Category: Blog

During the Labour years London grew fastest, Scotland, Wales and the North slowest. The more public money Labour threw at the poorer and slower growing areas, the more the gap grew in favour of London and the South east. (1998-Q3 2006 London grew 41%, Scotland 16% – from “Freeing Britain to compete”)

The new governemnt has said they want more balanced growth around the country. On Friday the FT devoted a page to a forecast of what is likely to happen. This predicted more of the same, with a much stronger recovery and more jobs generated in London and the South East compared to the rest of the country.

The parts of the country that have the largest public sector failed to grow quickly during the years when Labour was pouring cash into them like a river in flood. Now the growth rate of public spending is to be brought right down, this source of cash will be less vigorous. That does not automatically trigger faster private sector growth.

A thoughtful Labour party in Opposition would ask themselves why did their top top down public sector spending led model fail to ignite the economies that mattered most to them in the strong Labour areas of the North and the devolved countries? Could it be that a balanced economy in any given area requires a stronger and wider ranging private sector? Did Labour’s public sector crowd out or deter the private sector in its core areas?

One of the worst mishaps was the failure of Northern Rock. Northern Rock was a Lanbour flagship. It was an apparent private sector success story, devoted to widening ownership and financing new residential development in the North East. To New Labour it was manna from heaven, a successful financial sector business growing in the North East, with its headquarters there. Was this the model of the future, the answer to Lodnon’s dominance in finance?

The long shadow of Northern’s collapse is cast on future financial enterprise, and private sector led support for other businesses in the Labour areas. The new government needs to be brave and argue in those Labour heartlands that the Labour experiment of leaading with public cash did not work. The government needs to bring the successes of London and the south east to the north, as it brings public spending as a percentage of the total down sensibly. The government’s strategy is to bring public spending’s proportion down through economic growth, taking care not to cut the overall cash expenditures.

It’s a chicken and egg problem. Years of experience shows that the more public spending there is the slower the overall growth. To bring more enterprise to the slower growing areas will take boldness to free the obstacles to enterprise. If we want many more people to run their own business, more larger businesses to set up elsewhere in the UK and more jobs to be created by free enterprise it is going to take much more work on educational success, training, deregulation and lower taxes. Above all, it requires inspiring people to believe they can do things for themselves, and to understand that if you want all your prosperity and jobs to be delivered from Whitehall you will be bitterly disappointed.

Around the world, led by President Obama and the EU, governments are busily making the recovery slower and more difficult. It is fashionable to urge and welcome recovery, and even more fashionable to sand bag it at the same time. In vogue are policies to cut bank lending and credit expansion, to tax enterprise, investment and saving, and to raise public spending.

The President has been especially keen to regulate and limit banks more, on a tide of anti bank sentiment. This anger towards the banks has been partly worked up by governments wishing to deflect attention from their own huge mistakes in controlling the money supply and regulating the banks in 2005-09. The rest was brought on by excessive behaviour by the banks themselves. This is not the right time in the economic cycle to throttle credit and clobber banks, popular though it may be politically.

The EU sees this as a time of huge opportunity to regulate “Anglo Saxon capitalism” and is ready with a big raft of measures to control financial activities in a way which will drive more of them out of the EU altogether. The European Central Bank is adamant it will not solve the problem of inadequate money growth anytime soon, though its hands could be forced by markets again.

In the UK the government has taken some welcome steps to assist recovery. It is cutting the Corporation Tax rate to 24% from 28%. It has cut Labour’s planned increase in National Insurance, cut the small business profits tax and promised a review of IR35. It has started to cut Labour’s planned increases in public spending and the huge deficit that went with them.

The measures which have attracted cross party support are less helpful to recovery. The government has confirmed Labour’s hike in Income Tax to 50%. Labour has supported raising Capital Gains Tax to 28%. All main parties support the tax on bank balance sheets, a tax which will limit the banks’ willingness and ability to lend credit to companies for expansion.

Any study of the UK’s recent economic history will show that the consensus measures have been the killers in the past. The Exchange Rate Mechanism was a three party act of vandalism on the UK economy introduced by a Conservative government which understandably took the main public anger for it. The so called independent Bank of England was a Labour measure which Conservatives supported which led to the biggest post war boom and bust in money and credit.

Fortunately the present range of cross party policies will not do damage on anything like that scale. One of the reasons consensus policies can be so damaging is they do not attract the degree of scrutiny, debate and criticism that contested policies attract. Politicians too readily adopt them, thinking that because they are cost free politically they should also be cost free in terms of their impact on a fragile economy. That is rarely the case.

The bus pass saga shows us that some people in government still in some cases do not get it.

The Conservatives – rightly or wrongly – fought the last election on defending the bus pass. So did Labour, and I guess so did the Lib Dems.

So why did the Transport Department propose cutting Bus pass eligibility as one of its cuts? It was never likely to happen. Worse still, why did someone leak they were doing this, when the idea is for the Treasury’s spending review to look at a wide range of cuts from the easy to the much less acceptable and come to a decision in private, before then going out and trying to sell the end package to Parliament and people?

The language of 40% cuts is unhelpful. They may be looking at 40% real cuts over four years – not the same thing as 40% off next year’s cash which is what most people think they are proposing. They are not going to settle for 40% real cuts over four years or anything near that, given the overall increases in cash spending proposed. Some individual items – like ID cards, CAE bureaucratic controls over Councils and much unelected regional government – will get 100% cuts. That just takes more of the pressure off elsewhere.

Labour’s latest campaign is to close the tax gap. With the help of Richard Murphy they reckon there is £120 billion of unpaid tax, tax evasion and tax avoidance. The last Labour government put the figure at a more modest £40 billion but was never able to close the gap.

This morning I wish to concentrate on unpaid tax. That is tax that has been identified and claimed by Customs and Revenue but not yet paid. In May 2010 this stood at more than £23 billion. Substantial sums were written off during the preceeding year as the Revenue came to recognise that some of this money could not be collected.

Before the election the last government was keen to avoid the Revenue and Customs going in and pushing more companies into administration when they were unable to pay their taxes. It is often the government that institutes bankruptcy proceedings when a company is running out of cash and credit.

Mr Murphy estaimates that 160,000 companies owing £4.8 billion are taking advantage of the last government’s “Time to pay” deferral scheme. This poses a nice problem for the new government. Should they carry on with this scheme and allow more revenue to await collection? Should they accelerate demands for payment and try to wean business off the easy terms scheme? How much of the outstanding tax is truly recoverable?

The Labour MPs who are making a noise about the tax gap should remember that the one bit of it where we can all agree the tax is owing and the gap exists is in the category of late payments and delayed payments of tax. They should also recognise that this is difficult terrain. Their government allowed delay for good reason. They did not want more closures and job losses as the Revenue drove more businesses into bankruptcy. Labour in office had a policy of deliberately widening the tax gap. It is only in opposition they see narrowing it as a good soundbite to try to avoid confronting the need to close the budget deficit in other ways.

This week at Westminster Conservative MPs have had to do a lot of sitting around waiting for votes on the Finance Bill. The government has rightly allowed the Opposition as much time as they want to debate it, and that has led to late nights by the last Labour government’s standards.As Labour have dictated the number and timing of the votes they have enjoyed more flexibility.

During this time there has been much talking about the Alternative vote. AV asks voters to rank the candidates in order of preference. People voting for less popular candidates then effectively have a second vote,as their second preference is used to decide who has won.

Conservatives fought the last election against this – and any other – proposal to change the voting system. Labour, who fought for it, are having second thoughts now they see the whole Coalition government package of electoral changes. They used to think that Lib Dem first choice voters would put Labour second choice, and thereby help Labour to beat the Tories. Now they are not so sure. They are worried that the AV would mean more Lib Dem voters putting Conservatives as second chocie, and thereby hurting Labour more. The Conservative signatories to the Coalition government agreed to further a referendum, but made clear most Conservatives would be campaigning for a No vote.

This leaves open various questions for Parliament. Amongst those being discussed are When should this referendum occur? Should there be any minimum requirement of support for a Yes verdict? How is the linkage of the AV issue to equal sized constituencies to work in practise?

There is also the general question of how should the Yes and No campaigns be organised? Are these best as umbrella organisations which are not the property of any particular political party? (This seems to be the way it will go). Who outside the political parties feels strongly enough about it to want to lead and spend on it? Have we any idea who might win? It seems quite open at the moment.

I would like to hear your views on what should be done. To those who say this is not an important issue, and is a distraction from the business of sorting out the economy and the public sector, Ministers reply “This is the price of Coalition”.

An AV election:

Each voter ranks the three candidates 1st ,2nd and 3 rd preference.

First preferences (based on a typical Con/Lab marginal)

Conservative 40%
Labour 35%
Lib Dem 25%

Lib Dem candidate removed, Lib Dem voters second preferences awarded to relevant candidate:

Would it then be

Conservative 52.5% (getting half Lib Dem 2nd preferences)
Labour 47.5%

or as Labour used to think

Conservative 47.5% (getting 30% Lib Dem 2nd second preferences)
Labour 52.5% (getting 70% of Lib dem 2nd prefs) ?

This site has long argued that public debt and liabilities amount to £3-4 trillion, thanks to the last government.

Yesterday ONS produced its paper seeking to expose the true state of the public accounts. They think we can add to the £890 billion net debt the last government owned up to the following figures:

Banking liabilities £1- 1.5 tn
Unfunded public service pensions £0.8-1.2 tn
Unfunded state pensions £1.2tn
PFI £0.2 tn
Guarantees etc £0.5tn

That makes a grand total of £4.6tn to £5.5tn

It all goes to show my £3-4 trillion (which excluded the state pension scheme) was a sensible forecast. The majority of this is the result of the last 13 years.

On Monday a group of MPs were reviewing the government’s progress with a couple of Ministers. In the discussion time and again issues came up about how local government would respond to their new freedoms. MPs are very conscious that many a new government has set out planning to grant more freedoms to Councils and to live with the results, only to end up regulating and controlling them more. Margaret Thatcher stepped in when ratepayers were unhappy with the high level of local taxes and imposed a cap on how much Councils could tax. Labour arrived in office in 1997 keen to give Councils more powers, only to sink them under the biggest weight of circulars, regulations , controls and money with strings attached that local government has ever seen. By April 2010 local government in the UK was just the outpost of Whitehall in each community, implementing Labour’s policies across the board.

The Coalition government has so far moved swiftly and purposefully to restore recently lost and long lost freedoms to local government. More of the money will be sent as a single grant so Councils can choose how to spend it. Regional plans and housing targets have been torn up. The Comprehensive Area Assessments that brought so much bureaucracy and control over Councils are being abolished.

The way is now open to Councillors to show leadership and to innovate in their localities. They no longer have to do so many things because the government is telling them to do so. By the same token they now have to defend how the money is being spent and how the planning decisons are being taken, as they are truly their decisions.

I welcome this. My one misgiving is there is a generation of senior officers in local government who only know how to work under Labour’s top down down target driven highly bureaucratic system. Their first impulse when they hear of the Coalition’s changes is to ask “What have they put in place of whatever the government is scrapping?” “What does the government want us to do instead?” The answer is simple. The government is not putting things in place of centralised plans, guidance and demands. It is just saying “serve your electors and local communities, and answer to them for the services you provide and the tax you raise”.

Let me go a little futher today in helping Conservative Councillors. What should they do? The first task is to cut the central overhead substantially to reflect the new reality. Far fewer senior officers are needed in the new regime, as there is no longer that demand for so much communication with central government, and so much work to comply with circulars, guidance and the special grants regimes. Put on a strict no recuitment policy and use natural wastage to run down numbers,reorganising posts as people leave.

The second task is to end all those partnerships and networks that slowed the system down and wasted so much senior time. If you need to involve an outside body in a policy then do so when you need to in the easiest way possible. If you want to know the local mood then Councillors can tell the Council- that is their job to gauge it.

The third task is to concentrate Council activities on core services which are valued by the local communtiy, and take the Council out of other areas where it need not interfere or spend money.

The fourth task is to ensure local schools are driving up standards, and understand the new freedoms for Heads and teachers which the government is granting.

The fifth task is to set realistic building targets and create a suitable local plan which allows growth but also protects those parts of the landscape that local people value.

The sixth task is to buy better, to cut costs.

The aim should be a lower Council tax. It can be delivered whilst raising standards in the core services. This government’s changes allow a large reduction to be made in the overhead.

Let me annoy some bloggers by raising this issue again. Some said I was not good at this subject. Others implied I had little right to comment. I am a child of the Anglican tradition. I have every right to comment on the Church’s future, as it remains the established Church whose deeds have to be reported to Parliament and in some cases approved by Parliament.

There are two concerns mentioned against the Synod’s decision to move towards women bishops. Some traditionalists are unhappy with women bishops, as they think it wrong. I am afraid they either have to live with the majority decision, or join a Church which has no women bishops. They did, after all, live reluctantly with the majority decison to have women priests. Some worry that others will join the Catholic Church, and see this as a needless weakening of the Anglican communion. It is true the Pope wishes to recruit from amongst those who do not like this development. It is not necessarily true that the Church would have more members if it deneid women access to the priesthood as a career.

The truth is the Anglican Church could lose people from the other wing if it did not make this change. The evangelical Churches are often dynamic and also looking to recruit. That is why it is best for the Church to make its own decision based on the merits of the case, and then to go out and be proud of what it has decided.

It might also conclude that just as the Pope has offered a home for Anglicans who do not like a feature of the Church of England, maybe the Anglican Church could think of some features of the recent practise of the Catholic Church that might lead Catholics to join the C of E. The traffic need not be all one way, especially if the Anglican Church has now made up its mind and can defend its decisions.

Yesterday during debates on the Finance Bill in the Commons Labour wheeled out their old friends tax evasion and avoidance. They do not like either avoidance or evasion, but they were always with them during their years in charge. They are almost allies, because they allow Labour to work off their prejudices against enterprise and success. They give them an alibi for the deficit. If only, they intone, the Treasury would clamp down effectively on tax evasion and avoidance we would be spared the “cuts”. Let me make it clear before Labour try another of their lies about me that I too condemn tax evasion and wish the tax law to be properly enforced against crooks. Sensible tax planning is a different matter, as Labour only reluctantly accepts.

On Labour MP figures there could be as much as £120 billion of missing tax. The last Labour government was more modest, quantifying it at £40 billion but failing to collect it. After 13 more Labour years of anti avoidance Labour MPs have concluded there is still a bigger than ever golden hoard waiting to be collected by the white knights of the Revenue.

They did not have much of a response when I asked them why they had been unable tocollect this elusive treasure during their 13 years in office. They were even more dismayed when I pointed out that quite a lot of the avoidance was the result of policies the Labour government put in or supported to encourage various types of approved behaviour.

National Savings, for example, sells tax free savings products. Labour always approved of this and sold a large amount of such products to savers who did not want to have to pay tax on the interest on their savings deposits or bonds. This is tax avoidance with a purpose – the purpose of paying more easily for excess government spending.

Then there is the case of the investment allowances against Corporation Tax. Labour was busily defending those from planned reductions. They think it’s a good idea to encourage more investment by offering people a tax break from profits tax for doing so. It’s another type of approved avoidance, which was nonetheless included in the figures they were using for the tax avoidance they needed to clamp down on!

For more of the argument please see the text of my remarks under speeches on this site, to be posted later today.

This morning the outgoing Head of Ofsted was explaining her approach to bad teachers. She claims today that every school is likely to have a bad teacher, and that some good can come of that. She says she is not recommending they have one.

The BBC gave her a very gentle interview, inviting her to move towards her media critics. She did go on to say that there were too many bad teachers in schools. She told us that this resulted from Head teachers and Governors thinking it was too difficult to remove bad teachers. They feared legal recriminations if they did.

Exactly. So where has Ofsted been over the last decade? Why weren’t they pressing for changes to the law to allow the speedy removal of bad teachers? Children only get one chance of a good education. Why didn’t they go into the schools and help Headteachers by revealing bad teaching in their reports, strengthening the hand of any Head who wanted to make changes?

The single most important issues raised with me in recent years by Heads and senior teachers (“members of the management team” as they are now called) has been this issue of how to deal with teacher quality. I have urged mentoring and teaching the teachers in each school. I have backed Teaching First to get new entrants into the profession who have energy and good qualifications. I have opposed changes to the law that make it more difficult to ask someone to leave who is not doing a good job.

In the private sector companies dismiss the salesman who is not selling or the quality manager who cannot deliver enough first quality product in each batch. Sacking anyone is a sign of failure. It means someone chose the wrong person, or managed them badly. However, it is a necessary evil if you cannot find some other way of putting right the institutional mistake.

I was told recently about one Head who tried to dismiss a poor teacher. It took him six months to go through all the procuedures. He had many a sleepless night worrying, as there was always a fear of a backlash against him for trying to do it. The atmosphere did not welcome taking action to improve.

Today I hope Mr Gove at Education questions will tackle the issue of good and inspiraitonal teaching. More of that can make up for older school buildings, and is an even more important issue than the capital programme. If he has good proposals to tackle the bad teacher problem, and good proposals to remove or improve all the quangos that bestride Labour’s educational bureaucracy, we might start to make some progress towards better education.

Sorting out the budgets should be the easy bit. The sooner he tells which school improvements we are paying for out of taxes the better. The sooner he frees some more money from cutting more of Labour’s unsuccessful bureaucracy, the better.