All we need is growth

 

          The Bank of England has caught up with the rest of the economic forecasting world. Yesterday it acknowledged that its previous UK growth forecasts were too optimistic. 2012 is going to be a disappointing year.

           There is almost universal agreement amongst the political parties, Central bankers and the rest of the UK financial establishment, that the UK economy needs to grow again.  Envious eyes are cast across the Atlantic to the USA, experiencing slow but sustained growth since the Credit Crunch. Their combination of lower tax rates, bigger cuts in public spending at the State level than the UK is attempting, and  mended banks, is working better than our policy mix for the time being.

          This autumn the Coalition will relaunch itself, shorn of the large problem of Lords reform. Instead of using up political capital and a lot of Parliamentary time on a reform which had many critics, they have a chance to revisit the economic policy and do what it takes to push the economy into growth. So what should they do?

        Readers of this site will know I have long favoured the strategy of cutting the deficit primarily by spending reductions. The government said this would be their approach, but they put up overall public spending  instead.  This needs to be  allied to sorting out the problem banks quickly and setting competitive tax rates that people are prepared to pay.  This still makes sense. Income tax revenues have fallen too far, thanks to the higher rate. New enterprise and business has been put off by the tax and regulatory regime. Private sector demand has been weak owing to high tax rates and higher inflation than was desirable. The government said it planned to squeeze the public sector, but squeezed the private sector instead.

           I have not been a great fan of the Bank’s Quantitative easing  programme. I have always argued that with broken banks there is no easy transmission mechanism to get the money created into the private sector to fuel the recovery. If there were then they would need to be careful about overdoing it and triggering inflation. Keeping the state’s borrowing costs down is marginally helpful but it does not send a signal that we need to shift resources and activity from public to private sectors, to tackle the deficit problem. It has allowed the state to go on spending well beyond its means. It has not lifted us into growth despite the positive contribution to growth as officially defined by the rise in real public spending. Nor is it right to say it is loans and credit, rather than money we lack. The private sector is squeezed of cash, but parts of it remain highly borrowed.

          As the Bank clearly  wishes to address the shortage of money by creating large quantities,why doesn’t it  use  the newly printed money  in the private sector instead of  providing cheap funds indirectly to the public sector? I hasten to add I am not advocating this policy.   Did they look at the Japanese experience both of QE and of giving money directly to voters to spend?           Tomorrow I will look again at a tax based stimulus, the approach I favour. This would lead to a lower, not higher, deficit.

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98 Comments

  1. ian wragg
    Posted August 9, 2012 at 5:39 am | Permalink

    There will be no growth whilst we are shackled to that decaying corpse of the EU. Cameroon has stated he will under no circumstances leave or re-negotiate our terms. The man is a totalliability and is dragging the party into oblivion.

    • Posted August 9, 2012 at 8:42 am | Permalink

      Indeed a “totalliability” but will he surpass Major in giving the Tories three terms of oblivion – perhaps even more this time as Lab Lib will stitch up the voting system and the tie into the EU still further.

      Doubtless the BBC will then regard him as a great sage, as they do Major, and drag him out to comment on anything and everything – in a manor, like Major, clearly aimed at conning rather dim 5 year old’s.

    • uanime5
      Posted August 9, 2012 at 9:06 pm | Permalink

      Given that the effects of the Eurozone crisis are effecting the USA even if the UK leaves the EU we will still have the same problems.

  2. alan jutson
    Posted August 9, 2012 at 5:39 am | Permalink

    The simple solution is to reduce personal tax so that we have more money to spend.

    To this end given that we are also attempting to encourage those who do not work, to go to work, then the simplest tax cut is to raise the personal allowance for everyone to £15,000 with immediate effect.

    Those working for the minimum wage then pay no tax at all, and everyone else who works, has some financial gain, including those who are having savings income taxed.

    The other simple addition would be to abolish tax on savings income, those who have attempted to do the right thing, and save for a rainy day or for their future, thus self sufficiency should surely be encouraged.

    Both of the above require no extra overheads to pay for it, and its simple, as the mechanism already exists.

    You will not get even a chance of more growth until more money is in peoples pockets.
    But then why do we expect automatic growth, its not a God given right.

    • alan jutson
      Posted August 9, 2012 at 5:48 am | Permalink

      On the other side of the coin.

      The Government has to simply live within its means, and if that means a cut in what services it provides, then so be it.

      The simple solution is to make a priority list of expenditure in order of necessity:

      Or the alternative

      Start a list from Zero, and then list in order of absolutely essential expenditure.

      Defence of the Country
      Law and Order
      etc.

      And put money numbers against all of them.

      Think you may find that at the moment something listed as far down as number 9 or 10 costs 10 times more than number 1 or 2.

      Food for thought.

      • Posted August 9, 2012 at 8:47 am | Permalink

        No need to cut services. The services (that are actually needed) could easily be provided with about half the current tax take. Start by lowering the number of state sector staff by half and cutting state sector remuneration packages by about 1/3 to bring them in line with the wealth creating sector who have to pay them.

        • Bazman
          Posted August 9, 2012 at 7:16 pm | Permalink

          What services are not needed. Axing a few crackpot ones is not going to change much and many of the staff are being sacked and then reinstated as their services are needed. Expensive way of doing things. What you are actually saying is anything you do not need and the ones that do need can have them on the cheap. State sector cleaners wages to be cut by half? Really.

          • lifelogic
            Posted August 9, 2012 at 8:43 pm | Permalink

            Wages not in half (by one third as I actually said) to take them down to the level of the private sector – who have to pay them from their taxes.

            Lots and lots of things the state does are totally pointless often worse actually negative. Hs2, PV, and wind subsidies, train subsidies, pointless and counter productive wars, happiness indexes, the Olympics, the NHS, all BBC except a little of radio 3&4 the list goes on and on and on.

          • Lindsay McDougall
            Posted August 10, 2012 at 10:16 am | Permalink

            Does Bazman accept that public sector wages and salaries should be roughly the same as those in the private sector level for level? No more abusive piss and wind. No more ‘Ram it’s.’ A straightforward ‘yes’ or ‘no’, please.

        • Bazman
          Posted August 10, 2012 at 5:08 pm | Permalink

          All the BBC except a little of Radio 3 & 4? See what I mean? Whatever you use does not need cutting.
          No wages for public sector work do not need to be the same as private. You assume there is some link. Are Supermarket wages based on the profits of the supermarket? Often the private sector needs to pay more. Billions of profit and poverty wages. Why give them more excuses? Small companies multinationals are not the same, so do not try to tell use the village market is the same as ‘the market’. Simplifying the complicated an old Tory and managers trick. Funny how it does not wash with them when you tell the same. Oh by the way. Ram it.

      • Bob
        Posted August 9, 2012 at 12:58 pm | Permalink

        This is what needs to be cut:

        Tory MP learns lover’s language and puts the £678 cost of lessons on expenses

        Read more: http://www.dailymail.co.uk/news/article-2185893/Tory-MP-Nick-Boles-puts-private-Hebrew-lessons-expenses.html#ixzz233Mn8jld

        • zorro
          Posted August 9, 2012 at 4:29 pm | Permalink

          Mr Boles’s passion for Mr Meshulam has blinded him to the propriety of his actions…….but he says that he is ‘entitled to it and that’s that….’…However, he wants other people to give up their entitlements.

          A hypocrite nothing more nothing less…..

          zorro

          • forthurst
            Posted August 9, 2012 at 6:40 pm | Permalink

            …on the other hand, he’s a Bilderberger and member of the Henry Jackson Society.

            Does he have any concern for posterity, I ask myself, or is all about the here and now?

    • The Prangwizard
      Posted August 9, 2012 at 9:18 am | Permalink

      I’m with you Alan. I posted an almost identical comment about a couple of months ago, except my tax threshold was £20,000 and I coupled it with the abolition of the minimum wage, much easier hire and fire regulations to encourage mobility of labour, and a move from benefits to entitlements, so you get nothing out until you’ve paid in. You buy your own ‘stamps’ for unemployment, pensions etc.. We know something needs to be done, but we always shy away from anything radical, and keep on tinkering while Rome burns.

      • JimF
        Posted August 9, 2012 at 11:09 am | Permalink

        No, that is 195% effort when we only need 110%

      • Bazman
        Posted August 9, 2012 at 7:09 pm | Permalink

        If there was an abolition of the minimum wage then it would be impossible to earn 20k. Of what use is a job paying paper round money to anyone other than the employer?

      • alan jutson
        Posted August 9, 2012 at 9:29 pm | Permalink

        Prangwizard

        I would certainly go with £20,000 but I think that would get an absolute rejection by those who make the decisions, but £15,000 may just be within their mind set as attainable, and deliverable and is perthaps not a bridge too far.

    • Disaffected
      Posted August 9, 2012 at 11:24 am | Permalink

      Most people are waking up to the 20% VAT. That is most visible on any item costing£100 or more. Cut VAT cut cash in hand.

      There will not be growth while the Coalition are bashing high earners in business and banks by forcing them to quit, give up their bonuses, forcing them to pay more tax etc. The political hypocrites state what is moral and what is not when corruption is pervasive in every corner of Westminster and none of them have the courage to clean it up.

      Elizabeth Filkin was the last to take the job seriously and cross party action sought to force her to quit. Not only are politicians immoral they do not appear to see the consequences of their actions. They are making the country poor by their half-wit comments in bashing business and its leaders.

      Anyone understand why Mr Cable uses such strong language against business leaders, media, the banking industry or could name what his successes are to gain growth in the UK through business? He wrote to suggest the Government needs a growth plan!!!! He is the Business Secretary for goodness sake. He now wants to dumb down higher education through social engineering. I suggest this might be a bit of a clue he is not fit for the job. He gives me the impression he wants to chastise anyone for being successful- commonly associated with people from a socialist perspective. Does his image attract talent or business in the UK to gain the much needed growth- I think not.

      Look across the pond at the moment to see what the US is doing to our banking industry. They are trying to get on the band wagon of the MPs here so they can gain the number spot in the industry. Meanwhile EU carries on to force transaction tax. What is the Government’s response??

      Why would high earners prefer to work in Britain if the opportunity exists elsewhere??? Once more, no strategic plan. Cameron will possibly need to ask a focus group.

      • uanime5
        Posted August 9, 2012 at 9:13 pm | Permalink

        I fail to see how forcing business leaders to give up their bonuses is reducing growth. Surely this will make companies more competitive because they don’t have to pay their senior executives so much.

        Also making business leaders pay their taxes, like everyone else, will result in the state having more money and needed to borrow less. This is an effective way to reduce the deficit.

        • David Price
          Posted August 10, 2012 at 9:18 am | Permalink

          In the private sector bonuses are part of an overall compensation package and not just offered to senior executives but to a wider range of employees based on individual and company performance. The aim is to encourage business growth so if you want economic growth it makes sense not to inhibit such practices.

          Some bonus payments are no doubt excessive but do you want to inhibit growth by banning all bonuses? If it is a company then as a customer you could express your concern by taking your custom elsewhere but it is really up to the shareholders to reign back excessive pay. Excessive public sector remuneration however is different in that as taxpayers we are all forced to pay for it so are entitled to question such payments.

          As to business leaders and their tax arrangements, I suggest you start with the creative tax arrangements of workers in the BBC and the Labour created quangos which suck up tax revenues before sniping at the tax generating sectors.

          • Bazman
            Posted August 11, 2012 at 7:34 pm | Permalink

            The scheme is set up for the benefit of senior managers not the wider employees, so don’t give us that red herring. It’s all about percentages. The boss bleating that he only got a 2% pay rise on his 200 times the lowest paid worker in the company gets is laughable. It’s like saying that the bosses 1% tax bill after it has been laundered by accountants through tax scams is more than the average workers 25-40% bill. Banks are now virtually owned by the state and the ones that are not have received large contributions from the state, so more apologists fantasy. Ram it communist.

      • alan jutson
        Posted August 10, 2012 at 7:22 am | Permalink

        Disaffected

        “Cut Vat and you cut cash in hand”

        Correct, the existing level of Vat is now putting bona fide Companies (who pay their full level of tax) out of business, because they cannot compete with those who will do the job simply for cash.

        Thus the alternative economy is growing, at the expense of the legal tax paying businesses.

        Pleased I got out of it all a few years ago and am now retired, it was a problem trying to compete a few years ago, my contacts inform me it is much worse now.

        But as usual those in charge are blind to it all.

  3. Mike Stallard
    Posted August 9, 2012 at 6:32 am | Permalink

    What is a Ponzi scheme?

    Government, like a drunk in a bar, writes out IOUs to pay for the next load of drinks.
    His bank manager accepts the IOUs and treats them like cash. He is rich!
    Local businessmen cannot be paid in IOUs. They cannot get loans and support. They go bust.
    The government pushes up taxes. Ordinary people go bust. They have anyway maxed out on their credit cards.
    They insist on their government hand-outs because they now need them more and more from the Government which, like a drunk in a bar, writes out IOUs to pay for the next load of drinks.
    His bank manager accepts the IOUs and treats them like cash. He is rich!
    Local businessmen cannot be paid in IOUs. They cannot get loans and support. They go bust.
    The government pushes up taxes. Ordinary people go bust. They have anyway maxed out on their credit cards.
    They insist on their government hand-outs because they now need them more and more from the Government which, like a drunk in a bar, writes out IOUs to pay for the next load of drinks.
    His bank manager accepts the IOUs and treats them like cash. He is rich!
    Local businessmen cannot be paid in IOUs. They cannot get loans and support. They go bust.
    The government pushes up taxes. Ordinary people go bust. They have anyway maxed out on their credit cards.
    They insist on their government hand-outs because they now need them more and more from the Government which……..

  4. lifelogic
    Posted August 9, 2012 at 6:37 am | Permalink

    Indeed we need all of the above suggestions, lower tax rates, huge cuts in public spending and mended banks, but we also need far less regulation, less EU, and cheap (non green religion) energy.

    Above all we need a sensible vision of direction of travel and some leadership – at the moment the vision is for 2+ years of tax, borrow and waste from Cameron’s quack, green, ever larger state, socialists followed by 5 years of even worse lunacy from Ed Miliband – mouth piece of the state sector unions.

    Who on earth would invest in the UK given this?

    • Graham
      Posted August 9, 2012 at 10:51 am | Permalink

      Your comment about the direction of travel is so apt.

      We have the stated aim of trading competitively but we consistantly increase the cost base of industry particularly energy costs. Is there no joined up thinking at all?

      Noticed also today that Russia is now the dominant producer of alumininium etc – no doubt picking up the business we have forced away – and I am sure we and the rest of the world may regret that development.

    • Disaffected
      Posted August 9, 2012 at 11:28 am | Permalink

      Correct. Add a bit of bashing to business leaders, force to give up their job, bonuses or pay more tax. I wonder why the UK is not attractive for business? Perhaps a few more EU regulations could help or another quango or six through the Queen’s speech.

      If the Government could attract as much business as much it does immigration we all would be laughing.

    • Derek Buxton
      Posted August 9, 2012 at 12:05 pm | Permalink

      I like your simple suggestions, they are simple to understand….and will not therefore be carried out. Cameron is in thrall to the “green” lobby and will do anything to look after it. This alone is diverting too many resources into the wrong things, this would make a big difference together with taking away wind farm subsidies. So it would upset Clegg and wife, tough…..poetic justice after what they are doing to us.

      • Bazman
        Posted August 11, 2012 at 7:38 pm | Permalink

        Simple suggestions for simpletons.

  5. A.Sedgwick
    Posted August 9, 2012 at 7:21 am | Permalink

    “why doesn’t it use the newly printed money in the private sector instead of providing cheap funds indirectly to the public sector? ”

    I suspect that the Treasury and the BOE are very nervous about the UK’s ability to continue the charade that we are well financially managed and the money to support the hugely overbloated state has to come from somewhere.

    • zorro
      Posted August 9, 2012 at 8:55 am | Permalink

      I agree, I also think that they do not trust themselves to curb inflation or cut public spending as a quid pro quo for directly injecting QE into the economy. The QE that they are undertaking now is solely for the benefit of the banks and lowering the government’s borrowing costs……

      zorro

    • norman
      Posted August 9, 2012 at 10:20 am | Permalink

      Money is simply a means of storing wealth and while the money is coming from the BoE printing press the wealth it represents and which is being squandered is being stolen from our pockets.

      They can only steal from us for so long. It’s when that level of theft starts to become unsustainable the real fun will start. No sane person can possibly think Osborne will stop now he has a taste for it. Goes without saying most MPs think he’ll stop in time. Getting away with theft on this level must be as pleasurable as…well..I’m sure we’re all aware of the possibly completely false allegations and possibly doctored photos of his past indiscretions.

      If they were using the time between these two events to implement reforms that would set things right it wouldn’t be so bad but they’re carrying on with the exact same Labour policies that landed us in this mess in the first place.

      • Bazman
        Posted August 9, 2012 at 7:21 pm | Permalink

        I’d stick to G&T’s norm. Absinthe is looking far to ambitious and can lead to ear cutting incidents.

  6. Pete the Bike
    Posted August 9, 2012 at 7:27 am | Permalink

    If you believe the figures put out about America you’re fooling yourself. All the statistics are massively manipulated by Obama’s flunkies. They claim 163,000 jobs created in July when the real figure is 1,204,000 jobs lost. They claim state cuts yet federal government increases spending. The official figures are not merely optimistic or misleading, they are blatant propaganda and outright lies.
    Here our statistics are marginally less manipulated but not by much. The coalition talks about spending cuts whilst doing nothing. The Bank of England is not engaging in “Quantitative Easing”- it is engaged in money printing and fraud. It has never, ever out out an accurate forecast and it’s incompetent and lunatic meddling has destroyed savings and debauched the pound. It keeps interest rates low only to stop the wheels coming off the gravy train completely.
    All this fiddling around the margins of the problem will never create growth. Slash public spending, slash taxes, sack Merv the Swerve and his crew, set interest rates by market forces alone, stop bailouts, sell banks (in small pieces) to the highest bidder, pull out of the EU and repeal every law it has foisted on us.
    There would be some real pain but it would be relatively short lived. The way things are we can look forward to a constant lowering of real incomes for the foreseeable future.

    • zorro
      Posted August 9, 2012 at 8:57 am | Permalink

      Yet Cast Elastic says that the low interest rates are because of the way in which he has successfully run the economy. What a chancer!

      zorro

    • forthurst
      Posted August 9, 2012 at 10:18 am | Permalink

      “sell banks (in small pieces) to the highest bidder”

      Isn’t that exactly how we got to where we are? Why would the result be different next time?

    • norman
      Posted August 9, 2012 at 10:28 am | Permalink

      Please don’t take the name of Merv the swerve in vain. One of them is a (words left out) buffon who delights in inflicting pain on Englishmen with his unpredictable and wild behaviour. Some of his antics are so off the wall you have to wonder how many he’s had the night before.

      The other is a decent fast bowler who brought a welcome touch of colour to the game of cricket, delighted all who saw him and is competent at his job.

      • Lindsay McDougall
        Posted August 10, 2012 at 1:39 pm | Permalink

        But the real Merv the Swerve was one of the worst of sledgers, although not so bad as Matthew Hayden. Sledging is a form of cheating and I’m glad it’s on the wane (although I’m told that Chris Broad has a very nasty line in winding up young Sri Lankan batsmen).

        The best counter sledging I heard of was:
        Sledger: “Why are you so fat?”
        Counter: “Because every time I s___w your wife, she gives me a biscuit.”
        Apparently it’s a true story. Who were involved?

        • Lindsay McDougall
          Posted August 12, 2012 at 11:13 am | Permalink

          Sorry, Stuart Broad. Showing my age!

  7. oldtimer
    Posted August 9, 2012 at 7:45 am | Permalink

    The only real reason for the coalition, both now and when originally formed, was to sort out the financial mess we are in. It has failed. It has run out of time – politically speaking.

    For the rest of us it is a case of having to bear the burden of bungling, squabbling politicians who seem out of touch with the reality of the situation we are in. They seem clueless about what to do next. Given the previous stated positions of coalition members, it is difficult to see what measures can be agreed to help growth. They seem to disgree on necessary tax reforms, they are committed to an expensive, ineffective energy policy, they remain wedded to policies (such as spending on foreign aid) that are wholly unjustifiable for a country in the predicament facing the UK. Shuffling the deckchairs, and their occupants, will not be enough.

    • Disaffected
      Posted August 9, 2012 at 6:02 pm | Permalink

      Spot on.

  8. Lord Blagger
    Posted August 9, 2012 at 7:59 am | Permalink

    There is almost universal agreement amongst the political parties, Central bankers and the rest of the UK financial establishment, that the UK economy needs to grow again

    ————-

    Why?

    Since you’re in denial over the debt. Let me elaborate why the ‘growth agenda’ is there.

    The assumption is that by growth, you can carry on spending at the current rate. That’s the assumption behind ‘growth’.

    So the question is then, does growth enable you to carry on spending?

    1. Growth of 2% was the target. Given taxes are 570 bn, 2% of growth means that you take another 11.4 billion.

    2. The borrowing meanwhile has gone up over 100 bn.

    It’s screwed. Even an idiot can see its screwed if they have the numbers.

    Add on the true debt, and that went up 500 bn last year alone.

    So you’re all in denial, or you’re lying through your back teeth. I can’t think of another scenario. Idiots or fraudsters.

  9. Brian Tomkinson
    Posted August 9, 2012 at 8:18 am | Permalink

    Relax; Osborne told us yesterday he is giving “110%”! Not 100%, which is what you would expect to hear from an educated person. So why isn’t he giving 150% or 1000%?! This statement just confirmed how useless this man is. Maude is boasting in the papers today how much he has saved and there is lots more to come. Pity he didn’t add that his government is spending more than Labour, any deficit reduction is due to tax increases and that they plan to have doubled the debt in 5 years. How can you continue to support this shower of mendacious incompetents?

    • alan jutson
      Posted August 9, 2012 at 9:50 am | Permalink

      Brian

      He is giving 110% effort because he is using a 100% of our money.

      But

      Then adds on the Banks 10% margin, for laundering (passing, if this is better for moderation) the money through them.

      Its so simple when you think about it.

      You bail out the Banks by giving them cheap (taxpayers money) for them to loan out to business at a much higher rate.

      See, figures never lie, you just add them up differently. !!

      The simple solution is to cut tax of course, but that is too simple and does not help the Banks, only genuine people and businesses.

      Like you I am also bemused.

  10. Adam5x5
    Posted August 9, 2012 at 8:50 am | Permalink

    10: Cut Spending
    20: Cut Tax
    30: Pay off debt
    40: Goto 10

    Simple, effective.

    Tax cuts, particularly payroll taxes can be cut virtually instantly and the benefits will feed through within a month at the most as people are paid – a lot of people are paid weekly, so some effect would be seen very quickly with the monthly paid getting the benefit within 5 weeks at the most.

    Prime targets for spending cuts – the EU, overseas Aid, welfare, NHS.

    I would go into more detail, but I’ve written these things enough times on here before and I really don’t have the energy today.

    Also, promote growth – stop bashing companies as they don’t pay tax anyway. We pay the tax any company pays through higher prices, lower wages, lower dividends. You’re just taxing the people more.
    A recent study showed that at the mean, a $1 rise in tax, reduces the wage bill by 49c (study based in European countries).
    http://www.sciencedirect.com/science/article/pii/S0014292112000451

    Stop taxing so much!!!!!!!

    • uanime5
      Posted August 9, 2012 at 9:21 pm | Permalink

      As long as the employee gets 49c of benefits from every $1 in taxes there’s no problem.

      Reply: More nonsense – and on the EU if it is so great why are Greece, Spain, Italy and Portugal having such a dreadful economic time?

  11. Caterpillar
    Posted August 9, 2012 at 9:02 am | Permalink

    “I have not been a great fan of the Bank’s Quantitative easing programme.”

    But the Coalition Govt allows this policy to continue and the opposition does not criticise it. There is no political route to stop the behaviour of the BoE. I am not even sure that when people express concerns, e.g.http://blogs.telegraph.co.uk/finance/thomaspascoe/100019379/the-bank-of-england-helped-create-this-crisis/ that a clear response from the BoE for such concerns is ever presented.

    “The government … put up overall public spending instead. ” Whilst many contributors here will support the view of cutting Govt spending, how is this to be accomplished in the political climate? The Govt’s first approach included reduction in investment has been severely criticised. Cutting entitlements (such as the attempt to cut child benefit, young housing benefit) has been criticised, linking public sector pensions to CPI seems to have been won in the courts but retrospective change to those who worked for the public sector when pay was low does still seem highly unethical, the overall concept of automatic stabilisers is internationally supported (IMF). So what to cut and how?

    “setting competitive tax rates that people are prepared to pay” The Chancellor has not even been capable of simplifying hot/cold sausage rolls so this is a big ask. Obviously having a tax directly associated with employing is madness so NI needs to go or be absorbed elsewhere. Income thresholds are not ‘progressive’ in the way many imagine, but wealth thresholds are, I cannot see the Conservative part of the Coalition appreciating or going for such a change or how to implement. As discussed here before there is little evidence for a Laffer effect in consumption taxes but for a Govt to cut income and corporation taxes and replace VAT with an end consumption tax at a higher than 20% rate would presumably be complex and hard to sell.

    Overall I agree with the intent of JR’s view, but it is the political ‘how’ that concerns me.

    {“why doesn’t it use the newly printed money in the private sector instead of providing cheap funds indirectly to the public sector?” Or at least give it to savers who have been so ufairly treated.}

    • Denis Cooper
      Posted August 9, 2012 at 4:29 pm | Permalink

      “There is no political route to stop the behaviour of the BoE.”

      That depends what behaviour you mean, but eg it’s open to Osborne to refuse to legally authorise another round of QE, and it’s open to backbench MPs to table a motion expressing their concerns and proposing that in the future Osborne should not approve further QE with first getting approval through a vote in the House of Commons.

      Reply: QE is approved by the Chancellor and usually reported to the House. We cannot of course table a motion at present as the Commons is in recess.

      • Caterpillar
        Posted August 9, 2012 at 9:26 pm | Permalink

        Denis,

        Sorry for ambiguity, what I meant was that ‘we’ the electorate do not have a party to vote for who are against QE. Nonetheless thank you and JR for the clarification.

  12. Lindsay McDougall
    Posted August 9, 2012 at 9:11 am | Permalink

    Anything that reduces the fiscal deficit involves public expenditure cuts or an increase in the total tax take or both. You can only cut taxes overall if you put through a really big cut in public expenditure. Let’s face it, the annual deficit has to be reduced by £20 billion every year for some time to come.

    We all have our preferences. I prefer public expenditure cuts to be on current expenditure rather than on capital expenditure, although the electorate may not. In truth, the cutbacks on capital expenditure that have already taken place are huge. The entire expenditure on Olympics infrastructure is less than the infrastructure cuts elsewhere.

    Ending the index linking of benefits, state pensions and public sector salaries is not as daft as some of your left wing bloggers make out. Quite apart from the beneficial effect on the deficit, it will get more people in favour of low or zero inflation, which is good. Get rid of this QE and low base rate rubbish; it clearly doesn’t work, not in theory, not in practice.

    The Coalition has positively wished the reduction of income tax receipts. It hasn’t raised the standard rate of income tax to compensate for the raised threshold at the bottom end, and the effect is reinforced by the fact that it now pays households to split their income roughly 50/50 between the man and the woman. It has held the top tax rate at 45% and has no idea what the revenue maximising rate is. Since 1993, governments of all hues have failed to raise the 40% threshold enough, so that it is now £10,000 less than it would be if parity with average salaries had been maintained. What makes the Coalition think that people at that income level are incapable of emigrating or working abroad? (and remember that UKIP leaflet for issue in London and the Home Counties in 2015: “Did you know that the standard rate of income tax is now 40%?”)

  13. TFS
    Posted August 9, 2012 at 9:20 am | Permalink

    There is no way out of this without a full scale financial fail in the Ponzi economics we have now.

    You can talk all you want about deficit reduction, but Ponzi finance underpins the global market and rampant fraud is common place. Get some balls and do an Iceland

  14. Richard1
    Posted August 9, 2012 at 9:29 am | Permalink

    QE has many dangers besides inflation. If it is having the effect of enabling the govt to borrow more cheaply – and it seems to be – it is also encouraging pressure for yet more bad investment. ie investment which wouldnt happen through market forces and actual demand but which is drummed up by the state. Even quasi-sensible voices are calling for such policies. Yesterday we heard Richard Lambert of the FT – albeit a long-term Euro enthusiast – call for the building of 100,000 houses and ‘that sort of thing’, presumably by the state. There are now constant voices, from the political left, from business ‘establishment’, for the Govt to use its contrived low borrowing rate to get growth growing by increasing the size of the state yet further. It is important that clear-headed people in public life point out the pitfalls of this for the future and encourage the Govt to focus on whats really needed, which is radical supply-side reforms.

  15. Posted August 9, 2012 at 9:38 am | Permalink

    The non-fiscal and in my opinion, more important factor in US growth is that they are sufficiently close to a free market economy that it has been impossible to stifle the shale gas revolution as the LibDems, with the compliance of the Tories, is doing here.

    In fact the US is not a good example of a growing economy. Its growth is still sluggish because it isn’t very close to a free market economy. Singapore (14% growth) would be a better one. Even Zimbabwe (9.3%) is clearlly following the Washington Consensus of economic liberalism.

    I have yet to find anybody able to put a fact based argument disputing that virtually every politician knows how to get out of recession, in weeks if not days. And almost every politician not in UKIP is idealogically opposed to doing so.

    As John says almost all our problems would be solved by growth. Unfortunately it is being deliberately prevented by our ruling class.

    • uanime5
      Posted August 9, 2012 at 9:46 pm | Permalink

      Given that Germany is experiencing growth and falling unemployment clearly what politicians need to do isn’t leave the EU.

      • Posted August 10, 2012 at 10:19 am | Permalink

        If Germany were experiencing growth greater than Zimbabwe’s 9.3% Uni’s argument would have some logic. It Isn’t. It isn’t even achieving half the world average of 6%.

        If this is the most successful player in the EU game, which is why Uni chose it not being aware that “average” and “at the far end of the curve” are not the same, it is obvious we should be playing in a differnt game.

        The EU’s most successful mcountry is opne of the world’s least successful – what does that tell him.

      • Lindsay McDougall
        Posted August 10, 2012 at 10:20 am | Permalink

        Germany won’t leave the EU but it might be in its interest to leave the Euro zone.

  16. waramess
    Posted August 9, 2012 at 9:40 am | Permalink

    Austerity should be good news for the taxpayer. It should mean a return of resources to the private sector in the form of reduced taxes and a downsizing of the State.

    The problem is the Politicians believe it means more pain for the private sector in the form of increased taxation and a depreciating currency.

    No matter what the sense the politicians hold the sway and then complain they cannot see growth in the economy.

    They actually implore us to work harder.

    Really, you could not make it up!

  17. Michael Read
    Posted August 9, 2012 at 9:56 am | Permalink

    “I have not been a great fan of the Bank’s Quantitative easing programme.”

    Well, I never. Can’t say I’ve read all your posts. But I understand the liturgy. And I know that you would ordinarily consider QE – printing the green stuff – a heresy deserving a governor or two were burned at the stake.

    So I guess you know very well that the print function while serving as a useful tool for running off the nation’s debt through inflation also carries a nasty penalty in the shape of financial repression to the good citizen – savings and pensions annhialated.

    An urgent bill is needed in parliament to enable a 100 or so bankers to be (punished-ed), not forgetting those governors.

  18. Nigell
    Posted August 9, 2012 at 10:10 am | Permalink

    Maybe Mr Redwood will tell us why his Chancellor and the Treasury continue with the myth that it is a supply side problem, thus the latest ‘cheap money’ scheme to get money to Business Sector. You only had to read HSBCs last report when it said it had £150 billion sitting with central banks to know the Chancellor has got it totally wrong. At least Ed Balls realises the economy needs a stimulus through money spent but we know where his version of Keynesian economics got us. Actually corporate treasurers are sitting on a massive pile of cash but they neither have the confidence or the opportunity to spend it.

    Having been involved with the Business Sector during the last 3/4 ‘recessions’ their response has always been the same. The efficient ones ‘destock’ drive down debt and take costs (mainly people) out as quickly as possible and wait for real ‘green shoots’ before emerging from their shell. The less efficient, under capitalised etc always complain about their Banks.

    Either the Treasury and the Chancellor do not understand this or the debt is so intractable with the dead hand of the Lib Dems stopping ‘fast cuts’ ,they cannot see where the stimulus money can come from. My guess it is all of this so they push the ‘supply side’ in the belief that if you repeat a lie often enough people will believe it.

    It is well known in the private sector that cost comes out quicker than growth can be achieved. William Hague worked for Andersons whose mantra was always take 25% cost immediately in any business they worked with. He should be Chancellor after the next reshuffle. At least he has the financial nous that the ‘privileged toff’ doesn’t.

    • A different Simon
      Posted August 9, 2012 at 7:37 pm | Permalink

      Does having been an Android strike you as qualifying someone to run a business or bring public spending under control ?

      Personally I’d want someone who worked in industry for a couple of decades rather than someone who has gone straight to a consultancy from University .

      The Chairman of the CBI went there straight from University . Never worked in business or industry in his life unless you count the CBI as a lobbying firm .

      Consultancy firms , the Govt , the CBI are full of people who have never actually done it , never known what it is like to put their house up as security , never run their own business .

      I’ve no idea where we are going to get people who can actually walk-it .

      • A different Simon
        Posted August 9, 2012 at 7:39 pm | Permalink

        PS , civil servants could bring spending under control if they were incentivised correctly .

        First thing is to remove the safety net of big pensions etc so they are in the same boat as everyone else and stand to suffer or prosper depending on the economy .

        • lifelogic
          Posted August 9, 2012 at 8:53 pm | Permalink

          A state sector private sector “equalisation” tax perhaps at the moment the state sector pensions are about 10 times the private sector pension pots. So perhaps a tax of about 92% for the state sector pensions and 20% for the wealth creators to level up?

        • uanime5
          Posted August 9, 2012 at 9:52 pm | Permalink

          It Civil Servants pension’s are dependent on the economy expect a strike everything the Government does something that Civil Servants believe will harm their pensions.

          • A different Simon
            Posted August 10, 2012 at 9:55 am | Permalink

            Some of them may well strike at first Uanime5 .

            There are some extremely clever people in the Civil Service and their talents are being largely wasted .

            Once they understood that they were in the same boat as everybody else they would come up with a pension scheme which is accessible to everyone which would actually work .

            Can you think of any other way of getting decent pensions for everyone ?

          • Lindsay McDougall
            Posted August 10, 2012 at 10:28 am | Permalink

            You fail to make the distinction between those Civil Servants now retired and those that will retire in future. You do know, don’t you, that the proportion of the population over 65 will increase steadily for a 15 year period which began in 2011 (1946+65 = 2011). To contain public expenditure, the State will need to spend less per person over 65 for a long time to come. The easy options are steadily raising pensionable age from 65 to 70 and getting higher contributions from Civil Servants for their very good pensions (already implemented? in full or in part?).

  19. backofanenvelope
    Posted August 9, 2012 at 10:53 am | Permalink

    Personally, I believe our basic problem is a political class that is essentially frivolous.

    • Dan H.
      Posted August 9, 2012 at 2:49 pm | Permalink

      The political classes here are frivolous for a reason: they aren’t the ones in charge. Our true political masters are over in the European Union, and abysmally poor though our politicians are (and have historically been), the EU lot are worse.

      Cameron is at the moment in an unenviable position, similar to that which Gordon Brown found himself in. Both men are extremely ambitious, and both are emotional simpletons. Neither has what it takes to actually be effective once in a leadership role, both lack the wit to realise this and leave centre stage to the proper leaders. Thus we have been saddled with a succession of ambitious twerps. Blair was cut of a similar cloth; he and his ghastly wife both wanted to be in the limelight, without actually wanting to do the job for which they had put themselves forward. Tony Blair in truth would have made a true colossus of the film and acting world, and has missed his true metier in life.

      However, it has been said that a government can achieve only one thing per term of office. This one should concentrate on boundary reform of constituencies, and remove the inherent bias towards any one party (at present Labour, but it could be another party very easily). It should also be looking to its own future and that of the country; if the Conservatives do not offer a straight, unequivocal IN/OUT referendum on EU membership, then another party will and we really do not want Labour in power again so soon after their last mess.

      So, an EU referendum is the other big thing we ought to be concentrating on. The EU does not give up powers unless compelled to do so, and the easiest way to compell it to do something is to simply leave, wipe all EU treaties then renegotiate on a per-treaty basis and this time, don’t enact one that permits huge volumes of secondary legislation without the approval of Parliament.

      • Denis Cooper
        Posted August 9, 2012 at 4:46 pm | Permalink

        Yeah, but then Dickens had a very low opinion of the political class in his day, describing Parliament as a “great dust-heap of imbeciles and dandies”, and the EU couldn’t be blamed for that.

        • alan jutson
          Posted August 10, 2012 at 7:36 am | Permalink

          “A great dust- heap of imbeciles”

          Agree Dennis, that is how it appears all too often.

          But now we have mutiple wheelie bins and have to sort out the rubbish before we even dispose of it.

          Reason the rubbish takes up too much room !

          Life gets ever more complicated !

  20. David John Wilson
    Posted August 9, 2012 at 11:27 am | Permalink

    The government needs to look at why in the current economic situation where exports are falling there is no change in imports. This needs urgent action on two fronts. Firstly reducing the volume of imports used by government departments. Secondly the tax system needs to be adjusted where ever possible to put imports at a disadvantage. As a start a reduction in employers’ NI contributions would be a start. VED on large lorries would similarly reduce the advantage of foreign vehicles.

  21. oldtimer
    Posted August 9, 2012 at 12:43 pm | Permalink

    Just to add to the prevailing gloom, Sky News has reported that the June trade deficit has risen to a record high of £4.3bn – it was £2.7bn in May. A drop in exports to Europe is blamed.

    Lobby talk is suggesting that the government plans a three-pronged programme for jobs using the Parliamentary time available now that Lords reform is dead. It is said it will comprise (1) deregulation (to keep Tory MPs happy) (2) infrastructure spending (to show the coalition can agree on at least one thing) and (3) “industrial strategy” (to keep Mr Cable on board).

    This raises some important questions. On past form:
    (1) the LibDems have opposed deregulation which reduces barriers to employment, what will be different this time?
    (2) the infrastructure on which they have previously agreed included yet more wasteful investment in wind farms and the like, will this still be the case?
    (3) industrial strategy is a failed socialist construct, what is different this time that Cable thinks will make it work?

    No mention of reform and/or simplification of the tax system, measures that are sorely needed.

    • uanime5
      Posted August 9, 2012 at 9:57 pm | Permalink

      Deregulation doesn’t reduce barriers to employment, it just makes employment more unpleasant and salaries much lower.

      • Lindsay McDougall
        Posted August 10, 2012 at 10:51 am | Permalink

        Deregulation doesn’t make salaries much lower. What makes salaries lower are restrictions on the use of manpower. This is why wage rises for unionised employments in the heyday of Trade Unionism were LOWER than those for non-unionised employments.

  22. Leslie Singleton
    Posted August 9, 2012 at 12:55 pm | Permalink

    Yours truly reckons the doom and gloom is over done, though all media commentary naturally wants to wind up the situation as much as possible. Am I alone in wondering why we slavishly follow the unhelpful American definition of a recession? Thus we are told in the Torygraph today (re France) that consecutive 0.1%’s “would mark a recsssion”. What absolute twaddle. What if it were 0.01% each time? Even ignoring the margin of error, not to mention the doubts whether GDP means much at all, this is unscientific and a misrepresentation of what might, if a name has to be gievn to it at all, be called stagnation. Now if it had been 10% followed by 10% that would be different but even then this business of worrying about consecutive quarters just rubs salt in our own wounds. Not that I care much but what is a depression these days? I doubt if this is right but maybe it’s three consecutive quarters. The sun still comes up each morning.

  23. A different Simon
    Posted August 9, 2012 at 1:44 pm | Permalink

    Surely there is one prerequisite for recovery which everyone is avoiding – the need to actually have our financial crash .

    The need to stop pretending and extending and hit rock bottom .

    In the business world that means allow businesses and people to fail in order to destroy the debt manacle so we can move forward .

    In parliament , the civil service and British establishment in general it means abandoning fantasy , stop making promises you can’t keep , telling the public how bad things really are and re-engaging with reality .

    – Accommodation is twice as expensive as it needs to be to be affordable on today’s downscaled wages .
    – The banks are still on the books awaiting their next transfusion of taxpayer money
    – Private sector workers don’t have access to any sort of managed pension scheme
    – We are told that it is inevitable energy will get more expensive
    – Immigration is rising despite efforts to recategorise it as ICT visa’s
    – The brain drain is in full swing

    Time to lance the boil .

  24. Alan Wheatley
    Posted August 9, 2012 at 1:46 pm | Permalink

    My experience over the last year or more among smaller engineering companies is that some of them are very busy to the point that they can not keep up with demand and deliveries are being delayed. One contact who confirmed my experience put it that “the ones that are any good” are busy!

    The obvious solution to an order book that is growing faster than your ability to satisfy it is to increase capacity. HOWEVER, the obvious danger is that this growth that is being experienced is a bubble that could break at any moment. The last thing a small business wants to do is to invest in more capacity, machinery and staff, only to find the orders drying up as a consequence of the general trend rather than as a result of anything the company itself is doing. The general climate is hardly conducive to taking a risk.

    One thing that the politicians should be able to do is to set out a realistic and convincing plan for the nation against which companies can plan for their own futures. What we do not want is more of the solar panel fiasco where government set the environment for growth and then summarily pulls out the rug from beneath private investment.

  25. Alan Wheatley
    Posted August 9, 2012 at 2:05 pm | Permalink

    I am hearing in the media calls for more infrastructure investment as a means of getting growth. No doubt these people are thinking of how they can spend the government’s (our) money. But spending more money on the same old stuff is backwards looking. It is also slow and the benefits closely focused. HS2 is a prime example of investing in the past for the benefit of a tiny minority.

    There is a much better infrastructure investment opportunity. It is super-fast broadband.

    The Government should be going flat out to bring super-fast broadband to the whole country, not just 90%, and not a measly 2Mbps either. This is an infrastructure project with no adverse environmental impact. The whole country benefits, so everyone can be in favour.

    Remember, that there are two ends to every communication, so from an isolated country property you can sell to the world, and the city centre business can sell to all the small communities.

    The Government need to make a QUANTUM change in their approach. They need to appoint someone who understands the issues. They need to break up BT so it’s dominant position as owner of the vast majority of the existing infrastructure does not continue to distort the market and undermine progress.

    I think the inherent problem is that the Government (not just this one) does not get broadband. Unlike a new power station, bridge or train there is nothing big and imposing to stand in front of and declare open. The fact that what little money the government is investing has been nicked from the BBC Licence Fee is as good an illustration as you could wish of their priorities.

    But many small steps will cumulate in a revolutionary change that is an investment in the future. This is an infrastructure investment that will give universal benefits and quickly.

    • Caterpillar
      Posted August 9, 2012 at 4:58 pm | Permalink

      On broadband can we really expect the cost of infrastructural deployment and maintenance of ac onnection to a single house in the middle of nowhere to really be repaind by owning the customer?

      My own view (repeating myself from two days ago, from the flexible working discussion)

      The remote working discussion may re-surface a transport investment vs. broadband investment, it should be recognised that this is a false dichotomy improvements to both train & broadband enable and are enabled by denser living patterns. Sharing time between the home office and the corporate office again fit with both. I guess that the UK sees these concepts (i.e transport, broadband, living patterns) in opposition not as mutually supporting.

      • Alan Wheatley
        Posted August 10, 2012 at 7:40 am | Permalink

        The “single house” in the middle of nowhere could be a business, a farm house, for instance. The high probability is that it already has a telephone connection, which in the past the state thought should be installed. So the physical infrastructure is already there; the copper wire needs replacing by fibre, which is no great cost the task is tackled in an efficient manner.

        Should the state decide there are some of their citizens who do not warrant their attention simply because they live in a difficult location then such citizens may well feel they have no interest in the state.

    • outsider
      Posted August 9, 2012 at 7:14 pm | Permalink

      Dear Mr Wheatley,
      If your really think that smashing another of our big-investing companies is good for growth, then I despair. If BT had been allowed to subsidise the uneconomic 10-20 per cent from slightly higher tariffs for the rest, the UK could have had universal fast broadband 10 years. It is all a matter of choices. We chose cheap broadband for cities .

      • Alan Wheatley
        Posted August 10, 2012 at 7:45 am | Permalink

        BT are investing in broadband for 70% of the population because they believe they can make money from that investment. They have said they will not invest their own money in the final third because there is no profit in it.

        The fundamental problem is that BT own the infrastructure (apart from ex cable TV) and the government has the daft notion that there must be competition for the supply of infrastructure. It makes far more sense for the State to own the infrastructure and for competition to be between companies using it.

  26. Simon
    Posted August 9, 2012 at 3:23 pm | Permalink

    Perhaps you are forgetting that the US initially has a massive fiscal stimulus package – bailed out troubled industries not just banks, introduced temporary tax cuts, etc.

    What did we get? Increased taxes on consumption (In a recession! Madness!), and cuts to infrastructure investment. Government spending is only going up because the social safety net is catching more people, because the economy is doing so badly.

    The only time it is sensible to cut government spending is when private spending is increasing. Likewise the only time is it sensible to increase government spending (outside of national emergency) is when private cash has nowhere else to go, like now. Labour broke the first rule, now the coalition are breaking the second.

  27. Derek Emery
    Posted August 9, 2012 at 3:31 pm | Permalink

    Jon Moynihan in “The continuing Decline of the West” presentation points out what needs to be done by UK government to turn the situation around.

    However not nearly enough is being addressed to gain control. It requires government to come clean with the public and point out what cuts, changes in spending, investments etc need making. Much of the public are likely to oppose this so the end result has to be more likely a catastrophe in the longer term rather than a short shock.

    He sees interest rates eventually rising and capital flight at the corresponding loss in value of gilts. He sees persistent austerity and stagflation and eventual devaluation or a series of devaluations as the most likely outcome.

    For comparison he points out that around 1900 Argentina was the eighth richest country in the world and has sunk via a series of devaluations. He points out China is doing all the right things to make itself increasingly richer and the west is doing all the wrong things and making itself poorer.
    He believes that neo-Keynesian economics will destroy western economies.

    There is a video of his presentation to the LSE at http://www.businessinsider.com/jon-moynihan-decline-of-the-west-2012-8#watch-moynihan-deliver-this-presentation-to-the-london-school-of-economics-96

    • outsider
      Posted August 10, 2012 at 12:22 am | Permalink

      Yes, Mr Emery. Jon Moynihan makes a lot of good points (and a few daft ones). The message that comes across is that future growth depends (in a democracy) on having an honest debate about what we need to do and why chasing short-term growth will actually make things worse. There is a crucial distinction between short-term countercyclical “growth” to mop up spare capacity, which is probably not as big as people imagine, and getting back to underlying growth based on innovation and raising productivity.
      There seems to be a tacit assumption on all sides that if we can boost output now, the momentum will be self-sustaining. That assumption is fatally false.

  28. Atlas
    Posted August 9, 2012 at 5:32 pm | Permalink

    I note that after the Lords Reform has been dropped, the Chancellor says he is now going to concentrate on the country’s economy. Oh really? I thought you claimed you were doing for this last 2 years. The reality is that Osborne has been playing at politikking, and not doing his day job.

    I’ve concluded that the problem we have in the UK is that the political leadership at the top is not up to the job. Time for a change – that might bring growth.

  29. Jon
    Posted August 9, 2012 at 6:13 pm | Permalink

    The end of the 1990s so the end of the post war boom. Much of whats taken place since then is a denial of that fact.

    The growth rates that ware seen during the naughties were fueled by credit. That along with competition from globalisation has pegged private sector earnings in many industries. Growth of 1% is good yet some think there is something wrong. The low growth is not the problem, the problem is coming to terms with living in a low growth era. Automatic stabilizers should be a thing of the passed.

    Unless something happens like China starts spending big in Europe we need to live within a low growth environment.

  30. Acorn
    Posted August 9, 2012 at 7:11 pm | Permalink

    JR, please get Secretary Gove to get finance and economics as a compulsory subject up to 18 in our schools. Your site is demonstrating, in spades, the lack of economic understanding in those who have yet to educate their preferences and understand how amateur politicians just get things wrong.

    For instance, you worked for the NHS; you retired and took the pension. You go back and work part time for the NHS. (This is a classic scam in the public sector). Legislation now says you are subject to “auto enrolment” into another pension scheme; which you will not want, work that one out! Whatever you do, don’t encourage part time workers to opt out.

    Here is another one. “Real Time Information”. Every time your little business pays an employee you will have to tell HMRC. “Universal Credit” is going to smack you in the goolies. Your payroll provider hasn’t got a clue how to implement it.

    BTW. I went into a Hospital car park this week. One of those that gives you a ticket as you enter. I noticed my registration number was printed on the ticket. Isn’t technology wonderful, let’s here it for Big Brother, 1984 edition.

  31. Bazman
    Posted August 9, 2012 at 7:12 pm | Permalink

    Where are all the middle class smart Alec’s who are not impressed with anything who tell us any job is just….Telling us that every single Olympic games we see it more easy to win gold? You know who you are.

    • zorro
      Posted August 11, 2012 at 3:24 pm | Permalink

      ??

      zorro

  32. uanime5
    Posted August 9, 2012 at 9:04 pm | Permalink

    I wouldn’t say the US has lower taxes than the UK; especially when you include state and city taxes, and Obamacare (a tax according to the Supreme Court). The USA has also invested a large amount of money in the economy, causing the national debt to greatly increase.

    Given that the wealthy are often paying tax rates in single figures your plan of “setting competitive tax rates that people are prepared to pay” is doomed from the beginning. Perhaps the Government should reduce tax loopholes and tax havens to ensure people pay their fair share of taxes.

    Given the lower tax rates for small businesses I’m not sure why taxes are an issue for them. If there’s a problem with business taxes it’s that the largest companies keep avoiding them. Perhaps the Government should reduce tax loopholes and tax havens for companies.

    As the treasury loses £25 billion annually from tax avoidance perhaps these rules should be tightened, rather than ignoring a situation that benefits the wealthy and cutting public spending which benefits the majority.

    I recommend reading this article and “The Missing Billions” for advice on how to fix the tax system.
    http://www.tuc.org.uk/economy/tuc-14238-f0.cfm

    Reply: I was using figures for the total tax take UK versus US, as a percentage of GDP. The US is well below the UK.

    • Lindsay McDougall
      Posted August 10, 2012 at 10:11 am | Permalink

      Why is everybody saying that the USA is a success story? Federal debt is approaching 100% of GDP and you can add another 30% for State and local debt. The USA cannot be too far off its fiscal cliff and will have to take remedial measures in 2013. So prepare for a USA recession round about 2014.

    • outsider
      Posted August 10, 2012 at 11:41 am | Permalink

      Dear uanime,
      The OECD 2011 figures give the US total tax take as 24.8 per cent of GDP, UK at 35.0 and Germany at 36.3. Of course, the UK and US are both running huge deficits so the corresponding public spending ratios are much higher and the UK is significantly higher than Germany.

  33. Matthew Reynolds
    Posted August 9, 2012 at 9:41 pm | Permalink

    Well obviously ! If the banks work properly by lending to credit worthy people seeking mortgages and/or financing for a viable business plan growth would be helped.If planning laws got liberalised then you might get more infrastructure projects off of the ground thus boosting jobs & growth.Employment laws being deregulated would work as if it is easier to fire then employers are evidently more likely to hire.Cutting out more of Gordon Brown’s waste to fund lower taxes would move cash away from the growth sapping client state to the wealth creators thus boosting economic expansion.
    Having a cheap energy plan would spur growth by boosting peoples disposable incomes while trimming business costs.

    So the failure to do the above helps explain why economic growth figures have been so very poor indeed.Basically the government either turns right & rescues the economy and the Tories win in 2015 or stays the course,the economy keeps slumping and the Conservatives join the Liberal Democrats in political oblivion in 2015.

    Simple choice methinks !

  34. Conrad Jones (Cheam)
    Posted August 10, 2012 at 12:42 pm | Permalink

    Mr Redwood,

    “Readers of this site will know I have long favoured the strategy of cutting the deficit primarily by spending reductions.”

    At first glance – this appears to be a reasonable and prudent thing to wish for.

    If the Government Reduces it’s Treasury Bond issuance (borrowing money – which increases Commercial Bank Money in the System) and Banks are reducing their Lending (as seen in the reduction in M4) – won’t this strategy cause a deeper recession ?

    Reply: There is no need for a tigher fiscal policy to lead to a tighter money policy, given the monetary flexibility the UK is deploying and can deploy.

  35. Conrad Jones (Cheam)
    Posted August 10, 2012 at 12:52 pm | Permalink

    I agree with you – I don’t like the Bank of England’s QE program either. But we have a System which forces us – and the BoE, to do things that it would not ordinarily wish to do.

    M4 Money is collpasing (Commercial Bank Money) becasue all our money is created by Banks through lending. A “Credit Crunch” is a “Money Crunch”. Even people who are not borrowing money are affected by this becasue they may work for a Business that requires loans to continue and loans for their customers in order to purchase their goods and services.

    The QE Program creates Central Bank Money which is used to buy Assets from Banks in order for them to build up their Reserves to encourage them to “Lend” (Credit I.O.Us).

    QE – creates Central Bank Money for Private Banks Reserve Accounts held at BoE
    Private Banks create Commercial Bank Money at the point of Issuing a Loan (M4).

    You play on the simplistic view of how the Econmomy works. We have a “Money” supply which is totally depenedent on Banks to create it – not the Government. The Bank of England is not allowed to create money to be directly injected into the Economy as it would be against the Maastricht Treaty.

    Japan may or may not be giving money directly to it’s people to spend but you skillfully avoid the alaternative of paying for Public Infrastructure Works through direct Currency Creation instead of Issuing Treasury Bonds which would also achieve your aim of reducing the Deficit and increase Employment and Tax Revenue.

    I do not understand you John – you talk-the-talk but you do not walk-the-walk.

    Reply: I see no need for the UK to conform to rules designed for Euro members. I would prefer new money to go to the private sector, as we are seekign a private sector led recovery according to the government’s plans.

    • Conrad Jones (Cheam)
      Posted August 10, 2012 at 5:13 pm | Permalink

      New Money could go to the private sector if the Government Issued new Currency and injected it into the economy through Public Sector spending on infrastructure projects.

      This would achieve your objectives:
      1. Lower the Public Sector Deficit
      2. Help a Private Sector led recovery by maintaining and strengthening the money supply.
      and
      3. Increase the stability of the Currency Supply allowing less dependency on Private Bank Lending – this would redcue the need to Bailout Banks.

      But I think that it would need a brave Government to reject the Maastricht Treaty – unles the UK has a “get-out” clause regarding a Sovereign State creating it’s own Money ?

      Perhaps something along the lines of the Government itself Lending money into the system, and when Taxes are paid, this destroys the money to maintain a circulating money supply. the Interest paid would then be used by the Government to pay for Public Services. I don’t see why a Private Bank should be allowed to create money and the Government be denied this. Remembering that QE only creates Central Bank Money and is not available to be spent as Commercial Bank Money.

      • zorro
        Posted August 11, 2012 at 3:33 pm | Permalink

        Yes we need a ‘greenback’ pound to support our economy. If we had a government which created its own money supply, we wouldn’t need to pay obscene amounts on accumulated interest on private bank money creation…..

        zorro

  36. Dennis
    Posted August 10, 2012 at 3:15 pm | Permalink

    “There is almost universal agreement amongst the political parties, Central bankers and the rest of the UK financial establishment, that the UK economy needs to grow again.”

    Of course, as they are either all very stupid or just looking after their themselves as who cares after one’s death. Anyone with an ounce of sense would know that economic growth at this time is the road to disaster. This desire for growth is the same as telling people to borrow more (from the environment) even though there is no possibility of paying it back – does that remind anyone of anything?

    The present forecast of zero growth is excellent news and gives us the chance of organising a steady state economy. Actually we need a negative economy for many years as we are far too rich now for the planet’s health.

    Do I hear about the resulting deprivation etc.? Does anyone think there can be no sacrifice to obtain a sane world?

    Mr Redwood et al keeps on saying we need growth but never says where FUNDAMENTALLY it is going to come from.

    • Conrad Jones (Cheam)
      Posted August 10, 2012 at 11:06 pm | Permalink

      Infinite Growth is an impossibility in a finite World.

      John Redwood’s continual calls for Growth is an acceptance of the current flawed financial system. If we want to continue with the current debt based economy, then growth is the answer. I – for one; do not wish to coninue with the current system and hope that a far more sustainable means of monetary excahnge can be designed.

  • About John Redwood


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

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