So many still don’t get the debt and deficit problem

 

           I had to pinch myself this week listening to the run of political news.

           A senior Lib Dem has been up and about demanding that the state takes on much more of the cost of elderly people in nursing homes so they can leave more of their capital to their children. Whilst he said this could be paid for by some cuts in benefits to the better off elderly, the longer term liability is likely to prove much larger than the cuts. In other words he wants to transfer more money from the elderly to their often   richer children by raising taxes on everyone to do so.

         Labour has been out and about saying they want to offer everyone out of work for more than two  years  the minimum wage for six months, to pay them more than benefits, with a view to giving them some experience of working. They would pay for this by a further raid on savings in pension funds.

          Many lobby groups are back in full cry for more money. Councils want more to spend. People want bigger subsidies for the railway industry as the fares have gone up yet again. It’s business as usual. There’s apparently nothing wrong with the UK that a bit more public spending would not put right.

          Meanwhile the UK is still adding to its borrowing at more than £100 billion a year. State debt just keeps increasing at an alarming rate. This week the UK ten year cost of money for the government rose again, to 2.1%. This is still a low figure, but it is 40% up from the bottom and rising. Every 1% added to the average  interest rate is a large increase in future spending on just servicing the ballooning debt. (£10 bn extra cost if you include the Bank of England owned debt)

            Let’s try and get these huge figures across in a more accessible form. For every man, woman and child the UK now has borrowed nearly £17000. On top of this is all the bank, PFI and pension debts of the public sector, which take  it to £40,000 of borrowing per person.  As each person’s income is only £25000 on average, the task of repaying the debt is now gargantuan. Meanwhile instead of starting to rein it in, the state borrows more, so people are adding £1700 a year extra to their already large debts.

           Would any indvidual or family behave like this? If you were so much in debt already, would you be allowed to borrow so much more? Individuals are reducing their big debts of the Credit bubble period.

             Tomorrow I will look at the excessive spending and losses of some of our nationalised industries, where managing them better could start to make a difference to their costs. More politicians and officials need to spend more time thinking how to do well with less, instead of looking for yet more areas where the state should accept the liability.

           The big issue with the benefit bill is not the level of the benefits to the deserving, but the eligibility criteria. The cuts people want to see is disallowing benefits to people who come here to work of their own volition but are not citizens, as they could return home if there is not sufficient well paid work here. Many also want  to find ways to encourage more people on benefits  to take the jobs available.

 

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200 Comments

  1. Adam5x5
    Posted January 5, 2013 at 6:34 am | Permalink

    More politicians and officials need to spend more time thinking how to do well with less, instead of looking for yet more areas where the state should accept the liability.

    Chance would be a fine thing. How many politicians are calling for a reduction in public spending?

    There needs to be a shift change in governmental attitudes soon, otherwise we will be forced into one by the markets.

    The problem can be seen clearly to those of us outside Westminster or local government.

    Take this article
    http://www.telegraph.co.uk/news/uknews/road-and-rail-transport/9779599/Parking-charges-top-1bn-as-council-plug-budgets.html

    Councils have their budgets cut, so what do they do? Cut back spending? Become more efficient?
    Don’t be silly, they fleece the taxpayer even more. This is of course, self-defeating as it just drives people away from town centres which subsequently die and the income drops, so the charges have to be raised further, driving more people away etc…

    The government (local and national) need to slim down. Why do we have a Department for Culture, Media and Sport? What’s the point? Defence, Justice, a bit of Social Security, emergency healthcare & necessary structures to finance said things is all the government should be doing.

    I read this today:
    “And – a little known fact – if the RSPCA brings a case and loses it, the costs of the defendants are usually borne by the taxpayer.”
    http://www.telegraph.co.uk/earth/countryside/9780817/Our-once-great-RSPCA-is-being-destroyed-by-a-militant-tendency.html

    Why do I have to pay for this?

    The solution is simple…

    Stop spending money – EU, Overseas Aid, benefit reduction, cut government down to size

    Stop taxing so much!!!

    • uanime5
      Posted January 5, 2013 at 5:18 pm | Permalink

      It seems that councils are just copying what the Government does, except they’re raising their prices rather than cutting benefits. But the end result is the same: fleecing the taxpayer (anyone who pays VAT is a taxpayer).

      • Bob
        Posted January 6, 2013 at 3:22 pm | Permalink

        @uanime5
        “anyone who pays VAT is a taxpayer”

        So someone claiming £35,000 tax free in benefits, fills up their BMW, that makes them a tax payer?

        I would call that person a tax receiver.

  2. Brian Taylor
    Posted January 5, 2013 at 6:49 am | Permalink

    Please keep this up,the facts must continue to be rammed home to those that do not understand!

  3. Julian
    Posted January 5, 2013 at 6:50 am | Permalink

    Many people in America seems to understand the problem of a national debt so large that it is difficult to see how it would be repaid. However, in this country it is left to the backwaters (sorry!) of blogs by you, Dan Hannan and Douglas Carswell to raise this issue. As you sometimes point out, even supposed experts on the BBC sometimes confuse the debt and the deficit.

    How can a majority be made to feel in their bones that this is important, even if they don’t understand the economic details? I’m sure this cuts across political boundaries and that there are many on the left and right who would come to the conclusion that the debt has to be reduced.

    • Bob
      Posted January 5, 2013 at 1:36 pm | Permalink

      @Julian
      ” supposed experts on the BBC sometimes confuse the debt and the deficit.”

      “How can a majority be made to feel in their bones that this is important, even if they don’t understand the economic details?”

      Isn’t it the duty of the BBC to educate and inform?

      Have a look at the Channel 4 program “Britain’s Trillion Pound Horror Story”.

      Link: http://www.channel4.com/programmes/britains-trillion-pound-horror-story/4od

      You can watch it on the internet without a TV License.

      While Channel 4 broadcast the truth about the economy and ITV expose “Aunties” paedophile cover-ups, the BBC continue to lie, deceive, indoctrinate, distract and trouser large amounts of taxpayers cash.

      The License Fee funded BBC is a major part of the problem.

      • Big John
        Posted January 5, 2013 at 8:13 pm | Permalink

        Brilliant program, you are right, you would never see this on the BBC.

    • wab
      Posted January 5, 2013 at 11:30 pm | Permalink

      “Many people in America seems to understand the problem of a national debt so large that it is difficult to see how it would be repaid.”

      Hardly anyone in America understands this issue at all. Even Senators (especially Republican ones) talk utter nonsense on this topic. The Obama tax plan would have reduced the deficit by 800 bn over ten years (relative to having all the Bush tax cuts continue for everyone), but the extra tax cuts the Republicans insisted be given to the rich-but-not-crazy-rich (those earning between 250k and 400k) mean that instead the deficit is being reduced by 600 bn. I would be willing to bet that not one American in a hundred understood this.

      The Republican Party, which is the biggest whiner about the debt/deficit, really only care about slashing spending on the poor and increasing spending on the military and decreasing taxes on the rich. Two out of those three positions make the debt/deficit situation worse. It was the Republican Party which blew the debt situation wide open by “paying” for two extremely costly wars, an expensive new Medicare expansion, and crazy tax cuts (some of which have now been reversed), by borrowing. The Republican Party only cares about the debt/deficit when the Democrats are running the show.

  4. colliemum
    Posted January 5, 2013 at 7:11 am | Permalink

    Thank you for this outstanding post – which should be force-fed to the Cabinet, Whitehall, and the majority of your colleagues in Parliament. And let’s not forget the MSM and the economic pundits.

    There are two take-home messages in your post today.
    The first is that the private households are reducing their debts – i.e. paying back. Isn’t that extraordinary, that they do so while having salaries which haven’t kept step with inflation, and in the face of higher taxes.
    As I say – it’s extraordinary, and something our politicians are seemingly unable to do, while the economic pundits keep telling us that running a household is in no way like running a national economy …. well, yes, but in both cases, isn’t it true that one cannot spend what one doesn’t have? And that debt will have to be paid back, one day?

    Which brings me to the second take-home message: the eligibility criteria. Odd, isn’t it, that the politicians of the left seem to think that “fairness” towards all comers, regardless of eligibility, is somehow good – while taking from the native population which works and pay taxes is ok, because the can work more and pay higher taxes. Or can make do with less when old, because the newly eligible need to live at the same standard (housing, TV, etc) as the rest of the welfare addicts.

    Perhaps it all comes down to the one simple fact, bemoaned here and elsewhere by so many: that most of our MPs simply do not listen to their voters …

  5. Pete the Bike
    Posted January 5, 2013 at 8:03 am | Permalink

    as long as they’ve got the Bank of England to print money the government can continue to pump money into the parasitic public sector. That won’t stop until sterling collapses no matter how much people that can do arithmetic call for restraint.

  6. alan jutson
    Posted January 5, 2013 at 8:12 am | Permalink

    By chance, I listened to Ed Balls being interviewed yesterday with regard to his thoughts.

    He has all of the answers John, you simply spend the money you save on raiding the rich (whoever they are) and spend it (the same money) countless times on different projects, the fact that the amount he was going to get with increased taxes would not even pay for one of his solutions, seemed to pass him by.

    He then went on to say as you outline, go for growth (so borrow more) employ more people, guarantee jobs for the long term unemployed, before any thought is made of reducing benefits if people refuse to work.
    The fact that borrowing more would increase the deficit and debt, again seemed to pass him by.

    Given that this man along with Miliband was the achitect of Browns (so called investment) disaster, the thought of having these people in charge of UK finances again should worry the Nation to death.

    As I and many on this blog have said many times, the true facts of our position need to be spelt out clearly for all to see, and this has been the coalitions biggest failure to date.
    They have simply failed on so many counts, and seem to have an inability to communicate.

    The vast majority of the population are simply not aware of the true financial position of our Country, and do not understand the difference between an annual deficit, and total debt.

    A state of the Nation broadcast made 3 months after the last general election (after proper examination of the books) with simple charts and graphs being shown, would have gone a good way to clear the air.

    At the moment given the way the government are spending money we have not got, I am not sure even the Chancellor or the Prime Minister even gets it !
    So what hope do they have of explaining it to anyone else.

    Just wait until interest rates start to rise again for the masses, then you will start to see real hardship as peoples disposable income is decimated.
    Growth will then seem a very, very long distant dream.

    • lifelogic
      Posted January 5, 2013 at 1:12 pm | Permalink

      Indeed, according to Balls, Labour, Clegg and even Cameron’s economics – it seems the way to be taller is just to pull hard on your shoe laces – just print, borrow, tax and waste.

    • Morvan
      Posted January 5, 2013 at 4:21 pm | Permalink

      alan jutson

      John Redwood has it right which begs the question of why he still takes the Tory Whip?

      There is in fact no solution to the problem that does not involve severe pain now, and even more severe pain in the future if the can kicking does not stop right now. There is little chance of that happening, so Miliband and Balls taking over would only bring the collapse forward from where it will be if the Con/Libdem circus act continues. We would appear to have the choice of a long drawn out death presided over by Cameron et al, or a swift and sudden one under the guidance of ‘I’m forever blowing bubbles’ Miliband and Co.

      M.

      • alan jutson
        Posted January 5, 2013 at 5:21 pm | Permalink

        Morvan

        I cannot speak for John and would not seek to do so, but my guess would be, he hopes to influence those in power by continuing to speak up with facts, and recommend solutions.

        The fact that he is a member of the Conservative Party and one of their Mp’s, would give him greater access to their ears, than if he was at war with them.

        John has voted against certain policies with which he disagrees, and has done on a number of occassions.

        I can only hope his voice gets stronger, and that he gets more support from other Conservative Mp’s for his views, so that commonsense policies on finance will eventually gain the majority support.

        The one thing we all need is for publicity of the real facts, for without those the public remain uniformed.

        One thing is for certain if we carry on as we are going, it will all end in tears.

        As you suggest, its simply a question of when.

        • Disaffected
          Posted January 6, 2013 at 12:02 pm | Permalink

          JR might be a little naive if that is his stance. Cameron’s article in the DT and his dismal performance on Marr show what a dead horse he is for the Tory party.

          Child benefit cuts for traditional families not marxist unions, gay marriage no matter what, irrespective that it has no mandate or gone through proper parliamentary procedure, borrowing money to give away on overseas aid when old people cannot afford to heat their homes because of his green agenda (£2 billion given to Africa for wind farms), powers have been given away to the EU over the last two years ie European arrest warrant, how much has the UK contribution for theEU increased already? The list is endless. Yet he thinks people will believe him- absolute mugs if they do.

          How many cast iron guarantees does any body want to listen to before they stop believing him, especially on Europe? Remember the Lisbon Treaty promise? He did not even make changes when he had the opportunity in Nov 2010. He makes it clear there is no turning back with his modernisation agenda even if it is against grass root supporters. So who does he and his advisors think they Tory Party will appeal to? Certainly not former Tory supporters like me.

          I am not sure that Labour would have taken any different stance on the economy to Cameron and Osborne. Not even they would have made the stupid mistakes in the budget as Osborne did.

        • Morvan
          Posted January 6, 2013 at 1:17 pm | Permalink

          Alan Jutson

          The same argument as used for staying in the EU then; we have more influence if we are inside the tent than outside, even if no one takes a blind bit of notice of what we say and continue on regardless.

          Reform from within does not work when you cannot get anyone within to listen to you. John and Lord Tebbit are either wasting their time, or acting as lightening conductors – my money is now veering towards the latter.

          M.

    • uanime5
      Posted January 5, 2013 at 5:26 pm | Permalink

      Would Ed Balls’ plan involve borrowing more or less than the coalition is currently borrowing? How much would it increase tax revenues by?

      If the net result is that it would cost less than what the coalition is currently doing then it is a viable solution. As long as the Government is borrowing large amounts of money then any solution that involves borrowing the same amount of money can’t be criticised because it involves borrowing money.

      • alan jutson
        Posted January 6, 2013 at 10:54 am | Permalink

        uanime 5

        Mr Balls solution involves borrowing more money, he has said so himself because he says its worth the extra investment (his word for borrowing)

        This of course ties in with his mantra of this government cutting too deep and too fast, even though it has been proven we are getting even deeper into debt.

        The man is a political opportunist who is financialy clueless.

    • Manof Kent
      Posted January 5, 2013 at 6:11 pm | Permalink

      Quite agree ,the explanation is simply not there and when we have the PM saying ‘we are paying down the deficit’ we must assume the Govt is in the business of obfuscation not clarification. Why?

    • LB
      Posted January 5, 2013 at 6:13 pm | Permalink

      He then went on to say as you outline, go for growth

      ===========

      1. What do they mean by growth?

      The only thing they mean is that they get more money from you. They aren’t prepared to cut. So they want you to pay more.

      2. They will try and con you that its getting people back to work.

      So look at Balls. If we grow the amount we take off you, we can get people back to work. Not that they will pay money.

      However, lets just play his game for a moment. Get one unemployed person back to work. 12K saved in benefit, 3K in taxes.

      15K to the better off.

      Get a million back to work for no cost, and that is 15bn.

      Where is the other 135 bn of deficit spending going to come from?

      You’ve guessed it, your pocket.

      • uanime5
        Posted January 6, 2013 at 6:05 pm | Permalink

        Your maths is wrong.

        If they’re working for minimum wage they’ll get much the same amount in benefits. The only benefit they won’t get is JSA (£3,692 per year), however as they’ll get about £1,100 in tax credits (more if they have children) the benefit saving is at most £2,592.

        With a personal allowance of £8,000 and a salary of £12,000 they’ll only be paying a 32% tax rate on £4,000. So the tax revenues will be £1,280.

        They getting an unemployed person into a minimum wage job makes the Government at best £3,872 better off, not £15K. So getting all the 2.51 million people into work will result in a saving of at best £9.71 billion.

        The Government cannot rely on getting people into minimum wage jobs to have a substantial effect on the benefits bill.

  7. lifelogic
    Posted January 5, 2013 at 8:12 am | Permalink

    Exactly £40,000 per person of debt, increasing at £1700 PA and £25000 on average of income per person. It could all be solved with no pain by firing the half of the state sector that does nothing useful or even negative.

    Alas Cameron and Clegg will do nothing of the sort and continue heading the wrong way. The next election is surely lost to Labour, who will be even worse.

    Though not much worse I suspect. Huge benefits cut are inevitable and would be beneficial. Beneficial even to those health people then forced then to work.

    • lifelogic
      Posted January 5, 2013 at 2:46 pm | Permalink

      I see the foolish Cameron has said – Foreign companies like Starbucks and Amazon which have avoided paying large corporation tax bills in the UK lack “moral scruples”.

      Well where are his moral scruples? Cameron’s tax, print, borrow and waste “cast iron” government. Government sets the tax laws and control the Inland Revenue rules. Companies anyway almost have to legally minimise taxes and indeed all costs or they will be taken over or just out competed by other companies that do.

      I am sure the companies will spend it far, far better than Osborne and will thus create real jobs – at least they will not give it to the PIGIS, transfers to the feckless, litter the countryside with pointless subsidised windmills, renewable directives or spend millions on pointless inquiries or on the EU.

      • Bazman
        Posted January 5, 2013 at 5:59 pm | Permalink

        The moral scruples are short in Cameron who should be taxing them. The idea that Starbucks and the like will invest the money in Britain is another of your right wing fantasies. The money end up in offshore accounts such as Bermuda and where it goes from there is not clear.

    • uanime5
      Posted January 5, 2013 at 5:32 pm | Permalink

      Your delusions that half the state sector can be fired without having any negative impacts isn’t a viable solution. You’ve never even been able to name any parts of the state that could function just as well with half the staff.

      50% of all benefits go to pensioners (16% of the population is over 65, though this will greatly increase due to the baby boomers retiring and the declining birth rate). Are you suggesting that they have their benefits cut to force them back into work?

      • lifelogic
        Posted January 6, 2013 at 6:17 am | Permalink

        There are plenty of parts of the state sector that merely do harm – block roads with pointless islands and anti car traffic lights, pay subsidies to wind farms, encourage electric cars, enforce absurd damaging regulations. There are may other sections with absurd systems rules and pointless duplication – Tax, VAT and NI for example, building regulations, planning – or could easily be run with half the staff were the system remotely sensible. Just paying and pensioning the state sector at the same rate as the average private sector worker would save about 1/3 of the sectors wage & pension bill.

        • uanime5
          Posted January 6, 2013 at 6:11 pm | Permalink

          The roads are not solely made for cars. People have a right to cross them with being mowed down by a petrol head who believes he owns the roads.

          HMRC tried working with less staff and they found that they were much less effective, which is why the Government is having to hire more staff. It seems that they didn’t learn their less regarding the border agency.

          Your delusions about the pensions of public sector workers won’t fix the welfare problems. It’s the people who worked in the private sector who are pushing up the welfare bill because their pensions aren’t enough to survive on, so they need to claim welfare. So reducing public sector pensions will just result in more people needing welfare. The opposite of what you’re trying to achieve.

  8. Leslie Singleton
    Posted January 5, 2013 at 8:16 am | Permalink

    The debt is ghastly and the pace at which it is rising is hardly believable. It is a puzzle that so many do not seem to understand this but on the other hand it is perhaps not so surprising because this PR government early on made the decision to play down the seriousness of the debt, this on top of Brown latterly saying that we mustn’t fear the debt or some such drivel. To be fair, they originally thought, at least I hope they did, that matters would be improving by now but of course they are not, so it is even harder for the government to start telling the truth now without looking incompetent and changing course with an election starting to loom. The less well off, even if aware of it, couldn’t care less about paying down the debt, indeed there is no mechanism for them to do so. To the extent it is ever thought about at all, the debt is thought of as something for the rich alone to worry about via their being forced to pay more. Obviously the rich should pay more but more than what? More than the less well off certainly, but not more than they are already paying because they are already paying a vast amount with the top few percent from memory paying over half of all tax. How can it realistically be expected that much more could be extracted than that? The government, in forever saying that all is under control has been the opposite of Churchillian in levelling with the country and the people know it and now despise them. Pity that, for all of us.

    • lifelogic
      Posted January 5, 2013 at 1:15 pm | Permalink

      So many do not understand, because the BBC, the TUC, many charities, all the political parties and many other are clearly misleading them every day.

    • Bazman
      Posted January 5, 2013 at 6:00 pm | Permalink

      The rich being corporations using our infrastructure and education and not paying in?

    • P O Taxpayer
      Posted January 5, 2013 at 10:33 pm | Permalink

      The Unite union are drumming up the idea of a National Strike (presumably only public sector employees) against the government cuts in the public sector. With Government borrowing still increasing it should be clear to even bone headed public sector union leaders that Goverment spending/borrowing is out of control and cannot continue.

      These are the unions that are bank rolling the Labour Party and are undoubtably seeing this as an opportunity to get the Tory/LibDem coalition out at the next election and get Labour elected who will they believe give them what they want.

      The last Labour Government with their irresponsible stewardship of the UK economy got us into this awful mess and if they get back into power we shall see this once great country move towards becoming the sick man of Europe once again.

      • P O Taxpayer
        Posted January 5, 2013 at 11:31 pm | Permalink

        On this blog I keep seeing the message from people saying that UKIP is the answer to our prayers. I see UKIP as a single issue party who will help Labour win the next election. If UKIP are lucky they might win a few parliamentary seats thanks to protesting ex Tory voters not voting or voting UKIP . These will be seats won from the Tories not Labour.

        Currently, I am a dissapointed and angry Tory supporter who may not work for or vote Tory at the next election. I certainly did not canvas on doorsteps for Gay Marriage and to have this non manifesto issue introduced without the support of the electorate is a scandal. Let me make it clear that I am not against gay people. I am angry at the arrogance of Cameron to decide to introduce legislation that is not relevant to the problems facing our country at present. If this becomes the norm, what other legislation will be forced upon us without a democratic mandate? This is the road to dictatorship.

        I know that I am not alone in this view and that is the very serious situation facing the Tory party in the run up to the next election.

      • uanime5
        Posted January 6, 2013 at 6:15 pm | Permalink

        Well under the strike laws non-public sector employees can’t go on strike because of things that only effect the private sector. That’s why on the public sector can go on strike in protest at Government cuts.

        Given how the economy has gone from having 2% growth when Labour with in power to a double dip recession putting Labour back in power would stop the decline of this country.

        • Edward
          Posted January 8, 2013 at 8:10 am | Permalink

          2% growth when Labour were fire hosing money into the economy was poor return for their investment, as they call it.
          And shows massive public spending isn’t the solution to achieving a low unemployment economy with greater prosperity for all.

  9. A.Sedgwick
    Posted January 5, 2013 at 8:55 am | Permalink

    Quite so, you are preaching to the converted.

    The continuing mystery to me is how you and numerous other like minded MPs can continue to remain in the Conservative Party led by Cameron, who has the distinction of being wrong or indecisive on every major issue and who, of course, allowed the disastrous Libdems into coalition giving the politically awful Clegg a completely undemocratic and unjustified level of importance in Government.

    • lifelogic
      Posted January 5, 2013 at 1:24 pm | Permalink

      Indeed it was Cameron’s pro EU, soft socialist, fake green agenda and letting Clegg have equal TV billing that lost the election against the sitting duck Brown. The idea that he can lead the party to a victory next time is as absurd as the idea Major could win after his ERM farce.

      Major only won the first time because people had not yet realised what a pro EU, incompetent and dishonest lefty he was. He then went on to bury the party for three terms. How many terms will Cameron burial of the party be – permanent perhaps?

    • Morvan
      Posted January 5, 2013 at 4:29 pm | Permalink

      A,Sedgwick

      It can only be self-advantage, or they are all telling porkies. Anyone with true conviction and belief in what they say would have jumped ship at least twelve months ago. There is no way I know of of turning a barrel of rotten apples in to one full of good ones apart from turning them all out, burning them, sterilising the barrel, and then refilling it with good ones.

      M.

  10. JimF
    Posted January 5, 2013 at 9:11 am | Permalink

    “the state takes on much more of the cost of elderly people in nursing homes so they can leave more of their capital to their children.”
    So the state takes away peoples’ savings and pensions, then returns it to them when they enter nursing homes…. sounds like the recipe for a long and happy life… NOT

    “Labour has been out and about saying they want to offer everyone out of work for more than two years the minimum wage for six months, to pay them more than benefits, with a view to giving them some experience of working. They would pay for this by a further raid on savings in pension funds.”
    So now we’re taking peoples’ pensions again. This time we give them to people who don’t really want to work, to work for employers who don’t really want them there. I can see Tescos etc taking advantage of this to take on more people at lower wages to stack shelves. It won’t inspire our knowledge based industries which we do need to support to take on no-hopers, though, will it?

    As you say, it’s money that the state hasn’t got, but that the Coalition government is still lining up to take in the immoral scam that is the NEST pension scheme for low-paid employees. Presumably this cash too will eventually be taken and used to support the feckless?

    The only way any of this LibLabCon nonsense can be construed as being good is that it increases support day by day for the UKIP alternative.

    • Iain Gill
      Posted January 5, 2013 at 10:19 am | Permalink

      on the costs of old age care one, the voters really dont understand how it can be so different in scotland to in england. how comes scottish pensioners dont loose their home to pay for old age care? how comes presciptions are “free” in scotland. and so on? what is the true position on how scotland pays for this? are they increasing the scottish national debt? or adding it to national debt of the whole uk? etc?

      • Derek W
        Posted January 5, 2013 at 1:43 pm | Permalink

        I’m afraid that you will not get an answer as the ‘scottish problem’ frightens most of our political class as their world view is to be beneficients towards all nations except their own.The English are not seen by them as worthy.

      • JimF
        Posted January 5, 2013 at 2:06 pm | Permalink

        I think that had a lot to do with Labour wanting to woo all things Scottish away from the SNP, and the LibCon Coalition government being too slow, dim and scared to change it. There would indeed be little to be lost by Cameron doing a deal with the Scots that if they vote Yes to the Union then all things north and south of the border become equal, and they shut their Parliament, and if they vote No in their beloved referendum then “over to you pal”.

        • Manof Kent
          Posted January 5, 2013 at 6:18 pm | Permalink

          Great idea !
          Too hard ball for Cameron.

      • lifelogic
        Posted January 5, 2013 at 2:49 pm | Permalink

        What is the true position on how Scotland pays for this?

        They don’t the English, largely in the south, pay for it.

    • A different Simon
      Posted January 5, 2013 at 10:46 am | Permalink

      I think you are making an big assumption that people who have been out of work for 2 years do not want to work .

      The shadow banking industry are the enemy of the man in the street . Not the poor . It’s the elite of the shadow banking industry which seeks , successfully , to enslave everyone and has assisted this situation to arise .

      Look back over the past 40 years -
      - Labour and Conservative governments have encouraged people to take on more debt in order to puff asset prices , particularly houses , so the banks and lenders get a greater share of the fruits of peoples labour .
      - Labour and Conservative governments with the approval of the CBI encouraged the dismantling of private sector pensions schemes so that money which might have been saved was spent immediately – enabling further puffing of asset prices .
      Can you trust the p0liticians who are discouraging saving and personal responsibility ? Are they AUTHTENTICALLY proposing to take responsibility for people in their old age ?

      I don’t think they are . This is a promise they are making to one generation on behalf of the next .

      The elephant in the room is that when the need to make provision for your old age is taken into account , almost the entire population has been achieving a negative rate of saving for three decades .

    • Credible
      Posted January 5, 2013 at 10:38 pm | Permalink

      Labour want to hit pensions of higher earners because those people will not vote for them anyway. The money will provide work for those who are much more likely to vote for them if only they could be more engaged in politics.
      The Conservatives on the other hand are hitting hardest those who don’t vote for them anyway and in setting the working poor against the unemployed they plan to get a few more votes from those who are working and struggling.
      All these policies are party politically based and do not deal rationally or honestly with a serious situation. But what else can we expect given our democratic system. Unpopular policies lose elections. Tactical policy making is the order of the day.

  11. oldtimer
    Posted January 5, 2013 at 9:16 am | Permalink

    How true!

    The UK, like several other countries, is living in a fantasy land where profligacy rules the day. With a few notable exceptions, like yourself, the political class leads the charge in the hope of gaining power by making false promises. The focus instead needs to be on regeneration of the enterprise spirit so that the UK can earn its way in the world. At present it is failing to do so. It is instead living on an illusion “paid for” by QE.

    • A different Simon
      Posted January 5, 2013 at 11:04 am | Permalink

      You are clearly right that the enterprise spirit needs to be freed .

      However things have changed . Patent laws have been abused to make it very difficult for anyone to come up with something new which does not infringe another’s frivolous claim .

      Trying harder is not enough . The rules of the game need to be changed !

      If you can remember back to the last time you played the Monopoly board game the lesson is that the rich get richer and the poor get poorer .

      After playing Monopoly a couple of times you start to realise that it is not a game of skill and the result is predictable after everyone’s second circuit of the board and it quickly loses it’s interest .

      That’s the same with the UK where Ricardo’s law of rents prevents people getting ahead .

  12. Liz
    Posted January 5, 2013 at 9:19 am | Permalink

    None of the news media covering these news items questioned the mathematics – it was just presented as fact. This is the problem in getting over the enormity of the size of the debt. BBC lunch time news in fact has 4 labour MPs to one Conservative being questioned on these issues. The BBC itself is careless with taxpayers’s money and there lies the problem.

    • lifelogic
      Posted January 6, 2013 at 6:25 am | Permalink

      The BBC itself is careless with taxpayers’s money – “careless” is rather an under statement. What reasons have they to be careful control is virtually non existent with the complaisant Lord Patten at the trustee. He seems to approve of contracts which reward failure and pay/pensions that is often about three times the market rate. He even supports paying head hunters huge fees then recruits internally. What fool appointed him?

  13. Teresa
    Posted January 5, 2013 at 9:40 am | Permalink

    I obviously get up earlier than other people. Just to say that I now understand Labour’s strategy on managing the national debt and deficit: it is put less sugar on you cornflakes. I think it’s called diversionary tactics…

    • David John Wilson
      Posted January 5, 2013 at 12:56 pm | Permalink

      On the other hand it would be interesting to know what the effect would be on national debt if sugar imports were reduced by 50%. It is all very well moving the sources and spendings of the tax revenues around, what is needed is a serious attack on improving the UKs balance of payments. Increasing the tax take on imported unhealthy foods has many potential advantages.

      • David John Wilson
        Posted January 5, 2013 at 1:43 pm | Permalink

        To contimue this argument a little further. If the cost of anything is traced back to its origins a very high proportion of that cost is the cost of labour. Much of the cost of that labour will also be paid in taxes.

        To solve the deficit problem we must ensure that more of the labour costs of any product are incurred in the UK. This increases employment and the UK tax take.

        We thus need to the old fashioned values of improving the balance of payments by buying British. One simple example: Why buy foriegn produced cheese when there is a British produced variant of the same variety the is cheaper and just as good. (e.g. French Brie or Somerset Brie)

      • Bob
        Posted January 5, 2013 at 1:57 pm | Permalink

        @DJW
        “moving the sources and spendings of the tax revenues around”

        Subsidies to EU sugar beet should be reduced?

  14. Brian Tomkinson
    Posted January 5, 2013 at 9:45 am | Permalink

    It is incredible that after two and a half years of a coalition government, which was supposed to be dealing with the horrendous budget deficit and debt, so little has been achieved and so much ignorance abounds. Or is it so incredible? If you think back before the last election, none of the main parties wanted to spell out the true horror of the situation. I remember thinking at the time that because the Conservatives had done so little to prepare the country for the medicine it would be forced to administer it was storing up resentment and trouble when it did act. Little did I appreciate that it had no real intention of dealing with it in the first place. As you pointed out in 2010, the plan was to carry on increasing total spending, increase taxation and plan to virtually double the national debt in 5 years. Your party lost my support and vote at that point. As I see it there is no main stream party serious about tackling the debt problem. They are all tax and spend. When overseas aid is not only ringfenced but increased in the face of this financial crisis, and this action is not just defended but lauded by Cameron, it is not surprising that there is so much ignorance about the parlous state of the national finances. The three main parties are all playing a silly and dangerous game of pretence when it comes to eliminating the deficit. Many of the leaders seem to have no comprehension of the difference between deficit and debt when they talk. Rather than ignorance I am sure this is just deliberate mendacity, trying to create a false picture. I have also tired of hearing Cameron tell us that you can’t borrow your way out of a debt crisis whilst planning to do just that and double the debt in just 5 years. The country is in a parlous state and the leadership of the three main parties is about as poor as any I can remember. Yet there are good competent people languishing on the backbenches of both sides of the house. Sadly, they are mere lobby fodder and they show no signs of being prepared to change the situation and take the action necessary to stop the rot.

  15. stred
    Posted January 5, 2013 at 9:45 am | Permalink

    Given that the job of a bank manager is to ensure that his customers are able to stay solvent and repay debts, or ought to be, it seems odd that the manager of the Bof E has little to say about the £40k overdraft. The job of the new Governor, paid over 200x the average salary of UK citizens, appears to be to report regular failures in inflation targets, while collaborating with the money printing fiddle and financing much of the deficit. As the only qualification for this is dishonesty and lack of shame, it may have been possible to find a someone to do the job at a tenth of this salary.

  16. John B
    Posted January 5, 2013 at 9:45 am | Permalink

    So, Socialism: con people into beleiving they do not have to spend their money on looking after themselves, the State will do this using funds confiscated by force from the rich/wealthier/better off* (*select whichever suits the rhetoric of the moment).

    Those dependent on the State must then vote for those who when elected will feed the dependency, and of course this diminishes the chance of election of those who won’t. Eventually election will not be required.

    The really sad thing about this, is the current ‘Conservative’ ‘leadership’ have the same beliefs… they call it Social Democracy, but honestly, I cannot believe it’s not socialism.

    • lifelogic
      Posted January 5, 2013 at 2:52 pm | Permalink

      It is indeed Cameron’s own brand of print, tax, borrow and waste, fake green, pro EU version of socialism.

      • Bazman
        Posted January 5, 2013 at 6:04 pm | Permalink

        Socialism in one form or another will not go away in this country the population will not tolerate your 1900′s view of the world.

        • lifelogic
          Posted January 6, 2013 at 6:40 am | Permalink

          In 1900 UK government expenditure was about 14% of GDP unemployment about 2.5%. Given the huge improvement in technology and peace and stability how much better it could be now with such a ratio of government expenditure now.

          The 1900′s size of government expenditure, the general work ethics combined with lower crime rates, yet with the current technology would be just great for jobs and growth.

          http://www.parliament.uk/documents/commons/lib/research/rp99/rp99-111.pdf

          • Bazman
            Posted January 6, 2013 at 11:14 am | Permalink

            Removing almost all the infrastructure such as health education and the roads. Would 1900 life expectancy be a price worth paying? From 1911-5, 63% of people died before the age of 60. Now, only 12% die before the age of 60. Also most large companies would be out of here very fast as the economy declined and they where forced to pay for the infrastructure required.
            So much for Switzerland Huh? To many laws, regulations high prices and taxes not mention infrastructure. Make your mind up and stop fantasising if that is possible. Ram it.

    • uanime5
      Posted January 5, 2013 at 8:46 pm | Permalink

      That form of socialism is only possible when capitalism reduces wages to such a low level that people can’t survive without benefits. Well Karl Marx did say that capitalism leads to socialism.

  17. Narrow Shoulders
    Posted January 5, 2013 at 9:51 am | Permalink

    I look forward to your list of cuts Mr Redwood.

    From my perspective it seems that the easily targetable middle income earners (higher rate) has been excessively burdened with keeping government profligate. I look forward to Monday with relish as I enter a 65% tax band while immigrants and others who have not earned the right to draw down on the country’s overdraft continue to receive rises above my own increases.

    This in turn drives inflation which reduces my standard of living further. I don’t want to be in this together, I want to be able to afford to take care of me and mine.

    A transferable tax allowance would help btw.

    Please encourage, as far as you can, government to cease spending our money on anything other than health, education, defence, infrastructure and law and order.

    • Bob
      Posted January 5, 2013 at 2:13 pm | Permalink

      “Please encourage, as far as you can, government to cease spending our money on anything other than health, education, defence, infrastructure and law and order.”

      Seconded!

      • Bazman
        Posted January 5, 2013 at 6:09 pm | Permalink

        Err! Quite a few of these things are linked together Bob and decreases in other areas will lead to more spending in these. Law and order for example. As I have said before cuts are great until the person reaches 50 and is made redundant. Nice padding you must have?

        • Narrow Shoulders
          Posted January 5, 2013 at 11:07 pm | Permalink

          I suspect that increased lawlessness is a symptom of expectation driven by government interference in too many areas. If everyone’s expectation levels could be managed to their own contribution there may be less need for law and order.

          The “disenfranchised” masses in the recent riots expected to have trainers and TVs. The old class system may have stifled strivers but at least expectations were managed.

          If you are not working or have arrived here on a low wage your standard of living should necessarily be low. There should be no expectation of more.

          I realise you will not agree Bazman but those of us who do think so need it to be said often and loudly.

          • Bazman
            Posted January 6, 2013 at 11:07 am | Permalink

            Basically what you are talking about is suppressing aspirations in order to drive the state into the ground. Regressive and retarded thinking. It would also drive much of the economy into the ground. Do you think those not working or have just arrived here are not on a low wage? Ah! Not low enough for you? They should be nearly starving and living in slums or more slummy than what they already living in. You seek the perpetuate the lie that they are all living it up on the taxpayers expense. Non Eu citizens are entitled to nothing despite what you read in the Sun. Unemployment benefit is £71 a week for six months nothing after that if you have more than 16k in the bank. Would you like to see the dole pay less? Of course you would. Can’t justify though can we? Desperation equal motivation equals more jobs? Wrong.
            Unfortunately for you we live in a democracy we all share in the responsibility to cover the costs of democracy with the rich having a greater responsibility than the rest of us because they receive the most benefit from it. This is why we have “progressive taxes” where the rates are supposed to go up as the income does. When you come out in the open you are easy to squash like many right wing fantasists.
            Ram it.

    • lifelogic
      Posted January 5, 2013 at 3:02 pm | Permalink

      Defence, some infrastructure and law and order would be sufficient – with perhaps a small safety net for the few who really cannot provide heath and education for themselves.

      • Narrow Shoulders
        Posted January 5, 2013 at 8:00 pm | Permalink

        Education costs a minimum of £5K per pupil per year, as this generation must pay for the next I think it is a reasonable investment to pay for them to be educated. Most parents even if tax were reduced could not afford this amount. There are some fine maintained schools out there and just because an education is paid for does not make it better. Granted there are also some dire ones but there are also some very poor private schools.

        Government providing health free at the point of delivery is noble and justified. The vested interests prevent it from being as world class as it could otherwise be. (I include suppliers in those vested interests). Both private education and health should attract tax allowances as after all the tax payer is being saved money but I maintain that these services should be provided by government in the list I set out above.

        If government could be judged on a much narrower field of endeavour it would be forced to perform better in the areas in which it is actually needed

  18. Wilko
    Posted January 5, 2013 at 9:51 am | Permalink

    Govt attitude to Nursing Care is bad.

    Jim lives moderately & has £60k saved at 70.
    Joe spends all he has on wild women, booze & poker & at 70 has debts of £60k.

    Govt gives Joe free Nursing Care & makes Jim pay for it.

    Why?

    • Posted January 5, 2013 at 11:01 am | Permalink

      Because it is our policy decision that we will not allow people to die. Although apparently (there are different issues with certain patients of the NHS-ed) if they don’t tell their families (what)they are doing (see articles on the Liverpool Care Pathway).

      I remember when I was growing up my dad used to laugh at people who felt they were being liberated by talking about sex. He said we didn’t realise how much faster we were creating taboos about talking about death than we were breaking them by talking about sex. He was so right!

    • A different Simon
      Posted January 5, 2013 at 11:21 am | Permalink

      I don’t know WHY , hopefully someone else can tell us .

      The paradox of means testing .

      The private sector has shown it is unsuited for pensions provision and the same would be borne out for financing of long term care . I don’t believe that this is because it’s an insoluble problem .

      If the state is proposing to look after ANYone in their old age then they should be prepared to look after EVERYone .

      National insurance , is an entirely appropriate way of doing this and also providing a livable pension which renders means tested benefits redundant .

      The problem we have is that no politician is :-
      - i) prepared to collect the premiums necessary to do this
      and
      - ii) would be able to resist the temptation to use them to fund current spending

      • LB
        Posted January 5, 2013 at 5:51 pm | Permalink

        National insurance , is an entirely appropriate way of doing this and also providing a livable pension which renders means tested benefits redundant .

        ==========

        No it isn’t. It only pays 20p in the pound.

        If a 26K a year median wage earner had put their NI into the FTSE, they would have a fund of 560,000 pounds.

        The state pensions costs 130,000 from a profit making insurer.

        So that’s 430,000 pounds stolen from someone who is hardly rich.

        1. No compound interest
        2. Taxation/redistribution
        3. Charges

        Why shouldn’t people have a choice?

        Ah yes, the state is bust, and needs the money to keep the ponzi going

        • A different Simon
          Posted January 6, 2013 at 10:28 am | Permalink

          LB ,

          National Insurance is abused by politicians who treat it as general taxation when it was meant to be hypothecated taxation . I am against proposals to roll NI into Income Tax because that just legitimises this abuse .

          Your maths make the assumption that national insurance was intended only for a pension .

          This is not the case , it was also meant to pay for the social safety net and healthcare .

          I’d be in favour of moves to hypothecate a published proportion of NI to pension , a published proportion to healthcare and a published proportion to the social safety net .

          “The state pensions costs 130,000 from a profit making insurer.”

          A rate of 4.4% seems a bit high for an index linked annuity , last I looked they were hovering around 3% .

          It was certainly a lot higher 10 years ago . What will annuity rates be when we come to retire . What happens when the insurer goes bankrupt ?

          Any scheme which guarantees a level of a benefit years into the future will by it’s nature have to be expensive . Some risk on the part of the policyholder reduces the cost . This is a good reason for scrapping db pensions .

          I’d like to see a double return on money allocated to a state pension ; investment in assets and infrastructure in the UK that provides both a real income to recipients and provides a benefit to future generations , eg council houses , reservoirs .

          Bit late for a sovereign wealth fund now .

    • lifelogic
      Posted January 5, 2013 at 3:03 pm | Permalink

      Because they lack to encourage fecklessness?

      • lifelogic
        Posted January 5, 2013 at 9:34 pm | Permalink

        “seek” not lack

      • Bazman
        Posted January 6, 2013 at 11:16 am | Permalink

        Or reduce absolute desperation.

    • lifelogic
      Posted January 5, 2013 at 3:07 pm | Permalink

      Also John & Jill can not afford to have any children yet as they are paying so much in tax, travel to work and mortgages. These taxes to pay the rent, benefits, schooling, social services, food, medical care etc. for people down the road who have eight children and no jobs and have never paid anything in to the system.

      • zorro
        Posted January 5, 2013 at 7:14 pm | Permalink

        At least that is what the amount paid on my ‘income tax’ and ‘national insurance’ appears to be telling me……

        zorro

    • wab
      Posted January 5, 2013 at 11:03 pm | Permalink

      Mr Redwood’s blog posting is saying, if I am understanding him correctly, that he is against further State money being put into paying for long-term Care. This is a difficult issue and one which all political parties have been all over the place on. But if this is his view, then apparently he supports the current situation where those who do not save get free Care from the State and those who do save do not.

  19. Iain Gill
    Posted January 5, 2013 at 10:11 am | Permalink

    Isn’t it worse than that? 25 K is the average pay of those that work. If you average income across those that cannot work, such as too ill, too young, too old, mothers with young children, and so on, then presumably the average non-state funded income is rather smaller.

    If you divide the national debt across the part of the population capable of work rather than including those that cannot work then the amount per individual must be higher?

    If you took into account that many incomes are from work in the state sector which is not really helping earn the country money then the figures must be worst?

    The biggest problem with the labour plan for temporary job creation is that it doesn’t really help. Most of the worst employment blackspots are in areas where the local industry has moved away, be they shipyards, mines, or whatever, and there is a massive over supply of workers. The entire working age population cannot work in the public sector and supermarkets! Throwing money at 6 months temporary employment does nothing to equip the workforce with the skills needed by potential jobs.

    Most of the places with a shortage of workers have a shortage of housing.

    There is a general lack of responsiveness in housing to meet the needs of the jobs market, largely caused by the state. Too much housing supply where there are no jobs, and too few houses where there are jobs.

    To say nothing of the fact that cutting the amount someone can put into a pension with a tax exemption cuts the size of the pension pots, and the amount of tax on the share dividends etc within the plan, and the amount of tax on pension payouts. So complete false accounting, its just borrowing more money from the tax take of the future.

    The national debt is outrageous. But worse that so much of it is wasted. Lets forget “aid” to countries that are richer than us in practise. The NHS wastes money in inefficient sub third world service of the worst kind. We have state schools so bad that frankly the children would learn more at home costing us a fortune.

    You are right John but so much more needs saying.

  20. Posted January 5, 2013 at 10:18 am | Permalink

    “In other words he wants to transfer more money from the elderly to their often richer children by raising taxes on everyone to do so.”

    In your world Mr Redwood.

    In my world one of my cousins moved back in with her parents to raise her children after her husband became an alcoholic and bankrupted them. So she operated with her parents as an extended family living in the family home. After her father died the home was put into her name. But then her mother got Alzheimers and although she tried to care for her mum she went down hill extremely fast and had to go into care.

    So although she owned her home, had lived in it for years and still had two dependent children, it was sold from under her to pay for her mother’s care. The council then had to find her a temporary council house in a high crime area. The rent on this temporary accommodation (she still can’t get permanent accommodation) is £160/week (in Scotland) because the council have to rent back council property they sold for £20k to provide her with something as there is such a shortage of homes. This is more than she can afford from her work as a cleaner so the state has to pay most of it. It’s a vast cost because of the Tory plan of selling all the council houses without building replacements. The son of the lady who was in that council house bought it for £20k and now has guaranteed in come of £160/week (that’s £8320 a year John) with the council doing all the maintenance. Apparently he has many luxury holidays.

    So let’s be clear John. The CAPITAL your are talking about is the children’s homes and we are talking about allowing them normal lives rather than becoming a vast expense to the state.

    You may think this Tory way of doing things is fantastic and everyone else is stupid for suggesting we look at it again but I think it needs review and I think your condemnation of the Lib Dems for suggesting we look at these cases again to see if it might be wiser to keep people in their own homes rather than force them onto the state is out of order.

    Reply You cite an unusual hard case where different arrangements may be needed. The cases I was talking about are ones where the last remaining parent lives in their own home and then has to move to a nursing home for the rest of their life. Under current policy (Coalition government) and under previous Labour government policy the elderly person does need to sell their home which they no longer need to pay the costs of the nursing home, unless they or the rest of the family have other ways of paying the bills. They can also of course insure before the event, or take out a loan against the house value to pay the bills. I think this approach which has been followed for many years is the best we can do at the moment, given the poor state of the national finances.

    • Posted January 5, 2013 at 10:56 am | Permalink

      What we could do John, is arrange for the state to seize every penny of your capital assets and spend them for you on the care of somebody who has zero quality of life and should not be being kept alive and you to be forced to live in the middle of a high crime council estate and for you and your children to become benefits dependent because the rent is far high than you can afford on your salary.

      By the way the mum in question has completed a business degree. She’s just never been able to get a job which uses it because of her care commitments for her parents and her children.

      They you would become one of the benefits scum Tories need plenty of to give their supporters people to hate and feel better than to keep them happy.

      Reply My aim is not to condemn or preach about people on benefits. My aim is to help promote an opportunity society where there are more ways out of poverty. I made my way from Council estate to Commons, and want others to be able to make similar journeys. I wouldn’t be spending my time in politics if I thought as you describe.

      • A different Simon
        Posted January 5, 2013 at 5:03 pm | Permalink

        “your capital assets and spend them for you on the care of somebody who has zero quality of life ”

        Rebecca , I’m sorry for your friend that her mother has contracted that awful disease .

        Money has to be raised somehow , inheritance tax in all it’s variations seems one of the least damaging though difficult to enforce .

        The house isn’t the children’s asset but the parents .

        There appear to be only limited options for funding care of the elderly :-
        A)- The insurance approach , ideally national insurance ; money is deducted from everyone during their working life .
        B)- People pay for their own care until their assets run out .
        C)- Pay as you go ; the generation in work pay for the care of the older generation .

        In my opinion the only equitable solution is A) even though this requires that more money be confiscated in the form of taxes during peoples working life .

        Which one do you favour ?

        • Posted January 8, 2013 at 12:50 pm | Permalink

          The house was owned by my cousin. Her mother had transferred it to her when she was well.

      • Posted January 5, 2013 at 5:28 pm | Permalink

        Do you have a link to what was said by the Lib Dems in the commons John?

        My MIL is on the verge of going into care with Alzheimers and all her assets will have to go to pay her costs. It’s sad but we’re not objecting to it provided we can find a satisfactory way by which we can let her house until her death and pay the costs on her death (which should be to the benefit of either the state or us or perhaps both depending on how long she lives).

        But the case I described is not that unusual and I think the conversation about such cases needs to be kept well alive. The figures I’ve given you are exact and I’m happy to provide more information if you like.

        I’m not suggesting you condemn benefits claimants John, just that some Tories do and that’s why some people vote Conservative and that we should avoid forcing people to become dependent on expensive benefits when they have a clear and valid route by which they can and morally should be able to avoid that.

        Reply The care statements came from Mr Bairstow outside the Commons, and are available on the BBC website, for example, as they as always gave him a good run for our money on this issue.

        • Posted January 5, 2013 at 8:52 pm | Permalink

          Instead of using this issue as a reason to berate the Lib Dems John, why not engage with it by suggesting that there should be the possibility of review of the standard conditions under specific circumstances, such as where there is rapid early onset dimentia, the person assessed as needing residential care is under 65 and the owner of the house has virtually no other assets John?

          While the title of this post is entirely valid the way in which you have justified its validity is inappropriate. The kind of families you are talking about do not deserve the kind of criticism you have levelled at them. Although if Hansard bears you out that the Lib Dem is not talking about the most derserving cases but about all cases I will reassess my criticism accordingly.

          Reply I have n ot levelled criticism at needy cases. The Lib dem proposal is designed to ensure a larger inheritance.

        • Posted January 6, 2013 at 1:13 pm | Permalink

          Searching BBC news for Bairstow I can’t find any recent articles. Could you give a link please John?

          • Posted January 6, 2013 at 8:21 pm | Permalink

            Who is this Bairstow person? I can’t find any record of him or of a Lib Dem raising this issue.

            Reply Paul Burstow, former Minister of State for Health.

          • Posted January 7, 2013 at 7:48 am | Permalink

            Burstow maybe?

            Except that all I can find out about him is that he’s trying to cut fuel payments to pensioners….

          • Adam5x5
            Posted January 7, 2013 at 8:30 pm | Permalink
      • alan jutson
        Posted January 5, 2013 at 5:50 pm | Permalink

        Rebecca

        I certainly agree with you about Council house sales, and certainly sales at wqell below market rates, a huge policy error in my opinion.

        I also agree that the Benefits sytem is in absolute chaos, and is not fair on people with serious health or mental problems.

        The question is how do you best construct a State system of help (if that is what the majority of the population want) that would cover every type of case, and who pays.

        In my view unless you have a real medical or mental problem which prevents you from working, Benefits should be minimal and time expire after a reasonable period, should apply only to those who have paid into the system, and should include a limited number of years allowance for stay at home Mums or Fathers.

        As far as means testing goes. it should be scrapped, pure and simple.

        If you pay into a system, then you should not be excluded because of your financial choice or individual circumstances.

        eg : Those who have chosen to save or purchase a house (usually out of taxed income) should not be excluded.

        See Wilko’s example in this blog above .

        We simply have to encourage self reliance, we cannot forever keep on spending ever larger sums of money, supporting a growing percentage of the population who simply exist to take, and put nothing into the system.

        Care Home fees rules qualification should be the same for everyone.

        The Lib Dems also have some crazy policies, and have lied to us all as well, it is not confined to just Labour and the Conservatives.

        • uanime5
          Posted January 6, 2013 at 6:33 pm | Permalink

          Unless there are enough jobs available for everyone throughout the UK then putting a time limit on benefits will just penalise the most unfortunate, and push them into crime or homelessness.

          Your plan about requiring people to pay in before getting benefits just penalises the young who won’t have had any chance to pay into the system and have huge problems getting a job because they lack work experience.

          Punishing people for not getting jobs that don’t exist won’t fix the underlying problems and will just create a new generation of criminals with nothing to lose.

      • Adam5x5
        Posted January 5, 2013 at 6:48 pm | Permalink

        Or we could keep borrowing, until the markets won’t lend to us any more.

        At which point we can either go bankrupt and have the austerity measures, which we should be doing now, forced on us by the IMF. Or we can follow the Mugabe school of economics and print as much money as you want until it is effectively worthless.

        No-one is suggesting taking benefits completely away from the genuinely needy. What I, and others, are suggesting is the removal of benefits from the undeserving, a reduction in benefits to something where it is liveable but not overly comfortable and a massive reduction in the size and scope of the state.

        Don’t get me wrong, I have sympathy for people in hard situations, but at the end of the day people have to work to get ahead and get out of tough situations – it doesn’t just fall from the sky and shouldn’t be taken forcibly from the sweat off other people’s backs.

        • uanime5
          Posted January 6, 2013 at 6:35 pm | Permalink

          We’re already implementing the Mugabe school of economics by having the bank print money and exchange them for treasury guilts.

          What you are suggesting is taking benefits from the needy, you’re just justifying it by claiming that some of the needy are undeserving for arbitrary reasons.

          • Adam5x5
            Posted January 6, 2013 at 9:30 pm | Permalink

            I agree, we are well on the way to Mugabe economics. Printing far too much money, borrowing too much to pay for things we don’t need or want.

            The definition of needy is already arbitrary.

            We need: shelter, water, food, clothing.
            Everything else is not a necessity but a comfort or a luxury.

            There has to be a limit somewhere to the amount of money we give, and this limit will always be arbitrary.

            I would like this limit to be as low as possible to minimise the burden on the people who support themselves and are net contributors. Why should someone have to work to pay for someone else’s comfort and luxury? They have to work for no reward, as their pay is taxed to fund someone else’s luxury. There’s a word for being forced to work for no reward…

            I said before, I have no objection to helping the genuinely needy, but I do object to being forced to hand over my hard earned under the threat of prosecution to allow someone to enjoy a luxurious/comfortable lifestyle.

            This woman for example…

            http://www.dailymail.co.uk/news/article-2246104/Unemployed-single-mother-benefits-spends-2-000-Christmas-20-presents-children.html

            Are you seriously suggesting that this woman doesn’t get too much in benefits?

    • LB
      Posted January 5, 2013 at 5:49 pm | Permalink

      And why is this going on? It’s because they have been running a Ponzi fraud.

      • Bob
        Posted January 5, 2013 at 10:50 pm | Permalink

        @LB
        “they have been running a Ponzi fraud.”

        It’s remarkable that the government get away with setting standards for the private sector in terms of monopolies, Ponzi Frauds, financial accounting, gender equality, ageism, health and safety etc .etc. from which the government itself is exempted.

        Shouldn’t they lead by example rather than diktat.

    • lifelogic
      Posted January 5, 2013 at 9:46 pm | Permalink

      It ownership was hers then, unless it had been transferred to her at under value, then surely she received value for it on any sale? It is fair enough for the state to prevent gifts of assets under true value in order to evade the care costs is it now? Why should everyone else pay them, rather than the recipient?

      • Posted January 6, 2013 at 8:22 pm | Permalink

        The state can claim possession of your house if has been transferred to you by someone who is going into care and you haven’t owned it long enough.

        • alan jutson
          Posted January 7, 2013 at 5:58 pm | Permalink

          Rebecca

          You do not transfer the house, you simply sell it, or remortgage it, and then spend the money on whatever you like, can even gamble it away if you want.

          Then you qualify for financial help from the system.

          Yes it is absolutely crazy, but then all you have done is to spend all of your money in 6 months, instead of doing what others have done on a weekly basis over their lifetime.

          This crazy system is how we demonise hard work and being prudent in this Country at present.

  21. MajorFrustration
    Posted January 5, 2013 at 10:23 am | Permalink

    Agree in all respects but unless you and like minded MPs start seriously shaking the bushes it will do no good to snipe after you lose the next election. The political cliff awaits.

  22. Atlas
    Posted January 5, 2013 at 10:35 am | Permalink

    As the later Roman Emperors found out, having no “bread and circuses” resulted in their premature death. Instead they progressively debased their currency until the inevitable economic implosion swept all away.

    With the US, the EU and the UK playing the printing-fiat-paper-money game, it is hard to see a pleasant outcome. Like the original owner of the Staffordshire hoard, bury your gold and hope for the best as the barbarians sweep in from the East.

  23. Neil Craig
    Posted January 5, 2013 at 11:01 am | Permalink

    We need either a PM who has the guts to say we cannot spend more & stick to it or a constitutional limit on the proportion of GNP the government can spend – a limit which cann be raised or lowered only by referendum.

    The former is not on offer & would anyway last only so long as that PM. The latter would involve the demos in what passes for democracy in this country & would be vastly preferable. Such evidence as there is suggests the people would not vote for the state to spend much more than 20% of GDP.

    • lifelogic
      Posted January 5, 2013 at 3:14 pm | Permalink

      20% is about right of course for maximum good. The public do however often vote for more tax because the poor majority (who often do not pay the taxes anyway) will always vote to rob the rich for their personal benefit. Especially with the political parties and BBC pushing the politics envy for political gain.

      They even support 50% taxes that raise less than 40% taxes – just to spite them all in the Labour, Libdem and Osborne mode.

      • uanime5
        Posted January 5, 2013 at 8:52 pm | Permalink

        Given that the poor majority is only poor because the rich pay them a pittance it’s no surprise that the poor don’t like the rich.

        • Bob
          Posted January 5, 2013 at 10:59 pm | Permalink

          @uanime5
          ” the poor majority is only poor because the rich pay them a pittance”

          Gross oversimplification.

          Some people are poor because they are lazy, some gamble their money away and some spend it on alcohol and/or drugs.

          Some work hard and invest their money to provide additional income.

          It’s your choice. Don’t blame the rich for your own indolence or lack of endeavour.

          • uanime5
            Posted January 6, 2013 at 6:37 pm | Permalink

            Your post is a grossly misleading.

            Most people are poor because they have a low paying job or can’t work because of health/child care/careering reasons.

            Some work hard and are still poor because they get paid so little.

            Many are rich and do little work because of a job they go through their contacts.

            Finally the rich are to blame when they get rich by ensuring that other remain poor.

        • lifelogic
          Posted January 6, 2013 at 6:58 am | Permalink

          Given the question would you like higher taxes for other that you will not have to pay many of the poor with vote yes. But it certainly is not moral to rob people in such a way.

          Pay is about supply and demand if they want higher pay they have to compete and work clever. Just as the employer has to compete. If they pay to much they will simply close down and jobs will go.

          • uanime5
            Posted January 6, 2013 at 6:38 pm | Permalink

            In a democracy the majority rule and as the majority get poorer the rich cannot maintain a system that only benefits themselves.

        • David Price
          Posted January 6, 2013 at 8:14 am | Permalink

          Poor – compared to whom? The majority in the UK isn’t poor.

          ONS data for the 2010-11 financial year shows 16% of individuals have wealth up to 60% of the national median, a level refered to as “at risk of poverty”, while 21% of individuals have less than 60% of median income.

          ONS data published 20-Nov-2012 also reports that 12.3% of the population find it quite or very difficult financially while 57.2% say they are somewhat, mostly or completely satisfied with their income.

          None of this data supports your assertion that the majority are poor.

          • uanime5
            Posted January 6, 2013 at 6:40 pm | Permalink

            Lifelogic mentioned the poor majority and complained that they wanted the rich to be taxed. I explained why.

  24. Acorn
    Posted January 5, 2013 at 11:36 am | Permalink

    Don’t understand debt and deficit! Also; don’t understand fiscal and monetary operations; financial and real assets; currency issuers and currency users or even debits and credits and double entry book-keeping. As the Old Surgeon said on Daily Kos recently:- (edited for UK clarity)

    1) Government Deficits drive private wealth.
 Unless we are net exporters, there is only one choice: either the Government or the Private Sector must be in deficit. Take you choice.

    2)The national debt consists entirely of the government’s exclusive obligation to accept pounds (and only pounds) to discharge tax liabilities. That is the government’s sole guarantee. It also has a legal tender provision, but that pertains to private debt and is really irrelevant to this argument.


    3)If you hold a Treasury bond or Guilt Edged Security (like China) the government makes two guarantees. a) It will pay the promised interest in pounds (the same pounds it creates at will); and b) it will be redeemed for pounds, whereupon the government will accept those same pounds in payment of tax liabilities. So should China decide to call our debt, here’s what happens. We give them pounds for the bonds and we stop paying them interest. At that point they have huge pile of paper that guarantees them the right to extinguish that specific amount of UK Tax liabilities, and we have huge piles of iPads and flatscreen TV’s. and a mountain of lesser stuff that they made with their labor and their materials. Ouch! So instead, say they refuse to buy any more of our bonds. But remember, we sell them bonds because they don’t want non-interest bearing cash. They can’t sell all their junk to us for anything but pounds sterling. Don’t want Guilts / bonds? Keep the pounds. Don’t want pounds? Sorry, Charlie, take your crap home. If you sell in UK, you sell for pounds. And course, if you don’t want to sell here for pounds, we might just start making them for ourselves and for our export market. So, should we be scared of all this? Are you insane? Are they? Is suicide a viable threat from an adversary?


    4)The government does not have to borrow money, it issues money, it creates it by spending it into existence, often taking a private asset or service in exchange. The government sells bonds to satisfy the private sector’s desire to hold savings in interest bearing instruments and to support interest rates in the private market. If the bond vigilantes don’t want pound-based assets, we can stop squandering sovereign money supporting their market and let interest rates in their world fall to nothing (as price of the sort after assets rise). That just lowers the propensity to save and stimulates consumption. The government imposes taxes to insure the value of its monetary instruments. Government debt is not debt in the conventional sense of the word – it is the governments IOU issued against the aggregate of the government’s UOME; it is the transduction of a one-sided private sector real asset into a two-sided financial asset (debit and credit), remitting the credit back as private sector wealth. That credit and its associated debit are both extinguished when the government receives it in payment against a tax liability. That is a monetary fact.

    • LB
      Posted January 5, 2013 at 5:48 pm | Permalink

      You’re assumption is that the debt = borrowing.

      There are other debts, such as pensions. Here they are linked to inflation. That’s the contract.

      Now if you print to pay, the debt goes up just as fast. You cannot inflate your way out of inflation linked debts.

      So that leaves default. Change the rules – no indexation, then print. Or literally do a child benefit and say, yep you’ve paid in but we’re not going to keep to our side of the bargain. Bugger off.

  25. Acorn
    Posted January 5, 2013 at 12:11 pm | Permalink

    Time to come over to the dark side of the force JR; the penny is dropping, finally. “IMF Officials: We Were Wrong About Austerity”. http://www.bloomberg.com/news/2013-01-04/imf-officials-we-were-wrong-about-austerity.html .

    • Narrow Shoulders
      Posted January 5, 2013 at 1:58 pm | Permalink

      Previous IMF aid recipients were able to trade out of their position so the austerity measures were mitigated by growth in other areas.

      The fixed EU exchange rate prevents EU strugglers from trading their way out.

      There is no austerity in the UK. We are overtaxed, our government represents too great a proportion of our economy and our costs of living are too high and we are scared that our jobs will be outsourced or given to cheap imported labour, that is why we are struggling.

      If there was austerity we have no way of trading out of it but a complete reboot might have benefits in a few years time as per the Reverend Thomas Malthus

    • waramess
      Posted January 5, 2013 at 3:37 pm | Permalink

      Acorn,the IMF are a bunch of Keynesian loonies. How can they and others fail to understand that even more spending by the non-productive sector can do no more than dilute the National Product and have a negative effect on growth?

      One man on a deserted Island surviving by catching just enough food for sustinence, joined by another who wishes to share the product but does not wish to contribute. It really is a s simple as that.

      Austerity means the non contributing sector must reduce its consumption and fast, no matter what the loony Keynesians care to say

      • alan jutson
        Posted January 5, 2013 at 5:54 pm | Permalink

        waramess

        “….another who wishes to share the product, but does not wish to contribute”

        An excellent example.

      • uanime5
        Posted January 5, 2013 at 8:55 pm | Permalink

        Given how dependent much of the private sector is on the state sector if the state stops spending it will be very bad for the private sector.

        • Bob
          Posted January 5, 2013 at 11:12 pm | Permalink

          @uanime5
          ” if the state stops spending”

          The state spends what it takes from the private sector.
          If the state stopped spending, then it could stop taxing, and the people could decide for themselves how to use their money, and I am sure they would use it more efficiently than the state.

          Bring it on.

          • uanime5
            Posted January 6, 2013 at 6:47 pm | Permalink

            Given that every economist opposes your line of reasoning it’s clearly wrong. There’s a reason why every country has a Government that taxes people, rather than letting people decide what to do with their money. Here are the main reasons.

            Since private companies refuse to pay for infrastructure that they don’t use, don’t expect the roads or rail to be maintained if the Government stops spending.

            Education, healthcare, welfare, and the police only exist because of Government spending so expect the country to massive decline if the Government no longer spends on any of these.

            In conclusion the private sector needs the public sector because they can’t operate without it.

          • Bob
            Posted January 7, 2013 at 11:04 am | Permalink

            @uanime5

            The railways were originally built by the private sector.

            Private education and healthcare are of a far higher standard than that provided by the state.

            Welfare has become a major white elephant and threatens to destroy our economy due to the way it encourages indolence and fecklessness.

            It’s not a question of all or nothing but rather the size of the state sector in relation to the economy. The present situation is that our state sector has become bloated and inefficient. It tries to do far too much and as a result does it badly.

    • forthurst
      Posted January 5, 2013 at 4:02 pm | Permalink

      I object to my money going to the IMF so that revolting specimens of humanity like Dominique Strauss-Kahn can stay in posh hotels. I give no credence to the biased drivel emanating from the IMF or Bloomberg. As JR has explained countless times to the point when only the most intellectually challenged would not have understood, Greece is trapped in a currency union in which low interests rates firstly encouraged the acquisition of unsustainable debt and second in which recovery by adjusting the exchange values of its trade is being prevented.

      • LB
        Posted January 5, 2013 at 5:45 pm | Permalink

        Personally, the Greek mess is down to politicians being fraudsters.

        Why would a sensible Greek pay tax to fraudsters and get no services?

        • lifelogic
          Posted January 6, 2013 at 7:01 am | Permalink

          The Portugal, Ireland, Italy, France, Spain and even the UK seem to be heading along the same direction.

      • uanime5
        Posted January 5, 2013 at 8:58 pm | Permalink

        Given that the UK hasn’t been able to recover by adjusting the exchange values of its trade it’s unlikely that Greece would be able to recover if it left the Euro.

        Odd how people keep forgetting that despite having its our own currency the UK isn’t recovering as fast as some countries in the euro.

        • Bob
          Posted January 5, 2013 at 11:18 pm | Permalink

          @uanime5

          Yes it is odd that public spending has continued to increase since Labour were ousted.

          I thought the government were supposed to be cutting back, not increasing spending.

          Foreign aid spending is the puzzler. It’s increased by £4 billion. Where did they find that money from?

        • forthurst
          Posted January 6, 2013 at 11:45 am | Permalink

          unaime5

          “Odd how people keep forgetting that despite having its our own currency the UK isn’t recovering as fast as some countries in the euro.”

          Only for other people like you who also haven’t beeen paying attention, being far too ready to gainsay what you are told with specious arguments: for some in the Eurozone, as per Northern Europe, the Euro IS a competitive currency. For some in the Eurozone, whose currencies were competitive, they did not suffer Gordon Brown ‘s profligate spending, housing bubble and banking collapse.

          • uanime5
            Posted January 6, 2013 at 6:52 pm | Permalink

            That doesn’t explain why the UK isn’t able to devalue it’s currency in order to create a trade surplus, something that people keep claiming Spain or Greece would be able to do if they left the euro.

            Also the global financial crisis did hit most of Europe and some countries have had their housing bubble pop (examples are Ireland and Spain). The UK wasn’t uniquely effected by the financial crash.

          • forthurst
            Posted January 6, 2013 at 8:56 pm | Permalink

            uanime5, the weaker members of the Eurozone had massive housing bubbles caused by interest rates set by the ECB which are still adversely affecting their banks’ balance sheets, despite bailouts (from us).

            Unfortunately, we have only Gordon Brown to blame for the residual consequences of our bust, as our problems were all as a result of his government’s mismanagement of the economy, not the ECB’s.

    • lifelogic
      Posted January 5, 2013 at 4:49 pm | Permalink

      Clearly what is needed is to stop the wasteful government spending and to release the private sector to compete and expand. Surely these expert economists can see this.

      Paying people to dig holes and fill them in again, install pointless wind power or worse inconvenience the productive, as the UK government so often does, is clearly a total disaster as Osborne and Cameron have shown.

  26. David John Wilson
    Posted January 5, 2013 at 12:22 pm | Permalink

    The tax relief on pension contributions needs to be restricted a lot more severely than it is currently. A maximum of £50k per annum transferable for one year should be sufficient to provide anyone’s pension needs. Half of the extra revenue raised should be used to reduced the deficit and the other half to raising the level at which income tax starts.

    • JimF
      Posted January 5, 2013 at 1:57 pm | Permalink

      Think this one through.
      Income tax is only deferred, not relieved. You are condemning pensions to extinction for non public sector workers. Do you think that is fair?

      • lifelogic
        Posted January 5, 2013 at 4:54 pm | Permalink

        Also many cannot put much in in some years but have some free in other years. They may be 60 alread and have no pension at all. Even if they put in 50K for five years they will only get perhaps £7,500PA. The best rule is a cap on the pot otherwise you discriminate against people who have variable incomes or career breaks.

        And indeed it is only tax deferment anyway so no point in putting it in at 20% to pay 40% later on it.

      • lifelogic
        Posted January 5, 2013 at 5:21 pm | Permalink

        The unfairness in pensions is clearly between the state sector/BBC defined benefit ones and the private sector pension that are often less than one tenth on average).

        If MPs want to be taken seriously they should start with the extremely generous MP’s 1/40 PA and RPI linked one.

    • LB
      Posted January 5, 2013 at 5:44 pm | Permalink

      So what your proposing is double taxation on pensions.

      50% tax on the way in, 50% tax on the way out. Net result is you get to keep 25%.

      In other words, lets tax Pensioners 75%. No doubt because they are stupid and won’t realize.

      • lifelogic
        Posted January 6, 2013 at 7:03 am | Permalink

        It clearly would make most pension contributions pointless.

      • David John Wilson
        Posted January 6, 2013 at 3:12 pm | Permalink

        No! What I am suggesting is that pension contributions should be restricted to a level where they provide a good pension and not be used as a way of avoiding tax. I will accept that a cap on total contributions may be better than restricting annual contributions. However I still object to contributions receiving relief at 50% and then the subsequent pension income only being taxed at 20% or even 40%.

        Perhaps the best solution would be restricting the tax relief to 20% and imposing a cap on total contributions.

        • sm
          Posted January 10, 2013 at 1:25 am | Permalink

          Some suggest a £26k cap on annual tax pension relief.

    • A different Simon
      Posted January 6, 2013 at 1:06 pm | Permalink

      David ,

      Vocational pensions should be considered secondary pensions and not main pensions .

      The country needs to get primary pensions right first ; i.e. a livable state pension that makes means tested benefits redundant .

      State sector occupational pensions would need to be lowered to enable this to happen .

      Why should people on defined contributions pensions be penalised with a tax on contributions when those with defined benefit pensions will be exempt because the formulas used to calculate the net present benefit are deliberately fudged to pretend they don’t cost as much as they do to provide ?

  27. Martin
    Posted January 5, 2013 at 1:28 pm | Permalink

    Isn’t part of the problem with “benefits” that there has been too much of a drift from what was an (National) Insurance scheme to a handout scheme?

    RE migrants and “benefits” you might the following analysis interesting:-

    http://www.migrationwatchuk.org/briefingPaper/document/284

    This shows that in most Western EU countries there is more of an insurance element than here.

  28. Derek Emery
    Posted January 5, 2013 at 1:30 pm | Permalink

    Are there any political parties that are competent at finance? Why is their only interest in spendthrift spending rather than working to a balanced budget?
    The UK and much of the west seem to believe they have a right to live beyond their means to enjoy western levels of services and the consequential rising debt this entails is not seen as important because we have always been good to pay it back in the end.

    I suspect they are wrong and that external lenders will turn against the spendthrift west once they realize they are lending to countries that have no means or intention of paying it back.

    Once this is realized for one western country it will be realized that the rest are equally bad bets. At this point there will be rapid rises in the lending rates and countries will eventually be forced to cut back spending by the IMF which will then be the only source for affordable loans.

    The Bank of England and others are incompetent because they make decisions based on financial models that are not a reflection of the real economy. Since most politicians know next to nothing about finance it’s a case of the blind leading the blind.

  29. Stu H.
    Posted January 5, 2013 at 1:39 pm | Permalink

    Dear John Redwood,

    Excellent post, keep plugging away.
    Sounds like you have your finger on the pulse on this one.
    I think the USA is aware of their debt only because their Treaty has run out and they have to decide on a new one.

    On the subject of tax, I had an e-mail today from the Robin Hood Tax group.
    The Eurpoean’s seem to be behind it, have you any thoughts?
    (I believe the ‘lovely’ Angela Schmerkals is trying to take a bite from that juicy cherry as we speak.)
    If it is a Euro wide deployment, hopefully they won’t migrate from the City in droves?

    I wasn’t aware out National Debt interest rate had already started to rise.
    ‘Ouch’ indeed. And worse to come, I fear.

    Best regards, as ever,
    Stu H.

    • LB
      Posted January 5, 2013 at 5:43 pm | Permalink

      Except he’s missed off the pensions debts.

      See page 4 http://www.ons.gov.uk/ons/dcp171766_263808.pdf

      5,010 billion.

      • Denis Cooper
        Posted January 6, 2013 at 9:10 am | Permalink

        But also see on page 5:

        “However, as explained in the ONS, OBR and WGA reports described above, Government pension obligations, because of their more contingent nature, and the extent to which they are extremelysensitive to discount rate assumptions, should not be simply added to public sector debt.”

    • uanime5
      Posted January 5, 2013 at 9:00 pm | Permalink

      This tax will apply to any country that does business with the euro, regardless of where they are. So emigrating won’t have any effect, nor will being outside the euro.

      • Leslie Singleton
        Posted January 6, 2013 at 12:41 am | Permalink

        Unanime5–You have been busy today and well up to standard especially the bit about the rich gratuitously paying the poor more. Re this tax, I confess to not knowing much about it. Having spent so long in what used to be called the Euromarket (Dunno how old you are but offshore dollars in London at used least to be called Eurodollars and exactly the same with other currencies, the Euroswiss franc for instance) half the point of which was to avoid national taxes, reserve requirements etc I am struggling to understand what is to stop a “Euroeuro” market developing (with the first Euro being in the old sense and the second in the new) assuming, that is, that it hasn’t already. All education from you and anybody else welcome because why the Euro should think it can be so different (making a fool of itself as usual if you ask me) I have no idea.

        • Leslie Singleton
          Posted January 6, 2013 at 11:48 am | Permalink

          Oh No–Still unmoderated–now I won’t get my education on the Euroeuro.

        • uanime5
          Posted January 6, 2013 at 7:00 pm | Permalink

          This tax is no different from any other type of tax, such as VAT or sales tax. It’s just one more tax companies will have to pay if they want to do business in the EU.

          Just because no other country has this tax doesn’t make it wrong in any way.

      • Sebastian Weetabix
        Posted January 6, 2013 at 10:13 am | Permalink

        Which simply means they are making the Euro a less attractive currency in which to do business. Expect an increase in dollar trade.

  30. Denis Cooper
    Posted January 5, 2013 at 2:51 pm | Permalink

    “Would any individual or family behave like this?”

    Not if they were reasonably prudent and responsible, and so they kept an eye on their outgoings and quickly noticed that they were spending about £5 for every £4 of income, and they knew that they couldn’t expect to receive any large capital sum in the near future which would enable them to pay off their accumulating debts, and nor did they have a helpful friend with a printing press and the legal right to produce new money which he would then lend to them in order to ward off their bankruptcy, at least for a time.

  31. Leslie Singleton
    Posted January 5, 2013 at 2:52 pm | Permalink

    On point, can it really be that Cameron is still talking about “paying down” the deficit, as he is quoted as doing in the Torygraph today? Nearly caused me to choke on a luncheon sprout. One starts to wonder whether he cannot grasp the difference between an Excess of Annual Expenditure and a Balance Sheet Payable. Frightening if so.

    • Bob
      Posted January 5, 2013 at 6:57 pm | Permalink

      @Leslie Singleton
      “he cannot grasp the difference between an Excess of Annual Expenditure and a Balance Sheet Payable”

      I refer you to the documentary film linked in my comment above:
      http://johnredwoodsdiary.com/2013/01/05/so-many-still-dont-get-the-debt-and-deficit-problem/#comment-153322

      Two MPs interviewed in the film did not know the difference between debt or deficit.

      It should be explained in Parliament in terms simple enough that even Ed Balls could understand. Maybe all MPs should be requested to view the documentary and then sit a simple test afterwards to see if they had understood the issues raised.
      This issue is far more important than gay marriage or female bishops.

    • zorro
      Posted January 5, 2013 at 8:14 pm | Permalink

      Just google ‘cameron paying down the deficit’……Either he struggles at basic economics or is deliberately confusing the issue…..It is a bit of a psyop really. It is reinforcing the ‘cuts’ message by saying that we are ‘paying down’ bills, when, of course, we are not doing so. All that is happening is that the debt is ever so slightly not rising as quickly, but we are still spending far in excess of tax intake. However, I do not remember Mr Cameron explaining matters quite so starkly to the public…..

      zorro

  32. Posted January 5, 2013 at 3:27 pm | Permalink

    Constantly attacking pensioners which all parties have been doing recently is not the way to deal with the debt or deficit.
    We should look more closely at the Scottish model for care is it a case of what they see as priorities after all everyone is part of this ‘aging population’ and if things are not worked out everyone will eventually lose their home to the state and be left with no state pension and very little left in public sector pensions when the new regulations come into force.
    Follow this by ever decreasing interest on saving and lower annuities – no wonder the NHS is rampently applying the Liverpool ‘Care’ Pathway culling 130,000 elderly last year.
    This will one day affect everyone and as senior citizens carry very little dept but have no opportunity to improve their income in most cases attacking pensioners is deflecting the issue as much as Argentina again claiming the Falkland is defecting theri voters from their issues which like ours is out of control borrowing.

  33. Chris Rickard
    Posted January 5, 2013 at 4:20 pm | Permalink

    I only take issue (slightly) with your last paragraph. It is not just eligibility criteria for benefits. I see 3 big issues.

    1. I think there is a big issue with the principle of “universal” ie non means tested benefits be that state pension or winter fuel etc for “wealthy pensioners” or even child benefit (whether or not subject to clawback). The welfare state was designed to be a safety net for those in need; not a means for the state to tax (highly) and then redistribute. It is not just a question of whether or not benefits should be paid to immigrants (which is how I read your article).

    2. I think we have a big issue with the type of “benefits” we pay. Personally, I would like to see child benefit scrapped – for everyone. I would also question whether or not we can afford the NHS to be free at the point of delivery for all for everything. Charging for missed appointments, even for a trip to the GP, or for illnesses that are self inflicted – drunkenness, smoking related, obesity etc – should all be considered. If they were, we could possibly afford better treatment eg better drugs, for those that are treated on the NHS.

    3. We have horrendous and unnecessarily high costs of administration. IDS is consolidating all but one of the means tested benefits into the single credit. George Osborne has introduced a separate (and most likely, shambolic) system for clawing back child benefit to high earners. Then Eric Pickles has told Councils to devise their own means testing systems for Council Tax benefit. It’s so administratively cumbersome, complex & costly, you couldn’t make it up.

    Good luck sorting it out, but with 10 year UK gilts costs for AAA rated UK climbing above AA rated France on Friday, and a credit rating downgrade likely for the UK which will push costs up higher, investors are voting with their feet and UK is suffering. For Mr Osborne just to talk tough isn’t enough.

  34. uanime5
    Posted January 5, 2013 at 5:15 pm | Permalink

    There are several problems with moving people from benefits to the jobs available.

    1) The unemployed lack the skills needed to go into the available jobs. While this won’t prevent them from getting all the available jobs it can prevent them from getting most of them.

    The Government could try to reduce this by actually offering the unemployed training, rather than sending them on useless programmes like the Work Programme, which teaches them nothing, to get them off the unemployed statistics.

    2) The unemployed cannot afford to work in the available jobs. If the cost of travelling to a job or the cost of childcare while at work means that a job will pay less than being on benefits then working doesn’t pay. The possibility of earning more at some point in the future does not justify a loss in the present.

    The Government can reduce this burden by offering tax credits to help people in low paid jobs pay for their travel costs or childcare. Cutting these tax credits will do the opposite and discourage people from working.

    3) The unemployed cannot find suitable jobs. Expecting people to work in jobs they don’t want to do, in professions they don’t want to advance in just results a demotivated and unproductive workforce. This also results in less jobs being available for those who want to work in these professions.

    The Government should accept that forcing people into any job isn’t viable and help the unemployed get the jobs they want.

    Also regarding the welfare bill it seems that 50% of it is spent on pensioners, while 3% is due to job seekers allowance. So benefits will never face any substantial reduction unless there’s a major slashing of pensioner’s benefits.

    http://opinion.publicfinance.co.uk/2013/01/fact-and-fiction-on-welfare-spending/

  35. Antisthenes
    Posted January 5, 2013 at 5:30 pm | Permalink

    If the UK and other Western nations carry on in this unsustainable spend and borrow route then it is not difficult to predict that sometime soon there is going to a very large price to pay. Yes efforts are being made to address the deficits but mostly it is too little too late or even not working at all. We have not even thought about the problem of the debt mountains apart from wishfully thinking that growth and inflation will deal with those. What are we getting from many politicians mostly of the left persuasion and those vested interest groups; the greens, those who receive our taxes but do not pay any, public sector and quangos, fake charities and nearly everyone else? We are getting demands to spend more. This is so obviously flying in the face of common sense and reason that it beggars belief. It points to mass blind stupidity and as no one is doing anything about this in any meaningful way it points to the fact that at some point the UK and other Western states are going to collapse under the weight of all this accumulated absurdity. Then those who demanded more and were not prepared to take a little less now to receive more later will end up with nothing at all. How we humans ever made it this far is a total mystery to me.

  36. LB
    Posted January 5, 2013 at 5:42 pm | Permalink

    Let’s try and get these huge figures across in a more accessible form. For every man, woman and child the UK now has borrowed nearly £17000. On top of this is all the bank, PFI and pension debts of the public sector, which take it to £40,000 of borrowing per person
    ==============

    I’m sorry by this is a lie. The pensions debts are 5 trillion on top of 1.1 trillion borrowing.

    That’s well over 100,000 per person.

    However, only 30 million pay tax. 200,000 per tax payer.

    That leaves off all the other debts such as PFI, nuclear decommissioning, expected losses on guarantees.

    It’s only by accounting fraud that the numpties in Westminster think its affordable and people are defrauded because they think they will get a state pension

    Section 2, 2006 Fraud act. It applies to Westminster unless you exempt yourselves from it.

  37. Jon
    Posted January 5, 2013 at 5:49 pm | Permalink

    The picture is very much one of many people not getting whats coming down the road. An ageing population, far more in retirement with a smaller proportion in work to fund that. We will arrive there with record debts and having to compete hard for jobs in the global market place.

    One area I’m starting to hear too much is to target pension money. The Centre for Policy Studies ran a projection showing pension funding faltering. From that they came up with the conclusion that we should scrap pension funding for the reason that people have access to ISA savings during their life. This ignores the basic societal reason for having pension funding. With policy thinking like that getting air time it doesn’t bode well for the future.

    I am also surprised by the extent of opposition to the child tax credits. Benefit cheques should be a safety net and the position we are in we should be expecting more of this type of policy decision. I could accept some arguing about the limit of which it is given but not the principle. How did we get to a position where people can be earning £500k a year getting state handouts when we are in such debt.

    • uanime5
      Posted January 6, 2013 at 7:11 pm | Permalink

      I’d say the main problem with removing child benefit was that a household where one person earned £50,000 and another didn’t work (household income £50,000) would get no child benefit, while a household where both parents earned £40,000 (household income £80,000) could claim full child benefit. The policy just became more convoluted after that.

      Also child benefits and child tax credits aren’t the same thing. The latter can only be claimed if you’re working and are used to pay for the cost of childcare.

  38. Bazman
    Posted January 5, 2013 at 6:19 pm | Permalink

    This highlights the age old problem of living in a council house and having no assets. I mean what can they do to you if you have three kids? Just spend the money as you earn it. This theory is flawed though as it implies the person who does this has some sort of choice and if you did is this what you would choose to do? Middle class ideals where they do not fit. The state really need to spend some money on social engineering.

    • alan jutson
      Posted January 6, 2013 at 11:13 am | Permalink

      Bazman

      Whilst I could agree with some of your argument ref choice.

      Surely the very last thing we want is more social engineering (especially by politicians), that was the start of the present problem, and why we find ourselves where we are now.

  39. Terry
    Posted January 5, 2013 at 6:51 pm | Permalink

    John. Faultless observation, as usual.

    But why is that our leaders in Downing Street cannot see this? Somewhere, sometime all you back-benchers will have to decide where your loyalty really lies.
    Is it with the Party, lead by this PM or is your electorate?

    If this country is ever going to get back on its feet, it needs a Strong Conservative in power.
    Right now, I see a Ted Heath Mk II in Number 10. A man I would put in the same prison cell with Tony Blair and Moron Brown, for ‘misleading’ us true Brits. If Labour are to be denied victory in 2015 there must be a complete change of direction within the Tory party. A change for the better. A change to the right because it is Right. Right for Great Britain and right for the British citizens. I hope you are able to effect such a change.

  40. Gary
    Posted January 5, 2013 at 6:58 pm | Permalink

    Not even this blog has it correct. The present value of ALL debt liabilities, and that is the only way an investor would value a business, is £7trillion. About 1000% of GDP. That is £116000 for every man, woman and child.

    No country has ever recovered from that burden without first experiencing economic collapsing.

  41. Jon
    Posted January 5, 2013 at 7:00 pm | Permalink

    There is an interesting voting demographic to play out here over the years. Traditionally retired vote Conservative and the young vote Labour.

    I’m picking up that the young realise the baby boomers spent the wealth and then loaded debt onto the next generation. This won’t go away with the expenses of the aged to come. The aged who will be boosted by the baby boomers won’t want cuts. It wouldn’t suprise me if these two groups swap their voting patterns from the considered norm.

  42. Gary
    Posted January 5, 2013 at 7:15 pm | Permalink

    Make that £7 trillion of total govt debt. 500% of GDP. Total national debt is, according to Morgan Stanley, just under 1000% of GDP. Which makes total debt about £13 Trillion (GDP about £1.4tn). So, the true picture is even worse. There is no good way out.

  43. Michael Cawood
    Posted January 5, 2013 at 7:20 pm | Permalink

    “For every man, woman and child the UK now has borrowed nearly £17000″ I certainly never authorised the government to borrow this on my behalf therefore I refuse to take any liability to pay it back.

    • lifelogic
      Posted January 6, 2013 at 7:09 am | Permalink

      Better move abroad then.

  44. margaret brandreth-j
    Posted January 5, 2013 at 7:22 pm | Permalink

    Perhaps we will lay it out:- Government defecit refers to the amount of governments receipts and spending in a single year, i.e. the increase of debt over a particular year.
    Wikipedia. Do you agree?

    Old people : we are getting there ..I was born June 1951 and intend to go on for ever ?!!!!
    There must be another way Mr Redwood , than taking away all we have slaved for for the future generations.

  45. David Langley
    Posted January 5, 2013 at 7:50 pm | Permalink

    John you say this is the best you can do at the moment! What moment are you waiting for? We are staring bankruptcy in the face as a country, we are bust already and what can we do to stop this idiotic government from spend spend spend, just like a lottery winner. I think we have endlessly stressed to you our fantastic dismay and disappointment at the financial mess that is being encouraged by the main parties. The coalition is calling the shots however and lets ignore the rest for the moment and concentrate on your lot.
    We have all called for an end to vanity projects and policies which weaken our will to forge a new way out of debt and poverty. I wonder sometimes if you are waiting for things to crash so new opportunities for the “Told you” brigade might beckon. Well if I can do anything about it we will have a lot of new brooms sweeping this Augean stable clean in 2015.

  46. Pleb
    Posted January 5, 2013 at 8:15 pm | Permalink

    The last world debt problem, in the 1930s, was solved by WW2

  47. margaret brandreth-j
    Posted January 5, 2013 at 8:30 pm | Permalink

    would help if I spelt it correctly : thats deficit .It’s amazing how much we have to learn to try and avoid embarrassment ..It might be a good idea if the ‘controllers’ were a little embarrassed.

  48. Martin Ryder
    Posted January 5, 2013 at 9:12 pm | Permalink

    The problem is that we live in a democracy where the majority depend on the minority to pay for the things that the majority want. It is like the EU where the majority of countries are net recipients from the EU budget which the minority, including the UK, is paying for. Naturally the majority will always vote for an increase to the budget.

    Voters are the same and so all of the political parties are trying to find ways (basically by robbing Peter to pay Paul) to keep the majority sweet, so that they will vote for them; even if this means that in the long term everyone will suffer. The three stooges – Cameron, Clegg and Miliband – are only interested in kicking the can beyond 2015, after which they expect a miracle where they are saved by the EU Commission or the Martians or someone.

    We are in a hole and our leaders are digging deeper, as none of them have the faintest idea about how to get out of it. I have no idea either, other than to put every public servant, including MPs, on a four day week on four days pay; limiting the pay and allowances to people paid from the public purse to £180,000 per annum, very few of them have anywhere else to go to, no one in the BBC should be paid more than £90,000 per annum; refusing to pay any benefits to anyone earning more than £26,000 per annum; refusing to pay more than £12,000 (£26,000 to a married couple) in benefits to anyone, regardless of the number of children he or she has, who has lived in the UK for 10 years and not paying anything to people who have lived here for a shorter period; cutting overseas aid by refusing to pay any money to any country or international organisation and spending only on medical and disaster aid distributed by British organisations and development assistance to private companies in Africa who are trading with the UK; withdrawing from the EU and cutting contributions to the UN; stopping contributions to the arts, sport and other non-essential activities; stopping immigration, except where there is a balance of movement, with UK born people going abroad and people from the countries that our people go to coming here.

    No politician will do anything and will continue to blunder around in the fog until we all fall down an even deeper hole and start pleading with the Chinese, Indians and others to help us out like we have helped them in the past. They will laugh themselves silly and start to fill the hole in whilst we gaze vacantly up at them.

    • Bob
      Posted January 6, 2013 at 12:45 pm | Permalink

      @Martin Ryder
      “Naturally the majority will always vote for an increase to the budget. “

      We need a way to balance the vested interests.

      How about an extra vote for people who are nett contributors to the treasury?

  49. Barbara
    Posted January 5, 2013 at 9:36 pm | Permalink

    It appears governments of all sorts are trying to milk what they can out of people from birth to death. The incentive for saving as gone, and can you really blame people for that; or they are now so poor they can’t save a penny for their old age. However, for those of us who have property, governments look at the profit and shudder, ‘how dare people have profit, we want our share’. If you have children and you want them to inherit that property it comes at a cost. If they want the plums they have to carry the stones. That means providing care for their parents in old age, and support where needed.
    Labour wanted a ‘death tax’ of £20,000 per estate to furnish old age care, meanwhile those who have been kept or who have nothing of value are looked after for free. So the druggies, the alcoholics, the idle, all are looked after until death and it does not cost them a penny. Nice work if you can get it. Where as mine might have to provide for these people, lose out on the profit from which we worked for, and work and pay taxes themselves, and the cycle begins all again. Of course, if anyone as an estate they will dismantle it well before they die so as not to pay this £20,000, I know I would. I refuse to keep those who have done nothing, why should I? Old age is a worry, and protecting what you’ve worked for is hard, the state is becoming to look like thiefs in suits, so be wary.

    • Conrad Jones (Cheam)
      Posted January 11, 2013 at 1:28 am | Permalink

      I agree with the points you make and it seems that what you say is true, or certainly appears that way.

      It seems that Government Policy is completely backwards.

      We had a rapidly expanding population for decades and the Government Introduced Child Benefits.

      We had Housing Costs increase through Credit Bubbles and the Government introduces First Buy and shared Equity Schemes to make it worse. To compensate high house prices they then increase Housing Benefits creating two problems – the Housing Bubble becomes even worse and an incentive not to work due to the threat of loss of Housing Benefits, increases .

      After supporting wealthy Families with their child costs and unemployment and housing bubbles then they shut the Door on Students and tell them they have to pay for their own higher education when the MPs who tell them this got their higher education paid for with Grants and Free Tuition Fees (that’s right – ZERO tuition fees).

      An Alien from another Planet landing on Earth would analyse these policies and conclude that the Government wants a dumb, ignorant population who all rely on State Handouts and who are actively encouraged away from education and work and into idleness and debt, for, without debt – their is no money.

      The elderly were born to a World where debt was avoided, and living within one’s means was the norm, and savings were actively encouraged. A Bank cared about someone’s credit worthiness as they would face the consequences as well as the debtor in a default.

      The idea of saving now and buying later seems to have gone for good. Taking peoples savings when they get to a certain age along with negative interest rates seems to promote the exact opposite of a Capitalist System – and we wonder why there’s so much debt in this Country – over 900% of GDP, the worst of the G10 Nation’s.

      Boris Johnson recently said that the City of London is the Goose that lays the Golden Egg (or words similar), where the truth is the Financial Sector has created the biggest burden of debt on the Tax Payer – instigated and controlled by the Financial Sector, helped – passively; until 2008, by the Bank of England and the Labour Government, and then actively after that date with bailouts, QE and not prosecuting Fraud – such as LIBOR, when it was blatantly obvious, while throwing looters into prison for stealing a can of Fizzy Drink.

      Tony Blair took this Country to War and helped destroy hundreds of thousands of lives in the Middle East. Gordon Brown led the rescue of the Bankers. Now Tony Blair works for J P Morgan, is the Middle East Envoy and has a Private Investment Firms based in secretive Switzerland.

  50. Conrad Jones (Cheam)
    Posted January 5, 2013 at 10:10 pm | Permalink

    Yes – it is true that so many do not get the Debt and Deficit Problem.

    Just in case there is anybody viewing this site for the first time and have not understood the difference between Debt and Deficit heres a simple summary:

    1. DEBT: The total amount of money that the UK owes.
    2. DEFICIT: The difference between what the Treasury receives in Taxes and total Government spending.

    What misconception that many MPs (unfortunately Mr Redwood seems to fall into this category) fail to realise is that a Nation’s Budget is different to a Household Budget. A Nation – if it is Sovereign; is legally authorised to create it’s own currency. A Household is NOT.

    The second aspect of the Monetary System that many MPs fail to acknowledge is the fact that the Monetary System changed radcially in 1971, which allowed the expansion of M4 money in proportion to M0 (money created by the Government Interest Free). In 1960 M0 (Notes and Coins) made up 20% of the money supply, 80% was created by private Banks as Debt (as we’re talking about debt and deficit). That means that the Government could create 20% of the Money Supply that did not burden Tax Payers with Interest Payments.

    The current proportions of M0 and M4 are 3% and 97%, and Mr Redwood still fails to acknowledge this, placing the irresponsible spending of successive Government’s as the route cause.

    This is only partly correct. Yes, the Government has increased it’s spending, especially on items such as Housing Benefits, but never is the question asked as to why so many people are finding is so hard to buy their own House. Out parents managed it. Could it be that the excessive credit expansion – cheered on by the House of Commons, is the real reason why people are turning to the Government for help? The people who have bought their own Home (excluding the property speculator parasites), now require TWO salaries to buy the same type of home their Parents could afford with just ONE income.

    Let me spell this out another way – if it takes TWO salaries to buy an equivalent home that only required ONE salary a generation or two ago, that means LESS Disposable income, and less Tax Income for the Government – in real terms.

    We have a Financial System that demands high returns. This is not just greed by Banks (although they seem more equipped to manipulate the system in their favour) . Pension Funds and personal Investors may invest in Oil Extraction from Nigeria. Does anybody really think they want to reduce the returns from their Investment by enforcing and paying for cleanup operations where Oil Extraction has contaminated the local environment. The Market does not reward Corporations for doing the right thing. An example of this is the “Yes Men” hoax where they appeared on BBC World stating that Dow Chemical (owner of Union Carbide) had accpeted full responsibility for the Bhopal Disaster and were going to liquifiy Union carbide for $12 billion and pay that to victims of the Chemical Disaster. Their Share prive plumetted.

    That’s the reality of our Financial System. It’s not just the Banks who are to blame, it’s all of us. Everyone is really sympathetic and eager to donate a few coppers to help out in a far off poor nation but no one is going to invest in a Company that actually spends money compensating victims due to their own slack safety rules.

    Reply I have always acknowledged that states can print money. There are also good reasons why they do not normally do so to pay the day to day bills, but levy taxes instead.

    • Stu H.
      Posted January 6, 2013 at 4:40 pm | Permalink

      Conrad,
      Thanks for the insight into M4 and M0 money, interesting stuff.

      With regards to Sovereign’s ability to print money, although possible, should be avoided as it devalues the very currency that it is trying to uphold.

      Therefore the Household budget and National Budget are similar?
      Otherwise we would have no national debt, just an overworked printing press and a pound that is worth about a cent.

      The basic fact that we spend more than we earn is pretty much black and white in my view (which may be wrong, I am always willing to listen and learn). The fact that Uk plc overspends by just under £1/2 billion a day is slightly worrying.No matter how you add up the figures, we are living beyond our means.

      *** At least some MP’s are willing to question why. ***

      I am not expecting MP’s to understand every twist of International Banking laws, but they should be able to empower the right people who do.

      Stu-H.

      • Conrad Jones (Cheam)
        Posted January 9, 2013 at 6:38 pm | Permalink

        Hello StuH,

        Thank you for your comments.

        “With regards to Sovereign’s ability to print money, although possible, should be avoided as it devalues the very currency that it is trying to uphold.”

        At present, Private Banks have effectively “Printed” most of our monetary supply and have therefore been the source of our inflation – combiined with people’s ability and willingness to borrow.

        If we look at the money the Government has created – M0; it has increased at a much slower and more stable rate.

        Before 1971, not only were Banks more heavily regulated but the money in the System was tied to a finite amount of Gold.

        The merger of Investment Banks with Commercial Bank operations further de-stabilised the System.

        Private Banks used to have to maintain a 20.5% Reserve Requirement, in 1968, but now – guess what the Reserve Cash reserve Ratio is ?
        http://en.wikipedia.org/wiki/Reserve_requirement

        The Cash reserve Ratio now – a restriction on a Private Bank to Create Credit Money; is ZERO.

        This means that the Banking Industry can create as much money as it wishes as long as it can persuade the rest of us to borrow this newly created money. This is at the Heart of the Housing Bubble.

        Housing bubbles did not exist prior to 1971 – mainly becasue the license for Private Banks to create money was heavily restricted. The currency and economy was far more stable, and when the Pound was devalued – Harold Wilson had to be honest about it and announce the Fact.

      • Conrad Jones (Cheam)
        Posted January 10, 2013 at 2:13 pm | Permalink

        I think you are correct. We all spend more money than we have. Unfortunately, the Government has allowed the Banking System to expand the amount of M4 Money Supply through loosening of the Reserve Requirement, this has caused excessive inflation and reduced the value of the Government Created Money downto 3% of the total UK Money Supply.

        People have been encouraged to borrow today and pay tomorrow.

        The phrase “Never a Lender nor a borrower be” has been forgotten in the mists of time. Shakespeare lived in an England before the Bank of England was created and usury was more than just frowned upon. The Market towns of England sprang up without the need for Central Banks and excessive debt. I’m sure something has been forgotten over the centuries of how to correctly account for the passage of trade between two parties without the need to become excessively indebted to a Bank.

        Credit Cards – though useful for Internet Purchases and Foreign Travel, are over used. Our money supply is essentially someone elses debt.

        With 8% of Loans going to small and medium sized businesses, where does the other 92% go ?

        When and how are we going to escape this entangled choking debt that we find oourselves in – both Public and Private?
        Professor Steve Keen has stated that it appears that the UK is the most indebted Developed Country on Earth – more so than the United States. Surely it’s now time to ackowledge that the pseudo-neo-keynsian philosophy is wrong – John Maynard Keynes only meant for Economic Stimulus for short periods only – he didn’t mean years. We have adopted full time permanent Keynsian Emergency Measures – with no end in sight.

        Where are the Classical Economists in Government ? Isn’t it time to get rid of the so called “Keynsians” who couldd’t predict when the next Sun Rise is due?

        Why are School Children – on A-Level Economics causes only taught Keynsian and Monetarist Principles, despite the overwhelming failures brought about by such theories ?

        We appear to be at that phase in human history – in Economics Theory; where the Established Church of teaching still maintains that the earth is Flat and is at the centre of the Universe – any other views are looked harshly upon as blasphemy or at least heresy.

    • Conrad Jones (Cheam)
      Posted January 11, 2013 at 1:53 am | Permalink

      Creating Government Money for people on Housing Benefits and Unemployment Benefit would be a poor way of using the Government’s authority to create it’s own money.

      Creating Money and spending this on specially selected programs to research new forms of Energy Creation or Energy Conservation would be a good allocation of Emplomyent and Resources. Spending on Higher Education – allowing a return to Free Tuition Fees (I’m sure you remember them, I do) , investing in Manufacturing by providing zero interest loans to Businesses directly – not through Private Banks, paying off the PFI Contracts enabling the NHS to reboot it’s Finances after being so badly indebted by the Labour Government.

      The NHS should operate more in line with the Canadian System, providing essential Medical HealthCare only, leaving IVF Treatments and Cosmetic Surgery strictly to the Private Sector. Public Sector education should be reduced and people should pay for their Children to go to School, and the Government should keep it’s nose out of the Curriculum. You want to save money, then stop spending money on stupid tests that just disrupt School Lessons and let Teachers teach, and not have their hands tied behiond their Backs teaching Garbage to School children that just distorts their view of reality now and Historical Fact.

      There’s plenty of ways the Government can save money – Get out of our Schools, stop spending on Weapons of Mass destruction and assassination using Drone Aircraft, stop wasting our money on Housing Benefits and Child Benefits, and start demanding seigniorage from Banks when they create our sovereign currency – or aren’t the Banks ready for that yet? Do you think they ever will be? Would you? I certainly wouldn’t give up the ability to create money from nothing and loan it at interest unless I had to by Law.

  51. Conrad Jones (Cheam)
    Posted January 5, 2013 at 10:33 pm | Permalink

    “A senior Lib Dem has been up and about demanding that the state takes on much more of the cost of elderly people in nursing homes so they can leave more of their capital to their children.”

    For one thing, you seem to forget – again; that the Elderley – have paid into the System through their Taxes and – more importantly; Nation Insurance Contributions. Note the word “INSURANCE”. Not all elderley are going to end up in a Nursing Home, and most who do, do not choose to enter one as a long term resident. Not also the word “NURSING”, meaning that they require medical supervision and professional assistence with their daily treatments and personal care, due most probably to the fact that they are suffering from a Medical Condition. They were not asked to contribute through their NI payments Mr Redwood, they were TOLD to – by Law. An you are now suggesting that they are not entitled to NHS Healthcare. If Inflation hadn’t been so high – since 1971; it is possible that they could afford to pay for their Healthcare, but they were forced to pay for State sponsored medical insurance – they couldn’t opt out.

    As we all know – Liberal Democrats will say whatever crap they think will get an extra vote (i.e. Nick Clegg and the “I won’t increase Tuition Fees” signed pledge). But just because LibDems have stumbled over a legitimate claim – doesn’t mean that the Elderley are not entitled to Nursing Care in their old age.

    Real Terms incomes have fallen over the last several decades which means savings and Tax Revenues have also fallen.

    The Government is creating generational dependence on State Benefits and is failing to understand the underlying economic causes. Easy Credit and Inflation, with a reduction of direct control over the Monetary System.

    You quote lots of figures about how big the National Debt is and how large the Interest Payments are but ignore the most important Trends – reduced Government created currency – now 3%. After the second World War it was 20%, allowing the Government to circulate adequate amounts of Currency and stimulating Growth and rebuilding.

    Today the madness of our high inflation age is that the Government now borrows the money form the Financial Markets and gives it away as Housing Benefits, to prop up the casue of the private debt problem – excessive House Prices relative to Incomes. Look at those figures for a change. Or are you another one of these – “Supply and Demand” theorists who blame too many immigrants for High House Prices. The classic stance of a neo-classical economist is that Credit Expansion had nothing to do with the increasing inaffordability of Homes. This then leaves only one argument – that their are too few Homes which is as a result of too many of us. This is a total MYTH.

    Reply: Of course I am not wishing to deny NHS medical care to the elderly. That is their right and has always been guaranteed by post war governments of all persuasions including the present one. At issue is the housing and living costs of the elderly who go into a home. All parties in office up to this point have said that if an elderly person has sufficient capital or income they should use that to pay their home charges

    • Conrad Jones (Cheam)
      Posted January 9, 2013 at 10:58 pm | Permalink

      It may be their right but how many elderley are forced to pay their own Nursing Care Costs if they do not have children to fight for them?

      Have you ever been to a NHS Continuing Care Assessment for a Relative ? If you had, you would understand that the System is rigged to make as many elderly people pay for Healthcare as possible as the criteria for eligibility is vague and subjective. Because a need is managed in a Nursing Home, NHS Coordinators try to argue that the need no longer exists, and can be marked down as LOW priority. The NHS Framework – however is clear and fair but many Coordinators do not seem to have even read it.

      Elderley people without relatives prepared to fight for their right to NHS Funding would find themselves at the mercy of Local Council Social Services who means test all their assets.

    • Conrad Jones (Cheam)
      Posted January 9, 2013 at 11:40 pm | Permalink

      Angela Sherman (of CareToBeDifferent) articulates it this way:

      “I realised my parents were at the hands of an NHS and a national ‘care’ system that seems to care very little for elderly people. I also experienced first hand the gap between how things should work in theory and what actually happens in practice.”

      I – for one; know exactly what she is talking about, but do you Mr Redwood ?

    • Conrad Jones (Cheam)
      Posted January 9, 2013 at 11:51 pm | Permalink

      So what you seem to be saying is – if an Elderly person in a Nursing Home has sufficient Capital or Income, they should pay for their Healthcare Needs? But they’ve already paid their National Insurance Taxes ?? Was it explained to them when they started paying NI Contributions that they might not have NHS Healthcare after a certain age ? Were they given the choice to opt out of NI Contributions and buy their own private insurance ?

  52. Conrad Jones (Cheam)
    Posted January 5, 2013 at 10:51 pm | Permalink

    “Whilst he said this could be paid for by some cuts in benefits to the better off elderly, the longer term liability is likely to prove much larger than the cuts.”

    What about large Corporations who have most of their Business Assets and thousands of staff located in the UK, but choose to locate a couple of people and a pet cat in the Netherlands and call it their Registered Office for Tax Purposes.

    What about all the other Corporations who operate in the UK and extract huge profits – through normal and legitimate process, but think that they should not pay any Tax in the UK and so hide their money flows in Offshore Tax Havens helped by City of London specialists.

    Do you believe that if someone suffers from alzheimer’s or dementia, they are fair game for the Government to exploit and steal their life savings and their Home?

    If someone get’s Dementia now and they have no Children fighting for them, the NHS will not provide NHS Continuing Healthcare. The NHS is forced to be a callous money saving financial firm given the debt that they have been burdened with thanks to those Labour £$%@@**** !!!! and the PFI Scams they inflicted on us.

    The way the system operates is – always lay the blame on a third party institution – like the NHS, by putting it in so much Debt due to – seemingly incompetent financial schemes that the NHS can no longer afford to provide even basic medical needs in a timely manner. Let everyone blame the NHS – because they are the ones who have to face the relatives of Dementia Sufferers, and let everyone hate the NHS. The perpetrators of this situation are long since obtained pay-off Jobs in Banks and other Private Corporations as a reward for providing changes to legislation favourable to Corporate Interests.

  53. wab
    Posted January 5, 2013 at 11:08 pm | Permalink

    “For every man, woman and child the UK now has borrowed nearly £17000. On top of this is all the bank, PFI and pension debts of the public sector, which take it to £40,000 of borrowing per person. As each person’s income is only £25000 on average, the task of repaying the debt is now gargantuan.”

    Mr Redwood is conveniently ignoring the wealth of the country, which in 2003 was allegedly £84k per person:

    http://news.bbc.co.uk/1/hi/uk/3158968.stm

    • Conrad Jones (Cheam)
      Posted January 10, 2013 at 5:37 pm | Permalink

      I think that Mr Redwood is right to be concerned, as we all should.

      Apparently, the total UK National Debt is over 900% of GDP, the biggest component being Financial Sector Debt
      http://www.debtdeflation.com/blogs/2011/12/31/debt-britannia/

      The other components of Debt are similar to Canada, which has been hailed as a Success Story – hence the reason why Mark Carney is being transplanted into the BoE Governor Job.

      We have a cancerous growth in the Form of Financial Sector Debt, which the Government has tied us to, as Tax Payers are used as Collateral to guarantee Private Bank Liabilities.

  54. wab
    Posted January 5, 2013 at 11:43 pm | Permalink

    “Labour has been out and about saying they want to offer everyone out of work for more than two years the minimum wage for six months, to pay them more than benefits, with a view to giving them some experience of working. They would pay for this by a further raid on savings in pension funds.”

    There is nothing wrong with government spending per se. What is wrong are the stupid ways that governments spend money. Presumably Labour is going to claim that over the medium term, this extra money being spent up front will more than be paid back to the government because more people on benefits will actually end up in real work, and so pay taxes. If they believe this then they could borrow this extra money, rather than take it from pensions, and just wait for the returns to come back in. Unfortunately both Labour and the Tories have shown that they are very good at wasting vast amounts of public money on crackpot schemes trying unsuccessfully to get people into work, and this Labour proposal would likely just be another example of that.

  55. Stu H.
    Posted January 5, 2013 at 11:52 pm | Permalink

    Not sure how accurate this is, but have a look anyway,

    http://www.debtbombshell.com/

    It has some interesting articles hidden behind the links too.

    Stu-H.

    • Conrad Jones (Cheam)
      Posted January 9, 2013 at 10:14 pm | Permalink

      In order to reduce the debt burden on the Nation we have to look for ways to reduce the debt burden on the individual.

      The House Price to Earnings Ratio is now about 5.0 (dropping sharply from 6.0 at the time of the crisis), according to Nationwide’s figures. The long term average House Price to Earnings Ratio is approximately 4.0, but due to over correction – as seen in the mid nineties, could swing down to 2.5 – which either requires a large increase in earnings or a large drop in Property Prices. The longer House Prices are propped up by the Government, the more violent the correction will be.

      House Prices, in real terms (i.e. in proportion to what people receive in Salaries), have doubled over the last four decades. This means that two people – instead of one; now require to bring home a wage. If one get’s sick or loses their Job, they may find that they can no longer afford the mortgage repayments.

      The situation that Government’s have all allowed to materialise – partly due to brow beating by Lobbyists, and/or total ignorance of money and debt; is one that has artificially inflate the price of the most expensive item most people can hope to purchase with no apparent gain to themselves unless they sell their property and live in a small caravan on some waste land.

      In essence, our money system has allowed people to become burdened with more debt than previous generations despite the advances of technology that should have brought an age far greater productiviy for less work, but our money system has completely reversed that – since 1971, and expanded Credit giving the illusion of greater prosperity while putting far more pressure on Middle Class Families.

      The advantages for Corporations are a greater pool of workers, the advantage for Banks are – greater profits through far higher lending and riskier lending enabled by Central Bank Protection through bailout policies (which were denied productive export businesses like Rover Cars), and Government’s have benefited – at least temporarily; through the ability to Tax the whole of the Population instead of just a single salary; due to two wages now being required to service mortgage debt.

      The use of derivatives for selling on risk to investment banks and the merger of investment banks with commerical banks enabling them to be protected by Central Banks. The only reason a Federal Reserve System was encouraged in 1910 was to protect Banks – not the American public.

      Credit expansion Figures:
      http://www.positivemoney.org/how-banks-create-money/how-much-money-have-banks-created/#has

      Nationwide Report 2012 – Dec
      http://www.nationwide.co.uk/hpi/historical/Dec_2012.pdf

      Elizabeth Warren: Coming Collapse of the Middle Class
      http://www.youtube.com/watch?v=akVL7QY0S8A
      A Pessimistic title but she backs up her views with facts and figures.

  56. REPay
    Posted January 6, 2013 at 2:41 am | Permalink

    Our financially illiterate media has done a poor job explaining the crisis. The banker bashing has led everyone to believe that our problems are purely down to bankers and deregulation, rather than politicians (they loved the taxes from speculation) and well paid asleep at the wheel regulators who missed an asset bubble a child could have spotted and which was written about by the handful of financially literate journalists. Giving Hector Sants a knighthood was the latest risible gesture to ensure no one ever works out that the political class and the public sector screwed up…the complacent Guardian/BBC media has a narrative that will never change. Therefore nor will attitudes.

    • Conrad Jones (Cheam)
      Posted January 11, 2013 at 11:13 am | Permalink

      The BBC has a complaints mechanism that – although slow; will allow genuine concerns through regarding Accuracy and Bias regarding specific Programs, Videos, Articles or Educational Material.

      The BBC will change if enough people put forward valid, fair and clear complaints, backing up their facts and figures with references to acknowledged sources of information: such as the Bank of England and ONS.

      The BBC is in a difficult position with regard to Economics as the official Academic Sources of Information and Education seem to only teach Keynsian and Monetarist Theories, ignoring Classical Economics. We also have to look at the Education System, as many Journalists use old Economics Books (hopelessly out of date and usually based around the old Gold Standard and Money Multiplier Models).

      The BBC has the same problem politicians have, that being, relying on House of Commons researchers who refer to the same Economics Theory Reference Books which are often based on an incorrect model of how the Economy works ignoring Debt, Money and Banks.

  57. Mark
    Posted January 6, 2013 at 3:41 am | Permalink

    I did the sums a few weeks back: every 1% increase in gilts yields costs the Treasury nearly £30bn in losses on the QE portfolio on a mark-to-market basis. You can add pro-rata for new issues (which have to fund the deficit and maturing gilts, or say ~£150bn p.a. times 30/375) – a further £12bn or so. If the Treasury draws down the QE profit reserve, then portfolio losses would bite immediately.

  58. Stu H.
    Posted January 6, 2013 at 11:16 pm | Permalink

    Dear JR,

    We have over 170 replies to this issue in 2 days (also this was the very issue that I wrote to you about that directed me to this site), so how can the other MPs avoid giving this the highest priority?

    I don’t think there is a single poster on here who would not class this mountain of debt as very, very important. And also everyone who has expressed an opinion seems to be on the same song sheet as yourself, more or less.

    Or are we all ‘prophets-of-doom’, running around with our hands in the air proclaiming the end of things as we know them? (Very Daily Mail, I know.)

    Stu-H.

    Reply Indeed, and many of my Conservative colleagues are also urging cuts to control the deficit.

    • Adam5x5
      Posted January 7, 2013 at 8:34 pm | Permalink

      Surely that should be urging cuts to eradicate the deficit?

      But will we get cuts, or just smaller increases in public spending which are then said to be cuts?

  59. peter davies
    Posted January 7, 2013 at 8:00 am | Permalink

    The govt don’t help when they talk about ‘paying down the decifit’ implying to many that they are paying off debt when all they are doing is slowing down the growth of the big lack hole.

    The BBC could help with this for a start, get their economic editors in one room and explain to them the difference between debt and deficit and possible consequences of not getting it sorted.

    Then do something about this absurd legal aid and benefits culture and all the other nonsense they throw money at then they may see themselves getting somewhere.

  60. sm
    Posted January 10, 2013 at 2:00 am | Permalink

    Debt is the problem so reduce it?

    Create the money in say (£60 bn chunks) and distribute it per capita with the proviso that debt must be paid down first. (Read Steve Keen a modern debt jubilee).

    Restrain the banks from lending much of this new cash inflow and move to 100% reserve banking.

    Otherwise its money cascading upwards to the 1% of 1% until bang.

    • Conrad Jones (Cheam)
      Posted January 12, 2013 at 1:48 am | Permalink

      sm,

      You probably already know I’m going to agree with you, which I do.

      What is strange is the fact that Politicians and Media are not even acknowledging the Fact that we no longer even have an Enforced Reserve Requirement on Banks.

      They can create as much money as they like (with Protection from the State), and – just as importantly as we are experiencing now, they can allow the Currency to Collapse, causing Economic Distress – not due to lack of Workers or Resources, but due to lack of Money.

      Something else they’re not talking about is that we could go back to the Regulations we had prior to leaving the Gold Standard. In 1968, we had 20.5% reserve and Government created money was approximately 15%, now it’s only 3%. As you rightly say, if the Government creates additional money and puts that directly into the Economy – not via QE; and also limits Banks Credit creation abilities to prevent inflation getting out of hand, the Credit Crisis would be over. We could also reduce the Debt over Time. But – unfortuantely; our Chancellor wasn’t even interested enough in Economics at School and University as he studied Modern History. He also briefly worked for a week at Selfridges, mainly re-folding towels. Strangely, Gordon Brown also studied History – and not Economics. From my own experience, I’ve begun to think that actual History is a lot more interesting than Academic History which is always written by the Victors, and therefore; distorted and inaccurate.

      The Government is now looking at Exports (X) as a means of improving GDP.

      GDP = C + I + G + (X – M)

      They also want to reduce Imports (M). Instead of investing in UK Manufacturing to produce the Goods we need and we know we can produce (UK Products use to be among the best quality in the World), the Government will try and solve the Trade Deficit by entering into a Currency War, by trashing the Pound Sterling, just like they did in the 1920s and 1930s. If the Pound devalues, our Exports become cheaper to Foreign Buyers and our imports become more expensive for us.

      Unfortunately, Currency Wars usually end up becoming real Wars.

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. 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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