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There are competing ways on offer to make people better off.

There is the socialist way. That depends on taxing the better off more, to give more money to those who are on low incomes or no incomes. The problems with this method include the unwillingness of the rich to stay and pay if you put taxes up too much, the disincentive effect if you give out too much free money without strings, and the way you have to drag too many people into paying tax to sustain it all.

If you take it too far you end up with a corrupt and poor society like the old USSR. The new rich and privileged run the state and live off the taxes. The rest pretend to work and live off handouts. Average incomes are much lower than in freer societies. There is less income inequality, but far greater power imbalances between the haves and the have nots.

There is the free enterprise way. That relies on individuals offering public service for their own personal rewards. In doing so they  create more wealth and jobs. There can be higher levels of income inequality, but also a much  higher average than in the socialist systems. Democracy can reduce the power imbalances that you get in totalitarian societies, with the state championing those who need help.

In the UK we have always gone for a mixture. Keen advocates of free enterprise like me accept the need for substantial redistribution by higher tax revenues from the rich, and sensible benefit systems for those out of work or disabled. The political battleground is over the balance – how much extra tax, how many more benefits, what is the right balance of protection and incentive? Even more important is the battle over what rate of tax will maximise revenue and do least damage to the economy.

One of the  biggest differences between parties of the left and Conservatives lies in the approach to groups of people who typically do not support your party. The left likes to have hate lists. They love to boo the bankers, harry the hedge fund managers, belittle the believers in an independent UK and castigate in most unpleasant terms the “climate change deniers”. They simply do not like richer and successful people.

Good Conservatives have no equivalent list of groups we dislike. I like Labour condemn bankers who steal from their clients. I also condemn NHS doctors who kill or harm their patients, and nurses who put their own comforts above the needs of their patients. I do not think that because there are a few bad doctors and nurses I should criticise them as a group. Why do the left have to condemn all bankers, when most simply provide a necessary financial service to us all?

Conservatives  do mot  criticise Labour’s client groups, in the way Labour regularly criticises some groups of successful workers or business people. You cannot generalise easily about groups. If you choose to do so in condemnatory fashion you will condemn many who are decent and do not deserve your words.

The best way out of poverty is a job. The best way out of low income is a better paid job.

So how can we help more achieve these successes in life?

It starts in school. Some state schools offer a great ladder for children from low income households. Others do  not. This government is working on improvements.

It carries on after school. More people do well in life who make it to university or College to get further qualifications. We need to consider better access for all with the talent and energy to the best in post 18 education.

It continues over spending and investing. If you save and invest wisely, if you buy your own home early in life, you give yourself much more chance of financial success.

It can be a question of whether you have the confidence and the skills to run your own business or not. There can be better rewards for the plumber, the lawyer, the business consultant or the driver if you work for yourself and build up your own business. There are also more hazards and hurdles to leap.

So how can government help?

Should government intervene more in the early years, when disadvantaged children can be let down at home which make s school difficult?

If you ask which advanced countries have grown fastest since 1999, the answer is the US and the UK.  Real incomes and output are up by around  30% (to 2012) in these two leading economies, compared with growth of around 20%  in France and Germany. Italy and Spain are lower.  Those who write in to this site to belittle the UK’s economic performance should take note. On this measure Japan has done badly, leading to people to talk about a lost decade or two with no growth.

If, however, you ask about growth per head the picture is different. Italy, France and Spain still struggle at the bottom of the table, but Japan fares much better. Falling population in Japan is part of the reason why GDP is not growing. When you measure output for each individual in the society, the Japanese growth rate has been faster than the UK and the US.  Germany also does better on this measure. Japan between 2003 and 2012 grew  by around 7%, the US by around 6% and the UK around 4%.

This week sees the visit of the Japanese Prime Minister to Europe. Last week President Obama was in Tokyo. Unusually, the two close allies did not reach agreement on crucial matters for the planned trade agreement or “Trans Pacific Partnership”. Japan is not willing to go as far as the US wants in liberalising agricultural trade.

Japan sees the need for more allies in the west. Whilst the US has reaffirmed her military and diplomatic support for Japan at a time of tension with China, the move of the US towards less foreign intervention is leading the Japanese to look around for additional security through partnerships elsewhere as well. Japan is easing her restrictions on the export of arms and looking for security partnerships with leading EU countries and NATO.

The curious case of the Japanese economy is worthy of study for those of us wrestling with the aftermath of the Great Recession and banking crash in the west. Japan took a long time to sort out her broken banks and to adjust her grossly overblown property market following the collapse of 1990. Japan has run with very low interest rates for years, has built up a collosal state debt, run large deficits and has printed a lot of extra money. None of this has so far proved inflationary, nor has it boosted output much.

Japan has been able to do this because it has high domestic savings, with savers prepared to put much of their money into Japanese state debt. It has also run a good balance of payments surplus until recently, meaning it has a strong external position. These forces do not apply in the US and UK.  Japanese policy is geared to trying to generate some inflation, which is starting to  happen.

There is growth and there is growth. People in practice value growth in their own incomes and living standards more than general growth, which may in part be based on expanding the population. The figures show Japan has not done as badly as some think, though an ageing population and an economy relatively closed to 0verseas money and talent does find it more difficult to adapt than more open societies. The UK is now going to enjoy both sorts of growth, after a period of poor performance in real incomes  led by the big drop in output and income per head in the Great Recession.

In the debate over how desirable it is to sell companies to foreigners people neglect the obvious. All the time we import more than we export we have to sell assets to pay for the imports. That might be flats and houses, it might be companies, but it has to be something. If we want fewer foreign owned companies then we have to sell more goods and services abroad.

Labour’s manifesto looks as if it is going to bulge with apparently great promises.

Don’t like your energy bill. We’ll freeze it!  What if world energy prices surge? No idea. What if energy companies decide not to invest in UK energy supply when we need more replacement power stations? No idea.

Don’t like your rent bill? Then we will freeze it. What if landlords withdraw their properties? What if people stop building new homes to rent? No idea.

Want your short term tenancy to last a minimum of 3 years? No problem. We’ll legislate. What if landlords decide they would rather  not rent out at all if they need to lock up their property for a longer period? No idea.

Don’t like the Lib Dem’s £9000 student loan for fees? No worry, Labour will reduce it. How does the university pay for the teaching with less fee? Or how does the taxpayer make good the lost cash? The detail is in the post.

The art of democratic politics is to make offers which improve people’s lives which are credible and can be carried through successfully. As someone whose main aim is to do things in politics that help more people to prosper, I have no problem with Labour’s aim of raising livings standards. That is a Conservative aim too.

Having a three day week-end would  be popular with many. We do not legislate for it, because our leading competitors work at least five days a week. We feel we could lose out badly if we rationed our working week too strictly.

Having a minimum wage of £25,000 would be very popular with all those on low wages. Some of us think we have to get there by working smarter and growing our economy so companies can afford it. If we simply legislated for it, some would get a large rise and would be  better off. Others would lose their jobs, as various activities would  no longer be affordable.

Energy prices are a serious problem. Labour should know that, because they put in the legislation and signed up to the EU measures which have cursed us with dearer energy. In order to enjoy cheaper energy, which we badly need, we have to change those policies. We need less energy generated from dear windfarms, and more from domestic gas.

Some rents and tenancy agreements are a problem for some families. Solving the problem requires us to build more homes to make housing more affordable. Above all it needs reversing Labour’s open  borders policy, as a substantial   pressure of demand on our housing stock is coming from the large number of new people who arrive and need homes under EU laws and UK policies which Labour signed up to.

Today’s figures for UK manufacturing were good, showing a strengthening recovery. That came as  no surprise, as I have been arguing for some time the  economy is now performing well.

What was more surprising was the sharp fall in the money supply as measured by M4. Far from there being an emerging inflationary bubble from too much credit, M4 lending was down by £47bn on the month, and by 4.2% over twelve months. Mortgage advances were down on the  month, and total lending to individuals was up by just 1.6% over twelve months.

There is no sign in these figures of an unsustainable boom about to end through too much credit and inflation. The further rise in the pound on the back of this good news to $1.69 makes the Bank’s decision to raise interest rates a bit more difficult, as a stronger pound is tightening the economy along with  the money position.

   Yesterday I was asked to debate the so called “austerity” policy for the UK economy. Lord Desai and I defended the policy of reducing the public deficit as part of  a recovery programme for the UK economy.  Lord Skidelsky and William Keegan argued that the “austerity” policy had done damage to the UK economy.

      In the initial poll of the OMFIF audience a large majority sided with the critics of deficit reduction. After the debate the gap had narrowed, though there was still a majority against the policy.

       It was one of those unsatisfactory modern UK debates because the other  side of the argument seemed completely unaware of the numbers. Any examination shows that public spending went up throughout the last four years, more quickly at first, then  at a slowing rate subsquently. This is at variance with the thesis that higher deficits produce better growth, as there was no growth for the first couple of years of larger deficits and faster growth in spending, followed by gr0wth in the later period when the deficit was down a bit and spending under a bit better control. The other side argued that there had been cuts that were too far and too fast in the early years of the Coalition leading to no growth, followed by some relaxation in public spending subsequently, along with monetary stimulus, which led to the expansion we now enjoy.

         I explained that no-one in Parliament is in favour of austerity in the sense that no-one  wants a squeeze on people’s living standards and real incomes. The political debate is about how government can best assist the growth of living standards. Average living standards contracted very sharply between 2008 and 2010 during the Great Recession, and fell further during the early years of the Coalition. It looks as if they are now rising from  the lower base.

         More importantly, the economy has generated a large number of new jobs in the private sector in the last four years. The best way for an individual or family to experience an improvement in living standards is to move from unemployment into work, or to move to a better paid job. The large number of new full time jobs that have come available, and the sharp upturn in self employment, must mean there are now many who through their own efforts have improved their net income. The removal of Income tax from many more lower paid people has also helped.

          I  took the meeting through the twists and turns of monetary policy and the problems created by slimming down major commercial banks, as readers of this blog will recall. Monetary policy has had a  larger impact on the economy 2005-14 than public spending or the deficit, as the numbers in Quantitative Easing, the expansion and then contraction of bank balance sheets and the changes in overall credit are considerably larger than increments to public spending.  

            The two economists were reluctant to accept that a country does have to avoid excessive debts and deficits, just like an individual or company. They seemed to think there is a free money tree in every state’s back garden which just has to be harvested to make us all rich. They did not accept that if you print and borrow too much one day you run out of other people’s money to spend.

            One day after the essential vote on the principles of the HS2 Bill I received a reply to questions I had posed to the Transport Department.  I asked about how full or empty trains are out of Euston in the morning peaks. I have long argued from my own experience that there is no capacity problem to the north for business people wanting to go at prime time.

              The Ministry has confirmed that in the first hour trains out of Euston have 82.1% of their seats empty. In the second hour they have 62.6% of their seats empty, and in the third hour taking us up to 8.59 am  they have 54.8% of their seats empty.  I rest my case.  A shortage  of seats to get to the Northern cities to do a day’s work and boost the northern economy is not a problem.

               I have also looked up where most of the travellers are, in the light of arguments that London and the South East has enjoyed too much of the investment money in the railways in recent years.  I have discovered that 72.7% of the journeys undertaken on the entire British network are in London, the South East and Eastern region bordering  London. All journeys in regions without a border with London account for just 27% of the total.  Within this Wales has 1.7% of total national journeys, Scotland 5.3%, and the North East 0.8%.  

            As new investment – once safety is taken care of – needs to concentrate on areas where capacity is stretched and demand growth is strongest, it is not surprising that London and the South East accounts for a big part of the investment, as they account for almost two thirds of total rail journeys. London alone accounts for more than 46% or almost half.

                There is a need for more capacity into London from Milton Keynes and Watford, just as there is a need for more capacity into London from most commuter towns beyond the M25 on a variety of other lines. Paddington and Waterloo lines have a  much worse capacity issue than Euston lines overall.

Yesterday I tried to explain the problems with the business case for investing in HS2 during the debate.  Everyone agreed that the private sector would not finance this big scheme. The main political parties have all decided that nonetheless it should go ahead with borrowed public money. Even more remarkable, they evaluate the finances of the project without putting in any cost of capital. They claim it will be a good investment, but they do not even ask themselves will it generate sufficient money to pay the interest on the borrowings, let alone eventually pay the money back.

Their idea of a good investment is something which brings “economic benefits” which expensive consultants have put a cash value on. This is misleading. The so called repayment is not money paid to the providers of the trains on HS2, and certainly not money paid to  the providers of the capital, us the taxpayers. When you decide on an investment in the private sector, you add up all the costs of  providing the new capacity or facility on the one side, and compare that with all the additional revenue you will receive from users. Judged on this more normal basis HS2 will not work.

Consider the cost of capital. The taxpayer has to borrow £50 billion to complete HS2. Next Parliament the government forecasts higher interest rates than at present. Let us suppose the government can over the next few years of buying this railway borrow all £50bn for an average of just 5%. That means the railway will need to generate £2.5bn of extra revenue over the costs of running the trains, just to pay the interest. That is before taxpayers get a penny of profit or return, and before we receive a penny to start paying off the collosal debt. To put this into context, the total revenues of the  entire existing railway in England, Scotland  and Wales derived from fares are just £7.7bn  at the moment.

I have long argued that the West coast mainline is the train line least in need of capacity improvements. The project’s own figures reveal the truth of this. By 2037 they reckon the West coast mainline will only be 31% full following the construction of HS2, which it elf will only be 52% full. That is after they have made substantial cuts to services on the existing lines  to try to reduce costs and remove empty seats.Trains out of Waterloo and Paddington are far busier than trains out of Euston, and there are serious capacity problems on shorter haul commuter routes.

The project assumes there will be no price competition once HS2 opens. Given the huge amount of capacity that will be provided on a route that is far from busy, experience suggests there will be a vicious outbreak of price competition leading to even lower fares revenues . This week, as a traveller to northern cities, I have been offered trips to Birmingham for £7.50 and to either Liverpool or Manchester for just £12.50. This does not sound like a railway suffering from a huge shortage of capacity, nor does it sound like a great business opportunity to make money from providing more capacity.

Much of the alleged cash benefits from running the extra railway comes from the saving of time on the journey. Business travellers are assumed to save £31.96 an hour for every hour of travel time saved, and this sum rises over the forecast period of the train project. As business people normally work on a train it is difficult to understand this calculation.

The wider economic benefits are said to come from the sudden acceleration of growth in Birmingham, Leeds and Manchester  which will come from the arrival of faster trains. This needs to be set off against the adverse impact on cities like Coventry,Leicester, Wakefield,Chester, Carlisle,Durham and all the others that will have worse train services following the cuts on existing lines. But will it anyway generate more activity? East Kent has not experienced any lifting of its growth rate following the arrival of HS1.

Modern England and Britain has always had a simple aim in European policy. We have sought to prevent the domination of the continent by a single power. We have defended the smaller and weaker countries against overmighty neighbours. We have been a  voice for democracy, freedom of religion,  and the  self determination of peoples.

We championed the Netherlands against Spain  in its fight for independence in the sixteenth century. We fought for a range of smaller countries against French imperial ambitions in the seventeenth and eighteenth centuries. We fought for the freedom of most European countries against Nazi German aggression in the twentieth century. Europe is a  better place for the stances we took on those mighty issues.

England, later the UK, had to face down the might of Spain and the Habsburg Emperors, the power of France’s autocratic monarchs and then of Napoleon, and the  militarism of last century Germany. On some occasions we might have been more prosperous and had an easier life if we had ignored the barbarisms and lack of liberty on the continent. On other occasions the nation had to engage in a titanic struggle to avoid a single European power turning to damage us with the full force of continental manpower and economic resources behind it.

It makes more recent UK foreign policy almost impossible to fathom. Why did the Foreign Office persuade Labour to run up the white flag and go along with the idea of a single continental driven foreign and security policy?  Why has the UK made such a welcome for the integration of the Euro and the centralising Treaties of Nice, Amsterdam and Lisbon, to apply in full to the rest of the EU and in no small measure to us as well? This is against the whole thrust of  five hundred years of UK foreign policy. Our attitude was fashioned by our decision to become a Protestant state, protesting against the use of power from the continent in British matters.

I find the development of a fairly undemocratic Euro polity extremely worrying. I find it even more worrying that much of the UK policy establishment knows so little history and has so little wisdom that it does not see the longer term dangers of unifying the continent under one imperial power. They claim  it will bring or preserve peace in our time, yet the EU’s blunders in former Yugoslavia and more recently in the Ukraine should warn us that this is a centralising power that will soon be starting or fomenting wars of its own.

The UK should make clear it does not want to be part of a Common foreign policy any more than  it wants to belong to a common currency. It should also be more ready to warn of the dangers of a centralised EU that appears as a threat to its neighbours. Past attempts to unite most of the continent have led to attempts to regulate and stifle trade and commerce, as this one will doubtless do as well. The EU is currently engaged in a desperate attempt to tie up all pour overseas trade in EU agreements, so they can then threaten us with made up problems with non EU trade should the British people want to leave the EU.