The IMF Report

          The IMF sees a lot of worse cases than the UK economy. The summary of their report starts positively, recording “some improvement in economic and financial conditions.”  They praise the strong private sector employment growth and forecast some increase in activity this year.

         The IMF is on an ideological journey. Under its latest Euro friendly management it wishes to detach itself from the old IMF formula of cutting public spending, raising taxes, loosening money supply and devaluing for countries with large public sector and balance of payments deficits. After all, Euro member states cannot undertake the monetary expansion nor the devaluation for themselves, the two most pro growth parts of a traditional IMF package.

          They want the UK to “rebalance”, to export more and invest more. The shortfall in private sector investment has several causes. Weak banks with insufficient loans available do not help. Large pension deficits created by artificially low interest rates force companies to keep more cash on their balance sheets to meet future pension costs. Falling demand in Euroland undermines one of our export markets and leads companies to wonder if more capacity is a good idea.

           They praise the loose money policy being followed and ask that it continue. Indeed they want the Bank to buy more of its own bonds and promise to keep interest rates very low for longer. They want the banks to raise more capital, and want the government to sell RBS and Lloyds back to the private sector. The Chancellor in his public statements seems happy to oblige.

          The IMF also favours cutting corporation tax more and paying for revenue loss by further property taxes and VAT on a wider range of items. Did they not follow pastygate?  Their tax recommendations are toxic. I cannot see why people take their advice so seriously, when they seem to be all at sea in this crisis, and did not foresee any of it.

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68 Comments

  1. Peter van Leeuwen
    Posted May 25, 2013 at 5:40 am | Permalink

    IMF should favor devaluation? Has Britain’s competitive devaluation in the wake of the financial crisis achieved much else than making the pound sterling permanently some 20% cheaper? I cannot see Britain faring much better than other Northern EU countries.

    • Lindsay McDougall
      Posted May 27, 2013 at 10:12 am | Permalink

      The pound sterling floats (cleanly) on the international currency markets and finds its own level in response to market forces. Why does the IMF need to have a view on this? Can they buck the markets?

  2. lifelogic
    Posted May 25, 2013 at 5:40 am | Permalink

    Suggestions from the IMF nowadays nearly always seem absurd. All sensible economists know that we need an environment that encourages the private sector to invest capital wisely and a far smaller tax borrow and waste, state sector. Higher taxes encourage the private sector and talented hard workers to leave (or not bother to take the risks). Taking their talents, taxes and wealth with them.

    The benefit system combined with the lack of well paid jobs makes working less attractive, to many, than living on benefits.

    We need a state sector of half the size, functioning banks, cheap energy, far less regulation & EU, lower taxes and a real small state vision. Not wind farms, HS2, PV subsidies and certainly not tax rates at 20% VAT, 45% income tax, 40% IHT, 23% NI (both combined) plus fuel duty, council tax, stamp duty at up to 15%. Why invest in the UK with that as the deal?

    I see that the BBC has managed to waste £100M (about 600,000 households licence fees) on an abandoned IT project. But do not worry they still have found enough to recruit another Guardian man to be the editor of Newsnight. One assumes the management and trustees thought they did not have enough Guardian/BBC think people already. I assume Lord Patten (Cameron’s man) approves.

    http://www.spectator.co.uk/features/8915901/next-up-on-newsnight/

    I also see that the lefty amusement industry or “the Arts” as they like to describe themselves are demanding yet more tax payers cash to waste on dross. This so they do not to have to bother attracting paying customers by producing anything watchable or interesting.

    • uanime5@hotmail.com
      Posted May 26, 2013 at 10:21 am | Permalink

      Germany has high taxes yet it hasn’t resulted in any of their private sector or talented hard workers leaving. Perhaps it’s because their culture doesn’t put so much emphasis on greed.

      Also how is the state meant to function with half the doctors, teachers, nurses, police officers, social workers, and judges?

      • Edward2
        Posted May 26, 2013 at 2:47 pm | Permalink

        Uni,
        Not correct on Germany, see this from the EU’s own website:-
        “Spain reported the highest number of emigrants in 2011 (507 742), followed by the United Kingdom with (350 703), Germany (249 045) and France with (213 367).”
        There are other websites available showing similar levels since then.

        Ref your second point, there could be great reductions in admin staff and managers without involving front line staff.
        For every one person doing something, 5 are writing it down.
        It is a very boring cliché of the left to say “so you want to sack teachers doctors and nurses everytime a reduction in the size of the State is mentioned

      • Lifelogic
        Posted May 26, 2013 at 4:11 pm | Permalink

        Well the state sector is 50% over paid including pensions for a start so sorting out would cut the state by 1/3. We will have to have bigger classes with better discipline, fewer people on endless benefits, less sustainable development officers, government propaganda officers, gender equality liaison officers, green energy subsidies and subsidy officers, fewer terrorist incubation wars, fewer tax officers (as less tax will be needed), HS2 planners and bureaucrats everywhere. A 50% cut is very easy to achieve as half of what the state does is pointless or actually damaging – and as I say they are 50% over paid anyway.

        Doctors, teacher and nurses do not have to work for the state sector they could work for the private sector as indeed they would do if the state did not provide unfair free competition paid from taxes.

  3. Electro-Kevin
    Posted May 25, 2013 at 6:06 am | Permalink

    They are wrong on private sector employment growth too if Radio 4 is to go by.

    Much of that growth being public sector work transferred into the private sector by outsourcing to contractors according to them. Is there anyway of distinguishing new employment growth as opposed to reclassified employment ?

    Property taxes are already punitive – so too are council taxes. Councils do not offer the higher tax payers larger wheelie bins so the councils’ claim that ‘If you have a more expensive house you use more services’ is bogus.

    The taxes are nothing but a socialist redistribution of wealth, a punishment for aspiration and they don’t even try to disguise it by making the higher payers feel as though they are getting a bit of a deal by – say – offering that larger wheelie bin to. If these people really are using more resources (and being charged for them) then where are the extra services ?

    The pasty tax blew up because people who weren’t used to paying unfair taxes got their first taste of them and didn’t like it.

    (People are competing for sub £250k houses to avoid stamp duties – in many areas family housing stock would be freed up more readily if the stamp duty were tapered.)

    • Jerry
      Posted May 26, 2013 at 6:00 am | Permalink

      @ “The pasty tax blew up because people who weren’t used to paying unfair taxes got their first taste of them and didn’t like it.

      The “pasty tax” blew up because it was unworkable!

    • Acorn
      Posted May 26, 2013 at 7:20 am | Permalink

      Kevin, see chart 5 in ONS, “Labour Market Statistics, May 2013”. Number Crunchers are scratching heads on the “actual number of hours worked” dataset. For instance, at the start of the recession we were working 949.3 million hours per week, averaging 32.2 hours per week each. We are now back to that level after five years at 950.3 and 32.0. It was 915.9 and 31.7 when the coalition took over. In that five years the total population has increased by circa 1.9 million to circa 63 million so pro-rata we should be working circa 979 million hours per week. Where have they gone?

    • uanime5@hotmail.com
      Posted May 26, 2013 at 10:26 am | Permalink

      Councils do not offer the higher tax payers larger wheelie bins so the councils’ claim that ‘If you have a more expensive house you use more services’ is bogus.

      I can’t recall Council ever claiming this. Also council tax is regressive so if every paid a flat fee per metre squared of land they owned those with the largest houses would be paying much more than at present.

      (People are competing for sub £250k houses to avoid stamp duties – in many areas family housing stock would be freed up more readily if the stamp duty were tapered.)

      If a house will sell if it’s £249K but won’t sell if it’s £250K then this will provide an effective means to keep house prices low.

      • Jerry
        Posted May 26, 2013 at 1:35 pm | Permalink

        @U5: Even your Flat Tax based on the metre squared of land is regressive, if we want a fair local taxation system then it should be based like the national taxes, either via a local purchase tax or via a local income tax, the latter being the most fair.

        Also I assume that was an intentional decision within your “Name” Field either, otherwise John might wish to edit it for you!…

    • Lifelogic
      Posted May 26, 2013 at 4:16 pm | Permalink

      Indeed it is absurd to have large jumps in stamp duty at set thresholds, but then stamp duty should just be abolished. Turnover taxes are a bad idea certainly at 7% and up to 15% (corporates over £2M value) they are totally absurd.

  4. Mike Stallard
    Posted May 25, 2013 at 6:44 am | Permalink

    Under the expert tutelage of the Lycean Mme Lagarde, it is no wonder that the IMF is adopting the most sensible of the EU policies.

    • margaret brandreth-j
      Posted May 26, 2013 at 5:00 pm | Permalink

      European centralisation is good for her kith and kin

  5. Andyvan
    Posted May 25, 2013 at 6:59 am | Permalink

    The IMF and almost every government are completely and utterly incompetent. The problem is not that they manage an economy incorrectly, it is that they attempt to manage it at all. Can any one person or group really take all the needs, wants and deals done every day by millions of people and companies and somehow decide what the interest rate should be, how they should interfere with the free market with taxation and policies that distort peoples actions? A really free economy would be infinitely more efficient that the bungling slow, politically motivated actions of a group of parasitic politicians. If our “leaders” were truly interested in improving the prospects on the UK economy they would repeal all their ridiculous interfering schemes and taxes and go and sit on a beach far away and stay there.

    • Jerry
      Posted May 26, 2013 at 6:08 am | Permalink

      @Andyvan: So basically you are suggesting we do away with government, or at least were it relates to the economy, if so might I just ask who you expect should set down the basic ground rules – sure we would all like to pay a 0% rate of taxes etc. but is that really a realistic proposition, and don’t suggest that people should make their own luck, accident and injury can happen at any time and to anyone, only by the grace of God have you nor I gone to that place.

      Sorry but you are not “Free market”, you appear to be I’m all right, s*d you!

      • Edward2
        Posted May 26, 2013 at 8:30 am | Permalink

        As we have come to expect from you Jerry, a ridiculous extreme caricature of what the original post said.
        Using smiley faces and exclamation marks to be rude and insulting

        • Jerry
          Posted May 26, 2013 at 1:47 pm | Permalink

          @Edward2: I fear that I am not the one having problems here, after all you managed to miss read U5 (or was it Bazman) the other day when discussing railways, fares, TOC and timetables and then went on to make a fool of yourself by your claims…

          If someone stated in the first couple of lines of their comment that they think governments are incompetent and that no government can actually make the right decisions for the population it rather does beg the question as to what sort of society they do wish to live in (of course it might just be a case that they never actually thought through their comment before pressing “Post”).

  6. nina andreeva
    Posted May 25, 2013 at 7:48 am | Permalink

    Absolutely correct in your analysis. Export exactly to whom? Certainly not China as itis plain to see they are slowing down. Thats bad news for invisibles too such as the trade our universities do in selling degrees to Chinese kids. It will be even worse for city centres such as Newcastles where much of the retail activity seems to be engaged in servicing their needs too e.g. Chinese grocery stores. While on the domestic front why should a business invest if itknows demand is not there because everyone is saddled with debt and those consumers that have spare cash are worried about their jobs

  7. Brian Tomkinson
    Posted May 25, 2013 at 8:12 am | Permalink

    Why do we have an annual IMF report on our economy? Haven’t they enough to do monitoring those countries to whom they have loaned money, some of which is from the taxpayers of this country? What have they got to say about the economies in Cyprus, Spain, Greece, Italy, Portugal ….? Nothing much of substance is reported in our media. With such poor economic performance and massive unemployment they might have more to say about those countries. Are they so tied to the EU that the individual Eurozone members are excluded even though the IMF is supposed to help countries not currencies. Do they undertake a similar exercise on the USA economy?

    • uanime5
      Posted May 26, 2013 at 10:31 am | Permalink

      The IMF accesses the economies of all countries, not just the countries you don’t like, mainly because if a country goes bankrupt then it’s the IMF who will end up bailing them out.

      Also the UK’s economic performance and unemployment figures are still bad compared to pre-financial crisis levels.

  8. Peter Stroud
    Posted May 25, 2013 at 8:17 am | Permalink

    If the IMF was truly independent it would advocate a well ordered break up of Euroland.

    • uanime5@hotmail.com
      Posted May 26, 2013 at 10:27 am | Permalink

      If the financial crisis couldn’t break up the eurozone why would the IMF want to break it up?

      • Jerry
        Posted May 26, 2013 at 1:51 pm | Permalink

        @u5: You really think the financial crisis is over and the Euro is safe?

        Has it not occurred to you that the IMF might want to break up the EZ to prevent the financial crisis from deepening – I don;t think you truly understand just how much on a knife edge some EZ countries are to toppling and if that happens there is no way the IMF, the ECB nor Germany will be able to shop the fans getting very messy indeed.

  9. frank salmon
    Posted May 25, 2013 at 8:26 am | Permalink

    Indeed. The old IMF would have dictated a return to economic health. The new, Keynesian IMF will no longer get all its money back. It will lose the bulk of the money it has taken from Britain and other backers. This is really tragic. Economic nightmares are all that we can predict from the problem. It is a shame that all of Keynes’ work is being undone (IMF, World Bank, Bretton Woods) by Keynesian politicians.

  10. Gary
    Posted May 25, 2013 at 8:36 am | Permalink

    Bankers have got a grip over the economy. Through the IMF, World Bank, central banks, political financing, and govt debt financing. The looney financial policies all make sense when seen through that prism.

    Thrift, living within your means, making things to sell and saving is the only path to sustainable growth and prosperity. It is not rocket science. But that path is not profitable to the bankers, so we end up in a convoluted Rube Goldberg economic system that feeds the bankers exclusively and kills the economy.

  11. Jerry
    Posted May 25, 2013 at 9:44 am | Permalink

    Large pension deficits created by artificially low interest rates force companies to keep more cash on their balance sheets to meet future pension costs.

    There is a suggestion that a bigger problem would be caused by having higher interest rates, because of the debt on many a banks books from what are called “Zombie” companies, these zombie-companies are still in business but can only afford to pay the interest on their debts and do so at the current low rate, any higher and these companies will go to the wall and thus the debts will too – this in turn will cause yet another banking crisis. In short, to coin a phrase from one half of the great political double-act of the 1980s, You ain’t seen nothing yet!

    The author of this suggestion (judging from his interview on the Today programme this morning) even goes on to suggest that we are heading towards a depression and that a total and thorough shakedown of stocks, business and banking sectors is the only way out of the crisis, even if that does mean dumping us in to a 1920s style depression…

    Are we actually seeing Capitalism fighting for it’s very existence, or at least as we currently understand the term, in this information age it is not possible to control the flow of information to the people like it was in the 1920/30s, people are already asking questions about the “ethics” within banking and business.

  12. waramess
    Posted May 25, 2013 at 10:08 am | Permalink

    The shame is that the IMF are still taken seriously as a consequence of several generations of children having been “educated” to believe that Keynesian and Monetarist economics are the only option.

    Those who can’t see for themselves the present policies are not working are simply not willing to look. They all want increased spending and monetary “stimulus” to get us out of the recession and none of them are serious about decreasing the size of government.

    To bring the deficit down by the paltry percentages lauded by Britain and Spain just go to show how disinterested they are in cutting the deficit but they are not slow in increasing taxes when they need revenue.

    The fact is their policies are not working, they have no other tools in their Keynesian/Monetarist tool box and they now have no idea what to do next.

    Unfunded tax cuts are a nonsense and tax cuts funded by tax increases are an even greater nonsense but this is not something they (collectively) want to hear because the only way to release resources back into the private sector, by tax reductions or otherwise is by reducing the size of the state.

  13. stred
    Posted May 25, 2013 at 10:25 am | Permalink

    Well the boss is French, so we can expect more taxes, perhaps an extra social charge on house sales to go alongside CGT, two lots of housing tax like foncieres and habitation, wealth tax on any belongings over £600k including your childrens savings, and extortionate motorway tolls. She must think M.Hollande is doing well.

  14. Leslie Singleton
    Posted May 25, 2013 at 10:28 am | Permalink

    I would have thought that it was blindingly unarguable that the only comment that might mean anything is that either the Euro must be dismantled or the Zone must immediately proceed to full political and financial homogenisation. The only other possibility is for national currencies to be re-instated with the Euro being retained as a common parallel hard currency.

    • Gary
      Posted May 26, 2013 at 1:34 pm | Permalink

      I would prefer a Bretton Woods style monetary union based on gold. No need for political integration, no need to give up your own currency, just peg all currencies to gold. Bretton Woods was far from prefect, but while it was in force it was far better than this shambles.

      • Leslie Singleton
        Posted May 26, 2013 at 5:32 pm | Permalink

        Gary–The idea behind the “hard ecu”, as was, being replaced by a Euro kept hard (which John will tell you I have long favoured), is of course that the hard ecu/Euro takes the place of gold. That said I, like you, would prefer gold, as you say, to the present lunacy.

      • Mark
        Posted May 28, 2013 at 11:44 am | Permalink

        The problem is that gold is no longer “enough money” for a properly functioning world economy. When the world had rather fewer people, most of whom were outside the money economy, it still just about worked. But no longer.

  15. Kenneth
    Posted May 25, 2013 at 10:51 am | Permalink

    I am glad you brought up this subject.

    What I want to know is who is paying for these people to have a day out in London, giving us useless advice and promote its failed ideology?

    Do they want us to go the same way as France?

    • lifelogic
      Posted May 28, 2013 at 6:31 am | Permalink

      Indeed

  16. Vanessa
    Posted May 25, 2013 at 12:04 pm | Permalink

    The IMF is not the Institution it used to be and therefore we should not take its assessment of the UK economy very seriously. It is run by a Europhile, C Legarde and she is only interested in keeping the EU together and therefore her recommendations will following that path.
    We need growth in this country but there is no hope of that with low interest rates and high taxes. All of us are hurting but the EU is fine about it.

  17. Ralph Musgrave
    Posted May 25, 2013 at 12:23 pm | Permalink

    Re the IMF, JR says he “cannot see why people take their advice so seriously… Well some of us haven’t, and for a long time.

    E.g. Bill Mitchell (Australian economics Prof.) has long claimed that the IMF is totally incompetent and should be closed down.

    Plus the IMF report to which JR refers suggests that Britain should spend more on infrastructure as a way out the recession: a totally daft idea. See this FT front page report:

    http://www.ft.com/cms/s/0/cd72060a-c2c7-11e2-9bcb-00144feab7de.html#axzz2U5xunSn0

    Infrastructure projects often take years to get going and decades to complete, by which time we’ll probably have escaped the recession, and the one after that, for all I know. Plus sudden increases in spending on specific areas of the economy just run into skilled labour shortages.

    Infrastructure spending MAY WELL need to be increased. But decisions on that point should be under constant review and should be made with a view to the LONG TERM, not in response to a recession.

    • Brian Tomkinson
      Posted May 26, 2013 at 7:59 am | Permalink

      Ralph,
      Agreed. When I hear these calls for “infrastructure spending” in response to a recession I always have the picture in my mind of men digging holes and filling them in again.

      • Lifelogic
        Posted May 26, 2013 at 4:21 pm | Permalink

        Usually digging holes, filling them in again and ten hitting the productive sector workers over the head with the spades after every ten digs or so.

  18. Denis Cooper
    Posted May 25, 2013 at 12:52 pm | Permalink

    “Indeed they want the Bank to buy more of its own bonds”

    I don’t want to nitpick, JR, but I think it’s important to avoid confusion over this.

    The gilts bought by the Bank, a stock valued at £375 billion:

    http://www.bankofengland.co.uk/markets/Pages/apf/results.aspx

    are bonds issued by the Treasury, not by the Bank itself.

    I suppose that sometimes in its earlier history as a private bank the Bank of England may have issued its own bonds, but it’s not easy to see what would be gained by that since 1946 when it was nationalised and the Treasury became its sole shareholder.

    As practised so far in the UK, the main point of Quantitative Easing has been to ensure that the Treasury does not run out of money to pay all the government’s bills in full and on time; the Bank issues our money, which in the form of printed banknotes is the legal tender we can use in everyday transactions, otherwise as an electronic record of our right to claim such printed banknotes; while the Treasury does not issue our money but instead issues its own IOUs to borrow some of the money issued by the Bank, in the various forms of Treasury notes and National Savings certificates and of course gilt-edged stock, none of which can be regarded as currency and all of which would prove pretty useless when you got to the supermarket checkout.

    That is why our banknotes say “Bank of England” on them, and make no reference to the UK Treasury; and a similar thing is true of euro banknotes; in total value nearly €1 trillion are now in circulation and every one of them says “European Central Bank” and bears the signature the president of that Bank, but none of them makes any reference to a European Treasury; of course they could not truthfully do so, because so far there is no European Treasury, only attempts to patch together the beginnings of one through various schemes of very questionable legality under the EU treaties.

    There is now another load of timewasting nonsense going the rounds about the “Bradbury pound” first issued in 1914, which was issued by the Treasury and said as much:

    “Issued by the Lords Commissioners of his Majesty’s Treasury … ”

    and as so often willfully ignoring the simple but inconvenient fact that while in 1914 the Bank of England was still a private bank it has long since been nationalised, in 1946.

    So why should the Treasury now wish to start issuing its own new currency, when the Treasury owns the Bank of England and can arrange for the Bank to create more of its usual currency and get it routed to the Treasury via the gilts market, albeit with some minor transmission losses?

    It seems a terrible commentary on the state of our democratic system that there was a general election a year after it had become clear that the Labour government was using the Bank as its lender of last resort so it could continue with its massive over-spending, and yet few of those voting really understood that and instead accepted the government line, as spun by the mass media, that Quantitative Easing was about “stimulating the economy”; even three years later many people still haven’t grasped the reality, and yet in a couple of years they will once again be asked to vote in a general election.

  19. Alister McFarquhar
    Posted May 25, 2013 at 1:23 pm | Permalink

    Too right! TheIMF is self reconstructing and in process lost

    No doubt under US pressure to keep UK in a Federalising EU

    and EU pressure to shoreup the ever more shaky EU

  20. Rods
    Posted May 25, 2013 at 1:31 pm | Permalink

    Unfortunately, the IMF seem to have dropped their original remit of only bailing out countries with balance of payments problems by giving the country’s concerned a breathing space to rebalance their economies through IMF loans with tough conditions attached. They have used the medicine of devaluation, austerity and tax rises to turn the economies around. This has alway been successful in the past with the IMF never losing any money through loans not being paid back.

    I think the French domination of filling the post of head of the IMF has been unfortunate, where its remit has now changed, it has become far more political with a greater emphasis on assisting the bailout of Eurozone countries not due to balance of payment problems, but excessive government spending, deficits and debts. They have at least recognised (unlike Germany, the ECB and EU) that the fiscal contractions caused by severe austerity while in a Euro straight-jacket just produces a self-perpetuating economic death spiral in the countries concerned with todate no recovery in sight, but they have offered no solution to this. It is going to be interesting with their lending to countries like Greece and Portugal whether the IMF will suffer their first losses.

    In the UK QE has been part of the problem with high above target inflation and wages failing to keep up, so it is no surprise that we have stagflation! The Item Club estimate that QE, loose money and the resultant above target inflation has cost the UK 3% growth over the last 3 years (source: Shaun Richards’ Mindful Money blog 21-05-2013). So on this basis I would have to disagree with the IMF on more QE and loose money as I think this has been a major policy mistake. The UK needs to get inflation under control without major rises in interest rates as this really would set back what I expect to be a very fragile recovery over the next 12 to 24 months.

    I agree with the cutting of Corporation tax (the current Chancellor to his credit has done this) and where it is largely a voluntary tax for multinational companies it would make sense long term to abolish it. This would boost UK business competitiveness when competing and trying to win business from lower taxed multinationals! I would also expect it to attract foreign investment and jobs like it has in the ROI with their 12.5% rate. The reality is that the globalization of business and the increasing provision of services across the Internet is going to make it more and more difficult to collect this tax in the future whatever Governments try to do to stop this. The US are finding that many major companies have set up subsidiaries in tax havens like the Cayman Islands and won’t onshore these or their profits back to the US.

    IMO the only way the UK is going to rebalance its economy is by cutting public spending and taxes. The resultant growth in the private sector will not only boost the economy but also increase exports which will help reverse the trend of our current deteriorating balance of payments.

  21. Agincourt
    Posted May 25, 2013 at 1:46 pm | Permalink

    Unfortunately austerity is still very much needed. So it’s a pity you are not in the Cabinet, John, preferably with an office at the Treasury.

    The annual deficit has been stuck for over a year now at 7.9%, when it should be falling at at least 0.1% per month – ie 1.2% a year, which would still take 6 years, ie to mid 2019 to bring it down to zero. In fact, a small surplus would by then be needed for up to 20 years to bring the annual deficit down to around a bearable 60%. As it is, it may pass 100%, before it begins to fall – & that depends on the deficit actually being eliminated, & a genuine (even if) small growth rate being established from then on.

    When the coalition began in mid 2010, the annual deficit was about 11.5%, & partly through the wanton attack on the armed services’ (especially the navy & army) budget, it was brought down to around 8.3% quite quickly. But it’s been stuck since then. selling off Lloyds will help, though RBS should probably wait until its share price has recovered a but – unless of course the government shares many observers fears, mine included, that there will be a major stock market crash before the year is out. Though it would not be at all fair on those members of the public who take part in a Lloyds public share offer if one occurs – unless the government comes clean about the weakness of the worldwide economy, potentially wrecking the offered share price!

    Maybe a small increase, regrettably, in income tax & VAT are needed – perhaps 1% on one or both of them. Otherwise, that annual deficit may never be eliminated!

    • Jerry
      Posted May 26, 2013 at 2:05 pm | Permalink

      Agincourt: “Unfortunately austerity is still very much needed.

      Yes indeed it is, if only it was true austerity, everyone taking their share of the burden, unfortunately we have a asymmetrical for of it, the least able to afford are taking the greatest burdens whilst those most able to afford such burdens (including some who caused the crisis) are taking little and in some cases are actually benefiting…

      Maybe a small increase, regrettably, in income tax & VAT are needed – perhaps 1% on one or both of them.

      Or perhaps a small increase in the top rates of income tax (ho-hum, here we go again…), that can be prevented if real and substantial investments can be shown, tax reductions could start if either the recapitalisation of existing companies (seeing that finance is not available via the conventional sources, such as the banks) or in new start-ups via venture capital funds and the like can be proved. Increasing VAT to 21% will only do either or both of two things, it will either hit those with little enough money already or further weaken the UK retail (& supply) sector as people simply stop spending again.

  22. uanime5
    Posted May 25, 2013 at 3:08 pm | Permalink

    Given that the UK has repeatedly cut corporation tax from 26% in 2011 to 23% in 2013 I doubt that further cuts will help.

    http://www.hmrc.gov.uk/rates/corp.htm

    • Edward2
      Posted May 26, 2013 at 8:39 am | Permalink

      Given its 12% in Ireland and even less in other countries its plain there is some way to go.

    • Chris S
      Posted May 26, 2013 at 2:17 pm | Permalink

      Good Grief !

      You finally have posted something I agree with !!!!!!!!!

      The very last thing the economy needs is higher property taxes like the punitive rates in place in France which include a high rate of CGT on principle residences. These hit every household and do severe damage to the French housing market.

      I suspect you will not agree with me that tax rates should be lowered all round, financed by much smaller government activity but to increase taxes on families to reduce corporation tax would be ridiculous.

      .

  23. Terry
    Posted May 25, 2013 at 3:14 pm | Permalink

    The IMF, run by Christine Lagarde, (words left out ed)is no longer at the centre of the Financial World.

    Gone are the days when they actually did some good. Remember the 1970s in GB, when they were called in to bail out the Labour Government? And so they did but ensured that the then Chancellor, Dennis Healy, properly managed our economy from then on. Now they appear to be contradicting their rules that worked and got us out of the Labour mire. Why?

    So what has changed? The EEC, of course. It morphed into the disaster that is now the EU and Madam Lagarde, for all the “independence of the IMF, is actually a big EU fan and I suspect there are more Europhiles amongst their staff. Tying the IMF to the ECB and the EU hierarchy is a step towards financial domination and will ultimately lead to financial Armageddon. The storm clouds of which, are gathering right now and when it breaks, we’re going to need more than a Government umbrella to protect us.

  24. Electro-Kevin
    Posted May 25, 2013 at 3:31 pm | Permalink

    Off topic please.

    Why are the BBC being allowed to lead their Ceefax report with “Backlash against Muslims” ?

    Thus far a 162 complaints to an interfaith charity (not the police – so presumably these are not criminal acts)

    This is not a backlash. Not like the country being set on fire after police shot a known criminal from an ethnic minority who was armed with a gun. Our people might be forgiven for being provoked after an act which was designed to be provocative.

    So along with firebrands being given BBC airtime the BBC are now able to show the British public in the worst possible light over what amounts to a bit of mouthing off.

    When will someone from your party stand up for us and praise us for our restraint and tolerance after such a barbaric act ?

    (The incident involving the attempt to storm an airliner cockpit over London featured on page 2 of Ceefax)

    • wab
      Posted May 26, 2013 at 8:26 am | Permalink

      “Why are the BBC being allowed to lead their Ceefax report with “Backlash against Muslims” ?”

      Maybe they are “allowed” to do this because they are professional journalists and maybe because what they reported was in fact true, and also reported by that well known left-wing outfit, the Daily Telegraph, amongst others. But fortunately the man down the pub knows better what constitutes a “backlash”, and knows better than journalists what to report.

      “When will someone from your party stand up for us and praise us for our restraint and tolerance after such a barbaric act ?”

      You don’t sound particularly restrained or tolerant.

      • Edward2
        Posted May 26, 2013 at 2:55 pm | Permalink

        Well WAB, I fully agree with all E-K said.
        This charity should give to the Police all the details of these incidents so the Police can investigate them fully as they are all crimes.
        Did the BBC do any proper investigation of these 162 incidents or did they just accept them as all being true?.
        Putting this story at the head of its coverage was at best a very poor editorial choice in the current circumstances.

  25. Jon
    Posted May 25, 2013 at 5:38 pm | Permalink

    Another bubble.

    We are in a race like a sprint with the huge developing countries fast trying to get as much of the available business out there. We have a our field to plough but its heavy and blunted by debt and regulation both home grown and from the EU. Anyone who works in a heavily regulated industry (private) is just too weighed down.

    • lifelogic
      Posted May 26, 2013 at 4:32 am | Permalink

      Indeed it is hard weighed down by a nearly 50% state sector which delivers so little of any value and all the absurd regulations, high complex taxes, an expensive, vague and often absurd legal system, and all the barmy employment laws.

  26. behindthefrogs
    Posted May 25, 2013 at 6:29 pm | Permalink

    We urgently need the issue of international corporate tax havens to be sorted so that the UK can apply its taxes on businesses more appropriately for the current economic situation. We need to concentrate our efforts on reducing employers’ NI contributions which has most of the advantages of the alternative reduction of corporation tax combined with extra positive influences on small businesses and employment levels.

  27. Richard1
    Posted May 25, 2013 at 6:31 pm | Permalink

    The IMF has come under the sway of Euro-keynesianism, a strange and contradictory amalgam.

    We need supply side reforms, in particular labour market deregulation and cutting of red tape in the UK and especially elsewhere in the EU. We also need the size of the state to be cut as a %age of GDP to allow substantial tax cuts and tax simplification.

    But it is difficult to see how we can get recovery in the UK, and especially in countries such as Spain, without a grand reckoning in the banking sector. It is estimated that there are now up to €600bn of bad loans on the balance sheets of European banks (including the UK’s). These loans and the zombie corporate structures they support clog up the recycling of capital upon which economic growth depends. Maybe taxpayers will have to pay, maybe the shareholders and creditors of banks, or perhaps a combination. But the current policy of burying heads in the sand and using super-loose monetary policy to treat the symptoms means years if not decades before sustainable growth returns in Europe.

    • Mark
      Posted May 28, 2013 at 12:05 pm | Permalink

      Bad loans are mainly from one bank/financial institution to another, and on property. See the data I posted above.

  28. David Hope
    Posted May 25, 2013 at 8:48 pm | Permalink

    Frankly who cares what the IMF says. I didn’t vote for them. They are a bunch of self appointed grandees worse than EU types who spout whatever fits their politics whilst taking in vast sums for their idiot “expertise”. To say they have an agenda is like saying lions have an appetite.

    It’s absurd anyone even mentions them. I know they get reported hence your article but please never mention the IMF again. I couldn’t care less what they say.

  29. Gary
    Posted May 25, 2013 at 9:05 pm | Permalink

    “The first panacea for a
    mismanaged nation is inflation of
    the currency; the second is war.
    Both bring a temporary prosperity;
    both bring a permanent ruin. But
    both are the refuge of political and
    economic opportunists.”
    – Ernest Hemingway.

  30. English Pensioner
    Posted May 25, 2013 at 9:16 pm | Permalink

    The IMF lacks credibility under Christine Lagarde (words left out ed)Far from carrying out its original aims, under her leadership its main concern seems to have been to support the Euro.
    In my view, the IMF will not have credibility until it has a more independent chairman, preferably from a country which is not in a financial mess.

    • uanime5
      Posted May 26, 2013 at 10:42 am | Permalink

      Are there any OECD countries currently not in a financial mess?

      • Lindsay McDougall
        Posted May 27, 2013 at 3:12 pm | Permalink

        Not many, but there are plenty of non-OECD countries not in a financial mess. Superior is as superior does.

    • Chris S
      Posted May 26, 2013 at 1:17 pm | Permalink

      I have always admired Christine Lagarde and initially thought it was a good move for George Osborne to propose her appointment at the IMF.

      However, Michael Portillo is clearly a lot wiser than me or the Chancellor when he said it was a disastrous appointment as she would use all the resources available to her to maintain the Euro irrespective of whether this was sensible.

      Events have clearly shown that there has been a stitch up between Brussels, Legarde and Berlin.

      Had a more objective person been appointed from the US or South America we might already have seen several countries leave the Euro.

  31. wab
    Posted May 26, 2013 at 8:36 am | Permalink

    The IMF report has sensible and non-sensible recommendations, not surprisingly.

    One thing Mr Redwood conveniently did not mention was that the IMF attacked the government’s Help to Buy scheme. So on this score the IMF is doing better than Mr Redwood, who seems reluctant to point out how daft this scheme is. And since Mr Redwood currently seems to not like the IMF (since they are not just regurgitating right-wing nostrums) one could say that even the IMF, in spite of their deficiencies, can see that it is a bad idea.

  32. Lindsay McDougall
    Posted May 26, 2013 at 11:31 am | Permalink

    If the IMF is no use to us, and blatantly and incorrectly pro Euro in its policies, why do we contribute to it? The IMF exists for the benefit of creditors, so that debtors don’t default. Whether that helps debtor nations I don’t know. Do we really need the IMF?

    • Jerry
      Posted May 26, 2013 at 2:20 pm | Permalink

      @Lindsay McDougall: Because the UK has needed the help of the IMF in the past and the way things are going the UK might need the IMF’s help again in the future, being members (and one time contributors) might get more favourable rates!… 😮

      • Lindsay McDougall
        Posted May 27, 2013 at 10:17 am | Permalink

        In 1976, Denis Healey went cap in hand to the IMF for a loan because sterling was sliding. He didn’t need to. All he needed to do was to adopt a more conservative fiscal and monetary policy – something that the IMF forced on him anyway.

        • Jerry
          Posted May 28, 2013 at 8:14 am | Permalink

          @Lindsay McDougall: Whilst all very true was that a reply to me or simply a statement of fact. Are you suggesting that the UK will never need to use the IMF – if so how can you be sure, and what if you are wrong and we have jumped ship?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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