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I am being contacted by media for interviews in the long run up to the next budget. When I say the need is better control of public spending there is still a disbelief that it can be cut. Let me have another go at identifying some of the most obvious wasteful and less desirable spending that the government needs to cut or control.

 

Bank of England bond losses, running at around £30 bn a year

Illegal migrants put into hotels and on benefits running  at an extra £2bn a year

51,000 people a week going onto Universal Credit, with 46% now on the benefit not being expected to seek work  £2.5bn extra for one year of additions

£20 bn over a period of years on carbon capture and storage

Continuing large cost overruns and outgoings on the much delayed HS2

£40 bn additional cost from lost public sector productivity in the main services

£35 bn over 99 years to Mauritius for Chagos

£650 m to subsidise mainly imported batteries/ battery cars

 

 

 

 

The Chancellor regards herself as boxed in. The OBR is likely to tell her she needs to raise more money in tax or cut spending  to cut the deficit. She will be reluctant to raise main  Income tax rates or VAT as they are seen as taxes on working people she pledged to protect. Her attempt to pass off an increase in  Employers National Insurance as within her promise was badly received and has done big damage to the new jobs market. Her efforts to cut spending so far have ended in failure, with the ill judged attacks on the pensioner fuel payment and disability benefits being seen off by Labour MPs.

We are now seeing various stories in papers already in the long run up to the budget trying out various ideas to raise more cash from the better off. The government has so far  failed to come up with a definition of working people they promised to protect from tax rises. That would be helpful before making budget decisions and having to defend them. It pushes the Chancellor into the path of entrepreneurs, small business people, savers and the retired. Many of these groups are important to the government if they wish to succeed in  growing the economy faster, in financing better services, in stimulating investment and in getting more people into jobs.

The badly judged changes to Inheritance tax affecting small family businesses and farms have led to lost investment and jobs, to sales and closures, and to anger about how the people who do much  to lift the economy are to be hit. The Treasury and OBR find it difficult to work out how tax revenue will respond to such changes. Their lack of a dynamic model may conceal an overall loss in total tax take when you consider the impact on ,jobs, investment and growth of the tax decision. Whatever the truth, all can agree that the maximum possible extra revenue is small compared to the huge increases in spending that have been put through in the last year.

We read that she might limit the amount people can gift in their lifetimes to reduce the Inheritance tax bill on death. The  super rich pay much of the IHT total. They may well simply leave the country or hire better advisers. Quite a lot of them have gone already after the last budget. She would need to greatly reduce the amount and frequency of gifts to have any noticeable effect on IHT revenue overall.

We read she might remove the tax free lump sum from pension savers. That would be a significant change in the rules that have persuaded many people in the past to make savings into a pension fund. She could of course increase the income tax take if she discouraged enough people from saving for their pensions. This would be a short term boost with bad long term consequences. Getting more people to retirement without second pensions would place more burden on state benefits. She might limit tax relief to stop people on higher incomes from saving so much for their retirement. This would be less damaging to state budgets in future.

The danger in the whole approach is she will make the same mistake as last time. The last budget slowed growth, knocked confidence, led to well off people leaving the country, delayed or cancelled investments and business expansion. More cheese paring tax rises on those who can help the economy grow and can create jobs is a very bad idea. There is no substitute for curbing public expenditure. This country does not tax too little but spends too much.

I am glad the Shadow Home Secretary escaped the man with  the knife when he was visiting the Calais jungle yesterday. Chris Philp had gone to see for himself what actions and support we are now getting from the French authorities to stop the boats  and smash the gangs. The government claims  its 1 for 1 deal will deter the illegal migrants. Chris Philp found it has made no difference. The government says the French will now stop more boats but there no evidence. The Shadow Home Secretary  reported that the  area of the camp at Calais was lawless and without police.

We now see a 100 person migrant ferry boat, no small rib. This indicates big growth in this illegal business, with those involved  showing complete scorn for the French and UK governments. Illegal migrants hit new highs in numbers and arrests are down on the previous year. Labour’s dilution of the law and scrapping of Rwanda has made things worse.

The government should   see its offer of good hotels and benefits is too generous. Its failure to deport is fatal. People are in no mood to pay more tax to finance this  catastrophic policy failure to keep our borders safe.

 

When I studied history I specialised in economic history and the related history of science and technology. I had to study general UK and European history. I was very happy studying UK history as it is my country. Understanding its roots, achievements and mistakes was useful. It was also easier as the buildings, books , paintings and archaeology were  all around me making understanding easier.

I did not find European history so enriching. I thought it odd the University required European but not American or Asian, given the trends in world economics and politics. The course has since been reformed to tackle this.  In order to handle the course I concentrated most on France, Spain and Italy as I could read some of those languages and had visited a range of places in those countries which gave me a bit more feel for the societies and their past.

Mainly I grew interested in the impact European countries had on the British story. The more I read the more I realised the UK’s involvement with the continent had plenty of downsides. The UK – or England – was successfully invaded by both the Romans and the Normans, with lands stolen  and people enslaved. In the sixteenth century England had to fight off a major amphibious invasion by Spain, the super power of the day rich with colonial silver. In the centuries that followed Great Britain spent much treasure and spilled much blood fighting against French attempts to dominate the continent by force of arms. In the twentieth century twice the UK suffered terribly from standing up to German attempts  at military domination of the continent.

Many of these wars brought death , destruction and loss with no obvious wins for our country. We would often have been better off leaving it to the continental countries to have their own wars. Standing  out and for a time alone against the  Germans in 1939-45 was a crucial sacrifice for the benefit of us and the wider world.

It was always difficult trading with the continent as they tended to grow similar things and make similar things to us. We were much more enriched by the legitimate distant trades with hotter  climates and different cultures in Asia and the Americas. The Dutch became such intense trade rivals it led to naval wars over commerce.

I read of a continent with strong tendencies to autocratic governments, to bullying super powers and to ceaseless dissatisfaction with borders. It made me sceptical of the UK plunging into legal and treaty based versions of continental control and disputes. For that I am grateful to the course designers who probably thought it would have the opposite impact. For every civilised painter or architect they liked there were  several despots and needless wars in the story.

President Trump has taken powers to tackle the lawlessness and social problems of his nation’s capital. It will be interesting to see what impact he makes.

His diagnosis is shared by many voters, here as well as there. People fear the streets, seeing to much petty crime and serious violence. Neighbourhoods are damaged by criminal gangs, too much drug pushing and taking, too many people left to live and sleep on the streets and in the parks. Local shops and centres are disfigured by rubbish and waste, by shoplifting and graffiti.

He plans a tough blitz on crime including on gangs and drugs. He plans to offer the homeless something better somewhere else, which will often entail helping them off a life of drugs and crime.He plans a zero tolerance policy, coming down hard on petty crime as well as more robust treating of serious crime. He wishes to deport illegals and lock up more criminals.

The UK government is beginning to say it wants to do more for UK cities but so far there is no focus, no helpful law changes, no single  purpose drive from the top against the shocking state of some city centres . It is going to take a Trump like insistence at the very least as we watch to see if Trump tactics do work or need amending.

 

I agree it would be good to have fewer foreign prisoners in our jails.They are expensive and have in recent years added to the overcrowding.

The first thing government needs to do to cut numbers is to get proper control of our borders. Stopping the current big flow of new arrivals would  stop the expansion of migrants and so reduce numbers which include some future criminals. Better border control backed by intelligence could  also do a better job stopping people  with a criminal record coming here.

The government says it now plans to send people found guilty of a crime back to their home country. As Robert Jenrick has pointed out their home country might not want them .The UK should withdraw aid money and visas from any country not cooperating with returns.

That leaves the issue of what if the receiving  country lets  them off any time in prison? The government should get agreement from the main countries involved that where a returnee is guilty of something that’s a crime in their country as well there will be punishment.

There also needs to be better border  checks to ensure no criminal sent abroad is given entry to the UK if they return.None of this is possible without much better records of who comes in how long, with proper follow up when visas expire.

A wealth tax is usually targeted at people with substantial assets. In the UK there is discussion of charging people with total assets of more than £10 m an annual levy of say 2% of the assets. This is a kind of income tax surcharge. If someone is managing to earn the current 4% return you could get on a bond it is effectively a  50% income tax on top of the 45% tax the rich are already paying. It means lower risk investing ceases to produce any return for a well off saver. How long before that saver goes somewhere else or at least stops  financing the spendthrift UK government.

Wealth taxes elsewhere have led to the exit of rich people, as in France.They can lose the state more total tax revenue from departing  millionaires than they recoup from those who stay to pay.When Labour last squeezed the rich in the 1970 s with a 98% tax on savings income there was a big exit called the brain drain. The state ran out of other peoples money to spend and had to beg a loan from the IMF. They imposed some spending cuts.

Charging on total wealth is complex and expensive to enforce and complex and expensive for the taxpayer. Much wealth owned by the very rich is in the form of property assets which generate no income and impose substantial costs on the owner. Many have a large home which is expensive to maintain, heat and run. Annual revaluation could be expensive and would be a matter of judgement as these properties are usually one offs with no ready market. People who own art or other valuables get no income from them and have maintenance and insurance costs.  Some of the wealth is the consequence of someone now on a modest income or pension living in London house  which they bought years again when they were more affordable. A wealth tax could force them to sell their family home as they may well not have the income to pay the state 2% of the value of their property.  Enforcement will be difficult with smaller items of wealth like stamp and coin collections, gold, furniture  and smaller works of art.These would all become more popular with the rich if more measurable and visible  things were taxed, especially if they are left out of the wealth  tax demands.

 

Some of you tell me some things like water are too essential to leave to a competitive market. Bread – and food generally – must rank as crucial to life yet I am pleased to say no-one so far has told me food supply needs to be nationalised.

My last two shops for food at two Wokingham national food retailers where I belong to their loyalty schemes tell me just what a good job the competitive markets for food manufacture and retail do. There was great quality and range of choice, and plenty of attention to keeping prices down. They both  offered discounts and provided cheaper variants to the great brands for those who want them. The first store gave me a total discount of 30.6% on my bill from a combination of a voucher to get me to shop more and from  in  store promotions on products. The second store gave me a 20.3% reduction in my bill from similar sources. I was delighted with the choice and quality and thought both shops had worked hard on pricing. Food manufacturers have to battle to keep their places on the shelves, aware that they are being price compared the whole time in  the stores. The helpful shelf edge labels often show you the price per unit of liquid or solid to make comparison of value easy when comparing different sized packs and bottle. Customers can keep the food manufacturers honest through the retailer who is on their side when it comes to getting a good deal from the producer.

Compare that with our experiences of government and nationalised industries.  I get no discount on my tax bill for honest and timely reporting and paying. There is no choice over which nationalised industries I want to support or over which government follies I have to help pay for. Most of the government bodies you deal with threaten you with penalties and legal action  if you do not behave exactly as they demand. They often conspire to make life as complex and uncomfortable as possible as you strive to comply. There is no loyalty scheme, only the threat of prosecution.

It was a pleasure to be interviewed by Peter who was interested in my views and past actions and was willing to let me explain my thinking without wishing to debate trivia and caricature points.

I was able to set out why I have been a long standing critic of Treasury/Bank/OBR policies. I criticised Heath’s Competition and Credit Control boom/bust, Labour’s over spend and over borrow in  the mid 1970s, the Conservatives adoption of the official European Exchange Rate Mechanism boom/bust of the late 1980s, Labour’s banking excesses and then great recession policy of 2005-10, and the Bank’s excessive Quantitative easing then Quantitative tightening of 2020-25. It was easy to see each of these policies would generate a nasty boom/bust cycle that was both foreseeable and avoidable at the time.

 

You Tube Peter McCormack

 

 

The nationalised portfolio’s financial impact is dominated by the excessive losses of the Bank of England, which I have long commented on. All the time the Bank sticks with its OBR costed plan  to lose £257 bn running off its bonds  since 2022  the nationalised portfolio will be heavily loss making.The Bank split three ways over what to do with the stagflation it has helped the government create. It couldn’t even be bothered to comment on why it is selling all those bonds at a loss.

Labour is adding Scunthorpe Steel, Great British Rail, Great British Energy and British Nuclear to the lists.

HS 2 has always been nationalised. It will be a  big spender and borrower for the next few years. It is likely to be a loss maker when it does open for business, unless all  its capital is written off.

The Post Office has been making large trading losses in recent years. It is now sending a further large bill to taxpayers to compensate   all the staff it so badly mistreated. Where is the business plan to get into profit?

Great British Rail takes over the subsidies needed by currently nationalised Network Rail and will probably want additional subsidy for operating the trains from the old franchise companies.

Great British Energy will be a spender and borrower in its early years, backing higher risk higher cost projects

British Nuclear will spend a decade working up plans and pilots for smaller nuclear and building out Sizewell. It will be all cash out and more borrowing.

Scunthorpe Steel will present big bills for losses to keep open uneconomic furnaces, and then to sack people and out in new steel recycling facilities

 

With all these big spenders and heavy loss makers it is no wonder public spending and borrowing is running far too high.