The budget – Tax and spending to carry on rising

There is a big gap between what the experts say and what is going on. The experts say we are cutting the deficit primarily by cutting public spending. When people hear that 80% of the task of deficit reduction comes from spending cuts, they think that means public spending is actually declining in cash terms.

Starting with an inherited deficit of £160bn people would think that meant cutting £128bn off public spending to remove the deficit, with the remaining £32 bn coming from tax rises. Of course nothing like that is happening, as all elected politicians agreee you cannot cut that sort of money out of the budgets given the importance of many public services.

Instead public spending will go up every year in cash terms during the period of deficit reduction. They used to say that it would be cut in real terms, though the figures for the first three years of the programme of deficit reduction show there has in practice been small real increases in current spending each year.  Far from causing low growth or no growth as the opponents of austerity have argued,  public spending has made a positive impact to total output and incomes since 2010. Within the spending totals welfare, debt interest, overseas aid and health take a rising proportion, so some other programmes are experiencing cash cuts.

So how is the deficit being brought down? It is coming down for one simple reason – tax revenues are rising. The idea of the gradual programme is to make the task  easier, by allowing more tax revenue to arise naturally through the growth of the economy. Where the government has tried higher tax rates on income and capital gains it has actually damaged the revenues, not increased them. If any government tried to reduce the deficit quickly through a series of tax rate rises, considerable damage would be done to the economy and tax revenues might fall.

Growth has always been the main requirement to help correct the large imbalances in the economy without pushing it into a deep recession. Growth results from change to the economy, with more successful and more helpful activities increasing. We need more exports, more homes, more domestically produced goods to replace imports. The budget seeks to help bring that about.

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94 Comments

  1. arschloch
    Posted March 20, 2014 at 6:36 am | Permalink

    I am glad to see that little George Osborne has not taken my status symbol away i.e. 40p of every pound I earn over £41,865 gets taken off me. Its hardly a budget for savers either. You might have a higher ISA allowance but interest rates will not be going up, because once that happens everything states to unravel. You may be able to get an inflation beating return on your money, but after Icesave are you really going to put your money with a foreign bank that you have never heard of? The stock market also does not look at all attractive either, being that it is only being kept afloat by central bank liquidity. Though best of all and just what civilisation needs, a whole lot more retirees are going to be pushed into drawdown. An arrangement that comes with high charges, no guarantee of better annuity rates (in fact they have got worse since this became available) and you are dependent on obtaining an investment return sufficient to replace what you are drawing out. It cannot be too long before this turns into the next scandal. When a load of ordinary punters have drained their pension pots dry before they hit 70. As usual the FCA and IFAs will not be seen for dust once this happens. You have been warned.

    • arschloch
      Posted March 20, 2014 at 6:41 am | Permalink

      The Institute for Fiscal Studies (IFS) has said previously that, compared with the state of play when the coalition government took office four years ago, the higher rate threshold has dropped by £4,910, creating an extra 1.1 million higher rate taxpayers.
      As a result there are 4.4 million higher rate taxpayers, and a further 313,000 who pay the 45% additional tax rate on top.

      • Hope
        Posted March 20, 2014 at 5:48 pm | Permalink

        Yes, but Cameron is now throwing away more money on overseas aide. Does that not make you feel good! Osborne thought people liked to pay higher tax as it made them feel successful!

        JR, where are we now with the 80/20 split in spending cuts and tax rises?

    • Lifelogic
      Posted March 20, 2014 at 8:20 am | Permalink

      40% and the employers and employees national insurance tax too.

      What sort of status symbol is it to give all this to the state and then watch them waste it all.

      • arschloch
        Posted March 20, 2014 at 10:32 am | Permalink

        Well this weekend I will be driving around the local sink estate waiving my tax return in the air to encourage the residents to aspire to what I have got. This is what Osborne wants, the more you pay the more “successful” you feel.More than likely they will be thinking who is this berk? He works for a living, we get our money without having to get out of bed. NICs what are those we have never paid them?

      • Lifelogic
        Posted March 20, 2014 at 1:15 pm | Permalink

        15% stamp duty, on properties bought by companies, for over £500K, that is £75,000+ of dead money. Has Osborne gone completely mad?

        SDLT a turnover tax (over about 1%) is hugely damaging anyway. You should tax real profits not turnover. It might take 5-10 years+ for the property to be worth the £575K that you (in effect) paid for it. Longer still in real terms –

        Who but a dope is going to do that? So it raises virtually nothing anyway – so what is the point.

        • Mark
          Posted March 20, 2014 at 8:35 pm | Permalink

          I think the point is to raise tax from overseas buyers of expensive London property. Wrapping purchases in corporate vehicles has allowed them to avoid all manner of taxes, of which basic stamp duty is just one. Rental incomes can be sheltered through offshore mortgage lending. Capital gain and regular stamp duty were avoided through selling shares in the company abroad rather than the property itself. The Budget Redbook says:

          1.192 As announced at Budget 2012, the government has introduced a number of new measures to discourage placing property in corporate envelopes to avoid stamp duty land tax (SDLT). These apply to residential properties valued over £2 million, and include a new higher rate of SDLT when the property is first ‘enveloped’; a new Annual Tax on Enveloped Dwellings (ATED); and a capital gains tax charge on any gains on disposal of enveloped properties from April 2013.
          1.193 ATED has raised 5 times the amount forecast for 2013-14, with significantly more properties above £2 million in envelopes than expected. As well as discouraging SDLT avoidance, ATED incentivises commercial activities by providing relief where, for example, a property is
          rented out.
          1.194 The government believes that ATED and the associated measures can discourage the use of corporate envelopes to invest in high value UK housing which is left empty or underused while avoiding paying tax. The Budget therefore announces 2 new bands for ATED…

          5 times much tax as forecast indicates the extent of tax avoidance mainly by rich foreign property owners. It is perhaps unavoidable that there is some collateral damage, although I would seek to differentiate based on domicile of the owner.

          • Lifelogic
            Posted March 21, 2014 at 6:43 pm | Permalink

            Well they will just buy it personally so 15% will not collected anyway. I do not think it applies for genuine lettings anyway.

            Flogging Chelsea to the wealthy from overseas is one of the few boom industries left.

        • Bob
          Posted March 21, 2014 at 8:41 am | Permalink

          I’m surprised that the Chancellor didn’t address the punitive cliff edge stamp duty rates introduced by Labour.

          I expect he’s keeping that up his sleeve for next year.

  2. Lifelogic
    Posted March 20, 2014 at 6:43 am | Permalink

    “given the importance of many public services” many so called public services are not only not important they are positively damaging. The absurd quack expensive energy subsidies, the over regulation or everything, the dysfunctional NHS, the poor schools, the enforced equality agenda, the payments to encourage people not to work …………..

    Still the pension changes are most welcome, the £500K tax relief for business investments, the lower CT rates, the ISA limits (but why on earth have the silly ISA construct at all, just give tax relief for all saving). And do not tax real post inflation saving losses as is done now with income tax and CGT.

    The incentives to work is still simply not high enough (relative to benefits) after the cost of working are taken into account. If I could only earn an average salary in a boring job I would probably prefer not to work or do some voluntary work and have the time to spend with my wife and children too.

    They need to cut the pay of the 50% over paid/pensioned state sector and fire the 50% of them that so do little of any use. Also introduce a state sector pension equalisation tax (after Browns mugging of the private sector ones).

    But Cameron keeps bringing in new absurd laws like the gender neutral insurance, pensions and annuities. Perhaps his pension reforms will at least help with these absurd insanities.

  3. Richard1
    Posted March 20, 2014 at 6:48 am | Permalink

    Although many of us on the free market right are critical of how slow the government has been to cut manifest waste in public spending, it is remarkable and heartening just how wrong the center-left and all those ‘Keynesian’ economists have been. One of the most vocal, Mr Blanchflower, for instance forecast 5 m unemployed due to the deficit cutting policy. It would be good if more politicians and the media would stop and take note so we don’t have to listen to neo-keynesian nonsense in future. (‘Neo-keynesian’ as Keynes himself would never have supported Labour’s policy of running big deficits during a boom and of a tax take of 38% of GDP and borrowing on top of that to get a state/GDP ratio of 45%.)

    • Lifelogic
      Posted March 20, 2014 at 8:29 am | Permalink

      The point surely is that as you cut out the huge amount of waste in the state sector, you need to loosen the taxes & the over regulation of the state sector. So the net effect is positive on confidence and growth.

      The last thing needed governments digging pointless holes like HS2 and expensive (green behind the ears) energy.

      I see for example that Healthwatch England says more than 70 organisations are involved in dealing with complaints about the NHS and social care. Can we not usefully get rid of 69 of those perhaps as a start.

      • Leslie Singleton
        Posted March 20, 2014 at 11:06 am | Permalink

        Lifelogic–Speaking of HS2, am I alone in thinking that if we do have to have the wretched thing, the recently announced decision not to join the bottom of HS2 to the top of HS1 is plain barking mad? I heard somebody per pro our Government (full of forensic analysis and commonsense so says John) stating, apparently with a straight face, that that there was no need to join them, because the missing join between the two would be only one stop on the Tube. Maybe I dreamt (nightmared?) this because to my humble thinking the bit joining the two is the only bit worth having. Has the fellow never heard of freight trains?? Screw the businessmen with their laptops–soon it will all be teleworking anyway. I live in Essex and am not one of those screaming Nimby. Apart from all else, think of the increase in GDP that would accrue from the extra work and, brooding on this, maybe “forensic” really is the right word because this latest decision is criminal.

        Reply I have made no such claim for the pro HS2 case!

        • Leslie Singleton
          Posted March 21, 2014 at 11:39 am | Permalink

          Reply to Reply–I should hope not, but you did say the other day that MP’s were full of forensic analysis and commonsense. More seriously, can you give any sort of answer to why the two HS lines are not to meet? Apart from screwing businessmen, I would screw London to have the ability to go Manchester to Madrid (or whatever) without getting off, going one stop on the Tube, then getting on again, and to a different train, assuming that it is the fact that the join was proposed to be in London that is the problem. Surely freight and exports are what is important. Cannot put containers on Tube. Businessmen could easily enough take a taxi or leave car at a Park & Ride or indeed take a Tube to catch train somewhere just North of London. Few are going to live walking distance from Terminal on any basis so would be no gr8 change. Bemused as usual.

          Reply There are numerous MPs who oppose HS2 on cost, environmental and other grounds and who are quite capable of analysing the project. The government establishment just keeps repeating it will be good for us. The Camden section has been deleted because it is both very complex and expensive.

          • Lifelogic
            Posted March 21, 2014 at 6:51 pm | Permalink

            Good so my properties they had pointlessly blighted are saved but will they want to link it later? Perhaps under Miliband in 2015. How much has this aborted line cost taxpayers so far £50 million + perhaps.

            It does however now make the rest of HS2 even more mad.

            As for analysis on 45 minutes on a spreadsheet shows it to be totally absurd. As it does for PV, wind energy, most electric cars, carbon capture …………

      • Hope
        Posted March 20, 2014 at 5:53 pm | Permalink

        It is all EU. The budget gets sent to the EU in advance, why if the UK is sovereign and independent. Look across to the Eurozone and members had re writes from Brussels when they wrote their budgets. Now, what right does an unelected bureaucracy have to change national budgets?

        Yet, we still have Ashton talking about democracy in the Ukraine when it is a revolutionary government and the deposed elected PM was forced out by a unruly mob. The EU wants to make sanctions against Russia!

      • Richard1
        Posted March 20, 2014 at 6:45 pm | Permalink

        Hopefully if shot of the LibDems a conservative govt would address such manifest waste

    • yulwaymartyn
      Posted March 20, 2014 at 1:51 pm | Permalink

      Its simple. If you can reduce peoples’ wages in real terms you can reduce the number of unemployed. Shorter hours, zero hour contracts etc, all help to bring down the number of unemployed. Blanchflower was guilty of thinking that the unions would not be so supine, and he failed to give due weight to the fact that there are far more self- employed people today who of course do not withdraw their labour, as well as a public acceptance of the ghastly world economic situation since the crash. That, coupled with the eurozone crisis, and the fear of escaping the UK to an even less stable financial enviroment, has meant that most have shruggd their shoulders and had takeaways rather than eat out.

      • Jennifer A
        Posted March 21, 2014 at 7:16 am | Permalink

        Actually supermarket ‘night in’ ready meals. The weekly curry from the Raj Garden is a distant memory.

        (I hear someone on benefits is suing the Government for her obesity – £120 per week on takeaways. When did ‘austerity’ start ?)

    • uanime5
      Posted March 20, 2014 at 9:40 pm | Permalink

      Although many of us on the free market right are critical of how slow the government has been to cut manifest waste in public spending, it is remarkable and heartening just how wrong the center-left and all those ‘Keynesian’ economists have been.

      The current growth occurred after Osborne introduced his help to buy scheme, which is a Keynesian stimulus as the government is pumping money into the economy. So the ‘Keynesian’ economists were correct that austerity would result in stagnation; while a stimulus would help the economy. Had the UK listened to the ‘Keynesian’ economists we would have recovered as fast as the USA did.

      • Edward2
        Posted March 21, 2014 at 10:21 am | Permalink

        You are counting all public spending as a keynesian stimulus Uni, which it is not.
        I would agree that the small scale help to buy scheme improved demand but it is too small a stimulus to have a big effect on the whole economy.

        But the opposite is true, if you keep increasing taxation to pay for ever more public spending the people and companies have so little left to spend the economy will contract.

      • Richard1
        Posted March 21, 2014 at 7:41 pm | Permalink

        Nonsense, help to buy is a small part of it. Unemployment in the UK is c. 5% below what it is in the EU because of a more attractive business and investment environment and somewhat less onerous employment legislation. This has nothing to do with help to buy. This is completely contrary to the scare mongering predictions of Keynesian economists.

  4. Richard1
    Posted March 20, 2014 at 7:19 am | Permalink

    The pathetically inadequate response of Mr Miliband and Labour was also remarkable. Miliband went on about falling living standards – does he understand the definition? What would he expect other than flat or falling income per head with flat GDP following a recovery from the biggest bust in UK history and a rising population (due to Labour’s immigration policy)? He thought it appropriate in a response to the budget to talk about Mr Cameron having appointed advisers who went to Eton. That must mark an intellectual low by an opposition leader in UK political debate, and a complete lack of anything useful to say. The best another Labour spokesman could manage is we should expect interest rates to rise this year. Let’s hope so! We have had quite enough distortive quantitative easing. Labour’s economic policy , to the extent they ever had one, has been shot to pieces.

    • arschloch
      Posted March 20, 2014 at 10:26 am | Permalink

      Well what else could Milliband say? The substance of a Labour budget would not be any different. However looking at Osborne’s decision to let pension plan holders “liberate” their funds at retirement makes me think you have nothing to worry about with Balls as Chancellor. He could not be more inept. Hopefully this bright idea will quickly vanish like Labour’s earlier idea of allowing SIPPs to invest in residential property. Anybody who thinks this is a good thing is going to have to realise that the same sort of people who got themselves into trouble believing property just goes up and up in value are now going to be allowed to pee away their pension fund from day one. After that they will then become a burden on us who do the right thing consistently and get eff all for it.

      • Richard1
        Posted March 20, 2014 at 8:51 pm | Permalink

        That is a very negative view. The alternative is to say that if people have more autonomy over their finances they will behave rationally. They will also favour sound economic policy,low inflation, controlled expenditure etc. Of course there will be some losers, there always are. What we need to move towards now is mandatory pension saving, but with people in charge of what they are invested in. Its worked well in Chile and elsewhere.

    • A.Sedgwick
      Posted March 20, 2014 at 12:29 pm | Permalink

      I thought the Deputy Speaker could have stopped Miliband hectoring Cameron and Osborne on the possible future of the 45% tax rate. It was very poor form under the parliamentary rules and his trying to circumvent them with demands for head nodding/shaking summed up his woeful performance.

    • Anonymous
      Posted March 20, 2014 at 5:24 pm | Permalink

      That George Osborne has managed to bring unemployment down despite there being more job hunters is a miracle.

      He couldn’t impose real austerity if he wanted to. There would be too much civil unrest.

      Most of the blame lies with Labour.

      • Richard1
        Posted March 20, 2014 at 8:53 pm | Permalink

        Indeed the employment stats are very positive. Its 5% higher in the EU. Of course with the great Labour bust and recession, and then with the Euro crisis on top it was always going to be slow going to get recovery. But people will focus on the outlook. Miliband had nothing constructive to say at all.

      • uanime5
        Posted March 20, 2014 at 9:52 pm | Permalink

        That George Osborne has managed to bring unemployment down despite there being more job hunters is a miracle.

        Not it’s an example of massaging the figures. Firstly anyone on the 2 year long Work Programme or 6 month long workfare isn’t considered unemployed, even though they’re still claiming benefits. Thus the government can remove millions of people from the unemployment statistics.

        Secondly 80% of the new jobs have been created in London. As a result the recovery has not been felt throughout the UK.

        Thirdly most of these jobs are low paid, zero hours contracts, part time, or self-employed. So even if you get a job its unlikely to pay well.

        As a result the Conservatives are unlikely to get extra votes for the falling unemployment.

    • uanime5
      Posted March 20, 2014 at 9:45 pm | Permalink

      Miliband went on about falling living standards – does he understand the definition? What would he expect other than flat or falling income per head with flat GDP following a recovery from the biggest bust in UK history and a rising population (due to Labour’s immigration policy)?

      The failure of the Conservatives and Lib Dems to reduce the harm caused by this recession, and the ways in which they made it worse for those on low wages and the unemployed are their failings; not the failing of Labour. So the Conservatives can expect to lose votes if people feel that Conservative policies have made them worse off despite Osborne constantly talking about how his policies have brought about a recovery.

      • Richard1
        Posted March 22, 2014 at 9:47 am | Permalink

        No the best thing the govt can do in response to a recession – caused of course by Labour – is to promote business investment and employment. That there are more people than ever in work and that unemployment is c 5% below the EU average shows this govt is doing much more for low income people than a welfare crazed leftist govt would do.

  5. Andyvan
    Posted March 20, 2014 at 7:41 am | Permalink

    Here we go again, government spending helping growth. The old chestnut that has done so much to take Britain from the richest country on earth to a province of Brussels.
    All government money is stolen from present or future generations of people who are entirely capable of spending it more productively than any government that has ever existed. Once stolen it is redistributed by the most inefficient systems possible to many different levels of undeserving people (most obviously politicians, bankers and other cronies) and many stupid projects like the Olympics or HS2.
    Public spending has never contributed to the wealth of this country and is only counted as doing so because it benefits the state and it’s hangers.
    If you want reality in economic reporting then count all state spending as a negative because that’s what it is.

    • Richard1
      Posted March 20, 2014 at 8:37 am | Permalink

      I do not think that the free-market side will win political debate or elections with arguments like this. Of course public expenditure makes a contribution to GDP. Of course there are some services which a society freely and democratically chooses to organise collectively. The armed services for instance. We want some public services so we have a viable state which can ensure the rule of law, the safety of its citizens, provide some safety net for those who fall on hard times for whatever reason, and provide other public services which we value and prefer not to be forced to do for ourselves.

      We need to fight the battles we need to win. We need a sensible level of state expenditure and taxation as a proportion of the total economy – at the moment its too high – and value for money in the public sector. No-one will listen to arguments that the whole thing should be shut down.

      • lifelogic
        Posted March 20, 2014 at 10:36 am | Permalink

        We need a sensible level of state expenditure and taxation as a proportion of the total economy.

        20% of GDP is about right it would anyway then be a much larger GDP. Law and order, a working legal system, rubbish collection, roads, police and defence, not much more is needed. Deregulation is a free lunch for everyone (except the regulators) but Cameron’s socialist pro EU coalition is still regulating even more.

    • Lifelogic
      Posted March 20, 2014 at 8:58 am | Permalink

      When I invest my money in my businesses I perhaps get an average return over the year of about 20%PA – so doubling in 3.5 years. When government “invest” it (things like HS2, PV, wind, pointless wars, parasites, propaganda etc.) they nearly always get net negative returns. They have little interest in returns as it is not their money.

      Let the people who made the money invest it, they are clearly far, far better at it.

      • Lifelogic
        Posted March 20, 2014 at 11:13 am | Permalink

        The pension reforms are most welcome the current restrictions and 55% tax are absurd. But let us see the details. The problem with all pension investment is that you invest on one basis and then Gordon Brown or Osborne just move the goal posts or the company managing it robs you.

        We might now put more into our pensions only for Mr Miliband & Balls to balls it all up again in 2015. Pension are a 20-70 years or so investment who knows what grasping politicians will do, over that time, to make a mess of them?

        Osbornes new reduced cap of £1.25M is far too small. Needless to say there are “special rules” for some in the state sector. Did he mention IHT and his ratting?

      • Leslie Singleton
        Posted March 20, 2014 at 11:15 am | Permalink

        Lifelogic–Best I (don’t) understand, negative returns are perfectly satisfactory when it comes to totting up GDP; so that enormous decisions can be made based on this daft statistic when movements in it are mostly less than negligible, and that’s without even thinking about margins of error

      • Anonymous
        Posted March 20, 2014 at 5:26 pm | Permalink

        Labour party members should be made to pay tax at 60%

        • Lifelogic
          Posted March 21, 2014 at 6:43 am | Permalink

          Certainly on some bloated state sector/bbc pension 60% would be sensible.

        • Bob
          Posted March 21, 2014 at 8:47 am | Permalink


          Labour party members should be made to pay tax at 60%

          Yes, that would be leading by example. Same goes for the BBC, but I suppose that’s already covered under the criteria “Labour Party members”.

    • uanime5
      Posted March 20, 2014 at 9:57 pm | Permalink

      Here we go again, government spending helping growth. The old chestnut that has done so much to take Britain from the richest country on earth to a province of Brussels.

      Actually that was due to fighting in two world wars.

      All government money is stolen from present or future generations of people who are entirely capable of spending it more productively than any government that has ever existed.

      Care to provide some evidence to back up these claims. If companies spend money so effectively why are they so reluctant to invest in health and safety even when an accident can bankrupt them (such as an airline not properly maintaining their planes)?

      Public spending has never contributed to the wealth of this country and is only counted as doing so because it benefits the state and it’s hangers.

      What about all the roads, railways, schools, hospitals, and power companies? Businesses wouldn’t be able to exist without this state spending.

      • Edward2
        Posted March 21, 2014 at 10:26 am | Permalink

        “Care to provide some evidence to back up these claims” is a phrase you often use Uni so can you do the same for your assertion that airline companies are reluctant to invest in safety and do not properly maintain their planes?

  6. zorro
    Posted March 20, 2014 at 7:46 am | Permalink

    Yes, stated growth and improving tax revenues have been assisting in bringing the annual budget deficit down…..but we are still borrowing an awful lot, and some of the public spending increases have been misdirected instead of applying sensible reforms to bring down costs and encourage more personal responsibility.

    ‘Far from causing low growth or no growth as the opponents of austerity have argued, public spending has made a positive impact to total output and incomes since 2010.’…… I don’t think opponents have been saying that! They would say that public spending increases have been the cause of any growth in the economy (output and incomes). I would argue that it is economic reform and the ease with which you can create businesses and promote growth through economic activity is far more effective (and efficient) than public spending in improving the health and wealth of the nation.

    zorro

    • stred
      Posted March 20, 2014 at 8:43 am | Permalink

      Government also adds to ‘growth’ by increased cost of regulation. For instance, the tightening up of emissions for vehicles leads to costly repairs or scapping and more sales. Giving LAs the right to licence small houses as HMOs in ‘problem’ areas has allowed them to create departments with many EHOs roaming around whole inner city areas looking for non-compliance and insisting on fire precautions, kitchen extensions and other measures, often costing around £20k per property, then fines around the same figure for failing to comply. This is despite the government ENTEC report showing that small shared houses are no more dangerous than similar family houses. The costs of taxation, pension and H and S regulations may require many extra hours or work and accountancy costs for small businesses. The costs of the new thermal regulations for new and existing housing is huge.

      All the above add to GDP and make things look rosy, with more tax coming in. However, in many cases the benefits are minimal.

  7. Nick
    Posted March 20, 2014 at 8:07 am | Permalink

    Of course nothing like that is happening, as all elected politicians agreee you cannot cut that sort of money out of the budgets given the importance of many public services.

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

    http://www.if.org.uk/archives/2031/ons-reveals-full-uk-pension-liabilities

    The results showed the extraordinary sums that Britain has committed to pay its future retirees. In total, the UK is committed to paying £7.1 trillion in pensions to people who are currently either already retired or still in the workforce.

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

    7,100 bn of debt hidden off the books. Annual rate of increase of 734 bn

    http://www.ons.gov.uk/ons/dcp171766_263808.pdf for the rate of increase.

    ===========

    You are going to be force to make cuts and make cuts so large that its going to lead to social unrest.

    All because you hide the debts off the books like Bernie Maddoff for the exact same reasons.

    • Leslie Singleton
      Posted March 20, 2014 at 11:22 am | Permalink

      Nick–Dusting off my FCA hat, you need to define what you mean by “Debt” and when you have done that and decide you want to include everything payable even in the future you would of course have to do the same with the relative Income, which you are ignoring entirely. Things perhaps don’t seem quite so bad then.

  8. Nick
    Posted March 20, 2014 at 8:08 am | Permalink

    Growth has always been the main requirement to help correct the large imbalances in the economy without pushing it into a deep recession.

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

    You’re in la la land.

    The pensions deficit is 734 bn per year. (2005-2010)

    Total tax now is 600 bn

    Total spending now is 722 bn

    You need over 100% growth immediately to stop that going wrong.

    • Lifelogic
      Posted March 20, 2014 at 8:50 am | Permalink

      Do not forget that the existing £1Trillion + of total UK national debt is however being reduced in real terms by circa 3% inflation. Thus halved in about 23 years.

      • Gary
        Posted March 20, 2014 at 2:22 pm | Permalink

        Yes, the state is inflating away its obligations, but it is also inflating away savings and pensions, by more than the risible tax relief that was proposed in the budget, and these soon-to-be poor savers and pensioners then become dependent on the state ! Or if the state cannot pay then they become homeless(more likely). Their reward for prudent financial planning. It galls me that people around who know or care absolutely nothing about planning for the future and just become recklessly indebted are the winners. The argument can be made that a prudent financial planner should have anticipated the kleptocracy of the state, cast their principles aside, and joined the recklessly indebted and reaped the rewards.

        • bigneil
          Posted March 21, 2014 at 12:26 am | Permalink

          You are forgetting the other group who benefit most. The foreign freeloader. All they have to do is walk into this country and say the magic words, which entitle them to money, housing, NHS, schooling, translators and legal aid lawyers. If they can’t speak English they are effectively unemployable due to being unable to understand Health and Safety rules. They will never work, never learn the language ( why should they), and only take from the system. And when they get to pension age – what happens? They will not get what others will, but get something they will. The human rights act will see to that.
          If you stop giving free lives to those that come to sponge, get rid of the hate preachers, get rid of the foreign criminals here on asylum, get rid of HS2, stop giving the EU £55m a day, stop throwing money away on “projects” that always end up going way over budget. Its about time the govt started behaving responsibly with our taxes instead of the current attitude of “its not mine so I don’t give a damn about it”. Stop wasting for a start. Or doesn’t the govt want the respect of the people ?

        • Jennifer A
          Posted March 21, 2014 at 7:28 am | Permalink

          Gary – It is counter intuitive to join the recklessly indebted. Few of us can bring ourselves to do it. We simply cannot enjoy the present without having made provision for the future first.

          This is key to the continuation of civilisation.

      • Mark
        Posted March 20, 2014 at 8:41 pm | Permalink

        Debt is still increasing in real terms faster than inflation. We’d need the deficit to be below £36bn on £1.2 trillion of debt and 3% inflation before it would erode in real terms.

  9. Lifelogic
    Posted March 20, 2014 at 8:17 am | Permalink

    Osborne thinks that people (who have saved over years into their pensions) are responsible people who should be allowed to have access to their own pension savings and to make the right choices. Indeed they should, they earned the money after all. They might want to clear their mortgages or debts or help their children buy a property perhaps.

    The problem is that governments in general and Cameron/Osborne cannot be trusted with money at all. The piss it away on HS2, daft train subsidies, white elephant Olympic buildings, subsidies for expensive wind and PV energy absurdities, carbon capture nonsense. counterproductive damaging wars, electric car subsidies, over paid and pensioned bureaucrats doing little of any use, government propaganda, the BBC, an incompetent NHS, poor schools, childish gimmicks like no IHT for people who die in the line of duty, the EU and endless other absurd drivel.

    It is this government (and indeed most governments) that cannot be trusted not the public they on balance make far better decisions. It would be hard not to.

  10. Brian Tomkinson
    Posted March 20, 2014 at 8:53 am | Permalink

    JR: “When people hear that 80% of the task of deficit reduction comes from spending cuts,”
    Let us remember that it was Osborne who made that claim as long ago as the last election. After reading your analysis of the 2010 Osborne budgets I realised that we had been conned and since then determined not to vote Conservative ( I would never consider voting Labour or Lib Dem). If “all elected politicians agree you cannot cut that sort of money out of the budgets given the importance of many public services” why don’t they say so? Are MPs so used to saying black is white that they can’t help themselves in their mendacity? Don’t they realise that public trust is based on honesty? Clearly all the three main parties in Westminster can be characterised as tax, borrow, waste, spend and subservience to the EU.

    • Lifelogic
      Posted March 20, 2014 at 2:42 pm | Permalink

      If “all elected politicians agree you cannot cut that sort of money out of the budgets given the importance of many public services” why don’t they say so? .

      Indeed perhaps because politicians almost never say what they actually think. They say what focus groups say they should say to win votes.

      Of course they could cut that sort of money out easily, just pay the state sector 2/3 of the current sum (more like the state sector levels) then fire the 50% that do little of use or do positive harm, reduce the payments to the feckless, kill idiocies like HS2, the green religion subsidies …..

  11. ian wragg
    Posted March 20, 2014 at 10:08 am | Permalink

    When the next housing bubble bursts as it surely will, Gideons “Help to Buy” scheme will be seen for the economically stupid gesture it really is. Taxpayers will be left responsible for the portion of debt that cannot be serviced after interest rates rise and more money printing will follow to fund government largesse.
    This is the economics of the playground from a truly socialist government. Tax, spend and waste.

    • Iain Gill
      Posted March 20, 2014 at 4:23 pm | Permalink

      You mean the current housing bubble surely?

      Which will be inflated even more by desperate people cashing in their pensions to buy property.

      • Jennifer A
        Posted March 21, 2014 at 7:35 am | Permalink

        This is the point of child care allowances too. To keep dual mortgages going to inflate the housing market further.

        House buying, house building – and moving North and South a bit faster seems to be the plan for economic recovery.

        Willesden Junction (gritty gangster country) a 1 bed flat in an already small a terraced house – £460,000.00. A 2 bed flat above a mini market … £900,000.00 !

        They tell us there is no property bubble.

  12. Bert Young
    Posted March 20, 2014 at 10:14 am | Permalink

    The figures make dismal reading ; after all the promises , vacuous political statements , we are still borrowing far beyond our means . I accept that if Labour had been at the helm during the past four years the situation would have been worse , but , no amount of bravado at the dispatch box can hide the fact that the economy is still in a mess and the strong leadership is not there to get us out of it . Steel guts and rugged determination is necessary to put a stop to the excessive public sector borrowing . Where will this leadership determination come from ?. The news today reports we are – with the USA , going to get involved with joint military games in the Ukraine ; for goodness sakes drive some sense into the heads at Whitehall ! it can only lead us into further real very costly trouble .

    • Leslie Singleton
      Posted March 20, 2014 at 11:25 am | Permalink

      Bert–Relax, everything will be all right, but only in about 5 years as usual. As I have said before Osborne is doing well but only at about 50% intensity

  13. acorn
    Posted March 20, 2014 at 10:20 am | Permalink

    I said yesterday that number crunchers were looking for Osborne Plan B and that some had already occurred, but it has been carefully hidden. The Oxford Uni boys have crunched the numbers at http://mainlymacro.blogspot.co.uk/2014/03/i-got-to-third-sentence-of-osbornes.html .

    This budget, is the classic about turn point of every slash and burn (the public sector) conservative parliament. The point when it becomes obvious that repeating Plan A again, didn’t work, just like it didn’t work the last three times the conservatives tried it. Take the UK off-shore oil for instance; taxed it to a halt in 2011; reversed it all yesterday; Doh!!!. Carbon credits (EU-ETS); reversed the plan after one year because the EU-ETS scheme isn’t working he says. He must be the only guy in Europe who didn’t know it wasn’t working in 2010!

    The ISA stuff, like 80% of his budget, was economically irrelevant and will cost the Treasury nothing; no savers; no interest. The pension liberation move is a time bomb that won’t go off till Osbo’ has long gone.

    And you can repeat all of the above in May 2015, whoopie. But the sound bite that demonstrates the irrelevance of carefully picked out of context numbers, has to be “buy 360 pints of beer and get one free”.

  14. Iain Gill
    Posted March 20, 2014 at 10:31 am | Permalink

    I just feel like the country is being run by a bunch of boy scouts, the performance of the political class is little better than that.

    Probably we do need a big shock to wake us from this nonsense.

  15. Mike Stallard
    Posted March 20, 2014 at 10:41 am | Permalink

    I fully understand that Europe is interfering and loading business with unnecessary red tape. I also understand the free movement of people and goods round our country – Europa – cannot be questioned.

    What I do not understand is the way that Mr Osborne seems to have made no attempt to reform Gordon Brown’s huge tax book of over a thousand pages. Wouldn’t income increase dramatically if tax were made really simple? I should have thought that anyone who can afford a really good accountant can wriggle out of an awful lot of taxation if they want to. I have a friend who is connected to offshore accounts where several rather surprising people seem to have a nice little nest egg. And they aren’t all Tory either…

  16. Lindsay McDougall
    Posted March 20, 2014 at 12:40 pm | Permalink

    Public expenditure has been rising in cash terms. After allowing for inflation, it has been more or less flat in real terms. Since GDP started rising, public expenditure has started to decline as a proportion of GDP.

    One way of interpreting the 80%/20% rule is to reduce public expenditure from 49% of GDP to 41% of GDP and increase taxation from 38% of GDP to 40% of GDP.

    Debt interest can only be capped by stopping the rise in total government debt, since interest rates will slowly move against us.

    Government to government foreign aid often results in corruption or in conflict between the aid donor and the receiving national government as to which is the best project. It shouldn’t be a sacred cow.

    Because of our ageing population, it will be difficult to stop health expenditure rising, although it would help if politicians and the medical profession accepted that death is inevitable and stopped trying to extend life artificially. It is because of the artificial extension of life that more and more people – and their carers – are suffering from Alzheimer’s disease. And it’s time that we charged £20 or so for visits to A&E, and charged for missed appointments.

    Welfare is being reduced and can be reduced further. Once the benefit cap is fully operational, reduce its value and ensure that no-one on the minimum wage pays any income tax. Carrot and stick. And let’s ensure that all pensioner perks are subject to income tax (details were in an earlier post).

  17. REPay
    Posted March 20, 2014 at 12:43 pm | Permalink

    “There is a big gap between what the experts say and what is going on.”

    Until the Conservative Party gets a narrative right and makes it stick as to what happened in the crash (you have all the elements in these blogs and your book on the crash). To date the majority of voters, including many intelligent people, believe the crash was entirely the fault of bankers and markets. Labour will win unless this is urgently addressed. (It seems very unlikely this will happen so long after the event.)

    On another matter, will you give some thought to a UK without Scotland or is that tempting fate? (I don’t see how there can be a UK without Scotland, by the way.)

    • Max Dunbar
      Posted March 20, 2014 at 9:20 pm | Permalink

      In addition to thoughts about a UK without Scotland, would Dr Redwood consider coming up here to speak on the economics of separation to the Scots themselves? We have just been given the predictably dreadful Old-Labour rant from that jumped up ‘teacher’ Johann Lamont about punishing the rich to pay for the poor. How can Cameron seriously be considering handing over more fiscal power to these irresponsible, unimaginative old Marxists if there is a NO vote?

      And before Salmond puts a travel ban on you for being English and interfering in Scotland’s affairs Dr Redwood I, a Scot, am inviting you to come here.

      Reply Thank you for the invitation. Accepting would depend on who the audience would be and the dates. I am not looking to make a speech as part of the No campaign and I doubt they would want me to.

    • uanime5
      Posted March 20, 2014 at 10:04 pm | Permalink

      To date the majority of voters, including many intelligent people, believe the crash was entirely the fault of bankers and markets.

      It was, that’s why the recession affected the entire world rather than just the UK.

  18. Tedg0
    Posted March 20, 2014 at 1:13 pm | Permalink

    I see that HMRC are now going to be able to raid your bank accounts without a court order, if they think you owe them money.

    http://blogs.telegraph.co.uk/technology/willardfoxton2/100012871/did-you-spot-this-budget-gives-hmrc-power-to-raid-your-bank-account-like-wonga/

    Lets hope our MP’s short this one out.

    • Lifelogic
      Posted March 20, 2014 at 2:51 pm | Permalink

      Sounds rather typical of HMG, hopefully the department concerned will be a rather more competent than HMRC usually are nowadays.

      They could perhaps improve a little be starting to answer letters and their expensive 0845 telephone lines occasionally. Preferably with people who actually know what they are doing.

      • alan jutson
        Posted March 21, 2014 at 9:44 am | Permalink

        Lifelogic

        It simply extends the guilty until you prove your self innocent policy that has been the HMRC policy for some years with regards to fines for so called late returns, so called underpayments etc.

        The only difference.

        It would seem that they can now access your accounts direct, I guarantee you will not be able to claim back any expenses should you successfully contest such action.

        This worrying policy really does need to be debated in Parliament John.

        I thought under the so called constitution (yes I know we do not have a written one) you are innocent until PROVEN guilty.

    • stred
      Posted March 20, 2014 at 3:01 pm | Permalink

      Typical of Cameron and Osborne. To slip this through is the most disgusting measure yet. Yet worse to come. he only way is out, or operate cash only.

    • alan jutson
      Posted March 20, 2014 at 3:20 pm | Permalink

      Tedgo

      “….Raid your Bank Accounts….”

      The devil is always in the detail with these Budgets.

      I absolutely agree, this is a very worrying development/proposal.

      • alan jutson
        Posted March 20, 2014 at 3:29 pm | Permalink

        Absolutely agree that the illusion of an 80%-20% split simply has not happened, as is proven by the increased Government spending.

        To rely upon growth of tax receipts as a primary means of resolving our problems, is to bury your head in the sand with regard to the problem which got us in this mess in the first place.

        I can only guess that our Prime Minister and Chancellor either did not have the balls, brains, or inclination to do as they originally proposed after looking at the books in more detail.
        Tthat or they were afraid of the consequences.

        I have no problem with any of the above if they would simply admit to their reasoning, but to spin that cuts have happened, that more are required, and take all of the flack that goes with that policy, is simply daft in the extreme.

        To give the opposition fictional ammunition to beat you over the head, time and time again, is simple political lunacy.

        • uanime5
          Posted March 20, 2014 at 10:07 pm | Permalink

          Osborne initially planned to borrow huge amounts of money, wait for the economy to grow, then be able to cut taxes due to all the extra tax revenue. The result has been years of stagnation and high borrowing. So due to lack of growth the 80-20 split didn’t work.

          • alan jutson
            Posted March 21, 2014 at 9:38 am | Permalink

            Uni

            Really !

            So if he planned to borrow HUGE sums of money as you suggest, what action did he take to do so which failed in those preceding years.

    • Mark
      Posted March 20, 2014 at 8:50 pm | Permalink

      Indeed, a very worrying development. They have a habit of trying it on and/or making mistakes in their favour – particularly when they are given bonuses for increasing their collection of tax.

  19. Neil Craig
    Posted March 20, 2014 at 1:47 pm | Permalink

    not convinced that you can’t get elected by promising to cut spending – the Tories pretty much promised that at the last election, though they didn’t carry through. Nor that cutting government spending means cutting services. Most government spending is not on providing services but paying government employees and their friends. Windmills, “independent” environmental committees, inspectors to ensure there is no smoking in pubs and childcare regulators do not provide services – the best of them provide nothing, and the worst massively increase the costs of real workers.

    If we had a right of referendums, like Switzerland I am quite sure the people would vote, overwhelmingly, for establishing a much lower limit on government spending than the current nearly 5o% of gdp. I don’t think any politician would be risking re-election by offering that.

  20. yulwaymartyn
    Posted March 20, 2014 at 1:57 pm | Permalink

    Slightly different note: three times this week I have been asked by building contractors that they will have to add VAT to a bill if I want a receipt. Of course I want a receipt for our accounts. I am getting a bit fed up that this can seemingly be said with such alacrity and ease. Any views anyone? JR – any thoughts?

    • APL
      Posted March 21, 2014 at 9:24 am | Permalink

      yulwaymartyn: “Any views anyone? JR – any thoughts?”

      The black economy will grow as working in the legitimate economy becomes ever more onerous.

      The solution is to make it less burdensome to work in the legitimate economy, cut regulations, cut taxes, it’s the usual recipient.

      It probably doesn’t help that many contractors may be foreign and have no particular affinity for this country, other than a milch cow. They are here to make money, and don’t particularly see why the State should take any of it.

      • APL
        Posted March 21, 2014 at 9:25 am | Permalink

        “it’s the usual recipient.”

        It’s the usual recipit.

  21. Bob
    Posted March 20, 2014 at 2:18 pm | Permalink

    Para 1.208 of the Budget Report
    The government will modernise and strengthen HMRC’s debt collection powers
    to recover financial assets from the bank accounts of debtors who owe over £1,000
    of tax or tax credit debts, have the financial means to pay, and have been contacted
    multiple times by HMRC to pay
    . A minimum of £5,000 will be left across debtors’ accounts.
    This brings the UK in line with many other tax authorities which already have the power to recover debts directly from an individual’s account, such as France and the US.

    This will be abused. I recently had a letter telling me that I owed over £1000 and when I called to get details they couldn’t tell me! They said it could have been an internal error on their side.

  22. Leslie Singleton
    Posted March 20, 2014 at 3:56 pm | Permalink

    It’s all very well Osborne saying, “Trust pensioners”, but the big problem with that is that it isn’t a “trust/distrust” decision. I would have thought it plain as a pikestaff that SOME pensioners, those with more, but soon less, money than sense, are going to go on cruises and buy large plasma TV’s and the like and in next to no time will be pleading hardship and all the rest. Annuities are no fun either (Believe me I know): is it not possible that some sort of halfway house could be instituted, such that more than now, but not all, can be immediately cashed in or maybe that the pot cannot be cashed in all at one time–perhaps a year between two halves?? Especially should something like this apply for those choosing to retire early.

  23. Posted March 20, 2014 at 4:51 pm | Permalink

    So how is the deficit being brought down? It is coming down for one simple reason – tax revenues are rising.

    Is anyone surprised by this? Does anyone really think that governments can cut spending and raise taxes and the deficit will be reduced in anything like a predictable way?

    Government deficits tend to do what they will. If governments cut spending and raise taxes in an attempt to reduce them during times of recession, economic activity falls. Tax revenue falls. Demands for non discretionary spending rise. Their deficits end up no better than they were and can be worse than they were. Economies end up much worse than they were.

    The only way to reduce a deficit is to work on getting the economy functioning properly again. An active economy will generate much higher tax revenues than a sluggish economy. There will be less need to for social spending.

    It should also be recognised that a government deficit is also related to the external trade deficit. Money leaves the economy to pay for imports. The Government then retrieves that money by the sale of securities on the international market and recycles it into the economy by deficit spending.

    Germany, a country which has at least as large a government as the UK proportionally, quite comfortably manages a balanced government budget. So the question of balance isn’t related to size of government or the amount of social spending by that government. Germany does have a 7% external surplus. Its citizens are prodigious savers. Their saving just about equals the surplus coming into the country. Therefore the German government are correct to have a balanced budget.

    If the UK government want a balanced budget the country needs to be a net exporter too. The economy will suffer if the government push too hard on deficit reduction and ignore the trade position. Having said that it must be recognised that not everyone can be a net exporter. There isn’t anything wrong with being a net importer providing it can be financed as the UK finances its deficit.

  24. Kenneth R Moore
    Posted March 20, 2014 at 8:22 pm | Permalink

    Lord Redwood,
    Not very ‘incisive’..this is just a party election broadcast on behalf of the Conservative party.
    From discussing the perils of ‘consensus’ you have made the surprising observation that ‘ all elected politicians agreee you cannot cut that sort of money (the deficit) out of the budgets given the importance of many public services’. If this isn’t a concensus that doesnt stand up to scrutiny i don’t know what is.

    Nobody is suggesting that the budgets should be cut immeadiately by those amounts..but what would be wrong with cutting the budget, in real terms ,by 5% or 10% year on year…..instead of INCREASING them. Are there no efficiency’s to be made?

    I thought Conservates were supposed to believe that individuals can spend their own money better than the state.. they are also supposed to believe there isn’t a direct relationship between the quality of public service and the amount of money thrown at them. Would it be so bad if we went back to 2003 or 1999 spending levels ?.

    We no longer have a properly functioning economy, we have a ponzi scheme. More borrowed (and printed) money is shovelled into the economy by Osborne with the hope that some comes out as GDP growth and tax revenue.
    How many pounds of borrowed money does the hopelessly inefficient state need to buy £1 of growth ?.

  25. Posted March 20, 2014 at 9:25 pm | Permalink

    Funny that BBC/Labour think the “bingo” message is condescending but they do not think that it’s condescending to worry that pensioners will blow their lump sum.

    The only person who will blow all our money is Ed Balls if he is ever allowed to be chancellor.

  26. uanime5
    Posted March 20, 2014 at 10:09 pm | Permalink

    Far from causing low growth or no growth as the opponents of austerity have argued, public spending has made a positive impact to total output and incomes since 2010.

    We had 3 years of low growth during these periods of austerity, which only ended when Osborne abandoned austerity and introduced the Keynesian stimulus known as the “help to buy” scheme, which encouraged people to take on more debt and inflated house prices.

    It is coming down for one simple reason – tax revenues are rising. The idea of the gradual programme is to make the task easier, by allowing more tax revenue to arise naturally through the growth of the economy.

    Where exactly are these extra tax revenues coming from? It’s unlikely to be from increased employment because most of these jobs pay so little that people claim more in benefits than they pay it taxes? Perhaps it’s from the increased salaries and bonuses those in the financial sector keep paying themselves.

    Where the government has tried higher tax rates on income and capital gains it has actually damaged the revenues, not increased them.

    What about the 50% tax rate which raised several billion pounds?

    Growth results from change to the economy, with more successful and more helpful activities increasing.

    Growth in the USA resulted from Obama pumping huge amounts of money into the economy. By contrast in the UK our austerity resulted in years of stagnation.

    One thing I noticed in the budget was that Osborne plans to cap welfare by putting a limit on the total amount that can be spent on housing benefit and tax credits. Given that his “help to buy” scheme is causing house prices to rise and the increasing number of people in low paid jobs means more people are eligible for tax credits this cap is almost certainly going to be breached.

    Reply Labour supports the benefits cap.

    • Edward2
      Posted March 21, 2014 at 10:39 am | Permalink

      Uni
      You ask “where are all these extra tax revenues coming from”
      Well here is the Government’s figures for you:-
      http://www.hmrc.gov.uk/statistics/receipts/disagg-method.pdf

      Despite your negative assertions on low pay jobs and the 50p rate, income tax is up, as is tax from NIC’s
      The report shows taxes like Capital Gains and fuel duty has fallen, perhaps due to the percentage rate being too high.

      PS growth in America is said by many economists to be due to their energy prices falling to half those in Europe

      • Posted March 22, 2014 at 8:56 am | Permalink

        Edward2,

        You’re right. Tax revenues have increased. These will increase as the economy recovers. The economy will recover when people have more to spend. Every £5 note , or whatever, that anyone has in their wallets comes from the government. You probably don’t like that idea but if you can think of a single exception to that statement it can only be if the note turns out to be counterfeit!

        Many so-called economists don’t like to see the success of Keynesian economic policies in the USA so they look for alternative reasons to suit their ideology. Of course energy prices are important, but there are other factors too. France, which has a good energy policy, IMO, with 80% + of their energy produced safely and cheaply from nuclear power, nevertheless has an unemployment rate which is double that of Germany’s which has a very poor energy policy. At least IMO.

        • Edward2
          Posted March 22, 2014 at 7:25 pm | Permalink

          Its not that I don’t like that idea Peter, its just that your assertion that every £5 note you have in your wallet comes from the government is difficult to agree with.
          Yes they have a monopoly on issue and printing but if I do an hour of labour for someone it is me who creates value by my efforts
          Whether I choose to accept some goods in exchange or some money it makes no difference it is me who creates that not the Government.
          I agree the USA had other things in place apart from recent abundant cheap energy and I see France with its destructive socialist policies throwing away their own advantages of available nuclear power.
          But we are back to a distorted version of Keynsian economics where any level of borrowing taxation and Government spending can be analysed as a good old fashioned, virtuous stimulus.

          • Posted March 24, 2014 at 2:17 am | Permalink

            Yes I would agree that those who do the work create the wealth. And its still an observable fact that government creates money. It has the political power to do so and the political power to levy taxes.

            So does that mean government creates all wealth? No it doesn’t. Because wealth isn’t the same thing as money. Its obvious when you think about it but 99.9% of the population would think the two terms were synonymous. Money is rather the medium of exchange of wealth.

            Governments have an obligation to run the economy as efficiently as possible to minimise waste and maximise wealth creation. Having millions of unemployed workers and idle factories is an obvious waste of resources. A failure to see that money and wealth aren’t at all the same thing leads to the mess we are in now.

            Fortunately, during the last war, we had JMKeynes around to explain all this. Otherwise we certainly would have lost. We’d have had idle workers, idle factories and Spitfires wouldn’t have been built because the bean counters would have said there was no money to pay for it all.

  27. Charles Callum
    Posted March 21, 2014 at 2:48 pm | Permalink

    Could Mr Redwood please give an example of where the coalition has “tried higher tax rates on incomes and capital gains”, because I’m not sure there have been that many at all?

    Reply They confirmed the 50% rate of Income Tax and put CGT up from 18% to 28%

  28. Lindsay McDougall
    Posted March 21, 2014 at 3:32 pm | Permalink

    Your bloggers have just raised the matter of HS2 again. Mr Redwood, please ask the Transport Minister two questions and demand answers:

    (1) If we are really generous and treat all the construction and rolling stock costs as sunk costs, will HS2 make money on a day to day basis, i.e. with revenue exceeding O&M costs? (A ‘yes’ or a ‘no’, please)

    (2) If the answer is ‘yes’, will HS2 make sufficient revenue to cover not only O&M costs but rolling stock replacement costs? (Again, a ‘yes’ or a ‘no’, please)

    The public is entitled to know.

    Reply The figures have all been published. It will be a loss making railway.

  29. Martin
    Posted March 21, 2014 at 9:01 pm | Permalink

    I’m sure we are all delighted to hear that the age of austerity hasn’t reached the Bank of England. £8000 on Champagne!

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10715427/Bank-of-Englands-champagne-bill-doubles.html

  30. Posted March 22, 2014 at 4:31 am | Permalink

    Mr Redwood,

    ” Far from causing low growth or no growth as the opponents of austerity have argued, public spending has made a positive impact to total output and incomes since 2010.”

    You’ve got this the wrong way around. The opponents of austerity agree that public spending makes a positive impact. The more the spending the greater the impact. The WW2 generation saw this happen right in front of their eyes as public spending on the war effort made unemployment disappear in a just a couple of years.

    They economic consensus in the immediate postwar period was that full employment was possible at all times. Not just when the priority was to kill people. This was is basis of Keynsesian economics which sees spending by government as issuing money into the economy.

    I would say mistakes were made and Governments tried to define full employment as 2%, in the 60’s, when they really should have set a higher figure. Maybe 4 or 5% on the old scale. About 3% on the new scale. Therefore inflation was allowed to get out of control. But that doesn’t mean Keynes’s was wrong.

    It doesn’t make any sense to throw out the baby with bathwater. A Sensible stimulus applied now, by reducing taxes like VAT, would be unlikely to carry inflationary risk. It would be easy enough to get unemployment down to about 5% on the new scale. If inflation showed up as a problem then it would just mean the government should back off slightly.

  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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