My contribution to the Third Reading of the Finance Bill

A great deal has happened politically since the March Budget and during the passage of the Finance Bill. Therefore, on Third Reading, when we are invited to consider the Bill in the round, we should ask ourselves how this set of composite tax measures and forecasts for revenues and budget deficits fits into what the Bank of England thinks is a rather revised picture today, although its gloom is probably exaggerated.

We also had a very significant event from the Government themselves over the summer recess, which has not been reported to this House or debated in this House, but which should not go without comment: the Chancellor of the Exchequer gave his consent for the creation of up to £170 billion of additional money and for the Bank of England to buy large quantities of Government debt and substantial quantities of corporate debt, making available a lot of cheaper money to the banks. As a result of that needless monetary relaxation—there was absolutely no evidence at the time that the economy had suffered an output or retail sales shock in the way that the Bank foolishly thought was happening—we see that interest rates have been driven down. In particular, longer-term interest rates, which are the Government’s price of borrowing, have been driven down, and so we now must imagine that the Budget arithmetic has changed quite a lot in a very favourable direction, as there is now presumably a substantial reduction in the forecast interest rate costs for Her Majesty’s Government over the balance of this year and into the next financial year, assuming that those programmes of aggressive bond buying continue to depress the rates in the way that is clearly planned.

At some point the Government need to explain why they endorsed the Bank of England’s very aberrant view. The Government’s forecasts for the economy, which are the thought behind this perfectly sensible Budget that we are in the process of approving, look forward to the UK economy growing by 2% this year and by 2.2% next year. The Bank of England now says that the British economy will grow by only 0.8% next year. I have no idea why the Bank thinks that, but it would of course change the arithmetic, and instead of us welcoming this Budget with an even smaller deficit, because of yield compression and cheaper borrowing, we should be worrying at this juncture about the shortfall in revenues next year on the back of a much-revised Bank of England forecast. Clearly revenues will be down by quite a lot next year if growth is to be only 0.8% rather than the 2.2% that was the premise of this Budget.

I fully support the Treasury’s March view. It is extremely likely that the British economy will grow by 2.2%. I do not have my own model but I understand how the Treasury model works and I do not think that the underlying assumptions behind the model for the March forecast were unrealistic. I do not think that they have fundamentally changed as a result of the events of the summer, with, perhaps, the one exception that if the Bank perseveres with injecting anything like £170 billion into the economy, growth could be even better than the Government were expecting, because that is a far bigger monetary stimulus than they clearly had in mind when they constructed the March Budget.

The Bank of England needs to be careful. One of the curious things about the timing of its decision was that it made that announcement before we saw the real economy figures for the first eight weeks after the Brexit vote. Those figures turned out to be perfectly reasonable. They were not negative in the way that the Bank had thought. The Bank also made the injection of money just after some very important figures came out, ones that it had obviously read in a different way from me.

If we read the money supply growth figures and credit growth figures for the second quarter of the current calendar year, we will see that they started to accelerate. We had pretty steady 5% growth for quite a long period, which was giving us a combination of low or no inflation and 2% or so growth, but then those figures suddenly accelerated to around 7% or 8%. It is therefore even more bizarre that, on the back of those numbers, the Bank of England should suddenly decide to try to pump so much money into the economy, at a point where it looked as if the commercial banking system was sufficiently strong and confidence had returned sufficiently to mean an even faster rate of money growth than the one that was achieving 2% growth overall.

I am not suggesting that we need to drop this Budget because of that very large monetary stimulus, but the House should be aware that a very large monetary stimulus has been added at exactly a point where we had a perfectly sensible Budget based on perfectly sensible assumptions. The Government also need to be very careful before authorising any further monetary stimulus given what look like perfectly satisfactory numbers.

How could the Bank be that wrong—it is quite difficult to understand—and why did the Government endorse its strange interpretation? It says two things. It says that a Brexit vote could damage trade. Well, the one thing we seem to know from the very relaxed timetable the Government are proposing for getting us out of the EU is that in all probability we are going to be trading under existing single market arrangements this year and next year. There will not, therefore, be any damage to trade. I do not think there will be any damage to trade when we are out, but we are going to be trading under the current arrangements for the forecast period, so it is very difficult to see why we would knock anything off GDP because of trade. Indeed, we should be adding quite a lot in relation to trade, because clearly exports will rise quite a lot on the back of a much weaker pound.

The other thing it says is that there will be an effect on confidence. We have seen from recent surveys that there was a very short term hit to the confidence of big business executives who did not like the result of the referendum, but there was no hit to the confidence of consumers. They went out and spent more in the shops immediately after the Brexit vote than they were spending before. We saw, in the following month, that many senior company executives regained a lot of their lost confidence because they saw they were wrong and that the customers were returning to, or staying in, the shops. They are buying cars and new houses.

Confidence has not collapsed, something the banks seemed to think would happen.

I urge those on the Treasury Bench to think about these matters extremely carefully. The very long procedure on the Finance Bill means that, in all probability, we are approving a Bill that was constructed in what the Bank of England thinks were very different economic times. I think the economic forecast and the economic times of March are very similar to the ones we should now accept, and I urge the Government to take that view. The House needs to note, if it is the view of the House, that on top of a Budget that has a reasonably relaxed fiscal stance compared with intentions a few years ago—something I am quite happy with—we now have a very large monetary injection. The Government need to be aware of what that might mean.

PS I have since seen the board money numbers for the 3 months to end July (just before the Bank’s stimulus) and they show an annualised rate of growth of a very rapid 15.9%. This makes the case against further monetary easing even stronger.

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55 Comments

  1. Jack
    Posted September 9, 2016 at 5:15 am | Permalink

    Sorry but cutting rates and QE is not “stimulus”, it’s tightening. Banks lend based on income, rates play such a small part, and in fact even just looking at the term structure of rates it’s clear that a positive base interest rate actually implies higher prices. So if you support minimal inflation, a permanent 0% interest rate is the way to go.

    And even if lower rates did stimulate bank lending, which they don’t (ceteris paribus), China has had credit growth (state bank lending) of well over 20% of GDP not too long ago. It didn’t create hyper-inflation, it led to 15% annual GDP growth instead.

    • Anonymous
      Posted September 11, 2016 at 1:42 am | Permalink

      Ceteris paribus ???

      Mange tout ! Mange tout !

  2. Mark B
    Posted September 9, 2016 at 5:26 am | Permalink

    Good morning.

    So cheap money was given to the banks post referendum. Perhaps it was a sop to quell their discontent, and probably losses, after the result ?

    What do I know, I am not banker. I work for a living.

  3. Lifelogic
    Posted September 9, 2016 at 6:21 am | Permalink

    An excellent contributions.

    Lots of cheap money for the banks yet the banks are still charging huge margins and fees. The government needs to sort out the lack of real competition in banking. Natwest/RBS especially is a virtual zombie bank who are still over charging and damaging their good customers and selling good loans on to third party banks. Causing yet more inconvenience to its customers.

  4. Lifelogic
    Posted September 9, 2016 at 6:33 am | Permalink

    The. BBC and the anti selective schooling lobby seem very concerned that children from lower income families have less chance of getting into selective schools. This is hardly surprising as they are likely to have other pressures on them perhaps arising from this lack of money and anyway intelligence is largely heritable.

    But the country needs bright builders, plumbers and engineers far more than it needs more PPE graduates, lawyers, geography graduates and bureaucrats. The solution is not to ban selection but to improver the other schools and make them far more relevant to their pupils. Training then in something they can go on to make a good living from perhaps.

  5. Malcolm Lidierth
    Posted September 9, 2016 at 6:58 am | Permalink

    The problem is the pretence that the BoE is, can be or should be above politics. The BoE regulates markets that are subject to political influence. ‘Independence’ from UK government control therefore implies greater dependence on outside influences including the political influences of foreign governments via the markets.

  6. Sir Joe Soap
    Posted September 9, 2016 at 7:05 am | Permalink

    Basically, this is what happens when you have too great a disconnect between the governors and the governed.
    We saw just the same disconnect last night on the Sgt Bilko versus Steptoe debate. Unreal versus even more unreal.

  7. Ian Wragg
    Posted September 9, 2016 at 7:12 am | Permalink

    Carney and Gideon were going to reduce interest rates and inject billions into the economy regardless.
    Neither has the interests of Britain in mind, just trying to point score.
    It’s time interest rates were allowed to normalise so we savers can benefit.

  8. Anonymous
    Posted September 9, 2016 at 7:15 am | Permalink

    I can barely get through Dr Redwood’s daily postings such is my excitement at looking for Newmania’s hysterical, bad tempered and idiotic comments. I also look forward to PvL’s rather cleverer and more barbed efforts – such that readers don’t realise when they’re being insulted:

    – mono-linguistic (so can’t understand the EU)

    – more interested in their history than the Dutch (jingoistic*)

    – tabloid minded (stupid)

    – “I find the future more interesting” (I am progressive and enlightened, you are not)

    *No nation wears its patriotism lighter than the English. There was no nationalistic celebratory outburst after the referendum result except from Nigel Farage and I wish he hadn’t done it (though who could blame him?) All the noise has been from Remoaners otherwise.

    • Anonymous
      Posted September 9, 2016 at 7:28 am | Permalink

      more interested in their history than the Dutch

      Should read:

      The English are probably more interested in their own history than the Dutch are in theirs.

      I would have responded to these comments at the time but I’ve been away.

    • Anonymous
      Posted September 11, 2016 at 12:06 am | Permalink

      Well.

      Neither Newmania nor PvL read or responded to this.

      I’d LOVE to exchange with either of them.

  9. Denis Cooper
    Posted September 9, 2016 at 7:50 am | Permalink

    If there is a crisis then the Treasury and the Bank then may need to act quickly without prior approval from MPs, but otherwise there should be a Commons motion and a vote on every proposed additional tranche of QE.

    I would not involve the unelected legislators-for-life in the Lords in that decision, it should be for MPs and just for MPs.

  10. Bert Young
    Posted September 9, 2016 at 8:00 am | Permalink

    The appointment of Carney was a mistake . His forecasts have not materialised and his actions led to Banks adopting an even more harsh regard to savers . His predictions also had repercussions on the stock markets – always very sensitive during the summer months . The previous budget was , of course , in the hands of boy George ; he also proved to be unreliable in his estimates of borrowing and National debt ; putting the two of them together resulted in a mountain out of a molehill .

    It is time for a mature overview of where we stand and corrections made . This is very timely with the 3rd. reading – an opportunity to re-establish confidence . Hammond has the Autumn statement to make when he can offer inducements to business and wealth creators ; things like HS2 should also be kicked out of the window and replaced by other infrastructure investments .

  11. Denis Cooper
    Posted September 9, 2016 at 8:27 am | Permalink

    Off-topic, and further to my comment of Wednesday morning which has now seen the light of day, I read through Monday’s three hour debate in Westminster Hall responding to an ill-conceived petition and found that at least two and half hours were spent on utter tripe which was totally irrelevant to the motion, as the chairman repeatedly pointed out with threats that he would order (especially SNP) MPs to sit down and shut up. It was so poor that it’s not even worth providing a link.

    However it did lead me to look up exactly what ministers said when they proposed the European Union Referendum Bill, and that in turn leads me to ask whether those who repetitiously ask what “Brexit” means know what the word “final” means.

    Philip Hammond on June 9th 2015, Column 1046:

    http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm150609/debtext/150609-0001.htm#15060939000001

    “I beg to move, That the Bill be now read a Second time.

    This is a simple, but vital, piece of legislation. It has one clear purpose: to deliver on our promise to give the British people the final say on our EU membership in an in/out referendum by the end of 2017.”

    Baroness Anelay of St Johns on October 13th 2015, Column 89:

    http://www.publications.parliament.uk/pa/ld201516/ldhansrd/text/151013-0001.htm#15101360000463

    “My Lords, I am privileged to open Second Reading of the EU Referendum Bill. The Bill will enable the Government to deliver our manifesto commitment to hold a referendum on the UK’s membership of the European Union before the end of 2017.

    That commitment was rooted in our desire to give the British people the final say on an issue that goes to the heart of the governance of this country … ”

    It was made perfectly clear that it would be the people who would have the FINAL say one way or the other, and no parliamentarian in either House can now claim any moral right to second guess what the people have decided.

    I was also interested to see what Corbyn had to say on February 22nd 2016 in response to Cameron’s absolutely explicit statement that the result of the referendum would be final, and “If the British people vote to leave, there is only one way to bring that about, namely to trigger article 50 of the treaties and begin the process of exit, and the British people would rightly expect that to start straight away.”

    Corbyn at Column 26 here:

    https://hansard.parliament.uk/commons/2016-02-22/debates/16022210000001/EuropeanCouncil#24

    “The people of Britain now face an historic choice on 23 June on whether to remain part of the European Union or to leave. We welcome the fact that it is now in the hands of the people of this country to decide that issue.”

    • Anonymous
      Posted September 11, 2016 at 1:48 am | Permalink

      Newzoids (the modern Spitting Image) covered this “what is Brexit ?” diversion really well this evening.

      Basically “what is Brexit ?” means anything other than Brexit. They got that bang on.

  12. oldtimer
    Posted September 9, 2016 at 8:38 am | Permalink

    You ask very pertinent questions. But will we get good answers?

  13. Bob
    Posted September 9, 2016 at 9:38 am | Permalink

    Well with Remainers Phil Hammon & Mark Carney running the show, what else would you expect? The British public had to be punished.

    If the economy has a downturn they will blame Brexit, and if it grows they will claim credit saying it was due to their “fiscal intervention”.

    How much is currently budgeted for bombing Syria?

  14. William Long
    Posted September 9, 2016 at 9:50 am | Permalink

    The question this poses is, what kind of man is Mr Hammond? The biographical notes on the Government website give details of offices held, none of which indicate any financial experience or interest, but from a reference book I see he did two stints as shadow Financial Secretary to the Treasury. Has he got sufficient clout and confidence to question and if necessary overrule the Treasury officials who clearly had Mr Osbourne in their thrall except when it came to political rinky dinks? Otherwise the Treasury will continue in the tracks that were set for it by Gordon Brown. Mr Hammond should consider your words carefully and also make it clear to Mr Carney that his days are numbered.

  15. Colin Hart
    Posted September 9, 2016 at 9:57 am | Permalink

    What is the procedure for dismissing His Serenity the Governor of the Bank of England?

  16. Lifelogic
    Posted September 9, 2016 at 10:00 am | Permalink

    The government, via Justine Greening, still seem to be dithering hugely on Grammar Schools what on earth are they playing at. Greening was whittering on about being open minded, ruling nothing out, binary choices the usual dithering guff. Can Theresa’s administration not be decisive and soundly Conservative on anything at all?

    Where is the sense of direction? Why have they not even started to undo the damage done by the dire Libdims in the form of Cameron and Osborne?

    The tax system especially need huge repairs and simplification after Osborne appalling period of incompetence & pension/tenant/landlord muggings. His wage controls too are hugely damaging. It needs action not dithering.

  17. Lifelogic
    Posted September 9, 2016 at 10:35 am | Permalink

    The Government should indeed explain why they endorsed the Bank of England’s very aberrant view but will they? Let us hope those on the Treasury Bench do indeed think about these matters extremely carefully.

    The new chancellor has anyways a very great deal on his plate already, undoing the idiotic fiscal and wage control agenda of Osborne, cancelling HS2/Hinckley the Green crap grants and expensive energy agenda, replacing vat with a sensible simple tax, undoing the landlord, pension pot and tenant muggings, ……… Why no indication of direction of travel from Hammond yet? He seems to be dithering too.

    Why anyway is Carney still there after his appalling behaviour during the referendum and his dismal record and being wrong almost every time he speaks or acts.

  18. Lifelogic
    Posted September 9, 2016 at 10:58 am | Permalink

    Faith schools should be promoted according to Theresa May this morning. Well that should work well for incubating hugely damaging cleavages in society. It certainly worked well in Northern Ireland.

    Will they be encouraging all religions and irrational belief systems? Perhaps teaching intelligent design, about infidels, apostasy and perhaps climate alarmism/green lunacy/equality religions for example.

    Or will they stick to real facts & real science? In short will pupils be encouraged to think for themselves and look at real evidence or will they be spoon fed with lots of complete nonsense?

  19. alexmews
    Posted September 9, 2016 at 11:16 am | Permalink

    john – very good note. thank you. keep on it.

  20. rose
    Posted September 9, 2016 at 11:24 am | Permalink

    Interesting to hear Mr Timothy’s thoughts on education this morning. It was a pity he wan’t there in person to deal with the questions. I was grateful for the explanation on why Roman Catholic schools are in a different position from Jewish, Sikh, and Moslem schools.

    But I have my doubts about meritocracy as a goal of all this: aristocracy and plutocracy can in practice be kinder and more inclusive though that is not what people have been taught to think. And there was not a single mention of secondary technical education. So are we still going to be importing all our engineers and skilled manual labour?

    There wasn’t any suggestion that this reform would be good for the country and its needs, only social mobility and meritocracy. I should have thought a strong case could be made post Brexit for standing on our own feet and providing our own skills and training. For far too long business has got away with not training its workers, just importing other nations’ fully educated and trained people, paying them rock bottom wages, and relying on the much abused welfare state to provide the incentive to come.

  21. CHRISTOPHER HOUSTON
    Posted September 9, 2016 at 11:28 am | Permalink

    Off Topic:

    Mrs May has just outlined her ideas about propagating Grammar schools, in public.

    The Soviet system, despite Lefties and other humbuggers,- never ever was in favour of Comprehensive Education. In practice and theory, in all Soviet Union nation-states and all Eastern European Communist countries without exception; in the People’s Republic of China, the Democratic Communist Republic of North Vietnam, in North Korea, Grammar schools did and to this very day are the intellectual manifestation of Communist dialectical historical materialism . As Karl Marx said and wrote in his Communist Manifesto “Each according to his ability; each according to his need. ”
    Russia of course even now in the shape of Moscow University is the largest university in the world. It offered correspondence courses nearly half a century before the Liberal-Socialist British Open University was started.
    Mrs Thatcher too did very well as a young William Hague remarked at a Tory Party Conference to “roll back the state”. Given such a relatively small number of Grammar school personages in the UK compared to the myriad of legions of Grammar goliaths of the two billion Grammar school kiddies pitted against her, perhaps Mrs Thatcher was Head Girl. Perhaps Mrs May too was Head Girl. But is she really… really… frightfully British? We shall wait with great anticipation for the publication of her Little Red Book to see.

    • CHRISTOPHER HOUSTON
      Posted September 9, 2016 at 11:51 am | Permalink

      Ohhh. Lech Walesa wasn’t a Grammar school boy. He went to “Vocational School” ( Secondary Modern School and became an electrician and then sank to the utter depths of ignorance when becoming leader of a nation.

  22. Lifelogic
    Posted September 9, 2016 at 11:36 am | Permalink

    Still at least something decisive from Theresa May at long, long last. Sensibly taking the opposite route to that of Cameron and Osborne, which will nearly always be the right path to take.

    Just the encouraging of “religious” schools she has totally wrong and the childish emphasis of “fairness” and “meritocracy”. Live is not fair nor meritocratic and never can or will be, just get over it Theresa and try to get a system that works for as many as possible.

    • Leslie Singleton
      Posted September 9, 2016 at 7:43 pm | Permalink

      Dear Lifelogic–I too have considerable doubts about Mrs May. Her pronouncements thus far on grammar schools are completely wrong. with the idea that all schools can be grammar being especially daft–missing the whole point. In life you either pass or fail at every stage. Elitism is marvelous. Levelling down is just awful. Everybody cannot be rich by definition of the term rich. Equality and Identity suck.

    • Lifelogic
      Posted September 9, 2016 at 7:43 pm | Permalink

      Anyway the Tory MPs are so infected with Cameronite Libdims that not much progress on grammar schools is very likely. Even the usually sound Peter Lilley on Any Questions is rather lukewarm. He is certainly right in that better technical and practical training is at least equally important in the UK.

    • rose
      Posted September 9, 2016 at 8:17 pm | Permalink

      As I understood her speech, they were proposing the removal of the difficulty faced by Christian schools as opposed to Moslem, Sikh, and Jewish schools: this is that lots of different people want to send their children to Christian schools and they therefore get oversubscribed. When this happens they are obliged to drop their Christian intake to 50% and that discourages Roman Catholics in particular from setting up more schools where they are needed. The other schools do not attract lots of different people so they can have 100% of their own.

      Suddenly to ban all religious schools would be rather more difficult than allowing more Grammar schools, so they might as well correct the bias against the Christian schools.

  23. ian
    Posted September 9, 2016 at 12:49 pm | Permalink

    The BOE is taking action not for this country but for the world with their on going experiment of negative interest rates which is destroying workers pension and peoples saving and at the same time enriching the elite and establishment figures by bringing down there borrowing costs on huge amounts of money they have out on loan and being able to loan more money at zero cost the same as companies but small business still paying 6 to 20 percent for their money with some people still paying paying over a thousand percent on loans and all MPs do is sit back and just nod it though with the same people charging the peoples treasury 7 to 1 leverage to get anything build or for public services, so they get 700 percent interest over 30 years, nice work if you can get it, even more interest for council projects with LBO loans now going on the people rates.

    I do not care about what they talk about which is GDP with banks making 12 percent of it and companies getting over 90 billion a year from taxpayers because if i can save the tax payers billions a year by stopping it and cutting the banks down to size and cutting the companies off and giving the work to small business who will still hire the same workers and employing more people on better wages at one tenth of the cost ie 350 million for a hospital instead of 2.5 billion pounds with most of the money fining it way offshore and when you think that 10 million people in this country are on disability benefit, that 1 in every 6.5 people in the country and they paying companies billions to bring it down but i do not see the number dropping.

    That why employment taxes are bad for the people and country health.

  24. Paul Vardy
    Posted September 9, 2016 at 1:31 pm | Permalink

    Thank goodness for finding out what is really happening and why.

  25. ian
    Posted September 9, 2016 at 1:34 pm | Permalink

    Huge spike in government debt today as the fed get ready to rise rates because everything is falling apart but that might not mean that they will, they are just talking them up for now.

    The NWO have not got a clue what they are doing which includes nearly all of the MPs sitting parliament and the house of lords, bankers, media and companies, they are all clueless, they are just hoping that they can stay at their job and carry on robbing the peoples treasury.

  26. Mark Watson
    Posted September 9, 2016 at 2:54 pm | Permalink

    Quite right John.I noticed a couple of weeks ago that M4 ex was growing 14.7% in the 3 months up to and including July.This was even before the new post Brexit stimulus unleashed by Carney et Al.
    To put it into context, in 2008 M4 ex was running at about 8%.

  27. ian
    Posted September 9, 2016 at 3:07 pm | Permalink

    Voting in the UK is just ritual that people go through ever five years now, it just to make out to people that they live in a democracy with the media pointing it out to you all the time.

    The truth is politician and the establishment are frighten of democracy because they would lose their jobs and power to service the elite and bankers and themselves.

  28. Lifelogic
    Posted September 9, 2016 at 3:19 pm | Permalink

    Given the lefty/Libdim Cameronite composition of the current Tory party how will she get her grammar school proposals through. Had we had a proper Tory as leader at the last election she would now have a far better majority, but thanks to Cameron and Osborne she hasn’t.

    More religious segregation in schools is surely a retrograde and a very dangerous step though. Creating religious ghettos is not very sensible. Children are children not little Catholics, Muslims or Hindus. I think many religious school practices (and often their system of “education”) often border on child abuse. Do we really want to be encouraging this?

  29. acorn
    Posted September 9, 2016 at 4:01 pm | Permalink

    That will be £545 billion in the Asset Purchase Facility (APF), about 37% of Gilts in issue. The Treasury will be paying out £47 billion in interest and getting £18 billion “cash back” via its own Bank.

    I would have thought that Governor Carney had realized by now that QE 1, 2 and now 3, have not increased aggregate demand (spending) in the economy; and, if it doesn’t do that, there is no point in doing it.

    BTW. This will not be £170 billion of “additional money”. QE does not increase the net fiscal assets in the economy. The BoE is swapping Gilts back into the original government spending (called reserves), that bought the Gilts in the first instance. You will not find any MP that actually understands that fact.

    Have a look at the APF ops sheet at http://www.bankofengland.co.uk/statistics/Documents/bankstats/2016/sep/tabd2.3.1.xls The BoE can swap Gilts for reserves all day long but to buy in a private sector asset it has to be backed by the Treasury DMO, using smoke and mirrors accounting; similar to the Funding for Lending Scheme. The BoE has too small a capital base without Treasury backing, to be a lender like a commercial Bank.

    There are three sources of spending power for households. Income; Credit and Welfare. Household income as a share of national income, has been declining for three decades; the 1% elite’s share has gone up considerably. Household borrowing (consumer credit) is high and getting dangerously higher. Welfare has been “austeritised” by neo-liberal clowns like Osborne and the IMF.

    The economy grows by people, public or private, spending money. No spending money, no growth.

    • Edward2
      Posted September 11, 2016 at 5:58 am | Permalink

      Spending is rising and growth in the UK is approx 2%

    • Denis Cooper
      Posted September 11, 2016 at 8:43 am | Permalink

      Money is money, and gilts are gilts, and they are not the same thing.

      As you would find out, if you ever tried to spend gilts as you can spend money.

      • acorn
        Posted September 11, 2016 at 3:02 pm | Permalink

        Why would I want to spend a Gilt, it is a savings instrument???

        • petermartin2001
          Posted September 11, 2016 at 7:20 pm | Permalink

          Denis,

          “Money is money, and gilts are gilts, and they are not the same thing.”

          Both “money” and Gilts are IOUs of Government. Money doesn’t have a yield, Gilts do. So it makes sense to save in Gilts rather than “money”.

          It made more sense when the yields on Gilts were much higher than they are now. Theoretically yields on Gilts could become negative, in which case it would make mores sense to save in “money” or cash.

          Economists like Kenneth Rogoff are well aware of this and have started a campaign against the use of cash, ostensibly as a means of curbing the black economy, but I suspect he has slightly different real motives.

          I don’t know about you but I’d be just has happy to receive £1000 worth of Governement IOUs in any form. That could be cash, gilts or government stock. I’ve no real preference.

    • petermartin2001
      Posted September 11, 2016 at 7:39 pm | Permalink

      “The economy grows by people, public or private, spending money. No spending money, no growth.”

      Yep. This is right. Although the tricky bit is to ensure that when Govt stretches the economy slightly by increasing its spending, or reducing taxation, the result is growth rather than increased inflation.

      We do need to bear in mind that a £2.05 trillion economy needs £2.05 trillion of spending to keep it going. The problem for any government is that it doesn’t know what everyone else’s spending will turn out to be. So if everyone else isn’t spending enough the Government has to spend more or reduce everyone else’s taxes, to encourage them to spend more. And vice versa (if everyone else is spending too much) of course.

      And how do we know if they have it right? Inflation is the key. We need to set a target – we seem to have alighted on a figure of 2%. Maybe that could be a bit higher, but whatever we decide it to be, we need government to help meet the target. It cannot simply be left to the central bank. All they’ve got is the control of interest rates which really can’t go any lower.

  30. Dunedin
    Posted September 9, 2016 at 4:49 pm | Permalink

    “The Government need to explain why they endorsed the Bank’s aberrant view”.

    From what I saw of Mr Carney’s recent meeting with the Treasury Select Committee, it appeared that the Governor was “marking his own homework” despite Mr Rees-Mogg’s best efforts. Mr Carney mentioned something about the potential impact on mortgage borrowers as justification for cutting interest rates, but the decision to favour a specific group to benefit from monetary policy changes goes well beyond the Bank of England’s mandate.

  31. Richard1
    Posted September 9, 2016 at 5:04 pm | Permalink

    I find QE policy very confusing. There doesn’t seem to be a consistent and logical approach & unless I’ve misunderstood the decision making process it seems to be the BoEs hunch not a govt decision? Given the significant signalling effect it has on confidence this is surely an area in which Treasury ministers should be required to defend and justify policy. Does Mr Hammond agree with it?

  32. Margaret
    Posted September 9, 2016 at 7:48 pm | Permalink

    I have just spent a week in Mallorca to try and build up my Vit D for healthier bones. I took my Marco Polo “Learn to speak Spanish” with the hope of using some simple phrases to keep up with my daughter and growing up grand daughter in languages. My daughter’s degree was European business and languages. She voted to stay in the EU. Markedly noticeable was the use of the German language . Every one spoke to me assuming I was German, the shops and restaurants all advertised, using German . It seemed to be a take over . Another extremely noticeable thing about the Germans was nearly all of them smoked ; young and old alike . In England the occasional unemancipated still inhale the arsenic and acetone loaded nicotine sticks ,but the Germans were all out to poison themselves.

    • Anonymous
      Posted September 11, 2016 at 1:52 am | Permalink

      The Fit Man of Europe should LEAVE.

    • Margaret
      Posted September 12, 2016 at 4:12 am | Permalink

      Reminding some of recurrence. My husband and I over 40 years ago met a Dutch couple in Spain on holiday. I still recognised Case after the many years of living in separate countries living our own lives .He was into cycling and keeping fit and living in the sun. We all seem to keep links with our past lives and memories somehow which turn out to be a physical coming together. We should LEAVE the EU now.

  33. Martin Conboy
    Posted September 9, 2016 at 8:18 pm | Permalink

    This further reinforces my view that we need to get the key decision makers in Westminster and the Box on to Defined Contribution pensions as soon as possible. The reason they are printing money to solve the country’s problems is because they do not need to save for their future prosperity – they are disconnected from the economic reality faced by the three out of four workers in this country who do not work for the state.

  34. CHRISTOPHER HOUSTON
    Posted September 9, 2016 at 9:03 pm | Permalink

    Faith schools: Grammar Schools. Theresa May, Who would have guessed a Tory Prime Minister could make a bicycle clipped Gandalf-the -Grey lookalike with most likely a robin nesting in his waistcoat appear and sound eminently sensible?
    You know, she is never going to get elected as PM in a General Election. She is extremely intelligent but lacks the education.

    • Edward2
      Posted September 10, 2016 at 10:01 am | Permalink

      The PM is currently 15 points ahead, with Labour about to reafirm Mr Corbyn as leader for the 2020 election
      In my opinion he is less electable even than Kinnock or Foot.

  35. anon
    Posted September 10, 2016 at 1:17 pm | Permalink

    So how is a “non fat cat” private sector worker meant to save.

    In a world of negative real interest rates ,the current available investments, the cost structure and our dysfunctional rules, really do not encourage future self provision for the average person who may need access to savings in a future scenario.

    Why is the largesse of QE always directed at banks and influencing asset prices and yields and ultimately the loss of purchasing power rearding labor.

    I agree all MP’s, Judges, senior public servants, in all publicly funded bodies should be on defined contribution pensions. They should all be employed under the tax rules applied equally to everyone else. Time to integrate NI and PAYE?

    Cost cant be an issue when you see QE at this magnitude.

    • Anonymous
      Posted September 11, 2016 at 1:36 am | Permalink

      Thanks for not encroaching on my good name by shortening yours.

  36. M.W. Browne
    Posted September 10, 2016 at 6:41 pm | Permalink

    Government policy seems to be to destroy defined benefit pension schemes, by their money printing and suppressing of Gilt yields.
    Perhaps Mrs. May might consider printing some more money to eliminate the pension fund scheme deficits.

  37. Lindsay McDougall
    Posted September 10, 2016 at 8:27 pm | Permalink

    It is clear that a major campaign is going on (a) to subvert the result of the EU referendum and (b) to turn the whole economy into a poison pill for Brexit.

    We have had innumerable politicians, pundits and media men tell us how complex leaving the EU is going to be. The reality is to carry out the basic task of leaving as rapidly and brutally as possible and revise detailed EU laws at a pace that suits us. We should announce now that we are leaving ASAP, that the UK will take back its sovereignty, using force if necessary. The annual net payment of £14 billion to Brussels that will be due on 1st January 2018 will be the final one.

    We have had the Governor of the Bank of England tell us, without a shred of evidence, that the monetary measures he took in August were essential to deal with ‘the post referendum shock’. So what precisely were the items of bad news? The July PMI was poor but there was a major rebound in August. The NIESR said that UK GDP declined by 0.2% in July. But it is not the NIESR that collects and holds the official data, it is the ONS. The ONS publishes growth figures quarterly in arrears, and revises them twice during the course of the succeeding quarter when late data is analysed. The reality, therefore, is that we don’t know GDP increases reliably until six months after the event.

    There has been no bad news at all from August onwards.

    In response to this non-problem, the Governor cut base rate from 0.5% to 0.25% and facilitated the purchase of £170 billion of government bonds. This has not been achieved by means of the Government borrowing directly from the public on a willing buyer, willing seller basis. The result is that HM Government is borrowing very cheaply to finance its nefarious expenditure. Taxpayers will eventually have to pick up the tab in the form of inflation, the hidden tax.

    Nefarious expenditure? Well, HS2 will be a white elephant. Hinckley Point will produce power at high cost using a design that is, as I understand it, not operational anywhere in Europe. The Government is now leaning towards a third runway at Heathrow, when a second runway at Gatwick would cost taxpayers a lot less. More is spent on State pensions than is necessary – Ros Altmann was right in saying that the 2.5% part of the triple lock was unnecessary. Much foreign aid is a waste of money. Bed blocking elderly patients cost four times as much per day in hospital than they would cost being card for at home, financed by an increase in council tax.

    As the Republican congress has often said: “If you’re spending too much, spend less”.

    The Conservative Party has claimed that it has “fixed the roof while the sun is shining”. That is untrue; the roof has still not been fixed.

    • petermartin2001
      Posted September 15, 2016 at 5:34 am | Permalink

      You do need to bear in mind that if the GDP of the UK is £2.051 trillion then it does need £2.051 trillion of spending, each year, to keep it going. The problem for any government is that it doesn’t know what everyone else will spend in any given time period.

      So if everyone else is spending too much the government has to spend less to prevent inflation. If everyone else isn’t spending enough the government has to spend more , or tax less to encourage everyone else to spend more.

      If politicians and BoE economists, just kept these very simple concepts in mind, there wouldn’t be anywhere near so many economic problems. Brexit or no Brexit.

  • 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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