Deficit reduction and EU rules

In a recent debate in the Commons the UK government presented its report to the EU over the UK’s progress in meeting the debt and deficit rules of the EU Treaties.

Every year the Uk has to report to Brussels on how far it has got with getting its running budget deficit down below 3%, and its stock of national debt down to below 60% of GDP. These rigid requirements have been an integral part of EU policy ever since the ratification of the Maastricht Treaty. Most EU states have conformed with the budget deficit rules, but few have got anywhere near reaching the stock of debt requirements.

Euro area members are subject to possible financial penalties for failing to comply. The EU authorities seem to take a much stricter approach to supervising the annual budget deficit rule than the stock of debt rule. They seem to recognise that making states repay large quantities of debt would  be very deflationary, whereas curbing annual deficits they judge to be less so. The EU does not have the same power to fine non Euro members, but it still makes the UK go through the business of submitting its plan for deficit reduction, and can respond with a statement  on whether it approves or disapproves of the approach being taken.

The issue arises as to how much impact this requirement had on the previous Labour and Coalition governments? They said they took the exercise seriously, and they have always faithfully reported their position against the Maastricht obligations. The Coalition  always pursued a policy of trying to get the annual deficit down, as did Labour after the crash,  and have always looked forward to a time when they will also be reducing the stock of debt as a proportion of GDP.

During the debate I found it fascinating that the SNP and Labour, parties who dislike deficit reduction and the spending cuts that often accompany it, could not  bring themselves to condemn the Maastricht requirements and the policies they have clearly led to on the continent. Apparently plans to cut the growth in spending or to raise taxes on anyone other than the rich are not desirable if home grown, but are just fine if in pursuit of compliance with the Maastricht Treaty, You would have thought parties of the left especially would welcome freedom from these debt and deficit controls when we leave the EU.

Free of them I do not suggest we let rip with larger deficits and faster  build up of debt. I just want us to make rational decisions of how much to borrow and for what purpose, given the state of the economy and the ability to invest sensibly. It does not seem likely that most EU countries will get to below 60% any time soon, yet the requirement still sits there unamended.

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80 Comments

  1. Lifelogic
    Posted April 23, 2017 at 5:45 am | Permalink

    You make a good point, but no one expects politicians of the left to be remotely rational or consistent do they?

    Meanwhile we have Corbyn wittering on about taxing only the rich with the broadest shoulders. This would of course damage the economy, push investment overseas, hit jobs and the poor just the same, as surely even he must understand.

    Then we have T May and Hammond who seem to want to go into the election actually wanting to increase tax yet further. She mutters about Conservatives always wanting lower taxes but ever since Mrs Thatcher left they have increased taxes (and tax complexity) hand over fist.

    Being “a low tax Conservative at heart” (as Cameron falsely claimed) is not enough, only real action on lower taxes will work. That is what will grow the economy, jobs and the tax base. You need to stop all the waste, cull the bloated state, cancel HS2, Hinkley, the green crap and all the other total lunacies.

    They are still ratting on the £1M IHT promise (8 years back) and even tried to introduce a second IHT on top. Hammond also tried to mug the self employed in direct contravention of their manifesto.

    Listening to Ann Widdecombe on any question it is a shame we do not have her in place of Theresa Miliband, at least she voted against the absurd climate change act, was a leaver and understands that lower taxes (from the current hugely over taxes position) grow both the tax base and the actual tax take.

    She did alas study Oxford PPE, and like May she rather suffers from religion, but clearly she would be a great improvement over the essentially interventionist, socialist, (ex?) remainer Theresa.

    • Peter D Gardner
      Posted April 24, 2017 at 2:13 am | Permalink

      Religion is not the problem. A stiff dose of Protestantism would do many a politician some good. However, Mrs May’s problem is she is a pink Tory, like David Cameron, socialist at heart. Well, not her problem actually, but our problem. What is her problem is that she has little insight into what Britain actually needs over the next few years in order to re-learn how to be a self-governing independent nation; has advisers but doesn’t listen to them, takes too long to make obvious decisions, doesn’t carry people with her, regards consensus as something for others to reach while she passively listens to the result rather than actively building one, ie., leading around an objective that is best for the country.
      But she’s wot we’ve got. It’s too late now if we want any kind of Brexit at all – hence her lefty inane policies as the price we will have to pay to get it, but by crikey, once we have Brexit, she will not last much longer.

    • Hope
      Posted April 24, 2017 at 7:35 am | Permalink

      LL, surely after over 300 tax rises over the past six years you know the claim to be utterly false. Speeding fines massively increased for income generation for councils. Nothing about targeting accident black spots. Social adult care increased as a separate item on community charges, when councils force you to sale your home to pay for your own care! This allowed and supported by the Tory govt who promised to limit community charge! The same for flood defense. We are now being forced to pay tax two or three times for the same thing, but the Tories think we will not notice their deceit and lies.

  2. formula57
    Posted April 23, 2017 at 5:53 am | Permalink

    Whilst true that “Euro area members are subject to possible financial penalties for failing to comply” it seems France is regularly excluded from even the possibility.

    Making the Euro currency a success is made more difficult of course when member states breach the Maastricht rules.

    • acorn
      Posted April 23, 2017 at 3:50 pm | Permalink

      It is the member states that continue to breach the rules, that are keeping the EU alive and are making small inroads into reducing their own unemployment.

  3. Lifelogic
    Posted April 23, 2017 at 6:06 am | Permalink

    As Charles Moore puts it today below. She clearly does not deserve a victory so far. But there is clearly no sensible alternative to socialist May from the other parties. Let us hope the sensible wing can keep her insane high tax, interventionist, socialism in check, post the election.

    http://www.telegraph.co.uk/news/2017/04/21/enigmatic-theresa-may-wants-landslide-must-first-prove-deserves/?WT.mc_id=e_DM416708&WT.tsrc=email&etype=Edi_FAM_New_AEM_Recipient&utm_source=email&utm_medium=Edi_FAM_New_AEM_Recipient_2017_04_23&utm_campaign=DM416708

    • eeyore
      Posted April 23, 2017 at 6:46 am | Permalink

      Would it be helpful to have a few figures? The deficit stands at £15bn and the National Debt at £1.75tn, so the former increases the latter by roughly 1% a year. Deficit reduction, therefore, has but a trivial effect on total debt.

      The charts at http://www.ukpublicspending.co.uk/uk_national_debt_chart.html reveal that the current debt-GDP ratio is unexceptional for non-wartime spending. They also show the rate of growth slowing, which should comfort LL and others who reject JR’s suggestion that further borrowing should not be ruled out.

      More alarming is personal debt, which runs at £1.5tn or £13,000 a household even before mortgages. Rising interest rates would sink many a little ship.

      Lastly, if JR will permit, the National Debt clock at http://www.nationaldebtclock.co.uk/ is fun. We proles are fixated by the right-hand end, but I bet government eyes see only the left.

      • Peter D Gardner
        Posted April 24, 2017 at 2:14 am | Permalink

        This is the reasoning of the permanently indebted and the Micawber’s of the world.

    • A.Sedgwick
      Posted April 23, 2017 at 7:37 am | Permalink

      A poll today has confirmed my inclination that a 100 seat majority is wildly optimistic, at best 50 as this poll suggests. Hammond and May despite losing the referendum, still do not appear to have got the message that they should reflect the majority’s wishes e.g. less government and less taxation.

      • hefner
        Posted April 23, 2017 at 1:01 pm | Permalink

        Less government, less taxation is for THIS coming campaign. What is so difficult to understand in last year’s referendum being about coming out of Europe?
        Do not mix everything! Or are you so mixed up you do not know your right from your left hand?

        • getahead
          Posted April 24, 2017 at 3:53 pm | Permalink

          hef you seem to have a bit of trouble understanding what A.Sedgwick said.

      • Ian Wragg
        Posted April 23, 2017 at 1:33 pm | Permalink

        I maintain that they are trying to throw the election to cancel Brexit.
        Why else would you make announcements on pensions, taxation and foreign aid which are designed to alienate over half natural Tory supporters.
        May claimed yesterday that the Tories are a low tax party but are already taxing at 45% and borrowing 5%.
        These are socialist levels of tax borrow and waste wanting still more.

        • hefner
          Posted April 23, 2017 at 7:34 pm | Permalink

          OK, if you want to bathe in conspiracy theories …

      • Lifelogic
        Posted April 23, 2017 at 1:46 pm | Permalink

        Indeed, far less government, far lower taxes, far simpler taxes, far cheaper and on demand energy, no idiotic grand projects, a bonfire of red tape, some real freedom of choice in education and health, some selective quality only immigration and far less augmenting of the feckless through government incentives to be so.

        Alas we have the soft socialist Theresa Miliband in charge. She apparently think the Conservative believe in low taxes, but actually she just want to increase taxes, increase employment “protections”, mug the self employed and the dead and increase red tape further.

  4. Lifelogic
    Posted April 23, 2017 at 6:32 am | Permalink

    Tory lead slashed in half after tax U-turn claims the Mail on Sunday!

    What a complete plonker Hammond is. Does he still have May’s full support too! We are taxed far too much already thanks very much. Just cut out the endless government waste, the bonkers grand projects and other lunacies and encourage more people to actually provide for themselves.

    • zorro
      Posted April 23, 2017 at 12:38 pm | Permalink

      It is tragic….. Can anyone really believe that she is campaigning for a sensible exit from the EU (not as a supplicant to the EU)? I think what you are seeing is the real T May, the antithesis of wha we need at this stage. Let’s see her position on Brexit post election with maybe (if lucky) a 40-50 seat majority….. I fear that one can calculate what that might be….

      zorro

      • Jerry
        Posted April 23, 2017 at 7:50 pm | Permalink

        @Zorro; But that will have been what the electorate has chosen, stop remoaning, accept the democratic will of the electorate…. Or does that only apply when you get the result you want, thus europhobes are no better than the EU, democracy when it suits.

      • Peter D Gardner
        Posted April 24, 2017 at 12:16 pm | Permalink

        Dead right. As I have said several times, she is using Brexit to get her crazy, inept and lefty policies into the manifesto. Essentially, it’s Blackmail, this is what Brexit will cost us.

    • Jerry
      Posted April 23, 2017 at 7:46 pm | Permalink

      @LL; But was it Mr Hammond’s apparent refusal to reject possible tax raises or the correction by the party later that cause this apparent down turn in the polls, and were have the votes gone, not to UKIP that is for sure – otherwise there would be a well know ex leader seeking a PPC nomination!

  5. Iain Gill
    Posted April 23, 2017 at 7:00 am | Permalink

    A bit like the immigration in the tens of thousands a promise made with no intention of keeping. It’s what politicians do.

  6. Peter Wood
    Posted April 23, 2017 at 7:26 am | Permalink

    Good morning,
    Tax – we have a tax system more suited to the 1950’s than the 21st Century; this is why governments do not have enough money for normal spending and bringing down the deficit. (I’m hoping that the foreign aid budget and other waste can be reduced) The retail industry HAS MOVED ON! How much goods are received by UK citizens from the online retailers who invoice from other countries and pay no tax here? This is only going to grow. Get a grip on the 21st century marketplace.

    • NHSGP
      Posted April 23, 2017 at 12:23 pm | Permalink

      The problem is the spend is not normal. It’s out of control.

      30% of taxes go on the debts – plural. There’s more to the debt than the borrowing.

      • Jerry
        Posted April 23, 2017 at 7:57 pm | Permalink

        We took something like sixty years to pay off our 1939-45 war debt, which was larger than the deficit caused by the 2007-8 banking crash here in the UK, yet some think we should have paid of the deficit in just ten years…

      • Peter Wood
        Posted April 24, 2017 at 12:35 am | Permalink

        NHSGP — Yes I agree, CURRENT spending is far from normal. My point is that we should be able to raise sufficient taxes quite easily to cover expenditure if we had a 21st century understanding of commerce AND a government that stops nonsense giveaways and waste. I see no chance of a balanced budget, and therefore reduced borrowings, until we get a commitment to reducing the size of government involvement in national GDP to below 40%.

  7. fedupsoutherner
    Posted April 23, 2017 at 7:43 am | Permalink

    Theresa May needs to seriously look at the policies of her chancellor and have a rethink or else she is not going to get the large majority she needs in this election and then we are all doomed. Perhaps this is what collectively they all want? A reasonable way out of a hard Brexit with excuses that they couldn’t do this or that. We had all that with Con/Libdim coalition. The Tories couldn’t do much about climate change because of the LibDims but they still haven’t addressed this problem even though they have had plenty of time.

    We all long for a truly Conservative government again instead of a wet behind the ears party looking like Nick Clegg is still at the helm. Theresa May has a great chance to make her mark and for the people of this country to look up to a political party again instead of being let down and taken for a ride.

  8. DaveM
    Posted April 23, 2017 at 7:47 am | Permalink

    Aw shame. I was looking forward to your normal St George’s Day entry. Ah well, it seems Mr Corbyn remembered, what with his Bank Holiday promise. Looks like he’s starting his pitch towards the millions of English folk that have been abandoned by the Tory Party in favour of the Scots and Welsh who DON’T vote the Tories into govt.

    Ah well, as long as we keep paying our taxes to ensure the foreign aid budget remains at ridiculous levels, eh?

  9. Newmania
    Posted April 23, 2017 at 8:10 am | Permalink

    2000/01, public spending was at 34.5 per cent of GDP – By 2009/10, it was 47.7 per cent – The Conservative Party fought and lost two elections on the basis we were over spending as a country and John Redwood was at his most effective in criticising the profligacy of New Labour
    To what extent we would have been better off under Conservative administration when the crash came we cannot know, somewhat I guess .I feel certain spending would have grown and in no doubt that the housing market would have been allowed to balloon far more
    One of the things that amuses me about the Nationalist Government we are currently lumbered with is that it is all National and no governing . To cover the effects of Brexit we cancelled the modest deficit reduction plans ( which John Redwood frequently and expertly defended ) allowed the stock of debt to creep up and debauched monetary Policy
    This is why Breixt is directly responsible for the end of the triple lock tax rises and cuts to services in the near future and the reason Theresa May felt she had to go to the country before the truth crept out

    If John Redwood wishes governments to behave with sense it would help if he said the same thing over a period of time . In fact his attitude to grossly irresponsible public spending seems to depend entirely on whether or not it is in the services of “Brexit”

    • Anonymous
      Posted April 23, 2017 at 8:32 pm | Permalink

      Mrs May is a Remainer. She had no need to stop any ‘truth’ coming out.

      Peter Hitchens proposes it is the issue of 30 MPs being investigated for electioneering overspend.

    • Richard1
      Posted April 23, 2017 at 10:43 pm | Permalink

      This analysis is nonsense. In the view of Brexit supporters such as JR public spending will be lower as we save £10bn PA by leaving the EU and growth will be higher as we will no longer be burdened with business destroying EU rules. Further, the ability to strike trade deals and remove the EUs protectionism will boost trade and lower prices.. You won’t agree with any of that of course, but your point that Brexit supporters expect and are happy with higher borrowing than there would otherwise have been is clearly drivel.

  10. acorn
    Posted April 23, 2017 at 8:16 am | Permalink

    The EU Stability and Growth Pact legislation and the consequent Excessive Deficit Procedure (EDP), for correcting excessive deficit or debt levels; is even more stupid than the US Debt Ceiling legislation.

    But, when / if we actually Brexit, we will have a Chancellor who will still be operating the same classic neo-liberal ideology of a balanced / surplus budget target, which is exactly the same thing as the EDP.

    A Sovereign fiat currency ISSUER government, never runs out of its own money. Just like a cricket score board never runs out of numbers to put the score up, regardless of how many runs are scored. Government “money” is just a Unit of Account. It only exists as numbers in a ledger.

    The government has no need to borrow its Unit of Account and certainly does not have to pay interest on it to anybody. Even so, it could only borrow back its own “money” that it had previously spent into existence in the non-government (private) sector.

    The non-government sector is a currency USER, it does run out of government money and does have to borrow. A USER can borrow from a Bank (get credit) as a number in a ledger (deposit); or, as a special favour, the government allows the bank to issue it as pieces of paper with a picture of the Queen on it. The government would like to get rid of the latter. It knows how much of this paper is out there, but not where it is and what it is doing to avoid the tax man.

    Read Prof Bill Mitchell’s book, “Eurozone Dystopia”. Remember that when the private sector takes fright and stops spending for any reason, the economy slows down. If the government sector does not increase its spending to compensate, the economy goes into recession. Neo-liberal austerity has been and still is, the very last thing the EU has needed in the last decade.

    EU governments are not spending enough money and it needn’t cost them anything to spend it. Inflation tells the government when it is running out of things available to buy. If you still have unemployment at that stage, it should start using the tax system to push economic activity into the sectors that require increased production capacity.

    • APL
      Posted April 25, 2017 at 10:06 am | Permalink

      acorn: “A Sovereign fiat currency ISSUER government, never runs out of its own money. ”

      This is of course true. But it ignores the stark fact that as the ‘Sovereign issuer’ prints more ‘sovereign notes of exchange’ the value of its existing notes already in circulation falls in terms of real goods and services in the economy.

      This is called ‘inflation’.

      There is one way that this may not happen, that’s if the economy is growing. In this situation, if the size of the economy is growing, and the ‘sovereign issuer’ doesn’t print more ‘notes’, then the value of the sovereign notes goes up – they become more scarce in terms of goods and services in the economy.

      That’s deflation.

      In the UK, the government likes inflation. Hell! it has a declaired policy of 2% per annum devaluation of Sterling.

      acorn: “even more stupid”

      Well, yes.

      • APL
        Posted April 25, 2017 at 10:29 am | Permalink

        acorn: “Inflation tells the government when it is running out of things available to buy.”

        You call this insanity, economics?

        By the way, QE, inflation, printing additional sovereign bills of exchange, call it what you will. Doesn’t ‘stimulate’ the economy.

        Since we measure the GDP of the economy in Sterling, and you’ve just devalued Sterling against it’s value last year by 2%, (government policy), the economy may look bigger but all you’ve done with your QE is reduce the size of the yardstick you are using to measure the economy.

        QE is a fraud.

        • acorn
          Posted April 26, 2017 at 10:12 am | Permalink

          QE is not a fraud, it just doesn’t work as a monetary policy.

          “QE, inflation, printing additional sovereign bills of exchange, call it what you will. Doesn’t ‘stimulate’ the economy.” It does a little but in a very inefficient roundabout way. QE does not add additional “money” into the economy, it just swaps government savings certificates back into the original government spending (deposits in banks or cash).

          • APL
            Posted April 26, 2017 at 1:50 pm | Permalink

            acorn: ” QE is not a fraud, it just doesn’t work as a monetary policy.”

            It is a fraud. You and I presumably have exchanged our time and knowledge for some government bills of exchange. We have a reasonable expectation that they will buy ‘x’ amount of goods or services.

            The government meanwhile issues more bills of exchange into the economy, devaluing those you and I have already. That is fraud.

            A government that stands on a election platform ” we will tax you at ‘x’ rate, then steal what you have left at ‘y’% each and every year. Would, I put it to you, be unlikely to be elected.

            No, governments attempt to get elected by offering improvements, benefits and promises.

            No government would get elected on a promise to make the electorate poorer.

      • acorn
        Posted April 26, 2017 at 10:42 am | Permalink

        The value of the existing cash does not go down, prices in the market go up until new capacity brings them down again. Too much “money” chasing too few goods. That’s inflation.

        How would the economy be growing if there wasn’t already enough money in circulation to make it grow- government money or high street bank credit? Too little money chasing too many goods available for sale, prices fall. That’s deflation, next stop recession.

        If the government deliberately reduces the money in circulation by higher taxes and/or; lower government spending and/or policies designed to suppress wages and bank credit to household; you get neo-liberal austerity.

        The BoE will then reduce base interest rates, to try and counteract the affects of the austerity. It will then, with QE, try and stop people getting interest on government cash and force them to buy dividend paying shares as an alternative. That pushes up stock market values to ease corporate borrowing from banks and ………………………………. enough for today. 😉

        • APL
          Posted April 28, 2017 at 7:05 am | Permalink

          Acorn: “The value of the existing cash does not go down .. ”

          Of course it does, that is everyone’ everyday experience. How can you possibly disagree?

          Take a house in an affluent part of any city, in 1950 (feg) it may have cost £1000, today the same house will probably cost £750,000. Same number of bricks, same land area, same timber used in the construction.

          Acorn: “prices in the market go up”

          Because the value of the currency has gone down. You pay more ( devalued ) currency units for the same goods.

          Acorn: “new capacity brings them [prices] down again.”

          Extra investment in capacity to increase production does play a role, it can bring the prices of a commodity down.

          But investment is less likely in an environment where the capital to create investment is being destroyed because the value of the currency is being deliberately eroded.

          It used to be called ‘short termism’ when Socialists had just finished destroying the capital base in the country, they cast around to find a scape goat and fasten on the financiers, who they claim are ‘investing for the short term’!

          Acorn: “How would the economy be growing if there wasn’t already enough money in circulation to make it grow ”

          This really is ridiculous!

          Money or ‘bills of exchange’ ( otherwise known as bits of paper with pretty pattens drawn on them ) don’t make the economy grow.

          The innovation and work done by individuals and companies in the economy generate wealth that make the economy grow.

          If you have a fixed amount of currency in an economy, and the economy is getting wealthier due to the work and innovation being carried out in the economy, the value of the currency will rise to reflect the improvement in the wealth of the economy.

          That is one manifestation of deflation. Its is a good.

          Acorn: “If the government deliberately reduces the money in circulation by higher taxes ”

          Government doesn’t reduce the money in circulation by higher taxes, surely that’s self evident??

          The government confiscates taxes and spends the proceeds itself. The money is still in the economy, the government just claims the right to spend the money to itself.

          Acorn: “lower government spending ”

          But we are not getting lower government spending, how could we possibly be getting lower government spending?

          The government is running a deficit, it is borrowing money in excess of its forecast, and has been for years.

          We’re getting increased government spending, increased government borrowing, and as a result, we’re seeing a lower value of the UK economic currency unit, which leads some people to claim that the government is reducing spending.

          It is not.

          You’re basing your whole model on assumptions that are simply WRONG.

  11. Roy Grainger
    Posted April 23, 2017 at 8:24 am | Permalink

    Just as an aside, it is amusing that the EU punishment for a country not meeting their deficit targets is fines, thus worsening the deficit.

  12. Iain Moore
    Posted April 23, 2017 at 8:25 am | Permalink

    Happy St Georges day. I am surprised that someone who claims he speaks for England hasn’t used today as a day to speak for England .

  13. The Prangwizard
    Posted April 23, 2017 at 8:40 am | Permalink

    Happy St George’s Day.

    • Iain Moore
      Posted April 23, 2017 at 12:32 pm | Permalink

      The only reference I have heard of it being St Geroge’s day was when Leanne Wood wished Andrew Marr it, who didn’t welcome the wishes . It comes to something when it is only a Welsh Nationalist who remembers it is England’s national day. If any other peoples were having their national day during an election it would be used to look at their issues, the English no, you get the feeling the British establishment has nearly abolished the day to celebrate Englishness. World at One has gone to Wales for its story, and given Tony Blair, who made English people second class citizens, a soap box to go on about the EU.

  14. Mike Stallard
    Posted April 23, 2017 at 8:44 am | Permalink

    Congratulations! Have you been reading Mr Booker in the Telegraph today?

    We do not need the EU to tell us about debt. We need to leave.

    At the moment we are spending £50 billion a year on servicing the debt – which is a lot more than we spend on our defence and this compares with the NHS budget too (about a third of it.) We must get rid of this debt. At the moment Mr Corbyn is quite definite: we have to spend more on people who need it, and also people who aren’t trying, and also people who wouldn’t mind a couple of extra quid. Lots of talk about “austerity” which you, Mr Redwood, debunked ten years ago.

    Paid out of what?

    If the country goes bankrupt – and it might when the economy tanks in April 2019 after an ill prepared Brexit negotiation when we become a “third country” – people like MPs will find that their salaries are not paid.

    • NHSGP
      Posted April 23, 2017 at 12:22 pm | Permalink

      At the moment we are spending £50 billion a year on servicing the debt –

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

      205 bn.

      You’ve left off state pensions dbets, civil service pension debts, nuclear clean up, PFI, losses on insurance ….

    • Anonymous
      Posted April 23, 2017 at 12:30 pm | Permalink

      Goodness. If the world was worried about the PIIGs’ economies tanking then what must it be feeling about London going bust ?

      Surely our transition must be dealt with delicately by all parties. If we go bust then the EU will be getting naff all from us for starters, but it make seek to punish us to set an example.

      Britain has voted for Brexit. Holland has installed a high proportion of far right MPs. France is about to do the same – quite possibly a far right government.

      Yet not one – not ONE EU politician is asking “Is it us ? Are we doing something wrong ?”

      The EU is about to implode. It is committing cultural suicide – because its politicians refuse to respect their own people.

      There is no easy way out of this.

    • Ian Wragg
      Posted April 23, 2017 at 1:36 pm | Permalink

      Go back to bed Mike and take some paracetamol.
      You’ll feel better soon.

    • acorn
      Posted April 23, 2017 at 4:30 pm | Permalink

      A quarter of the debt interest payments, the government pays to itself, via the BOE’s QE programme.

      You say “We must get rid of this debt.” What exactly do you think is going to happen if we don’t get rid of this debt? Exactly, how do you think a country that issues its own currency is going to go broke in that currency. Ask all the UK SME’s who import stuff, how many of their foreign suppliers, want paying in US Dollars.

      If we run out of foreign currency reserves, then we can’t buy stuff from countries that want paying in those foreign currencies, unless we exchange Pounds for foreign currencies. A process that devalues the Pound in the FX market.

      Say the government reduced its, so called, debt to zero. What do you think will happen to all the non-government households and businesses that were saving 100% of that government debt, as a hedge against their personal next financial crisis?

      • hefner
        Posted April 23, 2017 at 7:17 pm | Permalink

        Gilts? Did you say gilts? Currency exchange? Ouch, too complicated, don’t want to hear about those things. And anyway didn’t you know that economists are “experts”. Quick, crucifix and garlic.

        • acorn
          Posted April 24, 2017 at 7:54 am | Permalink

          Yes, we have a nation that is full of the likes of “Brenda from Bristol”. She will get the government she deserves and will wonder why she gets crapped on, by every one of them.

    • Vanessa
      Posted April 23, 2017 at 4:52 pm | Permalink

      Well said! I read Booker too, not a piece to warm the heart for any political party !Why do we vote these idiots in to govern us?

    • Edward2
      Posted April 23, 2017 at 5:34 pm | Permalink

      A country which issues it’s own currency cannot “go bankrupt”

      • Edward2
        Posted April 23, 2017 at 5:36 pm | Permalink

        Its not it’s

      • APL
        Posted April 25, 2017 at 10:15 am | Permalink

        Edward2: “A country which issues it’s own currency cannot “go bankrupt”

        I imagine the citizens of Venezuela will be pleased to hear that! Although it will come as something of a surprise to them.

        But I suppose it’s a consolation that Venezuela can’t go bankrupt, knowing that while you have a wheelbarrow of Bolivar, it still doesn’t buy a loaf of bread.

  15. Jack snell
    Posted April 23, 2017 at 8:58 am | Permalink

    Just listening to corbyn on the andrew marr show this morning…jeez..what a idiot?
    he thinks he can reason with the likes of north korea and russia etc to make a nuclear free world.? ..yeah .. right on brother! .. then he wants to add in four more national holidays per annum – obviously making it up as he goes along…and on top of this he still cant give a straight answer about free movement of people after brexit…goddamn awful stuff

  16. Caterpillar
    Posted April 23, 2017 at 9:33 am | Permalink

    I would much rather Mr Hammond summarised the situation in terms of changes to who holds UK debt and the consequences of this, including the BoE (so owed to ourselves), foreign holders (so is it low enough to be safe, high enough to indicate confidence), pension schemes (and the consequential performance/risk to these).
    I also think Mr Hammond should explain the affordability and maturity of the debt, and the consequences of future borrowing and future cost of borrowing on this.
    Moreover, Mr Hammond should explain why the practice of QE + Govt borrowing (hence ‘undeserved’ profit to banks) is considered more appropriate than allowing the Govt to create money as social credit and use this for investment projects (I am surprised Mr Corbyn and Mr McDonnell do not question this).
    I also think Mr Hammond should explain what he is going to do about very long run AS – this requires resources to be directed to investment in terms of capital per capita, capital with positive spillover effects (so monopoly breaking with HS2 is good, but what else), human capital increase (automatically having spillover effects). As I have suggested before I would guess that this requires fundamental changes in the tax system towards expenditure and cashflows, and reporting a top line such as Skousen’s Gross Output as well as the bottom line of GDP – the media and public debate needs to question the size of consumer spending and how to drive investment (low interest rates do not seem to be doing this).

  17. Narrow Shoulders
    Posted April 23, 2017 at 9:55 am | Permalink

    During the debate I found it fascinating that the SNP and Labour, parties who dislike deficit reduction and the spending cuts that often accompany it, could not bring themselves to condemn the Maastricht requirements and the policies they have clearly led to on the continent. Apparently plans to cut the growth in spending or to raise taxes on anyone other than the rich are not desirable if home grown, but are just fine if in pursuit of compliance with the Maastricht Treaty, You would have thought parties of the left especially would welcome freedom from these debt and deficit controls when we leave the EU.

    Thank you for highlighting this once more, it had slipped my mind. I do hope to hear your colleagues repeat this ad nauseum during the campaign

    • Leslie Singleton
      Posted April 23, 2017 at 6:25 pm | Permalink

      Ad nauseam please Sir

  18. Bert Young
    Posted April 23, 2017 at 10:06 am | Permalink

    The stand-out feature is the hypocrisy of the EU . Their accounts have not been signed off for many years , its economy is in a mess , Germany will not expose its reserves . How it can put itself in the position of judge and master is beyond belief . The EU simply want to “spy” on our accounts .

    Naturally the SNP do not want any sort of deficit reduction otherwise the disproportionate per capita rebate they receive would throw their programme into a state of despair . The fervour of the SNP bares no relationship to the economy in Scotland – as managers they should all be sacked .

    Equally Labour -as represented by the utterings of Corbyn , simply want a Communist country . His recent statements suggest that the country is run by an establishment who are only interested in their own needs . Like the SNP he needs to put his feet back on the ground .

    • ChrisS
      Posted April 24, 2017 at 8:17 am | Permalink

      I’ve thought for some time that Mrs May should tell the 27 that we will agree an appropriate final Brexit payment but only one that is based on a set of accounts that have been signed off as correct by the auditors………………

  19. Jack
    Posted April 23, 2017 at 10:14 am | Permalink

    Repaying large amounts of the national “debt” wouldn’t just be deflationary, it’d cause a complete collapse of the economic system and the private credit structure.

    Government “debt” (non-government sector’s assets) = part of the money supply. The other part is created by commercial banks when they lend, but destroyed when loans are repaid. Hence why the economy needs a growing number of outstanding loans to keep growing GDP. In essence, in order for there to be GDP growth, someone must be spending more than their income (e.g. government via deficit, private sector via borrowing, or external sector via net exports).

    Chinese government certainly gets it, people should take a look at this and see how they responded to 2008 GFC to keep growing GDP at 12 to 15% annually post-2009: http://cdn.tradingeconomics.com/charts/china-loan-growth.png?s=chinaloagro&v=201704201725t&d1=19170101&d2=20171231&type=splinearea

    • Jack
      Posted April 23, 2017 at 10:27 am | Permalink

      Worth noting that a lot of the Chinese economic officials have been replaced by western-educated “monetarist” types, so if they start worrying about the “debt” or whatever then don’t expect China to continue growing insanely fast.

      But from what I’ve seen in 2015-16 and 2016-17, the Chinese government has been managing their economy sensibly so far with massive fiscal stimulus. Hence why they are still growing at ~7% per annum even when bank lending is currently lower than in the past (still high by our standards though!).

    • NHSGP
      Posted April 23, 2017 at 12:18 pm | Permalink

      So what you are saying is that it would be bad if the state paid state pensions.

      Just another debt.

  20. Tom William
    Posted April 23, 2017 at 10:30 am | Permalink

    Why does no Conservative spokesman/minister say that it is irresponsible for any party to promise not to put up taxes? Why do they not just say that some taxes might go up while others might go down? Who is to blame for allowing the public, and media, to say bluntly that taxes will go up under the Conservatives without explaining basic economics?

    Corbyn has said tuition fees will be abolished and explained how he intends to pay for it. It may or may not be feasible but it is likely to attract many young to vote for him.

  21. Antisthenes
    Posted April 23, 2017 at 10:36 am | Permalink

    The euro zone needs policing at an unprecedented level because vast sums of money needs to be pledged to ensure stability in a very chaotic market. Chaotic because of the diverse range of economically responsible and competent participants in that market. One prolific spender and there have been many with the threat that there will be more if not made to curtail their more extravagant nature can quickly become an avaricious users of the more prudent and wealthier participants coffers.

    That policing has been extended to non euro users on the basis that eventually all members of the EU will be required to join in economic and political union. Brussels does not operate on the principle of democratic choice. To do so would make the achieving of an EU that was envisaged by it’s founders impossible. Whether in light of experience that ambition is now desirable is not something Brussels dare allow to be debated as the wrong answer puts all their work and jobs at risk.

    On a smaller scale we have seen the UK having to pour large sums of money into keeping the nations economy solvent because of a high spending and an incompetent chancellor/PM. Leaving us with a deficit and debt that we are struggling to cope with without seriously harmful accompanying consequences which generally we are doing thanks to the fact we have a Conservative government not a Labour one. The EU has not been so lucky with it’s euro zone. Even though belatedly it is now sticking to the rules which hitherto it found it expedient not to it is still has unresolved economic problems and a currency union that is inherently unstable and unsustainable. Even if economic union is eventually realised that position will remain.

  22. John Finn
    Posted April 23, 2017 at 10:41 am | Permalink

    John, a slightly OT comment but, how would the EU deficit and debt rules affect Scotland’s application for EU membership should they eventually gain independence? Given that their current deficit is around 9% it occurs to me that some pretty severe deficit reduction plans would need to be agreed before the EU would accept Scotland as a member.

    Reply Of course

  23. Nigel
    Posted April 23, 2017 at 10:53 am | Permalink

    The EU is due to lose 12.5% of its income in two years. I wonder what measures they have planned to cut their expenditure to match.
    I also wonder when their accounts are likely to be accepted by their auditors.

    They would do well to get their own house in order.

    • hefner
      Posted April 23, 2017 at 1:09 pm | Permalink

      It is so nice to see you care so much about the EU. What about asking the same questions about the UK: is the deficit being reduced? Is there any chance of the debt not further increasing? Is the low level of unemployment really translating into meaningful jobs for most people?
      Just some questions, closer to home.

  24. Tad Davison
    Posted April 23, 2017 at 12:08 pm | Permalink

    Most of us know why we have so much national debt in the first place, and who it was that held a gun to our heads with the ultimatum that unless they were bailed out, they would crash the economy.

    I would feel a whole lot better if we had cast-iron guarantees (and not the Cameron kind) that the same thing could not, and never will happen again. Until such time, every other discussion is superfluous and prone to obsolescence.

    Tad Davison

    Cambridge

  25. NHSGP
    Posted April 23, 2017 at 12:17 pm | Permalink

    But you clearly don’t mind dumping 12.5 trillion pounds of debts, pensions included, on the young. You also want to hide the number for obvious reasons.

    So its plan B.

    Tories will tax people more toe extend the life of the scam.

    The conservatives are now just another party in favour of high taxation.

    Austerity for the public.

  26. Eric Cire
    Posted April 23, 2017 at 1:29 pm | Permalink

    How many countries with a defcit to GDP of 1% or less

    Certainly not UK as a whole

    Actual deficit for UK 2016-17 (which includes Scotland) is
    £51.7 billion = 2.6% of GDP

    GDP
    £1,988 billion = UK GDP (including Scotland)
    £1,830 billion = rUK GDP (excluding Scotland)

    £158 billion = Scotland GDP (£158bn including oil & gas, £149bn excluding oil & gas)
    £129 billion = Wales & N Ireland GDP (this assumes Wales & N Ireland onshore GDP per head is same as Scotland)
    of which remaining
    £1,701 billion = GDP England

    deficit
    £15 billion = Scotland
    £14 billion = Wales
    £10 billion = N Ireland
    of which remaining
    £13 billion = England

    £13 billion England deficit is less than 1% of England’s £1,701 billion GDP

    http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN05745

    • Peter Wood
      Posted April 24, 2017 at 12:53 am | Permalink

      Very interesting data, the logic of which is to turn the UK into a federation of nations that take responsibility for their own income and expenditure? What of defense? If England offers to take care of the federation’s defense can we charge a fee to eliminate our deficit or even have a surplus? Works for me!

    • ChrisS
      Posted April 24, 2017 at 8:39 am | Permalink

      I worked out these figures myself before seeing your post, Eric.

      It shows very clearly what a drag on the English economy the rest of the UK is.

      Devolution works very well for NI, Wales and Scotland but is disastrous for English taxpayers. The UK government seems to have no interest in reducing the deficit to sensible proportions in Scotland and Wales ( I think we have to accept that NI is a special case).

      Why not ? Wales seems happy to be associated with England, as well they should be, given the black hole that is their economy, but Scotland, voting SNP is a completely different matter.

      Whether or not the Scots vote for Independence next time, there needs to be a requirement for the devolved Government to implement a deficit reduction programme. This will be necessary for them to join the Euro and I believe English Taxpayers should have a say on how our money is used.

      At the very least the ludicrous situation where we are paying for Sturgeon to indulge the Scottish people with free prescriptions and university fees ( denied to English Students in Scotland, remember ) needs to be brought to an end and quickly.

      In essence successive British Governments have been bribing Scots to remain within the UK with our money. This has to stop.

      Mrs May should call Sturgeon’s bluff. Make it clear that whichever way they vote in a second referendum, the Scottish devolved administration has ten years to reduce their deficit to the average of that of England. This can be achieved using the same reporting and fining model as used by their beloved EU.

      If instead they chose to leave the UK that will be OK with us but Brussels will require the same plan to be implemented before they qualify for membership.

  27. stred
    Posted April 23, 2017 at 1:45 pm | Permalink

    According to facts4eu > the EU Commission is now about to make demands that the UK funds 12% of its foreign aid budget for the next 15 years because Mr Cameron agreed to it. They have no intention to reduce expenditure to accord with the reduced income after members have left the club. This expenditure does not even appear on the subscription but is included in the ministry budget. If Mrs May thinks she can sweep this out of sight during the election, she can have a re-think.

    The Commission, probably in cahoots with British ex- commissioners, are being as unreasonable as possible in order to make us think again, forgetting that this is not going to encourage Brits to settle for this extortion forever. Now that she has played into their hands and given them the election they asked for, Mrs May must assure us that she has the intention of telling M.Barnier that we are leaving, not joining, and that he can reduce his budgets as we are not signing any cheques to fund his arrogant plans and that we will fund any reasonable projects, providing we agree with them, otherwise forget it.

    • ChrisS
      Posted April 24, 2017 at 8:43 am | Permalink

      I completely agree, Stred.

      I presume that even if Mrs May accepted to pay this 12% share of the EU aid budget, the Liberals and Lefties will make it impossible for it to be paid for out of our own ridiculously high aid budget.

  28. BOF
    Posted April 23, 2017 at 1:53 pm | Permalink

    Off topic but topical.

    Foreign Aid looks set to stay, tragically.

    Anyone who wants smaller Government should be up in arms. It is currently funding charities and Quangos to the tune of millions. I is part of the charities business plan and is funding astronomical pay packets for executives. charities are losing the meaning of charity altogether and are being funded by the tax payer.

    Business should be encouraged to (via tax incentives?) to go out and trade with all these countries requiring foreign aid and this would boost wealth and wellbeing in those countries far more than stuffing wads of cash at them. It is also far better for self esteem to be doing business than receiving aid.

    In times of natural or man made catastrophe Britain has always helped and the British people have always given generously.

    Theresa May does not appear to have thought this through or is ill advised. I barely know anyone who agrees with this folly.

    • Ken Moore
      Posted April 23, 2017 at 9:41 pm | Permalink

      Unaffordable Arbitrary 0.7% target to stay
      Triple lock abolished.
      Tax rises in the pipeline
      No end in sight to mass immigration and budget deficits.
      Schools funding slashed in well of areas to allow Mrs May to virtue signal her ‘fairness’ credentials.
      Conservatives under investigation for electoral fraud.
      A PM on the side of scroungers not strivers.

      Good luck with that landslide election win your hoping for Conservatives!

  29. BOF
    Posted April 23, 2017 at 1:58 pm | Permalink

    Happy St George’s Day.

    I have celebrated with delicious St George’s mushrooms.

  30. Lindsay McDougall
    Posted April 23, 2017 at 2:35 pm | Permalink

    In the early days after Maastricht, Portugal broke the 3% deficit rule and was heavily fined. At around the same time, France and Germany also broke the same rule and got away scot free. All Member States are equal but some are more equal than others.

    The 60% of GDP debt rule is excellent and would have merit even if the EU didn’t exist. If we didn’t have crazily low interest rates and lots of QE, the interest on that level of State debt (let alone the 90% of GDP debt that we actually have) would be prohibitive. And another thing: if we can’t afford to fight a war, then we are not truly sovereign. Maybe that’s a good thing – what do you think?

  31. Andy Marlot
    Posted April 23, 2017 at 6:31 pm | Permalink

    I’d be fascinated to know why Mrs May won’t rule out tax rises. As we are saving billions in Eu membership fees why exactly should we not get tax cuts?

    • hefner
      Posted April 23, 2017 at 7:09 pm | Permalink

      Could it be that balancing the budget is a bit more than a simple problem of “communicating vessels”?

  32. Freeborn John
    Posted April 24, 2017 at 2:31 pm | Permalink

    The EU is deciding its negotiating mandate later this week. The Uk really needs to make clear before this meeting that some of the things they are asking for are untenable and will crash the talks by ensuring that any deal on that basis will be worse for the UK than no deal.

    Once the EU negotiating mandate is agreed the inflexible EU system means they won’t be able to deviate from it, so if May is serious about getting a good deal she needs to immediately state for all the world to hear that there will be no huge exit fee, no EU law in the UK, no ECJ jurisdiction and no freedom of movement. She is drifting into these talks rather than shaping them.

  33. Javelin
    Posted April 24, 2017 at 9:39 pm | Permalink

    You need to start thinking of the EU as a pension fund with a continent attached.

    It will make alot more sense and be easier to manipulate.

  • 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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