A budget for growth?

 

              Reform have produced a sensible pamphlet entitled “Off balance” prior to the Budget. Unlike many commentaries about the last five years it agrees with this website that large errors made by Central Banks and Banking Regulators in leading western economies caused the violent boom and bust cycle. It was avoidable, if they had listened to those of us who warned against too much credit prior to 2007 (there were a lot of people worried about that) and to the few of us who warned of too little money  in 2008-9.

             The Reformers also sketch out a sensible agenda for the budget. They urge “more capitalism”, not less. They seek more competitive tax rates, less regulation, and more infrastructure investment based on market prices and market returns. It is an old recipe that could produce a decent dish.

             They explain how the UK ec0nomy started to decline, as measured by income per head relative to others, from 2005 onwards. As the public sector took more and more of our resource, as public spending and the deficit rose, even as we reached the top of an unsustainable boom, we were slipping back.  By 2009 our income per head was £12,869 lower than Norway, £7,128 lower than the USA and  £6,044 lower than Switzerland to name three of  the top four of the world.

                The pamphlet says that Labour attempts to narrow the regional gap failed. Despite money and time lavished on regional policies,  London  performed much more strongly than the North and West. London went from £22,136 of gross value added per head in 1999 to £34,200 in 2009, with its share of UK  GVA rising from 19.2% to 21.5%. They warn the government against any idea that it can grow the economy differently to move activity from south to north and from London elsewhere.

                 The government in drawing up its budget should heed this advice. They also need to understand that so far the squeeze has been on the private sector, not the public. The BBC/IFS figures over the week-end again confirmed a theme of this site. The losers since 2008 have been private sector employees.  There were 1 million job losses during the recession in the private sector, whilst public sector jobs expanded by 400,000. The private sector has taken the hit from high inflation, leaving people worse off as prices outstrip wage awards. Pensioners have lost out from low interest rates whilst mortgage holders have benefitted. No-one on median earnings has lost out from tax and benefit changes (excluding VAT), whilst those on higher incomes have been hit by tax and benefit changes.

                          Let us hope the Chancellor acknowledges this by cutting tax on fuel, and by further Income Tax cuts. Any relief of these pressures would be helpful for recovery. Meanwhile public spending  from the Coalition remians up 7% in cash terms so far, and on course to rise each year in cash terms from now until 2015. The cuts are the result of a failure to manage the public sector more effectively, and the result of decisions to boost some areas at a time of tighter budgets.

                   The Budget will probably  include cutting costs on business through deregulation,.Enterprise Zones and other initiaitives. In practice we will be waiting for the Vickers Report into banking, as that is likely to  have more impact than the budget.

                       The main figures for this government’s strategy for the  five years  (20014-15 compared to last Labour year) remain as below:

Total spending    plus £71 billion a year, 

 Total tax revenue   plus £176 billion a year,

 5 years additional state  borrowing £440 billion.

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22 Comments

  1. Javelin
    Posted March 22, 2011 at 7:13 am | Permalink

    As I’ve said for years tax supported growth in the North is unsustainable. Poverty is a black hole that will suck in cash and not return anything but more requests for cash. Osborne needs to have a POSIITIVE view of human nature that is can become self sustainable and not a NEGATIVE view that it must be supported. The only money that should be spent of poverty should support growth.

  2. lifelogic
    Posted March 22, 2011 at 7:18 am | Permalink

    From the budget we need:

    Mainly an uplifting vision, something that (for the first time) indicates the government actually wants to encourage investment and hard work. Something
    such as abolishing inheritance tax, the removal of the counter productive 50% income tax band. Also an indication that the malignant state sector will be reduced by half.

    Something that will encourage the banks to lend rather than claw back funding expansion of the EIS tax scheme.

    Something that reduces employment and other excessive regulation of almost everything and gets rid of the over pricing or energy for religious reasons.

    Action not words – given the action so far has been largely in the wrong direction. I expect very little and expect the decline in confidence and business will continue.

    Bring your millions to the UK invest it and watch it slowly be taken off you in 50% income tax, 4% inflation and 40% IHT and then be wasted by the state. Not a great sales line to encourage investment.

    Exacerbated by the very high expectation of an even worse Labour government at the next election.

    • lifelogic
      Posted March 22, 2011 at 2:15 pm | Permalink

      And no silly zones or preferred areas like enterprise zones that give an unfair advantage to some narrow areas and ensure businesses locate in the wrong places and have contrived tax structures.

  3. Euan
    Posted March 22, 2011 at 9:05 am | Permalink

    The report is right that government spending doesn’t produce growth. The only sort of spending that does that is private sector and for that to happen we need far less regulation, much lower taxation and a public sector half the size it is now. So far under the coalition spending has gone up, taxation has gone up and there’s no sign of any cut in regulation or taxation. Labour-lite?

  4. Brian Tomkinson
    Posted March 22, 2011 at 9:18 am | Permalink

    John,
    You weren’t listened to before and I’m afraid that now your colleagues are in office they are still not listening to you but will expect and demand your total support for whatever they do in the Commons. It is not the so-called “cuts” that are too deep and too fast but the increases in taxation and inflation that are crippling this country but no one is prepared to grasp the nettle. I am reminded once more of Reagan’s words: “The problem is not that people are taxed too little, the problem is that government spends too much.” Sadly, no major political party is listening.

  5. English Pensioner
    Posted March 22, 2011 at 9:44 am | Permalink

    The whole public service spending arrangements give no encouragement to economise. Departments and individuals within departments spend their budgets whether they need to or not.
    As an engineer in the Civil Service, I experienced the problem; At one stage I was in charge of a project which, for once, was running under budget as we’d driven a hard bargain and cut out all the frills. Did I get any thanks? No, the reverse. The attitude was that a 10% budget increase had been requested for next year, and 5% was expected, but if we didn’t spend this year’s budget, next year’s would be cut. So all the frills and extras were put back, even if totally unnecessary. Money can’t be carried over, so bills are often paid even if deliveries have yet to be made and during February/March there is a mad attempt to spend any money that is left; indeed the ideal is to slightly overspend to “prove” the budget was insufficient.
    Status in government service is determined by your staff numbers and budget and there are no incentives to reduce either and possibly loose status in the eyes of your peers.

  6. Brian Tomkinson
    Posted March 22, 2011 at 10:00 am | Permalink

    I now see that CPI has risen to 4.4% and the RPI 5.5% the highest rate for 20 years according to the BBC. When is your government going to realise that they need to stop spending and indulging in foreign adventures and put the interests of the British people and economy first? No doubt they think that their strategy of spend, tax and inflate is working.

  7. oldtimer
    Posted March 22, 2011 at 10:21 am | Permalink

    Regional policies, such as directing industry to points north as practised in the 1960s, have failed before and will fail again if attempted again. The best policy for government is to get out of the way, not to attempt to micromanage what should and what should not succeed.

  8. Alan Wheatley
    Posted March 22, 2011 at 10:26 am | Permalink

    “They warn the government against any idea that it can grow the economy differently to move activity from south to north and from London elsewhere.”

    The idea that the economic future can only be in London and the south is an appalling prospect for the Nation. The evidence of the past has to be evaluated against the methods deployed. It is not just a case of where you throw the money, it also depends on the conditions in which business has to operate.

    Take farming as a good non-London activity. If those in London create a regulatory framework that puts those in the countryside at an economic disadvantage then they are bound to struggle. We have seen this with pigs, where well-meaning welfare regulation put up UK costs and sucked in imports from those not similarly burdened. We may be about to see a similar situation about to develop with eggs, unless the government gets on top of the issue and acts decisively.

    And you may well ask we we ever had the stifling effect of milk quotas. And why is the UK obliged to import milk?

    And then there are the daft carbon regulations that give rise to “unintended consequences” such as the shutting down of a profitable steel works and the export of yet more UK jobs.

    Government should be to the good of the whole Nation, not just to the far horizons of the M25.

  9. acorn
    Posted March 22, 2011 at 11:04 am | Permalink

    JR, can you stop a “commencement order” for any legislation? If so, please get your gang together and stop any commencement order for any employment legislation, particularly that which is a remnant of the last government.

    There is a raft of employment / equalities legislation awaiting commencement between now and 2015. Think about repealing a lot of it. You can start with TUPE

    • lifelogic
      Posted March 24, 2011 at 7:19 pm | Permalink

      Yes please.

  10. forthurst
    Posted March 22, 2011 at 12:54 pm | Permalink

    “Restoring inter-temporal balance, between spending today and tomorrow, will entail higher interest rates and policy must be directed to creating conditions in which this is consistent with strong economic growth.” Executive Summary.

    Theft from the future will eventually bankrupt us all if it is not curtailed: zero real interest rates that steal from savers to maintain a property asset bubble and ensure the creation of new bubbles of securitised worthlessness doubtless gestating in the bowels of the City, banksters with their computerised proprietary trading systems screwed directly into stock exchanges designed to maximise the available cash for bonus distribution whilst ensuring that pension funds can only grow when asset bubbles are brewing, unfunded disbursements for retired civil servants and for scroungers and exotica from abroad who have heard our streets are paved with giro cheques.

    I don’t think we are on the right track at all. Government spending is far too high; why does not the Government realise that the BBC and its cohorts are going to play politics so they might as well give them something to whine about. Our future can only be secured with real jobs that add real value, not gimmicks to pump prime the North with our tax money. Who will support all those future pensioners? They will themselves but only if the government and financial crooks stop stealing from their futures.

    GDP is not all: the US figure is distorted by by the 40% of GDP expropriated by Wall Street. ‘Happiness’ is not necessarily an even distribution of wealth: a relationship between added value and reward would be congenial as would an education system not designed primarily for social grooming and a health system (where there are too many clinical errors-ed).

  11. BobE
    Posted March 22, 2011 at 1:38 pm | Permalink

    There was a report in the Telegraph that George might cancel National Insurance contributions. Claiming that it will help employment. He will cover the cost by raising the basic rate from 20% to 32%. He will claim that that is more visable. However working people will pay much as before but pensioners, who arn’t paying NI will see their tax go to 32%. A 12% take take from all pensioners.
    BobE

    • Mike Stallard
      Posted March 22, 2011 at 4:57 pm | Permalink

      Hey – I thought the budget was totally secret until the Chancellor announced it in the Commons?

  12. BobE
    Posted March 22, 2011 at 3:25 pm | Permalink

    Takes a long time to get through moderation today?

  13. Winston Smith
    Posted March 22, 2011 at 3:25 pm | Permalink

    Yet, you voted for military action in Libya. I read the cost to the British taxpayer so far has been £36m.

    Reply: I did not vote for military action in Libya.

    • Winston Smith
      Posted March 23, 2011 at 9:27 am | Permalink

      Apologies. Got that wrong.

  14. Mike Stallard
    Posted March 22, 2011 at 4:54 pm | Permalink

    Government is totally unfit for any form of regeneration project.
    Why?
    1. It depends on votes, not on risks and careful handling of money. Deep down it knows that, whoever forms the ministries, that bureaucrats are for ever. This means more and more “rights” and less and less responsibility. More and more social workers and less and less regeneration. More and more schools and less and less education.
    2. Government is therefore particularly vulnerable to idiotic schemes and particulkarly naive about “experts”. Personally I would put Anthropogenic Global Warning in this category, along with the decay of the State Education System and up there with the fisheries Policy which results in dumping loads of edible fish every day.
    3. Government sucks all the energy out of independent, free thinking people so that they become slaves to the bureaucracy doing things that only slaves do, like being ordered round, having their money taken by various officials, having rules imposed on their enterprises by people who are not taking any risks in their businesses, and carefully watching their mouths (Galliano).
    4. Quite often the democratic regulators have not got a clue about what they are regulating. When I was a school Governor, I had not got a clue what a fence cost or a classroom refurbishment cost either. Have you? But I still gave my solemn opinion at the meetings.

    More government means more and more control by people who have no right to control. It enslaves people and stops them thinking.
    I thought Mr Cameron believed that too. If so, why are taxes (petrol), bureaucrats (your article), expenditure (your article) creeping up instead of being eradicated?

  15. StrongholdBarricades
    Posted March 23, 2011 at 11:19 am | Permalink

    The main vision of the treasury needs to be the removal of all public sector schemes which simply funnel money from Tax payers back to Tax payers (tax credits, child benefit etc)

    I have argued for sometime that the Labour party has done much to discredit the NI system in the UK and needs to be swallowed up into HM Treasury rather than as a “stand alone”. This will demonstrate the true tax take, and might also alleviate some of the business taxes.

    I do not think that the Coalition will be bold enough to release the population from the “necessary” state handouts, or produce a dynamic enough economy to raise the yoke of banking on the economy

  16. Peter Kellard
    Posted March 23, 2011 at 12:59 pm | Permalink

    A budget for growth?

    Over the past 10 years many IT jobs have been lost to offshoring and many more lost, hidden below the radar through so called ‘onshoring’. The UKBA policy on expenses and salaries actively encourages the undercutting of resident workers.

    The new £24K rule for ICT visas, for a period of one year will see over 91% of resident IT jobs undercut, with a conservative estimate of the loss of tax revenue of over £250million because the UKBA uses the concept of a ‘salary package’.

    When the government is announcing cut backs and increases in taxes people will ask why are migrant ICT workers and their companies being given tax advantages at our expense. This is a continuation of Labour policy, Vince Cable seems to be in favour of this having won the argument on immigration, however, does he actually know the detail? Is this really what he is calling for?

    However much spin is put on the new rules by the UKBA and Ministers these FOI facts will not go away.

    Every time there is some belt tightening and cutbacks, or a tax increase, people will look to this arrangement for migrant worker ICTs and ask what is going on and in whose interest is this administration governing for?

    • GaryB
      Posted March 26, 2011 at 11:41 pm | Permalink

      Google for ‘ict allowance lost revenue” and find out about the absurd rules on intra company transfers that mean UK tax payers subsidise foreign companues to replace UK workers with foreign workers. It is stupidity at its worst but it shows the way foreign companies have manipulated/lobbied the government and civil service so successfully.

  • 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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