Austerity policies

Yesterday I gave a lecture at Reading University. I asked the question, does austerity work as an economic policy? Why do the IMF and the Euro area favour austerity programmes for countries in trouble? Do they succeed in rescuing countries by these means?

Austerity is a wide ranging word, not a precise term of economics. It has come to mean in recent debates the idea that a country in debt with a large deficit should cut spending and raise taxes in order to reduce its deficit. This has led to passionate debates about the wisdom and the impact of such a course of action.

In the UK between 2009 and 2013 the main parties all agreed the deficit was too large and needed to be brought down. All agreed if left unchecked the deficit could lead to crisis interest rates, an unaffordable cost of interest on a burgeoning public debt, and an eventual squeeze as the debt grew out of control. We could see the damage unchecked deficits caused in countries like Greece or Venezuela. There was nonetheless a tough argument with Labour saying the coalition wished to cut the deficit too far and too fast, whilst the coalition said it needed to speed up the pace of deficit reduction it had inherited as the financial situation was grave.

We now know the outcome of these policies. Labour’s prediction of rising unemployment, a dip into a new recession, and more personal misery as a result proved to be untrue. Instead the UK economy has grown over the four years of deficit reduction so far, employment has grown rapidly and unemployment has fallen. The deficit has been cut, though not by as much as planned as tax revenues have fallen short of budget.

Labour never answered my questions of 2010 and 2011 as to how the US economy was recovering so well when the US was cutting its deficit more rapidly than the UK. Since the worst year at the end of the last decade the USA has brought its deficit down from over 10% to 2.5% of GDP. This deficit reduction has included some big cuts in states spending and defence spending. The US economy has grown well every year this decade, contrary to predictions that austerity policies stop growth.The UK deficit has been brought down from a peak of over 11% of GDP to 5% of GDP, a bit less than the USA.

The economic records of the USA and UK in recent years show us that bringing deficits down does not necessarily stop growth. Indeed, some of the deficit reduction occurs thanks to growth, which raises revenues. Growth however, does not automatically follow from cuts to public spending. There need to be other policies towards banks, money and private investment to ensure success with a strong private sector led recovery. In a future posting I will look at some of the harder cases of extreme austerity in the Euro area, where damage has been done by the policies pursued.

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  1. Dame Rita Webb
    Posted February 27, 2015 at 6:25 am | Permalink

    “Labour’s prediction of rising unemployment, a dip into a new recession, and more personal misery as a result proved to be untrue.”. Well what do you expect from Milliband & Co? The correct critique of the coalitions’s management of the economy would be as follows. As Keynes defined it himself we remain in a structural depression. The economy delivers nothing but sub trend growth. The job creation comes from a form of crony capitalism. In that the wages are low and in order to survive the worker is dependent on welfare benefits. Either that or the jobs themselves remain attractive only to unskilled immigrant labour. Note too the growth in “zero hours” contract work. I bet there is lots of personal happiness for someone involved with one of those. The stock market hits new highs due to the availability of cheap money from the BoE. Share prices also remain high because low interest rates enable the bosses to saddle their the companies with debt to buy back and increase the value of its shares (mainly so they enrich themselves through their share option renumeration deals).

    There is no recovery and you cannot keep the plates spinning for ever. The simplest evidence of this would be for anybody older than 40 who has had to find a new job. Chances are, if it was in the private sector, there were onto a worse deal. The absence of a final salary pension scheme membership would soon see to that.

    • Hope
      Posted February 27, 2015 at 10:00 am | Permalink

      In April the cap care costs comes into effect. What is another bizarre twist is how the government pays £148 state pension but claims that the first £230 pw a pensioner spends is classed as living expenses and does not count towards the cap! A person would have to pay the living cost element of any care cost. How can the govt. reach this inequitable conclusion when it is clear to anyone that either the state pension needs to increase or the weekly licing expense needs to be reduced. Another PPE graduate from Oxbridge calculating the sums?

      The now appears to be a national emergency with immigration as the numbers cannot be sustained in the public services, housing, roads, trains. Moreover the cultural subversion will cause civil unrest and unwittingly increase all forms of racism- not just from MSM stereotypical white British people. Local councils are not making local priority clauses and locals will become very upset when they cannot send their children to the school of their choice, hospital or live in the area where they grew up. Cameron, is intoxicated by his position. Tories need to wake up and call a vote of NO confidence in him.

      • Denis Cooper
        Posted February 28, 2015 at 9:12 am | Permalink

        Interestingly a Telegraph journalist has an article today about what she describes as the “immigration crisis”, but paradoxically she discounts the option of voting for the only party which would actually do something about it.

        The fact is that in May 2010 Cameron offered us a “contract” and said we should blame him if he failed to deliver on his main promises, including that to reduce net immigration to “tens of thousands” a year:

        “If we don’t deliver our side of the bargain, vote us out in five years’ time”.

        He hasn’t delivered and we should take him at his word, but what is the point of voting for another party which is also in favour of allowing and encouraging mass immigration under any pretext?

        etc ed

    • DaveM
      Posted February 27, 2015 at 10:38 am | Permalink

      As someone said on QT – get the same company who does the unemployment figures to do the immigration figures!

      • fedupsouthener
        Posted February 27, 2015 at 5:41 pm | Permalink

        Yes, Grant Shapps on QT last night said that immigrants do not take British jobs. Oh really? Then if they are not taking jobs, they must be claiming benefits! Not sure what is worse.

        • Lifelogic
          Posted February 27, 2015 at 9:50 pm | Permalink

          Politicians seem to make statements of two types. Either things that are so blindingly & obviously true that there is no point in even mouthing them: things such as “we need an integrated, efficient, coordinated, well run XYZ” ……… as if any one wanted to have a disintegrating, inefficient, uncoordinated & badly run XYZ.

          Or they just say complete and blatant lies with a straight face. Things such as: a treaty is not a treaty once ratified, I am a tax cutting Tory at heart, or no ifs no buts I promise to get immigration down to the tens of thousands, or I give a cast iron promise of a referendum on any treaty that emerges …….

        • Kenneth R Moore
          Posted February 27, 2015 at 11:48 pm | Permalink

          His position was incredible..that 8/10 of the ‘new jobs’ created have gone to the indigenous population. Grant Shapps told an outright untruth.
          According to David Cameron around ‘1 million new private sector jobs ‘have been created since 2010…..which is the same number of migrants that have moved to Britain in that period.

          According to Mr Shapps logic, most of these 1 million newcomers are working…… that must mean around 4 million jobs have gone to settled communities which is absurd!

    • Jerry
      Posted February 27, 2015 at 5:11 pm | Permalink

      @Dame Rita Webb; “Either that or the jobs themselves remain attractive only to unskilled immigrant labour.”

      Why are they not attractive to the indigenous low skilled labour?…

      • Narrow Shoulders
        Posted February 27, 2015 at 9:13 pm | Permalink

        Because Jerry the level of welfare payment is higher than just a safety net

      • Lifelogic
        Posted February 27, 2015 at 9:53 pm | Permalink

        Why are they not attractive to the indigenous low skilled labour?

        Because they do not pay enough and they get nearly the same money anyway and do not have the cost of getting to work, childcare and get more time to themselves. Of course without this labour pool they would have to pay rather more.

      • Dame Rita Webb
        Posted February 28, 2015 at 7:22 am | Permalink

        Our low skilled labour can have benefits rather than a job instead

      • Denis Cooper
        Posted February 28, 2015 at 9:34 am | Permalink

        Because an immigrant from a poor country can be materially better off here with an unskilled job than he would be even with a more skilled job back home, if that was available, while the indigenous low skilled labour are at home and so the same comparison does not apply.

        • Jerry
          Posted February 28, 2015 at 5:02 pm | Permalink

          @Narrow Shoulders; @Lifelogic; @Dame Rita Webb; @Denis Cooper;

          Even at the NMW these low skilled jobs would still make UK low skilled indigenous but lazy unemployed people better off – either directly or via in-work benefits.

          Oh and LL, how can any company pay more than the going rate in this globalized economy without loosing contracts and eventually going out of business?! When it can be cheaper to produce the same product in another country it doesn’t need much wage-cost inflation in the UK to make it cheaper to both produce the product in that other country and ship it into the UK for less than using UK production labour and here I’m not just talking about other EU member countries. There are any number of examples were UK companies have become nothing more than warehouse operations, having off-shored the actual product production, with obvious losses to UK employment …

          Blaming migrants is just finding a scapegoat, easier for certain parties to blame the migrants for the tax-and-spend benefits culture mess Labour left us with than call a section of the indigenous population (they hope will be voting for them) of being lazy “couch you-know-what’s”!

          • Denis Cooper
            Posted March 1, 2015 at 6:38 pm | Permalink

            How am I making immigrants scapegoats by pointing out that low paid jobs in this country are far more attractive to people living abroad in much poorer countries than to the indigenous population? That says nothing derogatory about foreigners who wish to come here because they think they’ll be able to make a better living than at home, it’s stating an obvious objective fact about the economic driving force for migration from poorer countries to richer countries.

          • Jerry
            Posted March 3, 2015 at 7:54 am | Permalink

            @Denis Cooper; “How am I making immigrants scapegoats”

            Because you are creating what many of the indigenous -but often lazy- population will consider a valid excuse to carry on wallowing in a “blame culture”, that their lot is the fault of others, there is no reason why the indigenous population can’t take those same lower paid jobs etc.

            People like you are using migrants as a scapegoat because you (it would seem) are not prepared to tell a few home truths about our own population and as such you then encourage that same group of the population to do likewise, meaning that they will never look themselves in the mirror.

          • Denis Cooper
            Posted March 3, 2015 at 4:38 pm | Permalink

            So you think that British workers are lazy and it’s better to bring in foreign workers who will be more hard-working and biddable as well as cheaper. Of course there’s the problem that the lazy useless indigenous workers will still be there, and requiring state support, after you’ve decided that they’re only fit for the scrap heap. And, incidentally, they will still have votes, so if you do any election campaigning for your party be sure to tell them what you think of them.

          • Jerry
            Posted March 4, 2015 at 3:17 pm | Permalink

            Denis Cooper; “So you think that British workers are lazy”

            Well as some are not taking such jobs, YES! Not all as many are prepared to work for the NMW, but a significant number apparently are not – not even with in-work benefits even.

            ” and it’s better to bring in foreign workers who will be more hard-working and biddable as well as cheaper.”

            What should UK business do, put up the “Closed for Business, workforce has stayed in bed again!” sign, or employ people who are willing to work for the going rate, and/or do the hours asked and do the work required even if they do have to be recruited from outside the UK?

            As for cheaper, if wages are to high in the UK the work is going to get off-shored, requiring state support for the unemployed anyway, at least with migrants working within the UK economy they are paying taxes here that off-sets to some degree the cost to the nation of the currently unwilling indigenous workforce that can’t afford to spend on much else than basics due to being on JSA etc!

            “so if you do any election campaigning for your party be sure to tell them what you think of them.”

            Is that instead of lying to them, suggesting that they will all be paid mega money, everything will be all good and dandy, if only the migrants wouldn’t take the jobs?..

        • Bazman
          Posted February 28, 2015 at 6:16 pm | Permalink

          Exactly right. See below. Russians live on less than the dole here even when working. A hard and short brutal life.
          There is entitlement to a certain living standard here whether the right likes it or not. Not just for the recipient, but also the country.
          How is it possible to live on less than £400 a month here without five to a room or living on the street.
          Answer that or stop being stupid.

      • Bazman
        Posted February 28, 2015 at 6:08 pm | Permalink

        You have been told a number of times by myself why they are not attractive to the indigenous population or shall we say not viable and in many cases such as farm work may not even be offered to them.
        Once again. Like Lierlogic you hope enough mud will stick. It will not.
        Many of the jobs are in areas of high cost, so the employee has to live five to room/car to make the job pay. This is often seen as attractive to young fleet footed often educated middle class EU citizens, but not to the British as they are already here. There is no point in them doing this work as they are not as desperate or as adventurous. Many are middle aged people with children, they are to move away from their families and live five to room/car and compete with them? Get real how would this improve their lives.
        In other jobs the EU’s are taken as they are often skilled degree educated and willing to work in shops again living in below par conditions. Ideal for any employer pushing the locals out of work or at least the less able.
        What you are actually saying is that thee poor should compete not only with each other for poverty pay, but also with more determined younger competition often single and without family ties and where they can in many cases they do.
        As I said before a skilled shipyard worker should move to the south to work in a supermarket? No work in supermarkets where they live as it is all taken by local woman and not even EU’s as there is non there due to lack of work.
        Now ask us again why they cannot compete with The EU citizens? Oh! Some bring their families over and wok why should the British not? The simple answer they are not as desperate. You propose they should be made as desperate to level the playing field? Bring their lifestyles in line with Eastern Europe by cutting benefits? Even this would not work as many British peole own property here. Sell their property?
        Keep going Jerry…

        • Jerry
          Posted February 28, 2015 at 10:16 pm | Permalink

          @Bazman; “You have been told a number of times by myself “

          Yes and each and every time you are proved wrong as you fail to take into account that such people will be entitled to in-work benefits…

          • Bazman
            Posted March 2, 2015 at 8:55 pm | Permalink

            And so are the East Europeans we are supposed to compete with.
            This still does not make the job viable for a man with three children to move to an expensive part of the country. He is to compete with a single guy no kids living five to room/car for a dead end job?
            Do tell us why he would and why he should compete with desperate or young adventurous EU citizens?
            If you cannot then stop posting nonsense.

          • Jerry
            Posted March 3, 2015 at 8:15 am | Permalink

            @Bazman; “This still does not make the job viable for a man with three children to move to an expensive part of the country.”

            Only you seem to be expecting such a family to do so ,b>what-so-ever, but once again if they had to then in-work benefits would allow them to at least rent a suitable home as well as live.

            “Do tell us why he would and why he should compete with desperate or young adventurous EU citizens?”

            Because we have to anyway, and the RotW too, just look at what Ford did with the production of their Transit Van, moved production lock, stock and smoking barrel to Turkey because -yes, you’ve guessed it- wages etc are cheaper, and how many other companies/factories in the UK that are now nothing more than warehousing operations now, if they survive at all, were the actual product production has transferred to another EU member country were labour is cheaper (or perhaps industrial relations are better) or has been “off-shored” to places like China or India?

            Bazman, if you cannot understand these economic realities then please stop posting nonsense! Ho hum…

        • Bazman
          Posted March 3, 2015 at 8:14 pm | Permalink

          So your argument is that they have to compete with Turkey and even China and India because we have to anyway. Who? You?
          If you have noticed there is a massive shortage of suitable housing in most parts of the country and you say they are to move into a rented hovel from the home they own in the north moving all their children to different schools as well as removing them from other relatives? As if.
          In work benefits will cover this and make it all worthwhile? They do not. Not by a long way. Tricky even as a single man moving down south. I know as I did it at 29 years old. Hard few years I must say of bedsits, deadbeats and long lonely days of work and bad habits.
          All this to compete with young East Europeans living five to a room. Jerry. Sending money home. Two sets of rent?
          Why would a settled married man or anyone else do this?!
          There is already no work in their home towns the relocation of companies abroad is irrelevant to them. Wife works a bit they get benefits and do a bit on the side. Thats better than your rented hovel in a unknown city.
          How do you propose the unemployed to do as you want is the crucial question, because I for one would not in their circumstances. Not readily anyway. So how ya gonna make ’em Jezzzer?
          If you cannot understand these economic and human realities then please stop posting nonsense! Ho hum…
          You really are starting to bore me with you right wing uninformed nonsense.

      • libertarian
        Posted February 28, 2015 at 9:14 pm | Permalink


        ‘Why are they not attractive to the indigenous low skilled labour?…”

        Despite what a few on here have posted about benefits what most people fail to understand about the unemployed is that it ISN’T the same people despite the overall number being roughly the same. The long term unemployment rate, that is people without work for 6 months or longer is 2.1% ( 601,000 people )

        So called benefit scroungers are a very small minority of people. Here are some other reasons people are unemployed.

        Health issues
        Drug/alcohol abuse
        Ex Offenders
        People between jobs i.e. left one looking for next
        Single parents unable to afford childcare
        Lack the necessary skills.
        In rural areas transport is a problem
        NEETS ( young people 16-24 looking for first job)

        And here is the biggest reason, people are godawful at finding themselves jobs. They make no effort to research before applying, cv’s and application forms are routinely scattered with typo’s, grammar errors, poor contact details and all kinds of other mistakes. They fail to follow instructions and apply for wholly inappropriate jobs for their skill levels.
        Also the failure to attend interview rate is now at an all time high.

        There are currently this month 718,000 advertised unfilled vacancies.

        In my experience most people want to find work. They’re just really bad at doing it.

        • Jerry
          Posted March 1, 2015 at 9:53 am | Permalink

          @libertarian; First off, I have never said that all could take a low skilled or physically demanding job, nor that all could move across the country to find work (as Bazman seems to think I have suggested in the past) although a lot could if they really had to… As you imply, there has never been more opportunities – even for those who have (child) caring responsibilities or a disability, I think you’ll agree that technology has reinvented the ‘workplace’ and what we call the workplace, just as it has for were a SME can be sited.

          “In my experience most people want to find work.”

          I agree with you to a point, but around my part of the country most of the work eastern European migrants do should and would have been done by those in the 16 to 30 age group and perhaps to their 40s inn years past, thus at least half of your list could could do such work but seem to choose not to – once again if migrants can find the work why not the indigenous population, which brings us on to your last point…

          “They’re just really bad at doing it.”

          Perhaps, even more so for those who are older, and something the DWP seems to have been very slow to acknowledge, perhaps I’m wrong but all their “big guns” policies to help seems to be aimed at the 16 to 25 year age group. I also how wonder just how many are actually “really bad” at job hunting and how many have just had their expectations set far to high by the idiocy of Labours policy of 50% University degree course admittance and achievement with the rest being promised courses in colleges (often in worthless non-subjects) for those who are or at risk of being NEETs [1], along with that 30 plus misnomer that future jobs in the UK will be mostly high-tech, well paid and quite possibly clean. Even though, to take my area as an example, there are plenty of low skilled agricultural, horticultural and services jobs (hospitality and shop work etc.) many are being passed over for the relatively few skilled/trade openings that exist for the 16 to 30 yo age group.

          [1] simply as a means for the last Labour government to ‘massage’ the “youth” unemployment figures down

          • libertarian
            Posted March 2, 2015 at 4:43 pm | Permalink


            Sorry, I didn’t mean to imply that you had said that. I was making a general point about the excuses that lots of people use.

            In general I agree with most of what you say, especially about setting overly high expectations.

            You are also right that years ago young people would have taken the lower paying jobs and used them as a springboard to gaining experience and improving their lot.

            That is part of the general problem I see of people not understanding the job market. Its why I get so angry with a few of the posters on here who continually post utter nonsense and myths about the job market place. Their reinforcement of the excuses that people use to deny that their problem with getting a job lies with them not the job market is adding to holding people back.

            As far as the DWP are concerned there is one big problem with getting people into work, that is that lots of employers will NOT offer a full time permanent contract until they’ve had a chance to see you in action and to assess your attitude. However for someone on benefits this is a problem, they take a temp job for a few weeks, then don’t turn it into full time work, lose their housing benefit & take weeks to get back on it.

            The DWP assure me they are looking at sliding scale benefits under universal credit but I would like to see far more done in this area to ease the transition from benefits to work.

            I also agree totally that the 50% university target is utter nonsense , also raising the school leaving age to 18 is utterly insane, as a few people said this was done purely to massage the unemployment figures. Most schools STILL aren’t telling pupils about apprenticeships, a vanishingly small number of schools let it be known that you can leave at 16 if you have an apprenticeship.

        • Bazman
          Posted March 1, 2015 at 10:38 am | Permalink

          I don’t know about the numbers, but this is it pretty much in a nutshell, so how cutting the benefits if the above is going to help them is not clear, but the end game is to pander to the prejudices of the right and hope they will vote Tory.

    • libertarian
      Posted February 28, 2015 at 8:52 pm | Permalink

      Dame Rita

      It doesn’t matter how many times you post this stuff about the jobs market, you are not going to be right. I’ve posted the figures so many times, pointed out how many people actually want and benefit from zero hour contracts and how less than 5% of the workforce work on these types of arrangements and the biggest employer of zero hour workers is the government. I’ve shown you the rising wage levels even broken down by industry segment, yet still you and one or two others persist in posting myths.

      We are now down to 5.7% unemployment and falling whilst we also have the largest number of people in work that we’ve ever had at 31 million. I’ve even told you why this is happening ( hint its nothing to do with the government or any of their policies). Its the rise in SME’s another 750,000 new start ups, we now have 5.2 million businesses in the UK 99.3% in the SME bracket employing 15.2 million . They are predicting another million new jobs in the coming 18 months. These jobs are in nearly all industry segments and all skill levels. The only 2 areas suffering at the moment retail & hotel/leisure.

      • Jerry
        Posted February 28, 2015 at 10:42 pm | Permalink

        @libertarian; My only issue with Zero Hour contracts are exclusivity clauses.

        “Its the rise in SME’s another 750,000 new start ups, we now have 5.2 million businesses in the UK 99.3% in the SME bracket employing 15.2 million “

        Are we talking actual companies, sole traders etc. or people who have registered as self employed for tax/benefit purposes or perhaps just to remain within the law and who are scratching enough to live on and pay the basic NI contributions, better than nothing and better than being on JSA certainly (as there is nothing to stop them finding other employment or more hours) but not exactly contributing much to the economic life of the country.

        • libertarian
          Posted March 2, 2015 at 4:57 pm | Permalink


          Exclusivity clauses were banned and also existing exclusivity contracts torn up when new legislation came into force last November. True the new rules are poorly drawn up but thats Vince Cable for you.

          At the start of 2014:

          There were an estimated 5.2 million businesses in the UK which employed 25.2 million people, and had a combined turnover of more than £3,500 billion

          Small firms accounted for 99.3 per cent of all private sector businesses in the UK.

          Small and medium sized businesses employed 15.2 million people and had a combined turnover of £1.6 trillion

          Of all businesses, 62 per cent (3.3 million) were sole proprietorships, 29 per cent (1.5 million) were companies and nine per cent (460,000) partnerships

          The biggest percentage increases in the number of businesses since the start of 2013 were in Wales (up 13%) and the North East (12%)

          18% of all SMEs in the UK private sector operate in the Construction sector while 15% operate in the Professional, Scientific and Technical sectors.

          Wholesale and Retail Trade accounts for over a third of all SME turnover (35%)

          My understanding is this doesn’t include self employed. Of course its not always easy to tell as just about all Sole Traders are also self employed, however sole traders are owners of a business and you are required by law to submit end of year accounts.

  2. Richard1
    Posted February 27, 2015 at 7:11 am | Permalink

    Yes leftist politicians such as Messrs Miliband and Balls and ‘keynesian’ economists such as Martin Wolf of the FT have been proven completely wrong. The strength of the much criticised US political system is shown by the deficit reduction there in spite of a left wing President. Let’s also not forget the shale gas revolution which has transformed industry in the US – which has happened in spite of Obama. We should of course do the same thing here.

    It would be nice to have an acknowledgment from academic Keynesians, who in theory are seekers after truth, that they have been proven so wrong by the out-turn of the UK economy (as they were in the 1980s). But don’t hold your breath.

    • Lifelogic
      Posted February 27, 2015 at 9:17 am | Permalink

      The BBC of course (almost without exception) has pro EU, magic money tree economists as “experts” and BBC staff. Sensible people like Allister Heath rarely feature anywhere on the BBC.

      It is this more than anything that sets the lefty agenda fro the whole country. This and the fact that that Cameon’s Conservatives are just Labour light and never make the case for a smaller state sector.

      • Cliff. Wokingham.
        Posted February 27, 2015 at 2:33 pm | Permalink

        Yes LL, and to make it even worse, I read that a committee of MPs have suggested the state’s broadcaster should be funded in the future by a compulsory levy on each household, whether or not that household has a television or not….Yet another charge wrapped up in the council/rip off tax no doubt.

      • Richard1
        Posted February 27, 2015 at 3:07 pm | Permalink

        Yes the implicit bias in the BBC on many issues, including economics, is a major concern. only the end of the license fee will cure the problem. As long as the BBC is funded by a poll tax it is bound to be statist. Conservatives need to push for a subscription model Radio 3&4 can be funded directly by the govt (they are v small anyway). Radio 1 & 2 should be able to advertise.

      • Jerry
        Posted February 27, 2015 at 5:26 pm | Permalink

        @LL; “The BBC of course [..//..] sets the lefty agenda”

        You obviously do not watch Ch4 (especially their news programmes), but then again perhaps you don’t get it were you live, at least not on Freeview…

        • Lifelogic
          Posted February 28, 2015 at 10:18 am | Permalink

          Ch4 is very lefty pro EU, big government, high taxes and pro Greencrap too, I agree.

      • Bazman
        Posted March 1, 2015 at 10:58 am | Permalink

        Righty claptrap is what you constantly write without basis.
        You need to ask how your free market fairies will produce clean sustainable energy without any funded research or subsidy or solve youth unemployment, housing, transport and a large number of other problems facing this country.

    • jeffery
      Posted February 27, 2015 at 12:06 pm | Permalink

      The claim that shale gas has ‘transformed’ US industry is often made by John Redwood. Obviously there has been a major effect on oil and gas production, clear from the data. But otherwise, manufacturing data do not show any clear difference between the US recovery 2002-7 and 2009-14. People might be keying on international comparisons, where most G7 countries are below their pre-recession manufacturing peaks. But this might reflect either overall economic performance or the US bias towards newer technologies.

      • Richard1
        Posted February 27, 2015 at 12:44 pm | Permalink

        It’s quite clear there has been extensive re-investment in energy intensive industry in the US, increased employment levels and reshoring of jobs.

        • Jerry
          Posted February 27, 2015 at 5:36 pm | Permalink

          @Richard1; “increased employment levels and reshoring of jobs”

          Apologies if you were only talking about energy intensive industry, it’s not clear, but how much of that increased US employment and reshoring has been the result of certain recent off-shoring destinations becoming uneconomic or high risk (were IP rights might become compromised)?

          “jeffery” is quite correct to point out that the economic data coming out of the USA is somewhat unclear at the moment, if it wasn’t the Republican party would have less ammunition to lob in the direction of President Obama and the Democrats!

      • Lifelogic
        Posted February 27, 2015 at 12:49 pm | Permalink

        Which business is likely to be more competitive one using gas generated electricity at say 4p per KWH or one running off intermittent, offshore wind power costing perhaps seven times as much with the back up needed?

        • Lifelogic
          Posted February 27, 2015 at 3:41 pm | Permalink

          And where might one choose to site your high energy consuming business business and the jobs that come with it – if you wanted it to prosper?

        • fedupsouthener
          Posted February 27, 2015 at 5:44 pm | Permalink

          Exactly, someone isn’t very good at their sums!! The SNP have recently been told that the closure of Longannet will be a disaster but as usual they have blamed it all on Westminster when the real problem lies with their total love affair with wind and their ridiculous aim of 100% renewables. They don’t listen to the experts in energy or the engineers – no, they listen to WWF and FOE etc who we know of course know sweet FA about anything to do with energy! The only interest they have in it all is raking in the subsidies which you and I pay for and every business in this country. Austerity my backside!!

          • Lifelogic
            Posted February 27, 2015 at 9:57 pm | Permalink


          • Lifelogic
            Posted February 28, 2015 at 10:21 am | Permalink

            Would you choose to fly on a plane designed by green loons or politicians? Natalie Bennett does not even seem capable of basic arithmetic.

          • Bazman
            Posted March 1, 2015 at 11:23 am | Permalink

            Wind power costs continue to drop and to say wind is not viable because it is subsidised overlooks the massive subsidies on other energy forms. As I have pointed out to you before wind can be predicted with some accuracy and this energy utilised in an economically viable way despite its intermittent nature. What are your suggestions for economic clean energy sources. You are even against insulation of homes and other efficiency methods.
            You will also have to explain to us why the current housing market is tailored to suit foreign oligarchs rather than British families? There’s been a lack of political will as well to get more houses get built. For this you can blame the Tories and their Right-to-Buy legacy. It’s bad enough this Thatcher policy divided working-class communities and depleted our social housing stock. But it also put a block on local authorities building new homes – and we’re only now feeling the crisis this created. Thatcher created a demand for home ownership without increasing supply. The result is sky high prices which are unaffordable for young families, especially in London costing the taxpayer a fortune in subsidised rent.
            This is good arithmetic? However as we have seen you are not about facts which is what maths is based on.

          • Jerry
            Posted March 3, 2015 at 8:33 am | Permalink

            @Bazamn; “Wind power costs continue to drop”

            As does the wind it’s self, always assuming it’s not blowing to fast for the turbines, and thus making the wind power unpredictable at best, and as about as useful as an ashtray on a motorbike at worst.

            “wind can be predicted”

            So what if it can, not a lot of help if the wind will not blow when industry needs electricity! Thus there has to be another back-up, so why not just use that back-up and save the money that would have been spent on your beloved wind turbines – unless of course their construction is nothing more than a job creation scheme, if so then better use of labour and resources would be more motorways, even HS2, even new canals!

          • Bazman
            Posted March 3, 2015 at 8:25 pm | Permalink

            You are arguing that wind power can never be viable in any circumstances which is clearly just unscientific and wrong.

          • Jerry
            Posted March 4, 2015 at 3:29 pm | Permalink

            @Bazman; What people are saying is that wind turbines can’t be dependable even if the wind is 100% predicted as it might not be available when industry needs it most, after all you have admitted that yourself by saying that a back-up supply is required! The only person being unscientific is you Baz.

          • Bazman
            Posted March 6, 2015 at 6:17 pm | Permalink

            That not how it works Jerry. If you cannot be bothered to find out the facts and believing you own them that is your problem. The key word is ‘viable’ and is used in conjunction with other energy sources when the wind blows you use ‘free’ energy and when it lulls conventional sources are switched on. The two being in theory cheaper than all conventional. You are telling is that industry and household electrical loads are unpredictable year on year and so is wind? You are just wrong.
            Is solar power ever viable for any application? For example millions of gallons of kerosene used in the third world for lighting is now being saved by the use of solar powered lights and the money saved for use on other things? It is all a lie or if it is not should be stopped, because that is where you are going with you deluded arguments with no factual basis?

          • Jerry
            Posted March 8, 2015 at 2:38 pm | Permalink

            @Bazman; “If you cannot be bothered to find out the facts”

            The filthy pot trying to call the kettle dirty again…

    • Narrow Shoulders
      Posted February 27, 2015 at 12:49 pm | Permalink

      The UK economy is growing because of the addition of capita nothing else. Do not crow about Conservative achievement when they kept the fiscal stimulus pumping.

      QE (in USA and UK) anybody?

      Reply The growth in output well exceeds growth in population

      • Narrow Shoulders
        Posted February 27, 2015 at 3:53 pm | Permalink

        Over what period Mr Redwood? Immigration continues in the bad times as well as the good unless you are Swiss.

      • acorn
        Posted February 27, 2015 at 5:47 pm | Permalink

        Give over with this bullshit JR. GDP per Capita in the UK is 13.5% lower today than it was in 2007. GNI is increasingly going to capital owners, not wage earners.

        Do you STILL think we are all Muppets out here, believing every word our “bought and paid for” political class tells us!

      • Lifelogic
        Posted February 27, 2015 at 8:34 pm | Permalink

        To reply:- well yes, but only because we are in a recovery phase from a very deep recession.

        • APL
          Posted March 1, 2015 at 10:08 am | Permalink

          Lifelogic: “from a very deep recession.”

          Just apropos of nothing.

          What is the definition of a recession?

          A very deep recession.

          When does a very deep recession become a depression?

  3. Mondeo Man
    Posted February 27, 2015 at 7:26 am | Permalink


    Let’s put a question on austerity:

    Is it fair that a person can come from a country, that has refused to endure austerity, to enjoy the fruits of the sacrifices in one that has ?

    – our people cannot enjoy the bumper pay rise they deserve because there is an over supply of ‘cheap’ labour

    – our employers cannot pay the rises they want to because they are being over-taxed to pay to subsidise the ‘cheap’ labour

    There is a possibility that Ukip voters who are Tory at heart (like me) may get cold feet and return to the fold in May – but not me. And not anyone I know either.

    We’ve lost hope for the future of this country, John. Even the anti Ukip Daily Mail is saying today that “no country can survive this level of change.”

    And we can’t.

    I don’t care whether the blue team or the red team wins – I just look on in despair at the party-before-country antics . I used to defend the Tories and the Daily Mail to the death but now I can’t abide either.

    • M Davis
      Posted February 27, 2015 at 9:13 am | Permalink

      I think you speak for a lot of us, Mondeo Man.

      PS – If Lifelogic was in charge, I’d vote for him :)!

      • fedupsouthener
        Posted February 27, 2015 at 5:45 pm | Permalink

        Yes and so would I but as he’s not standing I’ll settle for Farage!

        • Timaction
          Posted February 28, 2015 at 6:59 pm | Permalink

          We have no hope under the legacy parties who have sold us out to the EU. The only party who will stand up for the British, want our borders secured, return our sovereignty, reduce foreign aid and increase spending on the NHS and the armed forces and get us out of the EU is…………………………….UKIP of course. The public now know this and there is nothing the legacy parties can do but watch the party grow.

          • Jerry
            Posted March 1, 2015 at 10:08 am | Permalink

            @Timaction; The only party who will stand up for the British, want our borders secured, return our sovereignty, reduce foreign aid and increase spending on the NHS and the armed forces and get us out of the EU is …………………… the SLP of course – with their clear policy (and thus likely manifesto pledge) for a Brexit!

            The real question is, who is the most likely to be able to deliver, certainly not the SLP, and not UKIP unless they are in a strong enough position to do some sort of coalition/pact deal with one of the legacy parties but then that scenario also risks allowing in a majority Europhile party or coalition/pact (perhaps between two, three or more parties). Thus there is only one party who can actually deliver EU referendum any time soon and who is this party, the one our host still belongs to, but only assuming they have a strong majority after the 8th May.

      • Jerry
        Posted February 27, 2015 at 9:30 pm | Permalink

        M Davis; “PS – If Lifelogic was in charge, I’d vote for him”

        Hmm, with the greatest of respect, I would emigrate!

        • libertarian
          Posted February 28, 2015 at 9:19 pm | Permalink


          “Hmm, with the greatest of respect, I would emigrate!”

          Out of interest to where ?

          • Jerry
            Posted February 28, 2015 at 10:53 pm | Permalink

            @libertarian; Anywhere!

            Seriously though, I haven’t actually given emigration much thought…

    • Mitchel
      Posted February 27, 2015 at 10:38 am | Permalink

      I fully agree with you,Mondeo Man.

      “A nation can survive its fools and even the ambitious but it cannot survive treason from within”….so said Cicero two millenia ago,he could just as easily be commenting on the present.

      • Lifelogic
        Posted February 27, 2015 at 12:52 pm | Permalink

        Indeed and it is a long list of traitors from Heath to ratter Cameron.

    • DaveM
      Posted February 27, 2015 at 10:42 am | Permalink

      “There is a possibility that Ukip voters who are Tory at heart (like me) may get cold feet and return to the fold in May – but not me. And not anyone I know either. ”

      The fishermen of Devon and their families have also made an unofficial pact to vote Ukip from what I hear. And their friends. And I understand they’re trying to get a simillar pact throughout the fishing (or rather ex-fishing) communities of the whole UK. We might just find out what the first 100 days really look like!!

      • fedupsouthener
        Posted February 27, 2015 at 5:46 pm | Permalink

        This is what my husband and myself also say. We will vote for UKIP no matter what because we are so fed up with the Tories now and would never consider Lib Dims or Liebour.

    • Max Dunbar
      Posted February 27, 2015 at 11:22 am | Permalink

      Agree Mondeo. I will either vote for UKIP or not at all. UKIP in Scotland will probably do better than expected even if they do no campaigning here whatsoever. There is simply nobody else to vote for. The blackmail leaflets from all the main parties have started coming in and its always the same refrain, ‘If you don’t vote for us then the big SNP bogey man will get you’. At one time I would have voted Tory. The local Tory councillor defected to UKIP some time ago.

      To summarise:

      Conservative Party – Spineless and no longer conservative. What are they really for?

      Labour Party – Fundamentally anti-British and completely unprincipled.

      Lib-Dems – Contemptible and despicable.

      SNP – A dangerous and implacable enemy for whom no quarter is given or asked.

      I would guess that UKIP, if they attempt any campaigning at all, will have their meetings disrupted and be run off the streets by the self appointed Political Police. The real police will probably turn a blind eye, their pensions being uppermost in their minds.

      • Mondeo Man
        Posted February 27, 2015 at 9:16 pm | Permalink

        Indeed, Max.

        The Violent Left will rule the roost as they have for at least 20 years.

        Ukip voters and activists are the model of peaceful democracy at work and yet are never recognised nor thanked for it. In fact they are held in disdain, mocked and insulted.

        We can take it. But don’t expect us to vote Tory.

        We are owed an apology before we can even think about that.

        (Thanks to all others for their responses)

    • APL
      Posted February 28, 2015 at 9:59 am | Permalink

      Mondeo Man: “our people cannot enjoy the bumper pay rise they deserve because there is an over supply of ‘cheap’ labour”

      People don’t just deserve ‘bumper pay rises’, when anyone, you or I take a job, we already know what the pay scale will be. In short we have contracted our time for that specific sum of money.

      If our governing class, hadn’t latched on the the destruction of the value of Sterling in order to improve it’s short term electoral prospects, then we’d all be paid in a currency that was stable, or even gently appreciating in value.

      Having lived a whole lifetime in an inflationary environment, it’s difficult to understand what a non inflationary economic environment would be like. But we certanly wouldn’t need to demand ‘bumper pay rises’, just because.

    • Jerry
      Posted March 1, 2015 at 10:25 am | Permalink

      @Mondeo Man; “our people cannot enjoy the bumper pay rise they deserve because there is an over supply of ‘cheap’ labour”

      I seem to remember the NF in the 1970s shouting something similar…

      What makes you think that anyone is going to get bumper pay rises when the work can be off-shored to a cheaper country, or were the same products can be imported and sold direct to the end customer cheaper than many are already being paid here in the UK to make or warehouse them. Just accept that you deserve nothing and should expect nothing in our now globalised economy.

      Your views seem far more constant with old socialist union values – “A 20% rise and we want it now!”, and of course the far left has always been against free trade and globalisation.

  4. Ex-expat Colin
    Posted February 27, 2015 at 7:46 am | Permalink

    Russia gives €2.5 billion loan to Cyprus for Russian Navy to park some ships – Fraser Nelson today (D.T). Austerity does lead to a bit of the unexpected…again!

    There’s more than that though isn’t there – not reported?

    So if they park around Larnaca/Limassol is the RAF prevented over fly?

    The EU…..LOL

    • alan jutson
      Posted February 27, 2015 at 3:19 pm | Permalink

      Ex Pat Colin

      They are actually talking about using the runways as well for their aircraft. (according to press reports)

      Cannot blame Cyprus, the EU wanted to shaft them a little while ago by raiding the populations Bank accounts, so looks like the Government are looking to Russia for money and support.

      Perhaps Greece will be thinking the same way given time.
      That would put the cat amongst the pigeons.

      • Ex-expat Colin
        Posted February 28, 2015 at 3:36 am | Permalink

        @Alan J

        Yes…its standard media reports of varied reliability. However, the use of Cyprus may intensify for both Russian Sea & Air Forces, being repair/refuel etc.

        I suspect the EU told Greece fairly forcefully to keep away from Russian money….otherwise?

        It all seems to be unravelling fairly fast. Add an assassination in Moscow.

      • Mitchel
        Posted February 28, 2015 at 1:27 pm | Permalink

        @ Alan Jutson.

        Having (partially so far ) restored Catherine the Great’s Novorossiya,perhaps Mr Putin has in mind another of Catherine’s projects – “The Greek Project” – the revival of the Byzantine Empire as a Russian vassal state.Pre-Soviet Russia always saw itself as the successor,by marriage and religion,to that empire.It didn’t get off the ground at the time because of opposition by the (then still powerful) Hapsburgs….but now…who knows!

    • Max Dunbar
      Posted February 27, 2015 at 10:37 pm | Permalink

      Probably Crete next. Suda Bay and the Maleme airfield is a military zone on the north west coast that could be very useful to Russia. The EU/Nato had its chance.

  5. Lifelogic
    Posted February 27, 2015 at 8:09 am | Permalink

    The key thing is to stop spending money on stupid things that produce no or little return. Government do vast amounts of this, the green subsidies for idiotic expensive & intermittent energy systems, the EU, CAP, OTT regulation of everything, payments to augment the feckless, grants for electric cars, pointless quangos, idiotic HS trains, buying votes, the dysfunctional NHS, idiotic government propaganda, the road blocking and constricting, the lefty greencrap BBC ……

    Then to start to spending money on things that actually produce a real solid return and make the UK more competitive like a five runway Heathwick, getting out of the suffocating EU, cheap energy, real competition in banking, sensible easy hire and fire employment laws, reducing taxes so people and businesses have money to invest (they do it so much better than governments).

    A deficit is just deferred taxation anyway. Every time the government waste money on something daft like the millennium dome, most “renewables”, HS2, the Olympics ….. they make everyone poorer and harm the economy. So why do they do this one assumes because many are as Richard Littlejohn puts it: The Hon. Member for Unilever, Unite and Beijing West or worst still for Unite.

    Alas the wet fake green, pro EU socialist & sitting duck election loser Cameron has failed miserably and is about to throw his second election as a direct result. The Tories have not won an election since people worked out what dreadful wet pro EU socialist incompetent John Major was. After the next election that will be five terms of socialism perhaps 23 years or 30 years if you include Major’s miserable years.

    We need some real low tax, smaller government, high growth positive vision for the UK – but from Cameron we get nothing but lefty, pro EU, greencrap & we are not quite as crap as Labour.

    • Lifelogic
      Posted February 27, 2015 at 1:58 pm | Permalink

      Why would anyone rational believe that allowing, usually incompetent & corrupt governments, to continue to tax borrow and waste could be a good thing for the economy? By what mechanism could this possibly work? By some magical homeopathy or similar perhaps?

      One might as well argue that allowing a protection racket gang to have more scope to extort, borrow and waste would magically help the economy. In fact they would perhaps be less likely to do the wasting part.

      Talking of waste I see out taxes still fund homeopathy and other similar “treatments” on the NHS.

  6. Ian wragg
    Posted February 27, 2015 at 8:16 am | Permalink

    How are you possibly going to reduce government spending when another 620,000 people have come to these shores in the past year
    National debt doubled. Immigration running higher than 2010 and the Nhs in crisis
    The armed forces reduced to a civil defence force. Why should anyone vote for the liblabcon.

    • Lifelogic
      Posted February 27, 2015 at 9:23 am | Permalink

      Indeed and 620,000 people mainly on low wages and costing the government far more in health, schools, benefits (in work or out of work) and general government expenditure that they will ever pay in tax.

      Also reducing the wages of others and thus the tax they pay.

    • Gary
      Posted February 27, 2015 at 11:34 am | Permalink

      govts don’t care about raising money through taxation anymore, they issue bonds (debt)to raise revenue.

      taxation today has one main purpose : to fiat legal tender laws (govt coercion) to put a demand floor under paper currency. If it were not for taxation irredeemable paper money would have no demand and thus no value whatsoever.

      This paper money would never be chosen in a free market, it must be forced upon us by taxation. The money is all created as debt and if the state debts are ever fully repaid the paper money would all disappear. This is the sleight of hand upon which the modern nation state is built.

      • Denis Cooper
        Posted February 27, 2015 at 3:31 pm | Permalink

        You’re certainly right that the UK underpins its fiat currency through legal tender laws plus the requirement for it to be used for the payment of taxes, which is the common and possibly universal practice.

        However it can hardly be the case that the UK government no longer cares about raising money through taxation, when it is only ever borrowing a fraction of its expenditure and almost all of the rest comes from taxes.

        Even back in 2009 when the Labour government was having to borrow a quarter of all the money it was spending that still meant that most of it, three quarters, was coming from tax revenues, plus some asset sales and other odds and ends.

    • Denis Cooper
      Posted February 27, 2015 at 1:31 pm | Permalink

      624,000 in the year to September 2014, apparently the greatest annual influx on record, which added to the previous four years and suitably extrapolated will come to a total of about 2.8 million legal immigrants admitted during the five year period corresponding to the premiership of a man who pretended to be concerned about the excessively high rate of immigration and promised to bring it down to a more acceptable level. Which in my own view would certainly be less than a tenth of what has happened, not 1% of the population a year but less than 0.1%; so that at no time would there be more than about 5% of the population who were foreign-born averaged across the country, people spanning the age range with some young recent arrivals and others who had been here for a long time and had become fully integrated into our society, although of course with hopefully temporary local pockets where the percentage would be higher than that. And that is only the official, legal, immigration.

      • Mondeo Man
        Posted February 27, 2015 at 9:24 pm | Permalink

        Nearly all of the outgoing will be resourceful, self sufficient and conservative by nature.

  7. DaveM
    Posted February 27, 2015 at 8:17 am | Permalink

    At work I am currently trying to find ways in which my department can spend as much as possible before the end of March in order that we, and various other departments in the area, can quickly “use up” a £20million underspend. Taken as a chunk, that £20million could build or buy something meaningful; as it is it will be spent on big TV’s – sorry, briefing screens – for people’s offices, gazebos and barbecues for social events, etc.

    I wonder how many other public sector departments are similarly frittering away public funds like this, and how much these underspends add up to? We are told that if we don’t use it, it will “go somewhere else”. So what?!! We already know next year’s budget anyway (5% less than this year – that’s what the govt thinks of your security, folks).

    For God’s sake, John – as long as we have people running budgets who have this attitude to public funds we will always have defecits and debts.

    STOP THE WASTE!!!!!!!

    • Lifelogic
      Posted February 27, 2015 at 10:14 am | Permalink

      Exactly this is entirely typical of the way many government departments “work” – Get rid of the money quickly guys or they will take it off next years budget. Oh and what ruse can we use to justify needing a bigger budget next year guys?

      Milton Friedman, in a Fox News interview in May 2004

      “And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.”

      Alas rather more than 40% in the UK – tax borrow and endless government waste is all we get from LibLabCon. Worse still on top of that the productive sector is hugely distorted, misdirected and inconvenienced by the green crap, absurd employment laws, loans for daft university courses and other endless absurd EU and UK regulations.

    • Mike Wilson
      Posted February 27, 2015 at 10:21 am | Permalink

      Absolutely. Everyone knows that this is endemic throughout the public sector. When my wife worked for a local council they replaced perfectly serviceable office furniture before year end just to ‘spend the budget or we’ll lose it next year’.

      Yet no government seems to have a clue how to tackle this.

      • Lifelogic
        Posted February 27, 2015 at 8:37 pm | Permalink

        It is not their money what do they care! Some might make a few bob too by buying up and selling on the old stuff on or tipping of a mate in the second hand office furniture business.

    • Kenneth R Moore
      Posted March 1, 2015 at 2:17 am | Permalink

      This is ‘waste’ to you and me but to George Osborne in his topsy turvy world it means growth in GDP and associated non productive jobs.

      It is the Conservatves ‘Long term economic plan’….since the short term economic plan to reduce the deficit in one parliament was scrapped…. so as not to deflect David Cameron’s left wing politically correct vote destroying claptrap.

      When the overnment is running a national pyramid scheme to ‘buy’ growth by pouring borrowed money into the economy, a great deal will inevitably be wasted.

  8. alan jutson
    Posted February 27, 2015 at 8:20 am | Permalink

    Is it really correct to call living within your means austerity ?

    Have we all become so hooked on credit, that we believe there should be an automatic and endless supply of money, which can be paid back whenever we feel like it.

    Is our education system so poor, that people (and politicians) do not understand how they get into debt, because they cannot do simple mathematics.

    • Lifelogic
      Posted February 27, 2015 at 10:17 am | Permalink

      Certainly inability to do simple sums seems to be a problem for Natalie Bennett the Greens, Labour, half the Tories and the Libdums.

  9. James Reade
    Posted February 27, 2015 at 8:28 am | Permalink

    Thank you once again John for coming and giving a lecture to my students. It was indeed very interesting and thought provoking.

    I’ll encourage them to read this and add their comments. I’ll also add a comment later on, for now I have to give them a lecture myself…

  10. oldtimer
    Posted February 27, 2015 at 8:39 am | Permalink

    Austerity is one of those imprecise, flexible words used by politicians to mean what they want it to mean. The intent is usually pejorative.

    To me austerity means the early years of my life – during the recession of the 1930s, the hardships and rationing of the war years, and rationing which continued post WW2 until 1953. In those terms, there is no austerity today. Politicians who claim that there is simply do not know what they are talking about.

    • Lifelogic
      Posted February 27, 2015 at 10:21 am | Permalink

      Indeed austerity is rather like “racist” or “sexist” it means:- we have not got any rational arguments to put so we will just brand you and shout you down.

      It is used to mean “making you poorer”. In fact government austerity and efficiency makes people richer and creates real and lasting jobs.

  11. agricola
    Posted February 27, 2015 at 8:47 am | Permalink

    If austerity means not running an economic cloud cuckoo land as did the Greeks then it is necessary. There must however be balance.

    The balance is an economic situation where there is real incentive created by small government ie. cutting expenditure and getting off the backs of the people. Low corporate and personal taxation plus in the case of the Greeks control of their own currency.

    We in the UK still suffer large government, ergo our deficit reduction is slow and our DEBT is enormous. Our commercial export potential is hampered by membership of the EU, who control where we can export. Low taxes both corporate and personal combined with small government and freedom from EU control is the answer to reduced deficit and debt elimination.

    If there is one useful thing the UK government could do it would be to put an end to the exploitation of the public by the financial services industries in most of it’s manifestations. Controlling the excesses of commercial activity is just as important as the war on terrorism. If you do not believe me think of the obscenity of the pay day loan industry, the insurance ambulance chasing industry, having gambling thrust down our throats, and the begging charity industry where the rewards of the management are more important than whatever it is they claim to do.

    • graham1946
      Posted February 27, 2015 at 8:13 pm | Permalink

      Agreed. These sort of jobs are non jobs, producing nothing at all of value, but they all add to GDP which shows what a nonsense this gauge really is. All it tells us is how fast the wheels are spinning, not whether we are actually going anywhere.

      If the Office of Notional Statistics ( which the late Keith Waterhouse referrred to at the National Guesswork Authority) was to filter out this type of activity, I would think our useful GDP would be on a par with Somalia. We seem to make money, not wealth any more.

      • Denis Cooper
        Posted February 28, 2015 at 9:52 am | Permalink

        And the more that the GDP statistic is dominated by services the more nonsensical it becomes. Of course that’s only the services which are paid for and recorded; for example a set of parents looking after their own children without any payment would add nothing at all to GDP, they would be classed as “economically inactive”, but if the same set of parents arranged to pay each other for looking after the same children in the same way those monetary transactions would be added to GDP and would be represented as valuable economic growth.

  12. Mike Wilson
    Posted February 27, 2015 at 9:18 am | Permalink

    Governments are desperate for ‘growth’. What is the easy way to get growth? Why, increase the population of course. The more people, the bigger the GDP. Obvious, innit?

    Mr. Redwood – given you cannot control immigration from the EU – could you give us an insight into why 300,000 people from outside the EU were allowed into this country according to the figures released yesterday?

    Further, can you advise where these people are going to live? What affect their presence and will have on the housing market – and rents in particular? Which GP practices have room on their lists to take them as patients? Which hospitals have the spare capacity to treat them when they get ill? Which schools have spare places for their children?

    Seriously, why are you not even controlling immigration from outside the EU?

  13. Bert Young
    Posted February 27, 2015 at 9:21 am | Permalink

    The USA is basically a “self-supporting” economy and as such its “debt” position is entirely different to ours . Apart from controlling our public expenditure level , we need to import and then add “high value ” content in order for us to reduce our deficit with the world . If we succeed in our “fracking” programme , we will be placed in a much improved economic position by neutralising much of our energy costs . History has shown that when we have an incentivised business market and generally low taxes , our overall economic performance improves – this model is likely to be the same in the future . Fortunately – unlike the Greeks , our national style has enabled us to take on the “hard” times with fortitude and muscle down to getting things done . Whether , with the vast difference now in our national population mix , we will be able to do this in the future is all down to the controls at our borders .

  14. Brian Tomkinson
    Posted February 27, 2015 at 9:37 am | Permalink

    I guess you have no credible excuses to offer regarding your party’s abject failure to control immigration. Don’t be surprised if we don’t vote for your party and when we say ‘no ifs, no buts’ we mean it, unlike your craven mendacious leader.

    • Denis Cooper
      Posted February 27, 2015 at 1:38 pm | Permalink

      If Cameron really wanted to cut immigration then he wouldn’t have invited (so many young people ed) to come here to study and then stay on afterwards.

    • Mondeo Man
      Posted February 27, 2015 at 6:02 pm | Permalink

      With the equally awful Miliband, Clegg, Bennett competing for office Cameron should be shooting towards an open goal and we should be in no doubt of a majority Tory government.

      But we aren’t.

      Why not ?

      (It’s quite likely that we are going to go on to do 23 years without a majority Tory government. Another coalition seems likely.)

  15. Bill
    Posted February 27, 2015 at 9:46 am | Permalink

    Keep up the good work. Your voice needs to be heard. I shudder to think of another Labour administration.

  16. Mike Wilson
    Posted February 27, 2015 at 9:53 am | Permalink

    This ‘austerity’ one hears so much about. Does it involve the government spending less money? Something like that?

  17. Brian Tomkinson
    Posted February 27, 2015 at 9:57 am | Permalink

    One of many things that annoy people is the obsession of politicians with self-selecting statistics to try and put themselves in a better light and distract from reality. Before the last election your party promised to eliminate the structural deficit by 2015. You have not.
    Even now, you are adding between £1.5bn and £2bn to the government debt each week. The debt you seldom, if ever, mention. The interest on this debt is becoming larger as a consequence. What happened about the morality of burdening our children and grandchildren with our debts?
    Just cheap electioneering, I suppose.
    You now like to describe the deficit reduction as a % of GDP because you think it sounds better. You have halved the deficit as a proportion of GDP you boast. When Darling promised to halve the deficit by 2015 in 2010 you ridiculed him. Your self-serving boasts deserve similar opprobrium.

    Reply I have often catalogued the debts, agree the debt and deficit are both too high, and wish to see the deficit eliminated as the first step on the journey to lower debt.

  18. Richard1
    Posted February 27, 2015 at 10:38 am | Permalink

    Will you be posting on Mr Miliband’s latest fatuous proposal – that MPs should be prevented from having external business engagements? I though Mr Cameron missed the main objection to this: that it is yet another of Miliband’s Labour being bad for business. In Miliband’s eyes its OK to be a doctor on the side or to work for a trade union but not to work for a profit-seeking enterprise (except if you’re a lawyer – that seems to be OK). The entrepreneur Luke Johnson has researched the backgrounds of Labour MPs and candidates. Almost all have prior experience in: think tanks, unions, the public sector, academia, charities. Almost none have had a private sector career. but the private sector accounts for 82% of employment in the UK! When Labour MPs demand more ‘diveristy’ in Parliament, the diversity we really need is more representation from and more understanding of how the private sector operates and prospers. After all thats where all the tax revenue comes from. no more lectures from Ms Harman et al until there is proper representation of the productive sector of the economy in the Labour Party. The Labour Party fundamentally mistrusts business and anyone who doesnt depend for their livelihood on the State.

  19. agricola
    Posted February 27, 2015 at 11:11 am | Permalink

    Off topic but relevant today it would seem that the BBC as an indication of it’s impartiality are broadcasting on BBC Parliament a session of a conservative conference for the Welsh but not a whisper of the pre election conference of UKIP today. Nigel must have got them really worried in broadcasting house.

    Reply Tonight UKIP is on Any Questions with no Conservative rep. You win some, you lose some.

    • Lifelogic
      Posted February 27, 2015 at 12:55 pm | Permalink

      They had Heseline last week and often have Ken & Greg Clarke types, So having no real Tories on the program is very common indeed.

      • Jerry
        Posted February 27, 2015 at 6:34 pm | Permalink

        @LL; “no real Tories on the program”

        With the indulgence of our host, care to tell us what a “real Tory” is Mr Lifelogic? Judging from some of your comments I doubt even Mrs Thatcher would qualify, and perhaps none from after the demise of the Rotten boroughs! Surely the Tory party has always been a broad church?

    • Narrow Shoulders
      Posted February 27, 2015 at 1:03 pm | Permalink

      Apparently (I did not see it) Today in Politics yesterday asked a Conservative minister to come on the show and none would. They read the questions that would have been put to the minister anyway.

      Similar to the Have I Got News for you tub of lard stunt from a few years back. You do not recover from something like that, fortunately the electorate are so disengaged that few will have been watching.

      • Jerry
        Posted February 27, 2015 at 6:03 pm | Permalink

        @Narrow Shoulders; I think you meant “The Daily Politics”, Today in Parliament is a somewhat different style and type of programme, no chance of tabloid styled stunts on that!

        • Narrow Shoulders
          Posted February 28, 2015 at 7:38 pm | Permalink


          I did mean that.

          However one man’s “tabloid stunt” is another man’s point well made. Immigration figures were appalling and the number coming here is damaging yet no one came out to apologise.

      • graham1946
        Posted February 27, 2015 at 7:57 pm | Permalink


        They do this practically every day on The World at One. If a minister thinks he/she has something to brag about, you can’t keep them off, but awkward or difficult questions? No, they don’t have the courage to debate so we get one sided questions and answers, which some people regard as BBC bias, whereas it is really mostly a lack of courage and ability by the politicians.

        • Jerry
          Posted February 28, 2015 at 8:00 am | Permalink

          @graham1946; “they don’t have the courage to debate”

          You make some valid points about politicos not being “available for comment” but, and there is always a but, far to many TV and radio programmes (from all broadcasters) either are not prepared to debate the issues properly -the tabloid approach, which the BBC’s Daily Politics is but one example- or try and cram far to much, plus the kitchen sink, into the programme. I’m sure we have all watched or listened to what could have been a very interesting and informative debate on an issue but so time constrained was it that the interviewees barely had enough time for an opening sentence never mind any expansion on their position! When faced with such odds, even more so if the issue is controversial, is it any wonder that politicos of any opinion and none so often opt not to even attempt?

          I strongly believe that this is a problem that will not be solved until and unless broadcasters are once again required to offer quality and not just quantity. Also the BBC must be made to offer quality, not just “accessibility” nor should it compete for ratings (both of which have been used to dumb-down), otherwise it is no longer deserves its PSB remit and thus special funding…

    • Jerry
      Posted February 27, 2015 at 5:58 pm | Permalink

      @agricola; I believe UKIP’s conference, at least Mr Farage’s speech, was covered live on the BBC news channel.

      @JR Reply; “Tonight UKIP is on Any Questions with no Conservative rep. You win some, you lose some.”

      Indeed, funny how the BBC P channel decided to crash out of coverage of the Commons [1], to allow eventual coverage of the Welsh conservative conference, just before (I think) backbench Conservatives MPs were going to move their eurosceptic private members Bills!

      [1] I believe that the channel should always default to the business of the Commons, then the lords and then devolved nations before anything else, if so someone needs to be reminded of their remit…

  20. James Reade
    Posted February 27, 2015 at 11:52 am | Permalink

    Thanks again John. Few things that had there been no questions last night, I’d have mentioned/asked…

    Firstly, yes, the definition of austerity is important, and this is what in general has divided the literature thus far on the impact of austerity – what counts as an episode of austerity. Your definition is looser than many would advocate, who would suggest austerity is an aggressive cutting of a budget deficit.

    The problem with a loose definition is then applying it in particular contexts. It leads to the claim you made that there’s been more austerity in the US than the UK because the deficit is now smaller in the US than in the UK from a similar starting point, and the claim that austerity has got stronger here rather than weaker in the last five years.

    As far as I can tell, such a loose definition means you attribute any reduction in a deficit to austerity yet, as you mentioned in the lecture last night, economic growth does the same thing. Hence it could equally be that strong economic growth with a government doing nothing to address its balance would yield a much lower deficit and you would describe that as being the result of austerity – mistakenly, I’d suggest.

    The way around the problem, if imperfect, is to adjust deficit figures for the state of the business cycle – the so-called structural deficit, which economists like Simon Wren-Lewis (whom the first questioner mentioned) refer to when they discuss austerity. Such measures, done well, would enable us to get to the bottom of the causality issue to which you referred last night, and on which we disagree – in that I believe you assert that austerity led to more growth in the US than the UK, whereas I believe it more likely that more growth in the US than the UK for different reasons led to improving public finances in the US relative to here.

    Reply I agree that more growth can itself cut the deficit, and that cyclical effects matter. My point about cutting spending was that the US cut more than the UK 2010-12, and the UK squeezed spending more 2012-2014. I also made clear that cutting spending does not of itself produce growth – unless an economy is at full employment and public cuts free resources for more productive uses.

    • Lifelogic
      Posted February 27, 2015 at 12:59 pm | Permalink

      To reply:

      The point is you cut government spending and lower taxes and reduce obstacles in the way of the private sector who invest more sensibly. That way you use up spare capacity in the economy without digging pointless holes and filling them in again. Or often even worse investments by the government.

  21. formula57
    Posted February 27, 2015 at 12:23 pm | Permalink

    Eliminating the deficit was extremely important, so we were told in 2010, and a deal of evidence supports the view that the modest upturn Chancellor Darling saw at the end of his term was stifled by Chancellor Osborne’s too eager imposition of austerity measures. But all these years on there remains a huge deficit, albeit hugely reduced, so the suspicion arises that austerity as witnessed exploited the public’s largely misplaced perception of financial plight in order to promote another agenda, being creation of a smaller state. Some critics as you know holding that suspicion point to such maladroitly executed and explained measures as the “bedroom tax” (so called) to frame a class war narrative.

    In the context of such notions of the market state and the evident concentration of wealth to the 1 per cent., it is by no means clear to me that pursuit of a smaller state is a good thing but it may be. It seems to be what your Mr David “doing more with less” Cameron seems set upon although unhelpfully to those of us trying to understand what he is about and how well he is doing, too much is cloaked in professions about the importance of austerity (however defined from time to time).

  22. ian
    Posted February 27, 2015 at 12:53 pm | Permalink

    They will keep cutting till thet get to your pension and then cut some more, while they and their friends will be living in their ivory towers printing paper for fees, no way out.

  23. JoeSoap
    Posted February 27, 2015 at 12:55 pm | Permalink

    “In the UK between 2009 and 2013 the main parties all agreed the deficit was too large and needed to be brought down.”

    Not really. Labour believed borrowing more in the short term would reduce the deficit long term, which was what the Coalition actually did. You have borrowed more to pump in to the public sector to increase apparent GDP. The level of indebtedness is still RISING, hour by hour, minute by minute. This is a disaster in the making, still, 5 years on, not a fairy tale!

    Reply Labour enacted law to cut the deficit!

  24. bigneil
    Posted February 27, 2015 at 1:03 pm | Permalink

    Austerity -for who?. The rich or the ones who can put everything on expenses clearly aren’t affected. Those with Swiss bank accounts will only have to say the magic 5 letter “S” word to walk away with all their secret stash. Millions in foreign aid. Billions to the EU to “oil” the treacherous DC’s wish to be Lording it in Brussels himself. How’s the Indian space program going? Barnsley council announce job cuts. Tesco announce 10,000 job cuts. The govt announce ( trumpet fanfare) loads of new jobs but don’t say how many are zero hours, just to massage the figures. Still, the gates are wide open to a free house, cash, healthcare and schooling ( all on the English taxpayer) as a reward for arriving here. Will the govt ever admit how many of the latest flood will actually CONTRIBUTE – as opposed to being a drain- to the coffers? In the long run – how much bribery is a vote worth, when the end result being aimed for is the total destruction and annihilation of a nation? I sincerely hope that in about 15 – 20 yrs, all your current party are alive and still “brain alive” enough to look out at the mess you have welcomed, and say “look what we created”, followed by the inevitable – lessons have been learned.

  25. Denis Cooper
    Posted February 27, 2015 at 2:28 pm | Permalink

    I don’t accept that the UK has experienced anything that can be called “austerity”.

    It’s obviously true that many people have seen their standard of living eroded over recent years, and there has been an increase in the number experiencing real material hardship, but it has been nothing like the genuine “austerity” suffered in some other countries.

    Overall public spending has increased in cash terms, and stayed roughly the same in real terms; there have not been the drastic cuts in public spending seen elsewhere.

    The 2010 general election campaign was a disgrace to democracy, with three parties arguing the toss over a few billion here or there while leaving most of the electorate in the dark about the sheer magnitude of the government’s financial difficulties, let alone about how the Labour government had used the cunning device of “Quantitative Easing” to make sure that it could fund its massive budget deficit while avoiding drastic cuts to its spending during the year leading up to the election.

    And it seems that the 2015 general election campaign will be little better.

    The reality is that if the government is involved with about half of the economy in one way or another then it cannot suddenly slash a quarter off its spending in an attempt to balance its budget without that causing a major downturn, which naturally will then act against its objective of deficit reduction by depressing its tax revenues, in turn forcing further cuts to its spending in a kind of death spiral.

    If the government was a much smaller economic actor, with its spending at say only 5% of GDP, then that would be a different matter, because a sudden 20% cut in its spending would only impact on the economy at the 1% level and there could be a quick rebound from that perturbation; but when the activities of the government have expanded so that it plays a major role in the economy a massive budget deficit is much more dangerous and it can only be cut gradually, not with sudden drastic cuts in public spending.

  26. Margaret Brandreth-J
    Posted February 27, 2015 at 2:54 pm | Permalink

    I have listened to many points of view and still havn’t enough knowledge to make a judgement for myself.To me, where and what money is spent on can bring different benefits as what exactly is cut can be an important factor. The overall outcome may be due to better management generally rather than a specific event.
    Did you take £ 5,000 for the lecture?

    Reply No, I gave it free.

  27. ian
    Posted February 27, 2015 at 2:56 pm | Permalink

    Death by thousands cuts, o yes they been cutting alright, but in places where you can not see it yet and if you can it looks minor. government pension is one, nurses, fire, teachers, money to councils you name it. The big push to come by con/lab/libs.

  28. ian
    Posted February 27, 2015 at 3:30 pm | Permalink

    The waste will go on, they only cut things that you need. That politics.

  29. Kenneth R Moore
    Posted February 27, 2015 at 3:32 pm | Permalink

    The moment that Dr Redwood switched from referring to the deficit in cash to percentage of GDP terms, he lost some credibility with me. He knows and I know that this is a stupid and misleading way to describe the deficit. The deficit has been reduced by just a third – end of story.
    Although I congratulate him in resisting the call to refer to the coalitions laughable ‘long term economic plan’… called ‘long term’ as a convenient cover for the failure to reduce the deficit as planned, in the ‘short term’.
    As he has acknowledged, GDP spending is itself a measure of spending of borrowed money….by his yardstick increasing borrowing pushes up GDP which reduces the deficit percentage figure!. The logic of pulling yourself up by your own bootstraps.
    In other words the economy is a pyramid scheme.
    Poor form Redwood – your personal credibility is more important than delivering a cheap electioneering soundbite for your (discredited) party.

  30. Vanessa
    Posted February 27, 2015 at 5:20 pm | Permalink

    I read in “Money Week” that the USA economy was not doing as well as we all think. There are more small companies and “start-ups” closing than being started now. This is not good and will not help a growing economy. Jobs will reduce and therefore incomes will shrink.

    I think austerity is a good idea when governments cannot control their spending but it would be better if governments put aside money when it is plentiful and therefore had something to spend when it was needed. To keep on and on thinking up stupid ideas which need humungous amounts seems to me to show that you are all “toddlers in a sweetie shop” ! HS2 will be an horrendous legacy and will help tip our debt over the TWO TRILLION mark. Also it is last century technology – we need to look forward not backwards.

    • Denis Cooper
      Posted February 28, 2015 at 10:13 am | Permalink

      Ah, but the government is in the uniquely privileged position of being able to get more money created, as much money as whichever bunch of wastrel politicians who happen to be in office may care to spend; and some actually think that this is fine and it is the way our government should be run, and there is no need to bother about eliminating the budget deficit let alone run a surplus and pay off debt and all that old-fashioned nonsense. At least, it is widely assumed that they are in that position, although the strict legality of what two governments have done with the creation of £375 billion of new money for them to spend is open to question given that Parliament was never asked to vote to approve the creation of a single extra penny.

  31. turbo terrier
    Posted February 27, 2015 at 6:01 pm | Permalink

    How can politicians keep talking about austerity when our beloved leader of the DECC hits the energy paying public with £4bn of subsidies after the announcements of the latest “energy contracts”?

    Why do the press talk about the householders paying ?

    What is the real cost to industry?

    Still we head for the cliff edge flat out trying to save the world.

    How many millions will all this add to the fuel debt and poverty brigade and beneficiaries of the ever increasing food banks?

  32. petermartin2001
    Posted February 27, 2015 at 8:42 pm | Permalink

    It does not make any sense to only consider the government’s deficit in isolation. It has to be considered as part of the sectoral balances.

    Yes in America the Govt Budget deficit peaked at around 11% after the 2008 crash. That 11% figure isn’t at all typical. It was the reaction to an event ( ie the crash itself ) and we need to look at the graph of the sectoral balances to put that figure into perspective.

    It was ~ 12% in the UK at the same time. In both countries it has fallen to about half that as the economies has improved. That’s totally to be expected.

    We also need to understand a very simple equation which must hold. Anyone objection to this identity is also objecting to the principle of double entry booking BTW. There’s no politics involved at all!

    Government Deficit = Surplus of Private Sector + Trade Deficit (Current Account).

    So what happens when we have a crash like in 2008? People stop borrowing and start saving. The private sector runs an increased surplus. This forces up the Government Deficit. As the economy improves and they start spending and borrowing again their surplus falls and the GD falls too.

    Note the effect of the trade deficit. At present nearly all of the govt’s deficit in the UK (similarly in the USA too) covers the trade deficit. Reducing the trade deficit has to be a priority for any country seriously wanting to reduce its budget deficit. It is just simple arithmetic.

    • Denis Cooper
      Posted February 28, 2015 at 11:39 am | Permalink

      Clearly it isn’t that simple. Self-evidently it may happen that one particular economic actor in a country is running at a loss even if on aggregate all of the economic actors are exporting goods and services to a greater value than their imports, that is to say the country as a whole is running a trade surplus, and equally an economic actor may be operating at a profit even if the country as a whole is running a trade deficit. And that is just as true whether the economic actor in question is a private company, or it is the government. It is perfectly possible, in fact it is common, for careless wastrel politicians controlling the government to allow its spending to outstrip its revenues irrespective of whether the country as a whole is running a trade surplus or a trade deficit, and equally it is possible, but less common, for more prudent politicians to keep government spending at or below its revenues whatever the overall trade position of the country may be, just as the management of a private company can do a good or a bad job running their particular company independently of whether the country as a whole has a trade surplus or a trade deficit. If poor managers of a private company tried to excuse its losses on the grounds that the country as a whole was running a trade deficit then that would be unlikely to impress the shareholders, and there’s no reason why the same kind of excuse should wash if it was offered by the politicians in charge of the government’s finances.

      • petermartin2001
        Posted March 1, 2015 at 2:10 am | Permalink


        Comparing the government to a private company invariably gives the wrong answers. Even a large private company would operate on the principles of microeconomics. Their spending can be considered to be independent of their revenue. Naturally they’d like they revenue to be higher than their spending. Just as you and I would.

        That’s clearly not the case for sovereign currency issuing governmnets. They create money as they spend it. They destroy money when they tax it. So, to that extent, they can never be in overall surplus. They’d have to destroy more than they had created for that to occur.

        • Denis Cooper
          Posted March 1, 2015 at 7:26 pm | Permalink

          “They create money as they spend it. They destroy money when they tax it.”

          This is the kind of nonsense which can only gain any credence because most transactions are now electronic and no longer involve banknotes and coins being handed from one party to another, and which would have been immediately ridiculed as nonsense if it had been put forward only fifty years ago.

          I well remember that my father used to walk down to the council offices and pay his rates in notes and coins, money which he had received in his wages. Nobody would have believed it if they were told that the council immediately destroyed that money and then later created new money to pay its bills. Yes, some of it may have been put into a bank, and when the council wanted some out it would not necessarily have been the same notes and coins, but it was not destroyed when it was collected as tax.

          Moreover I well remember one occasion when there had been some error with my father’s PAYE and he owed some income tax, and he did the same thing – he walked down to the local office of the Inland Revenue, at a time when such things were more widespread, and he paid what was due to the Treasury in notes and coins.

          So are you going to claim that the Treasury immediately had all those notes burned or pulped and the coins melted down? And then had completely new banknotes printed up and coins minted when it needed to pay out money, rather than just recirculating the money that it had received in taxes?

          Apart, that is, from any worn out or obsolescent notes and coins that it had received, which would be taken out of circulation and replaced with new ones; and even that would be done by the Bank of England, not by the Treasury.

          • acorn
            Posted March 2, 2015 at 5:27 pm | Permalink

            Denis, Peter is correct “They create money as they spend it. They destroy money when they tax it.”

            Start thinking outside the box. Physical coins and money may well be recycled because they cost money to manufacture and distribute. When money is “destroyed” by taxes, it means the Central Bank has taken some of the Treasury’s “money” out of the economy and reduced its deficit, some of which may have been notes and coins if the commercial banks did not want them.

            The central bank would put them back in Governor Carney’s bottom draw for future use, when the commercial banks wanted them again. Whence the commercial banks would pay for them with “reserves”.

          • Denis Cooper
            Posted March 3, 2015 at 5:30 pm | Permalink

            No, acorn, it’s a fantasy, and one invented to try to justify the habitual over-spending of wastrel politicians, or at least it looks like that to me.

            As Martin Howe QC explained in a lecture here:


            “… in the modern economy only a minority of transactions are conducted in actual notes and coins, but such transactions are at the base of the whole system and current bank accounts are in law simple running debts payable in notes on demand and because there is or at least there was until the recent events, generally confidence that the banks will always be able to pay in actual notes and coins if called upon to do so, money in accounts of solvent banks is universally treated as being as good as cash and in many ways more convenient. But it is the ultimate ability of financial institutions to pay out in actual legal tender which underpins this.”

            If we conducted the thought experiment of stripping away all those conveniences of bank accounts, whether recorded on paper as previously or electronically as now, and not just electronic transfers but also cheques, and visualised a system in which every monetary transaction had to be performed by one party giving another those physical notes and coins, legal tender, still “the base of the whole system”, then it would become clearer that the Treasury would not be destroying all the notes and coins it got in and nor would it be creating new notes and coins to make payments, any more than any other organisation or person would be doing that; it might well deposit some of its stock of notes and coins in a vault at the Bank of England for safety, and put some in and take some out as necessary, but it would not be destroying or creating money by doing that; and no more is it now in this electronic age destroying or creating money when it subtracts from or adds to the government’s current account at the Bank of England, even though hardly any of those transactions will actually involve notes and coins.

            I note as a relevant aside that the government of Greece is scratching around for money to pay upcoming bills, especially a repayment to the IMF, but says that it still has three or four billion euros deposited at the Bank of Greece which it can draw upon:


            So clearly the Greek Treasury did not destroy that money when it got it in, mostly through the social security and pension systems, and deposited it with the central bank, and nor will it be recreating it by taking it out and using it to pay back part of the IMF loan.

    • acorn
      Posted February 28, 2015 at 12:48 pm | Permalink

      Worth mentioning Peter that on the chart you link to the green bit, called “capital account” is the US Dollar savings for the period, of all the countries that export to the US.

      It illustrates vividly where the private sector (the blue bit), after 1998, started going into debt, and the likes of China were ending up with train loads of Dollars flogging stuff to US residents.

      Also, the crazy period in 2001 where the private sector is paying with savings and debt, for imports; and, financing the government’s short period of a government surplus. The UK was doing the same as Neil Wilson’s graph shows.

      You will be aware that Mr Osborne wants to repeat this in 2019.

  33. Bazman
    Posted February 28, 2015 at 7:14 pm | Permalink

    Which would be the most effective, austerity or astrology? Neither have worked in any country and as we have seen this week and the Tories have supporters of both as a national strategy.

  34. Kenneth R Moore
    Posted March 1, 2015 at 2:23 am | Permalink

    Instead the UK economy has grown over the four years of deficit reduction so far.

    Point of order JR.

    I seem to recall that the deficit was reduced in cash terms by a third and was then stuck there for quite a while.
    In typical slippery David Cameron fashion, he then changed the definition of the deficit to a percentage of GDP..and hey presto it was reduced by half. This makes him unfit for office in my view for treating us with such contempt.
    So not quite true to say that the deficit has been reducing for 4 years ?

    Reply Yes, it has been going down in cash terms as well

    • Kenneth R Moore
      Posted March 1, 2015 at 8:37 pm | Permalink

      The figures seem to show the deficit increasing 2011 -12…and much more modest reductions in 2014-15 hence the need for the Bullingdon boys to pull the old percentage con trick.

      As an aside, David Cameron repeated the ‘deficit down by a half’ line in todays Sun on Sunday newspaper…..without qualification. Agreed the half line makes for a snappier soundbite for an oily ex PR man like Cameron, untroubled by trifling matters like the absence of substance behind his messgage.

      One hopes that a suitable plan is in place to extract the human wrecking ball that is Mr David Cameron in the likely event of a disapointing result for the Conservatives on May 5th.

  • About John Redwood

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

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