners to inflate away the deficit in real terms, even though public spending is increasing in cash terms. Or am I spending too much time reading about conspiracy theories…

    • sm
      Posted January 5, 2011 at 11:01 am | Permalink

      Did anyone see Jeff Randalls interview over xmas when a banker’s eyes lit and sparkeled like a diamond when inflation was mentioned? It was shame Mr Randall did not pass an invite to Mr Redwood.

      £13nb from vat versus the £200bn overspend each year.

      Logic forces me to agree with Steve Cox above, that by default or inaction , inflation,taxation and hopefully some growth are the chosen methods. Failing that it probably will be outright default.

      The problem is clarity how much of the deficit is cyclical and not expected to recover. ( 5% inflation on £1000nb= £50bn contribution to debt reduction in real terms)

      In order to test this theory, could we ensure that all quango/judges/eucrats senior civil service renumeration and pensions are no longer inflation protected. Note BOE pension fund actions not words below.

      Can we have a maximum salary rate in the public sector linked to the minimum wage?

      Pensions capped in lieu of the tax not able to be taken on a ‘promised pension’ versus a real contribution based ones which seem to have predators circling tighter and tighter. Note who are forced buyers of HMG debt?

      Could we ensure all non income based taxes are capped at % of an individuals income? eg Council Tax or switched to local sales taxes on non essentials, (essentials being basic food,water and a individual energy ration).

      What happens to the arithmetic when global interest rate rise, i expect our MPC will talk a lot, but not respond and allow inflation to rip.

      Those in the know have already protected themsleves, e.g Gold prices.

      http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6646330/Bank-of-England-staff-pension-fund-shuns-Gilts.html

      The main thing i dislike is the dishonesty in the method, where it is just done and not debated, and voted on. Even though im sure it would be passed by the same Parliamentary ”democracy” we have at the moment. The same one which continues to pushback after the expenses scandal. Really Parliament needs to start reading the riot act to themselves.

      Thankyou Mr Redwood and others, at least i think i know whats happening and i dont like it.

  11. waramess
    Posted January 5, 2011 at 9:54 am | Permalink

    “Of the two plans on offer, the Coalition one is preferable” Yes it might be preferable but it is not acceptable. There seems to be a renewed resistance to the idea of cutting the size of government.

    If the government want a bit of quick cash let them start selling off parts of the NHS.

    No? Is it still an easier option to steal a little more from me? At zero interest rates for saved funds and taxation now at an eyewatering 55 percent of total GDP the sacrifice made by the private sector is truly formidable and the government continues to be unwilling to lift a finger aganst oppportunistic banks who charge exhorbitant spreads even on their overdraft lending.

    If there are to be sacred cows the government should start thinking of protecting the taxpayer for a change (the same people as the average voter) and start selling some of the family silver.

    Thirteen years in the wilderness and they seem to have developed absolutely nothing by way of a coherent way forward.

  12. Iain Gill
    Posted January 5, 2011 at 10:23 am | Permalink

    Cut the “aid” budget

    Cut the tax dispensations to foreign nationals here on work visas

    Cut the national insurance dispensations to ICT visa holders

    Cut the European budget

    Stop multinationals earning big sums in the UK but paying minimal tax here and paying their tax in tax havens instead

    Increase the cost of work visas to pay for all UKBA activities

    Pensions rights to immigrants should be pro rata with the amount of time they have been in the UK and full pensions should not be going to folk who have only been here six months!

  13. oldtimer
    Posted January 5, 2011 at 10:23 am | Permalink

    This failure by the political class (yourself and a few others excepted) to explain the difference between the national deficit and the national debt means that either they do not understand it or it is deliberately muddled. Many journalists, as you point out, fall into the same category.

    No wonder they are held in contempt by voters who do understand the difference – and they are more than these offenders suppose.

  14. Str0ngh0ldBarricades
    Posted January 5, 2011 at 10:28 am | Permalink

    Maybe, if the coalition does actually control spending, rather than just massaging gently what the last Labour administration had configured in their planning, then the coalition could look at reducing corporation tax for those unpaid VAT collectors to the levels of Russia, Switzerland and Ireland.

    After which, hopefully the localism agenda will allow further reductions in direct taxation, with maybe the abolition of council tax.

  15. brian kelly
    Posted January 5, 2011 at 10:29 am | Permalink

    Douglas Carswell tells us that increases this year to the EU is £9Bn out of the £13Bn raised by the increase in VAT [this includes £2BN year on year increase plus £7 Bn bailout contributions]. It’s all extremely depressing. I had high hopes post election despite [maybe partly because of] the coalition. But I have the increasing feeling that the deficit and increasing debt are by no means being addressed either urgently enough or coherently enough. I think John Redwood would bring much steel and clearsightedness to the team if he were given a direct role in the govenment. The coalition has no option but to take actions that that are going to make them very unpopular for some years to come. What matters are the results.

  16. Posted January 5, 2011 at 10:32 am | Permalink

    There may be no substitute for the public sector doing more with less, but there is an alternative – do less with much less. There is simply too much government in Britain.

    The bonfire of Quangos/NGOs was a mouse whereas we required an elephant and the coalition parties had led us to expect an elephant when they were asking for our votes. This case has been made repeatedly by a number of think tanks or pressure groups but we hear no coherent argument from the Conservative led coalition to justify taking such a large proportion of our national output each year, then borrowing more as well.

    According to my understanding, the coalition will still be adding to the government debt at the end of 5 years in office, even if their forecasts of UK growth are achieved. If the economy performs less well, another round of tax rises can be expected as any politically possible cuts would surely have been done this time around.

    Let us remember that any benefits to HMG finances arising from economic growth are benefits from individual and corporate risk taking, so any possible improvement in government finances would be a private sector loss.

    • waramess
      Posted January 6, 2011 at 9:23 am | Permalink

      Not only an increased debt level but a spend in real terms greater than Brown’s spend

  17. Mark
    Posted January 5, 2011 at 10:58 am | Permalink

    Absolutely.

    It has been a disappointment to see that some of the plans to reduce the rate of increase in spending have been pushed back or cancelled. The planned cuts in Housing Benefit are one such that would have also helped to defuse the private sector house price bubble so essential to restoring banks to normality and improving competitiveness. Other moves to help make work be preferable to benefits are key to improving the deficit because they reduce spending and increase tax take simultaneously, perhaps also reducing overseas remittances and imports and encouraging domestic economic growth. An attitude that aimed to cut whole programmes of recent origin might also have helped: for example, the Independent Safeguarding Authority could have been killed at birth.

    On taxation, the evidence is mounting that yields from income tax and CGT are rather lower than they would be with lower top rates for income tax and indexation allowance or tapering for CGT. Higher taxes on energy (some hidden as ROCs, APD etc.) mitigate against economic growth particularly in manufacturing: the green economy is a myth.

    It is evident that TV – a visual medium – operates under conventions that prevent visual aids being used by ministers to get their points across unless there is a formal PPB. The agenda of the interviewer suffers no such handicap. I suspect that honest use of simple charts would greatly help to ram home the underlying essentials on spending, deficit and debt and taxes.

    • alan jutson
      Posted January 5, 2011 at 12:04 pm | Permalink

      Mark.

      Ref: veto on charts, graphs and visuals being used on TV.

      Guess there is not veto on the contents of a Party Political Broadcast (or am I Wrong).

      I along with a number of other contributors to this site suggested such a method way before the election, the reason. To ram home the lies of investment, debt and deficit of the UK finances being forever broadcast by the Labour spin machine and to highlight the extent of taxation changes (rises) since 1997.

      I wonder if the real reason simple charts, graphs and graphics, and the like are not used, is because senior Politicians (of all Parties, JR excluded) simply do not understand the workings of finance and true budgeting or accounting.

      Ignorance of finance and simple accountingwould certainly be a reason as to why we are in this mess, and will remain so. Sad, but it seems the most simple and logical explanation.

  18. Sam Kirklee
    Posted January 5, 2011 at 11:02 am | Permalink

    There seems to be a common thread of discontent with the amount and speed of the coalitions “cuts”. It is proving to be a disappointing time for those that believed this governments promises to be different to Labour. The only difference I can see is the degree of economic mismanagement with maybe a 10-15% advantage to the coalition.
    I say to all ministers ” For goodness sake get on with some serious cutbacks, do less with a lot less”.

    • norman
      Posted January 6, 2011 at 7:06 am | Permalink

      I now get a sinking feeling whenever I hear anyone from the coalition talking about eliminating the deficit and implementing cuts. They really are staking everything on this one card. If growth is lower than predicted (due to increasing an already very heavy tax burden) or if the planned cuts for the year before an election don’t go ahead and we enter then next election (always assuming there is a coalition in place in 4 years time, no given) with a deficit of £80bn or more then a lot of people will be very cynical.

      More so if the Chancellor, as he hinted at the other day, cynically cuts income tax by a few pence after having spent 4 years raising taxes.

  19. Brigham
    Posted January 5, 2011 at 11:25 am | Permalink

    I never cease to be amazed at the hypocritical garbage spilling out of the Labour party. What they should be doing is hanging their collective heads in shame at the state they put this country in. In my opinion prison is too good for them. The labour party should be disbanded, until they have the sense to admit, that they are completely unable to understand the basics of government and finance. Brown and Blair should be brought to account, in the courts, and all their assets seized. Then, and only then, will they understand what they have done.

    • Bazman
      Posted January 5, 2011 at 5:39 pm | Permalink

      I think you will find most people did pretty well out of Labour and will have fond memories of the good times of money and services. Real or not. No doubt you would have been screaming blue murder if they had tried to reel the City in.

      • JimF
        Posted January 5, 2011 at 7:26 pm | Permalink

        I have to ask what fond memories you have of services under Labour?
        Was education so much better than 30 years ago?
        Policing?
        Social Services?
        Will the NHS be better or worse than now in 5 years’ time?
        I think we ended up paying more for less in most cases.
        There might be some people who have fond memories of a Labour job digging holes and filling them in again, but should others pay for that?

      • Posted January 5, 2011 at 11:27 pm | Permalink

        No

  20. Posted January 5, 2011 at 11:26 am | Permalink

    Even if deficit reduction can be achieved, and I do not think they will get even close to their target as second order effects kick in, debt will continue to rise and the interest payments increase even more as investors demand a bigger premium to hold conventional gilts.

    As RPI ruses HMG will also have to pay out more to service the smaller quantity of index linked gilts, roughly 20% of the total.

    I hope George enjoyed his ski holiday in Klosters and savoured the rising Swiss franc!

  21. Javelin
    Posted January 5, 2011 at 12:44 pm | Permalink

    Why not just call it debt and interest?

    • oldtimer
      Posted January 5, 2011 at 4:49 pm | Permalink

      Because the deficit includes spending in excess of income as well as interest on the accumulated debt.

  22. Acorn
    Posted January 5, 2011 at 1:36 pm | Permalink

    The one catchy sound-bite of last year was; “the government is borrowing one pound in every four it spends”. The government also spends one pound on employee pay in every four pounds its spends. Local government spends one pound of every four pounds spent by government.

    I think I see a pattern developing here.

    • davidb
      Posted January 5, 2011 at 9:45 pm | Permalink

      Pareto’s Rule perhaps.

  23. Acorn
    Posted January 5, 2011 at 2:07 pm | Permalink

    The government borrows one pound in every four pounds it spends.
    The government spends one pound on employee pay in every four pounds it spends.
    Local government spends one pound of every four pounds government spends.

    I think I see a pattern here; spooky.

    What are the chances that one pound in every four the government spends is totally wasted or misappropriated?

  24. A.Sedgwick
    Posted January 5, 2011 at 2:22 pm | Permalink

    This issue is becoming a groundhog subject. Any sensible person who runs personal finance or a business in part or whole in a responsible way knows escalating debt is not an option. Of course such people would not have a) got themselves into such a mess or b) be able to before bankruptcy occurred. Whoever first coined the phrase that Cameron was the heir to Blair was most accurate and foresighted. If it was Cameron, he has got away with a Ratner moment. Had he gone to the election with a manifesto pledging EU referendum, Afghanistan withdrawal, zero tolerance policing, drastic cuts in overseas aid, spending cuts to reduce the national debt not just the annual deficit and a programme of seriosly reducing taxation he would have had a Blair majority. Instead he has a washy wishy approach very reminiscent of Blair’s third way, whatever that was.

    • Posted January 5, 2011 at 11:25 pm | Permalink

      “Any sensible person who runs personal finance or a business in part or whole in a responsible way knows escalating debt is not an option.”

      But remember, running a country’s economy is not the same as running personal finance or a business.

      Similarly, captaining an oil tanker is not like paddling a canoe.

  25. Chris Cory
    Posted January 5, 2011 at 3:28 pm | Permalink

    Come what may, the national debt is going to be a trillion and a half before the deficit is turned around. The country need to understand just how deep a hole Labour have put us in and why real cuts (not smaller increases) are needed in public spending.
    I’m worried because when the coalition comes up a against a vested interest with a little bit of public support, such as the School Sports Partnerships and their high profile friends, the resolve seems to weaken.

  26. John Bowman
    Posted January 5, 2011 at 3:55 pm | Permalink

    Is it not the case that the increased VAT will just about cover the UK’s increased contribution to the EU?

  27. The ESSEX GIRLS
    Posted January 5, 2011 at 4:40 pm | Permalink

    As we commented yesterday, disappointment oozes from every posting here after just 7 months of the new government that we all lobbied so hard to install.

    As the Everly Brothers sang 50 years ago…”So sad to watch good love go bad”.

  28. Richard
    Posted January 5, 2011 at 4:50 pm | Permalink

    In your excellent speech in the House of Commons, in the budget debate, you first alerted me and I think many others, to the levels of and the differences between, the debt and the deficit.
    But you seem to be a lone voice and I can only assume there must be a collective wish to not face up to the predicament we are in.
    Our elected representatives are just a sample of our nation and we, like them, have been spending far more than we have earned for many years.
    In the USA Bush senior said during an election campaign “read my lips, no new taxes”. His rival Dukakis said “he is fooling you, we need to cut the rising deficit and higher taxes are needed and will be painful”……guess who got elected !
    The main aim for politicians must be to get re-elected and if they really did what is needed would they stand a chance of winning the next election?

    • Posted January 6, 2011 at 4:04 am | Permalink

      The theory is that they can only get elected if they carry out the wishes of the majority. Trouble is the majority want free windfalls from ever-rising house prices, free money from child and old-age related benefits, extensive free public services, low interest rates, low inflation, high employment, high wages and all the tax to fall on somebody else.

      I thought the credit crunch/baning collapse would snap a critical mass of people out of it but it hasn’t at all. A government bond crash might.

  29. Colin Adkins
    Posted January 5, 2011 at 5:27 pm | Permalink

    John you forget to mention that many politicians also don’t know the difference between the deficit and the debt or perhaps they are just being dishonest, surely they can’t be that thick.

    • Posted January 5, 2011 at 11:30 pm | Permalink

      They can run but they can’t hide.

  30. Posted January 5, 2011 at 7:42 pm | Permalink

    John,

    I do not agree, I am sorry to say. Darling undershot on borrowing by £14bn in 2009 because of higher than expected tax revenues… The gov also undershot on borrowing by £10bn ytd [Oct] due to the same reason..

    Thus, £24bn was removed from the structural deficit in this way. Income Tax raises £4.8bn p.a. [inc Scot.] Polls show voters do not mind paying a bit more.. Why Brown brought income tax down from 25% is competely beyond me… Tax everybody in their wage packets to get us through this..

    VAT is a tax on pensioners, infirm, children… Income Tax excludes this and ony hits able bodies adults abe to pay

    • Posted January 6, 2011 at 11:32 am | Permalink

      Income tax is the most unethical tax of all. It is nothing but a slavery tax. It is the Government saying that we own a percentage of your labour. And to say it will only hit adults able to pay is a fallacy. As tax rates go up for higher earners, they just move their income to protect it, eventually leaving the country. This can clearly be seen with Americans leaving NY to move to states with lower taxes. The same applies to business too. Income tax should be abolished. Tax revenue and Spending are two separate entities. You can raise taxes all you want (which reduces revenue), but if you do not get spending under control, you have achieved nothing! If we want to get our books back in order, people like Ron Paul and the Austrian school offer the solutions and ideas that can help Western Economies return to sound economics and monetary policy. Unfortunately though, their is a uphill battle as the politicians do not want to lose their power and the socialistic mindset has infected the general population for too long.

  31. Denis Cooper
    Posted January 5, 2011 at 7:48 pm | Permalink

    I blame the MPs who approve deficit spending by governments.

    Every general election there are various mealy mouthed pledges floating around which parliamentary candidates fall over themselves to sign to show that they’ve got the right PC beliefs.

    But ask any of them to promise that he would absolutely refuse to approve a government budget with a planned deficit, unless he’d first gone back to his constituents and got their explicit authorisation to do so through a formal poll, and see how many signatories that kind of pledge would collect.

    I don’t hear any prominent politicians saying that the government should break the longstanding habit of spending more than it gets in as revenue, year after year, decade after decade, as if it’s the most natural thing in the world for the state to be constantly building up debts for the people to repay.

    So I don’t hold out any hope that MPs will do what should be done – pass an Act prohibiting the government from ever running an annual budget deficit and with provision for severe personal financial penalties for any minister who broke that rule, unless the government had first held a national referendum and obtained an exceptional direct authorisation from the people who would be expected to repay the debts it incurred in their name.

    By “severe” penalties, I’m thinking for example that the Chancellor would be personally fined £1 for every £100,000 of government overspend he allowed, which at present would amount to something like a £2 million fine each year.

  32. Ken
    Posted January 5, 2011 at 7:51 pm | Permalink

    Another good post, John.

    So we cannot talk about the eu. We cannot talk about immigration. Now, it seems, we cannot talk about our deficit (or is that debt?)

    I get the impression that ministers are not unhappy for the media to get its message mixed. However, the old adage ‘do not bury your head in the sand when you’re in debt’ should apply here.

    The government should be ringing alarm bells while it is still on honeymoon. It should be explaining why we are in this mess and the drastic measures required to get us out. It will get the message across if it also takes the action that is required for that is the only time the media will listen to the accompanying message.

    I cannot see how the coalition can be held together unless the Liberals, and for that matter Conservative ministers, face up to reality. Every day that goes by is another lost day.

  33. Martyn
    Posted January 5, 2011 at 8:56 pm | Permalink

    How and why is it that from DC downwards they are all apparently completely unaware of the lessons of the past that reduced taxation ultimately leads to increased tax-take income for the government?
    Everyone who has to travel to work is being hammered left, right and centre with additional costs and taxation. Do none of our elected leaders realise how much resentment this is causing? Do they even care?
    Hands up all those who think “yes, they do realise, they do care and will soon be doing all that they can to reduce our burdens of increased taxation and reduction of disposable income”.

  34. electro-kevin
    Posted January 5, 2011 at 9:49 pm | Permalink

    Very informative, Mr Redwood.

    Please stop Councils cutting essential frontline jobs to spite the people and the Government. Please ensure they cut Brown’s army of bogus employees and the pay of senior officials.

    Off topic if I may. (Back to China)

    The Chinese – rather than donating money which gets misappropriated – invests in industries in Africa and India. This gives employment to local people with a real chance of long-term wealth creation and in return the Chinese take a stake in those countries … the British on the other hand …

  35. adam
    Posted January 6, 2011 at 2:24 am | Permalink

    The chief executive of UK Trade and Investment, the Government’s business promotion arm, said the Foreign Office was “heading for an underspend” and asked officials to help find ways to “get money out of the door”.
    Sir Andrew Cahn, the head of UKTI, told his executive team that the organisation would be handed “at least” £1m if it could find ways of spending the money on a “one a one-off basis”

  36. Posted January 7, 2011 at 9:39 am | Permalink

    I cannot understand the spin the Government is using, how can we ever get wealth creation by cutting jobs and raising taxes, it just does not make any sense to me at all.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

    Promoted by David Edmonds on behalf of John Redwood both of 30 Rose Street Wokingham RG40 1XU

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