The public sector cannot cut and the private sector cannot pay

 

              The public sector says it needs to spend more cash each year to keep going. The private sector cannot or will not pay more tax to meet the bills. We have reached an impasse.

             The original deficit reduction plan of the Coalition government rested on a very large increase in tax revenue. The June 2010 forecast said we would  be paying £176.8 bn more in 2014-15 compared to 2009-10.  That £2800 extra per person (on average), or more than £10,000 extra for a family of four, would take care of the increased costs of public services over the five years and cut the outstanding deficit.

            Instead, as we will see tomorrow, with  tax after tax revenue has fallen well short of the official estimates so far. Growth has disappointed, accounting for much of the loss. It is also clear that more people than expected have planned their affairs to avoid the higher rates brought in. Very rich people have gone offshore.  People have declined to take profits on assets, or have sold assets at a loss to 0ffset.  Housing transactions have been well down on pre crisis levels, avoiding Stamp Duty.

           Many in the private sector say they cannot pay more. They feel the current tax level is quite high enough. They do not have any spare money to give the government. Critics of the private sector say they still have the money but are unreasonably witholding it. They want tougher attacks on avoidance. The problem is you cannot make people take a profit on an asset or buy a different home. They have every right not to do those things and pay less tax as a result. Successful highly paid financial sector personnel can say that they now want to work in low tax Hong Kong rather than higher tax London, and their employer may let them. You cannot make people drive their cars more -indeed the government wants us to drive less – so you should expect a shortfall in fuel duty.

          We have a stand off. As a result the deficit remains dangerously high. The government needs to look again at spending  as well as revenue, to get the deficit down.

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97 Comments

  1. Nick
    Posted February 20, 2013 at 2:52 pm | Permalink

    And that ignores the real problem, the debts.

    5,300 bn for the pensions
    1,100 bn for the borrowing
    400 bn for PFI
    100 bn for nuclear decommisiong.

    Billions for guarantees.
    Billions for compensation for the 40,000 killed a year in the NHS
    ….

    You’re bust.

    • lifelogic
      Posted February 20, 2013 at 4:01 pm | Permalink

      I do not imagine the 40,000 will, in reality, get much compensation. The lawyers might do well as usual though.

    • sjb
      Posted February 20, 2013 at 5:43 pm | Permalink

      I wonder whether Mr Redwood can confirm whether HM Treasury has plans for the introduction of a ‘temporary’ land value tax?

      • A different Simon
        Posted February 21, 2013 at 10:43 pm | Permalink

        If it truly is a land value tax then I would support that .

        LVT is merely a fee for exclusive use of the commons .

        It’s high time that the dividends from the land benefited everyone .

        I don’t approve of a mansion tax , an LVT should be payed by everyone and the same fee should be levied for an empty lot as one with a block of flats on it .

        SJB , an LVT would benefit the country massively and eventually allow employement taxes to be reduced . Unfortunately I can’t see politicians approving one as they are the biggest bunch of BTL (landlords-ed) out there and have screwed the economy to avoid a correction in house prices .

        • sjb
          Posted February 22, 2013 at 5:49 pm | Permalink

          Well, should the contingency arise – can things really get any worse? – and the rumour proves to be true do you think they might backdate the tax?

          I am thinking of someone who bought a property for £220k in 2008, which has risen in value because of its proximity to one of the new Crossrail stations.

    • uanime5
      Posted February 21, 2013 at 4:05 pm | Permalink

      If you knew anything about medical negligence then you’d know that deaths due to medical negligence are much cheaper than injuries cause by medical negligence. For example if a botched operation leaves a child permanently disabled then the NHS has to pay for their medical care for the rest of the child’s life, along with compensation for the extra hardship the child and parents will suffer. By contrast if a child dies they only have to pay compensation for distress caused to the parents.

      • Edward
        Posted February 22, 2013 at 11:24 am | Permalink

        You never cease to amaze me Uni, just how many things you are an expert on. The list is never ending.
        From spelling and grammar to medicine, the EU, world Tax law, migration policy USA politics,the NHS, fairness and equality etc etc
        And as you often tell us, you are right everytime.

        • uanime5
          Posted February 22, 2013 at 3:22 pm | Permalink

          I studied law; which included torts (negligence), EU law, equality legislation, and immigration rules. I know about USA politics because for some reason the news channels keep broadcasting US news stories that having nothing to do with the UK (such as the preliminaries for electing the president).

          • Leslie Singleton
            Posted February 23, 2013 at 4:34 am | Permalink

            unanime–This law you studied, did you pass?

  2. cosmic
    Posted February 20, 2013 at 3:20 pm | Permalink

    It’s a problem which various governments make worse and no one can do anything about.

    I can’t see how it can do other than end in eventual collapse and chaos when the fixes, such as running up unpayable debts, stop working.

  3. David Hope
    Posted February 20, 2013 at 3:32 pm | Permalink

    Totally agree that the private sector and individuals pay enough already. We need growth, not tax and the two can’t go together past a point.

    The fact is that we were running a deficit well before the crash, i.e. during a boom. Thus it is inevitable that in the down period tax revenue will drop, ignoring the scaring of people away abroad.

    Much more action is needed on public sector spending. As an individual I can’t believe the top bit of my income is taxed at 40% my car, holidays, energy etc are all taxed to death. I’m not rich and I can’t even afford to rent a 2 bedroom flat in london.

    We need to stop this nasty and unpleasant talk of “they have stuff, government should take it” and concentrate on dropping spending. The danger to freedom is clear to see in this situation where such large number of dependents are happy to vote to confiscate other people’s stuff.

    As for corporate tax avoidance, I would have more sympathy with those against it if they werent so against flatter simpler taxes – usually those who hate tax avoidance love government to control behaviour through tax.

    • Mark W
      Posted February 21, 2013 at 7:42 am | Permalink

      “this situation where such large number of dependents are happy to vote to confiscate other people’s stuff”

      What a perfect summary of the problem.

    • uanime5
      Posted February 21, 2013 at 4:07 pm | Permalink

      Most people oppose flatter taxes because they’re little more than a tax cut for the wealthy, rather than an attempt to make the wealthy pay their taxes.

      • Leslie Singleton
        Posted February 22, 2013 at 11:28 am | Permalink

        unanime–As if they didn’t very much do so already. As I have said before, I doubt that there is any tax or any rate that would make you divest yourself of your jealousy and hatred of those people, and their families before them, who have worked hard and long hours, taken risks, made correct decisions and in general been successful. So very different from America, where everybody hopes to become rich themselves one day.

        • uanime5
          Posted February 22, 2013 at 3:26 pm | Permalink

          Leslie Singleton I doubt there is any evidence I could show you that would make you divest yourself of your belief that the wealthy are wealthy because of hard work, working long hours, or taking risks rather than benefiting from personal connections and being grossly overpaid.

          I’m the UK isn’t like America and that people’s worth is based on something other than wealth.

          • Leslie Singleton
            Posted February 22, 2013 at 6:29 pm | Permalink

            unanime–”Personal connections…..grossly overpaid”??? So the ordinary individuals who are self-employed, the start ups and the SME’s suddenly count for nothing according to you. Absolute tripe as ever.

      • scottspeig
        Posted February 22, 2013 at 12:47 pm | Permalink

        That makes no sense. A flat tax rate is almost the “fairest” possible in that everyone pays the same percentage! Why the rich have to “share” their income more than others is unfair, envious and stops them from employing more house-servants!!

        (The truly “fairest” tax would be to tax everyone the exact same amount but is clearly not workable)

        • uanime5
          Posted February 22, 2013 at 3:30 pm | Permalink

          Those with the broadest shoulders should bear the heaviest load, so a progressive tax rate is far better than a flat tax rate. You also ignored my point that only the wealthy will benefit from a flat tax, while everyone else will pay the same rate of tax. So a flat tax is only “fairer” for the wealthy and of no benefit for everyone else.

          Also if the wealthy are employing more house servants this shows that there is a huge wage inequality in the country, something that is very bad for domestic demand.

          • Edward
            Posted February 24, 2013 at 6:30 pm | Permalink

            The question Uni, really comes down to whether “the rich” (can you define), will pay more if there is a flat tax or if progressive rates are reduced rather than increased.
            Even with a flat tax the rich will pay much more than anyone else, and quite right too.

            If you simply want high headline percentage rates to calm your evnious anger then fine, but if you want to increase revenues from the rich you need to get a bit more clever and set competitive rates at all levels and for all taxes.

  4. MajorFrustration
    Posted February 20, 2013 at 3:35 pm | Permalink

    Good argument JR but its head against a brick wall time. Lone voice.

    • dan
      Posted February 20, 2013 at 5:28 pm | Permalink

      The lone voice will remain a steadfast member of the party delivering this disaster…no matter what. There is no line which cannot be crossed for JR.

      • scottspeig
        Posted February 22, 2013 at 12:51 pm | Permalink

        Interesting double method of taking this comment – At first I thought that it was a nice comment referring to the fact that everyone in John’s constituency would be mad to vote for anyone else as John knows what he is doing, has real life experience and is quite good at articulating the views. (Why he is not chancellor is my question!) but then I realised you meant because he ought to be a Kipper (which I agree) but that he’ll carry on as a paid up Conservative.

  5. Brian Tomkinson
    Posted February 20, 2013 at 3:43 pm | Permalink

    This has been clear to us as long ago as 2010 when you analysed Osborne’s budgets. Too much reliance on taxation and too much continuation of government spending. This despite the elction pledge to eliminate the deficit by 2015. Just why the markets could’t see that this was doomed to failure has always surprised me. How can you continue to support your party despite this economic shambles? You know what needs to be done, you have the abilities to sort out the mess but you are just ignored and always will be by Cameron and Osborne. Just to remind you that today’s national debt is £1,146 billion and naturally rising inexorably; at the end of the 2009/10 tax year it was £616 billion.

  6. me2
    Posted February 20, 2013 at 3:48 pm | Permalink

    Repeal the ridiculous Climate Change Act (newsflash: climate change can manage without us), that should be good for hundred billion.

    BTW the best chance of making this happen is to vote for UKIP and shock the Tories back to sense. Over to you Eastleigh voters.

    • Richard1
      Posted February 20, 2013 at 6:53 pm | Permalink

      A vote for UKIP in Eastleigh will allow the LibDems to win the seat. They are the most fanatical supporters of the global warming religion. A vote for UKIP at the General Election will make a Labour victory more likely. There would then be no chance of the grandual shifting away from expensive green policies which will probably happen if the Conservatives win.

      • scottspeig
        Posted February 22, 2013 at 12:56 pm | Permalink

        Alternatively, vote Conservative and give DC a boost with which he’ll carry on doing Labour policies while talking conservative and screw the whole system and country up with the Conservative party getting all the flak (AGAIN) and be unelectable for over a decade. Or, vote UKIP, hopefully have DC knifed in the back (metaphorically) and replaced with a conservative, make a deal/pact with UKIP, save the world! :)

        Fantasy? Obviously, but better than the nightmare of “more of the same”!

    • Jerry
      Posted February 20, 2013 at 7:54 pm | Permalink

      @me2: Yes, voting UKIP, splitting the Tory vote and thus getting a Labour government will really help!

      Why are so many UKIPers either eternal optimists and/or totally without a clue?… :(

      • scottspeig
        Posted February 22, 2013 at 12:57 pm | Permalink

        Vote Conservative, get Labour Lite

        Why are so many tories either eternal optimists and/or totally without a clue?… :(

    • lifelogic
      Posted February 21, 2013 at 7:25 am | Permalink

      But there are surely too many Libdum, BBC “think” people in Eastleigh for this to actually happen.

      Anyway surely by now, Cameron has given up and is already surely planning his next job after 2015 when the Unison/state sector union place man Milliband takes over.

    • Peter Davies
      Posted February 21, 2013 at 11:50 am | Permalink

      The shrinking EU fails to realize 2 crucial things:

      1. They are sending business East who need to build more energy emitting devices to cope with demand so the emissions come from elsewhere.

      2. If Co2 does cause global warming/change it does not recognize international borders so the EU is attempting to tackle this all by itself.

    • Leslie Singleton
      Posted February 22, 2013 at 11:39 am | Permalink

      Richards–On this basis, there would never have been a Labour or any other Party apart from Whigs and Tories. Nobody said it was going to be easy. A good showing by UKIP in Eastleigh would light an even bigger fire under Cameron. I cannot believe there are many who would deny that UKIP has forced Cameron, kicking and screaming, to acknowledge where he was going wrong on his thinking in particular on EU.

      Reply It was Conservative MPs, voting for a referendum and againbst various EU measures in the Commons that led to the change of policy on the EU

      • Leslie Singleton
        Posted February 22, 2013 at 3:23 pm | Permalink

        Comment on Reply–Surely all that means is that Conservative MP’s, worried about UKIP and their seats and right to do so, as well as their leader Cameron, were forced to start to change policy on the EU. Same difference??

        Reply No, it means many of us Conservative MPs care deeply about the damage done by our current relaitonship with the EU, and are trying to do something about it – we highlighted these problems long before UKIP arrived on the scene, and are at last making some progress with the rejection of the Fiscal treaty, the downward move in the budget, and the promise of a referendum. If I was just a Eurosceptic for political tactical reasons I would have long ago decided to ignore the EU issue as the Labour and Lib dems do , given the inability of UKIP ever to win any UK Parliamentary seat.

        • Leslie Singleton
          Posted February 22, 2013 at 6:43 pm | Permalink

          Comment on Reply–Must continue to differ, in the sense that I do not think it can be objectively maintained (You are understandably biased!) that without UKIP’s influence the Conservative MP’s you refer to, and I of course agree they exist, indeed I salute them and yourself, would perhaps not be quite so gung ho.

          Reply: My attitude to the EU is not affected by UKIP

  7. lifelogic
    Posted February 20, 2013 at 3:59 pm | Permalink

    Indeed “tax revenue has fallen well short of the official estimates, growth has disappointed”.

    Well official estimates on tax revenue were always absurdly optimistic especially with the anti-growth policies, expensive quack energy, absurd over regulation, over taxation, non functional banking, HS2, the Olympics, Labour a certainty in 2015, lack of small state vision and a dreadful level of state sector services delivered to boot.

    If you keep keep cutting steaks off the cash cow (to give to the leaches) sooner or later the Cow will run off or die. Importing lots of low paid worker will not help either as they often pay no net tax and use services like schools and the NHS – then send tax credits, benefits and much cash overseas.

    Get back to state spending of under 30% and you might have a chance. Perhaps just even say you aim to – but no, we have the IHT ratting George Osborne and the Cast Iron Ratting & fake green Dave (low tax by instinct my a***).

    They clearly aim to tax borrow and waste even more and are doing so. Perhaps they should be tied to the rotating wind crucifixes they are tipping tax payers money into. Just to stop them doing yet more damage.

    • stred
      Posted February 21, 2013 at 10:19 am | Permalink

      LL. Leeches would live off the living cow, sucking it’s blood. If you gave the steaks to the poor little starving foxes (like my better1/2 does) you would find more foxes coming into the garden. There was one sitting on our patio last week.

    • Bazman
      Posted February 21, 2013 at 8:18 pm | Permalink

      Wasted on paying the private sector to run everything it seems.

  8. Brian Tomkinson
    Posted February 20, 2013 at 4:00 pm | Permalink

    Your headline should read:
    ‘The public sector WILL NOT cut and the private sector cannot pay’. Of course it can cut but today’s three main party leaders are all tax, spend and waste merchants.

    • behindthefrogs
      Posted February 21, 2013 at 9:27 am | Permalink

      When we have a government that refuses to take simple steps like reducing the number of MPs can we seriously expect them to curb public spending. A couple of years ago there was a huge exercise to reduce the number of quangos. Most of those cut still exist but are now hidden away in other enlarged government departments.

  9. Leslie Singleton
    Posted February 20, 2013 at 4:22 pm | Permalink

    We swan along as if there were no problem–did I really read that IVF treatment is to be extended even though no illness involved? That might (just) be all well and good if we were rolling in it but we are very much not. We cannot go on in this self-indulgent mode with the country spending much more than it is earning. Cut not just the size but the existence of a few of the more useless Government departments for start.

    And I hate to be boring on the dreaded difference between the deficit and the debt but does a deficit (a period thinggie) really outstand?? I think not.

    • Vanessa
      Posted February 20, 2013 at 10:43 pm | Permalink

      And this is discrimination !! Homosexuals should get IVF as well ! Why only female homosexuals. It is all complete madness.

    • Winston Smith
      Posted February 21, 2013 at 4:00 pm | Permalink

      Yes, a NHS quango recommends six free IVF cycles for lesbian couples, costing up to £30-40k.

      • Bob
        Posted February 21, 2013 at 9:59 pm | Permalink

        “NHS quango recommends six free IVF cycles for lesbian couples, costing up to £30-40k”

        Whom the gods would destroy, they first make mad.

        • Bazman
          Posted February 22, 2013 at 8:00 pm | Permalink

          I could undercut that by far. The old ones are the best.

  10. ian wragg
    Posted February 20, 2013 at 4:24 pm | Permalink

    John, you say a main cause of the problem is lack of growth. How can we have growth when an ever rising amount of our money is being remitted overseas. Today we see that unemployment has fallen but GDP is down. When the Polish Central Bank says over £6 billion has been sent from Britain, add the same or more for India, Pakistan and the rest and I bet 0ver £20 billion is being sent out of the country.
    Overseas aid at £11 billion and another £8 billion net to Europe and you need 3% growth just to accomodate this. We now have Cameroon the clown inviting all India here.
    Are politicions inherently stupid or do you get sent on courses for stupidity.

    • Iain Gill
      Posted February 20, 2013 at 5:15 pm | Permalink

      I thought that was the sylabus on a PPE course?

    • Steve Cox
      Posted February 21, 2013 at 4:29 am | Permalink

      Good points, but you also need to add in the vast number of British pensioners, both from the private and public sectors, who have chosen to leave this Septic Isle and enjoy their retirement in happier lands with better climates and lower prices. Tens of thousands more join their ranks every year, taking with them all or most of their pension income that should have been spent on British goods and services, stimulating the economy. As long as Britain appears to be an attractive place to live to penniless Bulgarians or Somalis, but seems unattractive to many of its own retirees, I doubt that things will improve.

    • Peter Davies
      Posted February 21, 2013 at 11:45 am | Permalink

      They are scared of the likes of the leftie BBC, EU and the civil service mandarins that really run the show. The problem is they just don’t have the power you think they have anymore – treaty after treaty saw to that.

    • muddyman
      Posted February 21, 2013 at 1:39 pm | Permalink

      When will the time come for Cabinet Ministers to sit an intelligence test?.

    • Martin C
      Posted February 21, 2013 at 1:44 pm | Permalink

      The net direct cost of the EU to Britain in 2011 is £10.8bn and set to rise (source: Office of National Statistics “Pink Book”).
      Interestingly however, the BBC begs to differ and their nice nifty little graphic shows the UK net contribution to be EUR 3.5bn.
      Someone’s telling porkies.

      • uanime5
        Posted February 22, 2013 at 3:44 pm | Permalink

        If you’re referring to the net contribution section they provide an explanation by the chart.

        In an attempt to correct for these effects we have removed both administration costs and the customs duties collected by countries on behalf of the EU when calculating net contributions.

        So both figures are accurate because they’re calculated in different ways.

      • sjb
        Posted February 22, 2013 at 5:57 pm | Permalink

        @Martin C
        First of all, thanks for providing a link.

        Perhaps one explanation for the difference might be the BBC chart refers to 2007; the Pink Book to 2011.

    • lifelogic
      Posted February 21, 2013 at 8:11 pm | Permalink

      “Are politicians inherently stupid or do you get sent on courses for stupidity?”

      Well some clearly are stupid or mad, but most are just acting in the interests of themselves, their careers and/or their client’s interest (who pay them their “consultancy fees”) – few are interested in the interests of the voters, other than lip service at election time to be forgotten by Osborne and Cameron as soon as the Cast Iron and the IHT promises have become newspaper chip wrappers. (A regulation against that too I think?)

      Why else would we have all the mad regulations, HS2 and the pointless wind farms?

  11. forthurst
    Posted February 20, 2013 at 4:27 pm | Permalink

    Why is Osborne irresponsibly suggesting that RBS be ‘given’ to individual taxpayers when he should firstly break it up into its components, as frequently recommended by JR, and then float those components on the LSE at auctions with limits on tranches so they can’t be gobbled up by ‘too big to fail, already’ banksters. What is the point of creating an enormous share register of puny holdings? Obtain one puny share holding and lose it behind the sofa? Is that sound financial advice? What is so wrong with doing what is best for bank customers by providing them with focused banking services not involving fraudulent misrepresentation, and what is wrong for taxpayers in getting the market clearing value for the shares? Osborne needs to make up his mind as to whether he is Chancellor of the Exchequer or the officer i/c of ensuring the Conservative party gets the kicking it deserves at the next election by following policies which have not revived the economy and which are mostly hated by its putative voters.

    • forthurst
      Posted February 20, 2013 at 4:35 pm | Permalink

      I think it was your occasional correspondent,Alan, who, the other day suggested we couldn’t cut public expenditure because it was “just too painful”. There are two issues here: firstly the pain is mainly the consequence of the dangerous levels of noise that would emanate from the BBC etc, and second, that anyone who has had a career in the private sector will know that private companies frequently slash their human resource costs when they are not reasonably covered by earnings, and that when the private sector cuts costs, it always does so with the primary intention of at least maintaining the pre-existing service offering to customers. Why does the public sector have to operate to eentirely different rules?

      • uanime5
        Posted February 22, 2013 at 3:47 pm | Permalink

        Why does the public sector have to operate to eentirely different rules?

        Well if schools didn’t provide an education to all the children in the UK and hospitals simply stopped treating people there’s probably be a riot. The state simply cannot reduce their level of service in the same way that a company can.

        • Edward
          Posted February 24, 2013 at 6:36 pm | Permalink

          But Uni, in the private sector the focus has to be on the customer in order to survive and when businesses cut back their aim is to compete on price and offer at least as good a service as they did before.
          When the State cuts back they never cut at the top, all the cuts are transmitted down the hierachy to the lowest member of the organisation and the customer always ends up with a poorer service.

  12. JimS
    Posted February 20, 2013 at 4:40 pm | Permalink

    If companies paid more tax is in not likely that they would be passed onto the customer as higher prices?

    Similarly the ‘auction’ for 4G licences is just a tax on data infrastructure and ultimately on the customer. Actually it is worse than a tax because at least that would be charged on profit whereas the auction price is an up-front cost before a single bit has been shifted. What an excellent way to kill growth!

  13. Bob
    Posted February 20, 2013 at 4:45 pm | Permalink

    Sterling continued to weaken yesterday, depreciating nearly 1% against the Euro and 0.5% against USD. This further depreciation was due to further negative sentiment surrounding GBP however there is also a rumour in the market that the rating agency Standard and Poor’s ltd is due to downgrade the UK from its AAA credit rating.

    Looks like Osborne has been rumbled.

  14. JimF
    Posted February 20, 2013 at 5:17 pm | Permalink

    “The public sector cannot cut and the private sector cannot pay”
    More like Her Majesty’s Government cannot balance the books.
    Of course it is possible to cut. Your colleagues just don’t want to.
    Well then, make way for people who will.

  15. Antisthenes
    Posted February 20, 2013 at 5:18 pm | Permalink

    The indicators are that the UK is in for a period of stagflation. At the same time the ability to increase taxes on existing taxed items or find new things to tax has reached its limit and it could be said has even gone too far. Coupled with which interest rates on government debt is going to steadily increase. This of course means that resistance to spending cuts by government will crumble as there will be no practicable alternative. If the present government can hang on until 2015, which I seriously doubt, then Liarbour, who will then form the next government, the architects of much of our current problems can take the blame for the Greek style austerity that is too follow.

  16. MichaelL
    Posted February 20, 2013 at 6:08 pm | Permalink

    Of course the government could have forced a correction – by telling the Bank of England that it needed to keep inflation on target. It didn’t – the government has lied to people, its trying to inflate its debt away and make people poorer softly. Probably won’t work. Should have been bolder. There was a financial crisis and David Cameron didn’t take advantage of it.

  17. They Work for Us
    Posted February 20, 2013 at 6:19 pm | Permalink

    Why not be brave and campaign that the climate change act is unaffordable.

    Why is it not feasible to carry on with the power stations we were going to close in order to comply with our “climate change obligations”.

    No other country is doing this. Cheap energy is a key factor in an industrial renewal.

    A crunch is coming when private industry and the individual will not or will be unable to finance government spending. Companies won’t invest and employ people (and can’t be made to). Private individuals will want to spend or give away or hide their money (already taxed once) so that the govt can’t devalue it and/or take it from them.

    • uanime5
      Posted February 22, 2013 at 3:55 pm | Permalink

      The UK has known for 23 years that in 2015 these coal power stations were going to close due to the Large Combustion Plant Directive the UK agreed to and that the majority of nuclear power stations would reach the end of their lives at a similar time yet they didn’t build any more power stations because they believed the market would do it for them. The failure to improve the energy industry is the fault of the UK Governments over the past 23 years, not the EU or any legislation regarding climate change.

      Given that the “crunch” didn’t come to the private sector when the upper tax rate was 90% don’t expect it to come any time soon.

  18. Richard1
    Posted February 20, 2013 at 6:40 pm | Permalink

    Whats happened to George Osborne’s plan to tell every taxpayer where their money goes? We certainly do need spending cuts, but for an informed debate we need much more information about where public money is spent. How much on which kinds of benefits to which groups of people? how much on quangos? the breakdown of overseas aid, how much on subsidies to renewable energy? Information available to the public is far too opaque unless you make it a full time job to investigate it. We need a simple breakdown by government department, and we also need to see comparative figures for previous years and the budget. Just like a business. Then there can be a debate.

  19. A.Sedgwick
    Posted February 20, 2013 at 7:15 pm | Permalink

    Most correspondents to this site have been forecasting this scenario for years. Cameron and Osborne are hopelessly unqualified for their jobs, which they are clearly demonstrating. The £ is predictably falling, more QE is a possibility, the national debt will have doubled from 2010 to 2015, power stations are being phased out and power supply will be under threat or unaffordable for many, the false level of bank rate interest is unsustainable and arguably counter productive . One of their answers – a couple of million more unskilled, resource demanding Europeans all ready for 2014.

  20. Jon
    Posted February 20, 2013 at 7:41 pm | Permalink

    There is a dialogue now that all types of tax avoidance is criminal. However is it criminal to impose massive tax on items such as cigarettes and fuel. On a cigarette pack worth £6.50 about £4.50 is tax. There are many calling for the same type of levies on chocolate, butter, bread etc.

    There comes a point where the tax collector starts to become the criminal for their unreasonable demands and it can be right or at least encouraged to avoid that unreasonableness.

    The problem is spending, I noticed they are to increase the age of IVF on the NHS. Do people not know we have a debt problem and can’t afford to pay for what we currently have?

    Ask people to pay a reasonable amount of tax and that is fair, ask for unreasonable amounts and that racketeering regardless of them calling themselves government.

  21. Max Dunbar
    Posted February 20, 2013 at 8:09 pm | Permalink

    Quite agree but looking at your Party is to observe a slow motion suicide. Just a few more lethal injections by The Bank of England will probably do it. Look to Scotland to see where your Party may be going. Drastic action is imperative. Confidence needs to be restored but unfortunately Cameron, although he performs well in public, seems unable to deliver the goods. Meanwhile, sterling continues to weaken.

    • Bob
      Posted February 21, 2013 at 10:15 pm | Permalink

      A weak pound will increase our cost of imported commodities like oil, copper and basic foodstuffs.

      If our borrowing costs increase further, then I’m afraid that Gideon will have failed his primary objective, and our fate will be in the hands of the money markets; a slippery slope awaits.

  22. acorn
    Posted February 20, 2013 at 8:56 pm | Permalink

    Oh dear, we’re in trouble. The coalition does not understand that if the corporate sector; the household sector and the foreign sector wish to save pounds sterling, and not spend, then the government sector, the currency issuer, has to run a deficit to supply those savings. Martin Wolf explains http://blogs.ft.com/martin-wolf-exchange/2011/12/05/understanding-sectoral-balances-for-the-uk/ .

    The foreign sector is “saving” because the UK exports less than it imports. The currency is falling relative to other floating currencies, because no body needs to buy it. Other countries that export to the UK would normally buy our currency to protect their own exporters from falling sales into a weakening currency area; the Swiss and the Chinese do it most of the time.

    Remember that our national debt is all the money the government has spent, created out of thin air, that it has not yet got back by taxing it every time it moves from one entity to another. When it stops moving, that is, when people save it, the government can’t get it back to cancel it and send it back into thin air. Taxes do not finance anything, they are just a fiscal inflation control tool.

  23. Vanessa
    Posted February 20, 2013 at 10:41 pm | Permalink

    The trouble is that governments, these days, hate the rich. The message is get good grades, go to university so you can get a good job with a high salary – but if you do, we will punish you for life with huge taxes ! So what do they do ? They move abroad as John says. The coalitiion is so stupid not to see this.
    Russia, when Putin first came to power, had its tax rate reduced to 13% ! And what happened – money poured into the coffers. It is not rocket science, if you pinch too much money from my salary (which I have worked hard for and earned) I do not believe that the government deserves to take, what, about 52% to pay for its idiotic aid for India, expenses, the EU, the EU fines etc., etc., The country will go bust !! and you will all have egg on your face.

    • uanime5
      Posted February 22, 2013 at 4:08 pm | Permalink

      Given that Russia was in the middle of several crisises when Putin came to power it’s nonsensical to attribute all growth to one tax cut.

      • Edward
        Posted February 24, 2013 at 6:36 pm | Permalink

        It worked though.

  24. rick hamilton
    Posted February 21, 2013 at 2:31 am | Permalink

    If the HQ of a large corporation instructs a division to cut its expenses by 5% or 10% that will be done. The local management may argue and put up a case, etc, but in the end they either do what they are told – or leave. Can you please explain to me Mr Redwood why politicians cannot or will not do the same?

    Some local government officials, BBC and quango managers, are paid from taxpayers’ pockets more than the Prime Minister. Why? As a lesson to all the others give them six months notice to cut their salaries to PM level, or – since they value their own skills so highly – go and get a highly paid job in the private sector.

    Unions? Fairness? Hurt feelings? Human rights? Contracts? Lawsuits? Downsizing businesses face such challenges every day of the week and have to find a solution or go bust. Until politicians start thinking like businessmen instead of social workers our economy will not recover.

  25. Ben Kelly
    Posted February 21, 2013 at 7:59 am | Permalink

    Mr Redwood,

    Do you have figures for the amounts shovelled out of public sector budgets to avoid losing the money in February and March? I feel sure that if this extravagance was avoided the deficit would be reduced substatially. This was addressed in the Chancellor’s first budget but does not appear to have been followed through.

    Zero sum budgetting priciples should be applied.

  26. Neil Craig
    Posted February 21, 2013 at 11:03 am | Permalink

    However the idea of an implied balance between the wealth creating sector and the tax spending sector is false since it is only the latter we can do (very well) without.

    A hiring freeze, a wages freeze and a benefits freeze plus choosing particular departments whose effect on the economy is negative (Energy and Climate change ministry, health and safety, building planning) to be reduced by 90%. Those together would reduce real spending by 10% a year – something which, unlike raising taxes 10% a year, can be done forever. Perhaps years from now marginally positive but not sufficiently so to be worth paying for would be reached.

    • uanime5
      Posted February 22, 2013 at 4:12 pm | Permalink

      Unless you believe the UK can survive without the police, courts, the NHS, schools, roads, etc the “tax spending sector” is necessary.

      The fact that you believe that certain departments can be cut by 90%, even though you have no idea what they do, and that everywhere else can be cut 10% indefinitely without causing major problems just shows that you have no idea what you’re talking about.

      • Edward
        Posted February 24, 2013 at 6:43 pm | Permalink

        Uni,
        As usual whenever anyone says there could be cuts to the size of the State someone like you goes on and on about nurses and teachers, police and firefighters.
        This isn’t what needs cutting and should not be cut.
        Its all the waste and new trendy ministries and quangos and agencies and quasi charities that need pruning.

  27. stred
    Posted February 21, 2013 at 11:39 am | Permalink

    The proposals for wealth tax, mansion tax and stamp duty, together with stealth capital gains inflation tax and increases in regulation of buy to let, may well be intended to force savers to sell their assets. This is about the only reserve of money left and HMG needs it to finance it’s hugely expanded expenditure. There are large salaries, bonuses, allowances, and gagging agreements to be paid and we are all in it together.

  28. Peter Davies
    Posted February 21, 2013 at 11:42 am | Permalink

    To add to the problem you have said it yourself that one of the key factors not helping industry is the high cost of energy due to the Lib Dem/EU energy policies that @lifelogic often likes to point out.

    We now have a situation where due to EU Legislation the UK has to close down 10% of its capacity to produce electricity which is going to send energy prices even higher! You couldn’t make this up – China and India are building coal powered stations at a far quicker rate than we could ever close ours down, whilst we shut ours to prevent climate change and end up putting our own power supply in jeopardy because we have been told to by some bureaucrats that we have never heard of or voted in from another country.

    The loonies really are running the asylum – when are people going to accept that govt has to have the freedom to do as it needs to do to get the UK out of the mess it finds itself in which as a starter for 10 means tackling the EU issue head on?

    Over to Milliband to put the final nails in the coffin in 2 years time then

    • uanime5
      Posted February 22, 2013 at 4:16 pm | Permalink

      The UK has known about the Large Combustion Plant Directive for 25 years yet has done nothing to provide replacements for the power plants that will be closed. Even if this directive was ignored it won’t change the fact that the majority of the nuclear plants will be going offline at a similar time because their lives cannot be further extended.

  29. John Maynard
    Posted February 21, 2013 at 12:19 pm | Permalink

    The “popular” and fashionable solution to the impass, seems to be – if the so-and-sos won’t realise gains, or declare income that we can tax, then let us just confiscate the capital (where we can).
    Osborne, the inheritance-made man, appears to agree with inheritance-made men, Cameron, Clegg and Miliband on this.
    It is dispiriting that the parliamentary Conservative party are prepared to raise a storm about the EU or gay marriage, but when it comes to the steady undermining of the economic principles of conservatism, they raise not a peep !

  30. behindthefrogs
    Posted February 21, 2013 at 1:27 pm | Permalink

    The government needs to look at how much of the benefits that it pays go straight out of the country. We need to move to the situation where all benefits paid in this country are spent in this country. We also need to ensure that someone who only lives in the country for part of the year only receives tax allowances for the time that they are resident and are not allowed to claim a full year’s allowances.

    The other question is whether pensions public or private paid in the UK are subject to UK income tax at an appropriate rate.

  31. Pleb
    Posted February 21, 2013 at 1:35 pm | Permalink

    I thought that the conservatives promised not to destroy the NHS. Another broken promise. This must have increased publicity.

    The death of the NHS.
    The coalition government’s Health and Social Care Bill heralds the most controversial reform in the history of the NHS in England.
    The government plans to replace the NHS system of public funding and mainly public provision and public administration with a competitive market of corporate providers in which government finances but does not provide healthcare.
    Primary care trusts and strategic health authorities are to be abolished and replaced by general practice commissioning consortiums, which all practices must join.
    As incorporated bodies, consortiums will not be directly controlled by the secretary of state for health and may enter into commercial contracts with “any willing provider” for all health services and will set terms and conditions of staff.
    They will have extraordinary discretionary powers to define entitlement to NHS provision and charge patients.
    Direct management and control of NHS providers will cease as foundation trust status becomes mandatory for all trusts. Provider regulation will be overseen by a market regulator, Monitor.

  32. uanime5
    Posted February 21, 2013 at 4:12 pm | Permalink

    Growth has disappointed, accounting for much of the loss.

    So either growth predictions were unrealistically high, the economic policies of the Government have resulted in lower growth, or it’s a combination of the two.

    It is also clear that more people than expected have planned their affairs to avoid the higher rates brought in. Very rich people have gone offshore. People have declined to take profits on assets, or have sold assets at a loss to 0ffset. Housing transactions have been well down on pre crisis levels, avoiding Stamp Duty.

    How much tax revenues was mean to come from this? Unless this was meant to raise the majority of the extra £176.8 billion by 2014/15 the reasons for the lower tax revenues are due to other factors.

    Many in the private sector say they cannot pay more. They feel the current tax level is quite high enough.

    Are these the same companies which currently pay no tax due to their tax avoidance measures?

    They do not have any spare money to give the government.

    The largest companies have several hundred billion pounds in cash reserves, so they do have plenty of spare money.

    In conclusion the private sector can pay more, it just doesn’t want to.

    • M.A.N
      Posted February 22, 2013 at 1:45 pm | Permalink

      The monopolies & mergers committee used to ensure companies couldn’t get to big years ago, lets face it I don’t think any FTSE director wants to get rich by beggaring the country he was born in, eg he will have used the nhs, and no doubt have been university educated in the 1970′s for free. You could even claim dole in the 70′s as a student in the holidays. These politically connected globalised companies do not bare comparison to ‘normal’ business, nor do they represent ‘capitalism’ if they avoid a fair share of tax. Although socialist governments must step back from wasting money on vanity projects like foreign aid. You get the taxpayers you deserve quite frankly. Capitalism has always had to play within the rules, ironically it was socialists who allowed them to do as they please, to turn a blind eye, which financed thier higher spending, we can see where this has lead us.

      • uanime5
        Posted February 22, 2013 at 4:20 pm | Permalink

        It’s hardly fair to blame socialists for the relaxations of the law that the capitalists called for so they could make greater profits.

        Also given that all the FTSE directors can afford to leave the UK don’t expect them to care about how badly they treat it.

        • L
          Posted February 23, 2013 at 6:15 pm | Permalink

          unanime–Hatred and envy drips from your every word. No other country in the world has people with views like yours, not even Russia these days. In that lies our downfall. Fall of the Roman Empire and all.

          • Leslie Singleton
            Posted February 24, 2013 at 6:49 pm | Permalink

            Screwed up the new entry requirements of course but the above was from yours truly and while I am at it I seem somehow to have omitted the “that” at the end.

        • Edward
          Posted February 24, 2013 at 6:44 pm | Permalink

          It is fair to blame socialists for this mess, because they were in power and agered to it all.
          How can it be any different?

  33. Lola
    Posted February 21, 2013 at 5:25 pm | Permalink

    There is no ‘stand off’. There is a confrontation between the bureaucrartic satraps desperate to preserve the rent seeking entitlements and their power and the rest of us who have seen through this scam and will not pay for it. As we will not pay, it will have to stop spending. The trick it will play is to cut all manner of ‘front line services’ before it cust one bureaucrat.

    Time for the revolution. (Which are always started by the middle classes when in this exact position).

    • Electro-Kevin
      Posted February 21, 2013 at 10:45 pm | Permalink

      Unfortunately the Left are the masters or revolution – and of hijacking good causes.

      Any middle class revolt will be turned into ‘The cuts are too hard and too fast.”

      Our situation is – I fear – beyond recovery. C1/C2 opinion has been classified as ‘Daily Mail’ and is easily identified and dismissed. The Tories are embarassed to be associated with it and seek to ‘detoxify’ themselves.

      You have to hand it to the Blairists – they outflanked and outclassed the Tories, hacked away at their ties with their natural support, made ordinary people strangers in their own land and managed to drag the agenda way over to the Left.

      Voting Tory does not work.

      • Bazman
        Posted February 24, 2013 at 11:08 am | Permalink

        Daily Mail opinion needs to be laughed at and many do including myself. A propaganda paper for the middle classes with features on Nazi gold and UFO’s. With writers living in an England that never was and never will be. We don’t want to be middle class we just want your money.

        • Edward
          Posted February 24, 2013 at 6:46 pm | Permalink

          Whilst all in the Mirror, Guardian and the Observer is to be treated with respect.
          Its all biased.

          • Bazman
            Posted February 24, 2013 at 9:13 pm | Permalink

            Biased is not the same as being wrong.

    • uanime5
      Posted February 22, 2013 at 4:22 pm | Permalink

      The trick it will play is to cut all manner of ‘front line services’ before it cust one bureaucrat.

      Yet the Government keeps letting the bureaucrats decide where the cuts will fall. Maybe it’s because this type of cutting appeal to the Government.

  34. Wonky Moral Compass
    Posted February 21, 2013 at 9:20 pm | Permalink

    “The trick it will play is to cut all manner of ‘front line services’ before it cust one bureaucrat.”
    Of course. While all bureaucracies are self-serving, taxpayer-funded ones are a cancer. Which party’s brave enough to go for the radical and invasive surgery that is required?

  35. Jack Sprat
    Posted February 22, 2013 at 2:41 pm | Permalink

    Recommends stopping UK governement contributions to Terrence Higgins Trust.

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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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