Plan C?

 

                No-one knows just how much a country can borrow before the lenders worry, demanding higher interest rates,  or refuse to lend more. Most people agree there does come a point where a country, like a company or an individual has borrowed too much. Once that is generally the view the options for that country narrow to the unpleasant or even to the self defeating. If you cannot borrow more you have either to cut your spending or increase your revenue, or a combination of the two. Until the potential lenders are convinced you can do it sufficiently, you are unable to borrow at  affordable rates. You can end up like Greece, having to squeeze both the public and private sectors too much, the one with spending cuts, the other with tax increases. You can end up in vicious circle of cuts, slump and more cuts. Borrowing more is not an option because no-one will lend you all the money you think you need.

                The UK government’s critics mainly tell it to spend and borrow more. They usually are unaware of the cash increases in spending in current plans, totally ignorant of the increased spemding and borrowing put into the 2nd Coalition budget comparted to the first, and only just aware of the clause which says if the economy grows less fast the Chancellor plans to borrow more. In other words, their Plan B is largely the Chancellor’s Plan A presented differently.

                  The problem with Plan B if taken further than the Chancellor’s revised plans of March is it would reach the point where the markets no longer believed in the deficit reduction approach. Lenders  might then decline to lend at managable rates. Given the heavy reliance on extra revenue from growth some contributors to this site seem to favour a Plan C, which would cut the risk of the levels of borrowing becoming too high.

                  What would these commentators’ Plan C look like?  A modest Plan C could, for example, have stuck to an increase of just 2% per annum in cash spending, instead of allowing the 9% plus increase in spending in the first two years of Plan A. This would have meant an £18 billion lower spending increase in 2010-11, and a  £30 billion lower spending increase  in 2011-12. Over the whole five years it would have reduced the spending increases by a cumulative £138 billion, and cut the proposed additional borrowing from £485 billion to £347 billion.   As we now know the markets can live with the prospect of borrowing an additional £485 billion over five years, this would have given welcome leeway in case growth comes in below forecast. It could also have allowed no VAT increase, cutting the squeeze on the private sector and reducing the inflation rate in 2011. Restoring Labour’s top rate of Income Tax and CGT rate could probably have increased revenues over the five years as a whole compared with the higher rates levied by the Coalition.  

             Such a plan is not going to be adopted, but I thought I should introduce it into the debate given the interest  by some contributors in what would happen if spending controls were stricter. It would of course still be possible to do more  by way of spending control this year.  Plan C is a theoretical comparison to Plan A and any bigger borrowing  version called Plan B. It would produce a less pronounced private sector squeeze in years one and two, and keep interest rates lower in years 3-5. As illustrated it still allows public sector cash spending to rise every year by the pace proposed for the last three years of Plan A. If public sector costs were kept under control it would mean important public services could still experience real increases in funding. It is interesting to note that in yesterday’s IMF Report on the UK they propose tax reductions to add stimulus should the growth rate drop too low. Plan C’s mixture of tax cuts, less inflation, and a smaller private sector squeeze should deliver better growth than Plan A. Ths in turn would deliver more tax revenue, and reduce the deficit more quickly.

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79 Comments

  1. lifelogic
    Posted June 7, 2011 at 6:54 am | Permalink

    Plan C would clearly be better for growth and for all (save a few in the state sector) and would be better politically for the 2015 election. Why therefore are they not doing it? Even those few in the state sector would surely be happier doing something useful elsewhere. Bank lending to business, a smaller state and confidence in the sense of direction are the keys. David Cameron-Heath is providing none so far.

    On green indoctrination as schools.

    Reading through my son’s homework KS3 science it is full of green propaganda yet again.
    It keeps asking questions about “renewable energy” this is clearly not a scientific concept in any sense (no definition is given). It is a vague political/religious concept.

    The Sun is not renewable nor is the wind, nor hydro, nor wave, nor the tide (whose energy comes from the earth spinning). They may last a long time but “renewable” in what sense exactly. Indeed oil and coal can expensively be renewed/manufactured using other energy sources anyway.

    It is full of question such as – Why is it good to use wind and wave power?
    And – What are the problems with using fossil fuels?
    Never the other way round note.

    To one question – Why is a small proportion of UK electricity generated by hydro and wind? My son gave the sensible answer that it was cheaper and easier to generate electricity from Gas, Coal, Oil and Nuclear – this is apparently off message and so was marked wrong.

    I assume the required answer was – because not everyone has yet seen the light or sense of the great new religion but high priest Huhne will soon change all that with further grants, higher taxes and yet more indoctrination of 12 year old’s at schools! Hallelujah! Hallelujah!

    I assume he will be rewriting the laws of physics too soon.

    • Stuart Fairney
      Posted June 7, 2011 at 10:12 am | Permalink

      “My son gave the sensible answer that it was cheaper and easier to generate electricity from Gas, Coal, Oil and Nuclear – this is apparently off message and so was marked wrong”

      Sometimes it is better to be officially deemed a “failure and wrong” by fools in authority. May I suggest he end his assignments with the phrase “E pur si muove”

      I’m not sure the teachers will get it, but if you explain it to him…

      • lifelogic
        Posted June 7, 2011 at 9:42 pm | Permalink

        Will do – religious persecution 21st century style – nothing much changes in 500 years just the technology.

        • Pete Chown
          Posted June 8, 2011 at 11:02 am | Permalink

          After (allegedly) saying that, Galileo had his books banned and spent the rest of his life under house arrest. I’m not sure either of those things have happened to your son yet.

          • Stuart Fairney
            Posted June 8, 2011 at 1:03 pm | Permalink

            Yep, nothing like a stupidly literal interpretation of a metaphor to really aid debate

          • lifelogic
            Posted June 8, 2011 at 5:19 pm | Permalink

            Not yet but they are creating thought crimes, sentencing motorists to re-education camps, attacking people for using “unacceptable words” (“coconut” for example I understand). Pushing bogus & biased science “education” at children. There is also much talk of climate change “deniers” it cannot be long before that is a serious crime too.

            (I do not deny climate change anyway, it has always happened, I just think the Co2 model is a gross exaggeration and has become mainly a religion. Also I know that the solutions pushed do not in practice work even in C02 terms and that the money is better spend elsewhere and real solutions will be found as and if needed.)

      • David Price
        Posted June 8, 2011 at 1:15 pm | Permalink

        Opinion counts for far more than fact or real experience – how far we have fallen since the Victorian era when science, engineering and their practitioners were considered to be of real worth.

    • Simon
      Posted June 7, 2011 at 11:33 am | Permalink

      Found myself looking at the girl next to me on the train’s psychology “text” book .

      It was basically claiming members of the previous governments cabinet were guru’s in improving the plight of the disadvantaged .

      Pure propaganda .

      Your son really must learn to become more “progressive” .

      • APL
        Posted June 7, 2011 at 8:48 pm | Permalink

        Simon: “Pure propaganda”

        Currently unexpectedly enjoying the hospitality of the NHS. Medical treatment seems top notch, but I have to wonder why they spend so much on the medical treatment when their cooks seem to be doing their best to (upset? ed) every patient.

        Anyway … on the automated hospital survey thingy a question popped up “Who do you think is doing the best for the NHS?” and the three options were, Labour, The Tories or The SNP.

    • Pete Chown
      Posted June 7, 2011 at 11:35 am | Permalink

      When people talk about renewable energy, they mean that it is renewable for practical purposes. We’ve got about five billion years of solar energy, for example. (At the end of that time, anyone left on the earth gets fried to a crisp anyway, so they won’t be needing any energy!)

      ‘My son gave the sensible answer that it was cheaper and easier to generate electricity from Gas, Coal, Oil and Nuclear…’

      If you support renewables, surely that’s still the right answer! ‘Renewables are good in the long term but they are not used much because people were unwilling to pay the short term costs.’

      No source of energy is ideal. Fossil fuels will run out, they make us dependent on various dodgy countries, and they contribute to global warming. Nuclear power risks accidents like the one at Fukushima. Renewables are expensive to set up, and most forms of renewable energy don’t generate electricity continuously.

      How could we achieve the government’s goal of an 80% cut in carbon emissions? With current technology, it seems clear that it is unrealistic. If we’re going to use a lot of renewables, we would have to burn fossil fuels on days when it is cloudy and with no wind. (Nuclear can’t fill the gap because it takes a long time to start or stop that kind of power station.) We would need to switch to electric cars, but there isn’t enough lithium to make all those lithium-ion batteries.

      People are researching sodium-ion batteries, which would solve the lithium shortage. We’d better hope the research pays off. So perhaps in 2050, the grid will only provide electricity when it is sunny or windy. We store that in banks of sodium-ion batteries for the times when the grid is unable to provide anything. (Alternatively, perhaps virtually all our electricity comes from nuclear power.) Cars and other vehicles are all electric, of course. We no longer use gas to heat our homes, instead using electric heat pumps.

      Did people think about these implications before coming up with the 80% figure?

      • lifelogic
        Posted June 7, 2011 at 9:50 pm | Permalink

        “If you support renewables, surely that’s still the right answer!”

        Well yes but clearly not sufficiently positive in the examiner’s view for “renewables” (what ever that actually means). You are not allowed to criticise renewables, equality, fairness, green Bling, anti discrimination laws, public transport, progressive taxation, tax transfers to the feckless, the NHS, non selective education or any of the other nonsense foisted upon us.

    • Mike Stallard
      Posted June 7, 2011 at 12:03 pm | Permalink

      This is truly frightening.
      What if he said that, for example, being a practising gay was morally wrong? What if he said that windmills didn’t work? What if he said that his father was a Tory? What if he said that he was worried that his parents might divorce or that he knew someone who was probably an Islamic Terrorist?
      All very not .

    • Javelin
      Posted June 7, 2011 at 8:33 pm | Permalink

      Yes my daughters too – all 3 science papers want to talk about global warming but cut the graph off just after the warming period in the middle ages. I presume that was to hide all the alien cars and factories that had just been withdrawn to planet self-deception.

      • lifelogic
        Posted June 7, 2011 at 9:58 pm | Permalink

        Indeed it must have been similar alien cars (and snow cats) and factories that melted all those Welsh glaciers at the end of the ice age I assume.

      • Pete Chown
        Posted June 8, 2011 at 11:23 am | Permalink

        Cutting the graph off at that point is silly. It’s bad science because it’s not looking at the whole picture, but it’s also bad propaganda because it’s clearly overstating its case.

        Do you find it comforting that the climate sometimes changes naturally? I don’t. If the climate never changed throughout all of history, we would have to think that there was a powerful mechanism holding it steady; a mechanism that would continue to hold it steady even as we burned lots of fossil fuels. If the climate shifts around by itself, though, it seems reasonable to think that it might also shift as a result of our activities.

        • lifelogic
          Posted June 8, 2011 at 5:24 pm | Permalink

          Indeed our activities are one of many inputs to the climate system but long term future predictions are basically just guesses with a few decorations on.

  2. Mike Stallard
    Posted June 7, 2011 at 7:30 am | Permalink

    In the 1950s, agriculture, heavy industry and manufacture, transport, shops, the dockyards and the army and merchant navy all demanded a very heavy investment in manpower. Women, by and large, did not work because running a house was very hard, physical work. Domestic servants had disappeared during the war but there were still some around. There was a lot of very hard physical work for everyone in those days, and, despite the best attempts by the government to take the world over into nationalisation, most people saw their future outside the government making a living for themselves. Bright boys went into the professions.

    60 years on this has changed. Bright boys, and even more girls, go into the law, into internships or into government where you can clean up a quarter of a million a year quite easily. The rest look to “office work” because there isn’t much physical stuff around and, remember, the work force has doubled with the inclusion of women.

    For the many, many illiterate and innumerate people at the bottom of the pile, the dole offers a good living, as my immigrant friends constantly remind me.

    Labour saw all this very clearly with its talk of investment and the vulnerable and paid out until the money was all gone. But the mind set still remains: live off the State if possible, either by joining it or else by getting what you can out of it.

    I therefore see, I am afraid, the above article as moving the chairs around on the Titanic.

    We need, actually quite ruthlessly, to encourage people to go out and earn money outside the greedy and very expensive and unproductive State. Even if it means a few people slipping through the Welfare Net and becoming a terrible example. A bit more laissez faire. A bit more Dickensian London.

    Ouch!

    • lifelogic
      Posted June 7, 2011 at 9:03 am | Permalink

      We could also do with changes to the legal system and legal structures which enable many second rate lawyers to earn £250K+ for doing fairly simple tasks. Often acting as a further tax and serious impediment to business, justice and the public with little real benefit for anyone outside the legal profession.

      • Bazman
        Posted June 7, 2011 at 7:01 pm | Permalink

        A bit like second rate bankers then?

        • lifelogic
          Posted June 7, 2011 at 10:00 pm | Permalink

          A bit like poorly regulated banks with a poorly run deposit protection scheme in place yes.

  3. Alison Granger
    Posted June 7, 2011 at 7:35 am | Permalink

    Plan C is an improvement but still nowhere near adequate. Countries like people should live within their means. To do anything else is eventually destructive and passes debt on to the next generation which is immoral. To pauperise ourselves and our children to pay for pointless, unnecessary and poorly delivered “services” is the height of stupidity and would make us laugh if we were reading about it in history books.

    • A.Sedgwick
      Posted June 7, 2011 at 10:19 am | Permalink

      I agree, Plan C should have been the minimum option.

    • Jer
      Posted June 7, 2011 at 2:57 pm | Permalink

      I agree with the sentiments, but I think it’s even worse than that. Many of the benefits we pay for are, if anything, poisonous to our society.

  4. Javelin
    Posted June 7, 2011 at 7:35 am | Permalink

    5 year Plan == Command & Control

    I thought “Plans” failed with the USSR?

    Put controls in place to ensure money is spent well, and then spend within your means.

    • Javelin
      Posted June 7, 2011 at 8:10 am | Permalink

      Having said that I would add cut tax on pure business Investment and regeneration in Labour heartlands that have become dependent on state spending. I would force house prices down so that more money was available for spending and saving. I would cancel university fees because if this should be the very last bit of Government investment that gets cut. I would set management/front line ratios in Government to reduce red tape. I would make it a sackable offence to waste money. I would set the maximum civil service salary to that of the PM. I would replace the human rights act by asking the public and academics for alternatives. I would change the BBC culture to make it less urban and politically correct. I would invest more in tge vunerable and less on the lazy. I would give teachers far more rights and encourage publically agreed punishments on anti-social children so the knew it was society that was punishing them. I would reverse immigration by taxing unnaturalised immigrants to pay for the services they used. In other words I would set a radical agenda based on personal and social responsibility. But I would NOT start with a deficit. The Government is not a business investment – the left wing can’t have it both ways. They can’t treat the Government as an investment when they want more money then treat it as a command and control economy when they want it spent on unprofitable projects.

      John if you believe there is no waste in Government and a couple of percentages here and there will save the country – and I have immense respect for you – then I think this approach of Alphabet Planning has failed and we need to trust and control the civil servants with limited budgets and not trust and control budgets with limited civil servants.

      Reply: You know I think there is considerable waste and have in the past identified some of it and recommended cutting it. I am trying to provide a new option for budget review, despairing of the endless spin that the only option is more spending. Plan C shows how spending is increasing, and could do so even under a tighter budget than the one we have, with advantages for growth, interest rates and revenues.

      • Robert
        Posted June 7, 2011 at 11:51 am | Permalink

        Javelin – well said – it is sad that there has been a seemingly ‘real politik’ acceptance about the roll of the state. What is amazing is the tacit acceptance by John that the status quo should remain. The right way to approach the whole question is not to start with what we have, but what we really need to survive and compete and then allocate and adjust the current status quo accordingly. In short big cuts are required, with no-one in any form of Government employment earning more than the PM, this combined with targeted tax cuts will shift the balance to the private sector combined with a true bonfire of rules and regulations would bring about a serious pro-growth environment. In short , both Plan A & A+ in my view will only provide a below trend growth environment for the considerable future, certainly that is where the risk lies.

      • wab
        Posted June 7, 2011 at 11:56 am | Permalink

        “I would reverse immigration by taxing unnaturalised immigrants to pay for the services they used.”

        Pretty much everyone pays tax (income tax, VAT, council tax, etc.), whether they are immigrants or not, and whether they are unnaturalised immigrants or not. Of course one of the points of government is that most people do not pay all for the services they use (e.g. train commuters, who only pay around half of the cost of the service, with the taxpayer picking up the rest of the tab). But this has nothing to do with immigration.

        And a large percentage of people in this country are either immigrants or their parents or grandparents were immigrants. I would be willing to bet that these people work harder and contribute more to the UK economy than the “natives” (per capita).

        It is unfortunate how many Tories are so anti-immigrant, except when they need a Polish plumber. Are you going to kick Boris Johnson out of the country because one of his great-grandfathers was Turkish?

        • Winston Smith
          Posted June 7, 2011 at 3:21 pm | Permalink

          Nobody is anti-immigrant except in your warped interpretation displayed in your political prejudices. Many of us are anti-mass immigration. In fact, 86% of the Country want reduced immigration. The State built infrastructure that I use, was paid for by my, my father’s and my grandfather’s taxes. The infrastructure built by private companies, such as most of the railways, was built using the labour of my great, great-grandfather. The freedom that allows you to make such crass, childish comments was defended by my father, grandfather and great-grandfather (who paid for it with his life).

          Our problems are very much connected with recent mass immigration. As our population and birth-rates soars we require a huge investment in infrastructure to serve these newcomers. Unfortunately, your friends who opened the doors also spent all the money. Consequently, the long-term residents will have to endure a drop in quality of life. Middle-class socialist hypocrites already realise this, which is why the likes of Blair, Harman, Cruddas, Miliband, etc play the education system to avoid such problems for their children.

          Immigrants may work harder, but you have no way of supporting that generalisation. Instead, it demonstrates your innate prejudice towards lower-class Britons, who you, and your ilk have subjugated through poor education and the Welfare fishing Net, making them incapable of competing with highly-motivated, well-educated and cheap migrant labour. It was the urban liberal elite who bemoaned the cost of tradesman and applauded the distortion of the market through mass-immigration, consigning thousands of youngsters at college and in apprenticeships to the benefits dustbin.

          Finally, it might surprise you that many 1st,2nd and 3rd generation immigrants are just as concerned, if not more, than the rest of us by mass-immigration.

          • Simon
            Posted June 8, 2011 at 12:24 pm | Permalink

            Great post Winston Smith .

            “It was the urban liberal elite who bemoaned the cost of tradesman and applauded the distortion of the market through mass-immigration, consigning thousands of youngsters at college and in apprenticeships to the benefits dustbin.”

            Yep , they wanted everything cheap , cheap , cheaper .

            I remember the last Govt claiming in their defense that they thought that by opening the door for ICT Visa’s for I.T. workers they were “making British companies more competitive ” .

            The average package for an I.T. developer in London is now less than the starting package of a Met police constable .

            Govt should acknowledge the fact that the World Establishment has decided that there isn’t to be an I.T. industry in the U.K. and just close U.K University computer science courses to British Citizens .

      • Robert
        Posted June 7, 2011 at 12:17 pm | Permalink

        Also I would point you to Jeremy Warner’s sensible article in the Busines section of the Daily Telegraph ( B7) today, particularly his last paragraph.

      • Bazman
        Posted June 7, 2011 at 7:16 pm | Permalink

        How most of this right wing fantasy would be implemented without a police state is anyones guess. Cut benefits for lazy immigrants and the lazy. Cut red tape. make the BBC more right wing. Tax cuts in certain zones. etc etc. Absolute twaddle insulting the average persons intelligence.

      • Tim
        Posted June 7, 2011 at 8:40 pm | Permalink

        I could suggest £10 billion saving by leaving the useless EU and a further £11.5 billion by stopping the Foreign Aid budget. We should also be charging non EU immigrants for their health and other services they receive here. Why should we taxpayers subsidise them? No other country would do this! We could then even put aircraft on our carriers. I think however that was a done deal (2006 as part of the EU creep) falsely made up as deficit needed bunting.
        Your leaders are NOT listening to the voice of the people on these issues Mr redwood and there will be pay back at the ballot box in due course. Labour may then return to power as a consequence.

      • Javelin
        Posted June 7, 2011 at 9:03 pm | Permalink

        I totally agree John and I believe you are the most listened to MP amongst city economists, the most spot on MP in terms of your predictions, the best MP at grasping, understanding and explaining economic issues – but I take a different philosophical approach by focusing on process rather than structure. All this 1% here or there isn’t really the point – and the point is that there is a lot of Government waste and vanity projects that could be cut and we need to trust civil servants to cut the waste. If we can trust the people doing this then we should either sack them or change the law to force them to act better. All this planning sounds like you don’t trust civil servants and your just want to spend right up the the limit. A lot of people are greedy – just look at FTSE directors 30% pay rises. So laws and rules have to make them more accountable – you can’t have laws and rules to force them to spend wisely – but you can have laws and rules to make their decisions transparent and themselves accountable. We the tax payer hold stock in every civil servant. It’s the laws and rules like this that produce good Government – central plans just limit spending on services of undefinable quality.

  5. Ralph Musgrave
    Posted June 7, 2011 at 7:44 am | Permalink

    In view of the manifest and proven incompetence of those who pass judgement on credit worthiness, i.e. the credit rating agencies, my advice to any country which wants to borrow and spend more is to go for the alternative, i.e. print and spend. The US monetary base has trebled over the last three years with no inflationary consequences worth talking about.

    I wouldn’t advocate a “print and spend” policy for the UK right now, because inflation is a concern. But I would advocate more of this policy for the US.

    • Mike Stallard
      Posted June 7, 2011 at 12:10 pm | Permalink

      QE – printing money in old language – eventually causes inflation, sometimes disastrous inflation. The collapse of the dollar might well bring down, not only the entire banking system as we know it, but also whole countries over the world. In Germany when inflation happened, Hitler came. In Russia when the Tsar ran out of money, Stalin happened. In Zimbabwe………
      If American goes bust, then we are facing a catastrophe like the fall of the Roman Empire.

      • Ralph Musgrave
        Posted June 7, 2011 at 2:12 pm | Permalink

        The popular idea that QE equals money printing is bunk. QE consists of inducing private sector entities to swap their Gilts for cash. Now what’s the difference between Gilts and cash? Both appear on the liability side of the B o E’s balance sheet. As to £X of Gilts near maturity, they simply consist of a promise by the B o E to pay the holder £X in a few weeks or days time. Government debt near maturity is accepted in lieu of cash in the world’s financial centres. Ergo the extent to which QE equals an increase in the money supply is VERY VERY debatable.

        The above is totally different to Weimar style money supply increase. This consisted literally of a government printing money and spending it. Each Mark of deficit in this scenario was unquestionably an increase in the money supply.

        • Stuart Fairney
          Posted June 7, 2011 at 9:50 pm | Permalink

          No it doesn’t. If you hold a gilt, that is a future liability which probably carries an interest liability. If you swap a future maturity for a current maturity, you have to get the cash from somewhere, hence, from taxpayers, or from printing, ie QE.

          Some gilts are long term or even undated liabilities. Thus you can pay liabilities with money you have actually taxed and is this real (in the sense any fiat money is real), or money you have created out of thin air. Thus the gilt/cash swap is indeed Mugabe, Weimar etc QE, but it is presented in such a way as to bamboozle some people.

        • Caterpillar
          Posted June 8, 2011 at 12:53 am | Permalink

          Doesn’t the central bank credit its own account ex nihlo inorder to purchase whatever financial assets its purchasing. I thought this would be why the “printing” term was used. (Admittedly once the commercial banks’ reserves have gone up then assuming that they’d take a lending route may have been a bit silly …).

          {As an aside though, even if the money supply did go up, the money x velocity = nominal GDP identitiy seems, to me as a non-economist, to have many different ways of being satisfied and none of them causal).

  6. Nick
    Posted June 7, 2011 at 8:53 am | Permalink

    Given the heavy reliance on extra revenue from growth

    Getting closer.

    Now, it’s not too difficult to admit,

    “Given the heavy reliance on more taxes”

  7. Nick
    Posted June 7, 2011 at 8:58 am | Permalink

    How about stopping spending?

    Lets see how much a family of 4 on benefits costs us. One of those families where its generation 3 or 4 who’ve never worked.

    What do they get?

    Two kids – free education 2 x 5K per year = 10K

    Free health care. 4 * 1.8K a year = 7.2K

    Council tax – 1K a year

    Benefits?

    No extras – just the basic. Bob Crowe accommodation, housing benefit etc.

    25,390.46 a year (tax free)

    Free school means, prescriptions, …

    We are well over 40K a year tax free.

  8. EJT
    Posted June 7, 2011 at 9:12 am | Permalink

    The government proudly gives over £1bn in aid to India. How can you hope to engage in any meaningful debate over public spending with such people ? You can’t.

    • Stuart Fairney
      Posted June 7, 2011 at 2:06 pm | Permalink

      Noam Chomsky (someone I rarely quote but anyway) says that speaking truth to power is over-rated because power probably knows the truth and is busily ignoring it.

      • Simon
        Posted June 8, 2011 at 12:40 pm | Permalink

        I should read Noam Chomsky some day but am sceptical and cynical enough already .

        What must Noam think of people who tune in to the BBC and think they are actually being served up factual news ?

        I despair for such viewers . BBC news is barely even a charicature of serious journalism now .

        • Stuart Fairney
          Posted June 8, 2011 at 9:19 pm | Permalink

          The Libya war coverage in particular would be comic were it not so serious

      • EJT
        Posted June 8, 2011 at 12:53 pm | Permalink

        🙂

        Didn’t know of that quote. But, yes – spot on.

  9. Gary
    Posted June 7, 2011 at 9:14 am | Permalink

    There is of course an elephant in the room called the property market. This was a classic pyramid scheme where a conveyor belt of first time buyers had to enter the market to relentlessly drive the prices in the entire pyramid higher, thus enabling the old owners to trade up and the banks at the apex to write a vast pile of derivatives.

    Capital that should have gone into productive exporting industries was now sitting in non productive property. Virtually the entire productive population diverted their attention from real work to property speculation and using their home as an ATM. The govt facilitated this by giving tax breaks for first time buyers and all the propaganda was to encourage people to get onto the first rung of the ladder, the BOE did their bit by uneconomically keeping rates low.

    This has left the country moribund.But still the govt and the BOE persist with the same game, because now we are backed into a corner and they cannot see an orderly way out. The life of the banks and the pension funds are almost totally dependent on avoiding a property collapse.

    The powers that be are attempting to launch another pyramid scheme bubble to help extract them from the property bubble, this one is called the education bubble. Problem is the taxpayer is too tapped out to partake.

    Renewables bubble, anyone ?

    • Caterpillar
      Posted June 7, 2011 at 2:39 pm | Permalink

      And its not as though what Gary is saying is news, is there something that the MPC and MPs don’t get?

      The Oxford academic Farlow wrote in early 2005 (www.economics.ox.ac.uk/members/andrew.farlow/Farlow Housing and Consumption.pdf),

      “allowing house prices to revert to fundamentals, while it harms consumption, at least conceivably puts the economy back on a footing that emphasizes real economic activity over speculative housing activity”

  10. alan jutson
    Posted June 7, 2011 at 9:30 am | Permalink

    John

    Still think there is no alternative than to live within your means, and if that means the government having to cut more of its services in order to reduce the over taxation on business and the general public, so that they can choose what they sopend their money on, then so be it.

    The real investigation should be what services can we completely do without.

    For decades governments of all colours have attempted social engineering of all types on the population, have attempted to bribe businesses to relocate to so called areas of opportunity, have spoon fed hose who cannot be bothered to work, have ruined our education system with constant change and a dumbing down of examinations, and discipline.

    Local Councils seem to be not much more than an extension of the government acting as local tax collection or benefit centres where you either pay in or get money out.

    State control of our lives needs to be cut back, and cut back hard, perhaps not all in one go, but certainly over a set period of time, stop recruitment now, allow natural wasteage to take its course, promote from within, and slowly strip out services that are not required at all, as the number employed reduces.

    Above all else, get out of the hugely expensive paradise (for the few) called the EU, and reduce Foreign aid, and immgration (from all countries) until we are back on our feet.

    Just remeber whe government spending is close to 50% of GDP you are lving in a State controlled country.
    The aim should be to get down to 25% of GDP for Government spending.

  11. oldtimer
    Posted June 7, 2011 at 10:50 am | Permalink

    The obvious omission from your Plan C is the elimination of the costs imposed by the Climate Change Act/Carbon Plan. These are forecast to cost £billions a year for many years. Furthermore they will place this country at a huge, probably fatal, economic disadvantage by raising the cost and increasing the unreliability of the our energy supplies compared with UK competitors. Access to abundant, low cost energy was and remains fundamental to a modern economy and civilised life as we know it. MPs have made a conscious decision to abandon all of this.

    It remains a mystery to me why MPs have allowed themselves to be drawn into supporting measures that are based on dubious hypotheses and, even if you do accept them as gospel (it seems more a religion than a science), on so-called solutions (wind and solar power) that in reality are not solutions at all. They merely add to the problem you were trying to solve in the first place. This addiction to the global warming agenda must be the most expensive example of group think in history.

    Reply: I was one of the minority who did not vote for the 2nd or 3rd reading of the Climate Change Bill.

  12. Richard
    Posted June 7, 2011 at 11:13 am | Permalink

    My plan C
    Stop the HS2 project
    Pull out of all overseas military conflicts
    Stop all overseas aid including bail outs to failing EU countries
    Re-align the UK towards trade with Australia Canada USA and the rest of world
    Reduce by half our EU and UN contributions
    Maximum state or council salary £99000 per annum
    No more final salary pensions for state employees
    Bring back tax relief for mortgage interest payments especially for first time buyers
    Reduce the burdensome red tape on building regs for new homes
    Bank of England back to Parliamentary control
    Elected chief constables and judges
    Sell off the BBC as a PLC and allow it to become a proper commercial business
    Change state budget system to reward those who come in under budget.
    Reduce top rate tax back to 40%
    Set the capital gains tax at a rate that will maximise revenue, ditto other taxes: spirits tobacco fuels stamp duty inheritance tax etc
    Repeal the climate change act and stop the green energy subsidies and the carbon trading scam
    Do tax deals with the worlds wealthy individuals and multi nationals to a) stop them leaving and then b) encourage more to come and live here.
    Reduce planning laws back to where they were 50 years ago with an emphasis on the “why not” to be proved by the Council
    Bring back the business vote for local Government elections
    Better tax breaks for venture capitalists/business angels
    Better tax breaks for companies who invest in new plant, equipment and staff training.
    Stop the Inland Revenues obsessional attacks on the self employed and acually encourage self employment
    Make private health insurance tax deductable for businesses who provide it for their staff and for the staff who get it and for private individuals who decide to take it out.
    Charge people for NHS accident and emergency treatment where for example, it is obvious their violent drunkeness has led to their injuries
    Child benefit restricted to the first two children
    Make it tax deductable for parents who decide to pay for private education and/or bring in education vouchers for all parents
    Require the long term unemployed do some work in their community in return for state benefits and more importantly, make it profitable for the long term unemployed to take jobs.

    I could go on but I think just the above would save billions and restructure the economy on a path for growth
    Sadly, there isnt any desire by politicians to take the radical actions required to achieve growth. Its all about just staying in power, doing day to day micro management and making sure they remain popular with the London centric media.

    • lifelogic
      Posted June 7, 2011 at 3:31 pm | Permalink

      How can I vote for these policies?

      You are certainly right on “Stop the Inland Revenues obsessional attacks on the self employed and acually encourage self employment” HMRC’s approach is now often – we will cause you loads and loads of inconvenience the disrupt your working until you give in and pay us something whether you owe it or not.

      • Bazman
        Posted June 7, 2011 at 8:12 pm | Permalink

        A crackdown on bogus self employment status being put on employees by unscrupulous businesses would be good too.

        • lifelogic
          Posted June 7, 2011 at 10:05 pm | Permalink

          Why do they do that? Because silly employment laws force them to do it. Otherwise they fail to compete and the alternative is often to close or go overseas.

          • Bazman
            Posted June 8, 2011 at 5:23 pm | Permalink

            Silly employment laws requiring the payment of £5.93 an hour minimum?

    • A.Sedgwick
      Posted June 7, 2011 at 6:33 pm | Permalink

      Like most of us you are living on planet Earth, whilst Governments live on planet zog. Just one comment on foreign aid the minister responsible is reported as making a comment about being as proud of foreign aid as the army. Well my immediate comparison is our very low income people who pay income tax they cannot afford to pay for others’ armies that suppress democracy.

      • StevenL
        Posted June 7, 2011 at 9:30 pm | Permalink

        Well targeted ‘aid’ can be much more cost effective than the traditional army invasion and far less risky.

        • Stuart Fairney
          Posted June 7, 2011 at 9:53 pm | Permalink

          Not invading or giving aid is better yet.

  13. Gary
    Posted June 7, 2011 at 11:15 am | Permalink
    • Stuart Fairney
      Posted June 7, 2011 at 2:10 pm | Permalink

      Yep, and given that two major banks are state owned, then it is QE in all but name.

      Perhaps next time someone wonders why the banks aren’t lending to actual business, they might care to look at this. This is going to end in total disaster.

    • alan jutson
      Posted June 7, 2011 at 3:09 pm | Permalink

      Gary

      But then who underwrites what the right hand has bought, if the left hand defaults and the right hand then goes bust, yes its the left hand, funded by the taxpayer.

      You could not make it up, people would think you mad if you suggested this is what would happen 10 yeas ago.

    • StevenL
      Posted June 7, 2011 at 9:32 pm | Permalink

      I seem to remember the ‘money-go-round’ was a hot topic here about 3 years ago?

  14. Stuart Fairney
    Posted June 7, 2011 at 11:35 am | Permalink

    Er OT but just when you think things can’t get any more stupid; lunatic debts, increasing state spending, la-la land growth projections, EU bailouts, state ownership of banks, endemic inflation, serious unreported unemployment, counterfeiting or should I say QE, chucking bombs around random countries, Cameron making noises about non-issues like the style of kids clothes and now it turns out, we are all de facto shareholders in HMV via Lloyds and RBS taking equity in them.

    If there is one business I want to be in, even less than recycling, green energy or Greek banking, it is high street music sales. Companies like this are being slaughtered by the internet providers (both of actual CD’s and downloads), it is a dying business as surely as day follows night, (and of course the reason why HMV had to go cap in hand to the bank in the first place).

    And now we quite involuntarily own some ~ please STOP!

  15. Conrad Jones (Cheam)
    Posted June 7, 2011 at 1:39 pm | Permalink

    What would reduce the deficit more quickly and with less pain would be for the Government to create it’s own money without allowing the Bankers the “Privilege” of creating it for them with the added cost of the Interest Payments.

    97% percent of our current money supply is made up of I.O.U. slips – not real money.

    • sm
      Posted June 7, 2011 at 7:39 pm | Permalink

      Our solution seems to protect the ‘financial system as currently setup’ -perhaps its time for a serious rethink of what we expect from government, banks.

      Government and banks are so close i am not sure who controls who for what purpose and benefit.

      I recently watched the ‘Secret of Oz on youtube after watching Bill Still critique of fractional reserve banking and the way forward.’

      How about forbid government borrowing.Restores the money creation function directly to government.Banks would exist to intermediate but would do so at full risk unlimited liability and be only able to loan only money they have obtained for this purpose by subscription capital.

      Restart mutuals on this basis any interest earned being returned to government for public spending or invested in new loan projects.

      Manage the debt destruction by allowing private losses to stay private- save for extreme situations eg immediate loss of life. Create money to offset stabilize this debt destruction of the money supply for current spending and to retire debt borrowing by HMG. Use this for productive investment via new banks.

      It must be worth serious consideration.

  16. javelin
    Posted June 7, 2011 at 1:53 pm | Permalink

    Talking of plans – the head of Greece’s Alpha Bank has finally come out and said defaulting would benefit the economy. I think this will kill off this Central Planning AlphaBetty Spagetti we are all transfixed by.

    As I have said before once they default – IF they can get their deficit down credibily Greece needs to come clean and say – “We didnt know how to handle all this cheap money – we now have our house in order. Please do proper due diligence on us next time we borrow.”

    For me this is the only responsible plan. The IMF and EU do not want them to do this because it will harm German, French and Belgiun AND the EU Central Bank. IF they can stop borrowing more than they get in taxes the outcome for the Greeks will be really good. The outcome for the Euro banks and Euro central bank will be bad in the short term – as at least one bank will default – triggering further problems. But they only have themselves to blame.

    BUT – and this is the plan – this will force banks to do due diligence before they borrow again. The UKs Plan A/B/C will come under the spot light and I dont believe George Osbornes Plan A will prove credible (and I believe he has one of the best Plans in the Alphabet). Alphabetty Spagetti Central Planning and is not the way to lead a county. That is done through leadership, responsibility and diligence and once the Greeks default we will all have to grow up and become more responsible.

  17. BobE
    Posted June 7, 2011 at 4:37 pm | Permalink

    Tractor production continues above the 5 year plan and all is well.

  18. forthurst
    Posted June 7, 2011 at 6:40 pm | Permalink

    Its all very well talking about plans A,B,C etc but unless the government can demonstrate an ability for controlling the public sector other than in the grossest terms (eg wage freeze), all plans are doomed failure. The public sector is a revening beast which if pushed to the wall will simply cut those who are its raison d’etre, namely, front line workers and spend the next four years screaming blue murder at the government. We will not get rid of any of those overpaid and pointless appointments and functions so beloved of local councils and central government alike which is the key painlessly to stripping back the state until the government starts to govern properly. Why not make it a criminal offence to make an appointment or carry out a function other than in furtherance of a statutary obligation. Are councils obliged to infere in education other than in providing the fabric and paying the costs etc?

    • StevenL
      Posted June 7, 2011 at 9:27 pm | Permalink

      Have you any idea how many ‘statutory obligations’ government has, and how subjectively they are worded?

      • forthurst
        Posted June 7, 2011 at 10:58 pm | Permalink

        I have suggested here previously that the government should reduce its own self-inflicted obligations in order to allow itself to cut costs; but if you are suggesting that civil servants only undertake activiries which in their reasonable opinions constitute their obligations under the law then that only leaves either the government to prune itself in respect of its objectives or to simply delay or cancel capital projects.

  19. Bazman
    Posted June 7, 2011 at 8:33 pm | Permalink

    All ready for the latest rise by the gas and electricity companies? This payment is entirely voluntary of course and only applicable to people who choose to purchase energy unlike the BBC licence fee tax which is compulsory whether you watch TV or not. £60 a month to heat and light my house month. What a bargain. I just don’t know how they do it for that price? It would cost a lot more to burn coal and pay for a generator. Not to mention the smell and the hassle. More power to their elbows. Just think how power companies profits will be invested for the greater good when you are paying your bill and don’t listen to the wingers.
    Raymond Jack, Scottish Power’s UK retail director, said: “Wholesale prices for gas and electricity have increased significantly since the end of last year and continuing unrest in global energy markets means future prices are volatile.
    “We understand times are difficult for many people, and we have done what we can to absorb these additional costs for as long as possible to minimise the impact on our customers.” Tell it how it is Jack.

  20. Caterpillar
    Posted June 7, 2011 at 9:26 pm | Permalink

    1. Build in a multiplier to public sector tax rates. If previous year’s deficit is greater than 3%GDP then multiply by X>1 etc. If public sector is in surplus then multiply by X<1.
    2. Also once economy is back on track, apply multipliers to votes cast for incumbent party/ies in similar way if it reaches a general election with greater than Y% debt.

  21. Mark
    Posted June 7, 2011 at 9:39 pm | Permalink

    Referendum… out of the EU… the sooner the better. Why won’t the politicians give it to us? Neither trade nor prosperity depend on the existence of the EU. Not one job, well apart from unelected elitist Ashton’s, depends on the existence of the EU. For trade, there’s the WTO.

    The Euro is destroying Europe’s wealth and the sooner we cut loose from this zone, the better it is. Do not let the elites or bankers scaremonger you into thinking otherwise.

    • BobE
      Posted June 8, 2011 at 12:52 am | Permalink

      But Mark tractor production is doing so well

    • APL
      Posted June 8, 2011 at 9:34 am | Permalink

      ARK: “Referendum ..”

      Why stop at one? The EU itself has established the principle – ‘If you don’t get the result you want the first time, hold another one.’

      And since MPs refuse to do the job they are paid to do – keep a firm grip on the finances of the country, how about a yearly referendun on government spending?

      Richard North advocates referism, it sounds much better than ‘Localism’, not least because it would actually devolve real power and has been shown to work in Switzerland.

  22. electro-kevin
    Posted June 7, 2011 at 11:25 pm | Permalink

    http://www.independent.co.uk/news/business/comment/city-eye-facts-on-a-plate-our-population-is-at-least-77-million-395428.html

    This article from the Independent is slightly off topic but not so if you think that population levels (demand) should be integral to conversations about the management of resources.

    The population in the UK is now approaching 80 million people. I suspect that you and your colleagues already know this, Mr Redwood. To ordinary people it seems obvious that the increases have been of this order – they have been to have made such a rapid cultural impact on our neighbourhoods.

    In light of this it would seem that policies have been offered on an entirely false premise of controllable, known and predictable population levels.

    Admit it. None of you have the foggiest what to do.

    • Caterpillar
      Posted June 8, 2011 at 9:50 am | Permalink

      So food firms sell more therefore there are more people. Just because someone eats twice as many calories as they healthily ought doesn’t mean they are two people. I realise the Indie didn’t show the data, but do you know if it was renormalised to the change in clothes size labelling (like a new ‘8’ is an old ’14’)?

      [Also they didn’t report any triangulation with cars observed on road, public transport demand, footfall in malls etc.]

      Still if the population is a third higher than the official number, the greens might be happy that our energy per capita is much lower.

      Reply: I agree – the answer to the food sales could be waste as well as eating too much. The tyranny of the use by/sell by dates probably means more scrappage.

      • sm
        Posted June 8, 2011 at 11:55 am | Permalink

        Occam’s razor
        That is, the razor is a principle that suggests we should tend towards simpler theories until we can trade some simplicity for increased explanatory power.

        http://cornerstonegroup.wordpress.com/2008/02/25/how-many-people-live-in-britain-%E2%80%93-by-greg-hands-mp/

        I am not sure Tesco would agree, we buy many things which may also help indicate population some items less frequently.

        Waste at a time of continuing economic squeeze?
        Census results v local authorities spending needs per head?

        The clubcard database is a mine of information not in the public domain. Perhaps some of it should be? Aggregated and anonymised.

  23. Javelin
    Posted June 8, 2011 at 11:48 am | Permalink

    Further comment on Greece – Wolfgang Schäuble the German Finane Minister’s office today leaked a letter ahead of talks, saying a hard restructuring was “inevitable”. I can’t see how the EU can avoid a full blown crisis now. A default of a (French or Italian) bank seems inevitable.

    The EU Central Bank is in serious trouble – holding E100bn of Greek debt – about to possible halved in value, whilst proposing a further E60-100bn purchase. The EU Central Bank is being compared to Euro Disneyland on the trading floors – it’s “Pure Disney ! ” said a daily briefing today, “… but thanks for the cash ;-)”.

  24. BobE
    Posted June 8, 2011 at 12:31 pm | Permalink

    Didn’t we just do a very expensive census?
    Shouldn’t that indicate the population.
    Use that as a base point and then be rigorus in count in count out.
    So John will you be going to the Olympic games with a taxpayers ticket?

    Reply No

  • 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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