Author: johnredwood

Over Labour’s long years in power from 1997 to 2010 the public sector received plenty of spending to help it on its way. This was all called investment, and some of the money did indeed go into investment. Despite this there was no productivity growth at all in this large part of the UK economy. The government needs to turn its prime attention to boosting public sector productivity. It needs to work with its own staff – and the employees of the all the Councils and quangos – to help them work smarter and achieve more for less cost. That is what productivity is all about. That is what the UK manufacturing sector has been doing well year after year.

The problem with the lack of public sector productivity gains is not just that it reduces the performance of the whole by depressing the average, but the poor performance of the public sector in crucial areas like transport does damage to the private sector as it tries to become more productive.

The national and local highways authorities do not make getting to your destination in your vehicle their priority. Councils seem to take a delight in shutting the roads to vehicles as often as possible. They persist in allowing the placement of pipes and cables under main roads, so every repair or improvement requires digging up the road. Many Councils seek to take roadspace away from general vehicles for priority routes for buses or cycles, instead of supplying additional safe capacity for special users. Roads are closed for long periods after an accident or incident, and long after anyone injured has rightly been given priority and rescued. Councils phase lights badly, holding up traffic on the main routes in favour of minor routes or pedestrian crossing when there is no-one wishing to use the green phase and no sensor to realise this. Councils put in far too many sets of traffic lights, deliberately creating traffic jam traps that never flow.

Meanwhile the nationalised railway, Network Rail, gobbles huge sums of money and delivers very little new or better. Large sums go on changing from diesel to electric, when what is needed is more capacity and more reliable and intelligent signals. The nationalised railway impedes development of its substantial property estate, demands ransom payments from Councils and others that wish to bridge the railway line or make other improvements near rail routes, fails to think about total journey times and the difficulty of getting to many stations and parking there, and leaves parts of its estate in poor condition.

The government’s productivity drive should have short and long term programmes to deal with these major blockages to our economy. For our local roads we need

1, Roundabouts to replace traffic lights at difficult junctions
2. More traffic sensors on traffic lights
3. More left and right turning lanes at junctions to improve flows
4. More bypasses
5.Fewer permissions for road closures
6.All replacement pipes and cables to be placed under pavements or verges with easier repair access
7.More bridges over railway lines and rivers, as a shortage of bridge capacity is often the single main cause of peak congestion into and out of main towns and cities
8. Cycle routes provided safely away from main A roads

What we need for our nationalised railway will the subject of a future post.

Mrs Merkel seems to be at war with herself. Euro Merkel knows she has to do what it takes to keep the Euro together, and to advance her European dream of a German led united Euro area – or EU as she would prefer. German Merkel knows that more and more of her fellow countrymen and women, and members of her own party, have lost patience with Greece and do not want a Euro more of Germany’s money to be lent, given or pledged to Greece.

Mrs Merkel also probably has enough self knowledge of both Germany’s considerable power in the EU, and the constraints on being seen to use that power too openly. Were Germany to lead a public ousting of Greece from the Euro, there would be bad press about brutal Germany cutting loose weaker countries because Germany had no sympathy with poorer countries nor any wish to share burdens and riches within the Eurozone. Were Germany to give ground and lead yet another bail out of Greece, but insist on austerity policies, there would be those who spoke and wrote about an authoritarian and dogmatic Germany forcing others to do as Germany instructed. Neither is a welcome thought capable of uniting a happy Eurozone.

So Mrs Merkel dithers. She tells us all where there is a will there is a way. If only Greece can behave better they might be accommodated. This is rather like saying if Greece had elected a CDU government there would not be a problem. At the same time she seeks to reassure her restive German friends and Parliament that this time there will be no easy terms bail out for a Greece which has failed to conform to past loan terms and to work properly through agreed programmes.

The tragedy for the Euro area is no-one around the table seems capable of leading the zone to a decision. That is why we have had weeks of damaging bad press for the zone, weeks of lending Greece more money from the ECB who assisted whilst the politicians delayed, and now two weeks of banks closed, no additional liquidity, and an air of great crisis. The ECB was made to carry the Euro from January and has now lent a total of Euro 89 billion to Greek banks, only to see them close and be unable to pay out people’s money when requested.

The preparatory work for Sunday’s meeting can run over once again all the old detail about what Greece might cut from its state budgets and which tax revenue it might be able to raise, but this is now looking very dated. The economic have deteriorated markedly thanks to the dithering of this year. Greece is starved of cash. Tax revenues have fallen. Output has suffered from the lack of confidence and now from the bank closures. Agreeing a modest three year loan and some changes to the state budget is not about to trigger a decent recovery and set Greece on the path to financial independence within the Eurozone. It might kick the can down the road one more time, only to create a bigger and more expensive problem some months later.

The first fix the assembled leaders need to arrange whether Greece leaves or stays within the zone is a fix for the banks. That will now be costly, given the damage inflicted on them. The banks may well need extra capital, as well as substantial additional liquidity. They remain the responsibility of the ECB and the wider Eurozone unless and until Greece leaves the Euro and has her own independent Central Bank. We are probably talking tens of billions here.

The second fix is for the Greek economy. Whilst I do not agree with all of Syriza’s policies, they are right to say the EU/IMF package has failed so far to get Greece growing, but growth has to be the priority. How do you get cash to flow and sensible new credit to be extended in a part of a currency zone that is as damaged and stressed by its single currency’s rules and massive German surplus?

The third and largest requirement is to fix the politics. The Euro bosses decided to take on the Greek government, aiming either to change their policies or to change the government. Instead the Greek people backed their government. What is the Euro area’s answer to a democratic government that simply does not accept Euro area rules? Lecturing them on their duties as borrowers has not worked. Either the Euro area has to have the full powers it needs to overrule a member state’s government, or it has to sit down and talk to whoever is elected and try to accommodate them. The last few weeks have seen a largely impotent Euroland clumsily interfering in Greek politics and losing. On Sunday they have to show they have learned from this bitter experience and can find a way to improve the position. If they decide they cannot lose face and lend Greece more, they need to help Greece organise an orderly transition to the drachma. That has to start with the ECB standing behind the Greek banks so they can open again.

Yesterday’s budget papers confirmed that real public current spending has been rising. On page 65 of the OBR Report they confirm that real government consumption increased by 1% per annum 2010-14. This is interesting as when I argued that there would be real rises in current spending on the cash figures most said that was wrong and the official forecasts talked of cuts.

2015-20 is forecast to show further real growth in government consumption. General government consumption is to grow in real terms every year between now and 2010, as is real government capital spending apart from minus 0.1% in 2016.

The OBR Report summarises the impact of the budget well. It says that departmental government spending will be £83 billion higher than in the March plan. The tax rises in the budget will increase revenues by £47 billion over the Parliament (dividend tax, insurance tax, pension tax and vehicle excise duty), to be offset by cuts in Income Tax and Corporation tax worth £24.6bn. Borrowing will be higher in 2016-17 to 2018-19 by £16.7bn.

The Budget reshapes the financial story of the 2015-20 Parliament. Instead of planning a £60 billion a year increase in cash spending by 2019-20 the Budget lifts this to an extra £69 billion, similar to the increase over the last Parliament. Instead of keeping current public spending under very strict control in the middle years, this Budget increases 2016-17 spending by £15 billion and 2017-18 current spending by £25 billion compared to the March plans. The detail of which departments benefit will be given in the autumn.

So how is this all paid for? Revenues are now more buoyant, and the latest forecasts think this will continue. With no further increases in the main taxes the aim is to raise £168 billion more in tax in 2019-20 than the government collected in 2014-15. That is £11 billion more than forecast in March. The government still eliminates the deficit by 2019-20 on these estimates. The following year, 2020-21 is also shown for the first time. The plan is to have £40 billion of extra spending that year, paid for by a rise in tax receipts of £42 billion.

These augmented figures for spending mean the NHS and schools can receive the extra money they need, and the Defence budget is now offered increases to meet the NATO 2% of GDP commitment. The economic forecasts point to satisfactory growth for the next few years, with inflation and interest rates trending up a little but staying relatively low. Productivity is also shown rising.

The budget measures include more road investment, more apprenticeships, better education and training, a new national living wage, lower corporation tax rates and a new system of taxing dividends.