The IMF and austerity

There are two types of austerity around in Europe today. The first is the type which cuts public sector wages, makes cash cuts in public spending, and forces rapid reductions in deficits. These rapid slimdown programmes are being imposed on the troubled countries of the Euro. Then there is the second type, the UK type, where current public spending overall continues to rise in cash terms, and even to rise a little in real terms, but is cut back from previous forecast levels. They are very different.

Both the UK and the Euro area countries have put up taxes to plug the deficits. Both are experiencing falls in real wages. The worst austerity in the UK is taking pace in the private sector, in the homes of individuals and families. Since the crisis first hit in 2007, UK real wages have on average fallen by 10%. The UK has suffered from higher inflation than many other countries, and private sector wage rises have slowed to almost nothing. Real wages have been badly mauled in Greece, Ireland and Portugal amongst others.

If the IMF and others are going to help find a way out of the current economic predicament in Europe they need first to be honest about which types of austerity different countries have experienced. They also need to grasp that a country without its own currency is in a very different position from one that still has its own currency. Maybe the Head of the IMF is becoming critical of deficit reduction strategies because she thinks a Euro country is the new norm.

An individual Euro country cannot devalue to price itself back into world markets. It cannot create new money to try to stimulate activity. This makes big fiscal adjustments that much more painful, as there is no reason to suppose the lost output created by the higher taxes and the lower spending will be supplanted by mroe private sector acivity.If it were a proper single currency, there would be much larger transfers of grant and loan money from the richer areas to the poorer areas, to make it all more tolerable.

In a country like the UK with its own currency and enthusiaism for looser money there is every chance of offsetting public cuts should these be made. It does, of course, also require mending the banks, so there is an easier mechanism to ensure some of the new money finds its way into productive private sector activities.

This entry was posted in Uncategorized. Bookmark the permalink. Both comments and trackbacks are currently closed.

107 Comments

  1. Posted April 20, 2013 at 5:19 am | Permalink

    I agree with much of this article. I particularly agree with the following statement about the Euro:

    “If it were a proper single currency, there would be much larger transfers of grant and loan money from the richer areas to the poorer areas, to make it all more tolerable.”

    For me, Germany and the other North European countries that have benefited from the Euro now have a responsibility to invest in the economic recovery of Southern Europe – a Marshall type plan.

    • lifelogic
      Posted April 20, 2013 at 8:59 am | Permalink

      But even if they do transfer more funds from the rich to the poor, that the mechanism for control and democracy will surely not work in the long run. It will not create self sufficient vibrant economies or encourage the productive.

      Their duty is to find a sensible and democratic mechanism for do this rather than the absurd Euro construction.

      • Bazman
        Posted April 20, 2013 at 9:03 pm | Permalink

        Hmm! I have a friend I Belarus. He says he has to do a days work on Saturday and has to pay a fee to the state for this. A bit like here Huh? A central European Switzerland no less? How are we going to emulate this logictw235. A reply is needed.

        • Edward2
          Posted April 21, 2013 at 8:52 am | Permalink

          My reply Baz is,can you explain what you are saying cos I’ve read your post a few times and I’m non the wiser

        • lifelogic
          Posted April 21, 2013 at 8:56 am | Permalink

          If I could fathom the question you are trying to ask I would answer it!

          • Bazman
            Posted April 21, 2013 at 10:06 am | Permalink

            How are we going to have an British Switzerland with no regulations and no state interference? See my previous comments that you have failed to answer.

          • Edward2
            Posted April 21, 2013 at 8:32 pm | Permalink

            Well Baz I dont think we are ever going to have a “British Switzerland with no regulation and no state interference”
            There isn’t a country on earth that is anywhere near this situation now or in the past.
            So perhaps the main debate is about how big a State is the optimum size in a modern economy.
            I would say around 40% of GDP not 50%, with some reduction in laws and regulation and taxation.

    • Chris S
      Posted April 20, 2013 at 10:05 am | Permalink

      Nice idea but it would just be German taxpayers money poured into a bottomless pit.

      ClubMed isn’t going to reform itself into an economy that could ever compete with Germany, Austria, Finland etc so the only way they can coexist is be constant regular devaluation of their currency.

      Obviously has been impossible since the introduction of the straightjacket which is the Euro hence the current problems.

      The fact is, despite all the rhetoric, there is simply not the political will amongst national politicians and certainly not the voters anywhere in the Eurozone for the kind of integration, tranfer or sovereignty and strict German-style budgetary control required to make it work.

      Eventually the problem will be resolved by a break up.

      • sjb
        Posted April 20, 2013 at 4:31 pm | Permalink

        @Chris S
        Sentences that start: “The fact is …” or “The truth is …” alert the reader to treat the text that follows with caution.

        see ‘4. The road ahead towards deepening the union’
        http://www.ecb.europa.eu/press/key/date/2013/html/sp130417.en.html

        • Chris S
          Posted April 21, 2013 at 9:53 am | Permalink

          I take your point about the use of the word “fact,” sjb but my comment was based on sound research :

          http://www.spiegel.de/international/europe/eu-summit-reveals-a-paralyzed-continent-a-874359.html

          After the last EU summit Der Speigel reconstructed the discussions by talking to the governments of all the member states after the event.

          They found that, despite the best efforts of the two lightweight EU Presidents, Van Rompuy and Barroso, there was no appetite for the reality of full EMU, even amongst the 19 Eurozone members.

          The German State Secretary Herr Link said “Most of it is science fiction,” describing Van Rompuy’s latest proposals for fiscal and budgetary integration.

          We saw this in the refusal of Hollande to even consider the idea of budgetary control moving a few kilometers up the road from Paris to Brussels, let alone from distant Athens and Rome.

          Ultimately Europe remains a grouping of Nation States and the creation of a United States of Europe with even 19 members. let alone 27-1 is just wishful thinking.

          That’s why a single currency of 19 members cannot survive.
          Two currencies, a Northern Euro and a Club Med Euro just might have a chance.

          But which way will France jump ?

          Probably the wrong way for egotistical reasons

    • Roger Farmer
      Posted April 20, 2013 at 10:42 am | Permalink

      Nice idea but I suspect there is a division between unelected non-democratic EU Brussels and democratic Germany. German people will increasingly vote for what benefits them and Germany. German industry will go where the markets are, and if attractive enough will manufacture in those markets to the benefit of home product. They already do this.
      Better I think to facilitate what the Mediterranean countries were good at until the enforced Euro made them uncompetitive. I am principally thinking of tourism at which they have become less competitive thanks to the Euro. By facilitate I mean release them from the Euro and allow their subsequent currencies to find their own level. All the debt that they have been forced to take on to stay in the Euro should be written off. They are never going to be able to pay it back and it is the governments, banks, and individuals who took what they saw as cast iron guaranteed bets on making shed loads of money that should suffer. The northern European investment should be in their own economies so that holidaymakers can afford to go in droves to the sunshine.
      Here is a wild idea. Why not UK councils buy up very cheap apartments in Spain and ship out volunteer OAPs to enjoy a cheaper, healthier retirement here in the sun. The health service is excellent and would be cheaper to use to service the needs of the Jubilados (Happy Ones) as the Spanish call them. The Spanish respect old age and (may look after them better than some NHS hospitals-ed). This would of course free up UK accommodation for all the immigrants the UK government goes out of it’s way to encourage. Done intelligently it could put a lot of purchasing power into the Spanish economy.

      • uanime5
        Posted April 21, 2013 at 11:27 am | Permalink

        unelected non-democratic EU Brussels

        EU Councillors: democratically elected.
        MEPs: democratically elected.
        EU Commissioners: appointed by Councillors and have to be approved by MEPs.

        So your claims that the EU is unelected and undemocratic are clearly false.

        Better I think to facilitate what the Mediterranean countries were good at until the enforced Euro made them uncompetitive.

        They weren’t really good at anything, which is why they’re uncompetitive. Leaving the euro won’t change this.

        I am principally thinking of tourism at which they have become less competitive thanks to the Euro.

        Wouldn’t using the same currency as most of Europe make it more likely that European tourists will come to your country?

        By facilitate I mean release them from the Euro and allow their subsequent currencies to find their own level.

        In other words you hope the new currency will be weak so you can have a cheap holiday in Spain.

        All the debt that they have been forced to take on to stay in the Euro should be written off.

        What debt are you referring to? I trust you’re not referring to Government borrowing that these countries spent on pet projects.

        They are never going to be able to pay it back and it is the governments, banks, and individuals who took what they saw as cast iron guaranteed bets on making shed loads of money that should suffer.

        So you want them to suffer by having all their debts written off?

        The northern European investment should be in their own economies so that holidaymakers can afford to go in droves to the sunshine.

        So you want Southern Europe to be entirely dependent on Northern European tourists? Won’t that just mean that if Northern Europe stops growing that the economy of Southern Europe will collapse?

        Here is a wild idea. Why not UK councils buy up very cheap apartments in Spain and ship out volunteer OAPs to enjoy a cheaper, healthier retirement here in the sun. The health service is excellent and would be cheaper to use to service the needs of the Jubilados (Happy Ones) as the Spanish call them. The Spanish respect old age and (may look after them better than some NHS hospitals-ed).

        So basically we send all our old people to Spain and hope Spain looks after them, even though these people have contributed almost no tax revenue towards these services. Expect this plan to fail in under a year.

        • Edward2
          Posted April 21, 2013 at 10:08 pm | Permalink

          Uni
          You are veritably the Marie Antionette of commentators when it comes to those nations in the Eurozone who are suffering.
          Let them eat cake.
          Where is your natural socialist inclination towards your fellow citizen?
          I’m shocked by your callous attitude towards fine nations and fine people in countries like Spain Italy Greece and Portugal that add so much to our culture in Europe.
          You dissmiss all of them with the shocking statement “they weren’t really good at anything”
          Wow! no job in the Diplomatic Service or the Foreign Office for you.

    • Richard1
      Posted April 20, 2013 at 5:03 pm | Permalink

      There is no democratic mandate in Germany, Finland etc for transfers on the scale needed, and no politician in those countries proposing them would be elected. That being the case, a break up of the Euro is the only logical course.

      • uanime5
        Posted April 21, 2013 at 11:11 am | Permalink

        By your logic politicians shouldn’t be able to do anything not in their manifestos because they don’t have a democratic mandate. As long as politicians are democratically elected they have an electoral mandate to do pretty much anything.

        • Richard1
          Posted April 22, 2013 at 9:39 am | Permalink

          You miss the point. Because there is no public support in the solvent eurozone countries to subsidize the insolvent countries on the scale needed to make the currency union work, the politicians in the solvent countries will not make the needed transfers. Therefore a break-up is logical (and likely).

  2. margaret brandreth-j
    Posted April 20, 2013 at 7:17 am | Permalink

    Do you have any ideas where productivity could be encouraged? I myself have already in previous comments have given an example how academic pedantry and over enthusiasm for concerning themselves with marking students down for leaving an extra space between characters can spoil it for those who want to make new business ventures.

    If the UK’s forecast is its hypothesis and simultaneously a premise for future transactions
    then the cut backs from that premise are also inaccurate . It is as disappointing as being promised good weather by the met office only for reality and nature to give us the bad truth. This morning there is a hoary frost on the ground and bright blue skies. We can deduce from that, both with experience from previous years re temperatures in April and with an understanding that clouds pass over us either keeping the heat in or bringing rain that whilst the blue is apparent then I can hang my washing out, but I will not be able to guarantee that things wont change as the day develops and therefore have an alternative method of drying clothes. In other words people keep a reserve and react to their immediate environment hoping that the reserve or security will increase and stability will ensue as we cope with fluctuations. Perhaps we ought not to rely on forecasts but rather implicitly understand the many configurations possible in an economic system which is metaphysical in that the product does not correspond nearly as closely to its unnatural marker of value as in the past and transactions are not as earthed as in the last century as they occur in cyber space.

  3. Liz
    Posted April 20, 2013 at 7:56 am | Permalink

    The head of the IMF is French – and that colours her judgements about the UK, the EU and Europe.

    • stred
      Posted April 20, 2013 at 9:30 am | Permalink

      Mme Lagarde was on french tv Monde 24 yesterday, looking rather unhappy and unsettled. She said (I think) that Cyprus was an exception and not typical of wahat would happens to other countries. She did not elaborate on what would happen if a PIGY bank broke. Maybe check it on catch up with a french speaker?

    • Chris S
      Posted April 20, 2013 at 12:22 pm | Permalink

      Remember Christine was nominated for the job by one G. Osbourne.

      I thought her a good choice until Michael Portillo pointed out that she was the worst possible choice as she would be much more Eurocentric and would simply divert more of our money to maintain the Euro.

      She has been critical of some aspects of Euro policy but Michael was largely right.

      Had an American or South American been put in charge of the IMF I doubt whether there would be anything like the degree of support for the Euro and the single currency might be put out of it’s misery a great deal sooner than it will now.

      • Richard1
        Posted April 20, 2013 at 5:05 pm | Permalink

        The best candidate by far was the governor of the bank of Israel, but being Israeli would have prevented his being appointed.

      • Denis Cooper
        Posted April 21, 2013 at 12:23 pm | Permalink

        But Cameron and Osborne have signed up to the Save the Euro campaign, so from their point of view she was a good choice.

  4. Brian Tomkinson
    Posted April 20, 2013 at 8:16 am | Permalink

    Why do politicians, including your leader, want the UK to remain part of the EU when it is clear that the EU is determined to become a political union and that the eurozone is an essential stage in that transfer of sovereign power from the member state to the EU? That is why the countries in trouble in the eurozone are being economically pounded – nothing can stand in the way of the creation of a country called Europe. Furthermore, why do many of our politicians continue to try and deceive us into thinking that this country can somehow be involved in this coup d’etat but not be ultimately subject to it? If they are not capable of leading the country without giving away the powers entrusted to them by the electorate to a remote unelected organisation then they are not fit to stand for parliament.

    • lifelogic
      Posted April 20, 2013 at 1:29 pm | Permalink

      Indeed the danger of Career, PR spin, cast iron ratting, politicians who lack a working compass.

    • uanime5
      Posted April 20, 2013 at 2:42 pm | Permalink

      Countries that are having financial problems would have had these problems whether they’re in the euro or not. Also despite all the problems Ireland and Spain are having I can’t recall them being economically pounded by the EU. Though Greece and Cyprus have suffered the most since they had the greatest problems caused by poor financial planning and poor banking regulations, respectively.

      • Edward2
        Posted April 21, 2013 at 8:42 am | Permalink

        An amazing few claims Uni.
        I realise you ate very pro EU but you need to take your blinkers off.
        Ireland and Spain not suffering economically you think?
        The Euro not a factor behind all these countries decline?
        No responsibilty by the ECB and EU leadership to monitor overspending and overborrowing by these member nations?

        • uanime5
          Posted April 21, 2013 at 11:38 am | Permalink

          I never claimed that Ireland and Spain weren’t suffering economically, just that they hadn’t been economically pounded by the EU. Unlike Cyprus and Greece, Spain and Ireland didn’t need to undertake major reforms in exchange for huge bailouts.

          The euro is not a factor behind the problems in these countries as the crisis was caused by the banks taking on too much bad debt. That’s why it also caused problems in the UK, even though the UK isn’t in the euro.

          It is the responsibility of each member state to manage their own economy, not the ECB or EU. So if a eurozone country runs up huge debts and needs a bailout it’s the member states fault, not the fault of the EU or ECB.

          • Edward2
            Posted April 21, 2013 at 8:49 pm | Permalink

            Uni,
            I’m interested in your definiton of “economically pounded” as being any different to “suffering economically”
            Seems a very small difference in the actual effect to me.

            We have escaped the kind of true austerity that has blighted Spain, Greece, Cyprus, Portugal and Italy here in the UK because we have been able to control our own currency, our interest rates, our money supply and devalue against other currencies which those struggling in the Eurozone have not been able to do.

            Strangely, you have a very laissez faire attitude to those nations who joined the Euro. You feel they are totally responsible for their economy and should suffer their punishment, whilst forgetting being in the Eurozone comes with a central controlling bank and strict rules and regulations which member nations must obey.
            This regime is underpinned by audits and analysis undertaken by the ECB which have plainly failed.
            Therefore in my opinion the EU is at least partly responible for the situation some member nations find themselves in and should be more flexible and reasonable to their partners.

          • Richard1
            Posted April 22, 2013 at 9:42 am | Permalink

            The eurozone banks in the insolvent countries were able to take on too much (bad) debt because of the euro. Interest rates were far lower than they would otherwise have been (same applies to govts). In the case of the UK, monetary policy (& incompetent regulation) had the same effect. Had the UK been in the euro the crisis would have been even worse. So bad in fact that the euro probably would have been broken.

      • Denis Cooper
        Posted April 21, 2013 at 12:33 pm | Permalink

        Don’t you know that the ECB insisted that the Irish people must pay the international investors who held bonds issued by the private Irish banks?

        Having succumbed to that pressure at the time, the Irish government is still trying to get it reversed, but with little prospect of success.

        As a person supposedly with progressive political views, are you really content that an EU institution absolutely insisted that ordinary, let’s say ordinary hard-working but in some cases now no longer working, people in Ireland must have that heavy burden unjustly imposed upon them?

  5. MajorFrustration
    Posted April 20, 2013 at 8:21 am | Permalink

    Totally agree. Its only when we have the truth about our banks can the reforms/ adjustments take place. There must be some very large impairments out there that scare the BoE But then, impairment, is just one of those dodge the issue words – in my day words like bad debt and write offs would have been used. At least you knew where you stood.

    • A different Simon
      Posted April 20, 2013 at 9:46 am | Permalink

      Majorfrustration ,

      I hate it when people call them “our banks” .

      It just reminds me how they have socialised their losses onto us .

  6. Andyvan
    Posted April 20, 2013 at 8:24 am | Permalink

    The last paragraph sounds like you are advocating money printing, trying to re-inflate the credit bubble through banks and continuing public sector profligacy Mr Redwood. It disappoints me if that is the case but doesn’t surprise me. That appears to be the only strategy on offer from all the political caste. A return to sound money, living within your means, cutting taxes and individual freedom all seem to be ignored and treated as absurd.

    It seems we are still going to have to wait for reality to step in and correct the lunacy. At some point that will happen but there is no telling how long the parasites will manage to keep the gravy train on the rails and how much damage they’ll do in the process.

    Reply: No, that is not what I am advocating. I have set out before how I would spend and borrow less in the public sector, and mend the banks

    • A different Simon
      Posted April 20, 2013 at 9:42 am | Permalink

      Andyvan ,

      I’ve noticed when working on bespoke software projects that there is often a perception during development , well before implementation dates of a “lack of quality” . This typically results in a knee jerk reaction of tightening procedures to such an extent that nothing move forwards .
      This is akin to an optics maker trying to polish out deep scratches in a lense with coarse carborundum and getting upset with the smaller scratches they are introducing so changing to fine jewelers rouge . It will take several lifetimes to polish out the deep scratches with jewelers rouge .

      I’m not so sure that the tightening of credit is a well intentioned knee jerk over-reaction .

      My alternative explanation is that the financial services sector has saddled the real economy with debts , crashed business asset prices below fair value and started a process to debauch fiat currencies .

      The credit squeeze looks to me to be a plan to convert the ever less credible fiat currencies the financial sector are left holding into real assets by squeezing (particularly smalled medium sized) companies into bankruptcy to get their hands on the real assets for next to nothing .

      I consider the severity of the credit squeeze to be “changing the rules of the game” in order to facilitate the continuation of the transfer of wealth upwards .

  7. Anthem
    Posted April 20, 2013 at 8:42 am | Permalink

    Burdensome employment regulations from Brussels, this week the government increase the NMW and billions get thrown down the EU drain on a weekly basis.

    Oh, I don’t know what the answer is… it’s a real toughie.

    • uanime5
      Posted April 20, 2013 at 2:44 pm | Permalink

      So what’s your solution Anthem? Fewer employment regulations? Lower wages? Don’t expect either of those to get people into work.

      • Anthem
        Posted April 21, 2013 at 12:26 pm | Permalink

        It has to be made easier for businesses to actually employ people. Why put obstacles in the way of growth?

        Too many rules and regulations, too much administration, too much red-tape and the NMW are all obstacles.

        You may well be right that removing or lowering these won’t get some people into work – some of them simply don’t want to work but, all else being equal, I cannot see how it could possibly lead to fewer job vacancies – it can only lead to more so that who do want to work will have a better opportunity to do so.

        Really, politicians don’t half make simple things extremely complicated.

        Person has a business and he wants to take on some staff in order to grow it. People want jobs so that they can earn money with which to live. Bring the two together, thrash out a deal that is acceptable to both parties, job done. But no: this rule, that regulation, this “right”, that technicality.

        I know of some people who deliberately keep their businesses in check because they don’t want the agro of employees – how can this be a desirable state of affairs?

    • Bazman
      Posted April 21, 2013 at 9:17 am | Permalink

      Which employment laws specifically? Can you answer this? I suspect not. Now what does that tell you and have you now changed your views? No? Are you mad or right wing religious fundamentalist. Which is it? lifpodgic has set his stall out by not answering. Leading me to believe he has ‘think’ problems and wish washy liberal right wing thinking probably like Fox News and right wing university types.

  8. lifelogic
    Posted April 20, 2013 at 9:01 am | Permalink

    Then there is the second type, the UK type, where current public spending overall continues to rise in cash terms, and even to rise a little in real terms, but is cut back from previous forecast levels. They are very different.

    The absurd Cameron/Osborne for an ever bigger state sector and to leave an even bigger mess for Ed Miliband, Labour and the state sector unions in just two years.

  9. Posted April 20, 2013 at 9:06 am | Permalink

    JR is spot on with his claim that “They also need to grasp that a country without its own currency is in a very different position from one that still has its own currency.” It’s amazing how many commentators and so called professional economists don’t get the crucial importance of that distinction.

  10. Acorn
    Posted April 20, 2013 at 9:29 am | Permalink

    I think the message is starting to get through; that a nation that issues its own fiat currency can’t go broke in that currency. And, as the currency issuer, the sovereign government, (its Treasury AND its Central Bank as one entity); has to spend first before it can tax and start getting it back. Insisting currency users (households and firms) have to pay their taxes with government currency, makes sure you have to get some of it.

    It also has to spend first before there is enough money in the economy for households and firms to buy its Treasury bonds. The government does not issue Treasury debt to “borrow money”, only to control (with its central bank), aggregate spending in the economy to control inflation, when the supply side of the economy is flat out, with low unemployment and a years’ wait to get that new Jaguar XJR or other capital / white goods. And nobody is offering big discounts on anything.

    The governments sovereign debt in Pounds Stirling, is all the bits of paper it has spent (out of thin air) into the economy that it hasn’t got back yet; and is sitting in household and firms bank accounts, treasury bonds, premium bonds, pension funds and under the mattress. BTW, credit rating a country with its own sovereign currency and central bank, is meaningless.

    The Euro-zone does not have a central Treasury with its own Chancellor of the Exchequer. Every nation in the EZ is using a foreign currency they cannot change the interest rate (monetary policy); they cannot spend out of thin air (fiscal policy), they have to borrow or earn Euros from somewhere else. They can’t devalue externally so they have to do it internally; halving wages in Euro for instance. The ECB issues the Euros, its the only place you can get them and it has a bottomless pit full of them. Cyprus could have nationalised its banks and the ECB could have funded them out of its loose change. Until the EZ has a federal banking structure exactly the same as the USA, it ain’t going to work.

    We should nationalise RBS; Lloyd’s and UKAR and turn them into the UK PLC business recovery bank. When that is up and rocking, and the other commercial banks have stopped squealing, then sell it back into the private sector. You know how to do this JR so start making a noise on that Treasury door.

    • Gary
      Posted April 20, 2013 at 8:42 pm | Permalink

      The biggest myth pushed by fiscal deviants , Big State liars, serial money printers and worshippers at the money tree, is that a nation cannot go bust or default if it can print its own money.

      What a load of rubbish. Zimbabwe is exhibit A.

      Printing your money until it becomes toilet paper IS default. You may be able to hand out worthless toilet paper and call it money, but don’t expect anyone to accept it.

      I am sick of seeing this game of Three Card Monte still being pushed as serious policy.

      • Bazman
        Posted April 21, 2013 at 9:26 am | Permalink

        Absolute tosh. There are lots of rich people in Zimbabwe as you well know Gary, many spreading their wealth by various means amongst the poor and how do you think they got their wealth and how are they supposed to be responsible for saboteurs and loafers? In many cases the rich come to London for large shopping trips and property buying sprees. Spending their toilet paper I suppose? Such posts as this will stop them coming here and send them to other capitals as they have had enough of victimization and envy.

        • Edward2
          Posted April 21, 2013 at 9:57 pm | Permalink

          Certainly not “tosh” Baz.
          Zimbabwe is one of the worlds poorest countries.
          Yes there are a rich few, mainly those in the ruling elite’s family or favoured Government members.
          The 99% live in true austerity whilst the 1% lead wonderfully wealthy lives.

          • Bazman
            Posted April 22, 2013 at 5:05 pm | Permalink

            Like here then?

          • Edward2
            Posted April 23, 2013 at 7:30 am | Permalink

            Baz
            A predictable response from you but a ridiculous one if you were to consider the relative standards of living.

          • Bazman
            Posted April 23, 2013 at 5:51 pm | Permalink

            Money being power and democracy then. Running a country to pander to the rich is my point.

    • Denis Cooper
      Posted April 21, 2013 at 12:38 pm | Permalink

      “The government does not issue Treasury debt to “borrow money”, only to control (with its central bank), aggregate spending in the economy to control inflation”

      I don’t think Pitt issued huge volumes of Treasury debt to control inflation; he was borrowing money to finance a war.

  11. behindthefrogs
    Posted April 20, 2013 at 10:03 am | Permalink

    Productivty could be increased by the simple measure of merging overlapping red tape and taxes. For example:

    Virtually every household is required to have a television licence and also to pay council tax. Merge them by adding £3 a week to council tax and removing the television licence.

    Merge employees national insurance and income tax.

    Get rid of winter fuel allowance by adding £10 a week to the old age pension during the winter months. It would then be used for the purpose intended instead of buying Christmas presents.

    The list is endless but nothing is done.

    • Nick
      Posted April 20, 2013 at 4:44 pm | Permalink

      Car tax or VED. Get rid of it. All DVLA needs to do is to record changes in ownership.

      Then no need for a SORN.

      MOT? Just have a sticker that is displayed.

      Put it on fuel duty. There are only 7 refineries in the UK. 7 cheques, once a month, where the costs are already in place.

    • A different Simon
      Posted April 20, 2013 at 11:46 pm | Permalink

      Behindfrogs ,

      Merging N.I. and Income tax just legitimises the misuse of N.I. as general taxation when it is supposed to be hypothecated for very specific purposes .

      It should be kept separate and politicians (and civil servants) should be reminded that one is for general taxation and the other is not .

      • Chris S
        Posted April 21, 2013 at 10:05 am | Permalink

        Income tax and NI are kept separate to maintain the myth that we have low tax rates in the UK. We don’t.

        There are lots of things that can be done as have been suggested above.

        The mention of the DVLA and SORNs by Nick is a case in point. The whole system is unnecessarily complicated and therefore expensive. It’s designed to keep thousands of Welsh people employed in Swansea and the SORN system was introduced as a revenue generator.

        The fine collection office for SORNs is in Glasgow, as I know to my cost. I’m sure it’s a massive profit centre.

        How in a supposedly democratic society I can be fined for keeping my own classic car stored in my own garage for the winter is quite beyond me.

        I’m hoping for full Scottish and Welsh independence then the 90% of these jobs that are related to the English population can either be abolished or transferred to England.

        • Edward2
          Posted April 21, 2013 at 9:52 pm | Permalink

          Indeed Chris I’ve just waited 6 weeks for a log book to arrive in my name after I recently purchased a vehicle.
          This delay has gone up from one or two weeks just a few years ago.
          Calls to DVLA gained the reply if you were to pay £25 extra you can apply for a log book to be sent out which would be quicker.
          Another money making wheeze it seems.

  12. Chris S
    Posted April 20, 2013 at 10:18 am | Permalink

    A clear statement that “Austerity” in Britain is really nothing of the sort.

    We needed a Canadian-style immediate real 15% cut in Government spending rather than this long lingering increase in borrowing which is getting us nowhere.

    Increasing benefits and public sector wages at a time when the private sector (which, remember has to pay for it all), is going through such a dire recession was lunacy.

    • uanime5
      Posted April 20, 2013 at 2:49 pm | Permalink

      How do you expect the unemployed, those on low wages, and people in the public sector to keep spending in the private sector if the amount of money they have keeps being reduced in real terms? As long as the private sector is dependent on benefits and public sector wages any cuts will just harm the private sector.

      • Edward2
        Posted April 21, 2013 at 9:33 am | Permalink

        Uni
        If only continually increasing taxes on those who are working or trying to run businesses and employ others was a solution for you.
        If we all worked for the State, by your odd logic, we would all be rich.

        • uanime5
          Posted April 21, 2013 at 11:45 am | Permalink

          Yet again Edward2 you’ve made it clear that you don’t have an argument and have instead created strawmen to argue against. I never mentioned higher taxes or that working for the state would make people rich, you just made this up because you couldn’t counter my point that reducing benefits and public sector pay will harm the private sector.

          • Edward2
            Posted April 21, 2013 at 8:58 pm | Permalink

            No Uni, I realise you never mentioned higher taxes or a bigger State because that is the crucial bit you always miss off.
            You call for more and more spending to solve the growth problems, which means more Stat e employees and a bigger State, as many neo-Keynsians do, but you never tell us where the money is coming from apart from the old mantra of “tax the rich” which is not going to raise the sums you want to “invest”
            PS please explain what “strawman” means, is it any argument you dont like?

      • Denis Cooper
        Posted April 21, 2013 at 12:41 pm | Permalink

        So just carry on forever with printing and borrowing, is your irresponsible solution to a massive government budget deficit.

  13. Denis Cooper
    Posted April 20, 2013 at 10:34 am | Permalink

    Across the EU the degree of “austerity” being experienced varies widely between and within the different countries.

    There is a clear distinction of principle between a country which has surrended the right to issue its own national currency, and a country which still has that right, but there is not such a clear distinction in terms of the practical effects on the population.

    The two categories overlap, because some eurozone countries have been relatively prudent in their past economic and financial management, while some non-eurozone countries have been as reckless as the worst of the eurozone countries; some of the latter have been forced to turn to the IMF as a lender of last resort, while in the UK that has been avoided for the present by using the Bank of England as a lender of last resort.

    So far the UK has avoided the widespread extreme hardship now being experienced in Greece; if any children in the UK are scavenging for food in rubbish bins it will be because their families have fallen through holes in the welfare safety net, not because the UK government has run out of money and can no longer pay all its bills.

    But even in Greece there will be a minority who have suffered no significant fall in their standard of living, as in the UK.

  14. Denis Cooper
    Posted April 20, 2013 at 11:00 am | Permalink

    I think it’s worth repeating that as practised so far in the UK the primary purpose of “quantitative easing” has never been about “stimulating the economy”, as still falsely claimed in some sections of the mass media, but about making sure that the UK government doesn’t run out of money to pay all its bills on time and in full.

    If the Treasury had borrowed £375 billion directly from the Bank of England, for example through the Bank either extending an overdraft to the Treasury or buying UK government bonds, gilts, directly from the Treasury, then that would have been a lot clearer and by now the public might have gained a better understanding of what was being done and why.

    But not only would that be inconveniently transparent, first for the Labour government and now for the coalition government, it would also be illegal under the EU treaties.

    Although the UK has a treaty “opt-out” from ever having to join the euro, that protocol does not exempt the UK from Article 123 TFEU which states:

    “Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as “national central banks”) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.”

    So as one of the “central banks of the Member States”, the Bank of England is not permitted to extend “overdraft facilities or any other type of credit facility” to the UK government, one of the “central governments”, and nor is it permitted to “purchase directly” any “debt instruments” from the UK government.

    Hence the need to proceed indirectly, with the Bank creating new money and using to buy up previously issued gilts from investors, while in parallel the Treasury sells new gilts to much the same set of investors and often at much the same rate.

    • Nick
      Posted April 20, 2013 at 4:42 pm | Permalink

      Correct.

      Notice that deficit spending = size of QE.

      No one is lending to the state.

    • sm
      Posted April 22, 2013 at 10:09 pm | Permalink

      Deficit spending is stimulus – some caused by the downturn and some by inbuilt spending in excess of revenue.

      What i dont understand is why it is necessary to protect large private interests over real public interests. Where does all the QE money go after it has been spent into the economy? Why not address the problem directly.

      Raise interest rates and increase fiscal spending on anything productive or import reducing/ export enhancing or abolish NI on salaries below £26k.

  15. forthurst
    Posted April 20, 2013 at 11:12 am | Permalink

    “It does, of course, also require mending the banks”

    The shocking evidence put before Tyrie concerning indiscriminate and irresponsible lending (and almos certainly some syndicated loans for leveraged buyouts will have involved an intention to (word left out ed) asset strip) and what has previously come to light about how e.g RBS’ head of Investment banking ordered his staff to invest in CDOs without knowing how they ‘worked’. Recently a case involving (another bank executive in-ed) global structured credit trading has been found guilty of hiding losses on CDOs resulting in subsequent massive writedowns. All the evidence points to the fact that the only people who understood CDOs were the (people-ed) that concocted them otherwise nobody would have bought them. The world could manage very well without people who either invent or trade in products such as CDOs. Nor do we need bankster bosses who are so irreponsible or even crooked that they cannot contemplate the consequences of not being able to recover most of the capital extended on loans.

    It should not be up to internal auditors to discover that an employee has made a serious contribution to a mis-statement on the balance sheet. The values of banks assets and liabilities should be available on a second by second mark-to-market basis, not on a discretionary basis enabling massive losses to be hidden until the event of a major collapse. Of course, property assets would need to tied to local indices in practice, but all derivatives etc could and should be subject precise valuation.

    The banks must be broken up. There is no evidence that these conglomerated banks like RBS have even the potential for profitability with (methods acceptable to all-ed). Meanwhile they still have undeclared losses and are contributing to the failure of the real economy to recover.

    Furthermore, now that it has been established that depositors can have their money stolen ‘legitimately’, one has to query why the assets including pension funds of the banksters who have engineered bank collapses should remain inviolate.

  16. Denis Cooper
    Posted April 20, 2013 at 11:29 am | Permalink

    Off-topic, I notice that Osborne is going to the ECJ to try to prevent some of our EU “partners” deliberately attacking the City through an extra-territorial Financial Transaction Tax:

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10006501/Britain-launches-legal-challenge-to-Financial-Transaction-Tax.html

    I suppose this has to be tried, even though the prospects that the ECJ will find in favour of the UK government seem pretty slim.

    The interesting question is this: which idiot agreed that a group of hostile countries could go ahead with EU “enhanced cooperation” to attack us, and we would not have a veto to block it?

    Here’s the answer:

    http://europa.eu/legislation_summaries/institutional_affairs/treaties/nice_treaty/nice_treaty_cooperations_en.htm

    “The Treaty of Amsterdam created the formal possibility of a certain number of Member States establishing enhanced cooperation between themselves on matters covered by the Treaties, using the institutions and procedures of the European Union.”

    “The Treaty of Nice facilitates the establishment of enhanced cooperation: the right of veto which the Member States enjoyed over the establishment of enhanced cooperation has disappeared (except in the field of foreign policy) … ”

    So it was Blair who gave that hostage to fortune by agreeing to the abolition of the veto through the Nice Treaty.

    • lifelogic
      Posted April 20, 2013 at 1:31 pm | Permalink

      Indeed. The foolish Blair, following foolish Major, then followed by the foolish Brown, Cameron and soon Ed Miliband. What a bunch!

      • wab
        Posted April 20, 2013 at 10:18 pm | Permalink

        You forgot: foolish Thatcher, for signing the Single European Act.

    • uanime5
      Posted April 20, 2013 at 3:00 pm | Permalink

      Firstly the eurozone has introduced the Financial Transaction Tax on bank transactions so they’ll have more money available if other countries need a bailout due to the financial problems caused by the banks.

      Secondly this only applied to transactions with any eurozone country, so it’s clearly not an attack on the City as the City can avoid this tax by not engaging in such transactions with eurozone countries.

      Thirdly the action against this tax is being funded by taxpayers’ money. So effectively the taxpayer is paying to protect the City.

      Fourthly since when has the UK ever had the power to prevent other countries implementing new taxes? All the Treaty of Nice did was formalise that one country cannot prevent another group of countries working together.

      • Edward2
        Posted April 21, 2013 at 9:39 am | Permalink

        Uni
        It’s just yet another tax. More money sucked out of the private sector into the State’s black hole of waste and overspending.
        It’s not the wicked bankers who will pay this new tax, its savers, investors and pensioners.

      • Chris S
        Posted April 21, 2013 at 10:19 am | Permalink

        Other countries can quite rightly impose taxes on their own citizens in their own countries but in the case of the FTT they expect to the UK to collect taxes on a very substantial proportion of trades carried out in London and for London to then transfer 100% of the money to the EU to spend as they see fit.

        I could possibly see the argument if Britain were to keep 50% of the tax revenue and pass on the rest. We at least would be compensated for the huge drop in the number of trades passing through London as a result of the imposition of the tax.

        This is simply a massive tax grab by the 11 in the full knowledge that the adverse consequences will overwhelmingly fall on another country : the UK.

        • Edward2
          Posted April 21, 2013 at 9:46 pm | Permalink

          Chris S,
          Brilliantly put, I agree with every word you have said

      • Denis Cooper
        Posted April 21, 2013 at 12:51 pm | Permalink

        As usual you have very little idea what you’re talking about.

        Do you really think that Osborne would be making an almost certainly futile attempt to block these proposals by going to the ECJ, if they presented no threat to the City, and therefore no threat to jobs in this country, and therefore no threat to the tax revenues that the Treasury will need to pay for all the welfare goodies that you want?

        Are you looking forward to paying more taxes yourself to help make up for the shortfall when your chums in foreign countries have succeeded in their objective of undermining the City?

        Again and again you show that you really have zero loyalty to this country and its people.

    • Peter van Leeuwen
      Posted April 20, 2013 at 6:50 pm | Permalink

      @Denis Cooper: The EU isn’t “deliberately” attacking the City, that is typical eurosceptic paranoia. The tax is extremely small, it is only levied on trades in the currency you hate (it doesn’t effect any trades done in pound sterling), your Mr Osborne has had ample chance to bring about a FTT at G20 level (any evidence he even tried?) and the UK already has its own FTT (stamp duty) and now blames others for doing the same. Obviously, some precautions had to be taken after the British jeers that all euro-trade would disappear from the continent as soon as it would have the audicity to even try out an FTT. But that is really all. No business has yet been harmed in the UK. It is only natural that the financial sector should contribute towards repairing the damage its crisis has caused. Better that than waste it all on banker’s bonuses.

      Reply ONly 11 EU states wish to impose this foolish tax. The legal arguments are important ones, seekign to prevent the assertion of extra territorial power by a minoritry group of EU states using the enhanced co-operation procedure created under the Labour government.

      • Peter van Leeuwen
        Posted April 21, 2013 at 7:26 am | Permalink

        Reply to Reply: Over time, most taxes have been branded foolish by some, and the money has always tried to evade tax: by fleeing to virgin islands, tax havens, manipulate itself through “clever” tax constructions like a double Irish with a Dutch sandwich etcetera. Trying to close any loopholes from the outset may not be such a bad idea for the FTT. I trust that the 11 EU members have excellent lawyers who are prepared to meet the UK in court. Besides, trying to dampen the uncontrollable trade carried out by robots in nanoseconds (part of FTT, the 0,01% tax) may prove not to be such a foolish thing.

        • Denis Cooper
          Posted April 21, 2013 at 1:01 pm | Permalink

          For somebody who has claimed to have family in this country your attitude is quite extraordinary, although less so than that of a certain English LibDem MEP elected in England who called for the defeat of England over the Lisbon Treaty.

          • Peter van Leeuwen
            Posted April 21, 2013 at 7:09 pm | Permalink

            @Denis Cooper: Not all my family reads the DT, and I’m pretty sure none of them read the tabloids (or keep them hidden from me?) 🙂 This LibDem MEP I have to guess, although I suspect a certain gentleman who is a supporter of federalism. I think that there are scores of British, who don’t agree with everything you stand for Denis.

        • Christopher Ekstrom
          Posted April 21, 2013 at 1:33 pm | Permalink

          These Euro fans never met a tax they didn’t like! It’s always “just this”!untill it’s “just that”. VAT. Incredible the mix of threats & boyish hopefulness that the robots won’t take over! Utter tripe.

        • sm
          Posted April 22, 2013 at 10:45 pm | Permalink

          I am a Eurosceptic and i think an FTT may be beneficial especially at a low flat %. It does raises taxes and this time not on labour.

          I think NI on labour is more of an issue.

          UK stamp duty should be reformed to be % on the excess above the relevant threshold. Another tax which most have to borrow and pay interest on from on the payroll income.

      • Denis Cooper
        Posted April 21, 2013 at 12:58 pm | Permalink

        Yes, Peter, it’s always been “eurosceptic paranoia”, but it’s remarkable how often the paranoid eurosceptics have been proved substantially correct in their warnings.

        No deliberate plan to attack the City?

        The French government not only had a plan, they had a named project – “Project Spartacus”:

        http://conservativehome.blogs.com/thecolumnists/2011/12/anthony-browne-france-and-germany-could-have-had-their-treaty-but-they-decided-to-push-for-control-o.html

        “One very senior French financier now based in London once came to me and asked why the British couldn’t see what was happening – it was called Project Spartacus, and it was an attempt, co-ordinated across French government departments, to do down London and make Paris the financial capital of Europe. Because he was French, he spoke about it openly with French officials and ministers, but he said they never speak about it in public because they didn’t want to arouse the British – although President Sarkozy occassionally let slip his ambitions. In the wake of the financial crisis, the French and Germans did in effect take control of regulation of the City away from the British government – there are now 49 different bits of financial services regulation coming from the EU to London, and pretty much all designed to clip the wings of the City. And last night we saw how much it really matters to France.

        Faced with a choice between an EU treaty to save the euro and retaining control of regulation of the City, President Sarkozy decided to retain regulation of the City … “

        • Peter van Leeuwen
          Posted April 21, 2013 at 6:54 pm | Permalink

          @Denis Cooper: Your conservativehome article and its comments makes mythical (should I repeat paranoid?) reading indeed Denis. How clever of Spartacus to manipulate Cameron in making a grave error at the December 2011 summit! It must be a very clever project! You really believe that? (sigh) I won’t put it beyond the French to harbor some anti-English feelings (the feelings being mutual) and yes, they promote their national interest conspicuously, but my information about this summit was rather different – I remember Rutte (Dutch prime-minister, a Cameron friend) being rather scathing about Cameron’s behavior. The promoter of the Single Market, proposing something (unique City protection) that flies in the face of that Single Market, it really must be considered a “not so clever” move, in which the UK has caused bad blood which will remain for some time.
          The City has very professional and rich lobbyist working for it in Brussels and has changed and fragmented much of the regulation intended to prevent a new global financial crisis. The 1986 financial “bigbang” came full circle in the 2007/2008 “bigbust”, but financial lobbyists have their own interests rather than that of Europe. I just have to hope that the regulations will stick and that casino banking may play a smaller role in future.

          • APL
            Posted April 21, 2013 at 9:11 pm | Permalink

            Even the Netherlands is starting to notice that things are not quite what the EUro maniacs promised they would be.

          • Denis Cooper
            Posted April 22, 2013 at 8:57 am | Permalink

            Where would the lion’s share of the FTT be raised?

            Paris? Frankfurt? No, London, and you admit that it is being designed with the specific intention of ensuring that would be the case.

            Let’s have a tax directed against the French wine industry or the German car industry, shall we?

  17. A.Sedgwick
    Posted April 20, 2013 at 11:46 am | Permalink

    http://www.telegraph.co.uk/history/10007316/Wanted-Stonehenge-general-manager-to-meet-with-Druids.html

    English Heritage paid for by the taxpayer via Culture, Media and Sport Department I believe. Is it any wonder there is not an overall Government spending cut. A Beeching style cut of Government would be academically quite straightforward especially if staggered over a Parliament or even two but politcally impossible with those who organised and support this Coalition.

    I have read with great interest your pieces on Mrs. Thatcher, who with her political honesty and abundance of common sense was obviously old school where conviction and belief were paramount and the objective was to convince the electorate of those beliefs. Cameron has no clear beliefs, he seems to get every major issue wrong so in cricketing terms he continues to chase the ball as fielding captain. His future as PM is a little over two years, the intriguing issue is whether the Conservative Party gets the message in time.

  18. Christopher Ekstrom
    Posted April 20, 2013 at 12:49 pm | Permalink

    The massive u-turn the current PM has undertaken to turn a Conservative party into a European liberal-democrat party; it is traitorous & Cast Iron is due NO loyalty by any real Tory office holder. Either this (word left out-ed) man will be forced out, like the great Lady Thatcher was (& look WHERE that got us!!!), or Ed Milliband will be next. It’s as simple as that. I hope that a man of high stature, Dr. Fox stands out, will join UKIP & begin a cascade effect that will embolden these weak sisters into ousting Main Chancer davey. A significant defection of former Tory voters is already evident. (politicians-ed) like heseltine usually only stand up for Statism; a Lady Thatcher comes around so rarely. If Redwood thinks a referendum on the EU is coming under this leadership he has succumbed to the demands for comfort that advancing age prefers.

    Reply Dr Fox was elected as a Eurosceptic Conservative and will remain as one. Just because I am not rushign to join UKIP does not mean I have no stomach for the fight for an independent UK, something I have battled for for many years so far. You mislead yourself by thinking there is about to be a big defection to UKIP, or that would make all the difference. We have to deal with the Parliament we have, not the one you would like.

    • sjb
      Posted April 20, 2013 at 5:00 pm | Permalink

      @JR’s reply
      I don’t think there are many informed voters that expect serious politicians of your calibre to join UKIP.

      However, if Eurosceptic MPs consider the UK’s continued membership of the EU is seriously damaging the national interest then why not “break the mould” and form your own party? Wouldn’t that give you as a bloc more bargaining power in the HoC? The act might even bring forward the general election.

      Reply: It doesn’t change the voting balance or give us any leverage we do not already possess. We need more MPs, not a new name. A group breaking away would find it more difficult to recruit Conservative MPs of less conviction to their cause.

    • Chris S
      Posted April 20, 2013 at 5:11 pm | Permalink

      I wonder what will happen after the Local elections when UKIP gain many seats and then after the Euro elections next year where UKIP are likely to emerge as the largest British party in the European Parliament ?

      Whether Cameron remains leader has to be in doubt but like it or not, a deal will HAVE to be done before 2015 otherwise the Conservatives will face a very heavy defeat.

      With UKIP on side and an agreement over seats to be fought, a combined ticket could win. Remember, Eastleigh. The pro- referendum parties had 52% of the vote.

      It would then be a straight fight, winner takes all :

      Red Ed and Clegg on a pro EU ticket versus Conservatives and UKIP both committed to a referendum and a properly run economy.

      What do you think, John ?

      With luck, it could wipe out the LibDems as any kind of force and they can be ignored.

  19. Lindsay McDougall
    Posted April 20, 2013 at 12:52 pm | Permalink

    The current advice from both Ed Milliband and the IMF is insane. We need more borrowing like we need a hole in the head. When is everybody going to accept that if the economy doesn’t grow tax yields are down and you need to cut more, not less? Nor is it wise to accept ‘automatic stabilisers’. Government should bear down on the total cost of benefits if it is tending to increase.

    There are two particular areas of expenditure that the Chancellor must get right. Network Rail’s total debt has reached £28 billion and the annual interest on that is 13%. More of that interest is being borne by farepayers but the taxpayers’ proportion is still between a third and 40%. Network Rail is able to borrow at the rates they do because Government is underwriting the debt. The Chancellor attempted to include the Post Office pension fund – also about £28 billion – as a receipt in the financial year just ended, thus reducing Government borrowing in FYR 2012/13. However, financial journalists have been discinclined to accept this. In any event, pension payments from this fund will add to public expenditure in future years.

    We need to account for Network Rail debt interest and pension payments to Post Office retirees in a sensible and consistent way, neither optimistic nor pessimistic. It seems sensible to count both as current public expenditure, and to include both the NR debt and the PO fund as State ‘assets’.

    Another item that needs to be accounted for properly is the write down of RBS and Lloyds shares for which the Government (taxpayer) payed at least £33 billion too much. We won’t know the exact amount until the shares are sold but we should include a provisional sum in the State accounts.

    All in all, the position on Government debt is even worse than it looks.

    • uanime5
      Posted April 20, 2013 at 3:07 pm | Permalink

      When is everybody going to accept that if the economy doesn’t grow tax yields are down and you need to cut more, not less?

      Actually when the economy isn’t growing you need to spend more to revitalise the economy. Spending less will just make the recession worse as neither the private nor public sector will be investing in the economy.

      Government should bear down on the total cost of benefits if it is tending to increase.

      Benefits are increasing for the following reasons:

      1) There is an ageing population so the pensions bill is increasing.
      2) Property prices continue to rise so the housing benefit bill is increasing.
      3) The number of people in low paid jobs is increasing so the tax credit bill is increasing.

      So how exactly do you want the Government to “bear down” on this?

      Reply And they were raised by 5.2% the previous year

      • uanime5
        Posted April 21, 2013 at 11:48 am | Permalink

        Reply to reply: as inflation was 5.2% last year this mean that in real terms benefits increased by 0%.

      • Edward2f
        Posted April 21, 2013 at 12:22 pm | Permalink

        Strange then Uni, that your beloved EU is imposing cuts in member states in order to bring about prosperity a method encouraged by the ECB and IMF
        Whereas you and the IMF say the opposite is the solution for us here in the UK

  20. Lindsay McDougall
    Posted April 20, 2013 at 1:09 pm | Permalink

    The latest Eurostat data shows that German Government debt reached 82.8% of its GDP in the second quarter of 2012 and that this % is on a gently rising trend.

    Bearing this in mind, by what mechanism is the German Government able to make below market interest rate loans to other E17 Member States (let alone grants)? If there is no method, the only alternative is for the ECB to select one of several methods that lead to printing money and a ‘soft’ Euro. You can understand German reluctance.

    • Nick
      Posted April 20, 2013 at 4:41 pm | Permalink

      If you ignore the pensions debts. Otherwise the debts are vast.

  21. uanime5
    Posted April 20, 2013 at 3:10 pm | Permalink

    An individual Euro country cannot devalue to price itself back into world markets.

    Neither can the UK, which has devalued against the euro without affecting how much the UK imports. It seems that devaluation can’t turn a country with few exports into a country with many exports.

    there is no reason to suppose the lost output created by the higher taxes and the lower spending will be supplanted by mroe private sector acivity.

    The UK has also shown that lowering corporation tax doesn’t result in more private sector activity and that cutting thousands of public sector jobs doesn’t result in millions of private sector jobs being created.

    Reply Many more private sector jobs have been created so far. The UK balance of -payments would have been different if the pound had not devalued, with more imports.

    • uanime5
      Posted April 21, 2013 at 11:58 am | Permalink

      While more private sector jobs have been created that public sector jobs lost the number of private sector jobs created is still much lower than predicted.

      Also the cost of imports has risen from 2009-2013. While it’s possible that the UK may have importer fewer but more expensive things as a result of devaluing this doesn’t change the fact that import costs are still high after devaluing.

      Reply : Do you ever accept the official numbers and understand what is going on?

  22. Mark
    Posted April 20, 2013 at 3:22 pm | Permalink

    I note that some MPs have observed that the plans to offer guarantees for £130bn of residential mortgages are deeply flawed. This is more than 10% of all outstanding mortgages, and potentially adds directly 15% of the sum to the burden on taxpayers (£16.5bn), while encouraging house buyers to overpay recklessly.

    Moreover, once the guarantees are removed, the prop to the market will go too. An extra million buyers would find themselves in difficulties, as too would the banks, potentially adding another round of banking bailouts on top. Meantime, the mortgage money would have to be funded either by further borrowing abroad, or by printing at home. Neither will do anything for the real economy.

    If there is a time to support the housing market, it is when prices have corrected and threaten over-correction (e.g. if they threaten to go below 1995 values inflation adjusted) – not while we’re still at unaffordable bubble levels.

  23. Barbara
    Posted April 20, 2013 at 4:01 pm | Permalink

    I agree with most of what you say, however, in the news recently we’ve heard the eurozone requires another 11 billion more as its got a short fall in it’s financies. The request as gone out to all members, does that include the UK? If so, while we are not part of the euro are we obliged to pay any more into their coffers? Its a bit of a cheek asking for more when the agreement for less was made, this blows Cameron’s agreement out of the window. It shows you cannot trust this overloaded self interested group of people, and the sooner we remove ourselves the better.
    Instead they should be encouraged to make some cuts to staff or reduce their hours, they are over paid in any case for what they do. I’d be interested to know if we will have to stump up more money, if so this won’t go down well with the country and all the rhetric we’ve had over the past months about gaining back powers. Its nothing but a joke.

    • uanime5
      Posted April 21, 2013 at 12:02 pm | Permalink

      The request as gone out to all members, does that include the UK? If so, while we are not part of the euro are we obliged to pay any more into their coffers?

      Well if they bankrupt we won’t be able to trade with them, which will be bad for UK exports.

      Instead they should be encouraged to make some cuts to staff or reduce their hours, they are over paid in any case for what they do.

      So you want countries that are having financial problems to have fewer police officers, teachers, and doctors?

      • Edward2
        Posted April 21, 2013 at 9:44 pm | Permalink

        You need to make your mind up Uni.
        You’ve been regularly calling for struggling Eurozone nations to suffer their fate, as you say its their fault for the mess they are in.
        Yet here you are calling for us all to help bail out member nations, saying “well if they go bankrupt we wont be able to trade with them so it will be bad for us”
        Which is it?
        Your last paragraph is a very poor argument. Evertime the word “cuts ” is mentioned the left trot out the slogan “so you want to sack nurses and firefighters and teachers do you?”
        No, front line workers should be protected.
        The cuts should be madeat the top and from inside the HQ’s with internal efficiencies and less six figure salary managers.
        Or do you think Council CEO’s on several hundred thousands a year are fair value for money?
        A

  24. Nick
    Posted April 20, 2013 at 4:40 pm | Permalink

    The first is the type which cuts public sector wages, makes cash cuts in public spending, and forces rapid reductions in deficits.

    =============

    No it doesn’t.

    Last time I looked the wage bill was around the 120 bn mark.

    There are no cuts, frozen or increases in the rates of pay.

    However

    In 2011, public sector employees were paid on average between 7.7% and 8.7% more than private sector employees
    • The public sector is made up of a higher proportion of higher skilled jobs – widening over the last decade as lower skilled jobs have been outsourced from the public to the private sector.
    • The public sector consists of a higher proportion of older employees and earnings tend to increase with age and experience

    That’s what’s going on, Wages are going up as people sit in the jobs.

    So even if the wages are kept constant, that is spending is kept the same, then any change in the 150 bn deficit isn’t going to be affected unless you screw us out of more money.

    Lets say you cut wages by 1%. That’s 1.2 billion off a 150 bn deficit.

    So its complete twaddle to claim that wage cuts are the biggest way of changing the deficit.

    On top, what about the 150 billion increase in the pensions debt?

    Or is it that you aren’t going to pay the pensions?

    Reply My point was that the first type is taking place in some Euro countries, not in the UK!

  25. David Langley
    Posted April 20, 2013 at 6:44 pm | Permalink

    What exactly do you mean when you say “mending the banks”? What kind of surgery will that require that has not already been done? The banks are privately owned have shareholders and boards. The banks are run for profit and usually are adverse to risk. The lending departments are centralised and unable to react quickly to business borrowing needs that requires some sort of calculation of proven repayment ability.
    We have bailed out banks to an extent that is virtually criminal when considering that they were trading whilst insolvent. Its now time to start up building societies with the government money wasted on repairing profligate bankers indulging their casino lifestyles. The Euro project has degenerated into some sort of Germanic union of poor southern cousins and richer northern states, a sort of upside down UK.

    Reply I am primarily talking about RBS where we the taxpayers own most of the shares. I wish to see three sensibly financed UK clearing banks created out of the assets and liabilities of existing RBS and floated off, and the rest sold.

  26. Johnny Norfolk
    Posted April 20, 2013 at 9:19 pm | Permalink

    The problem is we have not made the government spending cuts we should have made. There will be no end to it till we have.

  27. Mark
    Posted April 20, 2013 at 9:28 pm | Permalink

    cookie

  28. David Hope
    Posted April 21, 2013 at 7:54 am | Permalink

    You talk about two very different levels of austerity but surely you would also divide austerity into tax rises and spending cuts. The media term austerity covers both at the same time which doesn’t make a lot of sense. They have totally different effects and only the latter is what people would consider austerity at home or work. A business for example doesn’t have the luxury of just putting up prices when in trouble like government can! Tax rises are surely not a great idea in times of recession when productive (in a purely economic sense) people are already suffering financially.

    As an aside I think that transfers of wealth from northern to Southern Europe are a terrible idea! It could be argued that such transfers are a contributor to the British North-South divide and nothing taking the place of industry. Many commentators may be surprised in a few years if (and this is a big if) southern european states, after a genuine shrinking of the state become quite competitive and outpace the UK.

    Also surely single currencies are not themselves a bad thing. Debt is bad, single central banks and interest rates for a vast region are bad. But sharing the medium of exchange need not be.

  29. Peter Davies
    Posted April 21, 2013 at 9:24 am | Permalink

    The problem the UK has I see it is whilst it has the monetary tools for printing money and interest rates, its doesn’t have the full set due when it comes to energy and some taxes (VAT) – every move they make has to have consideration to EU obligations which in a democracy is simply wrong.

    Any cuts made to the public sector MUST come with a corresponding stimulus in another area, like lower tax or less red tape. It seems they are able to do one (the cuts) but not the other, the carrot.

    Thatchers reforms did this – they cut back subsidy to some industries but at the same time lowered taxation and stimulated other supply side industries.

  30. Mark B
    Posted April 22, 2013 at 7:15 pm | Permalink

    The Euro is a trap ! It is a cunning in that it offers its victims anything that they wish, providing they give up a key sovereignty – control over their own financial affairs.

    When one trawls through the annals of history, an often understated theme, for the most part, seems to crop up over and over again. And that is control over the supply and spending of monies. Whether it be the English revolution or the American revolution, money or its control has been central.

    The EU does not have full control as yet. To achieve their goal of a Federal Europe, the final pillars need to be put in place. This of political and fiscal union.

    To pretend that the UK can remain part of this and yet separate is simply to indulge ones self in fantasy politics, or live in a state of denial.

    The course is set. The goals achievable. The path remains difficult. But no one should doubt their determination and the desire of those they we elect to assist them in this ‘Project’.

  31. helen jones
    Posted May 15, 2013 at 9:39 pm | Permalink

    The real austerity is being felt by Pensioners who have no option but to rely on savings income
    They are being savaged by a Government that neither cares or is prepared to honour its solemn promises “To help savers ”

    But what do we expect of 3 Rich boys Cameron , Clegg and Osbourn
    60% drop in their incomes would not be felt
    60% off 15K is real poverty

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page