Category: Blog

The government wants to do more to promote social mobility. It wants more children to enter higher paid employment from home backgrounds that brought them up on benefits or low incomes.

There are many ways for young people to aspire to much higher incomes than their parents. They all entail lots of hard work. Being a star footballer, a leading singer, a great dancer or a well known actor all require plenty of discipline and training. The social reformers have in mind more people from the inner cities becoming High court judges, leading barristers, senior medical consultants, leading accountants and writers. These professions can offer attractive levels of financial reward, but all require substantial academic achievement on the part of their recruits.

The single most important thing the government can do to bring this about is to reform the state schools so that more of them enthuse, encourage and promote academic excellence. A disproportionate number of independent school pupils go to the elite universities, because a disproportionate number of the academically successful emerge from fee paying schools. This is not the fee paying schools fault. It is a problem we need to sort out in the state sector.

The government does not want to create grammar schools in every town in the way John Major once promised. It has bought into the socialist view that elite academic schools should only be available for the children of the rich, and not for the rest. That means finding ways to encourage sets or groups within comprehensives that can pursue academic excellence without interruption and with teacher support within the comprehensive framework. It means stamping out bullying, seeking to contain or rid the school of the idea that  reading isn’t cool and swots need to be exposed. It means promoting excellence in academic life as well as in sport,and art and the other items on the curriculum.

At sixth form level it means providing good pupils with access to libraries full of challenging books and computer programmes that can can stretch the student. It means moving away from teaching for the marks in the exam to teaching the subject in the round for part of the time. It probably means taking fewer exams, but taking harder ones.

                  I visited a public library recently. It was not in my constituency. It was housed in a great new building, in a large and well appointed room. I was told it was not about to close. It was run by friendly Council staff. Money had been found to set it up and keep it going.

                  During the half hour I was in or near it I did not see anyone borrow a book. I was the only visitor in the visiting party to go and look at what was on the shelves.  There were not that many books on offer. It was predominantly a fiction library. The crime section seemed to be the single biggest themed area.

                I lingered over the non fiction shelves. The books seemed oriented to middle class hobbies like antiques and foreign travel. I guess the book buying had been well judged to cater for the demand of a fairly affluent local community that said it  wanted a public library.

                 Some  defenders of every public library imply that they are for a different clientele. They conjure images of children from homes living on low incomes developing a passion for reading serious books borrowed from the local library. The library is seen as a force for self improvement and the pursuit of knowledge. I fear that in many cases this  is no longer true, if it ever was.

                     I remember as a sixth former running out of books to read on my chosen subjects in the school library. I gave the local public library a try. It had more  books than the one I visited recently. The truth was, however, that even with a larger non fiction section, it was not designed to help the serious student. The school managed to help me sort out a reader’s ticket to go to the local University library, and to the Cathedral library, which saw me through the last year of school.  When I got to university I then confronted the opposite problem. There were so many books in the university library on my chosen subjects I was intimidated by the weight and range of learning available. There lay several  lifetime’s reading, not just three years.

                It is important that those who wish to read to improve their minds or provide them with new skills should have access to books to do so. They also need access to computers, as so much good material is now available on the net.  Many libraries and educational institutions do now offer this facility. We have a range of different libraries in many communities, largely provided at the taxpayer’s expense.

Most cities and large towns have secondary school libraries, public libraries and university libraries.  Maybe at a time of tighter spending controls we need to think again about how many libraries we need in each community, where they are best placed, and how the educational libraries can be used by those who do not go to those institutions. A system of book transfer, holiday loans and the like might ease any book shortage, cater for those who wish to read well.

When it comes to general fiction libraries we need to see how many we need and where they best be located to maximise use whilst keeping down cost. Mobile libraries that bring the books from the big libraries to the public might be one way through, to improve the service at realistic cost.

                  This week-end has seen numerous briefings against the Health Secretary. I have found him to be one of  the best informed, and  most accessible of Cabinet Ministers. He knows his brief well, is aware of the problems of piloting through change to the NHS, and has already secured the support of the overwhelming majority of GPs to his new proposals for commissioning.

            The first criticism made of him  is he has come up with radical reform proposals that were not explained to the public before the election. I have quoted liberally before on this site from the Conservative Manifesto to show this is wrong. The Manifesto on pages 44-49 went into considerable detail explaining the changes. It said administrative costs would be cut by a third by taking out layers of bureaucracy. It said GPs would be put in charge of local commissioning and would help patients by purchasing their care from a variety of providers. It said “We will give every patient the power to choose any health care provider that meets NHS standards, within NHS prices. This includes independent, voluntary and community sector providers”.

               The second criticism is that these changes are somehow against the spirit of the NHS, and different from the kind of reforms Blair initiated. Again, this is wrong. All three main political parties and a large majority of the UK electorate strongly support the central idea of the NHS, that care should be made available free at the point of use on the basis of need. The care should be paid for by all taxpayers through their contributions to general tax revenues.

             All three parties have long accepted the role of the private sector to help supply the free care for patients. The NHS presided over by Labour, Lib/Labour and Conservative governments have in the past relied heavily on for profit companies to supply all the drugs and other medical supplies  used in the NHS. They have employed contract cleaners, caterers, management consultants, legal advisers, advertising agencies, recruitment consultants, property experts and the rest from the private sector to assist in managing the large service. The NHS has offered contracts to many doctors whom also run private clinics, or charge for additional services provided to NHS patients. The doctors were not nationalised when the NHS was set up. Much elderly care has long been provided in private sector nursing and care homes.

                   Labour also strengthened the idea that parts of the medical and clinical workload could be contracted out to private clinics and hospitals. They reasoned that if a private clinic could perform cataract removals or knee joint repairs to a high quality standard and the same or lower price than the NHS, they should increase NHS capacity by letting such contracts. Labour also used private finance extensively and often very expensively to build and rebuild hospitals and other facilities.

                     Like so many public services in the UK, the NHS is not entirely nationalised, though often misunderstood by its employees and some patients. It has never been the case that all the NHS assets are state owned, all the employees are on the state payroll, and all the supplies and services are provided by public sector suppliers. Some of Mr Lansley critics are trying to make out that there was some kind of golden age when the NHS worked well because everything was done in house by public sector staff. History tells us otherwise.

               Some critics cry foul at the thought that the private sector might do what it can do best and at lower cost. Taken to extremes, that judgement would end all private contractors currently working within the NHS.  Some argue that the Lansley reforms are back door privatisation, whereas the PFI/PPP/private sector contract regime of Labour was somehow not privatisation.  These criticisms are not thought through.  Healthcare in the UK is under the umbrella of free care at the point of use and will remain so. Beneath that umbrella there has always been a lot of mixed working between public and private sectors. Instead of being ideological about it, why  not let patients decide where and how they want to be treated with the advice of their GPs. Haven’t we got beyond the yah boo of public/private, in a service which has many interactions and hybrids between the two?

             Readers will know I am against the UK lending any money to Euro member states in trouble. We kept out of the Euro thanks to some of us arguing that case. Some of us  forecast the likely problems and do not see why the UK should pick up any of the bill for the failures of a badly executed currency scheme..

                The Coalition government  has rightly taken the UK out of any future bail outs of Euro states in the new regime after 2013. That leaves the issue of bail outs under the current system, where the UK was opted in during the transition post election in May 2010.

                    Mr Darling tells us he did accept the need for the UK to be part of the rescue parties. He also says he told Mr Osborne and Dr Cable, and they allowed him to make the decision. Mr Osborne implies  he did not feel he could override Mr Darling but agrees he did let him make the decision. The Coalition government  de facto underwrote the arrangement when they got into office and did not resile from Mr Darling’s consent. Some of us wanted them to notify our EU partners that we do not agree with  what they are doing or the way they are doing it, but we lost that argument.

                The case against the bail outs is this. Countries that have borrowed too much are not necessarily helped by lending them more. It is true the new loans come with policy conditions attached. They include requirements for the member state to increase taxes and cut spending in an effort to reduce future borrowing needs. Where the problem is mainly one of bank solvency and lossees, they include requirements to put more capital into the banks. It might however be better to sell assets and bring in new finance from outside, not on the state to state model.

                        Few think that Greece or Ireland can pay all the interest and repay all the debt they and their banks have incurred in recent years. Market rates for their debt imply that at some point they will have to delay repayment, cut the interest paid or cut the capital owing. Greece has already rescheduled its Spring 2010 loan.

                     The Uk has lent to Ireland at 5.8%. It may lend to Portugal at  a similar rate. Market rates for Ireland are around 9% and for Portugal around 8%. The loan to Ireland should appear as both an asset on the Uk balance sheet at a sensible value, and as a liability through the debt we have taken on in order to make the advance. If you valued the loan to Ireland at market rates it would have a value of around 75% of its face value today. This could rise if the market thinks Ireland is fixing its economic problems, or fall if things get worse.

                      What the Irish, Greek and Portuguese economies need is stronger economic growth. That would help raise asset values, which would make default on bank loans less likely. It would mean more incomes and better incomes from more jobs, whcih would also make default on loans less likely. It would mean more tax income to pay the interest on state debt.

                           Instead, locked into the Euro and not fully competitive at current Euro exchange rates, these economies will struggle to grow. The combination of spending cuts, higher taxes and a high exchange rate make it difficult to see how they can quickly resume a happy outcome.

Getting overseas interests to take on bank liabilities and refinance the banks would be a better answer than nationalisation and state to state loans on the EU and IMF model. There is a price for everything, and the private sector may have a better answer than the top down state model they are following.

                      As a critic of the regulators in 2006-7 I said the banks should be made to hold more capital. In those days they were too heavily geared. The banks were allowed to lend far too much money with far too little capital to pay the losses if some of the loans went wrong.

                       The Regulators said the world had developed a new paradigm. Long words often conceal sloppy thinking. The world of banking, they argued, had become so much better at managing risks. Because the banks were bigger and global in many cases, they could take on much more risk. Subsequently they discovered that more risks meant more problems. All the risks could go wrong together. Spreading risk did not necessarily equal reducing or managing  risk.

                    Now the Regulators argue the opposite. They believe that banks needs huge quantities of capital to back up loans, as they think many loans can go wrong. They add to the confusion by regarding loans to governments as risk free, at a time when they are about to learn the hard way that loans to government also carry substantial risks. The regulators have regulated the commercial banks into too much sovereign debt risk at the wrong time, whilst discouraging private sector risk at a time when we need more loans to power recovery.

               Making banks hold more capital does two things.  It lowers their profitability, and it means they lend less. That would have been a great thing to do in 2006-7 when things were getting out of hand. It is an odd thing to do when the banks need to rebuild their balance sheets and when good risks go unfinanced in the economy.

                Regulators now say they need to hold more capital to pay the losses that are all too likely on the loans. It is true that banks may still have to pay for large losses on loans made in the heady days of 2006-7.  The fear for the nationalised Irish banks is that they may lose many billions more on property values that have been badly hit by the crash.

                What we need from here is patient and better management of the bad generation of loans made prior to the Credit Crunch, allied to more loans for businesses and properties now, in the post crash enivronment. By definition values are now a lot lower and the risks on future loans therefore diminished.

                  Banks need to be profitable to get out of this mess. Economies need to grow to get out of this mess. If the alleged remedy for the ill is just more capital it will restrict or stifle growth. That in turn means less profits and fewer loans, which in turn makes it more difficult for the banks to be nursed back to health.

                The Regulators thought they had created a perpetual motion prosperity machine when they turned a blind eye to excessive lending and asset price inflation before the crash. Bankers loved the freedom the Regulators gave them to write more loans and book more bonuses. They need to be careful they now do not create a perpetual motion misery machine which keeps asset values low or falling, which prevents enough new loans and business, and makes it impossible for the banks and the economies to trade themselves out of the mire.

            The recent decision to increase banking capital in Ireland by E24 billion, taking it to a total of E70 billion and the effective nationalisation of the major banks, shows how expensive this policy and past mistakes can prove. These are huge sums for a small country. All this debt is a burden on Irish people for many years to come.

           Meanwhile it is important that the UK does not make any contribution to future Euro area bail outs. The policy is questionable as an approach anyway. It is quite wrong for the Uk to make loans to a system it rightly stayed out of. Lending money to countries which cannot grow owing to a high exchange rate, high taxes and spending cuts is not a great idea.

               The media and politicians concentrate on the coming squeeze on the public sector. It is struggling to live within an extra £485 billion overdraft to tide it over the next five years, and to live with an increase of just £93 billion a year by Year 5 for current spending.

              Meanwhile, the squeeze which everyone else feels is the squeeze on incomes from inflation, low wage increases, and higher taxes. According to the Office of Budget Responsibility, earnings will go up by 2.9% less than prices in 2010-11, 3.4% less than prices in 2011-12, and by 0.1% less than prices in 2012-13. In other words, the OBR forecasts a 7% reduction in average living standards as prices rise faster than incomes.

              Increasing tax takes do not help either.

              There needs to a balance between the squeeze on the public and the squeeze on the private sectors. The current strategy of large increases in tax revenue and continuing increases in public spending and borrowing are squeezing the private sector considerably.

                Based on doorstep conversations recently, and visits to speak to Conservative Associations, I encounter the following attitudes. Many Conservatives now see the Coaliti0n government as heavily Lib Dem influenced. They tell me they want changes in policy, to reflect the poor financial condition of the country and the preponderance of Conservative votes and MPs behind the government.

                They do not think it a good idea to increase taxes on hard work and enterprise. They want to see tax rates on income and capital gains that maximise revenues, rather than high rates which will deter effort and success and lower the tax collected. They prefer Tony Blair’s rates of tax on incomes and gains  to this government’s and think lower rates  would collect more revenue.

                 They do not think public spending should go up every year in this Parliament. They would like spending to be cut now and increased later when the crisis is behind us. In particular they think we should decline to lend money to Euro countries in trouble, we should cut out all overseas aid to nuclear weapons countries, saving that money, have another go at cutting the UK’s contributions to the EU, we should make stronger use of natural wastage rates to bring government overhead  spending down, we should return to the quango cull and abolish more, and should have a big repeal bill to cut regulation and regulatory costs.

                  They are apprehensive about the continuing Afghan and Libyan military interventions, and think it is time other UN countries did more and we did less. They would like the Ark Royal and the Harriers to be saved during the next few years of defence spending cuts. They are sceptical about large expensive projects like the HS2 railway and think this should be sacrificed to keep costs down.

               The Conservatives are fully on board to tackle the deficit. All agree it is too high and needs urgent attention. Many think this does have to be the  sole priority of the government, as success with this will determine what kind of economic recovery we have and how successful the government is at keeping interest rates and other costs down. That is why Conservatives want tax rates that stimuilate recovery and generate more revenues, and spending plans that are more realistic in the next year than the 2011-11 ones have proved.

                They would like powers back from the EU and are unhappy about the passage of further powers to Brussels under this government. Given the frequent Lib Dem criticisms of the tax, spending and health reform policies of the government they think they need to speak out more to provide some counter weight.

                The Chancellor said in his budget the Revenue will study the effects of the 50% tax rate on tax revenues.

                The Adam Smith Institutue has already published some of the important findings. (In the “Revenue and Growth effects of Britain’s high personal taxes”)They show that the Howe Lawson income tax cuts in 1979 and the middle 1980s increased tax revenue and the proportion of income tax paid bythe rich substantially . At 83% the rich paid 11% of the tax revenue. At 40% the rich were paying 21% of the total by 1997. The total went up.

                  Democrat President Kennedy knew this was true.  He said ” It is a paradoxical truth that tax rates are too high today and tax revenues too low and the soundest way to raise the revenue in the long run is to cut the tax rates….” Kennedy’s cut increased tax revenue and the proportion paid by the rich.

                       President Reagan went much further, cutting the top rate from  70% to 28%. In 1981 the rich paid 17.6% of income taxes. This soared to 27.5% by 1988 as the big tax cut worked through. Total revenues powered ahead.

                           President Bush I managed to lower the revenue with his 10% surtax on the top income bracket.

                           The Adam Smith Institute also have similar evidence from France, Canada, Hong Kong, India and Russia. Each time top tax rates are cut revenue rises and the rich pay a bigger share. What more evidence does the Revenue need, before it decides to tax the rich more here too by cutting rates?

                          Governments usually tax things they do not like or wish to reduce. So they tax smoking heavily to try to stop it. They tax drinking heavily to try to reduce it. They should not now tax enterprise, talent and hard work heavily for fear of discouraging and stigmatising them.  Surely we need more of all those things, not less, to get out of our economic difficulties?

                       The government wants to make its transport policy a big contributor to lowering the UK’s output of carbon dioxide. Many people just want a transport system that works for them.

                        The idea that switching people to trains from cars will do the job needs careful examination. Clearly, shifting more people onto commuter trains at peak hours when the roads are congested should be good on both counts. Congestion is one of the main causes of extra carbon dioxide, and one of the main causes of frustration and delays. Fully loaded trains produce less carbon dioxide per traveller and per mile and can do a good job in reducing delays and stress.

                             Similarly, switching more freight from trucks to trains over longer distances can cut the carbon dioxide and should, if the railways were properly organised, cut costs and help distribution. The fact that this is often not the case requires improvement in rail freight facilities and mroe flexibility in freight marshalling to cater for businesses that do not have a train load of goods themselves on a daily basis.

                             There are not the same carbon gains or convenience gains to be had outside peak hours and off main routes. The ever growing improvements in car engine efficiency and fuel consumption mean that looking out over the next twenty years or so we should assume that for many journeys the car will produce less carbon dioxide per passenger mile travelled than the total carbon dioxide for the same journey by mixed mode, usually involving cars into and out from city centre stations along with a mainline train journey on a lightly loaded train.

                            The Mayor of London is launching his new travel plans. The upgrade of tube train facilities and the increase in capacity will be welcome. At peaks hours the tube is under great strain from high passenger numbers, and more could be done to improve comfort on trains. He also needs to drive forward his programme to bust congestion on the roads. There are all too many examples of poorly managed and poorly chosen road works.  Traffic light phasing is still far from optimal in many central London locations.

                           Probably the most successful transport investment in recent years has been the adaption of the M42 Birmingham ring way for hard shoulder running. This has improved the capacity of the road, cut congestion and delay, reduced carbon dioxide emissions as a result, and has cut accidents substantially. We need more such investments to get the Uk moving better. In many places we have the tarmac but it is not well designed to cut accidents and maximise throughput of vehicles.  We spend large sums  on trying to get trains to travel faster – and produce more carbon dioxide in the process at the power station – whilst creating endless delays for motor vehicles, also producing more carbon dioxide as they perform well below their optimum levels of efficiency.

               Cutting carbon dioxide output and improving the lot of the traveller need not be in conflict. Smoother and faster running on the roads will help, as much as diverting goods and people onto trains on major routes and at busy times.

               I was surprised how the government handled media interviews about the TUC protest against the cuts. They could have used them to set out more of the detail of the difficult financial situaiton we find ourselves in. They could have used it to ask how come we are going to get some unpleasant cuts, when public spending  is rising every year for 5 years?

               Many in the TUC seem to agree with the Labour line of doing less more slowly. Others think we should continue with the headlong growth rates of public spending  we were used to under Labour, denying there was any problem with all the borrowing.

               Ministers could, after all, have said on Sunday that they had just had a budget which relaxed spending controls and increased borrowing by £34 billion over the next four years compared with plans last June. How much more relaxation do people want and how much more do they think we can afford?  How much public service can we get for more than £700 billion a year? Is there room for any improvement in how we spend the money? Can’t the reduction in back office numbers be achieved by natural wastage?

              We need a more informed debate about just how much we are spending and borrowing. If we carry on borrowing too much, paying interest on the debt swallows up more and more of the spending. If we borrow too much, we could end up in a Greek or Irish predicament. Labour in governemnt recognised this, so they said they wanted to halve the deficit in five years. Looking at the huge sums of debt already built up, and looking at the likely growth in the debt, it is difficult to see how we could afford more than current plans, recently increased in the budget.

                I would like Ministers to remind people that this government plans to borrow an extra £485 billion over five years. That’s more than the total public debt in 1997. Surely even those in public service who do not like the fact must acknowledge, as Labour does from time to time, that there are limits to how much more we can borrow. We need a better debate on how we can run the public sector to achieve more with the large sums already on offer.