How could we expand demand in the UK economy?

In the run up to the Budget there are three main families of  proposals on offer to boost demand and stimulate growth.

There is the public sector led approach. People argue that the state can still borrow very cheaply, thanks to Quantitative Easing. The state should therefore borrow more to finance state investment projects. They argue that building new schools and railway lines would boost output. Capital budgets which were cut substantially by the outgoing Labour government, largely confirmed by the Coalition, should be temporarily restored.

There is the private sector led approach.  People argue there needs to be tax cuts. The private sector has so far experienced a much tougher squeeze than the public sector overall. If people were allowed to keep more of their own money to spend, it would provide a welcome boost to demand. If companies could keep more of their profits,or could generate more profit in the first place thanks to lower tax bills, there could be an enterprise led revival.


There is the bank led approach. If the banks can be mended and the Central Bank can push money into the banking system from Quantitative Easing, then people argue there will be more credit extended. People will be able to afford new homes and new cars and other goods, there will be more demand. Businesses will be able to borrow to invest and expand.

I will provide a critique of each of these over the next few days. As readers of this site will know, I do think the priority is to fix the banks to allow them to finance a more normal recovery. Tax rates that are cutting the revenues should be reduced. Any other tax reductions to boost people’s spending power  which would be welcome has to be matched by reducing wasteful public spending. More capital investment is needed, but should be undertaken mainly by the private sector.


  1. Steve Cox
    March 10, 2013

    Another way to expand demand is to reduce inflation, so leaving people with more money in their pockets to spend and boost the economy. But this would mean admitting that there is no deflationary threat to the economy, and that monetary policy for the last five years has been based on a delusion. Rumours are that Mr Osborne’s budget will contain measures allowing the BoE to target NGDP and so kick the inflationary can further down the road. Expect the pound to keep on dropping and inflation to keep on rising. Neither of those is going to help to stimulate demand.

    1. Denis Cooper
      March 10, 2013

      I don’t expect the pound to keep on dropping; I expect the recent short-term and rather small decline in its external value to be reversed so that it rises towards the top of the quite narrow range it has occupied for the past four years.

      I may be wrong; I don’t attempt any detailed analyses either of fundamentals or of chart patterns; but I do check the historical facts, rather than accept whatever myths the mass media may be propagating, and on that basis I form a largely instinctive judgement of what is likely to happen next.

      There is a propaganda war going on, and it is rather shocking that a supposedly patriotic newspaper like the Daily Telegraph is assisting our enemies by feeding disinformation to its British readers and undermining their morale.

      So earlier this week its Economics Editor wrote about the pound being “already in freefall”, when that is simply not the case.

      Yesterday I took the trouble of posting a late comment on that article listing the monthly average values of the sterling trade weighted index over the past four years, a tedious task because of the need to reformat the data to meet the needs of the Disqus system, from which it is obvious that the pound has been remarkably stable over that period.

      Here are the values just for the month of February each year:

      2009 – 79.0089
      2010 – 80.3468
      2011 – 81.5564
      2012 – 81.044
      2013 – 79.7821

      and here are the most recent daily values:

      01 Mar 13 78.7334
      04 Mar 13 78.9625
      05 Mar 13 79.1276
      06 Mar 13 78.8976
      07 Mar 13 78.6119

      How and why a highly paid Economics Editor concludes that the pound is “already in freefall” is something of a mystery, but whatever may be the reason it is helpful to our enemies that he publishes such nonsense.

      1. Nina Andreeva
        March 10, 2013

        Den your thesis is probably correct on the basis that the pound is one of the world’s trading currencies. For some strange reason, despite HMGs objective to supply the non working class with parrots, it is still seen as a “safe haven’. So unbelievably, when the results of the first round of the Italian elections were announced the other week, my Singapore $ holdings reduced in value to sterling. Remember in Singapore if you do not work you starve. However quite soon the sterling component of the IMFs ” special drawing right” is up for review. If that changes a few rolls of Andrex may be worth more than you bank account

        1. sjb
          March 11, 2013

          Singapore is frequently cited by contributors but I wonder how many realise that foreigners constitute 35% of the workforce? Also, if you don’t support your retired parents they can sue you!

      2. sjb
        March 11, 2013


        I think he used the word freefall because of the speed of the decline – 10% against the euro since the start of the year.

        1. Denis Cooper
          March 11, 2013

          Then no doubt he’ll be talking about the pound “soaring” when it comes back up from the bottom of the current short term cycle.

          That’s if there’s a repeat of the previous cycles over the past four years, which can be seen by clicking on “5y” or longer on this ECB chart:

          Note that the trend over that four year period is for the pound to rise against the euro, and to my eye that trend has not yet been broken.

      3. John Maynard
        March 11, 2013

        Good post. Once the Soros’ and Rogers’ of the world take their ill-gotten profits, Sterling will probably gently rise. (I wonder which other “interests” might be shorting Sterling ?)

        Of course, the DT is not alone in talking down the economy, but it is probably the only print whose “Chief Economic Editor” had the brass neck to give us all a lecture about the importance of business and consumer Confidence recently.

  2. lifelogic
    March 10, 2013

    1. Banking – the private sector cancelled or postponed countless sound investment projects when Natwest/RBS in particular and the banks into sucking back funding from. Get funding back to them and some confidence and get these real projects back on the go. They will produce real returns on the investment too, unlike so called “government investments” such the green deal, HS2, the Olympics, daft tram schemes and similar. My companies personally delays about £2M of construction contracts purely because of banks sucking cash back at loan renewals.

    2. Get taxes down to at least maximum tax raising levels, many are far too high rates and raise less as a result. We need to abolish IHT and Stamp duty to get some confidence, reduce income tax to 40% maximum, reduce corporation tax to about 15%, capital gains restore indexation and reduce it to 20% and reduce employers NI, the anti job tax.

    3. Confidence – difficult to do with Cameron in charge, the Libdems calling all the shots and Miliband for sure in 2015. But we could have easy hire and fire, get rid of absurd energy certificates, the gender insurance drivel, the no retirement laws, we could reduce absurd regulation everywhere. The tax reductions above and some sign the state sector is finally going to be reduced to sensible levels say 30% of GDP as a starting aim. A special state sector private sector equalisation tax is needed, to level out the absurd position where pension in the state sector are circa 6 times those in the wealth creating sector who pay them.

    Get rid of the new reporting rules for PAYE which will cost companies a lot of time and money too.

    It would be nice if there was, at least, a chance of not getting Miliband in two years but with Cameron what chance can there be?

    1. lifelogic
      March 10, 2013

      I see little changes in the UK, Justin Welby the new Archbishop of Canterbury attacks Government welfare reforms by adding his support to the silly letter by 43 Bishops to the Telegraph.

      Can these intelligent men not see that the way “God” (as they would have it) constructed the World incentives to work are often needed relative to not working. Do these Bishops never observe people’s actual behavior or even animals’ behavior in the real world? They still clearly think there is a magic government money tree, even if Cameron has finally caught on there isn’t.

      Meanwhile Prince Charles is pushing his, do as I say not as I do, agenda again I see.

      1. lifelogic
        March 10, 2013

        Still Charles is doing his bit for (British hopefully?) ski fashion in Kloysters I suppose.

        I assume he cycled there fueled on porridge and all the ski lifts are powered by the waste from Swiss cheese factories, or similar.

        1. Edward2
          March 10, 2013

          I agree Lifelogic
          Re Charles I was disappointed to see him pictured in Klosters wearing a well known foreign brand of snow suit.
          There are some very good UK brands he couldhave sprted.

          1. Edward2
            March 10, 2013

            Sorry, I meant to say “sported” at the end.

      2. Nina Andreeva
        March 10, 2013

        LL, HRH Prince Charles may not be everyones cup of tea. However just imagine “Hello” magazine bringing out a special commemorative edition to celebrate Tony’s re-election to the Presidency and Cherie’s “tasteful redecoration” of the now Presidential Palace. His lads have proper jobs too, unlike (the usually failed) entrepreneurial activities of the aforementioned’s offspring

        1. livelogic
          March 11, 2013

          Indeed I approve of the Royal Family for that reason they clearly are better than the alternative and bring pleasure and indeed business to the country.

          My only objection to Charles is that if I spent £1M of tax payers money on my travel arrangement and drove Aston Martins rather quickly then I would not keep lecturing others not to take a weeks holiday in Benidorm or similar. He should copy his parents and keep his politics and quack environmental agenda out of it.

      3. Richard1
        March 11, 2013

        As heir to the throne HRH Prince Charles must be advised to wear a ski helmet. I have finally started to do so, it doesnt make much difference & my demise would be of far less consequence to the nation – if not to this website – than HRH’s.

        1. livelogic
          March 11, 2013

          What even for the press photos!

    2. JimF
      March 10, 2013

      But all the time he is there UKIP will pick up votes so leave this subject alone svp. Polling at 17% now, and Ken Clarke making himself a fool on Question Time by sneering at Diane James and “the thought of UKIP solving the Syrian crisis”. Like Hague the Vague has solved it?

      1. Nina Andreeva
        March 10, 2013

        If the “groundswell” is there why is UKIP not taking control of something as basic as a local authority, let alone get someone elected to the HoC? UKIP is nothing more than a one man band (Farrage) and just like George Wallace, Ross Perot and co prepare to get disappointed because nothing is going to change. Farrage practices the politics of Wallace, in that you “find out where it itches and you give it a good scratch”. Remember he was reelected to become Governor of Alabama in the ’80s from the votes of the people he was denigrating in the ’60s. Be careful what you wish for.

        ( imprecise queries about UKIP MEP expense claims and attendance records deleted-ed)

    3. behindthefrogs
      March 10, 2013

      We obviously cannot afford to implement all the tax reductions that you list. We obviously need to concentrate on those that will have maximum effect.

      Reducing, if possible removing, employers NI contributions concentrating on those groups of employees where unemployment is the highest would seem to be the prime target. If this can be done in a way that encourages an increase in the number of genuine apprenticeships of six months or longer so much the better.

      Any money available for income tax reduction would be better used raising the lower limit at which employees NI starts, if necessary raising the limit at which it reduces to 2%. Ideally employees NI would be merged with income tax but currently we cannot afford to reduce the tax raised from unearned income.

      It is critical that any tax changes encourage people into work, rather than being applied to areas like IHT, capital gains, 45% income tax bands etc. hwere any effect very indirect.

      1. lifelogic
        March 10, 2013

        We cannot afford not to do the tax reductions I suggest if we want any growth.

        It is crucial that capital, the rich, the hard working and successful are not encouraged to flee the country and capital is invested here. IHT, CGT and employers NI should go. We can well afford it as it will raise more tax in the long term anyway and it will encourage growth and confidence.

        Osborne inspires no growth, and no confidence and pushes both capital and the hard working away.

        He flies a flag saying invest in Britain and the government will grab 80% of your capital in about 20 years with our various taxes. You with have to work very hard or be very lucky just to retain its real value.

    4. Bert Young
      March 10, 2013

      Ll . I don’t always approve of your replies , but , on this occasion I believe you have the balance right . It will be interesting to see Dr. JRs developed points ; his economic judgements are very sound and his reasoned arguments are always logical and full of common sense . There is no doubt that the lack of confidence pervading the commercial and manufacturing sectors has much to do with Cameron’s , so called , leadership ; it will be interesting to see how much credibility Dr. JR gives to this in his follow ups . Sadly I do not receive the blog until 1pm otherwise I would have responded earlier .

      1. lifelogic
        March 10, 2013

        Thanks I do not think Cameron can do much now to inspire confidence as clearly Labour are soon to be back in office, looking mainly after the interests of the state sector unions. The last thing we need.

  3. Leslie Singleton
    March 10, 2013

    Allowing the banks to lend, and even funding the banks, is all very well but as I have said many times that is not the same as them wanting to. Individual lenders, behaving rationally, will think twice and thence thrice before making any kind of marginal loan in today’s economy, I certainly would have. Banks quite rightly want their money back and there is not the slightest guarantee that the economy will not tank further. Banks that make loans (as against the so-called investment banks where the opposite applies) are not in business to take unwarranted risks, especially not on the larger loans. Any ideas based on top down orders to lend more (not that I am think any such are likely) would be madness. In good times such orders – to meet targets for new business – are crazy because it is easy for individual lenders to say Yes for the next few loans as necessary. In bad times it would make no sense at all on any basis because it would mean lenders being instructed to lend against their better judgement. For those who think different not every decision is made by the Fred Goodwins of this world.

    1. lifelogic
      March 10, 2013

      The banks are still turning down some very safe lending, or just charging too much for it. It has improved a little though recently but still very slow, restrictive and expensive for anything non standard.

      1. Nina Andreeva
        March 10, 2013

        LL, have you actually considered how many of the companies that you complain about being denied credit by the banks are actually zombie companies, who are only being kept alive by Osborne’s misallocation of capital? Successful companies tend to be awash with cash at the moment and it may be that the banks are for once doing something sensible that they were not doing prior to 2008 ie not pouring money into entities that do not deserve it

        1. livelogic
          March 11, 2013

          Some may be, but many are far from zombie companies, just companies needing to expand or just retain existing borrowing who need borrowing to do so. Many have excellent security to but still cannot get funding on sensible terms. RBS is simply not in the business of lending at all in any real sense. They want all the money back.

          1. stred
            March 12, 2013

            By shrinking private lending- or money creation by banks- + increased taxation, the government is able to print and largely finance the deficit without mega inflation and falls in the pound.

      2. Leslie Singleton
        March 11, 2013

        lifelogic–Very safe, says you, but you are not the one who will be held responsible if the money doesn’t come back. In any event, there is no such thing as safe lending, just a percentage that go bad (and you don’t like default rates). The company might be “safe” (maybe) but the economy certainly isn’t–it could yet get much worse. Forgetting for the moment the Government’s temporary ownership of some banks I would have thought you would understand that banks are private entities and it is for them, not for armchair lenders, and them alone to decide what loans they do and do not make. Shareholders and all that. What you seem to want is a 100% Government owned bank whose losses would be borne by the taxpayer, not quite up your street though I should have thought.

        1. livelogic
          March 11, 2013

          I do not want any such thing just capital rules that allow the banks to lend sensibly. They were I agree too loose but they are now far too tight with the new Basel and EU regulations. Confidence in Cameron would help to but looks unlikely.

        2. Leslie Singleton
          March 11, 2013

          Postscript–It’s as if you, lifelogic, were to tell your boss after you and your team had done days of analysis that you did not like the loan and (in your dreams apparently) your boss (on orders from on high) tells you to make it anyway. Trust me it doesn’t work like that, at least it didn’t in my shop–certainly not on the orders of Government of all people. Even John, extremely competent and experienced as he is in what used to be called Merchant banking has perhaps little or no direct experience of lending. I say this because I know and knew a fellow director of his at Rothschilds years ago and I well remember that while we were mooting possibilities on a particular client I asked whether Rothschilds might want to come in with us on a Club Deal and it was made clear to me that that was not what Rothschilds was about (This is not a criticism of either John or Rothschilds).

    2. oldtimer
      March 10, 2013

      Of course it is not just the banks that want their money back, but also the depositors on whose backs their lending is based. The alternatives are the haircuts taken by lenders to the greek government.

  4. Jerry
    March 10, 2013

    Surely in principle the two tax cut that that would help almost everyone would be to cut fuel excise duties and many of the “Green” tariffs, for example the land-file tax has done nothing but added extra costs to builders and their customers whilst at the same time introduced fly-tipping blight to many country lanes across the whole country. I would favour this sort of tax cut, were the benefit is seen at the point of sale rather than at the pay-cheque (income-tax), recovery is not going to be had from personal tax cuts being stuffed into zip-up mattresses or off-shore savings accounts, whilst companies will see savings due to cheaper running costs and/or higher profits that can then be invested in either growth, more staff or higher wages [1] which in turn will give people more spending power and might even start to bring down the benefits bill (both JSA and Tax-credits).

    I don’t see any (extra) state infrastructure spending in the short term happening, not because it couldn’t or shouldn’t happen but simply because Osborne and much of the Tory party seem dead against it (often out of political dogma rather than any other valid reasons), even though it would help give a boost to the private sector [2]. Also the cost might not be as great as thought, savings from the reduction in costs to the DWP in out of work benefits (due to more people being recruited, not via cutting/freezing…) could be diverted in to these capital/infrastructure projects whilst the spending power of the now employed will boost the retail/manufacturing sectors.

    [1] which will also feed a percentage back to the exchequer via income tax, thus yes, there will be a certain about of swings and roundabouts but as people will feel both better off and see lower prices…

    [2] for example, the national motorway network was built from public funds but the work was done by the private sector, and thus both the nation and the private company/individual benefited.

  5. Mike Stallard
    March 10, 2013

    Thank you for a very clear summary of government thinking. I very much look forward to your next three posts!

    From down here, it seems like this: I was in debt for £2,000 in the 1990s. I was also on the dole. My first priority was to clear the debt. With the help of the Nationwide Bank, I did just that over a couple of months. It wasn’t actually that hard. At the end, I was still unemployed, but felt a lot better. I then got further employment which brought in enough to live on.

    No IOUs, no pretence or self indulgence, but we did have to change our bank!

    Reply Glad you got over your debt problems – pity the government cannot learn from such an approach

    1. lifelogic
      March 10, 2013

      For him it was his personal debt, for the government and civil servants it is tax payers debt and their personal incomes – so their approach is somewhat different.

    2. alan jutson
      March 10, 2013

      reply – reply

      “Pity the Government cannot learn from such an approach”

      Exactly so.

      Pray tell us John why is it that governments of all colours do not see this absolute logic, that Mike and millions of others use when confronted with the same problem of living within a budget.

      Why do governments believe we have an automatic right to growth?

      Why do governments set spending plans on guesstimate growth figures?

      Yes we have had growth in the past, but it is declining, indeed one could argue that with an increase in the population, if we did not get growth of the same increased percentage, we have actually gone backwards for years already, its just that population growth has hidden that fact.

      1. lifelogic
        March 10, 2013

        Because they like spending others’ money on their pet projects, interest, green religions, friends, relatives, consultancy fee providers and similar perhaps?

      2. uanime5
        March 11, 2013

        Governments cannot easily cut spending because they have to provide a minimum level of security and welfare. They can’t just decide to stop imprisoning people or giving them welfare because it’s expensive.

        1. Leslie Singleton
          March 12, 2013

          unanime–That sounds wonderful till one appreciates that what is wrong with it is that the Government is spending nearer the maximum on Welfare not the minimum. Maximum in the sense that we cannot possibly bear more. The world did still go round before the kind of unsustainable, some would say demented, levels we pay out now. Not sure what you mean by “Security”. If by some mad chance you meant (which I very much doubt) the security of the country then I might agree with you.

    3. Timaction
      March 10, 2013

      A sound post and advice Mr Redwood. Unfortunately your leaders are not listening. Once the structural deficit is eliminated there should be legislation to stop future Governments of any persuasion borrowing what we can’t afford. Governments need to run the Countries affairs like any sensible person or Company by living within its means.
      Its also time to get rid of all that green carbon nonsense and reduce our power bills. I see that there has been no rise in global temperatures for 17 years (Telegraph). Thats science not religion.

    4. Dan
      March 10, 2013

      You prop this discredited government up.

    5. Nickle
      March 10, 2013

      So Mike, how much debt is the state in?

      7,000 bn plus (pensions included)

      700 bn spending

      550 bn taxes.

      Since most of the debt is linked to inflation plus a spread, they aren’t going to clear it . Ever.

      So we have to face up to the consequences. It’s default.

    6. P P Pensioner
      March 11, 2013

      The Labour Government left office in 2010 after 13 years of Labour misrule (had to repeat what Harold Wilson said about the Tories in 1964) having left behind an astronomical national debt. They were glad to lose the election and let someone else clear up the mess for them which successive Tory governments have done in the past for the previous Labour administrations.

      In 2015 it looks like the coalition will hand back to Labour the same mess they inherited from Labour with an even bigger national debt. Why, because they are too scared to actually make real cuts in expenditure and reduce real debt. Labour will be saying that the economic problems are all the fault of the Tory led coalition and the average voter will happily swallow this and vote for them.

  6. Single Acts
    March 10, 2013

    Might I suggest such posts merely give credence to the nonsensical demand deficit theory? Surely the inflation the UK is currently suffering from suggests the supposed idle capacity idea is not sound.

    1. Mike Stallard
      March 10, 2013

      Making up silly names for stuff has got us into enormous trouble already. If the bankers had not dressed up all their subprime debts as clever mathematical equations, the world would have been a much safer place.

      1. Leslie Singleton
        March 11, 2013

        Mike–You seem one of the good guys but (in my role these days of defender of the banks against excessive criticism) we mustn’t get carried away in to inaccuracy, meaning that there are no equations involved in subprime lending (and furthermore the banks – in America – were compelled by Clinton by law to make these–the thinking being of the kind that unanime might come up with, viz If the rich can borrow then so should the poor and to Hell with the banks’ credit analysis). You are thinking of derivatives, Options, Puts, Calls and other hedging products where indeed the maths gets very heavy indeed.

  7. lifelogic
    March 10, 2013

    Patrick Minford has it about right as usual in city am:-

    What this adds up to is that the chancellor is making two big mistakes over monetary policy. First, he is excessively regulating the banks so that the credit channel is blocked. Second, he is urging monetary policies to boost growth which, if they worked, would only raise inflation. He is being saved from more inflation by the fact that the first mistake cancels out the second. Unfortunately, the first is blocking growth and the second is ruining savers.

    These problems may be beginning to dawn on the Bank of England at last. But it is time the chancellor also understood these monetary problems, instead of worsening them.

    Patrick Minford is professor of applied economics at Cardiff Business School.

    Good article by Allister Heath too on the link.

    1. Gary
      March 10, 2013

      If Patrick Minford defined inflation as an oversupply of money causing a devaluation of the money(price set by supply/demand) which CAUSES consumer prices to rise, then he would be wrong in that article. The EFFECTS of inflation seen in consumer prices may be negated somewhat by the fall in demand, but that does not mean the inflation(oversupply of money) does not still exist, and all the cancerous hidden consequences of it. eg. rate suppression causing malinvestment, erosion of balance sheets, rate speculation, currency speculation, asset bubbles, loss of productivity, false wealth effect etc

    2. Bazman
      March 10, 2013

      I would say the banks are excessively regulating themselves taking money and refusing to lend it. The days of casino banking are over or should be for these subsidised state companies looking after their own jobs over all other responsibilities.

  8. Electro-Kevin
    March 10, 2013

    Reducing tax would be the obvious way to boost demand. (The idea of another credit boom makes me shiver.)

    Would Britain accept the public sector cuts that would accompany cuts in tax ? Haven’t we gone beyond the democratic critical mass as regards the amount of people working in state funded socialist organisations ?

  9. alan jutson
    March 10, 2013


    I think you are putting too much trust in the Banks.

    Many people and businesses are now too scared to take out credit, because Banks in their view simply cannot be trusted.

    An Overdraft is payable on demand, as many a business has found to their cost in recent years.
    Many loans require the family home to be put up as collateral.

    People are beginning to realise that extended credit means you are out of control of your own finances.

    Surely the answer is to allow people to keep more of their own money, to spend as they wish, on goods and services that they choose, from who they choose, when they choose.

    I would have thought the last thing in the World we need is to encourage more personal debt for more fake short term growth.

  10. Andy Baxter
    March 10, 2013

    Slash taxes….all of them direct and indirect and simplify the tax regime………SIMPLES….

  11. Gary
    March 10, 2013

    The entire concept of GDP growth is flawed. It is a construct for(and probably by) the usurer. When the growth of your business is dependent on expanding your lending, as is the case for the financial sector, then you have to grow the economy by expanding debt for consumption and you do this by expanding output. However, this bumps into a mathematical limit. The economy cannot physically expand output forever, and also people soon become crippled by debt.

    The only aim of economics is to progress to more comfortable life, this is possible without expanding output. It can be done by replacing existing output with new, more advanced output. Some industries die to make why for new ones. The GDP under these circumstances stops but materially our lives advance. I know that they try and use hedonic measures to try and account for this, but you end up with ridiculous measures such as a computer twice as fast is twice as valuable, when you may only be doing spreadsheets. We are back to the impossibility of solving The Problem of Economic Calculation in the aggregate. It must be done by each individual via their own preferences having free choice in a free market. The govt cannot get these thing right, no matter how hard they try, and it ends up allocating confiscated taxpayer money into non-economic “investment” and this causes snowballing distortions that have knock on effects. The larger the size of govt the greater the distortions until the economy becomes a zombie that eventually collapses under its own weight. This is where we are, and past a certain point nothing can be done to prevent the collapse.

    If the govt had any sense, they would realise that what is required is not more “investment”(malinvestment) , but less. Not more borrowing for already debt-saturated consumers, but less. A great unwinding of the credit and related asset bubbles, a clean out of non-performing companies and a great reset of the economy. This is already happening with or without the govt, and this is the main reason why those forecasting GDP growth are hopelessly wrong and will remain wrong. We have a 30-40 year bubble to unwind, it may take the rest of most of our lives to do so and the govt can only prolong the process.

  12. oldtimer
    March 10, 2013

    The UK`s salvation can only be achieved through a private sector led recovery. That requires that the government stops impeding any chances of recovery. That requires the government to reverse those perverse policies that do just that. The notable examples are its energy subsidies, its excessive taxation of risk and employment and its policy of kicking the banking and credit cans down the road.

  13. David Hope
    March 10, 2013

    On banking I’d say we need a lot more than just mending and QE as many suggest.

    How about a lot more competition. We could reduce regulation by 99% for banks with very high reserves. We could make it easy for lots of community banks like in Dave Fishwick’s tv show Bank of Dave. We could implement a lot of Steve Baker and Douglas Carswell’s ideas for bank reform.

    Obviously splitting up RBS is a small and worthwhile move, especially in the short term. But I’d argue that the big banks have little interest in small scale lending nowadays for small business and these organisations are not about to change overnight.

    Therefore we must make it very easy to setup new safer banks and have genuine competition. It’s literally absurd how people call banking capitalist when there are never any new entrants, regulation is enormous, they get thrown cheap money by government and the BoE and deposits (and in 2008 the banks themselves) are backed by government. More than tinkering is needed

  14. E
    March 10, 2013

    Surely growth can only come from the manufacturing and supply of goods and services. But growth here will only come if there is a market for such goods and services, and at the moment people in this country simply don’t have the money to spend due to so much being taken in taxation. If the demand was there, the private sector would soon increase output to meet demand, as Land Rover/Jaguar did recently with increasing demand from abroad. All the major government infrastructure projects won’t help growth until there is a market to sell the goods.
    Meanwhile, my money in the bank is depreciating at an alarming rate (my ISA interest rate has been reduced to 0.25% by the Halifax) so if we are now reluctant to spend what is left of our savings on anything but essentials in case any major expenditure on the house becomes necessary. A new railway to Birmingham won’t change that one iota.

  15. nTropywins
    March 10, 2013

    Good morning John

    sorry to mention this but with energy policy in the hands of the LibDems the country is screwed. So anything Osborne might do is just tinkering at the edges. I assume you have read Booker’s 2 pieces today. Sums up the madness very nicely.–wont-help-planet-jot.html

  16. lifelogic
    March 10, 2013

    I see that a survey Survey of 1,800 Tory members reveals only 7% think the Tories will in an overall majority in 2015. The triumph of hope over rational judgement one assumes for the 7%. The only way is a binding deal with UKIP, the new compass for Cameron and a minor miracle.

  17. nTropywins
    March 10, 2013

    and in case you were in any doubt climate change is not a vote winner

    ‘Seventeen years of continuous surveys covering countries around the world show that people not only do not care about climate change today – understandably prioritising economic misery – they also did not care about climate change even back when times were good.’

  18. Voice_From_The_Floor
    March 10, 2013

    So much emphasis on ways to FINANCE a return to growth. Not a single mention of ways to cut the ever increasing avalanche of petty rules and regulations that continue to strangle small business in this country.

    Cut the bloody-minded bureaucracy in this country and business will start to generate growth again.

    Such a simple concept. Such a tragedy that it is lost on government.

  19. Denis Cooper
    March 10, 2013

    “If the banks can be mended and the Central Bank can push money into the banking system from Quantitative Easing, then people argue there will be more credit extended.”

    As practised in the UK so far, the primary aim of Quantitative Easing has been to save the UK government from the fate which befell the Greek government, which ran out of money to pay all its bills on time and in full.

    The Bank of England creates vast sums of new money and uses it to buy up previously issued gilts from private investors such as pension funds and insurance companies – not commercial banks, to anything like the same extent – while in parallel the Treasury sells new gilts to much the same set of private investors at much the same rate – the “money-go-round”.

    Hence “the state can still borrow very cheaply, thanks to Quantitative Easing”, because the Treasury is using the Bank as a kind of captive gilts investor rather than having to rely on private investors to provide the money needed to fund the government’s massive budget deficit.

    Clearly when the Treasury spends that money paying the government’s bills it gets spread around the economy.

    That would be much clearer if we still lived in the days when most everyday financial transactions still involved banknotes and coins; for example when a pensioner went to the post office and got his pension, or when a public sector worker was handed his weekly pay packet, they would find that there was an increasing proportion of crisp new banknotes, the new money printed up by the Bank and indirectly passed to the Treasury.

    As it is nowadays that money will be in the form of electronic deposits in millions of bank accounts, both personal accounts and business accounts, but while that money is in the banking system it is there as loans to the banks rather than being the banks’ own money and so does nothing to “mend the banks” in terms of strengthening their balance sheets.

    Going back to early 2009 when the constantly stated concern was about banks being crippled by the “toxic assets” on their balance sheets, the question was posed why the Treasury and the Bank of England were not seeking to remove those “toxic assets” from the banking system but instead were planning to take high quality assets, gilts, out of circulation and metaphorically store them in a vault at Threadneedle Street, and that was the first clue that the true purpose was not to “mend the banks” but to make sure that the Labour government could carry on over-spending in the year leading up to the general election.

    The government was having to borrow about a quarter of all the money it was spending, and with private investors becoming increasingly reluctant to lend it so much the answer was to indirectly borrow about £200 billion from the Bank of England; that ploy succeeded, the Tory Shadow Chancellor and election supremo signally failed to expose and counter it, and that was one of the main reasons that the Labour party avoided annihilation at the general election and the Tory party failed to get an overall majority.

    It would have been possible to use Quantitative Easing both to help “mend the banks” and to fund the government’s budget deficit, if the Bank had created new money to fund a state body to buy “toxic assets” from the banks on condition that the banks then bought gilts from the Treasury; instead Darling chose to offer insurance to the banks against losses on their “toxic assets”, the Asset Protection Scheme, and leave it to the banks to clean up their balance sheets and mend themselves.

  20. margaret brandreth-j
    March 10, 2013

    I will await your analysis , but just must add that the extra spending created by tax cuts for those with lower incomes actually adds up to little and would probably be wasted rather than accumulated to purchase more expensive goods. For the ordinary person it is true that every penny helps , but doesn’t solve a bigger problem , whereas as for the Country every penny accumulates into considerable amounts BUT how this is utilised needs very careful thought.

  21. behindthefrogs
    March 10, 2013

    I do not understand why the government does not encourage National Savings at good interest rate that is lower than they are having to pay for their huge borrowings. While the banks are not lending there should not be the competition arguments that have been used for not doing this in the past.

  22. Bazman
    March 10, 2013

    As the companies have billions stashed away from the good times I fail to see how letting them keep and often send profits offshore is in any way going to help the country. What we need to do is make the ones avoiding tax such as corporation tax pay the correct tools like everyone and every other company. Pay or leave. We do not respond to threats as all you managers know.

    1. Wonky Moral Compass
      March 10, 2013

      Got any examples of companies dodging corporation tax that aren’t doing so perfectly legitimately?

      1. Bazman
        March 11, 2013

        Perfectly legitimately? That will make it right then?

        1. Wonky Moral Compass
          March 11, 2013

          If companies comply with tax law they are acting perfectly legitimately. They have a duty to their shareholders and play the taxman’s game using the taxman’s rules. If people don’t like it, they should lobby to get the law changed.

    2. Nina Andreeva
      March 10, 2013

      Bazza, put what you believe into practice and do not hand over any of your hard earned money to them. Amazingly enough a well known international coffee shop chain has closed down one of its branches (and the property has remained vacant for some months now) in Bristol city centre. I hope its due to popular disgust over their
      tax avoidance activities, if it is not , the economy is in even worse shape than it appears to be

      1. Bazman
        March 11, 2013

        Every other company pays it. Why should some not?

  23. Acorn
    March 10, 2013

    There are some puzzling numbers knocking around. While looking for explanations around the supply side / demand side argument, I noticed the following on the excellent Trading Economics site. Capacity Utilization, basically how far the accelerator pedal is off the floor in the UK jalopy. .

    See the UK value then switch countries and compare with the US and Germany. Spot the difference? Why is the UK throttled back so far; price; productivity; no consumer demand???

    Then, have a look at MONEY (right side menu). Particularly Money Supply M3 (I don’t think the BoE calculates M3 anymore, they use M4). M3 is stationary. According to old fashioned economics as practised by Osbo and Co; M3 should be running wild due to the “money multiplier” affect of all that QE cash now stuffed into the fractional reserve banking system; another mainstream economic myth.

    So, “How could we expand demand in the UK economy?” Reduce VAT by half for the next year and make sure that everyone knows it is a limited time offer. When the BoE is stuck with the “zero bound problem” , the evidence is that reducing sales taxes is effective on consumer demand. Like wise at ZB, fiscal stimulus, that is, increased government deficit spending has a positive multiplier affect; one pound can get you two to three in economic output.

    Forget the budget deficit and the national debt for the next five to seven years; we have a sovereign fiat floating currency which we will never run out of. Remember, we are not Greece or Portugal that are users of a foreign currency they have no control of. They have to borrow, we don’t.

  24. John B
    March 10, 2013

    You cannot increase demand, this implies central economic planning.

    In anyway case how can there be demand without supply?

    Economies do not grow by people buying more of the same stuff, not least becasue sooner or later we all have enough… consumables aside… so the much slower and reduced, replacement market is left.

    It is innovation that creates a supply of new things for people to ‘demand’.

    The thing to do is make condition right for innovation, that is reduce market entry and business start up/development costs by reducing regulation and taxation.

    Since the currrent claque of politicians is willing to do this, or apparently even understands the concept, Western enconomies will bump along the bottom until we all have to start learning Chinese.

  25. Andyvan
    March 10, 2013

    The public sector has no money. All that it has is either stolen directly from the productive sector or indirectly by borrowing/ inflation. To remove money from the productive sector either now or in the future simply reduces capacity, growth and the collective wealth of the people of Britain. It is an approach that has never worked and will never work.
    “Mending” the banks and printing money has totally failed. It has been tried continuously for years now and has done nothing except devalue the currency and enrich bankers. The only thing that will fix banking is if interest rates are free floating with no government control, banks freed from regulation and bankrupt banks allowed to go under and new efficient banks allowed to flourish.
    This country has been so brainwashed by the Keynesian idea that wealth comes from government it has lost sight of the fact that wealth comes from making and selling things. Government only steals and disrupts. Until that is realised this country and all the others following the same policies will continue to decline and their people continue to get poorer and all the waffle and BS will not change that.

    1. W J Long
      March 11, 2013

      This puts the situation in a nutshell. The ingredient that is missing is politicians who are willing and able to make the case; to do that they have to believe in it and the few now in parliament that do are so few as to be ineffective. Boris is capable of articulating the message and so is Mr Farage. I cannot see much difference between the three existing leaders in practice, though I suppose on Europe a chink has appeared in the words. That is why I am coming to the view that the only sensible vote is for ‘None of these’ ie UKIP.

  26. ralphmalph
    March 10, 2013

    The biggest difference that the govt could make is to get confidence that the country is on the right track in the wealth creating population. The wealth creating population are business people and we understand that costs higher than revenues equals bankrucptcy. What compounds this is that the government keeps spouting on about cuts and in overall total expenditure there are none. Spending in cash terms is increasing every year. What do you take us for fools?

    So because the goverment states cuts all the time, yet is increasing overall spending I think they are fools, who do not know what they are doing, so I have no confidence that the country will not go bankrupt. So I protect my assets an build them up instead of spending.

    Then there are the vanity projects. This governemnt is sacking serving armed forces personnel yet giving billions to corrupt dictators. Private sector workers get 1% pay rise, people on benefits get 5.1%! How do these policies give me confidence that my taxes are being used for the good of the country? Correct they do not. They destroy my confidence in the government and I resent paying huge levels of taxation because the governemnt just wastes it.

    Why would my business invest in the UK when we are going to be having blackouts in the not too distant future? The Labour government may have caused the problem but this government is being spectaculary bad at sorting it out. Again another confidence destroyer.

    Then there is the coalition government or “the kiddies throwing thier toys out of the pram” government. What confidence boost does it give when one side of the government says one thing and then the other side pops up and says things like tory nutters or whatever. This is not a tory problem but your partners in government are so disruputive that it just saps any confidence that there is any hope of sorting out the big problems the country faces. Again confidence sapping.

    Then we have the leadership Cameron, Clegg and Osbourne. Not one has ever done a private sector wealth creating job! They have never sold anything, they have never managed anyone or anything, they have never built anything product or business. Yet alone been wealth creators. Nadine Dorries had this right – Three posh boys who do not know the price of milk. Do they inspire confidence in me that they can take the big desicions and see it through. Not one iota.

    So what is the result of all of this I stop spending, I used to like to go on 2 or 3 holidays a year. I work hard earn good money which the government takes 50+% off me and then they want another 200 to 300 quid in airport tax for the priviledge of me recharging my batteries to work hard on my return and pay more tax at 50%+ on my return. So I do not go anymore I stay at home and read in the garden. Which means that my overall spending is less because I am not driving the car to work so you are missing out on the fuel duty. I use this as just one example of how I am limiting my spending but every one means they government gets less tax of me, which cheers me up.

    So in the wealth creating population you have the worst of all worlds, we have no confidence and we resent the high levels of taxation because we view the government as wasting the taxes. If I thought they were being used for the good of the country I would not mind paying them, but at the moment I resent it.

    So in this government we have no confidence and resentment and that is toxic and fatal.

    1. zorro
      March 11, 2013



  27. Richard1
    March 10, 2013

    The problem with option 1), the public spending route, is thats the State is such a bad allocator of economic resources, relative to the market, which measures what people actually want. Politicians are also inevitably in hock to special interests. Under the Labour government much (I read up to 80%) of the huge increase in public spending went on increased public sector employment and wages rises (Labour being controlled by the public sector unions). Gordon Brown committed c. £10bn to 2 new aircraft carriers though there is no coherent argument for them and no planes to fly from them, as he wished to give a bung to potential Labour voters in Scotland. This government, like the last, seems to be hugely under the power of the green lobby, so we get vast sums spent on windfarm subsidies and HS2. With the state at nearly 50% of GDP the focus should be on cutting spending by the govt, which allocates resources so badly, and letting people spend more of their money as they wish.

  28. Bob
    March 10, 2013

    When the coalition increased vat to 20% I thought that combined with cuts in public spending and the money raked in from tuition fees they should be able to make a large dent in the deficit.

    What happened?

    Was it really wise to increase DfID’s budget by £4 billion when we have people starving and dying of thirst in NHS hospitals?

    1. zorro
      March 11, 2013

      I don’t think that they got that much more by increasing VAT to 20%, there has been no cut in public spending, our marvellous annual deficit continues apace…….and tuition fees was never going to bring money in quickly. It will actually cost more at first, as the repayments are dependent on the students paying money back when they earn over £21,000 pa…..At least, that’s the theory.


  29. Bob
    March 10, 2013

    Ray Winstone follows lifelogic’s lead:

    I’m ready to quit Britain says Ray Winstone as he claims country has been ‘raped’ by high taxes

    1. Electro-Kevin
      March 10, 2013

      Which of Ray Winstone’s leads would that be, Bob ?

      The one where he plays a gruff cockney character ? Or the one where he plays a gruff cockney character.

      Or was it the one where he played a gruff cockney charachter ?

      Mr Winstone’s acting repartee is so varied it’s difficult to know which role to follow.

      1. Bob
        March 11, 2013


        You mis-read my comment.

        It says “lifelogic’s lead”.

      2. zorro
        March 11, 2013

        definitely the one where he played a gruff Cockney character I think……..


    2. livelogic
      March 11, 2013

      Well indeed, would you stay in the UK if it cost you about £1M PA extra tax so to do. Or put it another way would you move to the UK if the fee to do so was £1M PA and for second rate services too? Especially when you knew you could invest the £M far better than Cameron will which is not much of a challenge. Is it not your moral duty to move and prevent the waste?

      The UK is ideally suited for poor immigrants, the feckless, benefit claimants (until Osborne run out of lenders) and rich nondoms. Otherwise there are many, far better and more civilised choices of residence and with far better services and climate too.

  30. Nickle
    March 10, 2013

    With the pensions debts going up at 736 bn a year on top of the 150 bn a year overspend, where are you going to get the investment from?

  31. NickM
    March 10, 2013

    1. Government spending
    My experience (at a lowly level) of government spending is on a project that should have taken a year, which took 3 years. This was not due to laxity on the part of the contractors, or even the government department, but to an overwhelming culture of prescriptive and proscriptive bureaucracy. The contractor was engaged for his expertise, but was not allowed to exercise it. The result must be a tripling of the true (non-government) business cost. Multiply that out and it is easy to see that every £1 taken in tax by the government only benefits the nation to the tune of 50p or less.

    2. Public spending vs Government spending
    The public spends money much more efficiently than the state, yet some government spending will still be required. But a government spend of 50% GDP is excessive. So there must be cuts, not just to reduce the deficit but also to make overall national spending more efficient. This is a very hard thing to do successfully and the Conservatives have not just failed but left it almost too late. We must learn from Canada and New Zealand, and others. For example, the MoD should be no bigger than the Israeli defence department. In the meantime DfID should be closed down, as should large numbers of quangos, and their funding stopped. The BBC should be sold off. The Climate Change Act should be scrapped and subsidies to Wind, Solar and other “government-picking-winners” bungs also stopped. (Ps: for the uninitiated, “public spending” is spending by the public (domestic or business) as opposed to government spending).

    3. The banks
    It is no good the government telling banks that they must re-capitalise, cut their risks, and lend more all at the same time: it is self contradictory. Moreover banks will only loan you an umbrella when it is not raining – and economically it is pelting down. So I don’t think banks are capable of helping us out anytime soon. The government needs money now so sell the government’s shares in Lloyds (RBS is a basket case) to the public at (say) half price. This will helicopter some money to the taxpayer’s who don’t take up their option, promote the idea of share holding and saving, and get the government off Lloyds’ back.

  32. Neilo Craig
    March 10, 2013

    Wuth the non-WU world economy growing at 6% export led demand is available in quantity – if our industries were not prevented from being competitive.

    If internal demand were wanted allowing electricity bills to fall would release a lot of money people would rather spend on something else.

    We should be curently in the midst of a boom unprecedented in history if our political classes were not deliberately keeping us in recession.

  33. Nickle
    March 10, 2013

    As for actions.

    I would abolish Vince Cable’s department. An FOI request of mine said they created 3 jobs, for 20 bn spend.

    Lets axe employer’s NI. That gets more bang for the buck than anything else.

    1. livelogic
      March 11, 2013

      They clearly destroy jobs not create them. You say they created 3 jobs, for £20 bn spend. The extraction of the £20bn in taxes will destroy or prevent perhaps 200,000 real jobs in the private sector.

  34. NickM
    March 10, 2013

    Oops: “taxpayer’s => taxpayers.

  35. Lindsay McDougall
    March 10, 2013

    You are still not asking the related question: Who has already got money without the need to borrow and how do you get them to spend or invest more of it? The wealthier pensioners and those nearing retirement are one such group. They want lower or zero inflation and they don’t want “Independent Financial Advisors” recommending that they purchase annuities, which is rank bad advice.

    It would be no bad thing if HM Government had to pay higher interest on its debt. The result might be faster deficit reduction.

  36. uanime5
    March 10, 2013

    One problem with cutting taxes is that anyone on a low salary won’t get much benefit because they already pay little to no taxes. Thus there will be little increase in demand, making a private sector recovery more unlikely.

    1. Robin
      March 10, 2013

      So target companies and life styles in a positive manner. Boost the tax breaks for healthy food, energy, education etc.

    2. Mick Anderson
      March 10, 2013

      You’re assuming that all taxes are income tax. How about reducing road fuel duty, domestic fuel duty, VAT and Council Tax and removing road tax, airport taxes, all the “green” taxes, IHT, CGT, Stamp Duty – none of which are related to your salary.

      1. uanime5
        March 11, 2013

        Those who don’t drive won’t benefit from reduced fuel costs, those who don’t fly won’t benefit from reduced airport taxes, reducing IHT & stamp duty will only benefit the wealthy. So many of these taxes won’t benefit the majority of the UK, so they won’t result in any additional demand.

        Reducing VAT and Council tax are the only ones likely to help the majority of people.

    3. Edward2
      March 10, 2013

      It is possible to cut taxes that everyone pays like VAT or excise duties and even taxes on fuels which affect gas electric prices and transport costs like buses taxis and train fares etc.
      Reducing NI would help employers take on more staff.
      And I think we both agree that paying tax when being paid the minimum wage is not fair.

    4. Nina Andreeva
      March 10, 2013

      U5 there is more to taxes than the headline rate that you pay. Poor people tend to buy more stuff than rich people (because they have less to begin with) and so stimulate demand. Georgie can keep IT at 20% but give the poor more to play with by increasing the size of the personal allowance etc

    5. Max Dunbar
      March 10, 2013

      Cutting the cost of petrol and diesel would help to stimulate a recovery for obvious reasons.
      Also, most of the cost in a litre of fuel is tax and poor people are hit proportionally harder. So unless all people on low salaries peddle or walk then I cannot see how they are going to avoid paying heavy taxes.

    6. Bob
      March 11, 2013

      “One problem with cutting taxes is that anyone on a low salary won’t get much benefit because they already pay little to no taxes. Thus there will be little increase in demand, making a private sector recovery more unlikely.”

      You need to think more in terms of demand for exports from the UK, which means we need to become more competitive, something which is not likely to happen under the current administration.

      A companies profits do not necessarily increase with inflation, quite likely the opposite, so it’s not easy to see where pay rises will come from.

  37. Man of Kent
    March 10, 2013

    When involved in a company cost-cutting exercise abroad 25 years ago we went for all the most difficult and productive areas first —

    Expensive expats terminated and replaced by local management trainees/junior managers.

    All capital expenditure cut except for that with a one year pay back or less.

    10% work force reduction .

    Primacy of short term revenue enhancement measures over longer term efficiencies .

    We got ourselves out of the hole and survived so that now the Company is prosperous and trading well a quarter of a century later.

    Many of us simply cannot understand how we have wasted 3 years .[Sorry change ‘how’ to ‘why’]on deficit elimination.
    My daughter is married an Irish Civil Servant
    -he had a 6.25% salary reduction [Phase1] two years ago
    -followed by a 6.25% pension levy from salary
    -followed by stiff cuts on personal allowances and departmental budgets.

    No moaning or debate -just get on with it.No strikes either.

    A few years ago in Estonia I saw public sevice salaries and pensions slashed by 15-20%.
    I believe Ireland and Estonia can see light at the end of the tunnel now whereas we just get further in debt and are no nearer to eliminating the deficit.

    We all know what needs to be done ,viz

    More efficiency in both public and private sectors
    Smaller Government
    Sound Money
    Low Taxes
    The problem is there is no one to carry out such a policy ,maybe the coalition think that there are no votes in such an approach and prefer to make arguments over the miutiae.

    I think there would be huge support for the party that explains the task ahead and gets on with it .
    Bankruptcy,IMF loans,loss of sovereignty ,huge debt interest bills are the future.

    Wow it’s time for drink!

  38. Dennis
    March 10, 2013

    Perhaps there are enough resources to feed a greater demand (I doubt it as we are not the only country demanding more) but as Mr Redwood has not informed us of the current state of the productive power of the biosphere his wishes are just wishful thinking – what are the numbers?

  39. Robin
    March 10, 2013

    Make stuff people want. Start with food, raw materials like wood, bricks and energy. Then everything in between right up to computer chips, cars and pharmaceuticals.

    Rather than pander to the needs of marginal seats in a reactive manner proactively decide on a number of positive lifestyles are promote them and the demands they would make.

    1. uanime5
      March 11, 2013

      Due to the shipping costs of exports it would be better to make high value goods, such as chemicals, than low value goods such as bricks.

  40. David Langley
    March 10, 2013

    What happened to the >£3Billion QE? The banks got it to re pad their balance sheets, the stock market did well?? The rest of us not sure. Investment returns need to repay, ROCE usually has to run at about 15%, this will be difficult to measure as returns in capital projects take a long time to appear. The immediate effects would be improvements to the circular flow of cash and usually an increase in inflation as too much money chases too few goods. The government cannot reduce overheating by getting savers to stash the cash as interest rates are crap, but possibly could increase to curb the inflation. A feel good factor would start to appear and business confidence and consumer confidence improve. Regarding demand the French economist Saye said “supply creates its own demand” so innovation and risk taking will create the demand push that the increase in money supply will satisfy. I think!

    1. Denis Cooper
      March 11, 2013

      I’ve explained above what happened to the £375 billion of new money created by the Bank of England with written authorisations from two Chancellors; minus transmission losses, it got passed to the Treasury through the gilts market.

      What was described on here as the “money-go-round”, and what was once even noticed by a commentator at the Spectator before it was decided to say no more about it because Osborne might want to do some more of the same:

      “The Bank of England today confirmed that less than 1% of the £44.5bn it has printed has gone to buy company loans – it had indicated that as much as a third of the £150bn pool would go to companies. Instead, it is a mechanism to help the government issue the £240bn of gilts it’s issuing this year. Why is this important? Because if the markets think QE is actually a way of one department of the government printing money for the other departments to spend (a la Weimar Germany), then confidence in the currency collapses. And right now, it looks very much like the Bank of England’s asset purchase programme is a device to buy state debt, masquerading as an attempt to target inflation.”

      As evinced by the fact that the Bank now owns a huge of stock of gilts, each of which says that the Treasury owes it money, while the Treasury has spent that money paying the government’s bills.

  41. Duncan
    March 10, 2013

    The way to fix the situation? Simple – do an “Iceland”: stop giving the failed banks our money – allow them to go bust. Don’t be fooled into believing there will be an irredemable crisis – it will be short-lived and we will pull out of it rapidly (see Iceland). Arrest the bankers who caused this crisis and stick them in jail for many a year. Remove the duopoly of politicians and bankers by allowing a free market in banks with guaranteed NO BAIL OUT if they ever get into trouble.

    Put the BoE (and the Fed, and the other central banks) bank into public control) – don’t believe the hype that the BOE is truly owned by our government – just try and see the articles of association of the BoE – not allowed to mate – protected by Royal Commission. Why? What are they hiding? Also, why do we pay interest on our debt to the BoE? – i.e. interest (that is crippling) to an institution that we supposedly own. Pull the other one, mate – I think most of us know where the interest we (the taxpayers) pay to the BoE goes.

    That, friends, will fix the situation.

    1. Denis Cooper
      March 11, 2013

      “don’t believe the hype that the BOE is truly owned by our government”

      It’s not “hype”, it’s “law”:

      “Bank of England Act 1946

      1946 CHAPTER 27 9 and 10 Geo 6

      An Act to bring the capital stock of the Bank of England into public ownership and bring the Bank under public control, to make provision with respect to the relations between the Treasury, the Bank of England and other banks and for purposes connected with the matters aforesaid.

      [14th February 1946]”

      Perhaps you’d care to say precisely how you’d bring something into public control when it was brought into public control 67 years ago and has never been taken out of public control (although some argue that it should be).

      What is it that you want to see that cannot be seen here?

      1. Duncan
        March 11, 2013

        Please answer these questions:
        1) Why is the company, the Bank of England, protected by Royal Commission? I have tried to access information, specifically the articles of association. and they will not give them to me on the basis that it is “private information” because it is “protected by Royal Commission”.

        2) Why, if we own the Bank of England, do we pay crippling interest on our massive debt to this body – a body that we are supposed to own? If it is debt we owe ourselves and it is interest we pay to ourselves we should just excuse ourselves from the debt and, of course, the interest. And any future money “borrowed” should be interest-free.

        I await your answer.

        1. Denis Cooper
          March 12, 2013

          I’m still awaiting your answer to the simpler and more basic question of how you would go about nationalising something which was already nationalised in 1946 and which has never been privatised.

          I’ve just emailed the Bank to ask for clarification about the “Articles of Association” which you say exist but are being kept secret, a waste of their time as well as mine.

          The Bank, or more precisely its subsidiary the Bank of England Asset Purchase Facility Fund Ltd, is the legal owner of a large stock of gilts issued by the Treasury and is therefore legally entitled to receive the payments of interest and capital due on those bonds.

          The gilts are of many different types according to their issue and maturity dates and coupons, and while in principle it would be possible to agree that the Treasury would make those payments as usual to all other owners but it would not make them to the Bank, what would be the point of that exercise when the Treasury owns the Bank and is therefore entitled to all its profits?

          You say:

          “I think most of us know where the interest we (the taxpayers) pay to the BoE goes.”

          implying no doubt that it is being syphoned off into the pockets of shadowy figures (words left out ed) last autumn then you might have noticed Osborne agreeing with the Bank that all the interest paid so far would be returned to the Treasury:

          “Bank of England to hand over gilts interest payments to slash national debt”

          Big cash balances amassed by the Bank of England as a result of its electronic money-creation programme will be used to pay down the national debt by £35bn over the next 18 months, the Treasury has said.

          George Osborne wants Threadneedle Street to hand over the interest payments it has received on the gilts bought since the start of the asset-purchase scheme in early 2009.

          The chancellor said it was economically inefficient for the Treasury to have to borrow money to pay the coupons (interest payments) on the £375bn of gilts accumulated by the Bank since it adopted the strategy of trying to boost the economy through a huge expansion of the money supply.

          Sir Mervyn King, the Bank’s governor, said the change to the arrangements made sense as the scheme was bigger and likely to last longer than anticipated.”

          Which decision was recorded in the last Quarterly Report of the Asset Purchase Facility:

          “On 9 November 2012, HM Treasury announced arrangements to transfer gilt coupon payments received by the APF, net of interest costs and other expenses, to the Exchequer. These arrangements are detailed in an exchange of letters between the Chancellor of the Exchequer and the Governor.”

          Those letters can be read here:

          along with previous letters back to March 2009.

        2. Denis Cooper
          March 12, 2013

          My reply to this has been missed for moderation.

          1. Denis Cooper
            March 12, 2013

            Oh, sorry, I was 15 seconds premature with that!

          2. Denis Cooper
            March 12, 2013

            Oh, no, it’s reappeared but still awaiting moderation!

          3. zorro
            March 12, 2013

            Don’t leave us in suspenders, we’re still waiting for the answer…. 😉


        3. Denis Cooper
          March 12, 2013

          JR, is there some reason why you will not publish my reply pointing out that last November it was agreed that all the interest paid to the Bank would be returned to its owner, the Treasury?

      2. Duncan
        March 12, 2013

        And the Fed Denis, The Fed – you conveniently leave that one out, don’t you.

        1. Denis Cooper
          March 12, 2013

          Why should I say anything about the Fed when we’re discussing our central bank, the Bank of England, not the central bank of the US or any other country?

          Whatever may be the case with the Fed, the Bank of England is publicy owned.

          What some anti-Semitic US commentators choose to leave out in their videos is the simple fact that the history of the Bank of England did not cease with it still being a private company; they never go on to say that it was nationalised in 1946 because that does not suit their purposes, and mugs like you get misled into the false belief that it is really, somehow, secretly, mysteriously, still privately owned.

          1. Duncan
            March 12, 2013

            Denis – the dressing may fool some but, scratch the surface and it is clear that they are hiding something. You STILL don’t answer my points that at variance with the BoE being publicly owned:

            1) Why is it protected by Royal Charter? What do they not want us to know?

            2) Why do we pay interest to ourselves on debt we have issued to ourselves?

            3) Why are we not allowed to FULLY audit the BoE? What is touted as audit is laughable – we want FULL, OPEN audits.

            No Denis – there is something that stinks. As with the Fed / Banking cartel the onus is on the BoE to prove that a similar cartel does not exist here. If they were as they say they are an OPEN and FULL audit would clarify the situation. But they won’t allow it.


            What we need Denis – is for the ability of private banks to create money and to charge interest on that money they create out of thin air (see The issuance of money and setting of interest rates should be FULLY under the control of a truly democratic government – not this corrupt lot we presently have. Beppe Grillo is onto the situation in Italy, hopefully an equally charismatic character will achieve here in the UK what he is achieving in Italy.

            (etc ed)?

          2. Denis Cooper
            March 14, 2013

            Duncan, JR has now published my reply above.

            I notice in the Telegraph today:

            “The Bank’s study also showed that the Treasury’s decision last year to seize the excess cash in the scheme would save it “between £65bn and £70bn” by 2016. But the cash transfer would then be reversed between 2017 and 2020, when the Treasury would have to raise extra debt in the market to hand the money back to the Bank.”

            That’s because all of the profits of the Bank belong to its owner, the Treasury, but by the same token the Treasury has indemnified the Bank against losses on the Asset Purchase Facility.

  42. Jerry
    March 11, 2013

    Cookie reset

  43. lojolondon
    March 11, 2013

    Cut tax. That is the only answer.
    Cut airport tax to encourage international business and tourism
    Cut IHT to boost windfall spending
    Cut capital gains tax to encourage entrepreneurship
    Cut VAT by 10% and watch as people instantly spend an extra 10% on goods

  44. Robert Taggart
    March 11, 2013

    To boost UK PLC you could always follow Liebore Lord Desai’s suggestion…
    Scrap all existing benefits and pay all people of working age £100.00 per week. No means test means = next to no bureaucracy = simples !

  45. Colin
    March 11, 2013

    1) Allow banks to go to the wall if insolvent.
    2) Allow formation of many private banks – thus promoting competition and preventing collusion and monopolies.
    3) Remove from private banks the capacity to create money – 97% of the money supply is electronic – created by private banks.
    4) Only a publicly owned, fully transparent, fully audited entity, should be allowed to issue money – and that money, should be interest-free.
    5) In contrast to what the (private) banks are doing today, the money issued / lent should go to companies / projects which are for the greater good – of the economy – and not used for asset inflation, as our private banks do. Insodoing they are able to create asset bubbles, and burst them. They then can buy and sell those assets at the bottom and top of cycles they create. Iniquitous.

    The basic message is that the ability to issue money and charge interest on that debt should be TOTALLY removed from the private banks. It is this that is the root of the problems in our economy.

    For your education see:


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