Public spending, wellbeing and economic growth

 

On Thursday I was debating the Blair years at the Cambridge Union. Hazel Blears put up a spirited defence of the Labour government. She said that when Labour arrived in power her own town was run down. By the time they left office it had new schools, a better hospital and other improvements from enhanced public sector investment.

I am glad her town benefitted from some of the massive spending and borrowing Labour undertook in office. I guess if there had been a Conservative government they too would have spent a lot of extra money on her area. Conservative governments, like Labour governments, traditionally spend much more of our money in Labour areas as they agree there is more need there than in the more prosperous Conservative parts of the country. I also agree with Hazel, unlike some of the people who write in to this blog, that the public sector can and does contribute to national output and wellbeing. The output of a public sector hospital or school is as much a part of national output as the output of a private sector school or hospital.

The missing parts of the Labour discussion, however, revolve around two sets of issues.. Why didn’t the large expenditure of money in the poorer areas lead them to catch up with the richer areas? Why did inequalities expand rather than contract? Why did London continue to outperform the areas attracting the most public spending? Secondly, don’t we need a bit more balance in public spending?  Whilst I do not begrudge Hazel her new schools and better facilities, there was no evidence of anything similar in my area. By end of  the Labour years we had grossly overcongested roads, and a shortage of school places, with a large backlog of building maintenance and replacement in the public sector.

The truth is the Blair years lived on credit too greatly, leaving us with a huge problem of paying the bills and repaying the debts which will continue to haunt us for some years to come.  The Blair model of public sector led spending gave some help to the areas that  benefitted most from it, but failed in the main to encourage a productive private sector to take  off and generate lots of new private sector jobs in the poorer areas of the country.  The public sector was not uniformly favoured either.

We are entering the long rebalancing. To make other areas as rich as London will require much more private  sector led growth in them. To regenerate the whole public sector, and not just favoured parts of it, requires reform as well as fairer funding.

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86 Comments

  1. Posted March 17, 2013 at 6:35 am | Permalink

    Hello,

    I am not a British citizen but I also don’t feel like Blair’s administration brought any good to its people. I was little back then but remember being confused when he announced his decision to support USA in the war against terrorism. It seemed almost like not USA was hit but UK. Sorry about the offtopic, I hope the less richer areas in UK will be benefited from the new laws and investments.

    Harutyun.

  2. lifelogic
    Posted March 17, 2013 at 7:07 am | Permalink

    I agree fully.

    You say however that the public sector can and does contribute to national output and well being. The output of a public sector hospital or school is as much a part of national output as the output of a private sector school or hospital.

    Well yes, to a degree, but so much of the private sector produces no real useful output at all. Does even a new large school building/hospital always give a better educated output of students or healthier patients? Often not all and it further caused much disruption during the works. HS2 will clearly be a net loss not benefit to the economy as was the Olympics and the green religion/agenda, gift to the pigis, aid and most of the EU.

    Anyway much of the state sector is absurdly inefficient and produces nothing of any real value. It also pushes up energy prices, over regulates, distorted the playing field with absurd taxes and tax breaks, has mad building laws, planning laws, employment laws, tenancy laws, tax laws, demarcation laws. It pushes industry and activity to the wrong places and areas, sends money to the PIGIS or the EU, conducts pointless counter productive wars, forces the wrong (gender equal) insurance premiums, daft energy certificates and building controls ………… I could go on and on.

    Worse still is diverts much of the private sector into absurd activity relating to tax planning, employment laws, grant seeking, rent seeking, complex legal structures, no win no fee muggings, pointless employment tribunals, daft energy generation, the list is endless. Not to mention the state sector’s financial encouragements to augment the feckless and deter the responsible at every opportunity.

    Overall, taking into account all this the net useful output of the state sector is probably negative I suspect. We could have a GDP per head perhaps double current with an efficient state sector spending say 20% of GDP efficiently. This rather than the current 50% and so much of it down the drain or actually negative (the pointless counter productive wars for example).

    But how would we ever get to this happy position with Socialists like Cameron in office and Miliband and Clegg clearly even worse, albeit only marginally?

    • lifelogic
      Posted March 17, 2013 at 8:15 am | Permalink

      The real problem is the state sector simply do not care if they spend wisely or not so long as they can get their hands on the money. They are just as happy blocking the roads with large islands, endless red traffic lights and empty bus lanes as they would be taking all these measures out.

      They seem happiest of all when spending on propaganda, buying votes, augmenting state sector pensions or diverting the funds to friends and family. Or perhaps setting up motorist muggings, like the outrageous hatched junction in Hammersmith and Fulham raising millions a year. What is the useful output of that “investment”? Just irritation and very high blood pressure for motorists one imagines.

      • Rods
        Posted March 17, 2013 at 5:52 pm | Permalink

        I totally agree with both your comments. Productive industry also produces multiple products to sell here and abroad with a much faster turnover of money in the economy, so you have a direct net wealth gain. Education needs to be of a standard where it helps people to reach their full potential, so maximising the contribution they can make as adults. The NHS could probably do the same with half of its current budget if it was subject to market reforms. The budget is also only some of the money that the NHS consumes as much modern equipment is purchased with charitable donations and fund raising, without which things would be even worse!

        Schools and Hospitals are necessary, but we have seen massive increases in both budgets since 1997 for a fall in educational standards and very patchy improvements in the NHS, with some areas like Mid-Staffs clearly totally unacceptable and they are not the only hospital to have let their patients down.

        There is currently clearly a major problem with our ambulance service, as I know of two instances where older people have fallen, one had a broken leg and the ambulance took over three hours to arrive in each case. Is this the sign of an efficient and caring health service where the NHS funding has doubled since 1997?

        Personally, I think after almost 3 years in office, where the best your Government has been able to deliver is a drop from 52% of GDP spent by Government in a the year of the bank bailouts to 49% is dreadful. John, I used to think you were part of the solution for getting Government spending down but I now realise with the rest of your party, you are the problem and it explains since 2010 why, there has been no real effort to re-balance the economy with public spending cuts and tax cuts. After 3 years in office and still spending 49% of GDP and collecting with our ever increasing tax burden almost 43% of GDP, which condemns all of us to stagflation and falling real wages. If I was party to this record I would be hanging my head in shame, where I had let the populous of the UK down so badly.

        On your Government’s current record it doesn’t deserve to be in office after the 2015 election, where your 5 years will have been largely squandered, just badly managing the UK’s decline. Labour or a Labour/Libdem pact will make things even worse, but at least those that vote for a socialist government will get what they voted for. At the last election I voted Conservative and ended up with a socialist one!

        Currently our only hope of a conservative government is UKIP, who I expect to continue to get stronger where all of the three main parties are socialist and failing the people of this country, who deserve better.

        The Eastleigh by-election is the shape of things to come where the right wing vote is split, but they still had a majority with 52%. If the Conservatives want a role in a right wing coalition after 2015, then Cameron is going to have to eat some humble pie and do a deal with UKIP on which party challenges for which seat.

        The time for radical action was in 2010-2011 when you had your initial mandate and the LibDems wanted all ‘austerity’ to be from cuts, it was the Conservatives that wanted and 80/20 split with 20% from tax rises. Clearly with such a high tax burden it was a mistake. Where you recommended the book “Heaven on Earth”, which I have taken the time to read, why haven’t you followed the Rodger Douglas / Ruth Richardson path of radical reform, like New Zealand did in the 1980’s?

    • uanime5
      Posted March 17, 2013 at 4:53 pm | Permalink

      Well yes, to a degree, but so much of the private sector produces no real useful output at all.

      Such as the majority of the financial industry.

      Does even a new large school building/hospital always give a better educated output of students or healthier patients?

      A larger school can educate more pupils and offer a broader number of courses, while a larger hospital can treat more patients and provide more services. So they do provide better services.

      • lifelogic
        Posted March 17, 2013 at 8:19 pm | Permalink

        Of course the finance industry has on output people are not forces to use it they do so by choice so clearly think they do something for them.

        A big new hospital may be better it may be worse it depends on the staff and how well it is run and organised.

        Usually very badly indeed in my experience and Stafford and many other will attest.

  3. Mike Stallard
    Posted March 17, 2013 at 7:25 am | Permalink

    In 1958, I was a founder member of VSO, something which has affected my whole life.
    Shortly after Ghanayan Independence under Kwame Nkrumah, we were driving from Accra, the capital with excellent roads, to Kumasi, in the Centre.
    Suddenly the road was full of potholes, unrepaired after the tropical storms.
    I asked my Mentor about this sudden change.
    “Oh,” he replied, “Kumasi voted against the government.”

    Do you know what? I thought we were better than that!

  4. alan jutson
    Posted March 17, 2013 at 7:33 am | Permalink

    Why is spending not spread out a bit fairer ?

    Indeed.

    Just recieved my Council Tax demand for this year, which amounts to almost half of the State basic pension for a single person.

    It would seem that Wokingham gets the lowest Government grant in England towards its expenditure, with some areas getting more than 3 times as much.

    Given the above we still build new schools, are regenerating the town centre, and are building a new railway station.

    Perhaps the massive expansion in new housing here in the last 20-30 years (with more to come) has given the Council more income ?

    Perhaps they manage their finances better than other areas.

    Perhaps it is because our Council tax rates are higher than other areas.

    Perhaps it is because employment is still high and unemployment reasonably low (in comparison) to other areas.

    Is Wokingham an example for the country John ?

    • A.Sedgwick
      Posted March 17, 2013 at 3:18 pm | Permalink

      Council Tax seems off limits politically – it is grossly unfair and a significant % is paid by housing benefit. 25% and rising goes to pay pensions so there is the crazy situation of the low paid pensioner subsidising some of the inflation proof, last salary public sector schemes. No doubt many pensioners will not go through the forms and disclosures to claw back a little. My wife’s state pension, reduced because she looked after family and home for the critical years, pays the council tax with a bit over for a cup of coffee occasionally.

      If we did not have the dreaded VAT a local sales tax could pay for all local government expenditure with competition between regions.

  5. alan jutson
    Posted March 17, 2013 at 7:40 am | Permalink

    Off topic

    I see from Press reports today that Cyprus has now decided that savers can bailout their troubled Banks, with a no holds mandate/levy/government theft from all Savings Accounts held by individuals.

    Would seem that the above was imposed after the Cyprus Government had a meeting with EU representitives and wanted to dump the Euro.

    Is this the new (communist type) solution to try to keep the Euro stable and the people in their place ?

    A very, very worrying development.

    • A different Simon
      Posted March 17, 2013 at 11:30 am | Permalink

      Alan ,

      The “bail-in” was hardly done fairly . The Sydney Morning Herald reported on 7th March that this was probably going to happen .

      This gave time for the Russians to get their money out and no doubt Cypriot MP’s , Cypriot senior civil servants and their friends etc .

      One wonders whether businesses have had their accounts docked . Going to be interesting when payroll time comes . What about self employed people who use their accounts for both private and business transactions ?

      I’ll laugh my head off if the process which is making these changes to accounts has not finished executing by the end of the Cypriot long weekend .

      As you know I am completely opposed to being enrolled in the anti-democratic EU against my will and have no love for them or their outrageous quislings in this country .

      However , a 90/94% guarantee with only a 10%/6% excess is not so bad when the banks are insolvent . They also get shares in the bank , no doubt worthless .

      Maybe we need a reset to purge the system of debt .

      My question is if a debt-for-equity-swap is deemed appropriate for Cypriot savers , shouldn’t it also be deemed appropriate for sorting out the entire banking system ?

    • Nina Andreeva
      Posted March 17, 2013 at 11:40 am | Permalink

      Just a variation on a theme I am afraid. I would expect in the UK something like the Argentinian explanation by HMG, that your savings are being “protected” i.e. you can only take out a hundred pounds a week from your account regardless of your circumstances. Argentina’s answer to Jimmy Hill died of cancer because his family could not get the necessary money together to pay for his chemo.

      Remember Jean Claude Juncker, Luxembourg’s PM and the only “honest” politician of this age, has said “when its serious you have to lie” (after being caught lying about a meeting that he claimed not to have attended) so make sure all your conkers are not kept in the form of banknotes.

      • Denis Cooper
        Posted March 17, 2013 at 2:41 pm | Permalink

        But if you have physical banknotes under the mattress or wherever they have to physically come and get some of them; if the money is in a bank account as nothing more than an electronic record then they only have to move their fingers to dock whatever they have decided to swipe.

        • Nina Andreeva
          Posted March 17, 2013 at 6:43 pm | Permalink

          Yes but there is nothing like a “currency recall” e.g. every ten pounds in your account buys one “New British Pound”. Remember never really trust the elite, Labour came up with an untrue set of reasons for a war and a load of Conservative MPs joined the “consensus” and voted for the invasion. Its only money this time and not peoples lives so expect a bit more skulduggery.

          As I have said before the neo lib econ experiment blew up in their faces
          in 2007/8, so before currency controls come back get your hands on some non sterling assets, preferably in Canada, Australia or Singapore i.e. strong economies with the rule of law

  6. lifelogic
    Posted March 17, 2013 at 8:04 am | Permalink

    The real disasters of the three terms of Labour government (inflicted on the country by John Major, through his total incompetence in office over the ERM and failure to even apologise or recognise it for it) are:-

    The counterproductive and pointless wars, one entered into on a clear and blatant lie.
    The tax credit system and augmenting of the feckless by design.
    The abject failure of the bank regulation.
    The tax borrow and waste everywhere.
    The AGW religion and absurd subsidies.
    The endless submission to the EU.
    The mugging of private sector pension with the feather bedding of state sector ones (funded by the mugged).
    The failure to reform the inept NHS and the inept education system.
    The failure to get any balance on the BBC that allows this direction to continue.

    All, alas, continued by “in three letters N H S” Cameron alas. What is the difference?

    • uanime5
      Posted March 17, 2013 at 4:57 pm | Permalink

      The tax credit system and augmenting of the feckless by design.

      Tax credits are only available for those who work in low paid jobs. Are the low paid the new feckless?

  7. stred
    Posted March 17, 2013 at 8:12 am | Permalink

    Do you think counting wellbeing or happiness should count towards GDP? Are there any public or private activities that should not?

    • lifelogic
      Posted March 17, 2013 at 11:15 am | Permalink

      There are certainly lots of government activities that directly harm well being and kill happiness in the UK indeed most do – the cash cow mugging camera on box junctions, parking and bus lanes in Hammersmith, the expensive energy policy, the absurd pushing of PV house bling, the wind farms, HS2, the deposit protection scheme, the absurdly complex and high tax system, virtually everything the EU does ………..

    • Leslie Singleton
      Posted March 17, 2013 at 11:46 am | Permalink

      stred–I was disappointed not to receive any answer (twice) in these posts recently to the old question, If a Pharaoh were to force all his people to build a pyramid, does his country have, on an appropriate scale, a GDP of 100 or zero? Best I understand, we would say 100 despite such endeavour being literally no use (no earthly use anyway) whatsoever. I have never seen an answer that makes much sense. A more modern analogy, not quite up there with a pyramid I agree, might be HS2.

      Reply Doing things that are useless still counts as GDP – utility is in the eye of the beholders. Doing things inefficiently also counts as GDP, though if too many things are done inefficiently then overall incomes will be lower.

      • lifelogic
        Posted March 17, 2013 at 2:59 pm | Permalink

        Even the government doing things that positively harm others as they often do count as GDP but they just make us all poorer and less able to borrow for the next absurdity.

      • forthurst
        Posted March 17, 2013 at 3:21 pm | Permalink

        “If a Pharaoh”

        Pharoah means ‘Great House’ like the ‘White House’, it does no mean ruler etc. Incidentally did you know that for many of the pivotal figures of the OT, for which no archaelological evidence or contemporary corroboration has been found in relation to the land of Palestine, that an examination of Ancient Egyptian history reveals different people with different names existing at different times but with almost identical biographies. (Ancient Egypt Website, Pyramidion).

        JR in a previous blog a while back said he was optimistic about the future because of the Web and its capacity for the dissemination of knowledge.
        Personally I don’t care what is written in the MSM which I generally regard as pre-censored in any case, but I care very much about the freedom of the Web. This is where people with actual intelligence and knowledge can impart that without intermediation and where is revealed facts about events of the past and present which those who have relied on the MSM for a smokescreen of disinformation and denial will be concerned to censor; they have spent a lot of money getting the law changed to permit consolidation and then acquiring all the MSM outlets and they must be very unhappy that they still can’t control what those who are not interested in tittle-tattle can read.

      • Leslie Singleton
        Posted March 17, 2013 at 5:11 pm | Permalink

        Thank you for your interesting Reply but forgive me if I am surprised that you do not rate GDP and the tiny movements therein (on which big decisions are made) as meaningless on that basis.

  8. Nina Andreeva
    Posted March 17, 2013 at 8:38 am | Permalink

    The problem with the big post-industrial cities of the North is their ongoing de-population. I would bet most of the people who have headed south are those with the work ethic and the skills to match. So those that are left behind are the unskilled who are unable to contribute to a 21st Century global economy. They will be dependent on benefits till the day they die. You can flood these places with money though nothing will change.
    Look at the last set of Cabinet papers to be released. Sir Keith Joseph said Liverpool should be allowed to slide into the Irish Sea, Heseltine though wanted more billions for garden festivals etc. Guess who was right on this one, because after all the money was spent thirty years later Liverpool is still a basket case.

    • Ex-Liverpool Docker
      Posted March 17, 2013 at 2:21 pm | Permalink

      Surely the point of this is Mr. Redwood’s question relating to ‘Why did London continue to outperform the areas attracting the most public spending?’. Believe it or not but the North is not solely inhabited by an uneducated, lazy and incapable group of people standing in the benefits queue.

      For as long as I can remember, going back to Harold Wilson and probably before him, central government has attempted to generate ‘jobs’ in the North. Some of this has been via grants and some via transferring civil servant jobs away from London. We can all debate the relative merits but the reality is that London has distinct advantages over the rest of the country. If the government doesn’t help the regions who will?

      I’m not too sure what you mean by ‘garden festivals etc.’ but if you are seriously suggesting that Keith Joseph was right then I’m afraid to say that it’s you who is the basket-case.

    • uanime5
      Posted March 17, 2013 at 5:00 pm | Permalink

      Doing nothing isn’t going to fix this problem either. Unless there are jobs in the North people with skills will continue to leave.

  9. margaret brandreth-j
    Posted March 17, 2013 at 8:44 am | Permalink

    In defence of Salford which is the quickest expanding area in the North. Salford is still in its infancy.Many new industries are sprouting out from everywhere, culturally it is making great strides.Media City is all the buzz .The BBC have moved up from london to Salford, great hospitals are built allowing the best treatment there is , it is joined at the elbow to historic Manchester which too has spent an inordinate amount of money,The private sectors biggest health concern is centred here…watch this space…..

    • behindthe frogs
      Posted March 17, 2013 at 11:31 am | Permalink

      Salford represents a successful action that governments usually fail to recognise.

      To improve a “failing” area there needs to be a major investment in public or peferably private employment in that area. However that alone is not sufficient. There also needs to be investment in infrastructure in particular providing links to the closest established successful area.

      There are areas of the country where there is a shortage of labour but very poor transport links to the nearest sources of such labour. The simple act of providing good subsidised public from deprived areas to the nearest successful commercial centre will often be much more effective than trying to relocate businesses in the deprived area.

      • lifelogic
        Posted March 17, 2013 at 8:25 pm | Permalink

        Well if you push on area with special tax laws, subsidies and push the BBC there it will probably do better than the other areas, who are all being taxed to fund it. They will all do worse then they would have. A net loss over having a level playing field.

  10. bigneil
    Posted March 17, 2013 at 8:51 am | Permalink

    Debate the blair years? – -whats to debate? – -the man signed the human rights act (general attack on Iraq, policy towards terrorists etc-ed)

  11. APL
    Posted March 17, 2013 at 9:13 am | Permalink

    JR: “I also agree with Hazel, that the public sector can and does contribute to national output and wellbeing. ”

    A question to John Redwood.

    Q. Can a thing currently carried out in the public sector often be done just as well and at less cost to the tax payer in the private sector0r?

    • lifelogic
      Posted March 17, 2013 at 11:22 am | Permalink

      “I also agree with Hazel, that the public sector can and does contribute to national output and wellbeing. ”

      Some does good but much does the opposite on balance the 50% of GDP spent by the government probably produces a net negative wasting the time and labours of the state sector (and many in the private sector too).

      It should be about 20%, law and order, defense, a tiny safety net, a few other things not much more.

      • Leslie Singleton
        Posted March 17, 2013 at 11:57 am | Permalink

        lifelogic–You have been bamboozled by the American spellchecker in to thinking that defence is spelt defense. And apparently from two words ago it doesn’t like “spelt” either. I have seen no comment from John on whether we are stuck with this or whether he had not had this aspect explained to him by his webmaster, if that’s the word. I was however howled down by experts on cookies and such.

        • lifelogic
          Posted March 17, 2013 at 12:12 pm | Permalink

          I am easily bamboozled alas in my haste.

          • Leslie Singleton
            Posted March 18, 2013 at 6:39 pm | Permalink

            forthurst–Very interesting but given that my intent was apparently unclear to you allow me to say that I was tilting solely against what I see as the hopelessness of measuring GDP the way we do or indeed at all

        • Ex-Liverpool Docker
          Posted March 17, 2013 at 2:25 pm | Permalink

          I thought ‘spelt’ was what you used to make bread.

        • forthurst
          Posted March 17, 2013 at 2:59 pm | Permalink

          lifelogic has already been told that his spellchecker is in his own browser; there is no asynchronous interaction between JR’s site and that of his disciples, merely the initial retrieval and final transmission of data from the comment area. Consequently, JR’s site is not responsible either for people who fail to fill in their id information before transmission from losing it when they page back; that is their browser’s behaviour also. The solution is to use a browser that does not release the comment data in the case of an unsuccessful transmission.

          • Leslie Singleton
            Posted March 18, 2013 at 6:51 pm | Permalink

            forthurst–Thank you but way too High Tech for me. All I know is that at the point of use (ie me) we have an American spellchecker whereas unless I am much mistaken we used to have an English one. I have done nothing myself of any kind (wouldn’t know how) personally as regards the changeover that John described. And I have no idea at all (my ignorance) why the change was needed which I say simply because so far as l am concerned (not saying much I agree) I had no problem with the original system but now I have–for example posts waiting for moderation no longer showing. John can do what he likes of course and still provides an unequaled service but I do feel obliged to say that it is is my idea of a problem that apparently so few seem to care about the spellchecker. I am starting to wonder whether you are saying there is something I should have done in all this. If there is it went right by me.

          • forthurst
            Posted March 18, 2013 at 11:19 pm | Permalink

            Leslie – your spellchecker is on your device, not the server that host’s JR’s blog. Use the Help in your browser (Internet Explorer etc) to identify how to load a British English (marvellous) spellchecker.

    • A different Simon
      Posted March 17, 2013 at 11:31 am | Permalink

      APL ,

      Sometimes but things like healthcare can’t .

    • APL
      Posted March 17, 2013 at 11:45 am | Permalink

      “A question to John Redwood.”

      I am going to go out on a limb here and assume that the majority of Tories would agree that if a thing that can be done cheaper and as effectively in the private sector, there is no rational for doing that thing in the public sector at all.

      Let us not go into the reasons an administrator in the public sector can preside over the deaths of a thousand people and yet get promoted.

      Let’s not touch on the 23% of the population that go through the state education system and at the end of it are illiterate and innumerate.

      I think anyone that agrees with Hazel Blears a(who had difficutlies over tax and expenses-ed) is misguided.

      Reply: I am describing to you how national accounts are constructed, not recommending a larger public sector. A state activity, good , bad or indifferent, well run or badly run, counts as National Output. Of course there are areas of public sector activity which I have often set out where we would be better off without them, or with less of them, or if they were transferred to the private sector – e.g. banks, railways etc

      • lifelogic
        Posted March 17, 2013 at 8:29 pm | Permalink

        Rather more than banks and railways many areas of the state just new closing down as they are pointless or actually positively damaging.

    • lifelogic
      Posted March 17, 2013 at 3:04 pm | Permalink

      You ask “Q. Can a thing currently carried out in the public sector often be done just as well and at less cost to the tax payer in the private sector?”

      Yes but if the contract is organised and supervised by the state sector they will probably muck it up, give it to the wrong company and not get real value for money.

      It is not their money and not being spent on them – what do they care!

    • uanime5
      Posted March 17, 2013 at 5:02 pm | Permalink

      Q. Can a thing currently carried out in the public sector often be done just as well and at less cost to the tax payer in the private sector0r?

      By “less cost” do you mean by paying the employees less money to do the same job? If so then the private sector is cheaper but society suffers as people have less money to spend in the economy.

      • APL
        Posted March 18, 2013 at 7:38 pm | Permalink

        uanime5: “By “less cost” do you mean by paying the employees less money to do the same job?”

        Possibly, but not necessarily – for example a company that does ABC might not need a brand new corporate headquarters slap dab in the middle of the City Centre, and therefore won’t be saddled with the amortized cost of the same over ten, twenty or thirty years. It could save costs on its administrative overhead by comparison to the Public sector many of whom have build several administrative centers over the last thirty years and moved on to another glass steel and concrete monstrosity, leaving the council tax payer to pick up the tab.

        But in any case – if taxes were lower because a thing were done in the private sector, that might offset the disadvantage of lower salaries too.

      • Leslie Singleton
        Posted March 18, 2013 at 10:09 pm | Permalink

        unanime–You have obviously never been responsible for any kind of cost centre or any kind of real company–you wouldn’t last five minutes.

  12. Tad Davison
    Posted March 17, 2013 at 9:14 am | Permalink

    So perhaps Mr Osborne would care to take a look at reducing taxation, to promote private sector investment. Corporation tax anyone?

    He also needs to do something about the banks not lending to businesses. Whereas they have lent too freely in the past, it now seems, they don’t want to lend at all, and that is holding us back at a time when we need to make headway. And there are many business people who are prepared to take the calculated risk of expanding, and they should be given every assistance to do so, but the present situation is at best, turgid. It just isn’t good enough to say the banks need to lend, somebody in authority needs to bring it about. That’s what they get paid for!

    And Mr Cameron needs to stamp his and parliament’s authority on Britain’s relationship with the EU that provides such a restriction upon, and a disincentive for UK businesses generally. The last Tory Prime Minister cozied up to the EU in the rather foolish belief that he could carry the country with him, but the electorate booted him out, and with emphasis. Mr Cameron appears to be making the same mistake. He’s clearly not as Eurosceptic as most of the British people, and to stand any real chance of taking us forward, he has to PROVE that he puts Britain first, not just SAY that he does. Actions speak far louder than words.

    The recovery would have been well under way by now, had the politicians taken all the tough decisions early on, but instead, they sat on their hands, dithered, procrastinated, and failed to do what was right in the national interest. We just can’t go on like this. Not unless we want another Labour government to trash the economy again!

    Tad Davison

    Cambridge

    • uanime5
      Posted March 17, 2013 at 5:06 pm | Permalink

      Osborne has already reduced corporation tax but the economy seems to have gotten worse. Maybe if he raises it again the economy will go back to how it was before he made this tax cut.

      And Mr Cameron needs to stamp his and parliament’s authority on Britain’s relationship with the EU that provides such a restriction upon, and a disincentive for UK businesses generally.

      Unless UK businesses are based on forcing employees to work long hours for little to no money without any employee rights, it’s clear that the EU isn’t to blame for the problems UK businesses are facing.

    • lifelogic
      Posted March 17, 2013 at 8:32 pm | Permalink

      Indeed buy only two years left and lumbered with the Libdems it is now surely too late. He has blown the open goal.

  13. Alan wheatley
    Posted March 17, 2013 at 9:14 am | Permalink

    The long rebalancing clearly needs to bring up the less well off areas without bringing down the better off areas. As for the London inequality, I am not sure changing that is possible, at least not without a dramatic and radically different approach. London has so many advantages because it is the capital.

    Many public bodies are located in London because it is the Capital. This brings people into London, in some cases there is no choice, and with it their money. Businesses are in London because it is the capital.

    Road and rail links radiate from London, and there is no sign of that changing. HS1 could have gone up the East Coast route to the North and Scotland, with a spur to London, but it didn’t. HS2 could be started in the North with a direct link to the tunnel, but that is not the plan.

    London has become so big and impenetrable that the only choice is go round, with all the M25 hassle that entails.

    The UK Hub airport is only being considered in the vicinity of London. Expanding Heathrow is bound to have a detrimental impact on transport link, such as the M4/M25 junction. We have but recently gone through the pain of road improvements so the prospect of yet more road works is ghastly, especially when your journey key journey decision is nothing to do with London but how to avoid it.

    I do not see there is an inherent reason as to why a Hub Airport has to be near the capital. Glasgow area looks like a good location as being on the great circle route to North America, but is anyone prepared to even think about anywhere other than London.

    I believe that the IOC said that the only UK location that could succeed for an Olympic bid was one based on the Capital.

    The contrast with other parts of the country is illuminating. For instance National Parks are administered primarily for the benefit of the Country as a whole, and the interests of people living in the Parks is secondary. Too often rules set for the UK as a whole do not take into account life beyond the metropolis.

    And so it goes on.

    Reply We did try a Manchester Olympic bid earlier and it failed.

    • lifelogic
      Posted March 17, 2013 at 8:34 pm | Permalink

      Shame the London one did not fail then we would have all the money to spend of something far more sensible than a jumped up sports month.

  14. Andyvan
    Posted March 17, 2013 at 9:38 am | Permalink

    Spending large amounts of public money on an area does not , in reality, help it. It displaces private investment, channels cash into things that are not cost effective and builds a dependency culture. That has happened right across the country making huge areas more like communist economies. The dead hand of the state controls and regulates everything. This happens in every country that socialism gets a hold. A bigger state leads to poverty, shortages and poor services.
    Contrast that with states that were very poor like Hong Kong and Singapore. They were left wrecks after WW2 and chose the path of absolute minimum government, ultra low taxes and little regulation. They now have a much higher standard of living than the UK and are continuing to improve whilst we slip further into the socialist workers super state of the EU, losing wealth and independence every week.
    I wonder just how many experiments with central planning, command economies will have to be undertaken before people realise it doesn’t work. It never will work and all we’re doing is impoverishing ourselves in the trying. Free markets are the only route to prosperity.

  15. lifelogic
    Posted March 17, 2013 at 10:11 am | Permalink

    George Osborne seems to think he has “reduced borrowing” on Andrew Marr this morning. Is this really someone to trust a budget if he cannot even be honest? Does he know what reducing borrowing means (or was he just referring to his personal borrowing perhaps).

    Needless to say the BBC did not bother to pick him up on it.

    • lifelogic
      Posted March 17, 2013 at 10:21 am | Permalink

      Also a vague hint that he might do something on Inheritance Tax. The trouble is if he does anything small (or less than he had promised) it will just draw attention to his appalling, blatant, ratting on his manifesto pledge, the £1M IHT threshold per person.

      He will refund the theft from peoples bank accounts in Cyprus to military personnel. Once again government by the state sector in the interest of the state sector. What about other British in Cyprus. He should compensate none, people need to learn to take their own risks.

      • alan jutson
        Posted March 17, 2013 at 11:37 am | Permalink

        Lifelogic

        Yes, George did say the deficit is down, but he did not say we were further or less in debt, because as we all know, we are still spending more than we take in tax.

        With regards to Inheritance tax.
        I read his comments differently to you, given he was talking about a cap on Care being limited to £72,000, which then MAY allow the family home to be passed on to the kids.

        Yet again unfortunately he did not say that residential fees were also excluded in this sum.

        Thus the complete cost of care home fees will not be capped at all, because the residential part is excluded from this so called cap figure.

        Why is it that so many politicians want to spin and be economic with the truth, or is it they are simply dim to the real facts, and do not see the bigger picture.

        Or do they think we are all stupid.

        Balls was on the same programme and once again showed he lives in fantasy land with more spend and borrow solutions, thinking he can stimulate growth.

        What a choice.

        • lifelogic
          Posted March 17, 2013 at 3:16 pm | Permalink

          Indeed what a choice tax, borrow and waste and IHT ratter George Osborne or even worse from Balls.

          I think Osborne said something like – we have got the borrowing down. Perhaps he just meant to say we are increasing the borrowing hugely but not quite so fast as we were before? Maybe he just forgot his lines or perhaps he just wanted to deceive the public in the Cast Iron EU and IHT promise mode as per his leader?

      • behindthe frogs
        Posted March 17, 2013 at 11:44 am | Permalink

        Raising IHT thresholds can never be justified for any reason other than vote catching. Any money available to do this is much better spent on tax reductions that are likely to help the economy to improve. Reduction of employers’ NI contributions for example would be a better target which incidently are also preferable to any reduction in corporation tax.

        Any action with regard to troops in Cyprus should be concentrated on reducing their numbers and the costs involved in keeping them there. We need the money spent on our forces to be spent in the UK not abroad. Quite simply help them to move their savings accounts back to the UK away from Cypriot Banks.

        • lifelogic
          Posted March 17, 2013 at 3:19 pm | Permalink

          IHT reductions attract money and business to the country and push money and wealthy individuals away. It would be one of the best things he could do for the country. Look at how wealthy non doms are attracted to London is proof is needed.

          • uanime5
            Posted March 17, 2013 at 5:13 pm | Permalink

            Unless the UK is trying to attract entrepreneurs with a short life expectancy reducing IHT won’t attract many wealthy individuals who will benefit the country.

          • behindthefrogs
            Posted March 17, 2013 at 11:46 pm | Permalink

            I find it very doubtful that the changing inheritance tax starting point has any affect on attracting money or business to the country or pushing money and wealthy individuals away.

            Most wealthy people use the many mechanisms available to avoid IHT. Businesses don’t pay IHT and so it wouldn’t affect them. Their are mechanisms available so that privately own businesses are not affected by IHT. It may in a few cases make money available for investment.

      • Nina Andreeva
        Posted March 17, 2013 at 11:49 am | Permalink

        Ehm can you just clarify something that the DM is making a big thing about? Why would a British serviceman have a bank account in Cyprus? He may be using the ATMs to get his money out and if he is why would be effected? The only British people who are losing out would presumably be those who retired there because they thought it was a great place to live. More sloppy reporting.

        Reply I believe some opt for Euro payments to a local bank for part of their salary.

        • Denis Cooper
          Posted March 17, 2013 at 3:03 pm | Permalink

          That makes sense if they need or want to pay for things in the local currency. I believe that British soldiers serving in India were paid in rupees, without the option of being paid in sterling.

        • lifelogic
          Posted March 17, 2013 at 3:21 pm | Permalink

          To reply – do you think as Osborne seems to that the poorer private sector tax payers in the UK should be forced to make good the loss, but only for “state sector” employees in Cyprus?

    • Leslie Singleton
      Posted March 17, 2013 at 12:00 pm | Permalink

      lifelogic–Borrowings reduced below what they otherwise would have been is what I think he meant and even that I am not so sure about

  16. ian wragg
    Posted March 17, 2013 at 10:19 am | Permalink

    Off topic John. What about the Cyprus Government and EU stealing from peoples bank accounts.
    Very counter productive me thinks. Currency controls in EZ very soon.

    • lifelogic
      Posted March 17, 2013 at 11:23 am | Permalink

      Indeed get you money out quick seems to be the message before Spain, Italy, France all follow.

      • Leslie Singleton
        Posted March 17, 2013 at 12:06 pm | Permalink

        lifelogic–Too late as regards the levy, meaning my understanding is that the banks will treat the last 10% as a retroactive withholding tax so removing all one’s money is not an option. God help us all. Shall look forward to unanime explaining this to us. Perhaps something along the lines of, “It’s only the greedy rich who can afford to have deposits so they deserve to cough up”.

  17. Gary
    Posted March 17, 2013 at 10:39 am | Permalink

    What is the true cost when the govt confiscates funds from people to “invest” ? It is an opportunity cost, and how much is that worth ? It is very difficult to immediately quantity, and this is the cute trick of govt “investment”, the opportunity cost is hidden from view.

    Bastiat used the Broken Window parable to show this cost.

    “Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation – “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”
    Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
    Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
    But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
    It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.”

    • Bazman
      Posted March 17, 2013 at 3:48 pm | Permalink

      Or he might have just put the six Francs in jar and forgot about it.

  18. Posted March 17, 2013 at 11:26 am | Permalink

    You say that it was the “Blair years” which lead to terrible overspending by the government; if one looks at the deficit over time, was it not Gordon Brown who presided (as PM and First Lord of the Treasury) over the worst increases in government overspending, not Tony Blair?

  19. Mark
    Posted March 17, 2013 at 11:31 am | Permalink

    Do we now have an explanation for the apparent strength of the pound at the end of last week? Hot money flows into London from those tipped off that the EU was about to do a grab perhaps?

  20. HJBbradders
    Posted March 17, 2013 at 11:38 am | Permalink

    Whilst I feel sorry for the Cypriots having their bank accounts plundered, isn’t this just what is happening to savers here as a result of the combination of high inflation and rock-bottom interest rates?

    • alan jutson
      Posted March 17, 2013 at 1:33 pm | Permalink

      Bradders

      Yes, by stealth and QE

  21. Wokingham Mum
    Posted March 17, 2013 at 12:31 pm | Permalink

    Mr Redwood we agree with all of what you wrote but to say that under labour there was little evidence of spending in your area is not accurate.
    Schools, hospitals and services had investment. Now cut and services slashed. We know why and are prepared to accept the reasons.

    The blame for your areas lack of investment is the local councils. Not government of any colour. The town is a sad, shabby shadow of its former enticing self. Traffic is horrendous. Roads awful. Shops closed. Building of new necessary homes increasing pressure on roads, schools and other public services.

    The local council has mis-spend millions on visions, consultations for improvement. Ah, is that why Council tax is to increase next year under a conservative council despite Mr Cameron’s request to freeze.

    Perhaps you should explain your economic views and educate local councillors or may be step down as MP and stand for council or Mayor:)

    Reply I do talk to Councillors and send them the views of my constituents on local matters. Their current plans are to see a large increase in investment in homes, roads, the railway and new schools during this Parliament. The new station is now being built, we have a new Freeschool secondary and there are plans for 3 new primaries, they have agreed a new Shinfield by pass and are looking at improved road provision and railway crossing in Wokingham.

  22. Graham Swift
    Posted March 17, 2013 at 2:52 pm | Permalink

    I doubt if Hazel Blears has any idea where the money came from for the improvements in her constituency. Probably the same money tree which paid for the new University Hospital of North Staffordshire , namely a PFI tree. And all PFI spending under Brown / Blair isn’t included when reckoning the massive debt that Liebour left after 13 years of maladministration.
    And last week the MoD admitted that the Afghanistan situation is impossible to win. Didn’t think of asking the Russians ? None of our clown politicians ever read a history book ? Of course not . Too bloody thick which explains why so many in all parties decided on PPE , Oxbridge equivalent of Media Studies , and not as useful.

  23. Neil Craig
    Posted March 17, 2013 at 3:01 pm | Permalink

    “Why didn’t the large expenditure of money in the poorer areas lead them to catch up with the richer areas? Why did inequalities expand rather than contract? Why did London continue to outperform the areas attracting the most public spending?”

    A very good question. If government spending produces real net growth, not just more real growth than would be achieved by cutting taxes comensurately BUT ANY REAL GROWTH AT ALL there should be measurable convergence between areas getting increased government spending and those not getting it. In fact there seems to be a slight divergence, suggesting excess government spending may even have a net negative effect on growth.

  24. Denis Cooper
    Posted March 17, 2013 at 3:13 pm | Permalink

    “Why didn’t the large expenditure of money in the poorer areas lead them to catch up with the richer areas? Why did inequalities expand rather than contract?”

    I think these are very good questions indeed, especially because when Blair got into power he was complaining about a “north-south divide” but the disparities did in fact widen under the Labour government despite an increase in public spending in the poorer areas.

    Maybe they should have tried cutting business taxes in those areas to encourage private investment and employment, instead of taking more tax from the better off areas and spending most of it on increasing direct or indirect public sector employment in the areas that were lagging.

    But maybe that may not have been as effective in keeping them dependent on government largesse, and so reinforcing the local position of the Labour party against the wicked Tories?

  25. CHRISTOPHER WHITE
    Posted March 17, 2013 at 3:40 pm | Permalink

    Jeremy Warner of Telegraph believes that the reason that the economy has produced flatline (even 30s was V-shaped) is that the banks are impaired. The solution is to break them into good & bad banks which I believe is your own view.

    • Bazman
      Posted March 17, 2013 at 8:08 pm | Permalink

      CHRISTOPHER WHITE believes Jeremy Warner of Telegraph. Must be true. Ram it.

      • Edward2
        Posted March 18, 2013 at 10:38 pm | Permalink

        Based of course, on a blind adherance that anything in the Guardian or the Morning Post is always correct

  26. waramess
    Posted March 17, 2013 at 3:54 pm | Permalink

    “The output of a public sector hospital or school is as much a part of national output as the output of a private sector school or hospital.”

    Totally undisciplined by the need to show a return on taxpayers capital and free to call on taxpayers funds when budgets are exceeded you might just as well consider the illegal trading of a bankrupt company trading at the expense of its creditors to be as much a part of national output as a profitable concern.

    Surely these badly run public services are actually a drain on national output?

  27. Bazman
    Posted March 17, 2013 at 3:58 pm | Permalink

    Welcome the Russian economics. The bank notes are changed and the old ones are worthless. When trying to change the old to new or to hard currency non is avalible. The state effectively has stolen your money. This leads to the situation of drinking it while it has value or at least having this way of thinking. The crazy stuff you see on the internet by Russians is a direct relation top this and the cheapness of life there.
    Old a new notes do circulate though. I once gave a two religious charity workers begging for money to help the children of alcoholics at the bars, a 100 ruble note which at the time was a tenner thinking it was an old 100 ruble note worth a quid. I noticed it as I handed it over. Their joy cost me nine pounds and later on in the week forgot about me and asked me again this time for a tenner! I had pushed up the price.

  28. Alte Fritz
    Posted March 17, 2013 at 4:25 pm | Permalink

    Knowing Hazel’s constituency well, I would agree that most, if not all of the public works she spoke of would have appeared under either a Conservative or New Labour administration. The hospital, for example, was work in progress before, during and after the Blair years.

    The most dramatic , and arguably most beneficial change of the past thirty years has been the largely privately funded Salford Quays regeneration project.

    What has not changed over that period is that her constituency, on the whole, is stuck in dependency

  29. uanime5
    Posted March 17, 2013 at 5:16 pm | Permalink

    Why didn’t the large expenditure of money in the poorer areas lead them to catch up with the richer areas?

    Well if you spend money on a better hospital in a poorer area it’s unlikely to lead to this area becoming more affluent. However that doesn’t mean the money was wasted.

    Why did inequalities expand rather than contract?

    Maybe all the people who could get better jobs elsewhere left. After all you can’t expect the best and brightest to remain in an area without any jobs.

    Why did London continue to outperform the areas attracting the most public spending?

    You mean other than all the companies choosing to, or in some cases being encouraged to, be based in London. Let’s not forget all the advantages London has due to all the public bodies located there, along with all the transport infrastructure to and from London. It’s no wonder than London is so much more wealthy when the Government mainly helps London to the detriment of everywhere else.

    By end of the Labour years we had grossly overcongested roads, and a shortage of school places, with a large backlog of building maintenance and replacement in the public sector.

    I’d say this was mainly due to all the house building, even though there wasn’t the infrastructure to cope with all the new people.

  30. Peter Davies
    Posted March 18, 2013 at 11:22 am | Permalink

    It goes back to the argument of what govt is there to do. In my mind its quite simple, manage public finances properly, make sure education and health provision is well run and the rest will look after itself.

    Stimuli and grants should only be there to help set something up, not as an end in itself in the way the labour administration did. They had a massive opportunity to improve the UK given the sound financial situation they inherited but were so consumed with thinly disguised socialism ideology and of course looking after their own they blew it.

  31. James Reade
    Posted March 18, 2013 at 9:20 pm | Permalink

    You write about the last Labour government as if it was the first to attempt to address regional income disparities that failed to engineer any improvement. It’s the problem all governments have faced throughout the ages, on the left or the right. I’m pretty sure that the governments you were involved with John also attempted this, right? Which then begs the question of why, on your watch, income inequality also increased? I’m sure the responses are quite easy to make, and yes to an extent they are a virtuous thing if people are able to become more wealthy.

    But it suggests to me that the ideas you propose won’t necessarily work, since they didn’t in the 1980s and 1990s.

    The legacy of paying off the debts accumulated during the last government can mainly be attributed to the deficits incurred during the financial crisis, rather than the investments made in public infrastructure (which are being cut currently – I think you’ll at least agree on that?).

    As you point out, there’s a rate of return on many of those investments made (and I recently enjoyed one at the refurbished and very pleasant Churchill Hospital in Oxford) – meaning that yes something must be repaid in time, but the rate of return we enjoy on what was done with that money during the Blair years is probably higher than you estimate, and certainly higher than many of the contributors here on this blog will believe.

    • Edward2
      Posted March 18, 2013 at 10:42 pm | Permalink

      Its the problem James that is created when you start from the belief that only the State can create employment and should interfere in subsidising industries and trying to create jobs where there is little demand.
      Thus wasting taxpayers money on lame duck projects.
      Once you get the State out of the way progress can be made.

  • 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.
    Published and promoted by Thomas Puddy for John Redwood, both of 30 Rose Street Wokingham RG40 1XU
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