Greece, austerity and reform

One of the ironies of the Greek predicament is that thanks to the previous Greek government the state deficit there reached low levels, beneath the EU ceiling and considerably better than some of the countries judging the Greek response. Unfortunately for Greece the election of a higher spending government coincides with the need to repay debts and to recognise that a low deficit was reached only after the most massive build up of debt which is now difficult to afford.

In the Eurozone France, Portugal and Spain are unable to get their state deficits down to the 3% maximum permitted, though they are more  hawkish over what to do about Greece. Germany has eliminated her deficit, just as many wish she would spend and borrow more to reduce her surplus and provide some stimulus to other parts of the zone.

The so called negotiations are bizarre. Greece says she does not want any more debt and wishes to make her own decisions about social and economic policy. The troika, renamed the “institutions”, remind Greece that she is borrowing more and needs  permission to do that under the Euro scheme. The price of more borrowing, to repay old debts and pay local bills, must be that Greece accepts the reform agenda of the Eurozone. Greece responds that she will not follow Euro austerity policies, labour market reforms and the rest which Syriza sees as damaging to the Greek chances of growing again.

The European Central Bank wishes to stop Greek commercial banks buying Greek government bonds and demanding financing from the ECB to help them do so and to pay for the deposits that are being withdrawn. The institutions want the ECB to go on  financing Greece – or allowing Greece to finance herself by selling more Treasury bills – whilst they see if they can broker an agreement.

The troika briefs that they can live with Greece leaving the Euro if she will not  accept the old medicine of the zone and the loan agreements. Few believe them. The Greek government briefs that they do not need new loans and are planning to do only what they want to do, which is mainly to spend more. Few believe them.

The truth is the two sides are locked in an acrimonious marriage where neither seem to believe in divorce. Both think they need each other, whilst disliking each other and telling the outside world they are just fine leading their own lives and having separate bedrooms.

How much longer can this go on? How much more damage will this scheme do? All the time the two sides bicker, half of all Greek young people remain out of work. None of it is a great advert for people to take a holiday in Athens this summer.

1932 public spending

In 1932  total UK public spending was £1 397 million. If you adjust for inflation that is £82 887 million.

So as the UK government this year is spending £737 100 million, what is all this nonsense about returns to the 1930s?

Meeting with Heathrow Airport management

 

Dr Lee, MP for Bracknell, and I met with representatives of Heathrow airport on Wednesday 18th March to discuss airport noise.

We had asked for the meeting on discovering that changes were made to flight routes last year without telling the local community. Readers of this site will know that I and others challenged the airport when it was conducting experiments with new routes last autumn. The airport accepted that these trial routes were thought too noisy by many of us and ended the trials early. However, noise levels still seemed different. Heathrow denied there had been any other changes.

They now inform us that NATs did indeed make operational changes last year which concentrate more flights over Bracknell and Wokingham during easterly operations. The airport apologised again, but said they did not know of this change. Apparently it is an operational change for safety reasons which NATs may do without consultation.

Dr Lee and I pressed the airport to do more to control noise. I raised the following issues

1. Can very early arrivals be delayed to a more civilised hour ? A first flight can come at 4.30am, though outbound flights start at 6am.

2.Can airlines be encouraged or made to use quieter planes for the early or late flights?

3. Can plans be advanced to get planes to climb higher sooner, or descend on steeper paths, to cut noise further from the airport?

4. Can more incentives be introduced to encourage use of quieter planes by airlines?

5. What action is taken to deal with poor flying by the occasional pilot who uses too much thrust/airbraking/banking and turning in a way which increases noise?

I was told work was going on with all of these matters. I asked for a report on what we should expect by way of improvement.

Trends in public spending

The government has recently published more figures showing the real changes in public spending in recent years. These reveal that real spending has gone up in several large programmes, including health, social security and general public services. It has also risen in international services including overseas aid, EU contributions, science and technology and environmental protection. There have been real cuts in defence, public order, recreation and culture, and enterprise and economic development. Overall general government consumption went up by 1.5% in 2014, and is going up by another 0.8% this year,  in real terms ,  according to the Budget Red Book. General government investment rose by 7.3% last year and by another 2.3% this year in real terms. Real household disposable income rose by 1.4% last year and is forecast to rise by 3.7% this year.

One of the difficult areas to research is what has happened to local authority grants and spending. Many Councils argue they have faced large cuts. The figures are difficult to deduce because in 2013-14 the government reclassified large sums, with the localisation of business rates and of Council tax benefit. In a recent  government publication it shows the pattern of so called Local Government Resource AME as £284 m in 2009-10, rising to £11,123 million in 2013-14, whereas Resource DEL fell from £26.805 billion in 2009-10 to £16.281 billion in 2013-14. If we add the two together the sums rose from £27.089 bn in 2009-10 to £27.5bn in 2013-14, a modest rise which also needs to be adjusted for any changes in responsibilities. There was also at the same time some redistribution of grants undertaken to give a bit more relatively to Councils that received very little central grant.

The 2015 Budget Red Book has a figure for locally financed current expenditure. This rose from £33 bn in 2013-14, to £35.8bn in 2-14-15, and is forecast to rise to £37.6bn in 2015-16. These are cash figures and are not adjusted for any change in responsibilities. Locally financed capital spending is constant at £7bn a year for the three years. The good news is public satisfaction with Council services has not fallen during this period, despite many Councils stating they have faced cuts in their grants and budgets.

Meeting with Housing and Planning Minister

 

I held a meeting with Brandon Lewis MP, Minister of State for Housing and Planning, in the Commons. His Parliamentary Private Secretary was also present. It was one of many such meetings I hold in Parliament with Ministers  to put Wokingham and West Berkshire’s  case to the government.

I wanted to bring the Minister up to date with Wokingham constituency housing, planning and infrastructure issues. I reminded him of the projects which need financial help to ensure as new homes are built the necessary facilities including roads, schools and other public services are available. The government is backing the Shinfield and Arborfield by pass schemes, and the new primary schools. Discussion centred around the next set of schemes the extra development requires, including Wokingham roads.

I also wanted to stress again  that as we have  an up to date local plan which makes provision for substantial new housing, the Council does expect Planning Inspectors to respect local views as expressed in the Plan when considering applications that do not conform with local policy.

The Minister was generally supportive of what Wokingham is trying to do, and agreed about the need to put in sufficient infrastructure before new homes. I have told Councillors and the Chief Executive of Wokingham that as always I am happy to take up specific projects or requirements which need a Ministerial response.

Carbon dioxide, jobs and the UK

Some green policies   really do destroy jobs, plunge people into fuel poverty and make our lives difficult. A recent report says that the UK should make its carbon dioxide targets even more taxing, to allow for all the CO2 emitted in places like China when making items to export to us.

So let’s get this straight. The UK has lost a lot of industrial capacity, in no small measure because Green energy policies have driven up our price of energy and helped make us uncompetitive with lower energy cost countries. This at least allowed us to hit CO2 targets a bit more easily, as we no longer use all that energy to make things. Under international rules each country accounts for the CO2 it generates. If a country decides to gain industrial market share, it has to do more to cut CO2 emissions elsewhere in its society if it is going to be part of the international agreements on these matters. If a country decides on deindustrialisation as one way to hit CO2 targets, that works under current accounting rules.

Some of us have gone hoarse warning that pushing up UK and EU energy prices will simply shift CO2 generating activities from us to parts of the world who do not share this concern. Now that has come to pass, it is amazing that we are being told it is our fault and we need to penalise ourselves further. If we do so, then we will lose even more industry, and doubtless be told that we need to tighten further to allow for more imports.

When interviewed on the radio, a proponent of this  approach said he wanted people to change their behaviours. He gave two examples. People should not expect to own their own car, but should use public transport or hire and share cars when needed. He also thought that  we should run household appliances like fridges for many more years than we currently do, with more repairs. He seemed to think this would save a lot of energy, reducing the amount expended on making new machines. It would also mean running older less fuel efficient equipment for longer, whilst  destroying the jobs of appliance and car makers. More reliance on public transport can raise the amount of CO2 and other emissions , depending on bus and train utilisation  rates, age of the trains and buses, and on the way they are driven.

We also hear the good news that there are no US tornadoes in March, a most unusual outcome. The climate change forecasters who have told us to expect more extreme weather, have now amended this forecast to less frequent extreme weather but more extreme extreme weather. Maybe that covers the good news this March. It just goes to show how difficult forecasting is.

Personally I want the UK to have a stronger industrial base, not a smaller one, and want people to afford enough energy to have decent lives. The idea that we need more wind energy, which in turn means we will need more back up energy for when the wind is not  blowing does  not sound to me to be very green  let alone cost efficient.

Mr Redwood’s Budget Speech, 18 March 2015

Mr John Redwood (Wokingham) (Con):

I rise to correct some of the myths emanating from the Opposition, who do not seem to read the figures. I hope they will catch up with the Budget detail from the Red Book now that it is more commonly available. We are talking about a set of plans for a five-year period that demonstrate that the Government think that, given the growth in the economy, they can afford to spend £60 billion a year more by the final year of the forecast period than is currently being spent.

The biggest change announced in this Budget is a very substantial increase in the planned amount of spending for the end of the period, 2019-20, at which time the Chancellor proposes a £38.1 billion increase in total managed expenditure—well up on the figures in the autumn statement. This is good news. It shows that the Chancellor is reflecting the confidence in the economy, the reduced cost of interest charges as the cost of borrowing comes under better control and the lower rate of inflation, which will have a beneficial impact on the cost of providing public services.

Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP): The right hon. Gentleman is giving an impression of a growing state, when what is happening in real terms is clear from page 112 of the Red Book—that, as a percentage of GDP, this Chancellor and his party are cutting the state by 13%, which will affect the poorest in society most. That is the legacy of a Tory Government.

Mr Redwood: I am giving the cash numbers, which are clearly set out on page 111. If the hon. Gentleman is patient, I will come on to deal with the argument about real terms and the percentage of the economy.

Let us start with cash. The £60 billion increase in the annual spend at the end of the period is a big increase, and if we can keep inflation of costs down, it could provide a real increase. We had these arguments at the beginning of the last Parliament. When I quoted the cash figures, people said it would amount to a real decline, yet we have had a real increase, with the last two years seeing real increases in total general public spending, as I indicated in a recent intervention and as this Red Book makes very clear. If the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) reads it he will see the real increases in general Government current spending over the last couple of years. Those have been affordable and the lower rate of inflation is helping.

If we look at public spending as a percentage of GDP, we see that, yes, it will fall, but that is extremely good news, because it means people will be able to keep more of the money they earn from their productive activities and as the economy is growing we can have better public services.

One of the cruellest myths being put around by the Opposition at the moment is that if we took public spending to 35% of GDP, we would be cutting it to 1930s levels. That is complete nonsense: for most of the 1930s, public spending as a percentage of GDP was well below 35% in any case, but I recently looked at the numbers and found that, in real terms, public spending this year is nine times the level of real public spending in the early 1930s—nine times in real terms.

Mr Brooks Newmark (Braintree) (Con): It is statistically worth pointing out that the direction in which we are heading is towards 35.2% of GDP, but that when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) was Chancellor he was spending about 35.8% or 35.9% of GDP. There is not a huge difference between where we are going and where he was.

Mr Redwood: To make the point, the Chancellor has said that he will spend a little bit more in the last year of the period so that we reach exactly the percentage of GDP that Labour thought appropriate in 2000. We cannot say that because we are spending the same percentage of GDP we have cut spending or that it is down in real terms. If we have a healthy, growing economy, public spending is well up in real terms, as is the general size of the economy. We should welcome that. What we want is growth in the economy, so that we can have affordable growth in the range and quality of public services. That is exactly what this illustrates. I hope that Labour Members will stop trying to con people into believing that if we ended up with 35% of GDP—1% lower than the Chancellor intends—we would somehow have 1930s levels of public services. It is so absurd that I cannot believe that they even dare to repeat such nonsense day by day.

What we want from this Budget, and what I think it helps to deliver, is more growth. It is great news that we now have such good employment figures, which show record highs. It is good news that unemployment is reducing and good news that youth unemployment in particular is reducing.

What has happened over these five years is quite remarkable if we consider two important background points. The first is the state of the banks inherited in 2010. This House has never really understood or grappled with the magnitude of what happened to the banking system under Labour, or the magnitude of the changes between 2008 and today, particularly with respect to RBS and HBOS. If we had asked most economic forecasters what would happen to the UK economy if we took about £1 trillion of assets off the balance sheets of two leading banks, they would probably have forecast that the economy would crash in a remarkable way. What is fantastic for our country is that after the initial crash over which Labour presided in 2008-09, we have managed to get the economy back to growth while mending the banks and going through the extraordinary shrinking on the banking balance sheets. [Interruption.]

I find it remarkable that Labour Members will not listen to what I am saying. They lived through this dreadful experience and their regulators allowed the banks to over-expand their balance sheets, when many of us were saying that it was going too far. [Interruption.] Indeed, we did. We constantly said that regulation was too lax. I remember writing in the report of the economic policy review undertaken by the Conservative Opposition that, while in some areas there was far too much regulation, the regulation of the things that really mattered—cash and capital—was far too lax, and needed to be tightened. However, the Labour Government and their regulators then made the worse mistake of over-tightening in a hurry, and precipitated a major crash. Labour needs to learn from that. Indeed, we all need to learn from it, because we do not want it to happen again. We need to understand why there was such a big crash in output and in people’s living standards and real incomes, and why it took time, between 2008 and 2013, for growth to resume. The reason was that the banking system was so badly damaged that, obviously, it took time to get it back into shape.

As the Chancellor said himself, there was another reason for our problems. In 2011 there was an extremely unpleasant euro crisis, which had an impact on Britain because we live by foreign trade as well as by our domestic activities. We had to shelter ourselves from the worst of that. We are now in the process of orientating our trade much more strongly towards Asia and the Americas, the growing parts of the world, and away from the European area, which is mired in recession and is still experiencing enormous difficulties. It decided to create a single currency without creating a single country to back it and love it, and is having to live with awful strains and stresses as a result.

As we meet today, this Budget is an important event. It is certainly a very important event politically in the United Kingdom. However, a far more important set of events is taking place on the continent, where hectic negotiations are taking place between Greece, Germany and the rest over whether Greece can stay in the euro. It is not easy to see a happy outcome in either direction from those very pained discussions, but are we not glad that we are not having to live with that awful experience in this country, thanks to some of us who urged very strongly that we should stay out of the euro?

The hon. Member for Bishop Auckland (Helen Goodman) thinks it is funny that Greece has a youth unemployment rate of 50%, but I do not. I think it is a disgrace. I also do not think it is funny that several countries on the continent have a general unemployment rate of 25%. That is quite unacceptable, and the Labour party would rightly condemn it every day of the week if it were happening here, but it is not happening here because we ran our own economic policy, and we have done a much better job that they did on the continent.

Mr MacNeil: Does the right hon. Gentleman accept that most of the problems of the European Central Bank are to do with a fixation on inflation—a fixation that he shares?

Mr Redwood: I have no fixation on inflation, but neither do I think that runaway inflation creates prosperity. It is necessary to manage inflation, and to manage growth, and to have an economy that can expand. I am very pleased that this Budget helps to create and preserve the expansion that is now under way in the United Kingdom. I think it is good news that it contains measures to promote more home ownership and saving, and I think it is good news that it contains measures that will help enterprise and business to promote more jobs, because what we want are more jobs and better-paid jobs.

I was pleased to hear the Chancellor say that most jobs now are full time, and that many are highly skilled. That is what the country needs: more skills, more opportunity, and the chance for individuals to train, work and educate themselves well so that they can get better-paid jobs. That is what we all want in the House. It is sometimes suggested that the Conservatives do not want it, and I find that regrettable. We want it as much as anyone else. We want more jobs, better-paid jobs, and more skilled jobs. We know that we have to earn our money, and we want to create opportunities for people to earn theirs.

The Budget contains some sensible judgments on how much the country can afford in increased public spending. I think that £60 billion is a perfectly good judgment of the amount of extra public spending that will be possible by the end of the next Parliament. It also contains a judgment on how we can finally get rid of the deficit and start to cut the debt. I find it a bit odd that Labour has been telling us that too much was cut in this Parliament, and is now saying that the deficit is too high. I have news for Labour. You have to cut if you want to lower a deficit; it does not just magic away. The question is, how do you get that judgment right?

John Healey (Wentworth and Dearne) (Lab): It is possible to deal with a deficit simply by cutting, which is largely what the right hon. Gentleman’s party has done, but it is also possible to deal with it in a more balanced way by cutting where cutting is needed, raising revenue where it is right to do so, and ensuring that there is enough growth to bring in the revenue. That was the fundamental problem with the policies that existed at the beginning of the current Parliament.

Mr Redwood: The right hon. Gentleman has just described the policy of this Government. They put some taxes up, they went for growth—which is now coming through, and is helping to tackle the deficit problem—and they reduced the over-optimistic spending plans of the outgoing Government.
We have been told that it was wrong to cut capital spending. Well, I seem to recall that the only bit of spending that the Labour Government cut in detail before leaving office was the capital budget. They made massive cuts in capital. The Chancellor has restored some of those cuts, but because of the parlous state of the overall finances, he could not restore all of them.

The Budget presents a good package. There is good news on home ownership, good news on employment and good news on growth. A great many myths need to be put back into the dark room, because they are not going to con the British public.

Mr Redwood’s intervention during the Budget Debate, 18 March 2015

Mr Redwood (Wokingham) (Con): I would just like to point out that although we have cut the planned spending increases of the previous Government, public spending has actually been going up. As the Red Book confirms, Government spending went up by 1.5% in real terms in 2014, and by another 1% this year.

Mr Mark Hoban (Fareham) (Con): That demonstrates the challenges we face to get the pace right. One thing we should be absolutely clear about is the importance of sticking to the course.

Budget numbers

So the Chancellor shot a few of Labour’s foxes.

First to go was the idea that the Conservatives will take the UK back to 1930s levels of spending. This is Labour’s favourite lie, based on confusing spending as a percentage of the economy with real levels of spending, which are currently nine times the 1930s! As explaining all that is difficult, the Chancellor has raised planned spending for 2019-20 so the percentage of the economy will be 36%, the same level as Mr Brown and Mr Blair chose in 2000. No return to the 1930s guaranteed.

Second to go was the idea that a further raid on the pension funds of the better off, and an increase in taxes on banks would pay for Labour’s programme. The Chancellor has done both those things, and the money is absorbed into the budget figures to help pay for the tax cuts the government offered.

Third to go was the idea that living standards had fallen this Parliament. The Chancellor gave us numbers to show they have gone up modestly, and are now rising at a better rate. GDP per capita is 5% higher, and real household income per capita is also up over the Parliament.

Fourth to go was the idea that the new jobs are all part time, zero hours or low skilled. The Chancellor assured us 80% are full time, and most are skilled.

So what is the underlying strategy? Mr Osborne has set out five years spending and taxing plans, so all know what they will get from a Conservative government. Other parties in the election will have to work from those figures and explain how they will pay for extra spending or how much extra they will borrow.

His plans are to get the budget into balance by 2018-19. Debt as a percentage of GDP will be falling from next year, 2015-16. Public spending is forecast to go up by £60 bn in cash terms in 2019-20 compared to 2014-15, with the largest increase in the final year. In 2016-17 there is a planned small cut in cash public spending.

Savers will benefit from £1000 tax free savings income on standard rate tax, and from more flexible ISAs.