The Budget judgement

The UK economy grew well until the spring of 2017. Policy was then changed to slow the economy by a combined fiscal and monetary squeeze. In the year that followed money growth halved. The combined effects of the 2016 property tax rises and the 2017 car tax rises damaged activity levels in the two largest purchases people make, homes and cars. The tax effects were reinforced by the reduction of credit availability. Money growth slowed thanks to higher interest rates, the removal of special Bank of England facilities to the commercial banks, and the Bank guidance to lend less on car loans , mortgages and consumer credit.

It is time to lift the squeeze. There is no great inflationary danger lurking in the UK economy. There is only a modest increase in wages. The world background is not inflationary, with some monetary tightening in the USA and the Euro area. This budget should not strive to get the UK deficit down further, and should seek to repair the damage done to individual sectors by past tax rises. The forecasts should be more realistic, after a run of forecasts which exaggerated the deficit.

The Prime Minister has said she will end austerity. This then is the budget to do so. Austerity is not just something in the public sector. It was what Labour delivered with the falls in output, jobs and real incomes at the end of the last decade. It has dragged on for some thanks to the slow recovery and the poor growth rates in earnings since the banking crash. To lift austerity we need to spend a bit more on some public services, and take less tax off people in work so they have more of their own money to spend. The good news is we can afford to do both. The Treasury regularly under estimates incoming revenue, and ends up cutting the deficit more than planned.

The UK has a modest state deficit these days, but a rather bigger balance of payments  deficit. I have been more worried about the balance of payments  deficit than the state deficit for some time. That deficit needs financing by either selling assets to foreigners, or borrowing from overseas. It has resulted from the very large trade deficit we run with the EU, dominated by large imports of food and cars and by the huge payments we make in  EU contributions and Overseas aid. We could grow more of our own food and buy more of our own cars. This will depend in part on what tariffs we put in place for next March – or for any later exit date from the EU.

Ending the EU contributions will make an important contribution to cutting the balance of payments deficit. Today we have to sell a lot of assets to meet those contributions, as it is all money we need to send across the exchanges into Euros. Spending more of the overseas aid on the set up costs of the asylum seekers and economic migrants at home would also be a helpful option. Ending EU contributions also frees up that part of the budget for domestic spending or tax cut priorities.


  1. Lifelogic.
    October 27, 2018


    As you say “austerity is not just something in the public sector”. But there has actually been very few real cuts in the hugely bloated and largely inept state sector at all. State sector workers with pensions included are still remunerated at nearly 50% more than the private sector ones and many there produce little of any value at all. Plus they work fewer hours, take more sick leave, retire earlier and do less dangerous jobs. Quite a high proportion of them actually destroy value. Furthermore the state sector though daft red tape, employment laws, planning restrictions, the litigation culture, the endless green crap subsidies, expensive energy and OTT health and safety make the private sector far less efficient too. At least 50% of university degrees being financed by tax payers are largely pointless and just lumber people with debt they will often fail to repay. There are many pointless jobs in the private sector too due to idiot red tape, planning, tax and employment laws.

    The spectator leader has it exactly right. Just what is the point of the (tax to death remainiac and economic illiterate) Philip Hammond. What is needed given the current position (with the highest and most complex taxes for for nearly 50 years) is large tax cuts, tax simplification, a bonfire of red tape, massive cuts in the bloated state sector, reversal of the green crap agenda and to replace Hammond with someone who had a sensible small state vision. Plus more freedom & private competition in education and health care with a level fiscal playing field rather than dire virtual state monopolies.

  2. Patience for now
    October 27, 2018

    Hysteria, with a capital aitch, from the Parliamentary militia persons (MPs) Remainers, as self-titled in their own introverted lament would have been, literally a pain in the necks, limbs, physical and mental immune systems of our people. But for the fact, no-one of account pays them much attention, do not worry their spoofing worries.

    With media so technologically advanced they could have wounded us all. Instead they just wasted the shoe leather of Labour’s socialist middle class. Hopefully, they needed corn plasters. Something real for them to worry their Local Authority fixed-for-them job-heads.

    So our people are still waiting for Brexit. Where’s our own beef?

  3. Nig l
    October 27, 2018

    In the last ten years U.K. plc has spent £100 billion on foreign aid. When will it’s Chief Executive tell it’s shareholders what we got for our money?

    Funny how the budget narrative seems to be changing, suddenly he got money to give away. Surely the Treasury is not bribing it’s MPs to accept its Brexit narrative?

    As for public spending, yes the politics requires it. Canute trying to support a High Street that is unsupportable, poor service, poor choice, poor prices. Planning consent changes would be welcome.

    As for the NHS and the rest, no doubt we will get the usual BS about efficiency savings. In the last 2/3 weeks Lloyds Bank has said it has saved 660,000 hours through digitisation and Vodafone how it’s Chatbots are developing and now adding real value and both, and all other major plcs, are looking to maximise benefits from this approach.

    This is a subject close to your heart. There has to be billions that could be saved in thvPublic Sector. Why not in the budget, with the announcement of giving away more money, include the formation of a Department for Government Efficiency with the specific role of dealing with computer legacy issues., digitisation and the use of AI, and saving money!

    As an aside, it has been announced that the head of the Electoral Commission is to move on. It’s one eyed anti Brexit stance was transparently obvious and, frankly, disgraceful. Another discredited source of information that the Remain campaign leaned on, closed.

    1. Adam
      October 27, 2018

      It would be a pleasant change if the budget put the brakes on HS2 as another means of providing funds for accelerating Brexit.

  4. Mark B
    October 27, 2018

    Good morning.

    The balance of payments deficit is a direct result of increased consumption and this, in part, is due to an increase in population. So, by reducing consumption you will end up by reducing the deficit, but also the economy.

  5. Duncan
    October 27, 2018

    I don’t want to see more wasteful taxpayer financed spending to finance Labour’s unreformed, union controlled client state. I want to see reform of this backward, politicised construct that benefits Labour when and when not in government

    If Marxist Labour do achieve power your predilection for more State spending will provide them with an even greater precedent with which to justify their destructive collectivist policies

    The Tories have been owned by Labour’s client state political project. Purge Labour and their acolytes from every corner of the State

    The UK is not the public sector. Yes, the dependents dominate the media space through the BBC and their allies in the press but that’s too be expected in a client State. It is the productive and self-financing private sector that keeps the UK solvent.

    I don’t like politicians in government who spend money to pacify opposition. The taxpayer’s function is to finance essential public provision not too finance the creation of a favourable political climate

    1. acorn
      October 27, 2018

      Nonsense. The private sector is a long way from being “… self-financing private sector that keeps the UK solvent”.

      Public sector employees are paid £184 billion a year and spend a lot of it buying stuff from the private sector. The public sector also spent £11.5 billion subsidising private sector activities; slightly less than the £12.3 billion in spent on grants to feed starving displaced kids / families abroad.

      Do yourself a favour and start studying the interaction between the public sector; the private sector and the social economy. Here is a Venn diagram to give you a starter,

      And understand, on a Venn diagram, a private sector is always totally enclosed by a, currency issuing government sector; an unregulated private sector can’t exist otherwise.

      Those public sector employees, collectively in their jobs, spent another £219 billion, buying goods and services from the private sector, for the common good of their fellow 66 million citizens.

      1. Edward2
        October 27, 2018

        So if we all were public service employees we would all be rich.

  6. Alan Jutson
    October 27, 2018

    I have absolutely zero faith in The Prime Minister or the Chancellor so I will wait for Monday before I make further comment, but past history suggests higher taxes and more cans kicked down the road.
    Can a leopard change their spots ?

  7. Tad Davison
    October 27, 2018

    I guess Hammond feels he needs to try to hobble Brexit somehow or miss the chance of a lucrative EU commissioner’s job further down the road, but apart from the BBC, he doesn’t appear to be making any progress as more and more people see this scaremongering for what it is. We clearly need a change of direction, but the only way to achieve that is for a change in personnel. His urgent replacement is second only to that of his boss.

    Tad Davison


  8. acorn
    October 27, 2018

    Do I detect a bit of Modern Money Theory creeping in JR? “I have been more worried about the balance of payments deficit than the state deficit for some time.” The state deficit only matters if it exhausts the capacity of the economy to produce goods and services and generates inflation in the prices of labour and/or real resources.

    PLease, please JR, allow your commenters a two minute read of

    Meanwhile, you can see where the Chancellor is pulling in more tax from in “Table” in the following. Compare “financial years to date”.

    1. Lifelogic
      October 27, 2018

      One may not be able to run out of UK pounds, but they can however devalue to be worth rather less than the costs of issuing or printing them!

  9. Newmania
    October 27, 2018

    I have been more worried about the balance of payments deficit than the state deficit for some time.

    Have you seriously , then you absolutely nothing about trade or economics and are still labouring with ideas last current around the time of the corn laws.
    I do not believe you are this dim

  10. ian
    October 27, 2018

    Start a new tax legislation book and sending the old one to a museum after Brexit, would be a good idea, since the second world war the British tax book has been infected with pure BS from both parties who have been in power since 1944, one of the biggest failings is personal taxation from 1944 with a wealth tax later on followed by employment taxes, then go on to european taxes, VAT instead of sale tax, theses are he-ness crimes against humans which have spread and are still spreading around the world.

    There are better ways of doing things which would yield better results for gov businesses and people but nobody can be bothered to look into it with little cost to the gov, a much more friendly system for all concerned.

  11. Lindsay McDougall
    October 27, 2018

    Sorry, but total State debt is still too high. As we have seen with Greece and Italy, nations with too much State debt are not truly free. And what’s this about financing asylum seekers and economic migrants? Just exclude them.

  12. Ron Olden
    October 27, 2018

    It doesn’t matter what the ‘world background’ is.

    Inflation is monetary phenomenon specific to the currency in which the prices are measured.

    UK inflation has been above target for two years and is still above target. The 2% target is too high anyway. A zero to 2% range would be more appropriate.

    House prices are STILL rising and banks are again showing an alarming level of risky debt in their balance sheets.

    The modest monetary tightening we’ve encountered so far is exactly the right policy. Whether another quarter point rise will be required I don’t know.

    There has been no new ‘fiscal squeeze’ in the past twp years. The deficit has (belatedly), come down as result of the policies announced in the years prior to, and in the 2016. budget.

    The budget deficit is still too high. At this stage in the economic cycle we shouldn’t have a deficit at all.

    If we need tax cuts (which we do) public spending should be cut by at least the same amount.

  13. Rien Huizer
    October 28, 2018

    MR Redwood,

    “There is no great inflkationary danger” . But if you get the brexit outcome you advocate, ie a “no deal” (no transition, no withdrawal agreement with financial settlement, no solution for the Irish border, etc) a reasonable observer of foinancial markets would expect that investors would drive the GDP to much lower levels than we have today. Just look at what the Pound does on a day when “deal” news is leaked out. That scenario(the certainty of no deal, that could start to have an effect around the end of the year) would result in three things: higher CPI, reduction of overseas investment in EU-export oriented manufacturing (announcements), a swift response on the part of the BoE to both support the Pound and discourage an inflationary spiral setting and promises by the Treasury to tighten the fiscal situation. The combination of that would reduce consumer spending power in two ways: lower real wages, higher interest rates and overall pessimism about the economic future.

    You were there in 1976 when the IMF receivers were booking their tickets. Then the country was preoccupied with irrelevant (for the future) political issues like foreign policy on the right and anachronistic crude marxism on the left (topped off with some semi criminal union activity). History never repeats itself of course but.

Comments are closed.