John Redwood’s contribution to the Budget debate, 23 March

Mr John Redwood (Wokingham) (Con): I remind the House that I offer industrial business advice to a Swedish, quoted international industrial group and investment advice to a British investment company.

Some Opposition Members have expressed displeasure that Government Members should have mentioned the circumstances in Greece and Portugal. The Opposition rightly remind us that we have a much bigger economy than those of Greece and Portugal and I am pleased to say that ours is also currently better managed. Those points are important because our public deficit was larger even than theirs, as a proportion of national income, when the big deficit reduction programme started. I praise my right hon. Friend the Chancellor for seeing that his single, central task, day in, day out, month in, month out, year in, year out-indeed, the five-year burden for all of us in the House-is to get that deficit down before it kills our public finances and our economy.

If anyone thinks there is no risk, I invite them to visit Greece, Portugal or Ireland and see what happens when a country ignores a deficit for the best of reasons and says, “I do want to spend a little more on a good public cause so I will borrow it to spend it.” Of course, we all have great causes on which we would like to spend more money. Borrowing is so often the easy option, but when a country gets to the point at which it is borrowing too much, it does not just destroy the general economy and place too big a burden on those who have to pay the taxes and interest charges-in the end, it brings down the public sector as well, with far bigger cuts and far less favourable choices than we have when we take matters into our own hands by planning a steady deficit reduction.

We are debating, in a relatively civilised atmosphere and in a relatively sane and sensible way, an economic position about which there are strong disagreements. However, there is no overall disagreement about the imperative to avoid big rises in bond rates and interest rates and to get on with some kind of deficit reduction. It is particularly poignant that we are having this debate on the same day that the Portuguese Parliament is meeting to discuss not its first, second or third, but fourth package of emergency, deep, damaging public spending cuts and unaffordable tax increases. Such is the plight that its economy has been driven into by reckless overspending and too much borrowing and, of course, by being in the euro area.

Jesse Norman (Hereford and South Herefordshire) (Con): Does my right hon. Friend agree that to answer the question of the hon. Member for Middlesbrough (Sir Stuart Bell), who asked when the rating agencies took over, one need go no further back than 1949, 1969, and 1976 to 1979, when there were runs on the foreign exchange markets under Labour Governments?

Mr Redwood: My hon. Friend is quite right, but the Labour party could point to one or two examples under Conservative Governments, so I do not want to be drawn too far down that historical path. We can see what we need to see by looking at the modern reality. As my right hon. Friend the Chancellor said, fortunately, British bond rates-the rate that we have to pay to borrow money for public purposes-are much closer to those in Germany than those in many other countries in Europe. They are under half the level of those in troubled Portugal. The Portuguese 10-year rates went above 8% today. I stress to beleaguered Portuguese parliamentarians, who are battling over whether a general election is the answer to their problems, that if they do not take dire and immediate action, their country simply will not be able to borrow at an affordable rate of interest. They cannot go on spending the extra 10% of national income that we are spending, which is borrowed, to tide us through and get us to better-managed times.

My right hon. Friend the Chancellor, having set out a pathway for tackling the deficit, was right to turn to the question of how he can accelerate growth. The truth of the five-year deficit programme is simple: we need well-above-average growth in the last three or four years of the programme to deliver the numbers in the Red Book, which are similar to those in the Chancellor’s first edition of the Red Book last summer.

To remind the House of the scale of the task, the Government plan to spend £70 billion a year more, in cash terms, in the fifth year of the plan-2014-15-than in the last Labour year; that is not a big increase, but there will be pressures because of it. They plan to get the deficit down by increasing the tax revenue collected in the last year of the plan to an eye-watering £175 billion more than in the last Labour year. We believe that we have seen all the important tax rate rises that the Chancellor thinks are needed to do that; the rest depends on the above-average growth that is still in the official forecasts of the Office for Budget Responsibility.

Mr Andrew Love (Edmonton) (Lab): As I understand it, the right hon. Gentleman is laying out why we need a credible reduction in our deficit in the light of the likely market reaction, but is he not concerned about the impact that any austerity programme might have? Although there has been only a limited impact so far in the United Kingdom, as in Greece and as is likely in Ireland, it may be too much, too soon.

Mr Redwood: That is absolutely right. The policies that Ireland, Greece and Portugal are being driven to may well not work because they are excessive, but that is the result of going into the euro and following the market pressures that that inevitably produces. I see some Labour Members trying to pretend that that is nothing to do with them, or looking the other way. I remember being a pretty lonely figure in the ’90s when I said that we should never join the euro. I am pleased that my party now seems to be very broadly of that view, and I believe that the other two principal parties in the House have come round to the view that we certainly should not join the euro any time yet, but we have still to receive apologies from them. Surely they must now accept that if Britain had been driven into the euro, as they wanted, we would have broken the euro and broken ourselves. The euro could scarcely contain small economies the size of Greece, Portugal and Ireland, with their amount of debt; it certainly could not have contained Britain comfortably with the level of debt that the previous Government started to incur. It would have found the British banks over-mighty subjects, just as it is finding the Spanish banks rather difficult to tackle.

Sir Stuart Bell (Middlesbrough) (Lab): I am glad that the right hon. Gentleman added the words “any time yet” to his remarks about joining the euro, because it is inevitable that, over many years, we will join the euro. Tomorrow and the day after, 17 euro states will get together and put forward a proper plan for competitiveness within the euro. For the first time in our history, the United Kingdom is excluded.

Mr Redwood: If those countries come up with good ideas, we can adopt them, and if they come up with bad ideas, we would be wise to sidestep them; that is exactly the freedom that I and others have argued for passionately over many years, and that the Government wish to enjoy if all goes well.

The hon. Gentleman also said that the reductions could prove difficult. Believe it or not, I did not become a Member of Parliament to have teachers sacked from my schools or doctors sacked from my surgeries; I want them to be well paid and well funded, and I want sensible growth in numbers where there is extra demand. We are all of that view-it is quite misleading of the Opposition to suggest that some of us do not appreciate that and do not want that for our constituents-but it has to be affordable. It has to be within the power of the free enterprise part of the economy to pay for that out of reasonable taxation in a way that does not damage our growth; that is so important.

The Government have managed to find an extra £70 billion of cash spending for the fifth year of the plan, compared with in the start year. It is crucial that we keep public sector costs down, so that the maximum amount possible can go to improving service and quality, and, in some cases, to improving the amount of service, and the minimum goes on extra costs and extra inefficiencies. All parties will say in office that they want more efficiently run public services, but they have to will not only the end but the means. That is why the reforms on which the Government are embarking are so important. It is crucial that the Government listen, and that sensible criticisms be taken on board, but public services have to be reformed so that we can say to people in five years’ time, “You are getting more for that £70 billion. We haven’t had to cut things that really matter, because we have managed things better and have found a bit of extra money.”

Jesse Norman: Is my right hon. Friend aware of the enormous interest in the private finance initiative community in reform of the PFI? A succession of chief executives of PFI companies have asked me, “Why can we not be allowed to save money?” The reason is the enormously expensive procurement process. Not a single school has been built recently that does not have an atrium, and that is because it has been decided that schools, which have nothing to do with corporations, must have corporate atriums. Nothing could be sillier or more resistant to good Government spending.

Mr Redwood: My hon. Friend is quite right. Improving the quality and cost-effectiveness of our purchasing is crucial in Government. There are many opportunities; PFI and public-private partnerships provide some good examples, but so does general purchase. It would speed up the deficit reduction if there were a stronger moratorium on purchasing items and supplies where there are already stocks. Any company undertaking the kind of radical turnaround that the country is trying to achieve would immediately freeze all unnecessary purchases and make people run stocks down to save money.

Where I have had answers to my questions on this subject, I have found that the current rate of natural wastage of staff in core Departments is running at about 6% per annum; it was about 4% in the first eight months. Quite a number of those posts have been filled by taking on new people from outside. I urge my friends on the Front Bench to get more of a grip on that, because the easiest way of reducing the administrative overhead on the scale that they want-the least painful way for their staff, who need their morale to be up-is to not replace people who leave and not to make others redundant. We cannot afford the redundancies. If we make greater use of natural wastage, Ministers can say to their staff that it means better opportunities for promotion and a change of job. If the post vacated is not essential, it should be removed; if it is essential, we should appoint someone from inside and remove some other, less important, post. That surely is the civilised, sensible way to tackle the necessary task of cutting the administrative overhead. If the Government can cut their administrative overhead by the very large 30% that they are talking about, it takes the pressure off cuts in the areas where none of us wish to see them-in the schools and hospitals, the front-line services that matter so much.

The question that I was about to ask before the interventions was about the international context. How easy is it going to be for the Government to have the three or four years of above-average growth which are so crucial to the strategy? I must warn those on the Front Bench that I fear that the world background will get more difficult going into 2012 and 2013 than it is at present. There has been a prolonged boom in the emerging market world, and we now see China, India and Brazil lifting their interest rates to very high levels. They are desperately trying to squeeze inflation out of their system, so in a year or so we must anticipate some fall-off in demand and spending power growth rates in those big emerging market economies.

The United States economy will have a good year this year, by the looks of it, on the back of a lot of money printing, low interest rates and other matters. That comes to an end in the middle of this year, so by next year we will see a slower rate of growth in the United States of America as well. Were the situation in the middle east to get worse, and the damage from politics to spread into oilfields outside Libya, we could have another unpleasant external shock on the oil price, which would also serve to impede the growth of the world economy.

The conclusion that I take from this is that the world economy does not look as though it is going to go back into another deep recession-we are not going to have that kind of impossible situation-but the world economy is not going to provide the impetus that it is currently providing. It may not feel that great, but it is providing quite a bit of impetus at the moment. It will provide less impetus next year and beyond. That means that the Chancellor must intensify his pursuit of measures that make the UK that much more competitive and that much more successful.

Andrea Leadsom (South Northamptonshire) (Con): Will my right hon. Friend comment on the importance of improving our export position vis-à-vis the BRIC countries in particular-Brazil, Russia, India and China-and how important a part that could play in our recovery?

Mr Redwood: It is a good point. We have heard figures from the Government indicating that we export less to the BRIC countries combined than we do to Ireland, but we have a close relationship with Ireland and we are close neighbours. It is understandable that we export a lot to Ireland and it to us. That figure conceals one important point, which is that British business has probably been a little more active than it suggests, but for various reasons the larger British companies tend to go into India, Brazil and China and set up joint ventures or factories of their own there to service the local market. It is easier to service those markets in that way, for reasons that we need not go into in detail today, but I agree that it would be good if we exported more, and it would be good if we helped small and medium-sized enterprises that do not have the capability to set up factories on the other side of the world to export in their turn.

The devaluation that happened more than a year ago has given us one nasty result, which is a much higher inflation rate than comparable economies, but it has given us one pleasant result, which is that it is very easy to export out of a British base now because British industry is so much more competitive at the current level of the pound. We should have that on our side. Paradoxically, quite a bit of British business in the manufacturing sector is close to capacity, and those businesses are tending to put the prices up a bit to collect a little more revenue and improve their balance sheets because it is not that easy to expand turnover. That is where the things that the Chancellor is talking about are vital and need to be done speedily.

Britain needs to be able to put up factories more quickly and get them into use more quickly. It needs to define the skilled engineers and the other skilled individuals who want to work in an industrial setting rather than in an advisory or City setting, and then expand the capability of their companies as a result. Modern manufacturing requires a very high degree of skills input, talented people and good management. It does not require so many people to operate machines because really good manufacturing now is highly automated. It needs the precision of expensive machinery. Indeed, the easiest way to compete out of a German or a British base is to have highly automated plant, so labour costs are a rather unimportant part of the total cost. The intellectual property content, the skill content and the plant and equipment content are much higher, but they are affordable with a quality product.

Mr Graham Stuart (Beverley and Holderness) (Con): Further to my right hon. Friend’s points, a director from JCB gave evidence to the Select Committee on Education yesterday and said that he had 57 vacancies for engineers that he cannot fill order to ensure that JCB’s products remain globally competitive, reduce energy usage and so on. That, unfortunately, is a legacy of too many years in which we have not delivered the technical, vocational, practical education that is required. Is my right hon. Friend, like me, enthusiastic about the Government taking forward the programme from the Wolf review and supporting Lord Baker with his university technical colleges?

Mr Redwood: I am happy with those proposals. The Government are clearly on the right lines and I hope there will be cross-party agreement that we need to raise our game at skills, training and education, particularly in engineering, pharmaceuticals, chemistry and so forth, where we have an advantage and can have a much bigger advantage if we do more. Yes, we need to review how easy it is to buy or build a factory and how easy it is to equip it. Anything that can be done to lower the effect of tax rate on business will make Britain a much more attractive place to be.

As hon. Members know, I take the view that if we set lower rates, we normally collect a lot more revenue. If we want that kind of growth rate, the lower the realistic rate that we can set, the more revenue growth and the more overall growth we will have. It would be a great tragedy to abort the recovery in certain sectors because the tax rate was too high. I am pleased to see the progress on corporation tax. We need to see the details of some of the individual tax schemes and how the carbon tax rebate would work. If we went ahead as trailblazers in Britain and set a high carbon price, we would price our energy-intensive business out of Britain into a less clean or less acceptable venue. It is important that the rebates and discounts are properly thought through, so that at a time when the Government are trying to promote more industry, they are not taxing it too heavily.

Margot James (Stourbridge) (Con): On the competitiveness of British industry, my right hon. Friend has in the past talked of a cut in regulation being equivalent to a free tax cut. Does he welcome the measures in the Budget to have a low level of regulation for new start-up companies and small companies? Does he share my hope that Europe will become more competitive by reducing the regulatory burden that it seeks to impose on British business and business in other member states?

Mr Redwood: Of course I welcome that. One of the big barriers to entry and to more effective competition for the large companies in Britain is the weight of regulation, which hits anyone who tries to start up a new business. I have done it in the past and I know what it feels like. One has to raise a lot more extra money because for six months to a year one is just trying to comply in many areas before one can trade. Yes, of course we want sensible regulation. We do not believe in an unregulated world. We believe in the law of contract. We believe that people should have a duty of care towards their staff and their customers, but if there are too many and too detailed competing types of prescriptive regulation, it puts people off and they say, “It’s too expensive. I can’t be bothered.”

Geraint Davies (Swansea West) (Lab/Co-op): But does the right hon. Gentleman agree that the issue for small business today is not so much regulation as liquidity and lending to SMEs by the banks? A constituent of mine, Alun Richards, is on hunger strike. He had a business with net assets and a limited amount of debt, and Lloyds bank came along and withdrew the debt. Now he is going bankrupt because he has no working capital. Does the right hon. Gentleman agree that that is disgraceful, particularly from a bank that is owned by the taxpayer? Poor old Alun Richards wants to run his business, not to be undermined by the banks. What are the Government doing about that?

Mr Redwood: Of course I agree that if there is a solvent and enterprising business and it is not getting proper banking facilities, that is very bad indeed. It is particularly bad if it is a state-owned or state-influenced bank that is responsible.

My final points are about banking, as time presses and many others want to speak. Of equal importance to the weighty matters covered by the Chancellor today will be the Vickers report and the Government’s response to it. I believe that we will have interim conclusions from Sir John Vickers on 11 April. We are not going to have fast, sustained, above-average growth in this country unless we sort out the banks a little more than we have done so far. All colleagues in the House are united in having individual cases where they feel a company could have been saved or could have grown more rapidly if only there had been more sympathetic or understanding bank managers and facilities. There is a problem with British banking serving the SME sector town by town, county by county. There is a lot of talent in the banks, concentrated at the national level and in the big national accounts. Many hon. Members like to knock those people, but they made an important contribution to the growth rate under the previous Government and to our economy.

Andrea Leadsom: In the last quarter of 2010, lending to the SME sector dropped by 38% from the last quarter of 2008. One of my big concerns is that this reflects the incredible concentration of SME lending among the four or five largest banks, which are responsible for around 90% of all SME lending. Does my right hon. Friend agree that the work of the Vickers commission and the Treasury Committee should focus on breaking up the oligopolistic positions of some of those big banks?

Mr Redwood: I certainly hope that when we see the Vickers report and have a proper debate on it we will be able to find sensible ways of promoting much more competition in the domestic banking market. We need more competition on the high street for individuals and families and more competition in town centres for SMEs, which in previous generations probably had better and more direct relationships with local bank managers, who had a bit more authority to grant loans and make money available on judgment than is currently the case through the box-ticking, centralised computer systems.

Geraint Davies: In that case, and given the last intervention, does the right hon. Gentleman agree that perhaps the Budget should have introduced tax relief or tax credits for individuals wanting to invest in SMEs, because venture capitalists want too high a return and the banks are failing the small business sector? We want an inclusive economy. Surely there should have been some support for SMEs so that we could all invest in small businesses more effectively.

Mr Redwood: That is exactly what the Budget contained. I think there was a revamped and revised enterprise investment scheme and an improvement in the capital gains treatment for successful entrepreneurs. It is always nice for new people setting up small businesses to be able to dream, and why should those of them who are successful not keep the proceeds if they have created jobs and done so much?

The outcome of the Budget will depend on two important considerations: whether we can put enough measures in place along the lines that the Chancellor has laid out for promoting growth; and whether there is a happy and sensible resolution to the banking problems as they affect SMEs and the wider public in Britain. There has been much discussion of the big banks, the investment banks and all those sorts of issues, but we now need to laser in on how the banks serve local communities and the SME sector. We need a more pro-competitive answer. I have some thoughts on how we could do that, but will not detain the House with them because today is not the day for that. However, without such measures the Budget will find it difficult to deliver the very large figures for increased revenue on which the whole plan rests.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

21 Comments

  1. Denis Cooper
    Posted March 24, 2011 at 11:04 am | Permalink

    Yesterday must have seemed a good day to bury this vote by MPs:

    http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110323/debtext/110323-0004.htm

    “23 Mar 2011 : Column 1063

    Deferred Division

    Section 6 of the european union (amendment) act 2008

    That this House takes note of draft European Council decision EUCO 33/10 (to amend Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro) and, in accordance with section 6 of the European Union (Amendment) Act 2008, approves Her Majesty’s Government’s intention to support the adoption of draft European Council decision EUCO 33/10.

    The House divided: Ayes 310, Noes 29.”

    Whether or not they understand this, in effect almost all of the Tory MPs have just voted in favour of the UK being forced to join the euro – not immediately, but eventually.

    Glad to see your name among the 29 “noes”:

    Bone, Mr Peter
    Campbell, Mr Gregory
    Campbell, Mr Ronnie
    Carswell, Mr Douglas
    Cash, Mr William
    Chope, Mr Christopher
    Corbyn, Jeremy
    Davies, Philip
    Dodds, rh Mr Nigel
    Donaldson, rh Mr Jeffrey M.
    Drax, Richard
    Gray, Mr James
    Henderson, Gordon
    Hollobone, Mr Philip
    Hopkins, Kelvin
    Main, Mrs Anne
    McCrea, Dr William
    Nuttall, Mr David
    Paisley, Ian
    Percy, Andrew
    Redwood, rh Mr John
    Shannon, Jim
    Sheerman, Mr Barry
    Shepherd, Mr Richard
    Simpson, David
    Skinner, Mr Dennis
    Stuart, Ms Gisela
    Tapsell, Sir Peter
    Wilson, Sammy

  2. Damien
    Posted March 24, 2011 at 11:43 am | Permalink

    As you correctly mentioned in your speech the effectiveness of the Chancellor in addressing the deficit is reflected in the interest rate on UK debt.

    Yesterday Stamford University research published ‘The Sovereign Fiscal Responsibility Index’ that showed the US is ranked near the bottom at 28th just ahead of Greece in last place on 34th. Off course the US is a reserve currency for most of the world and so this buys it some time to address its deficit. The UK does not have that luxury.

    The research does however support the your comments that the five year plan under Osborne is gaining recognition as a successful strategy.

    http://www.tcaii.org/pdfs/SFRI_Final_Report_Executive_Summary.pdf

  3. Euan
    Posted March 24, 2011 at 12:08 pm | Permalink

    A total failure of a budget. Insultingly small relief from fuel tax hikes, no real action on reducing or simplifying taxation, no action on reducing the deficit, no real action to help business at all. Cameron’s government is proving to be a damp squib just waiting for “growth” to save them from having to actually make hard decisions.

  4. Martin
    Posted March 24, 2011 at 12:30 pm | Permalink

    Why would Portugal be better off if they had kept the old Escudo?

    Bond purchasers would demand a much higher rate for Escudo bonds than they would for Euros as they would factor in a huge devaluation. So instead of say 8% bond buyers would be asking for 28%!

    Portugal’s private sector (especially it’s small businesses) would find it impossible to pay for to pay for items priced in Dollars or Euros with devaluing Escudos. Why penalise a county’s private sector when the public sector has been borrowing too much?

  5. forthurst
    Posted March 24, 2011 at 12:45 pm | Permalink

    When deciding how to improve our technical education, why can we not look at the German model? They know how to do it, (probably rather similarly to how we did before the Cultural Marxists took over). The conversion of our technical colleges into second rate universities has been disastrous so why not revert some of them rather than building more to do the teaching that they should have continued to offer?

    In terms of support for SMEs, why not look at the German model? The middelstand is the backbone of the German industrial scene which is funded by banks rather than through opportunities for rampers and shorters? Why is that Private Equity funds can borrow money to take over existing businesses but those who want to start and build businesses rather asset strip existing businesses are locked out in the cold?

  6. Peter van Leeuwen
    Posted March 24, 2011 at 12:51 pm | Permalink

    “offer industrial business advice to a Swedish, quoted international industrial group”
    This reminds me that the chairman of the European Round Table of Industrialists (a Swedish industrialist) has just been pleading for “more Europe not less Europe” in the Dutch press (nrc.nl). “Thinking more European, less national” is what’s required according to him. Is this going to suit Britain? Britain, which soon will find itself in the outer ring of the EU (while decisions may increasingly be driven by the eurozone 17+)

  7. alan jutson
    Posted March 24, 2011 at 1:11 pm | Permalink

    Listened to you live yesterday.

    At least you are consistant John (one of he few MPs who are) you included many statements and arguments that you have posted on this site many times over.

    Budget was a move in the right direction, but only just.

    Appreciate George O says he does not have much room to make any big changes, but big changes are what is really required to give business some drive, to move forward rather more quickly.

    Pleased with the personal allowance increase, something which should have been done years ago (need to aim for £15,000 not £10,000) to encourage people to go back to work.

    Fuel, afraid not enough of a reduction to make any real difference (aware that total saved was 6pence a litre) given the price has risen so high in recet months.

    House stamp duty needs to be modified so that rate escalates only on each portion (not the highest rate on the total sum) if we are going to have the complication of multiple bands.

    Capital gains tax if you are to have one, needs only one rate required.

    Corporation tax reduced slightly, a welcome move, but still too high.

    Why give purchasers of muliple buy to lets, the advantage of only an average purchase price value with stamp duty tax, when a purchaser for their own home has to pay the full amount. ? Seems crazy to encourage speculators, at the expense of those who are looking or somewhere to live, to set up a HOME.

    Thought IHT reduction of 10% a bit strange.
    If you do give 10% of your estate to charity, then government reduces its tax rate by that amount, thus a loss to the country of tax revenue of your estates donation. So in effect the government is subsidising charities, or have I got the wrong end of the stick.
    Could we have the government subsidising cats homes ?

    Surely it would be best if you are going to reduce IHT, then just it. Surely most inheritance money is spent by the recipients within the economy, so it would be of greater benefit to all.

  8. acorn
    Posted March 24, 2011 at 2:07 pm | Permalink

    A conversation yesterday with several members of the SME sector, had a hot topic. Employment Tribunals. One of them has spent over twenty thousand pounds defending against a claimant who settled for a few hundred pounds, just before the ET was to start. The claimant’s trade union, (public sector), declined to represent the person. His case was taken up by one of these lefty legal outfits.

    ET claims are expanding like Topsy; it is the equivalent of a free lottery ticket for the “ET Punters” brigade. The BIS currently has a consultation document out. If you run your own business, please read and comment on it.

    http://www.bis.gov.uk/assets/biscore/employment-matters/docs/r/11-511-resolving-workplace-disputes-consultation.pdf

    There is alleged to exist an “employment law revue” within this government somewhere. The ET and EAT exist because of the mass / mess of employment / equality law. You can have all the “enterprise zones” etc., you can shake a stick at; but, employers scared of employing people is a show stopper.

    • lifelogic
      Posted March 25, 2011 at 6:06 am | Permalink

      Spot on the system is insane.

  9. lifelogic
    Posted March 24, 2011 at 2:22 pm | Permalink

    Excellent contribution but after this budget it seems they only care about appearing to be fair and caring not what actually works.

    Yet another daft budget policy I find is the 10% to charity Inheritance tax reductions. More pointless jobs for lawyers/tax accountants in rewriting wills and the like. Many charities are just left wing pressure groups anyway.

    Tell Osborne that it is no good waiting for the patient to jump back to life before he applies the cardiac defibrillator in the form of reduced taxes and government spending. The order is rather important to the life of the patient. Also try to get through to him how lower tax rates give more revenue. It is not a very difficult concept to grasp.

    • norman
      Posted March 24, 2011 at 8:36 pm | Permalink

      George Osborne has already stated that he doesn’t believe that lowering tax rates drives growth so JR would just be wasting his breath trying to explain a dynamic economy model to him. Although to be fair to the Chancellor he does say that he eventually wants to reduce taxes after a few years of above trend growth (having raised taxes in the interceding years). Very generous of him, I thought, letting us proles keep a few coppers more.

      As for the charity thing, I rather like that idea. I’d rather give the fruits of my labours to the most pointless charity than to the state which extorts it from me to pay for ‘services’ I neither need nor want (nor does anyone who doesn’t work directly in such services in a lot of cases) under threat of taking my family home and throwing me in prison if I don’t give my pound of flesh.

      I wonder how difficult it is to set up a charity, or to find one crooked enough that people can simply launder dead relatives money through it for a fee? No doubt this will happen, and no doubt our MP’s will be shocked, but they will undoubtedly ‘learn lessons’ from the resultant shambles.

      • lifelogic
        Posted March 25, 2011 at 3:44 am | Permalink

        Very easy and free to set up your own charity for education, cats, horses and countless other things see the Charity Commission web site. Only applies on death so you might need the wills to deal with the 10% as value at death might vary.

        Silly tinkering at the edge like Enterprise Zones, changing people behaviour with little overall benefit to the economy.

  10. Brian Tomkinson
    Posted March 24, 2011 at 5:08 pm | Permalink

    I was disappointed and a little surprised to read that you actually support increased public spending even though the debt is rising inexorably and the interest payments are rapidly rising and outsripping most other forms of public spending. Expecting the deficit to be reduced by taxation is fanciful especially when the government can keep adding to it when it “finds” £7billion for Ireland, £3-£4billion for Portugal, £?billions for War in Libya…… You wrote in your previuos post: “If we sought an even larger second mortgage the international bank managers might well call time on us as they have on Greece, Ireland and Portugal.” I can see that day coming quite soon.

    Reply: I reported the spending increases but did not comment on them.

    • Brian Tomkinson
      Posted March 24, 2011 at 8:29 pm | Permalink

      John,
      You did not pass any critical comment about the increased public spending; I therefore assumed that you agree and support it, particularly as you did say:
      “I praise my right hon. Friend the Chancellor for seeing that his single, central task, day in, day out, month in, month out, year in, year out-indeed, the five-year burden for all of us in the House-is to get that deficit down before it kills our public finances and our economy.”

      “The hon. Gentleman also said that the reductions could prove difficult. Believe it or not, I did not become a Member of Parliament to have teachers sacked from my schools or doctors sacked from my surgeries; I want them to be well paid and well funded, and I want sensible growth in numbers where there is extra demand. We are all of that view-it is quite misleading of the Opposition to suggest that some of us do not appreciate that and do not want that for our constituents-but it has to be affordable.”

      ‘The Government have managed to find an extra £70 billion of cash spending for the fifth year of the plan, compared with the start year. …. It is crucial that the Government listen, and that sensible criticisms be taken on board, but public services have to be reformed so that we can say to people in five years’ time, “You are getting more for that £70 billion. We haven’t had to cut things that really matter, because we have managed things better and have found a bit of extra money.”

      Perhaps you could clarify your position. Do you support the proposed extra government spending when we are supposed to be trying to eliminate the deficit?

      Reply: I have suggested and voted for other reductions.

      • Brian Tomkinson
        Posted March 24, 2011 at 10:06 pm | Permalink

        John,
        The net result is an increase in spending I am opposed to it are you? Why plan to spend more when you are supposed to be reducing the deficit?

        Reply: that is why I have proposed other reductions in spending.

    • Robert
      Posted March 25, 2011 at 9:34 am | Permalink

      Yes John you are being very cagey on the issue of spending, political expediency metinks ! Jeff Randall’s article today’s DT explicitly makes the case for real absolute cuts in government expenditure. As he says P95 in the Budget Red Book indicates that we as a country are fortecast to have £1,359 bn o/s in fiscal yr ’15-’16, with interest payments conservatively rising to near 60bn! Growth, not underestimating the leverage potential of increasing tax revenues in an above trend growth economy is not going to reduce this in anyway in the next 5-10 years – serious cuts ever hastening a more vigourous private private economy would have a chance. Think outside the box, turn classic economic theory on its head. Plaintiff compromises won’t work, with a greater risk of failure as we stagnate, bold leadership is needed.

  11. zorro
    Posted March 24, 2011 at 11:28 pm | Permalink

    Good contribution John, which, as others have said summarise your previous arguments on this blog. Do you think that it is true that Mr Osborne doesn’t believe that cutting taxes promotes growth in the economy as norman states above?

    zorro
    Reply: I am trying to persuade him otherwise. He said in the 1st budget he gave that there was a maximum rate for CGT for revenue maximisaiton – we are now debating what that rate is. We are also now debating the same issue for Income Tax.

  12. Alan
    Posted March 25, 2011 at 9:06 am | Permalink

    I agree with almost everything you said but I think it will be more interesting if I write about where I disagree, namely whether we should join the euro.

    You say that our economy is better managed than those of Greece and Portugal. Really? Our currency has been devalued by about 25%, our savers are penalised for their providence and our lenders, especially the large banks, are rewarded for their improvidence. The rich may benefit from devaluation but our workers work for low wages, and the middle classes have their savings destroyed. None of that is true of Greece and Portugal. If you had put your money in a Greek or Portuguese bank in 2007 it would be worth more now than if you had put it in a UK bank.

    If we had joined the euro the discipline that it imposes would have forced our governments to take more care or to suffer the clear consequences of their failure to do so. Because devaluation is such an easy option for UK governments they do not fear it much: most people do not understand it and do not notice its impact. (For example, complaints about high prices are directed against retailers, not against devaluation.) Bond holders are willing to buy UK Treasury bonds at low rates of interest, although they must realise by now that in the long run they will not get their money back in pounds that have the same value. If we had joined the euro the failures of our policies would be obvious and future governments would work harder to avoid them. Governments would not find it easy to borrow and would have to concentrate on running the real economy.

    Eventually devaluations will cease to be a credible policy, and we will end up joining the euro. So it is in our interests that the Eurozone works out now how to run its affairs: one day they will be our affairs.

  13. Neil Craig
    Posted March 25, 2011 at 1:59 pm | Permalink

    It is a very good point that Labour’s policy of not cutting the deficit any time soon is not merely wrong but impossible because if we ruined our creditworthyness interest rates would kill us.

    Which leaves the only possible Plan B as more thorough cuts in spending and, theoretically easier & certainly non-damafing, thorough cuts in regulatory parasitism.

  14. Bazman
    Posted March 25, 2011 at 7:28 pm | Permalink

    Is this budget supposed to make up for the VAT increase? A regressive tax on the poor. Has your petrol bill gone down? Everyone is worse off since the Tories came to power or just bobbing on their rafts. Can’t blame Labour for the situation. Nitwit Tories voted for this every step of the way. More medicine?

  15. Lindsay McDougall
    Posted March 26, 2011 at 11:29 am | Permalink

    That was a very good and thorough speech in support of the budget but inevitably there were one or two omissions given the time available.

    If we don’t get the three years of above growth forecast by the OBR but instead the average growth rate since Mrs Thatcher took office, namely 2.1%, then we will have to make genuine cuts in real public expenditure. Plan B is tougher than plan A and it would be wise to have a list ready.

    Inflation at 5% is distorting everything. Unproductive expenditure such as State benefits and pensions is protected against inflation, whilst salaries and wages, the source of income tax receipts, are going up by less than inflation. Creditors of the government are being repaid in clipped coinage. Tax is being levied on interest payments and capital gains that are less than the inflation rate, in spite of the fact that it is an institute of government that is responsible for creating inflation. This is outright theft.

    Once again, middle income families with just one earner are being treated very unfairly. A family with two children and one person earning £50,000 pa is going to be £62 a week worse off. A family with no children and two people together earning £50,000 pa will be £31 a week better off.

    Are all the Heseltine style interventionist measures – 21 enterprise zones etc – likely to be more effective than an additional 2% reduction in corporation tax?

  • 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.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page