Austerity, the cuts and the reality

Many western countries have been living well beyond their means for several years. The US and the UK have been spending 10% of National Income more than they earn on public spending. Most now agree we cannot carry on like this.

The substantial overspend in the public sector follows hard on the heels of a large overspend in the private sector. The public sector is now borrowing very large additional sums to keep its spending going. In the years before the Credit Crunch many citizens in the US and UK (and in Spain, Ireland and the rest) borrowed large sums of money to buy assets or to consume more. Property prices were driven higher by excessive mortgage finance. The Credit Crunch has changed this. Property prices have fallen. New mortgage finance is difficult to obtain. Overall individuals are reining back their excess spending, and taking or nursing losses on assets.

There are three main ways in which the public sector deficits can be reined in. The favourite political way is to pursue faster growth. If the economy can increase more rapidly, more money will be paid in tax. If the growth rate of public spending is slower than the growth rate of the economy, the deficit will be brought down. Unfortunately in the Euro zone the most heavily indebted countries seem unable to grow. In the UK and US there is a bit more growth, but the rate is not fast enough to resolve the deficit problems.

The second way is to increase tax revenue. The politically popular route to curb the deficit if growth does not suffice, is to tax the rich more. Most politicians unite in agreeing to this proposal. It has two drawbacks. There are not enough super rich to pay all the extra bills. If you raise rates of tax too much on the rich, they may leave, or employ better lawyers and accountants to find a way round the rules. In the UK Mr Blair and Mr Brown, for most their tenure, thought 40% Income Tax and 18% Capital Gains Tax were the optimising rates to get most revenue out of the rich. The Coalition, accepting Labour’s last minute rise to 50% for incomes, and imposing its own 28% for CGT, may discover to its cost these rates lose the Exchequer money. There are limits to how much tax you can get out of a free society with open borders. No recent UK government has managed to collect more than 38% of GDP in tax, so there remains a very large gap between revenue and spending.

Governments following the higher tax route are thrown back on taxing most people, not just the rich. The UK Coalition has imposed higher VAT and National Insurance, as well as the higher Income Tax rate and various other increased taxes and fees. Petrol tax has gone up. This in turn has depressed real incomes, meaning less demand in the private sector. The top 10% of income earners pay £30,000 a year each on average, net of benefits and tax credits. The lowest 40% of income earners are net recipients, with benefits and tax credits exceeding all the tax they pay. These figures include VAT and indirect tax.

The third way is to cut public spending. So far the UK government has not tried this overall, though it has made various cuts in individual areas and departments. This is being tried to a greater extent in Euroland, but so far it is proving difficult there as well to curb total spending. Greece wont cut its very large army. Spain finds high and rising unemployment keeps adding to the welfare bills.

The paradox is many UK people complain of the cuts. They mean by this the cuts in their own living standards. The BBC yesterday morning provided a vox pop piece looking at various individual budgets and the way they were being cut. The commentator did not point out that much of the squeeze on these individuals came from higher taxes to pay for the growing public expenditure. People complained of fuel bills (largely tax), energy costs (regulatory and tax costs), higher shop prices and other areas where higher VAT plays its part.

We all dislike cuts in our living standards. Some depend on benefits and government services for an important part of their living standard. Most rely on income from work and savings. It is this majority group that also complains of cuts. The irony is, these cuts result directly from the need to pay for higher public spending out of increased taxation. The ultra low interest rates add to the pain for the prudent, slashing their savings incomes.

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122 Comments

  1. alan jutson
    Posted December 4, 2011 at 7:25 am | Permalink

    Once again very clear Logic John.

    Shame most of the media (and thus the population) are blind to the facts.

    Your last paragraph sums things up though.

    Benefits to rise by 5.2% with those in work to pay for it !

    I have no problem with increasing the Old Age State Pension, after all, most of these people have worked and paid taxes all of their life.

    I have no problem with increasing Benefits for those who are genuinely unable to work due to health or mental problems.

    I do however have a problem for those who are getting increases on tax free Benefits, who are fit and able to work, where it would seem there is absolutely no limit. Until we resolve this, all workers will remain poorer.

    Please explain what is wrong in getting all those who are able to work, to do some work in the community for a period, in exchange for their Benefit payments, instead of doing absolutely nothing.

    I am aware it will not solve the deficit or debt problem on its own, but it will help share the load, and perhaps at the same time show some people that work does pay.

    Refuse to work in the commuity, then Benefits refused.

    • lifelogic
      Posted December 4, 2011 at 8:28 am | Permalink

      Indeed benefits to rise by 5.2%. So yet more encouraged onto benefits and yet fewer working to carry the tax burden of the state sector and these claimants.

      Business thus yet more uncompetitive and so fewer jobs and more move abroad or just pack up and claim benefits too or worse get a job in the state sector often just taxing or inconveniencing the productive.

      • Bazman
        Posted December 4, 2011 at 9:43 pm | Permalink

        Says a man without a job.

    • Disaffected
      Posted December 4, 2011 at 12:08 pm | Permalink

      John,
      You should not consider the spending in the public sector in isolation. Other factors have a huge impact ie immigration. With an artificial increase in population it is difficult to understand how services can be cut when the population is rising so fat and will grow exponentially. The birth rate is four times what it was in 1980.

      You appear to have forgot that Eat Europeans come from Marxist cultures where there is no welfare state. They have to work irrespective of the low wage offered. For the UK to open up its borders it is no surprise to me that more foreigners are being employed than British workers. Moreover, they never had welfare, therefore to be offered a house, education, health and a free living must be heaven for them especially as they were not required to put anything in the tax pot to start with. We now have the EU negotiating on behalf of the Uk to have welfare tourists. Possibly adding £2.2 billion to our welfare bill, let alone public service costs. The Loony left Liberals think this is okay and are happy for all of us to work longer, pay more and receive less in return. I object. I also object that A TORY PARTY IS ALLOWING THIS TO HAPPEN.

      The public sector needs to be reined in from the thousands of non-jobs that Labour created, all the back room bean counters. That does not mean that all public sector workers are a waste or do not deserve a proper living or pension. It means, once again, politicians are too stupid to run a business, organisation or the proverbial knees up in a pub.

      There needs to be an over all strategy that every other policy issue dove tails. There is no joined-up thinking; there are too many politicians who always put their self-serving greedy and corrupt interests before national or public interest (generalisation). With so many capable civil servants it is difficult to understand why ministers are unable or unwilling to run the country and public services properly.

      One thing for sure, Cameron needs to go. I would urge you, David Davis, Boris Johnson, Ian Duncan Smith, Bill Cash and the rest to get rid of him ASAP.

      • Mike Stallard
        Posted December 4, 2011 at 5:12 pm | Permalink

        At our Church Hall we have a lot of immigrants. The Poles have either become Brits now – intermarried, children at English schools, working hard etc – or gone back home. The Lithuanians contain a number of fairly disreputable Russians who we, on Christian grounds, feed and shelter. But there are many Lithuanians who work hard and are excellent citizens with it. The Bulgarian, Portuguese, Roumanian, Czech, Slovak element has mainly gone away (where to?)
        And they have all discovered the benefits system……

        Been to Peterborough lately though?

        • Tim
          Posted December 4, 2011 at 6:41 pm | Permalink

          We could save £25 billion overnight by leaving the EU and stopping the EU and foreign aid budgets. A further £8 billion by stopping EU bureacracy to our businesses and create 400,000 fishing jobs as we would be out of the ridiculous common fishing policy. A good proportion of our 1000,000 youth unemployment could be solved as there wouldn’t be Eastern Europeans prepared to work for £3.40 an hour and some disingenuous employers would have to pay the THEN true market rate, not subsidised by the taxpayer who pays for all of their public services including the World health Service.

    • uanime5
      Posted December 4, 2011 at 7:01 pm | Permalink

      There are 2.6 million people unemployed and about 500,000 jobs available, so 2.1 million people will remain unemployed even if they want to work.

      “Please explain what is wrong in getting all those who are able to work, to do some work in the community for a period, in exchange for their Benefit payments, instead of doing absolutely nothing.”

      What’s wrong with this is that it exacerbates the problem, rather than fixes it. If there is work that needs to be done then create a job and hire someone to do it. Using benefit claimants to do the work just discourages people from creating jobs (why pay someone when you can make someone else do the job for free).

      • Bazman
        Posted December 4, 2011 at 9:50 pm | Permalink

        The problem is that bone idle benefit claimants ‘earn’ more than an Chinese I.T. consultant killing himself. What are the fantasists going to do about this? Do tell. Sorry! I see a lack of replies…Anchors.

      • Ralph Musgrave
        Posted December 5, 2011 at 5:08 am | Permalink

        It needn’t “exacerbate the problem”. The main effect of workfare, i.e. forcing the unemployed to do some sort of subsidised work in exchange for benefits, is to induce them to get a normal, or unsubsidised job instead of living on benefits. Of course if the pay and conditions for subsidised work are too generous, then that is an inducement to do subsidised work rather than get a normal job, and would “exacerbate the problem”.

  2. Antisthenes
    Posted December 4, 2011 at 7:40 am | Permalink

    Living standards have a long way to fall yet as the bust part of the boom and bust cycle has not yet completed it’s rebalancing. Western governments have made the serious error of trying to circumvent the bust by throwing large amounts of money at it. So causing another bubble that must eventually burst. I estimate that the next phase is going to be a long period of stagflation. How that is addressed will determine the future prosperity or not of the UK and most Western nations. Unless the West wake up to the fact that Keynesian economics do not work, that capitalism and free markets should be allowed to work unhindered and uncontrolled by interventionist government and lefty and green policies and practices have to be scrapped or reformed then the decline will continue.

    • uanime5
      Posted December 4, 2011 at 7:03 pm | Permalink

      “that capitalism and free markets should be allowed to work unhindered and uncontrolled by interventionist government”

      All this will lead to is monopolies and cartels. Companies are most competitive when they’re forced to compete with each other, rather than collude with each other.

  3. Antisthenes
    Posted December 4, 2011 at 7:52 am | Permalink

    A way to increase tax revenue by a substantial amount would be to legalise drug supply and use and tax it like tobacco and alcohol. It would have the added benefit of reducing crime and bring down policing costs. For those who would say that it would encourage more use I would say that initially yes but in the long run no apart from which criminalising it does little to discourage it’s use.

    • lifelogic
      Posted December 4, 2011 at 11:01 am | Permalink

      I tend to think that it would not increase drug use. Drugs are all are so readily available anyway even in prisons and at least there would be some real quality control over the actual products sold. Also far fewer crimes committed by the addicts to fund their habits and in supply so saving on police/courts too. Though doubtless they would find some new way to justify their jobs.

      • Bazman
        Posted December 4, 2011 at 9:53 pm | Permalink

        It would create mass addiction if drugs were available like washing powder. Like most of your points you have not thought it through.

        • Bob
          Posted December 5, 2011 at 10:04 am | Permalink

          Drugs should be legally available, but not commercially.
          Legalizing drugs would make them safer, and without a profit motive, there would be no pushers to encourage naive and vulnerable youngsters into addiction. Also, if the drugs were supplied by the state, the rebellious image that attracts the immature would diminish.

          • Bazman
            Posted December 10, 2011 at 7:20 pm | Permalink

            I’ll have an E Bob… Anyone remember that student game show Blockbusters with Bob Holness?

    • De Recardo
      Posted December 4, 2011 at 2:19 pm | Permalink

      when can I start selling drugs , class A you understand , crack , heroin, to your children and grandchildren as well, not that nice high HTC skunk cannabis, although I will do that as well

      or do you mean leagalize for the sort of person you have in your minds eye?

      anway ,never mind about damining a section of society to a zombie lifestyle to support your living standards.

      answer honestly , I’ll start with your kids at say.. 12 ,that ought to do it

      name and addresses please , schools etc.. I can get cracking

      • uanime5
        Posted December 4, 2011 at 7:07 pm | Permalink

        If it’s legalised you won’t be able to sell it to under 18’s, just like you can’t sell alcohol and tobacco to them. Also how is a 12 year old going to afford crack, heroin, or cannabis.

        Finally cocaine and heroin were commonly used in Victorian without social problems. Arthur Conan Doyle wasn’t condemned because Sherlock Homes used cocaine and heroin.

      • APL
        Posted December 4, 2011 at 7:37 pm | Permalink

        Dr Recardo: “I start selling drugs , class A you understand , crack , heroin, to your children”

        In fact children, especially those in the inner cities can already obtain any drug assuming they have the money.

        But that is not the issue, we do not really encourage children to buy alcohol nor tobacco, so why would we give them free access to other narcotics?

        Adults, they are a different matter.

      • Bazman
        Posted December 5, 2011 at 8:26 pm | Permalink

        Get cracking. I like it.

  4. Mike Stallard
    Posted December 4, 2011 at 7:53 am | Permalink

    Let me show you how to do it.

    I have had my loft done free this week and the house is now lovely and warm. Thank you government for meeting the costs. In a few days, I shall get my winter fuel allowance of a couple of hundred quid. Thank you government for giving me a bit of pocket money for Christmas. I shall probably go into King’s Lynn next week to see an art exhibition. Thank you government for paying my fare. And thank you government for giving me an OAPension which I have been paying for into for several years now through my NI contributions.

    All this actually makes my life much more convenient.

    Going to the petrol pump and paying one and a half pounds for a litre of petrol, paying VAT on my Christmas presents, paying huge amounts of money on my fuel bills (thank you government) and, would you believe it, paying tax on my tiny pension and the minute amount I give to charity, just about cancels out all the goodies.

    But it gives enormous scope for increasing the bureaucracy and this, so the Labour party tell me, helps the economy grow. And it makes the politicians look good on Question Time when they say that civilized society demands looking after the most vulnerable members of our country.

    And George Osborne is not only Chancellor, but he is also in charge of the next election……

    • Derek Buxton
      Posted December 4, 2011 at 12:19 pm | Permalink

      Bureaucracy does not help the economy grow, it stifles growth. On top of which we have high energy prices and the prospect of a shortage in the near future. And Osborne is wanting growth! Two contradictory policies.

  5. lifelogic
    Posted December 4, 2011 at 8:23 am | Permalink

    Indeed the BBC commentators never, ever point out the simple facts that all the problems largely stem from:

    A bloated and inefficient state sector at all levels, local to EU (rather like the BBC itself) that spend a fortune and deliver little of real value.
    Too much transfer from the responsible to the non productive feckless encouraging the latter and killing the former.
    Over regulation and high taxation rates pushing the rich and hard working away.
    Pointless and largely losing wars.
    Career politicians who follow the party line and do the wrong things endlessly.
    An absurd energy policy driven by a discredited religion and Huhne.

    The BBC setting its absurd/distorted Guardian think agenda and so making these absurd policies politically possible. This agenda is always pro EU, pro more government at all levels, against cuts and pro the green exaggerations and expensive energy – every time.

    We need to rid the country of “BBC think” but even the Tory party (and Cameron especially) are infected with it to their very bones.

    Why last week for example did no one on the BBC point out that pensions in the state sector were about seven times the size of the average for the private sector where most have none at all? Why is everyone so reluctant to point out how poor the level of services and infrastructure generally are in the UK?

    The BBC and most political parties seem to see their job as, defending and protecting the state sector – the other 80% of the work force are just seen as a nuisance or a cash cow alas now a dying one they have nearly killed. The nearly all think and talk like the state sector and seem to get all their input from the state sector.

    At least they seem to have delayed the absurd HS2 for a few months. Albeit that they seem now to want to waste even more money on it. This in order to protect an area of natural beauty in the Chilterns (While Huhne plants thousands of pointless wind turbines crosses and access roads on countless other area of natural beauty almost everywhere to serve his quack religion.)

    • zorro
      Posted December 4, 2011 at 9:54 am | Permalink

      The current average civil sector pension is around £4,500 per year. Are you saying that the average private sector pension is £600 per year?

      I don’t think that the comparison is particularly relevant here when looking at it like that. Yes, there is certainly an issue around the lack of an effective private pension system. As you know full well there are a number of reasons for that. It is, however, disingenuous to quote this seven times bigger pension quote without adequate explanation or context, particularly when you admit that it is the lack of effective provision which is the issue.

      zorro

      • lifelogic
        Posted December 4, 2011 at 11:49 am | Permalink

        Indeed yes – very many in the private sector have no pension as they are paying too much tax to fund those of the state sector. In fact the figures below suggest eight times. Recently reported:

        New official figures have laid bare the stark difference between final salary (Defined Benefit) schemes enjoyed by civil servants, teachers and council staff and Defined Contribution plans now the norm in the private sector. Forty per cent of final salary workers aged between 50 and 64 have an average of £161,200 in their pension pots yet 44 per cent of Defined Contribution workers have just £22,000.

      • nicol sinclair
        Posted December 4, 2011 at 2:02 pm | Permalink

        Zorro, Unless you can back up your statements with suitable and believable links, they merit no more than a passing glance. If you cannot provide ‘proper’ links to the average public sector pension vs. the private sector average, then probably best to be like Dad & keep Mum.

        The point is, as Lifelogic says, the public sector is far too large being stuffed with ‘jobsworths’ and acolytes by you-know-who.

        • lifelogic
          Posted December 4, 2011 at 6:04 pm | Permalink

          Zorro you average £4500 includes part timers and people who only worked for the state sector for a small part of their working lives. I stand by my 7 times figure as a good comparison. State to private pension pots.

        • zorro
          Posted December 4, 2011 at 8:56 pm | Permalink

          Nicol,
          Thanks for your advice, but I think I will be the judge of whether I need to keep quiet or not….I am entitled to an opinion just as much as anyone else. I don’t believe either you or lifelogic in this instance have posted any links either (‘proper’ (whatever that means ) or not). Please feel free to ignore my comments either way.
          I have seen some rather rum links on either side of the equation but I think my main point still stands.
          The £4,500 is not my figure but one I think quoted by several organisations in the public sector and I haven’t seen anyone scream and say that they are manifestly false.
          The issue is around provision of pensions within the private sector which is conveniently ignored.
          Funnily enough, I remember a lot of people calling public servants ‘mugs’ with their pensions, when they were earning ‘loads of money’ in the city and buying flats/houses (which are now tanking) and generally being disparaging about those in public servicde.
          The way in which they now attack people in public service is frankly pathetic when there has been no such attack on those in private company employment by those in the public sector.
          If you are interested, I have always thought that public sector pensuions shouyld be capped at a certain managerial level and any advance above that level c£25,000 should be paid through another scheme.
          What I find unacceptable is the continual pitting of people WHO ARE ACTUALLY WORKING against each other…..
          Big clue, there are other savings elsewhere and public pensions are certainly affordable with fair reform.

          Lifelogic, I wasn’t disputing your figure just how it added to your general argument about pensions. I agree that there are too many in public service for the reasons you stated but it doesn’t mean that that label should be attached to everyone in public service.

          zorro

        • zorro
          Posted December 5, 2011 at 9:21 am | Permalink

          Part of my reply to you is below, and the rest is awaiting moderation/sanitisation…..

          Zorro

          • Bazman
            Posted December 5, 2011 at 8:37 pm | Permalink

            If you look at lifelogics stance on most things you will see: No minimum wage, paid for healthcare, no health & safety, no benefits for unemployment. and apologist stance on any profiteering company that if you cannot pay then you can go to hell, so it comes as no surprise that from your below minimum wage income paid for by a company who increases their profits by cutting your wages, you should also have a private pension. All from a person who seems not have to do any work. A real Tory no less.

      • Shade
        Posted December 4, 2011 at 2:21 pm | Permalink

        Using averages is not helpful as it ignores the distribution of incomes in the average. The real question is what you get for what you pay. And the point at issue is that, for the same employee contribution rate, public sector employees often get pensions massively better than those in the private sector, yet private sector employees still have to fund most of the difference.

        Toodle pip

        • A different Simon
          Posted December 5, 2011 at 1:41 pm | Permalink

          John Hutton is now recommending Unions accept a deal which he now thinks is unaffordable !

          Why can’t we just come up with a proper solution which is affordable ?

          The truth is nobody can guarantee what the future holds so it is morally wrong to expect future taxpayers to guarantee benefits at the level we define them today .

          The public sector schemes must be converted to defined contribution .

          Just freeze existing entitlements , increase their basic pay to compensate and enroll them in NEST .

    • Disaffected
      Posted December 4, 2011 at 12:14 pm | Permalink

      And it is reported today that Huhne wants all of the Uk to have electric cars by 2050 and all energy to come from wind turbines or nuclear by 2050. The man has lost the plot and is a complete idiot. Come on CPS make a decision for the sake of the country. Charge him and withdraw the case before the court date if necessary at least it will get him out of office.

      • Robert Christopher
        Posted December 4, 2011 at 3:17 pm | Permalink

        What happens when driving an electric (battery driven) car on a freezing winter’s night, with the headlights on and the heater working full pelt to keep the passengers warm and the windscreen clear?

        I don’t think it will get as far as a car in a sunnier climes!

        We will need the global warming to avoid this problem arising.

        • Tim
          Posted December 4, 2011 at 6:45 pm | Permalink

          We will all have left the country by 2050 as our energy bills will be too high and there won’t be any room left as another billion immigrants will have arrived in our now muslim state. Droughts in the South East will be commonplace and petrol will be £50 per litre to pay for the World Health Service as climate change will have be proven nonsense by then as a reason to tax us. English will be the second language.

        • uanime5
          Posted December 4, 2011 at 7:14 pm | Permalink

          It’s a good thing that this doesn’t happen in petrol cars, right?

          • A different Simon
            Posted December 5, 2011 at 1:48 pm | Permalink

            Uanime5 ,

            Converting electricity into thermal energy is innefficient and would severely compromise the range of a battery/fuel cell powered car .

            The major innefficiency of internal combustion engines is waste heat so it’s not an issue for petrol cars .

            It’s more than likely that an electric car would have a completely seperate non-electric heating system .

      • uanime5
        Posted December 4, 2011 at 7:14 pm | Permalink

        France gets 75% of it’s electricity from nuclear power, so getting a high percentage of our power from nuclear power plants isn’t unrealistic.

        • libertarian
          Posted December 4, 2011 at 11:19 pm | Permalink

          There’s only one drawback to your cunning plan, we have very few nuclear power plants and more are being closed down.

          Haven’t seen too much activity in getting enough new plants built so far, oh and this sudden conversion of Huhne to pro nuclear happened when?

      • A different Simon
        Posted December 5, 2011 at 2:01 pm | Permalink

        This job is obviously too much for him and will be the last straw for his mental state .

        Huhne is the perfect patsy for something which everyone except him can see is destined to fail .

        Instead of allowing him to be sacrificed , his so called friends should take him aside and persuade him to stand down for his own good – and that of the country .

    • lifelogic
      Posted December 4, 2011 at 1:08 pm | Permalink

      Now I read in the Sunday Times that Huhne (and I assume Cameron) wants 32,000 more pointless wind turbines to despoil the countryside – just how many bats and birds does he feel the need to kill and how many of these, sometimes revolving, religious constructions does he need to pray to surely one or two would do?

      Then he want to predict the future of technology by demanding that by 2050 all cars and vans will be battery powered. This seems rather odd, firstly battery cars (generation – transmission – conversion – battery storage – conversion to motive power/heat/light) are actually rather less efficient and practical in C02 terms than efficient liquid and gas fuelled ones. Also there are very considerable problems with the resources/chemicals needed for batteries their weight and range and environmental dangers. Anyway in towns pedestrians will all trip up over the countless charging leads running up and down the roads from house/flat to cars 100 yards down the road.

      Clearly he sees himself as some sort of “God of Technology” who can predict technical advances and their economics years into the future (as he seems to think he can also the climate). Doubtless using his degrees in PPE and French assume.

      I think the country really cannot afford any more of this madman’s visions.

      • BobE
        Posted December 4, 2011 at 5:49 pm | Permalink

        A Ford Focus or Golf-sized car can travel over 370 miles in mixed driving conditions and can easily maintain a speed of 70mph, even when fully loaded. For an electric car to manage that, its lithium-ion batteries would weigh over 1.5 tonnes and would be similar in size to the car itself, which would cost around £100,000.
        Compressed air cars are powered by motors driven by compressed air, which is stored in a tank at high pressure. Rather than driving engine pistons with an ignited fuel-air mixture, compressed air cars use the expansion of compressed air, in a similar manner to the expansion of steam in a steam engine.
        Hydrogen-powered cars rely on a fuel cell that takes oxygen from the air and combines it with hydrogen from a tank to create electricity.
        The electricity is used to power electric motors, which turn the car’s wheels.

        • A different Simon
          Posted December 5, 2011 at 2:54 pm | Permalink

          “its lithium-ion batteries would weigh over 1.5 tonnes and would be similar in size to the car itself, which would cost around £100,000.”

          Maybe that is the attraction to Huhne ; only inner-party officials would be able to afford them .

      • uanime5
        Posted December 4, 2011 at 7:17 pm | Permalink

        “just how many bats and birds does he feel the need to kill”

        None, these animals are very adept at dodging giant spinning blades by flying above or below them.

        Also by 2050 we’ll need electric cars because oil levels will be very low by then.

        • libertarian
          Posted December 4, 2011 at 11:24 pm | Permalink

          Sorry my friend you’re not very good at this technology lark are you. Oil reserves are at an all time high, with vast shale gas deposits also being found all over the planet. So called peak oil is a very very long way off. Oh and there’s also a little technical thing that is causing some confusion in that a giant oil field in the Gulf of Mexico that was exhausted back in the 80’s has filled itself again….google it.

          • A different Simon
            Posted December 6, 2011 at 12:22 am | Permalink

            As an investor in energy companies I’d agree with you that the supply side has/will have more than kept up with demand for the next 20 years .

            Re shalegas though ; it’s far from a certainty as only a fraction of shale gas deposits will ever be economically producive .

            Poland has shown that it is not technoph0bic unlike ludite UK and is pioneering shale gas production in Europe . They won’t allow any corner cutting like in the US .

            Just watch France and the rest of Europe ditch it’s childish stance when Powerhouse Poland shows it the way .

            We’ve also got UCG (underground coal gasification) to kick in .

    • oldtimer
      Posted December 4, 2011 at 2:45 pm | Permalink

      I watched Nick Robinson present part 2 of his programme “Your money and how they spend it” last week (no doubt available via the BBC iPlayer). This was, by BBC standards, a very balanced programme. It included an illuminating chart on the relative amounts paid in, by way of taxation, and taken out, by way of benefits, for different income groups. It revealed in particular the very high negative ratio of tax paid to benefits received by the better off – so much so I wondered how many would decide to stick around the UK if they actually worked out by how much they are being shafted. It illustrated perfectly JR`s point why the 50% top rate and 28% unindexed CGT rate will prove to be counter-productive.

      • uanime5
        Posted December 4, 2011 at 7:21 pm | Permalink

        It was calculated that if the 50% tax rate was reduced to 45% the UK would lose £2.4 billion in tax revenue, so it’s removal will result in a reduction in tax revenues not an increase.

        Also the rich have to stick around unless they’re willing to find another job in a different country and possibly learn another language. Even if they do leave there are plenty of people will to do a job that pays over £1 million per year.

        Reply: That’s not what the latest figures for Income Tax suggest, where receipts have been down following the introduction of 50p.

    • Liz
      Posted December 4, 2011 at 5:45 pm | Permalink

      The BBC has just appointed a Guardian journalist, known left winger to be political editor of Newsnight. They are quite shameless in their quite deliberate promototion of left wing ideology and the prefunnctory, absolute minimum, coverage of any views that do not conform to the ideology. Their huge, heavily subsidised, website which has a large written news content is used as a battering ram to undermine newspapers and will eventually success in driving some to bankruptcy. Where is Ofcom? Fortunately there are other TV news programmes which have first class journalists and more unbiased covereage. ITVand Sky (whose Sunday morning show is streets ahead of the Andrew Marr Show) are well worth watching No one should rely just on the BBC for political information and comment.

    • uanime5
      Posted December 4, 2011 at 7:24 pm | Permalink

      “A bloated and inefficient state sector at all levels, local to EU (rather like the BBC itself) that spend a fortune and deliver little of real value.
      Too much transfer from the responsible to the non productive feckless encouraging the latter and killing the former.
      Over regulation and high taxation rates pushing the rich and hard working away.”

      Do you have any evidence to support these claims?

      “An absurd energy policy driven by a discredited religion and Huhne”

      Which religion is this, who are the main leaders of this religions, and which higher power do they worship?

      “The BBC setting its absurd/distorted Guardian think agenda and so making these absurd policies politically possible.”

      Examples please. I can’t recall any BBC/Guardian policy that the Government decided to adopt.

    • Bob
      Posted December 5, 2011 at 10:37 am | Permalink

      Join the increasing numbers of (mainly young) people that have already realised that the TV licence is a voluntary tax. You do not need a television licence to catch-up on television programmes in BBC iPlayer, ITV Catchup, Channel Four and C5 On Demand.

      Save yourself £145.50 p.a.

      Most new TVs have a VGA and/or HDMI ports at the back which can be connected to a PC!, so you can browse the internet, read your email or watch TV all from the comfort of your armchair and without a TV Licence!

      TVs are also available that connect via wireless routers.

      The unique way that the BBC is funded is an anachronism and it’s days are numbered. Why should we pay the BBC in order to watch ITV or Freeview?

      Reply: All the time that the licence fee is a legal requirement to watch TV people should buy one.

  6. Amanda
    Posted December 4, 2011 at 8:37 am | Permalink

    It is way past the time when the Government should have done something about the deliberate lies and anti-national interest cheer leading of the BBC. They are into disinformation in a most blatent way, but your party does absolutly nothing, If you complain, as I have, all Mr Vaisey tells me is to go to the BBC complaints site.

    Until you get rid of this Albertross, as well as some of the others, hanging around your neck, the destructive BBC myths will continue. Only this week, a poor reception to the public sector strike – given enormous support by the BBC – led to them manufacturing the Jeremy Clarkson story to create some sympathy. This is truly disgusting. Yet, what did Cameron do? Jump on the bandwagon to castigate Mr Clarkson – absolutly pathetic !!

    • lifelogic
      Posted December 4, 2011 at 11:06 am | Permalink

      It seem to me that Unison and the public sector unions could well have written the BBC line on the strikes last week – there would have been so little difference had they done so.

      • Bazman
        Posted December 5, 2011 at 8:42 pm | Permalink

        And the line taken by SKY and channel 4? Oh you don’t watch them. Why is it you only get your information from ‘BBC propaganda’?

    • uanime5
      Posted December 4, 2011 at 7:26 pm | Permalink

      “It is way past the time when the Government should have done something about the deliberate lies and anti-national interest cheer leading of the BBC.”

      If only there was a non-BBC news channel or newspaper to expose this. Oh wait there are several but they all agree with the BBC and can’t find any ‘deliberate lies’. I wonder why?

      • Bazman
        Posted December 5, 2011 at 8:43 pm | Permalink

        Yeah! I wonder why?

      • Bob
        Posted December 6, 2011 at 9:30 am | Permalink

        ITV should have their own version of Question Time. It would be interesting to see what direction the panel take if they were less weighted to the lib/left, with a genuinely random audience.

        They’re missing a ratings trick here – wake up ITV!

  7. Steve Cox
    Posted December 4, 2011 at 8:37 am | Permalink

    Didn’t you miss the fourth method, the one which the Coalition, aided and abetted by the “Independent” (ROFL) Bank of England, is pursuing with ardour? I’m referring, of course to inflating and devaluing your way out of debt. It’s the coward’s way out, and should be morally unacceptable to a Conservative administration, but given that (as you point out) the other three methods of reducing the real deficit are either not feasible at present for various reasons, or else are regarded as more painful than high inflation (especially for those with inflation-proofed pensions, I’m talking about YOU, Mervyn King!), it appears to be this fourth method that Cameron and Osborne have opted for.

    • Gary
      Posted December 4, 2011 at 11:25 am | Permalink

      Well said , Steve.

      THIS is the austerity. The stealth impoverishment by inflation. A cynical ploy. People cannot seem to understand that although they are telling us that there are no cuts , and can provide the figures of govt spending to back it up, the people are getting poorer and poorer and battling to make ends meet. The hidden impoverishment is by inflation. Real wages have not risen for ordinary working people for at least 5 years ,because of inflation.

      And the so-called conservative chorus are castigating these people for going on strike ?! This is the modern version of “let them eat cake”, “they should be bloody grateful”. While the bankers reap. The bankers, the middlemen, the skimmers, who for every pound they take in bonuses remove that pound from the productive economy.

      People are waking up. The vanguard are currently camping outside St Paul’s.

      • Gary
        Posted December 4, 2011 at 11:33 am | Permalink

        BTW: we are told inflation is going to fall. First, when has the BoE ever been right about anything in the past decade ? Second, even if by some fluke they are correct this time, it does not matter, this is the excuse they needed to inflate more. They are on the verge of more official QE, they told us so. I say “official” because heaven knows how much they are shovelling out the discount window in the meantime. So, the short story is : MORE INFLATION.

        • zorro
          Posted December 4, 2011 at 9:40 pm | Permalink

          Gary, they have only been wrong about 96% of the time! They are (very) trying….

          Soft inflationary default for the foreseeable future (at least 10 years) official 5%+ inflation to shrink the debt. They will never allow deflation, bankers love inflation…

          zorro

    • Damien
      Posted December 4, 2011 at 12:12 pm | Permalink

      Steve,

      Central bankers in the anglosphere are using QE to devalue the costs of public and private debt. Recently a China Investment Head said “You know money is gradually becoming not worth the paper it’s printed on”. Emerging economies whose wealth funds buy dollars say it feels like “we’ve started collecting Zimbabwe notes”.

      It is not only the low interest rates that savers should be worried about but the 20% devaluation of those savings as the printing presses spew forth.

  8. Brian Tomkinson
    Posted December 4, 2011 at 8:55 am | Permalink

    I presume that the three main ways were set out in order of preference for politicians. Cutting spending should be the first priority not the last. This government has not only failed to reduce its spending, it has deliberately increased it, which is absolute madness and particularly so when it is for international aid and the EU. Why is there surprise that there is no growth when the government has confiscated so much in higher taxes and the BoE has allowed inflation to reach a level at least 150% higher than their target with a corresponding reduction in purchasing power? The reason people complain about the cuts is that government propaganda has deliberately and misleadingly emphasised those “difficult choices” they had to make.

  9. Caterpillar
    Posted December 4, 2011 at 9:21 am | Permalink

    (Slightly tangentially) Points Iam prepared to accept are;

    (a) In the UK the evidence is that public crowds out private
    (b) In developed countries inflation over 3% typically slows real growth
    (c) Something needs to be done about public sector pensions
    (d) If debt and (some) asset prices have grown more rapidly than real GDP over a long timescale then there is something (very seriously) wrong

    Points I do not accept;

    (a) & (b) That the Govt is doing something about these.
    (c) That accrued rights are swapped from RPI to CPI indexing (why punish people who have left the public sector to contribute within the private sector?)
    (d) That Govt is identifying and acting on causes (regulation, greenbelt …) and outcomes (houseprices)

    My simplistic view;

    Cut public spending & increase interest rates, don’t retrospectively change agreements, cut regulation & simplify taxation.

    • Antisthenes
      Posted December 4, 2011 at 11:28 am | Permalink

      Your non acceptance of your point (d) is quite understandable if what I am thinking about your personal circumstances are true. If true then it tells me that you are putting the needs of one section of society above the greater need of all society. The classic situation that in most part has got us into the mess we all find ourselves in today.

      • Antisthenes
        Posted December 4, 2011 at 11:30 am | Permalink

        Oops. Sorry I should have read your comment better it’s not you I should be being abusive to. I am sure you know who I getting at. Once again my profound apologies.

        • Caterpillar
          Posted December 4, 2011 at 11:55 pm | Permalink

          Antisthenes:

          No worries (to use a southern hemisphere terminology).

          Anyway I didn’t mean to be unclear, or even for my comments to sound as though they were based on personal circumstances, which they aren’t. All I am trying to do is observe that there are two key areas of relevant empircal research (crowding out in UK and inflation in general) that seem to go ignored (though not by JR) in preference for arguments on theoretical views, and two observations regards implementation. If Govt is doing something that has to be done (e.g. public sector pension reform) do it ‘honourably’ and if there are other things that have to be done (e.g. reducing regulation) get on with it.

          I feel that there is a current Govt and BoE bias to balancing the books (BoE seemingly targeting 5-6% nominal growth and perhaps the Treasury planning on a nominal basis) rather than actual wealth – but I don’t think this is properly captured in the austerity vs growth approach of media presentation.

  10. waramess
    Posted December 4, 2011 at 9:25 am | Permalink

    This Government is not about to take advice on the deficit reduction. So far no serious deficit reduction has taken place and you can be sure that at the end of their tenure the deficit will be at around the same level as when they came to office.

    All the time the interest clock on an increasing debt mountain will be climbing higher so that increasing taxes even fiurther will be seen to be the only option.

    All pretty obvious stuff and there is nothing that can be done about it because the next election will offer more of the same no matter who wins.

    The only hope is that the markets might stop the madness before it devours us all.

  11. Rebecca Hanson
    Posted December 4, 2011 at 9:44 am | Permalink

    Look at the wage bill in the public sector.
    If we assume:
    Firstly that interest rates are 5% during this parliament
    Secondly that 10% of jobs are being cut (I’ve heard 700,000 quoted which seems to represent reality)
    Thirdly that the profile of junior and senior positions remains roughly the same,

    Then this government is planning to cut the wage bill in the public sector by 24.5% during the life of this parliament. This should cut the pension bill by the same proportion, WITHOUT the catostropic pension reforums.

    Here are the calcuations:
    Inflation: 100 x 1.05^5 = 127.628 (£1.28 will at the end of this parliament will be worth what £1 was at the beginning).
    Cost of wages in the public sector = 100 x 1.01^2 x 0.9 = 0.918 (for every £1 the government pays out in public sector wages at the beginning of the parliament it will be paying out 92p at the end of it, base on 3 years pay freeze, 2 years at 1% and 10% of jobs cut).

    The second result is 72% of the first, hence the government is intending to cut the public sector wage and pension bill by 28%, with the average person in the public sector seeing their wages cut in real terms by just over 20% (although someone who stays employed during the public sector during this time may achieve a promotion or increments which will offset some of this).

    Is cutting the public sector wage bill by 28% not enough John?

    If not, how much is enough? I think this is as much as the public sector can bear without very substantial consequences for the quality of what is provided.

    Reply: Your figures remain wildly inaccurate. Inflation will not average 5% this Parliament. Official forecasts show it dropping quickly to under 2%. You are conflating so called real terms with cash terms figures.

    If you read the official Budget book, using independent OBR figures, the real public spending increased in 2010, adding 0.4% to real GDP. The plan is for a very small real cut this year, but so far figures show public spending continuing to make a positive contiobution to real GDP growth, showing there are still no real cuts overall, let alone cash cuts.

    • Rebecca Hanson
      Posted December 4, 2011 at 12:01 pm | Permalink

      Yes but I’m living in the real world John.
      Here are the inflation figures as we are experiencing them:
      http://www.bbc.co.uk/news/business-15733539

      You may say inflation will be 2% but government officials and the Bank of England say that relentlessly and it’s just not true is it. Money is being printed and this in combination with rising commodity prices means that 2% inflation is a ludicrous fantasy.

      So we are experiencing a 28% fall in what the people working in the public sector are earning in real terms.

      Why are the public finances then so disastrous?
      It’s not our fault- we’re taking the pain.
      How can this government be translating a 28% cut in real terms in what it pays people in the public sector into such a shocking lack of impact on our national finances?

      • alan jutson
        Posted December 4, 2011 at 3:24 pm | Permalink

        Rebecca

        The private sector are suffering as well, many people I know have had to take an actual cash cut, many self employed in the construction industry are now earning 40% less per day than they were 3 years ago and now only work 2-3 days a week, and remember no holiday pay, no sickness pay, no redundancy payments when work runs out. Plus you have to generate your own work, at your own cost.

        Much Eastern European labour works for between £35 – £50 per day now, (which is crazy an not sustainable and this has decimated our own Building workers earnings.

        Rebecca be very, very thankful that you are in full time employment, have not had a real cash terms salary cut, and till get a good pension provision.

        Self employed people make 100% contributions to their own pension pot, whereas I know the Employer (tax funded HNS) contributes 14% of a staff members salary to their excellent pension scheme (we have some family friends who work in the NHS), so this is fact.

        Not sure how good a teachers pennsion is, but I guarantee its better than any self employed scheme, and at far less cost to the employee.

        Yes aware its difficult times or all, but some seem to be paying a much, much, higher price than others.

        Thus, whilst I feel sorry for anyone who loses a job, I do not have a lot of sympathy in general with public sector workers situation at the moment ,whose jobs are 100% tax funded, and who have exceptionally good redundancy terms, sickness benefits, holiday entitlement, and good pension schemes.

        • alan jutson
          Posted December 4, 2011 at 3:26 pm | Permalink

          Sorry about the typo’s, written in haste with a sticky keyboard.

        • Rebecca Hanson
          Posted December 4, 2011 at 7:43 pm | Permalink

          “Rebecca be very, very thankful that you are in full time employment, have not had a real cash terms salary cut, and till get a good pension provision.”

          I think you must be confusing me with someone else Alan. I’m the kind of person who lives in the real world not in your personal fantasy (which seems to be shared by this government) of what the public sector is, or perhaps was 3 decades ago.

          Salary cuts – yes been there. Redundancies without payoffs – been there too. Short term contracts with no security I also know well. Carrying on working because you care so much about what you do even though your pay doesn’t cover you basic costs. This is the REALITY of the public sector. The only difference from the private sector is that you never accrue business capital to help you with retirement.

          I now work in the private sector as I used to do before I became a teacher – and I therefore have a great deal of control over what work I do and when I do it, which I love. But I still think it’s a good idea for this country that the public sector has a coherent pension scheme. Do you really think it’s a great idea that average contributions in the public sector go much higher than in the private sector so that most people in the public sector make no provision for retirement either? Do you really believe all the guff which is being spouted by ministers at present?

          • alan jutson
            Posted December 5, 2011 at 1:56 am | Permalink

            Rebecca

            Agreed some in the public sector are low paid (like some in the private industry) agreed some work hard, but face facts.

            In the real world self employment is a lot harder than any salaried position (in either sector), running your own business is harder than just having fixed hours employment, where you just turn up and do a job then go home.

            But from my experience, and both myself, wife and daughter have suffered redundancies in the past, the culture and workings of the public sector (some family and friends still work in such) is far, far different, and far, far less efficient than is private business in most cases.

            So yes I do live in the real world, and have done all my life. No I do not believe this government have got it right, or indeed the government before them.

            We are now informed we have 1,000,00o more people working in the public sector than a decade ago, ask yourself has any service got any better ?

            No.

            So what do these people do for the huge extra cost on the taxpayer.

            In the real World, redundancy payments and Pensions for Civil Servants and many Public Sector workers are far more generous than the vast majority of many private schemes.

      • Rebecca Hanson
        Posted December 4, 2011 at 3:50 pm | Permalink

        So to clarify:

        John you said in this blog:

        “The paradox is many UK people complain of the cuts. They mean by this the cuts in their own living standards.”

        Do you really think so? I think you have no idea what those of us who are or were (before we lost our jobs) are going through WITHOUT complaining to any significant degree.

        Please don’t take our complaints regarding the gross idiocy of the proposed pensions reforms and use them to label us as being people who ‘complaining about the cuts’. To do so is ignorant, disrespectful and antagonistic in a way which will not help this country.

        Losing my job because of public sector cuts – no complaint – just comment that it happened.
        My husband’s pay freeze in time of rapidly rising prices – no complaint. It’s helps a lot it’s possible to budget in advance for this.
        Losing child benefit – slight complaint. We have to run a second house for him to work away and with three young children to support we really can’t afford it. But at least we had time to plan.

        Your proposals to cut my husband’s pay substantially through vastly increased pension contributions and then to cut it further because he works outside London.

        Yes complaint. We don’t have any luxuries. We only got a very cheap week away this year because my dad helped us which makes me empathic for those who don’t have such support. How are we supposed to pay our bills? I have my pride and I like to pay people what I owe them. How am I supposed to do this if you suddenly massively cut pay and we simply don’t have any costs we can cut? We live in council tax band A house – we can’t downsize.

        It makes me extremely angry that your government intends to force me and plenty like me into the position where we cannot cover our basic costs. It’s far worse if you go on about how much we are complaining when we are taking a 28% cut without complaining and seem to be determined to pretend that we are not taking that cut.

        • zorro
          Posted December 4, 2011 at 10:03 pm | Permalink

          Well said!

          zorro

      • forthurst
        Posted December 4, 2011 at 5:22 pm | Permalink

        taxes collected losing 28% in real terms?

        • Rebecca Hanson
          Posted December 4, 2011 at 7:45 pm | Permalink

          =)

          Hopefully not quite forthurst as the 10% will be available in the private sector.

          • forthurst
            Posted December 4, 2011 at 11:16 pm | Permalink

            Mr Brown’s prudence equated to spending 10% more money than he was collecting in taxes, annually; the government is adding to this borrowing and the debt interest it pays but at a decreasing rate over this parliament, it hopes.

    • uanime5
      Posted December 4, 2011 at 7:33 pm | Permalink

      The problem is that public sector pensions are funded by the people working in the public sector. So less employees equals less people who will pay for the pensions.

      • libertarian
        Posted December 4, 2011 at 11:30 pm | Permalink

        What totally and utter twaddle.

        1) The whole problem is public sector pensions are UNFUNDED

        2) The money is paid entirely from the private sector

        There are already more people recieving public sector pensions than paying in

        Therefore the fewer public sector workers there are the better off the remaining ones will be.

      • APL
        Posted December 5, 2011 at 4:17 am | Permalink

        Uanime5: “The problem is that public sector pensions are funded by the people working in the public sector. ”

        Nope!

    • zorro
      Posted December 4, 2011 at 9:49 pm | Permalink

      Be fair John, Rebecca is talking about the public sector wage bill falling not about public sector spending in its totality as you indicate. Mr Cameron insists on wasting public money on the EU, green bling (cue lifelogic) et al.

      zorro

      • A different Simon
        Posted December 5, 2011 at 2:18 pm | Permalink

        Public sector wage bill is only something like 40% of the entire budget isn’t it ?

        Doesn’t more go on outsourcing to private sector companies on contracts ranging from fair to outright subsidies ?

        IMHO public sector remuneration has got out of hand but even if actual paycuts were implemented it would only have a small effect on the overall budget .

        There is only very limited scope for cutting back on wages whilst prices of accomodation and essentials remain too high .

        I expect prices for everything to adjust downwards with disposable incomes but it is not going to be much fun waiting for this correction to happen .

        All these gimmicks being suggested for reinflating the housing bubble are mistaken and damaging .

        Govt should stop trying to prolong the agony and let the correction occur .

    • Bazman
      Posted December 5, 2011 at 8:47 pm | Permalink

      Maybe the supermarkets need to know this? The prices move steadily upwards.

  12. David
    Posted December 4, 2011 at 10:00 am | Permalink

    John, as a first step, I implore you, with all your intellectual force to stop the folly of HS2. It is an incredible waste of money.

    I have written to my MP Ann Main and she says she is against it.

    The line does not go near my constituency, however this is such an obvious waste of money with no benefit it just crazy. The government is sleeping walking into another NHS IT fiasco – only this time even bigger.

    If it goes ahead then the costs are certain to double – that is a no-brainer.

    Please pressurise Greening, Osborne and Cameron in every possible way to stop this!

    Thank you.

    Reply: I have called for no spending on this project this Parliament, and gave evidence to the Sectretary of State at her recent request for submissions from MPs, saying the business case is weak and we cannot currently afford this project.

    • lifelogic
      Posted December 4, 2011 at 11:17 am | Permalink

      The business case for HS2 in non existent but it fits in the trains good and green cars bad religion.

      New runways at Gatwick and Heathrow a fast train link between the two so one 5 runway hub airport. Stop the deliberate red lights and congestion causing measures and bus lanes introduces in towns and cities in accordance with green religion. A few wider roads in a few of the current under capacity points and better more efficient road works/repairs on the network is all that is needed on transport.

      • zorro
        Posted December 4, 2011 at 10:06 pm | Permalink

        Agreed, too many traffic lights (Winnersh Triangle) when they should be using roundabouts.

        zorro

  13. Observer
    Posted December 4, 2011 at 11:22 am | Permalink

    But there’s enough super poor to ensure that the rich stay super rich. So that’s all right.

  14. sm
    Posted December 4, 2011 at 11:23 am | Permalink

    This is the Coalition/Conservative solution.

    Inflation,devaluation and taxation on essentials and unavoidable items for the masses. Increased spending on favoured areas, the EU, Overseas Aid and stuff we dont need. Wars when we are cutting frontline forces! Insane immigration policies leading to overstretch in so many areas.

    No serious reform of the fractional reserve banking system and the down dynamic unleashed, which has partially been offset by QE and government deficit spending.
    QE for busted, vested interests instead of rebooting a new banking systems with new competitors and a full reserve system. Apparently no control on derivitive trading through which risk is transferred and hidden.

    The banking system ,politics and lack of democracy are at the heart of this problem.

    The Politicians and the bankers have created this monster but are unable to tame it without major losers and reform and action and that takes democracy. Both need to be reduced in size and power and influence. Referenda and consitutional protections are needed. (Note how Merkel is looking to change the German constitution, probably without a referendum)

    Meanwhile the current approach suits those who hold all the debt bearing interest and those that live off a slice of the action.

    • Damien
      Posted December 4, 2011 at 12:40 pm | Permalink

      Its a ‘Mexican stand-off’!. You have a coalition of ministers, each with their own spending powers, catering to their support base. Its basically grid-lock and so the only other way to address overspending is currency devaluation. However is the euro implodes then sterling will rise and so also will the value of of interest payments on the debts, both public and private. We are now well into the lost decade and by the time politicians retire their pensions will be paid out in ‘funny money’. With the notable exception of JR and a few others they seem totally unaware of their precarious circumstances.

  15. Simon 123
    Posted December 4, 2011 at 11:37 am | Permalink

    I thought this piece was an absolutely excellent summary of where we are.

    However, watch BBC Question Time. The audience bays for less ‘cuts’ and more spending on ‘entitlements’ and thinks it can achieve this by taxing ‘the rich’ and ‘bankers’. The fundamental problem for the European political class is how to deliver austerity in an age where the public mindset is entitlement to benefit from state spending. I doubt it can.

    • Mike Stallard
      Posted December 4, 2011 at 5:13 pm | Permalink

      Good comment!

  16. lojolondon
    Posted December 4, 2011 at 1:54 pm | Permalink

    A major part of the reason for European governments living outside their means (apart from the Labour strategy, employing as many people as possible because ‘they won’t vote against their employer’), is the shrinking productivity of the European Union. The EU has shrunk from 26% to 20% of global GDP, and is scheduled to shrink to around 15% by 2020. The three major causes for this shrinkage are socialist employment and environmental policies, and restrictive laws and taxes.

    So the EU is directly to blame for the dire state of the European economies.

    • uanime5
      Posted December 4, 2011 at 7:38 pm | Permalink

      Actually the EU’s percentage of global GDP has shrunk because many countries have been rapidly growing, which has increased global GDP. This is predicted to continue as the BRICS continue to grow.

      Also a lot of outsourcing occurred because of the low cost of employing people in India and China, due to their low cost of living.

  17. Neil Craig
    Posted December 4, 2011 at 2:32 pm | Permalink

    “There are three main ways in which the public sector deficits can be reined in. The favourite political way is to pursue faster growth. If the economy can increase more rapidly, more money will be paid in tax. If the growth rate of public spending is slower than the growth rate of the economy, the deficit will be brought down”

    Not quite – the favourite is to say they want growth, indeed Labour’s entire nmessage now is this, without specifying howe apart from printing money (which they also specify they won’t do).

    However the serious members of all parties know perfectly well how growth can be achieved, (certainly nobody in any of them feels able to deny this) or rather allowed and none of these parties favour doing it. Ergo none of them truly want growth, they want the entire countyry enmeshed in dependency culture led by them, and none of them are remotely honest.

  18. forthurst
    Posted December 4, 2011 at 3:01 pm | Permalink

    Cutting public spending where such is for the ‘common good’ is a bad idea; cutting public spending aimed at individual supplicants for taxpayers’ charity is not.

    Most people cannot afford to pay for education or healthcare partly because of high taxation. Any reductions in quality is visible to all. That does not preclude reductions in unnecessary overheads such as the DoE, LEAs or Health admin.

    Costs to the taxpayer of individual supplicants, particularly those sound in mind and body should be cut drastically. The best area to start is with housing. It is time to reduce the minimum standards of accomodation available free at the point of use. By cutting accomodation standards including definitions of ‘homelessness’ many other costs will fall correspondingly. The assumption that people can expect other than subsistence levels of comfort for themselves or their families at the taxpayers’ expense must go. It is in this area particularly that poor working people are at such a substantial disadvantage to their idle or useless ‘brethren’. The objective should be to encourage personal endeavour and discourage benefit tourism.

    So item 5: more stick and more carrot.

    • uanime5
      Posted December 4, 2011 at 7:41 pm | Permalink

      Making more people homeless will cost welfare costs but the cost of all the crimes they commit will be far higher. After all why sleep on the streets when you can have a warm prison bed and free food.

    • Bazman
      Posted December 5, 2011 at 8:55 pm | Permalink

      Reduce the minimum standards of accommodation? Huge swathes of the population including millions of children, live in sub standard housing and you want to make it worse? Not not be you though will it? Usual ‘starve the poor mentality’. As if it would do any good and why should a rich country like Britain tolerate this?

  19. Tad Davison
    Posted December 4, 2011 at 3:05 pm | Permalink

    John Redwood for Chancellor!

    Let’s put liberals and lefties in their proper place by hitting them with the truth!

    Tad Davison

    Cambridge

  20. Robin
    Posted December 4, 2011 at 3:10 pm | Permalink

    Right as usual John, as are so many of your respondents’ contributions.

    There is no hope of Cameron, and his side kick at number 11, respresenting the responsible people of this country. The only difference between those two and Labour is that with the latter we expected a good kicking and were not disappointed! Will the Conservative party ever recover from the damage being wrought by this pair and their followers? I fear not.

  21. nonny mouse
    Posted December 4, 2011 at 4:37 pm | Permalink

    Some points:

    We cannot grow our way out of spending too much, because creating growth means spending more (or taxing less, which is the same thing). Because of high debt levels in the private and public sectors the growth mulitplier is less than 1.0 – for every pound you borrow you get less than one pounds worth of growth so you end up worse off.

    The left need to forget increasing spending. The right need to forget tax cuts. Neither would create growth, only encourage the paying down of private sector debt by transfering it to public sector debt. Both would be temporary and create growth now by cutting future growth, because higher spending or lower taxes would need to be reversed when the national debt gets worse.

    If the economy dips into a real recession then the previous conditions do not apply. We might need to stimulate growth to prevent a deep recession, but not stimulate growth because we have slow growth (or even a shallow recession). The goal is to rebalance slowly, so as to not damage the underlying economy (and create millions of unemployed).

    If growth does take off then that means we are not cutting fast enough. Cutting spending is better than waiting for tax income to increase. The sooner we cut the quicker we can return to sustainable growth (and cut taxes).

    We cannot have austerity without pain. Austerity means a cut in living standards, but that is exactly what we need. We have been living beyond our means for decades. Living within our means is achieved by a cut in living standards. This need explaining to the public, even if it is not popular. Seeing politicans from all sizes promising to end the fall in living standards shows that our political class don’t understand this basic fact.

    The public sector can and is cutting spending, but cutting itself is expensive and requires up front spending to pay for reduncancy pay, breaking private sector contracts and restructuring to a smaller government (i.e. consolidating offices and equiptment). We need to know how much of the current deficit is caused by the up front cost of the cuts.

    If we keep on running a deficit then the impact of debt interest hides some of the cuts. Low interest rates help, but they won’t last forever – they are a temporary phenomena caused by economic problems elsewhere. When interest rates return to normal then debt interest will rocket and public spending will get worse. We need to be prepared for that day (not least because it will happen before the next election).

    To get a true idea of public spending we need to know the spending levels minus restructuring costs and minus debt payments. We need to know that this underlying public spending level is falling at a reasonable rate, even if the headline borrowing figure is not. I cannot find public accounts being published along these lines.

  22. Jim
    Posted December 4, 2011 at 4:57 pm | Permalink

    Thank you for this characteristically lucid exposition of facts which others choose to ignore. At times you must feel like the little boy pointing out that the Emperor isn’t in fact wearing any clothes …

    Just one small detail. You say, “Spain finds high and rising unemployment keeps adding to the welfare bills.” I guess this is true but it’s also worth pointing out that unemployment benefit in Spain stops after 18 months and that there are now estimated to be 1.4 million households that do not have any source of income.

    Spain certainly doesn’t have the UK’s welfare culture.

    • uanime5
      Posted December 4, 2011 at 7:43 pm | Permalink

      Spain also has a much larger black market, for those who need to earn some money ‘off the book’ and purchase items at a reduced cost. This is why tax collection is so low.

      • Jim
        Posted December 5, 2011 at 9:04 am | Permalink

        True. And the ‘extended family’ also works as a safety net. People simply don’t expect the state to provide.

      • alan jutson
        Posted December 5, 2011 at 9:08 am | Permalink

        Uanime5

        Spain has a larger black economy

        That is the result of a high tax economy, I would not be surprised to see this increasing all over Europe, as people do their best to survive outside of the official system.
        The problem is that then those who are in the Paye ystem will have to pay even more Taxes to make up for the shortfall.

        Hence the rason why tax rates have to be at a sensible level, and spending curtailed to what revenue it actually raises.

  23. MARK THACKRAY
    Posted December 4, 2011 at 5:11 pm | Permalink

    We still do not see any of the measures we require to re balance and reflate our economy, which is burdened by laws, taxs and institutions / companies which have too much power. We still have not grasped the fact ( including government) that British products are left on the shelf infavour of foreign goods and this is at the crux of our problem that we are killing our own economy. Who will pay the tax bill tommorow if we carry on buying German cars and Korean TV’s, it certainly won’t be the Germans or Koreans, they will be off raiding another economy.

  24. Samuel
    Posted December 4, 2011 at 6:05 pm | Permalink

    Socialists have a much easier job than us Capitalists. They only need to say “We’ll spend a bit more, we’ll do a bit more”. People perceive spending cuts as taking things away from them, while what would actually be happening is that more freedom is being given to ordinary working man. Freedom is, and will be, at the root of our long term success.

    • James Reade
      Posted December 5, 2011 at 9:01 am | Permalink

      That’s a lovely, lovely misunderstanding of simple economics there. By cutting spending, we free up those poor people to do everything they ever wanted!

      A fully free market economy might just work if a huge number of conditions held in the world, none of which are likely. Things like a large number of suppliers in a market, things like full information to all participants, things like a lack of missing markets/externalities. If they all held, I’d be with you in a heartbeat.

      The fact is they don’t. That then means that a fully free market system deprives most of its participants of the liberty to make simple decisions because they are misinformed, mistreated, and exploited.

      So spare us the trite comments about “us capitalist” and “them socialists”.

    • Bazman
      Posted December 5, 2011 at 9:00 pm | Permalink

      Why don’t you just wrap your job up then Sam? You will then be free to do what you like living like a stray dog.

  25. Andrew Smith
    Posted December 4, 2011 at 10:10 pm | Permalink

    Just remember what George Osborne said he would do when he became Chancellor: he would share the proceeds of growth between the public and private sectors. Not for him the notion “If the growth rate of public spending is slower than the growth rate of the economy, the deficit will be brought down.”

    Indeed since coming into office the public sector has outstripped the GDP, so he has spent more than the additional output in the public sector. Good job he is not (?) a socialist or heaven knows how much he might have spent.

    • James Reade
      Posted December 5, 2011 at 9:02 am | Permalink

      Looks like you suffer the same misunderstanding of public sector spending as John does. In a depressed economy with unemployment rising, public spending will increase, and also taxation receipts will fall since less people are in jobs earning and spending. So it’s no surprise that public spending has risen since the election, but it’s not because somehow Osborne is not doing what he said he would do.

  26. James Reade
    Posted December 5, 2011 at 8:06 am | Permalink

    Some facts please, instead of the usual assertions by a politician, which should always be taken with a pinch of salt whichever party they come from.

    “The commentator did not point out that much of the squeeze on these individuals came from higher taxes to pay for the growing public expenditure. People complained of fuel bills (largely tax), energy costs (regulatory and tax costs), higher shop prices and other areas where higher VAT plays its part.”

    This kind of statement could be backed up by facts. The fact you choose not to bother John suggests that either it is not true or that you’re lazy. Which is it? The biggest joke, actually, in that whole quote is that higher fuel bills are largely tax. Erm, highest commodity prices on record? But maybe I am wrong – I’d love to actually see some facts though John instead of the usual bluster. Energy costs have gone up recently a lot – have regulatory and tax costs? Didn’t think so. Please though, John, do again prove me wrong with some links to the facts that must surely back up this assertion you’ve made?

    And on the economics, “Unfortunately in the Euro zone the most heavily indebted countries seem unable to grow. In the UK and US there is a bit more growth, but the rate is not fast enough to resolve the deficit problems.” Again, you keep asserting that austerity has had no effect because spending is still high (because UE benefits are higher because more are out of work). But to hold that position, you must believe that expectations play absolutely no role whatsoever in business investment decisions and consumer spending decision. Yet you fully believe expectations are all that matters for the foreign exchange market. Why this bizarre paradox John?

    Reply: Try getting a grip on reality yourself. More than 60% of the cost of petrol and diesel is tax.

    • James Reade
      Posted December 5, 2011 at 8:55 am | Permalink

      I’ve got a fairly reasonable grip on myself thanks. I didn’t doubt how much of the price is tax, the point is not the level is it John, it’s the change. And the change does tend as much as reflecting tax, reflect global movements in the price of oil. There was a spike quite recently in the oil price, and often it takes a little while for oil companies to reflect the subsequent downward movements in the price of oil.

      Now, the other questions I put to you?

      Reply: The tax has gone up, and the government has now agreed to defer the January increase I am pleased to say. Look at the Red book figures for hits to real incomes in the private sector if you still are quibbling.

      • James Reade
        Posted December 5, 2011 at 1:09 pm | Permalink

        Can you remind me how many pennies the tax went up by? And how much the price of oil increased by? And then how much the prices didn’t fall back when the price of oil fell?

        I just don’t think the numbers add up. Like I say, I’m happy to be proved wrong. I think those trying to make points usually try and be more specific than saying “go look in some book” in this day and age when links, graphs, excel spreadsheets and the like can be so easily shared.

      • The Realist
        Posted December 5, 2011 at 1:13 pm | Permalink

        James – sadly most of your comments are ill-founded and incorrect.

        • James Reade
          Posted December 8, 2011 at 11:44 am | Permalink

          Thanks Realist, good bit of trolling there.

          Please to explain to me why your comments are all well founded and correct, but mine aren’t. I’m interested.

  27. Robbie
    Posted December 5, 2011 at 1:31 pm | Permalink

    I’ve been self-employed for about the past ten years. Here, we run a small family business – just the wife and myself. It used to really annoy us writing a cheque each year to the Inland Revenue for up to £3000 for tax on quite a modest profit – then see the Government blow it on ID cards, doctors’ inflated salaries, windmills that generate little electricity, and dolebums who can’t be bothered to work.

    However, thanks to Gordon Brown and, lately, the coalition, we’ve seen the light. We work much less, make a far lower profit and make up the difference with tax credits. And pay no income tax whatsoever.

    Council tax hurts a bit, so does VAT, taxes on petrol, heating and so on. However, we have so much more free time.

    Now if we’re doing this simple ruse, how many other self-employed are, too?

  28. uanime5
    Posted December 5, 2011 at 1:55 pm | Permalink

    Given that the top 10% of the country have 53% of the wealth while the bottom 50% have only 7% is it any surprise that the rich pay more in taxes and will continue to do so until the level of income disparity is reduced.

    This is what happens when the rich raise their salaries while cutting the salaries of their employees.

    • Bazman
      Posted December 10, 2011 at 7:21 pm | Permalink

      Just have nothing and be happy with it.

  • 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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