A cost of government crisis

Talk of a cost of living crisis often degenerates into an attack on the businesses which supply us with energy or other basics. It rarely looks at the architect of many of the high prices, government itself. Nor does the debate regularly include the evidence which shows the worst falls in real incomes occurred at the end of the last decade during the Great Recession.

Take the case of energy. Almost two thirds of the price of petrol and diesel is tax. The last government had a policy of increasing this regularly. The Coalition cancelled the escalators but left in place the high levels of tax already reached as it needed all that revenue from motorists and businesses delivering our food and other needs.

One of the main reasons our domestic fuel bills have been going up is the EU and Labour government policies to shift electricity output from cheaper coal and gas fired plant to very expensive renewables. Delay and opposition to extracting domestic gas and oil has also impeded the arrival of cheaper energy, such that we now pay so much more than the US for fuel to power our factories and warm our homes.

When it comes to the cost of housing, this government has increased Stamp duties. The previous government presided over large rises in Council tax, which have been abated by the present government’s policy of financial help to Councils who freeze their bills. They remain frozen at the much higher levels achieved under Labour.

Extra government borrowing is simply deferred taxation. Those of us who want to complete the job of deficit reduction, and want to see more progress in improving the cost effectiveness of public services do so because we realise that the UK has been suffering from a cost of government crisis. This lies behind the fall in living standards.

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71 Comments

  1. Graham
    Posted June 3, 2014 at 5:53 am | Permalink

    The current policy on expensive renewals is no different from that persued by Labour and is just one of the many areas where this government is no different from the last.

    Not expecting any attempt to reduce any of the above and indeed I hear this morning that it is being proposed that Council Tax be increased for expensive homes – that would be really equitable wouldn’t it.

    • Roy Grainger
      Posted June 3, 2014 at 2:02 pm | Permalink

      The “mansion tax” idea should really be rebranded as a “London tax”.

      • Lifelogic
        Posted June 4, 2014 at 4:27 am | Permalink

        Indeed and many are not mansions at all but tiny properties within a mile or two of Harrods.

  2. Mark B
    Posted June 3, 2014 at 5:57 am | Permalink

    Good post, with much that I agree with.

    As the saying goes; “If you are a carpenter, you see very solution to a problem, involving a hammer and a nail.”

    This can be very much said of Government and the Civil Service. They see a problem, both real and imagined, and somehow think that they are the ones best placed to deal with it, as they are the only ones with the tools and solution – or so they like to think.

    Problem is, this ‘solution’ as they see it, requires a Government Department, a Minister to oversee expenditure, a team of Civil Servants (complete with salaries, pension and benefits) and offices and all the paraphernalia needed. Oh, and not to forget the Parliamentary Committee needed to oversee all this too.

    And this before anything can be done. This costs money, and where does the money for all this come from ? You, me and the people we borrow from and have to pay back.

    The system is design to grow and grow. It cannot reduce itself no more than Turkey’s will vote for Christmas.

  3. Lifelogic
    Posted June 3, 2014 at 6:04 am | Permalink

    Well the Coalition clearly think state sector workers should be paid with pensions 150% more than the private sector and most of them should do nothing useful other than harass and tax the wealth creators. They clearly think it is fair for state sector workers to have pension pots about 6 times the size on average.

    Very expensive renewables but also intermittent and so worth far less as electrical energy cannot be stored cost effectively.

    I see fines for late filing and companies house and HMRC have got nastier so I slight illness or loss of papers can cause you to me mugged for thousands of pound too now.

    The cost of housing are hugely pushed up by planning restriction, tree protection, OTT environmental/disabled access etc. building controls, bat surveys and the likes.

    • Lifelogic
      Posted June 3, 2014 at 6:35 am | Permalink

      The government has also hugely increased the number of tax investigations, it may raise money from some who are fraudulent or have made a mistake with the huge complexity. But for every pound raised it inconveniences hugely very many others distracts them from profitable & productive work (reducing their profits & thus taxes for that period). It also pisses them off hugely. It is very often a net negative for government and the taxpayer.

      The way forwards is to run the government efficiently and stop doing the countless things governments do not need to do (and does then far less efficiently than the private sector would anyway were it not undercut by subsidised government activity). Health, education, social housing, green energy, oversees aid, HS2 as a good start.

      20% of (what would be) a much larger GDP is plenty.

      Perhaps we need every company in the UK to display all their prices as say Petrol £2.30 a litre would be £0.90p without the government overhead or Gin £14 would be 90p without the government overhead, Gardening £10 per hour would be £6 without government overhead.

      Still we are all in it together they keep saying.

    • hefner
      Posted June 3, 2014 at 6:07 pm | Permalink

      From a 2012 business post

      http://www.bbc.co.uk/news/business-15925017

      “The UK has a workforce of 29 million people.

      Some 23 million of these are employed in the private sector. Of these, only 3.2 million contribute to a workplace pension scheme that also includes a contribution from their employer.
      The number of people actively saving in company pension schemes in the private sector has almost halved since 1991.
      The Workplace Retirement Income Commission, which was commissioned to investigate the state of the sector by the National Association of Pension Funds (NAPF), recently reported that millions of private sector workers faced a “bleak old age” because they fell through the cracks of pension provision.
      The remaining six million workers are in the public sector. A much higher proportion of them (about 5.3 million) save in a workplace pension scheme.
      There are also 6.4 million people paying into personal pensions, which have no contribution from their employer. This is the only option for the self-employed.
      The median average salary-linked public sector pension that is currently being paid out to a pensioner, is worth £5,600 a year.
      That compares with £5,860 in the private sector, according to the National Association of Pension Funds (NAPF).
      Using a mean average, some £7,800 a year is being paid in a public sector pension compared with £7,467 for a private sector salary-linked pension.
      But this is where a comparison becomes tricky.
      Some 87% of public sector employees are currently paying into a salary-linked pension scheme, compared with 12% of private sector employees.
      Many of the salary-linked pension schemes in the private sector have been shut by employers.
      Instead, 32% of the private sector workforce, including the self-employed, contribute to personal pensions and other schemes where there is no promise of a particular level of retirement income.
      So the “generosity” of these schemes depend on many variables, including the performance of investments funded by these savings and the state of the market at the time people decide to retire.
      At present, one pensions analyst calculates that a “typical” personal pension pot of £30,000 could buy an inflation-proof annual pension income (called an annuity) of £1,115 a year. ”

      So LL, has the public sector really a median pension 150% that of the private sector?
      Not according to this report: so another one taken from the hat?

      • Lifelogic
        Posted June 4, 2014 at 3:37 am | Permalink

        The 150% is average pay plus value of pension contributions. Comparing average state sector to average private sector. Many in the private sector have no pensions at all (other than the state pension) these are thus included in the private sector average.

        Some in the state sector get almost as much value from their pension pot increase PA as they do in salary.

        This is all supported by the official figures. It is usually defended on the basis that state sector workers are more highly qualified!

      • Lifelogic
        Posted June 4, 2014 at 4:43 am | Permalink

        Derived from figures from the office for national statistics in 2012.

        The average private sector worker has a pension pot of barely £25,000 and the average private sector occupational pension pays out around £3,700 PA. Just the “unfunded” part of the public sector pension scheme liabilities were then equal to £1.2 billion, the equivalent of £33,000 for every household. So a private sector worker has more liability to the rather small % of workers in state sector workers than they have in their own pension pots!

        Many public sector pension schemes are “unfunded” meaning there is not a sum of money earmarked to pay for each worker’s retirement. Instead, each pension is funded from contributions made by today’s workers and taxpayers.
        New figures from the Office for National Statistics figures showed last month that “unfunded” public sector pension scheme liabilities are equal to £1.2 billion, the equivalent of £33,000 for every household.

      • Narrow Shoulders
        Posted June 4, 2014 at 6:58 am | Permalink

        I dispute your conclusion.

        It is more likely that the low paid in the public sector have a pension thus reducing the median across the sector whereas in the private sector the low paid will form a lower ratio of pension receivers increasing the median. To fully disprove Mr Lifelogic and others you would need to compare those in similar salary bands rather than presenting in broad terms. I suspect those figures show a much different picture.

        • alan jutson,
          Posted June 9, 2014 at 8:50 am | Permalink

          Narrow shoulders

          The NHS pension scheme in common with many state employee schemes contributes 14% of salary (paid by the taxpayer) as the employers contribution.

          The scheme is inflation index linked, pays 50% to spouses on first death.

          Compare to any Private scheme !

          Not a chance of similar payments or benefits.

  4. Cheshire Girl
    Posted June 3, 2014 at 6:28 am | Permalink

    The tax I most disagree with is VAT. It is on so many things that cannot be classed as ‘luxuries’ in this day and age. I recently bought my Son a washing machine and although I am on a pension, i had to hand £47 over to the Government for the privilege of doing so.
    I wouldn’t mind so much if was sure that this money was being spent wisely, but I suspect it is not. Personally, I would like to see a cut in the rate of VAT. I remember the days when it was supposed to be a tax on luxury items, but now it just seems to be a way for Governments to increase taxes generally. I think 15 per cent would be more than enough.

    • Lifelogic
      Posted June 3, 2014 at 8:12 am | Permalink

      “sure that this money was being spent wisely”! You must be joking. You can be virtually certain that at least 60% of it is being wasted, is corrupt, wasted on green crap, the EU or other nonsense, high pay for friends of the powerful, HS2 or worse still spend just positively inconveniencing the public.

      It is that that is really morally repugnant Mr Osborne.

    • forthurst
      Posted June 3, 2014 at 8:45 am | Permalink

      “…I would like to see a cut in the rate of VAT. I remember the days when it was supposed to be a tax on luxury items…”

      You are confusing VAT, introduced in 1972 after Heath’s betrayal, with Purchase Tax, a tax on ‘luxury’ goods, whose main purpose was the inhibition of the growth of an indigenous consumer goods industry, with the secondary purpose of raising money for the government to waste whilst encouraging the ladies to spend less of their time glued to the box and more time toiling over the kitchen sink.

    • Steve Cox
      Posted June 3, 2014 at 10:17 am | Permalink

      Yes, and don’t forget that VAT is levied on your after tax income so it’s a classic case of double taxation. We should either have taxes on consumption or taxes on income, but of course we have both as our governments are completely addicted to spending (or should that be squandering?) other peoples’ money so they have to extort it from us by whatever means possible, no matter how unfair (see also Gordon Brown’s double taxation of dividend income in private pension funds, which helped to destroy what was once one of the best private pension industries in the world).

      • Lifelogic
        Posted June 4, 2014 at 4:47 am | Permalink

        All the taxes together CGT, VAT, income tax, corporation tax, Inheritance tax, duties, stamp duty, insurance tax, etc. and all the admin costs can easily take 90% of your wealth from you over 20 years. Leaving you only the 10% to pass on.

    • Leslie Singleton
      Posted June 3, 2014 at 4:52 pm | Permalink

      Cheshire–The EUphiliacs will tell you that VAT is one of the founding pillars (and let’s be clear that it is wholly a EU concept) and therefore essential but that is patently not so as a glance at NAFTA in North America makes clear

  5. APL
    Posted June 3, 2014 at 6:44 am | Permalink

    JR: “It rarely looks at the architect of many of the high prices, government itself.”

    Exactly.

    But it’s worse than you suggest. In addition to tax rises, Government is responsible for and the cause of inflation, which is a major driver of price rises – or larger packaging surrounding smaller items, which is the same thing.

    Corporations, *have to* compensate for the loss in value of the currency they transact in. They do this by raising prices but also by repackaging in smaller containers – re branding is a good subterfuge.

    There is often a great hew and cry about the rising prices post privatisation. Few people ever consider that nationalised prices are artificially low, because the government can cross subsidise a product from other more profitable public enterprises or the bottomless tax pit, so that when a formerly government service is privatised the first thing it often does is raise prices to reflect market realities.

    In short, Government is at the root of all our problems.

  6. Andyvan
    Posted June 3, 2014 at 6:50 am | Permalink

    Everything government does reduces our living standard and increases the cost of living. The only thing it is good at is propaganda to make people believe it is necessary. This fake concern invented by Milliband is not only economically ignorant but actually designed to deceive the even more ignorant. Want to reduce costs? Then reduce government.

    • Lifelogic
      Posted June 3, 2014 at 8:17 am | Permalink

      Could the people not have a class action against Oxford University’s PPE course – for not instilling basic & real economics into Cameron and Milliband heads? Perhaps against the BBC for misleading the public on the issue endlessly too.

      When governments “invest” they do it with money taken of others, who would have invested it rather better in general.

  7. Gary
    Posted June 3, 2014 at 6:54 am | Permalink

    Govt promises to us, in total, are unfundable at any realistic growth rate. That makes govt insolvent.

    Here we have this massive, insolvent, malignant growth hanging on our affairs and ruling, nevermind ruining, our lives. And they cannot get over why nobody turns up to vote. Who is govt to tell us anything ? The arrogance is breathtaking.

  8. Narrow Shoulders
    Posted June 3, 2014 at 6:56 am | Permalink

    Quite -The EU demands an extra £500 million from us due to budget overruns and we are aghast, questioning why they can not take the money from somewhere else or from next year’s budget.

    Our government borrows £100 billion and claims to have cut the deficit and be making progress and we accept it. As you say each pound borrowed is taxation required at a later date because government does not generate income other than taxaton.

    Government, instead of reviewing what it can do to reduce outgoings substantially looks for ways to increase its tax take. Importing population, raising taxes on the middle class, allowing foreigners to hoover up our housing stock for a negligible stamp duty payment and selling off other taxpayers’ assets. Where is the focus on needing less from us?

  9. Alte Fritz
    Posted June 3, 2014 at 6:58 am | Permalink

    This morning’s papers report that mortgage lending is reduced because of new stress test criteria which lenders are compelled to apply to applicants. In other words, treat borrowers as children who cannot recognise a risk. In April the FCA too over the regulatory function of the OFT for consumer credit. Again, treat the public as incapable. The old system had a rough simplicity; if the lender failed to follow the rules, the debt would be irrecoverable.

    The cost of regulation has become a hidden tax which has, ultimately, to be paid for by borrowers of all sorts and which leaves less money to pay off the debt itself, or to spend on other goods or services or to save for other purposes. Of course, it does provide work for the otherwise unemployable.

    • Lifelogic
      Posted June 3, 2014 at 8:19 am | Permalink

      Indeed it takes ages to get mortgages through all sorts of silly nonsense put in the way by regulators.

  10. Richard1
    Posted June 3, 2014 at 7:03 am | Permalink

    Yes there is a lot of rubbish talked on this subject especially by Ed Miliband and the Labour party. For high living standards we need low taxes and choice and competition for goods and services, including those provided by the state.

    I see Obama is trying to lumber businesses and consumers in the US with higher energy costs in the name of the green religion. Hopefully for the US Republicans in Congree and in the individual states will find a way of getting round this.

  11. Lifelogic
    Posted June 3, 2014 at 7:20 am | Permalink

    You correctly say “the UK has been suffering from a cost of government crisis. This lies behind the fall in living standards” indeed and in spades. But not only is it the cost of governments, but the dreadful level of “public services” they delivers or often totally fails to.

    Furthermore there is also a huge misdirection of the private sector by the absurd complexity of the tax system, the poor, expensive, random and multilevel legal system (and its absurd risk/reward structures), the daft & complex employment laws, Cameron’s misguided gender neutral insurance and pensions agenda, the distortion of the energy market, food production, fishing, housing, water, rail and transport – the damage done by piss poor government is almost endless.

    The Coalition has done almost nothing to address this, on balance it has made it far worse.
    299 tax increases, increased fines and license fees & daft regulation and complexity everywhere.

  12. Richard1
    Posted June 3, 2014 at 7:34 am | Permalink

    Extensive sermon by (‘interview with’ would not be accurate) the ubiquitous (left of centre? ed) apparatich and hapless former chairman of the hapless FSA, Adair Turner. lord Turner argued for more taxes in order to promote equality and advanced the contrived leftist theory that credit booms happen because rich people have too much money and want to lend it to poor people.

    I don’t mind at all hearing from Lord Turner, but if he can’t be given a proper testing interview as he would be if he was arguing from a free market / right wing perspective, then the BBC should arrange for someone with opposing views to debate the issue. 10 minute free hits for anyone advancing leftist views on the taxpayer funded BBC arnt acceptable.

    • Richard1
      Posted June 3, 2014 at 10:30 am | Permalink

      Apologies I have taken editorial time for censorship by suggesting Lord Turner is affiliated with a political party, which I agree may not be the case. We need to watch it these days!

    • Richard1
      Posted June 3, 2014 at 5:15 pm | Permalink

      To be fair to Lord Turner he did also make the valid point that current interest rate policy is unsustainable and will be creating distortions in the economy.

  13. margaret brandreth-j
    Posted June 3, 2014 at 7:36 am | Permalink

    Yes.It is the same as always , borrowing more than we can pay back which not only affects day to day living , but affects the future insofar as clean and green progress.

  14. Brian Tomkinson
    Posted June 3, 2014 at 7:37 am | Permalink

    JR: ” Those of us who want to complete the job of deficit reduction”
    Does that include your Chancellor who promised to have done it by 2015? Please don’t blame the LibDems. I lost confidence in your party’s determination to deal with the economic problems when you told us, after the first two budgets, that overall current government spending was to continue to increase but redistributed, whilst the only way the deficit was to be reduced was by higher taxation.
    It is worth repeating this from Guido Fawkes’ blog on 28 May:
    “Over the course of a year, the average British household pays more in tax than it spends on food, clothing, housing, fuel and power. Forget the cost of living crisis, Britain is facing a cost of taxation crisis…”

  15. Iain Gill
    Posted June 3, 2014 at 8:19 am | Permalink

    You are correct John.
    However I don’t think Mr Pickles solution to cutting public spending of switching the street lights off is the way to do it. If he had said leave one in three lights on, or such like, then maybe.
    At the moment we have people getting off trains at well-lit stations walking into the street where it is pitch black. Surely if the station is running then the streets around should have their lights on?
    Then we have the increase in crime which has been noticeable, and folk hurting themselves walking home through streets they cannot see.
    So I don’t even think its saving the country money the way it’s been implemented.
    On the other hand there are large obvious ways to cut public spending which would have public support:
    1 Cut the “aid” budget
    2 No more free NHS to anyone from a country which does not provide reciprocal care to a Brit in their home country, unless they have indefinite leave to remain here. Force them to buy medical insurance before issuing the visa.
    3 No more free school places to children of families from countries which would not provide free schooling to British children in reciprocal circumstances, unless they have indefinite leave to remain here. Force them to prove they can afford private school fees before issuing the visa.
    4 Cut the amounts paid to Europe.
    5 Tax work visa holders at least as much as Brits not less.
    6 Simplify the tax and benefits system, cut out complexity cuts out cost of administration.
    I could go on, much of this is obvious to anyone with any common sense.
    Re “When it comes to the cost of housing” there is an artificial barrier to supply. Radical changes to the planning system are needed. Pre approve some housing plans which can be used nationwide. Remove green belt status from any land within walking distance of a train station. Stop the manipulation of the market, help to buy etc. And SORT OUT IMMIGRATION.

  16. Neil Craig
    Posted June 3, 2014 at 8:29 am | Permalink

    98% of our electricity cost is governmental.
    This has been demonstrated and even the Greens can’t argue against it.

    The correlation between growth in electricity use and gdp is as close as anything in economics.

    I hope Roger Helmer does well on Thursday not just because he is UKIP but because he is probably our best man. His paper on allowing a free market in energy, including fracking and nuclear would give us fast growth even without any other reforms. He would certainly be a benefit to the Commons.

    One point about fracking – it is only much cheaper than the power we have. It would still be more expensive, for power generation purposes, than nuclear if that were allowed. Thus what we see is that the Luddites have not just suppressed one world changing technology but are suppressing a 2nd order substitute. This indicates the problem the Luddites have with holding back progress – the potential just piles up behind their dam. It also indicates our problem with the Luddites – there is literally no end to the amount of harm they will do when allowed.

    • Lifelogic
      Posted June 4, 2014 at 6:19 am | Permalink

      Indeed but 98% is surely just a bit of an exaggeration. Cheap energy is the key to growth and prosperity.

      65% perhaps?

  17. Brian Tomkinson
    Posted June 3, 2014 at 8:30 am | Permalink

    JR: “One of the main reasons our domestic fuel bills have been going up is the EU”
    Talking of the EU, I saw your party’s arch EUphile, Clarke, on Channel 4 News last night. He confirmed two things : 1. After trying to pretend otherwise, he confirmed that he was not just there because they had asked him but CCHQ had agreed to it, and 2. He clearly and unambiguously stated that the Conservative party has always been a pro-EU party. In relation to economic recovery he said : “But in the early stages it doesn’t produce much for real people” – this left me wondering just what other kinds of people there are other than “real” ones.

    • Lifelogic
      Posted June 4, 2014 at 6:21 am | Permalink

      Real people are the ones without the gold plated state sector pensions or without jobs on Quangos from knowing the right people perhaps?

  18. oldtimer
    Posted June 3, 2014 at 8:33 am | Permalink

    Agreed. But it is even worse than just a cost of government crisis because this and the last governments have saddled consumers with levies like ROCs (reneweable energy certificates). These help subsidise the providers of such schemes. The lobby groups are still at it, trying to and succeeding in frustrating the develpment of the shale gas industry in the UK.

    I see that Scottish Renewables got free, and unchallenged, air space on the BBC TV this morning to claim it could supply 100% renewable energy for Scotland; but added the qualification it needed to talk to the powers that be in Edinburgh and London to get the right framework. He did not actually say the word “subsidies” but that is what was implied. No one was on hand to point out that for one whole week over the past winter in Germany its 23000 wind turbines and one million photovoltaic systems failed to produce any electricity at all owing to the absense of wind and the absence of sunlight. Nor was anyone on hand to ask him how Scottish Renewables would deal with that problem.

  19. Posted June 3, 2014 at 8:37 am | Permalink

    “Extra government borrowing is simply deferred taxation.”

    How can this be true?

    I’d just make the point that the £ is an IOU of government and its not really possible to borrow back your own IOU anyway!

    But onto the question of the deficit. If we look back at the deficit at the start of what was a last period of continual growth, 1993, after the Conservative Party got its act together after the Black Wednesday shock, the government was running a budget deficit of 8%. That was 2% higher than now. Has that ever been repaid? No of course not. It never will be repaid and it never needs to be repaid. It is simply money that the government has issued into the economy by spending it.

    That government deficit was everyone else’s surplus and so was a good base from which to launch an economic recovery. The government of John Major handled things pretty well afterwards and he was unfortunate to lose the 1997 election. The danger of governments running a deficit is that everyone else’s surplus may cause people to spend too much and cause inflation. That is the only danger.

    Government deficits, when seen in the context of everyone else’s surplus are a good thing. They allow the private sector to save. They put money into the economy to enable everyone to buy more imports than exports. Foreigners are quite willing to hold UK gilts. If they were not then there would be no trade gap.

    According to the theory of sector financial balances:

    Government Budget Deficit = Saving of the Private Sector + Current Account (trade) Deficit

    At present GBD = 6%, SPS= 2% and CAD =4%

    So everything adds up as it must. 6% = 4% +2%

    But suppose the EU’s Troika had their way and forced the UK to have a GBD of no more than 3%. What would happen?

    The equation would still hold. If nothing was done to control imports, then something would have to give. In the Eurozone the economy has spiralled downwards as a direct result of efforts to reduce the deficit. Eventually the population suffer from huge levels of unemployment. They are too poor to save and too poor to buy imports!

    It all comes back to this idea that deficits represent deferred taxation. According to this theory the post war generation should have been impoverished by repaying war debts. The government ran some pretty large deficits then. But that clearly did not happen. The 60′s generation never had it so good. Mr Macmillan told us so. Harold Macmillan was a very decent politician who understood how the economy worked. He never raised taxes and claimed they were needed to repay war debts. We need more like him around right now.

    • Narrow Shoulders
      Posted June 3, 2014 at 12:31 pm | Permalink

      Your calculation fails to take account that savings in the private sector is affected by taxation levels therefore government deficit can indeed represent advanced taxation.

      • Posted June 3, 2014 at 9:58 pm | Permalink

        There’s a quote by Robert Barro, the ‘genius’ behind the concept of ‘Expansionary fiscal austerity’ which describes the effect to which I think you are referring:

        ” A network of intergenerational transfers makes the typical person a part of an extended family that goes on indefinitely. In this setting, households capitalize the entire array of expected future taxes, and thereby plan effectively with an infinite horizon.”

        If this sounds totally incomprehensible to anyone and most unlike anything that happens in their families I wouldn’t worry too much. It’s total nonsense!

    • Lifelogic
      Posted June 4, 2014 at 6:25 am | Permalink

      The government has no money if it borrow it is promising the debt will be paid back by the future UK taxpayers. In short mortgaging you and your children.

      • Posted June 4, 2014 at 9:05 pm | Permalink

        When was the last time government paid back any debt through raisng taxes?

        You might want look it up. It has happened a couple of times in the last 40 years but the amounts are so tiny as to be quite insignificant.

  20. Bert Young
    Posted June 3, 2014 at 8:54 am | Permalink

    Ridding ourselves of the EU would be a simple way of reducing the cost of living . VAT and a number of extra costs ( you have covered the high cost of energy ) would immediately change our lives . In today’s press I now read they are making recommendations on how we should tackle tax on properties and re-distribute the proceeds !! . The audacity and timing of this pronouncement is a boost to the Anti Europe campaign -exactly at the right moment to influence the result in Newark .

  21. acorn
    Posted June 3, 2014 at 9:20 am | Permalink

    As Mariana Mazzucato, author of The Entrepreneurial State, points out: “… a core problem across the EU is a lack of business R&D spending by larger firms. Whereas business spending on R&D (as a proportion to GDP) is relatively high in both Germany (2.5%) and America (2.6%), in Britain and the Netherlands it is only 1.7%, significantly below the OECD average of 2%. The lowest spenders are precisely those that also have the lowest public spending on R&D: Portugal, Italy, Greece and Spain.”

    JR, you should read the following. http://flipchartfairytales.wordpress.com/2014/06/02/startup-myths/ . The UK desperately needs some new type thinkers to build a new type of management to replace this Punch and Judy parliament, before it metastasizes to all parts of the body UK; if it hasn’t already.

  22. Atlas
    Posted June 3, 2014 at 9:34 am | Permalink

    The challenge is to remove the EU ball and chains that hobble our economy. Do that and real growth (ie not caused by artifically low interest rates) will be our reward, and it will brighten up the future for our children as well.

  23. Mike Wilson
    Posted June 3, 2014 at 9:50 am | Permalink

    Mr. Redwood – if there were significant fracking – and gas came out of the ground significantly cheaper than, for example, the price of gas from overseas delivered in tankers to the processing plant in South Wales – do you think the price paid by consumers for gas to run their central heating systems would be cheaper?

    Or would government simply hike the tax on fracked gas to collect more revenue with no benefit to the consumer?

    • Posted June 4, 2014 at 1:40 am | Permalink

      If a large source of any new cheap energy were discovered then, left to the workings of the free market, those who lived close to the discovery would pay pretty much the same as those who lived further away or even in a different country. It may be a little cheaper to reflect lower transport costs but that would be about it. The owners of the energy would naturally want to obtain the best price for it by selling in the market that paid the best possible price.

    • matthu
      Posted June 4, 2014 at 5:53 am | Permalink

      I suspect the latter in line with EU policy.

  24. Colin Hart
    Posted June 3, 2014 at 10:02 am | Permalink

    If only the Conservative leadership had spelt out some of this in opposition it might have been able to fight an election based on somewhat less soggy ground than ‘sharing the proceeds of growth’. It didn’t and we ended up with a disastrous coalition that may have trimmed the deficit but leaves us saddled with debt and with an unhealthy imbalance between private and public sectors. It is not too late for the Conservatives to start making the argument for a smaller state and lower taxes ahead of the next election. If they don’t, UKIP will.

  25. Mike Wilson
    Posted June 3, 2014 at 10:06 am | Permalink

    Why has there been no real action to curb the cost of government by the coalition? You only have to glance at The Guardian’s public sector appointments page to realise it is still business as usual. Very high salaries and gold plated pensions for jobs which, to be honest, sound as though they are made up.

    Over 47k is offered for ‘Creating and maintaining an effective network to circulate our key messages and achievements, you will maximise our reach, influence and impact. As well as leading a dedicated Dissemination team.’

    • Anonymous
      Posted June 3, 2014 at 12:32 pm | Permalink

      That these jobs are advertised in The Guardian explains much about our economic condition.

    • Jagman 84
      Posted June 3, 2014 at 7:51 pm | Permalink

      Mike Wilson: To what does “Our” refer to? The Ministry of Propaganda?

  26. Steve Cox
    Posted June 3, 2014 at 10:10 am | Permalink

    I wonder what David Cameron’s government will be remembered for? Of course, if the Scottish vote in September goes wrong then that’s an easy question to answer, but assuming the nuclear option isn’t taken then perhaps in 2020 people will remember him as the PM who presided over a massive hike in power bills in order to carpet the country and its coastal areas with windmills, resulting in perhaps half the population being unable to afford to heat their homes as well as they would like, and many older, poorer and more defenceless people dying of hypothermia as a result. And why? To obtain a minor reduction in Britain’s greenhouse gas emissions while China and India increase their emissions every year by more than the UK’s whole annual output of carbon dioxide. In other words, for no sensible or rational reason at all. That’s not a legacy I’d be proud of.

    Reply The policy you describe is an EU/UK one agreed by Mr Miliband when he was in government. The present governemnt has to obey the EU rules.

    • Kenneth R Moore
      Posted June 4, 2014 at 8:48 pm | Permalink

      Cameron’s legacy will be of a slick but forked tongued politician who promised to ‘clean up Labour’s mess’..then went on to increase the national debt by more than Labour did in 13 years. The second generation of ‘leaders’ we have suffered with no real conviction or principles..just a want for power and influence at all costs.

      I just hope I don’t have to look at his bronze head in parliament when I visit in 20 years time (John Major’s spectacled head being present is just about bearable) . At least there was little record of the Blair creatures premiership on a recent visit.

  27. Lindsay McDougall
    Posted June 3, 2014 at 10:52 am | Permalink

    This post and the preceding one lead neatly to the Queen’s speech that I would like to hear when parliament resumes after the 2015 General election. It would be the shortest on record.

    “In pursuit of reducing the United Kingdom’s fiscal deficit and recovering its sovereignty, my Government will show no mercy to anybody.”

  28. Eddie Hill
    Posted June 3, 2014 at 11:05 am | Permalink

    Wasn’t the original idea that tax was levied in order to pay for things we wouldn’t pay for, were it left up to us; ,efence and street lighting being the examples commonly used in economics theory?

    In today’s world, it is apparently being levied to fund such things as fraudulent EU job creation schemes, politically-appointed spin doctors to advise our inept politicians and liberal vanities such as overseas aid to countries with their own space programs or which are being run by tin-pot dictators who use repression and starvation as weapons against their own people.

    I would hate to be a future Chancellor of the Exchequer who has to tell British pensioners that their pensions will have to be means-tested in order that we can continue to spend £ billions on such things.

    It is high time that taxation is levied purely to fund things which are both strictly necessary and which benefit the people paying the tax.

  29. Kenneth R Moore
    Posted June 3, 2014 at 12:59 pm | Permalink

    Excellent article Lord Redwood – it’s a pity Mr Osborne didn’t listen to you when he was boasting he would match Labours spending targets at the height of the credit bubble. How’s that policy working out George ?

    Despite record high spending, how may of us still have to pay twice for a decent level of service in health or schools etc?.
    The international development agency were literally throwing money away in the month proceeding the arbitrary target to deliver 0.7% of GDP in aid. I wonder how many BMW’s this bought corrupt third world dictators and their cronies?. How many guns it bought for them to oppress their own people?.
    Then Mr Mitchell et al have the cheek to lecture us on their moral superiority for supporting this policy.
    I can’t think of a better recruiting sergeant for UKIP than Mr Mitchell (there are many to choose from).

    The trouble is all of the ‘de-toxifying’ of the Tory brand your leaders have been doing is very very expensive and wasteful.
    For any ‘cut’ is seen as ‘nasty’ and a return to the old Conservative party that is much more popular than the hollow ‘modern’ version.

    The new spendthrift Conservative party have not an ounce of respect for the hard won taxes they collect – they have become detached from reality and real people.

  30. Denis Cooper
    Posted June 3, 2014 at 1:04 pm | Permalink

    I saw on TV last night that the Americans are about to shoot themselves in the foot:

    http://www.theguardian.com/environment/2014/jun/02/obama-rules-coal-climate-change

    “Obama unveils historic rules to reduce coal pollution by 30%”

    “New EPA rules spur prospects for deal to end climate change
    Climate groups welcome ‘momentous development’
    Coal lobbyists say plans will create new US energy crisis”

    • Mark B
      Posted June 4, 2014 at 5:48 am | Permalink

      This is what happens when you let someone or a very small group of people so much power that, they can effectively ruin the lives of millions with little or no effort or democratic control. It was for this very reason, the United States of America came into being. The fore-fathers of the Republic, must be spinning in their graves.

  31. Kenneth R Moore
    Posted June 3, 2014 at 1:10 pm | Permalink

    The question the Conservative ‘Modernisers’ need to answer is ..why if they have increased spending in real and cash terms as outlined by Doctor Redwood, ,then why are they not on course to a comfortable victory in 2015 ?. Why hasn’t the mountain of debt accumulated under chancellor Osborne ‘bought’ them more support?.

    Why did they need to form a coalition in 2010 if Mr Cameron’s approach is correct ?.
    What part of being 30 seats short of an outright majority (faced with a deeply unpopular Labour party) did the leadership not understand?.
    Why didn’t they change course post election and not just keep on doing more of the same ?.
    Should anyone be surprised if the same man following the same principles and muddled policies gives us another hung parliament in 2015 ?. Where are the forces that will stop the party sleepwalking to another disaster ?

  32. John Slade
    Posted June 3, 2014 at 1:13 pm | Permalink

    Dear Mr Redwood,
    You may have done this before, but perhaps you could outline the pros and cons of abolishing income tax altogether.

    • acorn
      Posted June 3, 2014 at 5:29 pm | Permalink

      Simple, every household in the UK would, on aggregate, have an extra £6,600 to spend in this year alone. Naturally, the output capacity of the UK economy, decimated by three years of Osborne “austerity”; would not be able to supply the extra goods and services demanded by households. Prices would go through the roof.

      Mind you, if you abolished for only one year; households would probably use a lot of it to pay down their debts. If it was a permanent abolition, they would spend it like there was no tomorrow; which there isn’t for the majority of UK households if we don’t get a new Chancellor, which it looks like we will.

      I think Mr Carney at the BoE, has finally convinced the Treasury, that “austerity” and reducing deficits to get a “balanced budget”, is not a very good idea for a shagged out economy like the UK. Keep in mind that a Chancellor can’t change his economic spots; you have to reshuffle to do that. Stay tuned to this channel, as they say.

      Meanwhile, be thankful that we are not in the Eurozone, where “troika” austerity is literally destroying the economic structure of Italy; Spain; Greece and Portugal.

      • Mark B
        Posted June 4, 2014 at 5:51 am | Permalink

        Not just those four but, a good few others. Meanwhile, Germany does seem to be doing rather nicely.

    • Posted June 5, 2014 at 1:19 am | Permalink

      @John,

      You could, in principle, abolish any tax you like. When you consider that money is just an IOU of Government it could be argued (and some do!) that Government don’t need them back to fund its spending.

      But this is missing the point of what taxes are for. It is, as Acorn suggests, to control the demand in the economy and prevent inflation. If we spend too much then, as he says, “prices would go through the roof” and no-one wants that.

      So if income taxes were abolished other taxes would need to increase to compensate. This would not be fair on the elderly who not not pay income tax now but paid it during their working life.

  33. Posted June 3, 2014 at 1:41 pm | Permalink

    No doubt the Chancellor will be glad of today’s “advice” from the EU that the tax on higher value properties should be increased. He can say that he’s only doing what the “experts” advise and not because Clegg wants it as well.

  34. The PrangWizard
    Posted June 3, 2014 at 3:28 pm | Permalink

    Much as I agree that the State is far too big and consumes far too much of our money, there seems almost no chance that much will change with the three main parties so wedded, admittedly Mr Miliband is moving away to the Left, but I’ve noticed just how much the Tories seem to follow him after an interval.

    It was said of the British Army that they only thing that brought change was a disaster. Something significant needs to happen in our politics to bring about any change – I don’t know what it should be, but it will need to be something big. Maybe Scotland voting for independence will be a start. Maybe then England will get a proper parliament and we can vote out the complacent and arrogant British political and cultural Elites who have brought us to this dreadful state of affairs.

    And are we stuck with fixed-term parliaments? I trust a no-confidence vote if carried can still force a general election – are fixed terms only to prevent PM’s from calling ‘snap’ elections? What is so wrong with that right? On the subject which gets much coverage on these pages, the EU, that would be a way to get an ‘in/out’ vote on the subject instead of having to wait 3 more years for a referendum of doubtful value, if a PM really wished to know what the nation thinks and act on it. I wonder how things would go for the Tories if the manifesto for the next GE was for ‘out’. Fat chance, as some may say.

  35. They Work for Us?
    Posted June 3, 2014 at 8:44 pm | Permalink

    Is the money we earn/ are paid actually worth anything like its apparent face value or is it not really a con? If no one saved any money but immediately spent it before the govt could devalue it then what would happen. Why should anyone bother to save only to receive interest below inflation which is then taxed to reduce it further ?
    Preventing govt from devaluing the currency would have interesting results.

  36. ian
    Posted June 3, 2014 at 11:33 pm | Permalink

    Not to worry people houses prices are going up and will continue to go up after the election because it the only game in town. Just hit the sell button when your happy with price and vote with your feet. We all ways do. The old saying is politician are all right as long as you can afford them. Income tax take will continue to go down from now on and ni to. education education education were is it. I have not seen any to date. Were are all these educated people, they must all be on the government pay roll. Orders sir don”t rock the boat. How about a history lesson on QE. QE was born in oxford uni in the sixty and guess who the students of the day were mr brown and mr blair to name but two. It took them forty odd years to introduce this policy because you cannot have this policy an less your bankrupt, which took mr brown 12 years to complete. Mr brown big brake came when he went to the usa and sold QE to them in 2008. It went down like peach”s &cream. The thing is once in operation no knows how to stop it. My first in counter with this policy was at school, this is going to be free that going to be free, the queen must go. When the children ask the teacher how are you going to pay for it the reply was print money. How about income tax, emergency income tax was first introduce in 1944 by sir paul chambers to pay for the second world war,it still running to this day. How about NIs , a penny a week in 1910 retire at 70 years old, you had to be rich to live that long to receive it. In 1946 the government up graded NIs so you did not have to pay the sixpence to see your doctor, that went well, look were we are to day. PPI never to be repaid. John could write us the story on PPI and much the government put on to PPI each year.

    Reply THe UK has stopped Quantitative Easing, and the US will stop it this year, decelerating the amounts every month until there is no more. The issue now is when and by how much to raise interest rates, which we have discussed here recently.

    • Kenneth R Moore
      Posted June 4, 2014 at 3:08 pm | Permalink

      Money printing has stopped but nobody knows what the longer term consequences will be.
      George Osborne has shown himself to be just as keen on accounting trickery as Gordon Brown..he is the heir to Brown. It will come back to bite him after a his time in the sun.

      It was Osborne that made a 35Bn profit via the Bank of England and the Asset purchase facility when he decided to grab the profits from the quantitive easing program.
      So we have a) sky high debt, b) the beginnings of another housing bubble, c) lashings of funny money floating around ready to stoke inflation d) government now desperately short of cash who will target only those with assets without smart accountants.
      In my view the ‘recovery’ was carefully engineered by No.11 Downing street in order to secure the election. Expect the wheels to come off post election…

  37. ian
    Posted June 4, 2014 at 12:10 am | Permalink

    By the way john PAYE is a slavery policy, it not are money we never see it. One of the first rules of the bible is not to charge a person money on their sweat. That”s what went wrong now you no need to print this

  38. peter davies
    Posted June 4, 2014 at 10:32 am | Permalink

    I’m not sticking up for this Govt but I think the media really should do a better job when labour speaks up about something such as the “cost of living” or whatever else.

    Govt policies are as you imply the root of any direction taken and it can take years to really feel the effects.

    If people have such short memories of the well documented actions of the previous govt took, how they think they are the answer to rectify past piss poor decision making is beyond me.

    I remember commuting to work months after lab came into govt in 97 and my fuel bill crept up at a steady rate of knots in a short space of time – just one of many examples yet Labour still expect the UK population to be stupid enough to believe that they are a tax cutting party.

    Add to that a certain Shadow Justice Minister trying to claim the high ground on the Human Rights Act (which his party introduced) trying to blame others in the legal profession for interpreting that UK courts are subservient to EHCR when they should not be just shows to me how politics is little more than perception with the usual window dressing and point scoring just to gain votes – clever, manipulative, are they counting on the electorate being stupid with short memories? I guess so..

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  • 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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