Category: Blog

Today Parliament debates the Budget Deficit Reduction Bill. Don’t expect much light to be shed on how this government would cut spending on the scale needed to halve the deficit as promised. Ministers use every opportunity to turn the spotlight on the Tories, avoiding any comment on their own black holes and redaction.

Public spending comprises three main blocks. There is spending on staff, spending on benefits, and spending on bought in goods and services.

Staff

The state employs 6 million people, around 1 million more than it needed in 1997. The aim over the next five years should be to roll this back to 5 million through natural wastage. We should replace teachers, nurses, doctors, and uniformed personnel when they leave. The remaining numbers of the establishments should be cut as people leave. People from within the public sector should be promoted to the posts that do need filling. Given the high turnover, removing one million posts over five years should be possible without compulsory redundancies. This would save around £30 billion a year by the end of the process.

MPs could offer some leadership. The current level of staffing allowance allows each MP to have three full time staff at public expense. For all new MPs that should be cut immediately to two, and for existing MPs it should be cut to two as and when staff members leave.

We also need to amend public sector pension schemes to cut future liabilities. The MPs scheme should be closed to new members, as a prelude to reform of the other larger public schemes. These should all be closed to new members, and as with the MP scheme reviewed to control other future costs and liabilities.

Benefits

The best cuts of all will be cuts in benefits to the unemployed because they have found jobs or have started to work for themselves. We need an enterprise package for all levels of income and activity. There needs to be an easier bridge from benefit to running your own business. You should not be penalised for trying to set up something that can provide you with a livelihood as at present. There needs to be lower tax rates on the higher paid and the entrepeneurial so more stay here and more venture their time and money here. We also need to review tax credits, and stop generous tax credits going to people on higher incomes in the future. The best way to reform benefits is to allow existing beneficiaries to keep what they have all the time they remain qualified for them, but to change the rules and qualifications for new potential claimants.

Bought in goods and services

We are often paying twice for the work the public sector wishes to do, paying for the civil servants in the area concerned and then for external consultants whom they hire to do the job. A new government should make it clear it will only use consultants when they save the public sector money or when they do things that no-one in house is qualified to do. The saving on the use of consultants could be large and immediate. There are also savings to be had on public procurement, especially in an area like defence.

This is in addition to all the specific areas and programmes identified in previous articles on this site for abolition or reduction.

Between 1992 and 1997 Labour spokesmen and women made all sorts of suggestions and proposals which would have increased public spending. Just before the election Gordon Brown as Shadow Chancellor announced that most of these were unaffordable or were not serious. He only permitted a short list of pledges to add to the fairly tight Conservative spending plans, and these were to be paid for by his new utility windfall and pensions taxes.

Today the Conservatives are doing the same. They are ensuring that all the items that go into their Manifesto as pledges are affordable. This means very little additional spending can go in, given the dreadful state of the national accounts. Labour’s dodgy dossier gets some things wrong, and costs others which were no more than aspirations in better times. Meanwhile the government’s own public spedning “promises” for future years are often just cloud cuckoo land proposals that cannot be afforded in the current climate. They are getting out the many large items they wished they had spent money on when they had the power, and putting them out there as a list for the next government to cut to get back to reality.

I was pleased to see the Conservative party is thinking again about how to find a lower cost way of recognising marriage in the tax system. The priority for tax cuts must be cuts in taxes on enterprise, cuts which will bring in more revenue. We need to increase the tax revenue from the rich, from the successful, from the company sector. The way to do that is to cut the higher rate of income tax, cut the corporation tax rate, cut the small business rate, abolish IR 35 and recreate the enterprise rate of CGT. Gordon Brown’s best policy was the 10% CGT rate for people investing in their own businesses. It is a pity he had to remove even this during his scorched earth phase.

One of the worst political cop outs I have to listen too is “We have to accept the scientific advice”. “We did this because the scientists told us we had to”. Ministers all too readily resort to this line of argument on vexatious matters like genetically modified food, global warming and moral matters superimposed on medical ones.

I have two principal objections to this lazy defence of an action. The first is that there is rarely any such thing as settled science that will not change or cannot be challenged. The Treasury and economic Ministers have never yet claimed they had to put a tax up or hire more staff because the economics is settled and the economists told them they had to do it. Ministers still just about accept they have to listen to the range of economic opinion and come to a judgement. Even here the so called independent Monetary Policy of the Bank was an attempt to move to a system where the experts ruled. The fact that it has been such a disaster, with the most disrupted monetary policy lurching from boom to bust that any of us has experienced, should help prevent more of the same.

The second is that a given scientific theory may be a good one, and may last for many years, but it is still possible to disagree about the policy consequences that it leads to.

Let me illustrate this from a less immediately contentious area of science and politics, where the thoeory has been round long enough for us to have been through cycles of interpretation of the scientific ideas in policy terms. I will examine Darwinism.

We have just been through an establishment love in with Charles Darwin. They obviously liked the quiet meticulous naturalist who did so much to study new and old plants and animals, and loved the romance of the journey to the fabulous Gallapagos. They kept quiet about the social Darwinism, a set of views that developed from his and Spencer’s thoughts that you would expect them to loathe.

Darwin himself set it out in his second book, “The Descent of Man, and Selection in relation to Sex.” Dennis Sewell’s latest book on Darwin “The Political gene”, quotes one of the most worrying passages from Darwin himself, as well as the even more explicit passages from Spencer on which Darwin probably drew:

“With savages, the weak in body and mind are soon eliminated; and those that survive commonly exhibit a vigorous state of health. We civilised men, on the other hand, do our utmost to check the process of elimination; we build asylums for the imbecile, the maimed, and the sick…..Thus the weak members of civilised societies propoagate their kind. No one who has attended to the breeding of domestic animals will doubt that this must be highly injurious to the race of man…”

Darwin went on to say despite the consequences mankind did need to minister to the sick and disabled. Others read the implications of his theory differently. On the back of this theory of the survival of the fittest it was possible for evil men to erect a theory of eugenics, taken to its most extreme in Hitler’s Germany. As Alan Bullock remarked in his seminal works on Hitler, the basis of Hitler’s beliefs was a crude Darwinism. In Hitler’s Germany the theory of evolution needed buttressing by strong men and governments deciding to kill the weak and disabled, and then to move on to eliminating races they deemed inferior. These evil acts were to them manifestations of the forces of social Darwinism, their version of the survival of the fittest.

In the US and UK the battle to implement eugenics was in a much less extreme form. In these countries the aim of the Eugenics movement was twofold – to put people they thought inadequate into asylums, locked away, and to prevent “inadequates” from having children.
The eugenicists were often influential and well connected people. Beveridge was a member of the Euegnics society at the time of his pioneering social reforms, and John Meynard Keynes was Treasurer of the Cambridge Eugenics society for a time. Beveridge in an early paper had himself said that in return for state unemployment benefits the unemployed should lose the right to vote or to be fathers.

In 1912 a cross party group introduced the “Feeble-minded Persons (Control) Bill” to the Uk Commons. “The object of this Bill is to regularise the lives,and,if possible, to prevent the increasing propagation of half witted people”. The sponsors of the Bill agreed to let it lapse only when the government pledged its own Bill, which passed into law as the Mental deficiency Act of 1913. This remained in force until 1959, establishing institutions for the segregated living of “idiots,imbeciles,the feeble minded and moral defectives”.

I repeat this research of Mr Sewell here to illustrate my themes. You can erect all sorts of policy structures on “settled science” which might now seem shocking or inappropriate. You can find a wide range of sentences ideas and statements even in the most venerated of scientists and economists with which you might heartily disgraee. No one body of scientific thought, and no one person’s science, remains fresh, morally attuned and accurate, up to modern requirements, however great they were in their day. There is no substitute for forming sensible judgements in the knowledge of the range of scientific veiws there are, and in the wisdom that comes from understanding that sceince, like economics, can change and change rapidly as new minds and new problems are brought to bear.

New battle lines have been drawn. Mr Brown says the difference between the two main parties is between Labour’s Age of Opportunity and the Conservatives’ Age of Austerity. The true battle lines are between a Conservative party which grasps that there can be no sustained recovery without controlling the deficit, and a Labour party which believes it can go on printing,borrowing and spending without limit as if this would produce a recovery.

One of Labour’s biggest problems with this spin line even to get through to the election is they cannot explain why the UK economy did not recover when others did, despite all the borrowing and printing. If we look at past sustained recoveries – after 1981, after 1992 – they both followed tough action to control the deficit. If we look at past Labour mismanagement, in 1964-6 and in 1974-5 spending and borrowing too much then led to a worse crisis, followed by the need for cuts and austerity imposed by overseas money lenders and by the financial markets.

If we do not control the deficit, the deficit will control us. Already, despite the excessive money printing, the cost of government borrowing has risen. If we allow the cost of government borrowing to surge by being careless about the additional amounts we need to borrow, the country could become locked in a debt trap. The deficit would keep on rising and the accumulated debt would soar, simply because the interest burden kept on increasing. When you have borrowed this much already, you need to be careful about future borrowing, to try to keep the interest bill down. On present policy the public sector hoovers up all the available extra cash, starving the productive sectors, especially small business, of the money they need to expand and to create jobs.

The deficit has to be cut by cutting spending. We have often looked at how to do this on this site, and found that technically it is easy to do. The politicians just need to learn how to do it by following what many businesses do automatically -not cutting front line or valued services, but cutting the rest strongly. We should rule out all tax rises on earning and saving. We need to do more of both. We may need to cut rates on earning and enterprise, to encourage more of it. We need to work our way out of this debt mess. That willl require an Age of Opportunity for the wealth makers, the job creators, the savers, the hard workers and the doers. It will also require an Age of Austerity for the bureraucracy, after its excesses of the last few years.

All governments rely on more income tax receipts. The best way to speed those up would be to cut the higher rate of tax Labour proposes from next year. Whenever the UK has cut income tax rates in ther past the rich have paid more tax and paid a higher portion of total income tax. The Conservatives have promised to cut the Corporation Tax rate. This is the way to generate more tax revenue, by getting more successful people and companies to come here,. to stay here, and to create jobs here.

Dear Shareholder,

I hope you had a great Hogmanay, and have now forgotten New Year’s Day when sensible people sleep it all off.I wanted to write to you in the spirit of this great festival to tell you how your company has added to the joys of this old and formerly Scottish custom. I left it until today for obvious reasons. No-one wants a serious message from the boss on New Year’s day.

I have been stung by criticisms that the Board of UK PLC in recent years has been too narrowly Scottish, and aware that many of the joys of being Scottish could be more widely applied by changes to the company’s practise and policies. That is why we extended 24 hour drinking, hoping the idea of serious drinking at the time of change of year would spread more convincingly beyond Scotland. I think you will see just how well shareholders have responded to this thoughtful initiative.

I was also worried that shareholders in England did not seem to get enough time off to celebrate New Year in the way we always did in Scotland. The English seemed more hung up on the earlier seasonal festival of the 25th and 26th December. Despairing of weaning them off this, despite all our efforts with changing the language and banning Boxing Day hunts, we decided to just give everyone longer holidays instead.

Our plan to give most people two weeks off for the seasonal festival and New Year has worked well. We led the way from Parliament of course, where we ensured the MPs were sent away on 16th December, not to return before January 5th. We went for a longer period than two weeks, partly because MPs collectively are not very good at counting and sums. I am told some of them have broken the spirit of this by writing blogs and sending out press releases. They were meant to be leading by example, drinking more and doing less, so we will look into whether we can control these unwelcome work activities more. We must find ways to make them enjoy themselves, as we insist on all of you enjoying yourselves in Board election year. As I have often reminded you, the drinks will be on us for the next few moths, unless you use the rival company Conco. We will be advertising our wide range of benefits and income top ups so your glasses can be charged.

I was also keen that we should extend the Scottish winter weather to the rest of the UK. The snow bound homes and the all white on the night scenery are part of the magic of true Hogmanay. That was part of the reason I was so keen to save the world from a temperature rise. I hope you will forgive me from reminding you, but this has been one of the most astounding achievements of your comppany. It was literally as I finished speaking on how we could save the world that the big freeze up and the snow began. I think you will agree you never got this much snow and ice at this time of year when Conco were in charge. It’s a huge improvement. I see it as part of my climate equalisation policy, showing that what Scotland has England should have as well.

It was in that same spirit of generous sharing around the different parts of our company’s territory that led us to allow English shareholders to participate in the losses and activities of two great Scottish banks. Our decision to take over most of those institutions’ shares was the single biggest leap forward we made in our policy of record spending and borrowing. What has been little appreciated is just how it also advances fairness between the different regions of our company. If Scotland is just so much better at generating losses than England, it is a magnanimous gesture and part of our fairness policy to let England join in.

Some have said it is not fair that England has to pay more tax than Scotland to help pay for the company’s activities. They point out that more people proportionately are in paid employment outsde the company in England than in Scotland. I agree. That is why we have been pursuing monetary and economic policies designed to push up the unemployment rates in England, and to increase the numbers of people on UK PLC’s own books both sides of the Scottish border. We want to minimse the need to work for other employers throughout our area, not just in Scotland. We intend to make it as difficult as possible to employ people in the private sector. I think you will agree that that policy is working nicely as well. I am sorry if you still think too many people are in non UK PLC jobs in England. We are working hard on that issue all the time. Our latest bankers tax should get rid of some more of these unwanted jobs, to be followed by the new higher income tax which will stop some of them and drive others out of our territory for good.

Some silly forecasters wrongly said we would let prices fall and create a deflation. The Board’s vigorous action in boorrowing more and printing more will,I ensure you, push prices up at a livelier pace in this New Year. Just to make sure we have asked our railway subsidiaries to charge more for car parking and some journeys if you do go by train. We are sticking up VAT again which will help. Watch petrol prices. We aim to get these much higher over the course of the year, as they feed into all other prices. Our company slogan of “Never knowingly undepriced” will ensure that wherever we think prices are too low we will take corrective action.

So my advice is to sit back and pour yourself another favourite tipple. It’s on the hosue for the next four months. Given the winter conditions you can’t go anwhere easily, so forget all this work lark for a bit. Like the MPs, you deserve another holiday and I am going to make sure you have one.

Yours in snow

The CEO

New Year’s resolutions are often made to be broken. They may be said to satisfy a friend, or indulged in to make us feel better about ourselves. Later in January the New Year does not seem that different to the old. It can seem like too much effort to follow the good intentions of the bank holiday. There can be the same bills, the same problems at work, the same constraints on life, the same job, the same family rows.

Will power can overcome this if you really want things to change for the better. I often talk to young people about their life prospects. There is too much fatalism. There are too many adults willing to write off large numbers of young people. They come from the wrong home backgrounds we are told. They go to the wrong schools. They come from families on low incomes. How can they expect to succeed? The answer is the same as for the sons and daughters of the rich and famous. They can succeed if they really really want to. Being born the son of a celebrity does not automatically make you either happy or capable. Success in most walks of life is 90% perspiration. I get luckier at what I do , the more I practise it. You can start your training to be a great cricketer in back yard. You can practise the main skills to be a good footballer on any old field. You can aspire to an elite university by reading books from any free local library or by tapping into the world of the web.

It is important we are not fatalistic about our chances or careless about our resolutions as we work out how we play this new decade as a country. We do need some New Year’s resolutions that are going to stick. We need change desperately.We will first have to vote for that change in a General Election. We will then need to hold our new government to the task, keeping its feet to the flames of change if our country is to be rescued and to have a good future.

Our first resolution has to be to borrow less. The world does not owe us a living, and it does not have to lend us as much as we want to spend. One day it will tell us so, if we do not wake up soon.

Our second resolution must be to make and supply more. We should be ashamed as well as astounded to see just how many of the goods that make up our consumer good life now come from China.
We have just enjoyed several days off for Christmas. Everything from the crackers to the clothes we wore, from the toys to the mechanical items we gave as presents likely came with “Made in China” on them. This year Christmas came in boxes from China. They were made by people working for a fraction of our incomes in conditions we would not accept. To pay the bills, we have to make things and supply services on a bigger scale, paying ourselves appropriately, and earning our better standard and style of living.
One day China will decide our credit has run out. They may decide they do not have to package up our preferred lifestyle and send it by container vessel, whilst listening to our lectures on how they are using too much oil and coal in the process.

Our third resolution must be to value enterprise and success more, and government less. If we are to pay our way and maintain our lifestyle, we need more entrepreneurs and more businesses. Instead of monstering business people and regulating businesses to death, we need to encourage and stimulate them by having a competitive business tax and regulatory climate.

Our fourth resolution should be to strengthen and improve our main public services. To do so requires reform. The benign forces of choice and greater managerial freedom in the surgery, in the school and in the hospital need to be unleashed. We need to preserve the right of everyone to free treatment and free education where needed, but to extend more of the quality and choice of the private sector throughout public service at the same time.

Our fifth resolution must be to make substantial savings in wasteful, inefficient and undesirable public spending. This website has often set out proposals for how and where this can be done. Cutting 10% from public budgets seems large if handled in the conventional way, but is a modest goal if achieved as the private manufacturing sector has achieved it without cutting what they do or lowering quality. It is made easier by the long list of things many do not want, including regional government, some quangos and ID cards.

Our sixth resolution should be to trust people more and government less. We need to roll back much of the surveillance society created in the last few years. Britain is best when we are a bastion of liberty. Our forbears who pioneered our evolving constitution and battled for our liberties before the law and through Parliament, must be turning in their graves at what now passes for democracy here.

Our seventh resolution should be to demand – or help create – a Parliament which works again. We need a proud Parliament which can hold government to account, a Parliament which can insists on value for money in spending, a Parliament which defends our liberties.

Let me upset all those of you who think the state should carry on delivering services badly so we can all carry on grumbling about it but never fix it. As some of you are wedded to your poor badly run congested rip off state roads, how wedded are you to your state controlled LEA driven comprehensive schools?

I want everyone to go to an independent school. Of course I want free education for all, as we have today. I also want to end the huge divide between public school and state school. Money can buy rich families a better education. The way to tackle that is not to prevent all but the very very rich buying their way out of the state system, but to improve the free schools.

I would say to all state schools that they are to be freed of national and local government control. They could become educational charities, not for profit companies, teacher co-ops, ordinary companies or whatever they like. They would take over the buildings and equipment, and run them as they saw fit, as long as they carried on providing school places.They would only need state permission and face loss of their property or have to give the state its money back if they wanted to move out of education and do something else. Schools would rise, flourish and expand based on their own energies and success, attracting pupils as they showed how good they were. Bad schools which failed to attract pupils would change their management or close.

All pupils of school age would receive a grant to pay the fees, up to agreed maxima. This would be enough to guarantee a place at a good school. Some schools say they value the services the Local Education Authority provide. In that case they could buy them from the LEA out of the enhanced per pupil money they received. All the money would go through the school, instead of being routed via the LEA. That way they will buy the bureaucracy and back up they want, not be forced to take the bureaucracy Councils think they must have.

The government used to tell us we were best placed of the major economies to weather the “global storms”. The government suggsted we would be first out thanks to the massive public sector “stimulus” administered. They ignored the UK hurricane they had created by their mad monetary and banking policies of the previous ten years.

The second quarter figures tell a different tale. The UK economy continued to fall, falling faster than the USA, falling faster than the stronger major economies which saw some recovery. It is true government consumption rose, thanks to the spending spree and the massive borrowing, which helped the figures for output. Overseas trade improved but little despite the devaluation of last year. The big reason the UK continued to fall was the continued squeeze on the consumer.

The government as always wants to have it both ways. The authorities brought the consumer boom to an abrupt end by their hikes in interest rates and their scarce money policies of 2008-9. They did so presumably because they thought consumers were borrowing too much and the party had to end. They got into a panic late in the day, and slashed interest rates and printed money to try to offset what they had done over the two preceeding years. Meanwhile consumers are taking the hint they gave them earlier, and are busily repaying debt. That means they spend less. All the time people are highly borrowed – as many are – and all the time many fear unemployment – as they do – they will repay more debt than the government now wants and spend less than the government wishes.

One of the reasons people are likely to stay cautious and repay more debt is the likely pattern of interest rates. few consumers believe 0.5% rates. Firstly, we can’t borrow at those rates. If you can get a loan it will be many times base rate. Secondly, most people expect rates to have to go up again. They have been burned by the past interest rate hikes. They realise that given the huge sums the government needs to borrow, higher rates are likely in the medium term.

The government hopes to keep rates down through quantitative easing to see them through to near the election. Once that is out of the way markets are likely to force rates up on government debt, unless sufficient action is taken to rein in the deficit and the borrowing requirement. Markets might do that earlier of the numbers continue to alarm. Meanwhile canny consuemrs will carry on paying off debt, and worrying how long they may keep their job.

I was most suprised to read the Rothschild “road privatisation” story on the front of the Sunday Times business pages today. I will reverting to this story when I have made some enquiries next week.
In the meantime I wish to make clear that I last worked for Rothschilds in 1989 before becoming a government Minister. They did not invite me back after I resigned from the government.
They did not tell me they had picked up the £100 billion road scheme idea. I also noted that one of their variants uses shadow tolls. I have never favoured shadow tolls, as the schemes I have heard of using them seem to me to be expensive ways of the government borrowing money. What we need is transfer of risk to the private sector, direct collection of revenue from customers by the private sector, and full offsetting tax reducitons so motorists are not worse off.

I have been fascinated to read responses to my proposals on roads from people usually up for a smaller state telling me I am going too far. If you can’t take government out of the main road business, what can you take them out of? It should be one of the easier ones.

The criticisms all boil down to one thing. People see it as another opportunity to fleece the motorist, when I have in mind for the first time in more than ten years offering the motorist a better deal!

Some of the critics misread the scheme, and think the government will be collecting the tolls and benefitting from them. On the contrary. The tolls would be levied and used by the franchise owners. The last thing I want is the government to start charging us tolls on top of everything else they charge us. Nor do I want us to pay twice, which is why the scheme includes the abolition of the VED levy on everyone with a vehicle.

Some critics think the private franchise holders will be monopolists and will milk us all at the toll booths. Again, why on earth would I propose something like that? The scheme includes splitting up the roads into different packages, so whereever possible there would be choice of pay road. In addition, all single carriageway roads and many bigger A roads remain free, so there is always a free route home if you want it. On top of that the franchise sale would include an upper limit on how much per mile they could charge. The franchise holders would be free to charge less,and would doubtless charge less at off peaks to encourage a better spread of use.

What people are missing is the obvious improvements that would come from such a system. As one supporter concluded, the Highways Agency could be wound down, saving money. Private franchise holders would want to improve their roads to improve flows, as they will only get lots of business if there are savings in journey times by using their better roads. The competition would be for the length of the franchise they needed for the government to get the money it wants. We would soon see use of the emergency lane at busy times as already happens on sections of the M42. They would need a suitable duraration so it was worthwhile putting in more capital for improvements. Where they wanted to make a major improvement to the road they chould be able to negotiate a lease extension or a capital repayment from the new franchise holder if it ever changes hands.

Some of you worry about the congestion toll booths can cause. It would be up to the franchise holders to choose the least disruptive technology to get paid. The US system where you can buy a smart card in advance which allows you straight through toll points without stopping is an obvious way to do it. That could also reassure people they were not being logged and monitored where they were gooing, as if you had a valid card the system could be designed not to record your vehicle. Alternatively there could be monitors and you could receive a bill once a month like a mobile phone bill- which also of course can monitor exactly where you are at any time you use it. The Oyster card on the tube already logs whereever we go by underground. Two wrongs don’t make a right but it shows even us freedom lovers will put up with it.

We need to break the state monopoly grip on road provision. We need to get more access to private capital to invest to bust congestion by removing bottlenecks. I look forward to your response to future radical proposals for sorting out our deficit and poor public services. This was meant to be the less contentious one!