Inflation at the Bank of England


Mr Carney the proposed new Governor of the Bank  made clear in his recent lecture that a bit more inflation might be a price worth paying for more growth. I doubt that more inflation helps in that way. Past UK experience shows that when the authorities become cavalier about inflation it is possible to lose control of it, with bad consequences for output and jobs in due course.

However, Mr Carney has certainly got off to an inflationary start when it comes to his own salary and housing allowance. A total package of more than £870,000 is generous in a public sector and regulatory job.  The basic pay of  £480,000 is 57% higher than the present Governor’s basic. Then there are arguments over how the rest of the package compares to the present Governor’s generous pension arrangements.  Even allowing for this, the Bank seems to be exempted from the public sector pay feeze policy.

As a supporter  of free enterprise, I have no problems with people in the private sector earning large sums. All I ask is that their customers, shareholders and other providers of finance pay for it and accept it, and that none of it comes from tax revenues. There should be no recourse to state subsidy.  I do have issues with people charging the taxpayer for very large salaries.

The worry about Mr Carney is already that he will not be hawk enough on inflation. He will need to send clear anti inflaiton signlas when he arrives, to avoid losing confidence in the authorities’ resolve on these matters. He also needs to woo, not undermine savers.

I wish him well when he arrives in this country. I hope when here he listens carefully to those of  who want him to succeed. There is much he can do, but being careless about inflation or public sector value for money would not be a good idea. Savers have had a poor deal in recent years, yet we are trying to recover from a borrowing crisis, where people did not save enough.

He also needs to examine what he can do as Governor to create stronger banks sooner, in a position to finance a decent recovery from here. The exisiting Bank’s policy towards commercial banks has left some of them pensioners of the state, and unwilling or unable to finance a normal recovery.

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  1. single acts
    Posted December 29, 2012 at 6:28 am | Permalink

    Tactically speaking its the smart call. Why yourself up for month after month of failure ?

    And in truth, with more QE more inflation is surely inevitable. Indeed when the velocity money picks up, watch things quickly get out control.

    • Single Acts
      Posted December 29, 2012 at 4:53 pm | Permalink

      Apologies for the damnable writing, I posted the above on one of those accursed tablets.

      • helen jones
        Posted December 29, 2012 at 7:12 pm | Permalink

        If you turn off predictive text those accursed tablets are great my grandkids tell me

      • stred
        Posted December 29, 2012 at 8:37 pm | Permalink

        The tablets I am taking seem to have an effect on my thinking too.

    • zorro
      Posted December 29, 2012 at 7:06 pm | Permalink

      Difficult to see when the velocity will occur bearing in mind the very tough regulation in place on banks and their current non-lending/calling in loans…..


  2. lifelogic
    Posted December 29, 2012 at 6:36 am | Permalink

    In general I too have no problem with people in the private sector earning large sums. I certainly do however where directors are driving a company into the ground and helping themselves to excessive amounts shareholders money are the same time. The control by shareholders of Directors pay is in practice very weak and needs to be strengthened.

    How can it be right, for example, for Fred Goodwin to be paid and pensioned Millions from virtually bankrupting the RBS group. There are countless other examples.

    The new over paid governor’s first task should be to stop RBS and many other banks sucking money back from sound businesses and to encourage confidence in the UK and its currency. Not an easy task given the certainty of Labour in two and half years – as a result of Cameron’s pathetic, pro EU, fake green, socialism.

    I see the government want lawyers through apprenticeships without needing a degree in Greats, Media Studies, Golf Management or similar first. I see no harm in that, but I cannot help thinking that the last thing the country needs is yet more lawyers. The number has, I understand, tripled in 30 years. What we need is a legal system (and tax system) that works for the public, discourages litigation and contrived legal complexity and far fewer lawyers. The exact opposite of what lawyers and politicians have constructed.

    We cannot get rich by all suing each other. Too much litigation promotes defensive companies which is not in general good for anyone but the lawyers. Indeed it can lead to far worse practice, from the view of the patients, in many areas, such as medicine.

    • lifelogic
      Posted December 29, 2012 at 8:37 am | Permalink

      I see the new years day honours list is the usual depressing reading. A few good engineers, scientists, doctors, teachers and business leaders but mainly failed politicians, party donors, tv celebs, sport people and anyone involved with the huge waste of tax payers money that was the Olympics.

      People like Rt Hon Margaret Mary Beckett, MP, Mrs Cherie Blair (For services to Women’s Issues and to charity in the UK and Overseas) and Ms Tracey Emin. Artist. (For services to the Arts)……………. how depressing the list is.

      No doubt in 10 years we will have Lord Clegg, Chris Huhne, David Laws and the likes … to depress us further. Still I suppose it reminds us all of what is so clearly wrong with the system.

      • David John Wilson
        Posted December 29, 2012 at 2:55 pm | Permalink

        Are you suggesting Tracey Emin should make her bed and lie in it?

        • lifelogic
          Posted December 29, 2012 at 5:02 pm | Permalink

          If it keeps me from having to listen to her droning on, on the BBC all the time, then yes please.

        • forthurst
          Posted December 29, 2012 at 5:20 pm | Permalink

          That would be preferable to drawing rudimentary pictures of her(self). On the other hand if she hadn’t no doubt she would not have been made Professor of Drawing at the Royal Academy nor had her outstandingcontribution to the Arts recognised by H.M. the Queen.

      • Denis Cooper
        Posted December 29, 2012 at 5:38 pm | Permalink

        I wouldn’t be too bothered about Clegg becoming Lord Clegg, provided that as a condition for his elevation he had to keep well away from Parliament and all other corridors of power.

        Kept locked up somewhere far away where he could do us no more harm, like St Helena or maybe South Georgia.

    • zorro
      Posted December 29, 2012 at 5:19 pm | Permalink

      Unfortunately, we have caught the US disease of ‘where’s the blame, there’s a claim’ to maximum effect. Too many people think that they can earn money (claimants) at the expense of premium payers with the able assistance of an army of lawyers who produce nothing but squeeze everything out of the system/taxpayer.


      • forthurst
        Posted December 29, 2012 at 7:04 pm | Permalink

        One only has to look at the enormous payouts which the public sector award each of their own for loss of office (in which they were either useless or supernumerary or both) to realise that they regard such offices as very valuable sinecures.

      • helen jones
        Posted December 29, 2012 at 7:14 pm | Permalink

        I wish it was that easy because then i could sue the FSA , The B of E and every director of NR and B and B for the loss of my shares

      • lifelogic
        Posted December 29, 2012 at 7:21 pm | Permalink

        Indeed – and often with the assistance of insurance companies who then push up every one’s premiums to cover the huge costs of it all.

  3. colliemum
    Posted December 29, 2012 at 7:02 am | Permalink

    “I do have issues with people charging the taxpayer for very large salaries.”

    Yes indeed. So have we taxpayers!

    I wonder why the Treasury mandarins apparently unquestioning equate high salaries with excellence. I also wonder if there is a sort of subtle prejudice against those with lower salaries/stipends, meaning that they cannot be as good as those who demand the sun, moon and stars.
    And finally, I wonder if it has occurred to anybody if it might perhaps have been better not to fuel the existing prejudice against ‘greedy bankers’ by agreeing to hand over such sums coming out of our, the tax payers’, wallets.

  4. Steve Cox
    Posted December 29, 2012 at 7:16 am | Permalink

    On the subject of savings, this article struck me yesterday, but it did not surprise me at all.

    It just shows that, in spite of an educational system that is often rather poor, young people are still smart enough to realise where their best interests lie. When I started saving for a private pension many years ago, the generally accepted rate of return on your investment in the pension fund was around 7% pa. Combined with annuity rates that were much higher than they are today, and a pension system that had not yet been ruined by Gordon Brown’s mendacious tinkering, the level of contributions required to provide a decent (projected) income at retirement were quite affordable.

    That no longer applies. Real returns on all cash deposit are negative, often strongly so. Gilt yields are at their lowest ever, and only a fool would invest in them now as the yield only has one possible way to go, which implies a big capital loss at some stage. Safe corporate bond yields are miserly. The stock market has moved sideways for over a decade, and dividend yields in your pension fund are now taxed, of course. Inflation is anchored somewhere between 3% and 5% it appears that this suits the BoE and the government as they are doing nothing about it. The annuity rate to provide an index-linked pension is at a historic low – around 3% at best. So to provide a modest £20K/year pension stream, one needs a pension pot of around £600K. So in 40 years of contributions that implies annual investment in your fund of £15K/year. Given the current dismal investment returns, all of that £15K will have to come out of your gross income – how many young people can afford that? Of course, in the future there may be better investment returns, but can you really count on it? And can young people count on the pension system not being twisted and gerrymandered even further by future governments? Of course not. And never mind the ever rising fees charged by our notoriously inefficient pension providers.

    Against that backdrop, why would anyone young and sensible invest in a private pension scheme? Far better, surely, to invest in property or simply stick your cash in an ISA as suggested. I personally think that after deficit reduction (ha! what a joke!) this has to be the government’s top priority, to return the savings and investment environment to one which rewards savers rather than punishing them. Otherwise the government is simply digging the future deficit hole ever deeper by its negligence and folly, as more and more people will be entirely dependent on the state and on top-up benefits in their old age. Mr. Carney should be made aware of these problems before he starts playing with inflationary fire.

    • Alan Wheatley
      Posted December 29, 2012 at 3:48 pm | Permalink

      I agree.

    • lifelogic
      Posted December 29, 2012 at 4:46 pm | Permalink

      Indeed but you can, of course, invest in a pension scheme and get the tax reliefs (actually just deferral) and then use the pension funds to buy commercial property or other investments or businesses – so it is not always either property or pension.

      The problem is that the government keep moving the goal posts and robbing you – as Brown and now Osborne have.

      I think they should relax the pension investment restrictions far more.

      • Bob
        Posted December 29, 2012 at 8:46 pm | Permalink

        “the government keep moving the goal posts and robbing you – as Brown and now Osborne have”

        Well said, it should be illegal for governments to soak private pensions on the way Brown and Osborne have, while protecting and enhancing their own.

        • lifelogic
          Posted December 30, 2012 at 11:02 pm | Permalink

          Well we are all in it together are we not – except the state sector, MPs and BBC types.

    • zorro
      Posted December 29, 2012 at 5:23 pm | Permalink

      There is no real saving culture, or incentive to save with ZIRP. It is all spend, spend, spend (if you have any money). Everything has been turned on its head. As always, this is for the government and bankers’ benefit…..


      • lifelogic
        Posted December 30, 2012 at 8:53 am | Permalink

        ZIRP – Zero Interest Rate policy (but the banks put 3.5%-4000% on top if they lend at all) and little real growth too. Hardly very surprising with Cameron’s anti-growth policies in place – of over tax, over regulate, expensive energy, more and more EU and endless government waste in every direction.

    • Bazman
      Posted December 30, 2012 at 9:40 am | Permalink

      Inflation and returns being what they are. Any spare money needs to e invested by spending on something that may be useful for many years. A car, kitchen or house improvements. A Car?! Well yes. The cost of second hand cars has risen greatly in the last ten years even allowing for inflation and the better product and why buy a new one? House improvements such as double glazing have doubled. The banks are charging 10%+ for loans and paying 0.1% on some savings accounts they of course can ram it.

      • alan jutson
        Posted December 30, 2012 at 11:49 am | Permalink


        Agree with much of what you say, make life more comfortable for yourself if you can afford it.

        Sad fact is by doing what you are suggesting you are more likely to keep foreign manufacturers busy than UK ones.

        But better to spend it whilst you can enjoy it.

        There are no pockets in a shroud, and to leave a large sum behind that causes an inheritance tax grab, would only encourage the Government of the day to waste ever more money.

      • lifelogic
        Posted December 30, 2012 at 11:04 pm | Permalink

        I agree fully – current bank margins are absurd, get some real competition going.

  5. Caterpillar
    Posted December 29, 2012 at 7:32 am | Permalink

    It may well be the case that CPI inflation has been equivalent to ~3.3% per year since Jan 2008 to the present (5 years!), but in this time each of the main political parties has been in Govt and not taken back control to set monetary policy. I agree with both the criticism that the BoE appears to ignore its inflation mandate, and the criticism that the next Governor may wish to do the same, but I think we also need to maintain focus that neither the previous or current Govt appears to have cared about inflation. Neither Govt has taken back control of interest rates, and though it appears that the BoE has failed (/ chosen to fail) w.r.t. CPI inflation, surely blame must also lie with the three main political parties?

    • Denis Cooper
      Posted December 29, 2012 at 5:47 pm | Permalink

      Whenever the Governor writes another Open Letter of explanation:

      Osborne has another opportunity to formally upbraid the MPC over excessive inflation; but he never does, so it seems that he doesn’t care about it.

      • lifelogic
        Posted December 30, 2012 at 11:05 pm | Permalink

        He clearly does not care and even encourages it.

  6. Mike Stallard
    Posted December 29, 2012 at 7:42 am | Permalink

    We are in serious debt and about to go bankrupt unless radical action is taken this day.

    Actually inflation will be a good way to solve this problem.

    People who are on the government payroll (about half the population apparently) will find that the value of their remuneration will go down as the pound loses its power. £90 a week will seem like £45 a week soon. People like me on a pension will still be paid – but the value of the pension will soon lose its purchase. And the government will reduce my (pathetic) savings at the same time.
    Even the piggies who are swindling us out of our tax money (see above) will find that their pay-backs lose force.

    The huge danger, however, is that a wall of hatred will be built up as we who are poor see the piggies riding around in their huge cars, travelling on the unaffordable railways and eating in the poshest restaurants while we eke out our living on the cold, rainy street.
    That way leads to Hitler/Stalin/Mugabe/Galtieri.

    And the constitution of the EU is well suited for a Dictator……

    • Electro-Kevin
      Posted December 29, 2012 at 9:00 pm | Permalink

      There are various reasons why it is neither far fetched nor hysterical to say that this country will see great turmoil within decades.

      • alan jutson
        Posted December 30, 2012 at 11:51 am | Permalink


        I fear unfortunately you may be correct if things/policies do not change soon.

      • Single Acts
        Posted December 30, 2012 at 7:19 pm | Permalink

        Agreed, only it maybe much sooner than that.

  7. alan jutson
    Posted December 29, 2012 at 8:09 am | Permalink

    I will reserve judgement until Mr Carney is in position.

    You are absolutely right that savers have had a bad deal for years.

    Not only have they had a poor return on any money invested, they are also taxed on that megre income as well, and are very often denied any State help or benefits, simply because of those savings.

    Inflation is the friend of those in debt, but again the enemy of those who save.

    The nail in the coffin after all of this is that towards the end of your life, care fees and inheritance tax, again only apply to those who have saved and provided for themselves, but out of already taxed income.

    We really do seem to have things arse about face in this country, but then with Government continuing to spend increasingly vast sums of OUR MONEY and getting further in debt themselves on our behalf, it is no wonder policies do not favour those who are a little prudent.

    It will have to change, but when.

    • Bill
      Posted December 29, 2012 at 1:17 pm | Permalink

      Completely agree. Inflation was used as a political weapon by Lenin as a way of destroying the Russian middle class after 1917.

      • Bazman
        Posted December 30, 2012 at 10:07 am | Permalink

        Must have worked as there is no middle class in Russia today. Scum that got lucky does not count as middle class.

    • helen jones
      Posted December 29, 2012 at 1:48 pm | Permalink

      You are so so right

      Everything is stacked against those who have gone without and tried to save out of taxed income whereas those who have frittered everything away get it all handed to them on a plate

      However since Carney was wooed and chosen by Osbourne who hates savers and pensioners with a passion given all that he has done to knife them in the back i cannot see any light in the tunnel at all

      Everything the B of E have done so far has simply made Mervyn King a very very Rich Pensioner indeed

    • zorro
      Posted December 29, 2012 at 5:39 pm | Permalink

      97% of credit is created by the private banks. German inflation after WW1 was caused by the poor control exercised over monetary arrangements by the privately owned Reichsbank. It is the continual interest on the credit which is killing us……

      John, do you have any comment on the Chicago Plan Revisited which, interestingly, appears to have been commissioned by the IMF?


      Reply: I do not detect any interest in the Chicago Plan this side of the Atlantic. As you know, I do wish to see the broken banks remodelled. Even this is too much for the UK/EU authorities.

  8. Gadfly
    Posted December 29, 2012 at 8:09 am | Permalink

    Rather than expressing the inflation rate as an annual percentage, it is more useful to express it as we do for atomic decay, as the “half-life” of the value of money. 5% a year does not sound much, but a half-life of less than 15 years sounds more serious.

    Also at that rate what costs £1 today will cost £131.50 in a hundred years time. No wonder the Bank wants to inflate away the national debt!

    • Credible
      Posted December 29, 2012 at 6:44 pm | Permalink

      Expressing inflation in terms of a half life sounds like a very good idea.

  9. Martin
    Posted December 29, 2012 at 8:27 am | Permalink

    Thanks for the heads about this new governor and his attitude to inflation and by implication devaluation. You are right that inflation did us no favours in the past.

    It could get very interesting indeed if another central bank takes a more hawkish attitude to inflation and Sterling loses value against that currency!

  10. Brian Tomkinson
    Posted December 29, 2012 at 8:46 am | Permalink

    Can we not find something better to measure and target than growth? It seems to me that the main problem is that the state is spending too much. If the deficit is not eliminated and thereby the debt at least stabilised then the government will not be able to borrow at low rates exacerbating an already dire situation. In this regard there is “good growth” viz. the private sector and “bad growth” viz. state sector. Growth could be shown to increase by the government borrowing and spending more. Just why this would be regarded as beneficial with regard to the deficit is a mystery to me. Apparently the lessons of history haven’t been learned regarding inflation. It seems to me that this is proposed by so-called economists who live in a theoretical world of government control and simplistic solutions. The state must have what it wants. If you have saved and been prudent then you must be punished for such foolishness and the reckless and spendthrifts must be rewarded. That approach ultimately will destroy our economy and country.

    • Mike Stallard
      Posted December 29, 2012 at 2:20 pm | Permalink

      I don’t think you are talking the right talk. The idea is that the state grows but slower than the economy. The rich who do well out of the expanding economy pay a lot of tax to support the vulnerable poor and the vast state apparatus which is entrusted with making us all into better people grows too.

  11. Leslie Singleton
    Posted December 29, 2012 at 8:47 am | Permalink

    The principal task of the Bank should be preserving the value of the currency and it seems ridiculous to me that anyone should think that juggling with inflation in any way shape or form could help in any way–not without terrible consequences at any rate. At least the new Governor isn’t say French so we must thank our stars for that. Apart from all else, assuming the MPC is to continue, it’s not as if the Governor on his own has that much power, nor should he have given that he is not part of the Government and has certainly not been elected.

    • William Long
      Posted December 30, 2012 at 10:13 am | Permalink

      The problem with this is that the easy thing for the MPC to do is to let inflation rip and given half a chance they will and we will all be poorer for it, except MPs who have again exempted themselves from tax restrictions on their pensions.

      • Denis Cooper
        Posted December 30, 2012 at 2:03 pm | Permalink

        This is where we get into the rule of law, because the MPC has a statutory obligation to keep inflation close to the target set by the Chancellor but the law provides no specific criminal sanctions should it fail to do so; and there would be very little prospect of the CPS considering that failure to fall within the offence of “misconduct in public office” when the Chancellor himself turns a blind eye to it, and even if it was feasible to seek judicial review of the actions of the MPC and the Chancellor there would be very little prospect of a judge ordering them to fulfill their statutory duty; and while the Chancellor is in theory accountable to MPs few of them seem any more concerned about inflation running way above his target than he is; so what was the point of putting all this into law, when that law is apparently unenforceable because MPs don’t want it to be enforced?

  12. Pete the Bike
    Posted December 29, 2012 at 9:11 am | Permalink

    Carney ( is an ex banker who will be pro banker and will not have controlling public sector pay as a priority etc etc)

  13. Alex
    Posted December 29, 2012 at 9:14 am | Permalink

    “He also needs to woo, not undermine savers.” Very British understatement.
    Anybody who is daft enough to be a saver or investor, or is approaching retirement without a generous taxpayer-funded public sector pension, is seeing their financial future crippled. With negative real returns and plunging annuity rates this government has punished everyone who saves for their future.
    If the government wants to know why people aren’t saving for their retirement, they could maybe stop forcing those who do into poverty and state dependence?

    • helen jones
      Posted December 29, 2012 at 1:50 pm | Permalink

      Correct on all counts

      but Osbourne has (family wealth-ed) so he simply does not care about what he has deliberately done to rip off all the savers and pensioners

      It will come back to bite him when they all have to claim Pension Credit

      • P O Taxpayer
        Posted December 29, 2012 at 11:26 pm | Permalink

        According to recent reports the family company Osborne & Little has been losing money for several years. They are presumably having to finance these losses from company reserves or borrowing against assets. I suspect therefore that the family fortunes are not what they used to be!

    • alan jutson
      Posted December 29, 2012 at 2:40 pm | Permalink


      “If the government…….could maybe stop forcing those that do into poverty …. etc”


      Where is the incentive to save when by doing so all you do is lose more and more value.

      • sm
        Posted December 29, 2012 at 11:36 pm | Permalink

        That’s the unsaid plan…someone has to pay don’t expect it to be the guys that control the levers and cut the deals.

        The real wealthy are not impacted by inflation, public sector real service levels or means tests in the same way, they will or should be diversified to counter this.

        The small guys can be nimble and that’s it. There are ways but most are not able to protect themselves legally from this?

        When the private sector worker below MP level have been financially eliminated, what gives?

    • helen jones
      Posted January 3, 2013 at 9:43 am | Permalink


      While Governments dissincentivise savings and rip off those who were prudent its no wonder people rely on the welfare state

      I know so many elderly who because they have no option but to keep depleting their savings will soon be eligble for Pension Credit
      Osbourne has not and will not face that fact and its effects on Welfare Bill

  14. Disaffected
    Posted December 29, 2012 at 9:31 am | Permalink

    Didn’t the deadly duo promise a cap on public service pay, no one should earn more than the PM? Today we hear Cameron makes a vow to waste £13 billion on overseas aid (taxpayers’ money- more than what is spent on policing). He claims it is for the world’s poorest people. What rubbish. How about the consultants, despots, the EU decides where a sixth of OUR UK aid of taxpayers’ money goes (and it does not even fit the UK criteria) or the £8 million left for the Rwandan government to decide. He knows this when he speaks so can we trust a word he says?? Add this to the EU contribution, toll of mass immigration on public services, welfare bill still rising and no wonder no improvement is made to the economy. Note to Boy Osborne: spend a little more time at the Treasury the country is broke.

  15. oldtimer
    Posted December 29, 2012 at 9:39 am | Permalink

    Inflation is the politicians` fools gold. Still, on his pay and benefits package that is not something that Mr Carney has to worry about. And the cost is covered in not much more than the blink of an eyelid as the QE printing press churns away.

  16. lifelogic
    Posted December 29, 2012 at 10:01 am | Permalink

    On control of inflation, with banks charging huge margins over base 4%+ often, on mainly floating rate mortgages, the last thing needed is higher inflation and any increases in interest rates that would surely follow.

  17. Tegfryn
    Posted December 29, 2012 at 10:31 am | Permalink

    Is Mr Carney anticipating what his BoE salary will be worth in Canadian dollars at the end of his stewardship?

  18. Acorn
    Posted December 29, 2012 at 10:45 am | Permalink

    Just passing so I thought, as a rest between rants, have a listen to Yanis on how he and his mates, got Greece into the Euro-zone; they copied the Italians. .

    • David Price
      Posted December 30, 2012 at 10:50 am | Permalink

      A fascinating and illuminating perspective on the European dilemma – thanks

  19. stred
    Posted December 29, 2012 at 11:14 am | Permalink

    It would be interesting to know whether Mr Carney negotiated his obscene pay package before or after the announcement of his appointment. If the Downing Street boys announced his appointment before fixing conditions, in haste to get a bit of positive PR, then he would have been able to raise the stakes. Just try to forget the waste when doing tax returns and sending the money.

  20. Demetrius
    Posted December 29, 2012 at 11:45 am | Permalink

    Back in the 1960’s I recall many experts saying that a little bit of inflation each year was a good thing, say around 3%. Then I recall what was the consequence in the 1970’s, never mind socially and economically.

  21. forthurst
    Posted December 29, 2012 at 12:35 pm | Permalink

    There are very serious imbalances in the economy: the public sector is oversized, over-remunerated and over-pensioned. In the private sector, the best remunerated are those whose criminal negilence and fraud (too big and important to gaol, except in Iceland) largely caused the crash; the worst remunerated are those whose non-living low wages have to be substantially subsidised by the taxpayer; better remunerated are those who do not work, apart from producing more mouths, and who live where they choose at our expense having found their way here from the third world or poorer parts of E. Europe. It is absolutely not clear how an overpaid foreign executive, sitting in his toy car waggling the steering wheel, will have any beneficial effect on the dirction of the economy whose structural problems can only be solved by good governance, requiring good quality people, not a bunch of buffoons whose greatest ambition was to be a Bullington boy.

    Low interest rates are essential to maintaining the status quo. The last thing this country needs is to maintain the status quo with its savings stealing inflation, over-priced houses, and overblown public sector. No change, no chance.

  22. Normandee
    Posted December 29, 2012 at 1:24 pm | Permalink

    Sounds like a socialist itinerary to me, throw money at the problem, if it’s expensive it must be good. Well look at how much the government costs, look at the European organisation, do they look like they are good value ?
    Surely they must be good, look at what they cost. When the world finally runs out of money the penny will drop that there is a simpler way, but by then it will be too late.

  23. Atlas
    Posted December 29, 2012 at 2:25 pm | Permalink

    … and what will be Carney’s relationship with the ECB be ?…

    Off topic, but on matters EU. I read in the Telegraph how all the EU Mandarins are getting upset that WE should determine our own future and not them! So Cameron is doing something good at last.

  24. john harmsen
    Posted December 29, 2012 at 2:52 pm | Permalink

    When,oh when will the economists finally bury Maynard Keyns?. It is really time to return
    to classical economics. A bit of inflation never will resolve any problems.
    Please come back Milton Freedman, all is forgiven.

  25. Chris Rickard
    Posted December 29, 2012 at 3:22 pm | Permalink

    Surely the UK has learnt by now that inflation is the enemy of our economy. It makes imports more expensive increasing the trade deficit, destroys the value of savings & ramps up the bill for Gov spending on inflation linked benefits. We need growth in our economy but “real” growth not “nominal” growth. This whole financial crisis was created by a boom in consumption created by cheap money. The last thing we need is the loose monetary policies now being pursued by this Chancellor. What the UK desperately needs is investment, productivity and supply side reforms to make it easier to do business. This will come from lower tax (which in turn requires lower Gov current spending), better skills (training, apprenticeships & education) and less bureaucracy, red tape & quangos. The UK needs more lending banks and more varied sources of debr. It doesn’t need a lot of expensive costs to ring fence retail banking being heaped on already weak banks. I like the appointment of Mark Carney but it’s a tough old job he has taken on. We, and he, will need patience.

  26. Alan Wheatley
    Posted December 29, 2012 at 3:43 pm | Permalink

    Re “we are trying to recover from a borrowing crisis, where people did not save enough”, while not disagreeing I would like to add the following.

    There is a third way: neither borrowing nor saving – a sort of “just in time” financing, which is OK as long as the two remain in balance.

    However, I believe conventional wisdom is to have some savings to see one through the unexpected when income does not meet expenditure. This can make sense, as the inflationary loss on savings is better than the interest costs on loans.

    • helen jones
      Posted December 29, 2012 at 5:19 pm | Permalink

      Savings so you have a backstop is fine logic when your working or have a company
      pension you can depend on

      The problem is no one can live on State Pension so you need savings interest to survive
      Sadly thanks to Osbourne and B of E Pensioners who rely on savings interest have been hammered into the ground and are in real distress

      Government policy towards pensioners has been horrendous just as the failure of
      our 2 leaders and Osbourne to honour their promises to Help Savers has been

      • zorro
        Posted December 29, 2012 at 6:21 pm | Permalink

        Helen, it is important to think why governments are using this policy. I will tell you how they think…..Pensioners have no economic usage, they consume sometimes/often at public expense. They live in houses often bigger than they need. If we have inflation, they can no longer afford them, and we can make them sell up cheaply and then a newly arrived family can take up residence. They have the vote but not for as long as the recent arrivals…….Pensioners won’r riot, we can do what we like and we don’t really care….Governments are cowards.


  27. Credible
    Posted December 29, 2012 at 5:06 pm | Permalink

    Since you are commenting on Mr Carney’s package, would you like to inform us what your pension and payouts will be worth when you are no longer an MP?

    Reply: I am on the standard MP pay and pension package which is a matter of public record.

    • zorro
      Posted December 29, 2012 at 5:46 pm | Permalink

      Credible, you need to remember that John has other sources of income/work apart from his MP’s salary so it is not comparing one job with another. As John says, he gets the basic MP salary and pension….


  28. Antisthenes
    Posted December 29, 2012 at 5:39 pm | Permalink

    How a society prospers or otherwise is all about environment and our society has by following the social democratic path has created an environment that rewards or least does not punish greed, corruption and ineptitude. It does not reward or at least it does not encourage thrift and honesty. You write excellent articles on how particular issues aught to be addressed but regrettably you are only looking at symptoms and not causes so avoiding or perhaps you are not understanding the root problems. It maybe that you work inside the Westminster bubble and not outside it that you fail to see the big picture and how screwed our society, economy and democracy really is. I respectfully suggest that you concentrate your considerable abilities on ways of changing the social, economic and political environment and if you do all the other things you advocate be done will fall naturally into place.

  29. zorro
    Posted December 29, 2012 at 5:54 pm | Permalink

    John, I note that you have just now mentioned the question of Mr Carney’s payment arrangements. I must admit that I had been surprised by the lack of comment compared to Mr King’s arrangements, particularly as his proposed intentions look as if they are going to impoverish an awfully high number of people through his inflationary central banking policy. I cannot see the justification for this package bearing in mind the well worn exhortations by the government on the rest of the public sector…….The question is how will he stimulate the economy? By creating debt free money and stimulating public works or encouraging private banking which is to all intents effectively kyboshed by the Basel III type requirements…..


  30. Denis Cooper
    Posted December 29, 2012 at 5:58 pm | Permalink

    Shouldn’t it be necessary for MPs to formally approve whatever inflation target the Chancellor proposes to set, rather than just leaving it to him to decide?

    “12 Specification of matters relevant to objectives.”

    “(1) The Treasury may by notice in writing to the Bank specify for the purposes of section 11 —

    (a) what price stability is to be taken to consist of …”

    “Where the Treasury give notice under this section they shall —

    … (b) lay a copy of it before Parliament.”

    So MPs are merely informed after the Chancellor has decided and the notice has been sent to the Bank.

  31. zorro
    Posted December 29, 2012 at 5:59 pm | Permalink

    Slightly off topic….I’ve been up the M1 and back today, and I have to say that it is rather wet. Fields are literally like lakes on both sides of the motorway…….It really does make me wonder when we’ll have our next hosepipe ban with all this horrible winter rain filling up our reservoirs. Don’t worry….a couple of sunny days in April, and that groundhog moment will occur. A slick executive from a private water company will say…..’Please be careful with water, or we’ll have to bring in a water hose ban’…..Just one example of private companies being as wasteful and hopeless as state owned ones….


    • alan jutson
      Posted December 30, 2012 at 12:01 pm | Permalink


      “private companies ……”

      They will take the easy solution and just put up their prices, because that is the simplist method to increase revenue.

      Remember they say they also have to pay for flood protection, as well as new water distribution schemes.

      Just another legal type cartel/monopoly really, as you cannot live without water, and there are only a limited number of suppliers, who all get the basic raw material for free.

      Not a bad business to be in !!!!!.

  32. Dennis
    Posted December 29, 2012 at 7:03 pm | Permalink

    Do we know what Carney’s contract will be or will we have to wait for him to resign or be sacked for gross failure then hear of his massive payoff and massive pension pot and be told, “but it is in his contract”?

  33. David Langley
    Posted December 29, 2012 at 7:57 pm | Permalink

    Hang on remind me, who does the BOE work for, us or the banks, retail banks or casino? If its us we pay if its them they pay, but if we are are all in this together we all pay. Lets start again JR who pays Carneys wages?

  34. uanime5
    Posted December 29, 2012 at 9:00 pm | Permalink

    It seems that when the Government wants to hire a specific person then money is no object.

    Also I doubt Carney will do much about inflation if he doesn’t suffer a penalty for high inflation.

    I’m surprised that no one has posted about the rejection of the 75% tax rate in France. Maybe it’s because they realised that:

    1) The Conseil d’Etat didn’t kill of this bill but recommend that it be changed. It’s the function of the Conseil d’Etat to review all bills before they become laws.

    2) The Conseil d’Etat didn’t oppose the 75% tax rate because of the Laffer Curve but because it would effect households differently depending upon how their income was split between two adults. For example a household with two people earning €600,000 would pay less tax than a household where one person earned €1,200,000 and another earned nothing.

    Pity the UK doesn’t have something like this as it would have objected to the way cuts in child benefit are being implemented.

  35. Jon
    Posted December 29, 2012 at 10:22 pm | Permalink

    Its been a while since the phrase toxic debt was being banded around, a simple inflationary policy I would think would bring that back followed by scares within the banks. There is not a simple solution, its like that toy where you carefully move a metal ring around an electrically charged wire, touch the side and its game over. We are in a global economy now and we need to compete in that, I hope he is not after a simple answer.

    The salary and benefits remind me of (named exec at) London Underground now First Group.

  36. Pleb
    Posted December 30, 2012 at 7:39 am | Permalink

    When the Roman Empire was starting to colapse, the leaders financed circuses.
    Olympics, Weddings, jubilee. With more next year, baby. Circuses distract people from the true shambols of the situation. However Rome did still tumble.

  37. Bazman
    Posted December 30, 2012 at 10:05 am | Permalink

    It’s interesting that someone on nearly half a million a year needs a ‘housing allowance’ obviously some sort of tug going on there as there often is at the top of the game. I’m not being lectured on scrounging and the importance of self reliance from these individuals.
    I also don’t have problem with people in the private sector earning low amounts as long as the rest of the workforce is rewarded in a similar way. The Private sector is a company not reliant on the taxpayer. What I do have a problem with is the low paid being subsidised by the taxpayer in the form of tax credits and benefits. The idea that there can be no minimum income in this country is not real. Are we to see shanty towns? The problem lies with who pays. The taxpayer or the employer? At the moment we are seeing low wages subsidised by the taxpayer in effect subsidising often very large and profitable companies who are constantly telling us about how the state needs to interfere less. We will start with not interfering by letting them pay poverty wages and avoiding tax whilst using the infrastructure and education of this country. Right wing middle class social security beinficieries not surprisingly have little to say on this, but lots to say about the abolition of state benefits in all forms for the low paid and unemployed. Ram it.

    • Edward
      Posted December 30, 2012 at 4:37 pm | Permalink

      Bazman in some ways I agree with what you are saying.
      Tax credits, which I think were an invention of Gordon Brown, were brought in to increase the size of the Labour vote and the size of the dependent client state.
      They have grown to be a monster in the ever more complex tax and benefit system.

      He could have simply reduced tax and NI for the lower paid and/or increased the point at which people start paying tax and NI.
      He could have increased the amount of allowances you get for having children or given larger allowances for child care costs or being married or having a dependent partner, but instead we have a system where you can be in work, earning a modest amount, pay tax and NI on it, and then have to make a comlicated claim for tax credits to get some or all of it back.
      You can also be on minimum wage and still pay tax, which is silly.

      You could legislate for a minimum living wage but how that would be set up to differentiate between part time workers, full time workers and contract workers and between single people, singles with kids and families of various sizes, I would not like to try and sort out.
      One reason wages at the lower end of the scale are falling is the 500,000 new arrivals coming here each year which are increasing supply when demand is static.. Employers are finding that a job advert brings in many more applicants than vacancies.

      • Bazman
        Posted December 30, 2012 at 8:18 pm | Permalink

        Whatever. Minimum income will not go away. Deep blue thinkers can ram it.

      • zorro
        Posted December 30, 2012 at 11:57 pm | Permalink

        Good points – Bazman might be surprised at what common ground we would have. None of us want government topping up wages. Employers should pay a decent wage and immigration must be controlled…..


  38. Conrad Jones (Cheam)
    Posted December 31, 2012 at 11:04 pm | Permalink

    More inflation requires more money.

    More Money means more debt.

    More Debt means more interest payments to Banks.

    More Interest Payments to Banks means less disposable income, leading to eventual default on loans, leading to more Bailiouts to Banks.

    Mark Carney use to work for Goldman Sachs … for thirteen years. Goldman Sachs is an Investment Bank that now qualifies for Federal Bailout money due to it’s reclassification as a Commercial Bank.

    No doubt Mark Carney’s a smart man.

    Do you think that a Canadian called Mark Carney – who use to work for a Investment Bank – like Goldman Sachs, is going to care if the UK Economy Collapses next year? Are there any penalty clauses in his contract, if he makes any mistakes or just a big Golden Handshake – whatever mess he leaves behind?

    “More Inflation?” – tell that to your Grandmother and explain what it means to her life savings.

    • Conrad Jones (Cheam)
      Posted January 14, 2013 at 12:44 pm | Permalink

      “The new governor of the Bank of England will be given a housing allowance of £250,000 a year, pushing his total annual earnings towards £1million.

      Canadian Mark Carney, who takes over from Sir Mervyn King on July 1, will get the extra cash on top of pay and perks worth £624,000.

      It takes his total annual package before tax to £874,000 – six times more than the £142,500 Prime Minister David Cameron is paid”

      Is Mark Carney worth six times more than David Cameron? I don’t think he is.

      Should we really be paying Housing Benefits to a Canadian on a short term contract of £250,000 PER YEAR ? (THAT’S 1.25 Million Pounds before he even get’s to the Office).

  • 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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