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.

Some  polling by Lord Ashcroft earlier this year reveals that most UK voters have an understandably dim view of Russia. Many of us have no wish to see part of the  USSR recreated by bluff or force in the east. More  interesting and less obvious was that most British voters had an even worse perception of the EU than of Russia, especially Conservative voters. In his poll where 10 is very positive and zero is very negative, Russia scored 4.07, the EU 4.00 and the European Parliament 3.5. Amongst Conservative and UKIP voters the EU score was even lower.

I found myself in rare agreement yesterday with Sir Menzies Campbell when he said there should be a negotiated solution to the problems of the Ukraine: ratcheting up the threats and rhetoric will not help.  I have no sympathy for Russian actions that might destabilise the Ukraine further.  Nor can  I can forget that it was EU action seeking to expand their empire to the West which first started the reactions of Russia. The EU was seeking to entice the whole of the Ukraine towards EU membership and the common security and defence policy via a close Association Agreement. EU pressure helped lead to  the removal of the elected President from power in the Ukraine, which has allowed Russia to question the legality and authority of the interim Ukrainian government that replaced him.

The truth is UK people do not want to belong to a common foreign and security policy which seeks to extend an armed empire of Europe eastwards to the Russian border in a way which Russia finds menacing, but which Russia can also exploit for her own imperial aims. The EU has developed more of the common foreign policy before getting so far with the common army, so it is particularly foolish to push for a bigger EU reach when there is no effective military force to deal with possible adverse military reactions from others.

Some of my Parliamentary colleagues say the UK has to go along with the Ukrainian/US view of the current proto conflict. They imply that because we are members of the Security Council we have to play a role, and suggest there is a simple binary choice to be made between being on the side of the West or backing Mr Putin. I do not see it like that, as this is based on a misunderstanding of the role of the UN and the responsibilities of a Security Council member.

I do want a UK independent of an EU foreign policy to remain  as a member of the UN Security Council.  To keep our seat we need to maintain sufficient modern arms, have  a capacity to intervene, and a willingness to use our force in pursuit of UN causes where needed and where we wish to help  in proportion to our strength . That is what we have done in recent years and can still do. There is no question of us being able or being asked to intervene in the Ukraine through the UN, as the Security Council will not be able to establish a common view on the problem as the opposing  sides are members with vetoes. Similarly, our decision through Parliament not to intervene in Syria did not let down the UN, as Russia was unlikely to agree to western armies entering Damascus or NATO planes  bombing the country.

I do  not think there is much the UK can do to help make matters better in the Ukraine. We have little direct national interest in the Ukraine, and little diplomatic or military power of our own that could make the situation better.  The best we could do is to urge the EU to be less provocative, and to cease supporting the interim Ukrainian regime. It would be better for the EU  to await the election of a new government, and then if that government is  wise and making  sense to use the EU’s  diplomatic skills to help them calm down the tense situation within their country.

The UK should be clearer in opposing a full scale common foreign and security policy for the EU. My colleagues who want us to keep and use our seat on the UN Security Council should realise that the logic of CFSP is one permanent  Security Council seat for the EU in the end, to replace France and the UK.  Anyone interested in our country and its influence in the world should be working  to prevent such an outcome. In the meantime we do not have to choose between an EU dominated Ukraine or a Russian dominated one, nor do we have the power to decide what the outcome might be.

Labour’s economic policy in opposition has been through two phases so far. In the first Labour attacked the Coalition for cutting too far too fast. They predicted that the UK economy could not recover given this policy. In the second Labour switched their attack to the “cost of living crisis” saying that the recovery was  not delivering any rise in living standards.

Labour’s “too far too fast” critique was not based on the numbers. The figures showed the Coalition increasing current spending slightly in real terms in the first three years, relying on rising tax revenues to cut the deficit. Labour have never accepted the figures in the official statistics, but decided to drop the erroneous too far too fast campaign when it became clear the economy was growing again despite their predictions.

They have adopted their cost of living critique close to the time when real wages at last start rising. Some Labour figures are warning their leaders to drop this campaign now before the numbers improve further. I will not offer advice on this. I wish instead to ask what policies is Labour proposing that will alter the situation on living standards?

They have come up with two main policies to tackle the “crisis”. The first is a two year price freeze to be imposed on the energy companies. It looks as if we might get this anyway. Global energy prices have been falling, which makes this easier. If by any chance Labour were in office and world energy prices took off again, it is difficult to see how they could sustain the two year freeze.

The second is to promise action on rail fares. This presumably means lesser increases, financed by larger taxpayer subsidies. What they give with one hand to rail travellers, they will take with another hand from taxpayers.

More worrying is discussion on a higher National Insurance tax. This tax on jobs would make it a bit more difficult to sustain current high rates of jobs growth. As the best way to raise people’s living standards is to get them into work it is difficult to see why Labour are proposing this backwards step.

Labour’s proposals amount to more interference with big companies supplying essential services, allied to more subsidy for a nationalised industry. None of this will make a lot of difference to living standards in the short term, and in the longer term these policies could b e damaging to future investment and job creation. It is one thing to identify the real wish of people to enjoy higher living standards, another thing to know how to raise them. What you need to do that is successful enterprises, more investment, and more growth. How do Labour propose to achieve those?

Yesterday the government published the figures for tax revenue and spending for March, and the full financial year figures for 2013-14.

These show that the deficit has been cut from the inherited peak levels to £107bn last year. Public sector debt as a proportion of our National Income has fallen from the peak level of 151.7% in 2009-10 to 132.4% now. Whilst debt to pay for extra spending has continued to rise, state banking debt has been reduced.

The deficit has been brought down by collecting £100bn a year of extra tax revenue, compared to an increase of £66bn in current public spending. (2013-14 compared to 2009-10) Labour’s cuts in capital spending were largely implemented, but have been eased more recently.

The full year figures confirm the damage a higher rate of CGT has done to CGT revenues. They fell slightly again last year compared to 2012-13, which in turn was well down on the previous year.

Conversely, the higher rates of VAT and Stamp Duty have added to revenues as planned.
The strategy in cash terms still rests on collecting more tax revenue from a growing economy. As the economy grows, so the proportion taken as public sector activity will fall.

Labour is right about one thing. Living standards have fallen too much over the last six years. Indeed, the Conservatives say as much, reminding people that the biggest part of the fall in living standards happened during the Labour period, when the Great Recession wiped 7% off our national output.

The issue before us is not a choice between a Labour party who now recognise there is a “cost of living crisis” and a Conservative party who fails to understand that many more people want an improvement in their living standards. Both main parties know the figures, and recognise the understandable wish of many to see their incomes rise more rapidly than their costs.

The issue before us is which party if given a majority to govern would be the best able to satisfy these aspirations? Is it Labour who crashed the car in 2008, or the Conservatives who in coalition have gradually got the vehicle back on the road and moving again? Does Labour now know how to improve the car and get it traveling faster? How does their approach differ from the Conservative one, and would it produce better or worse results?

We need to start with how things are currently performing. The latest CEBR independent forecast suggests that over the lifetime of the 2010-15 Parliament national income will have risen by 9% and people’s disposable incomes by an average of 4% in real terms. Much of the growth is taking place in the last two years of the five year period. House prices will be up on average by 16% over the five years, unemployment will be down by a quarter from 8% to 6%, and the state deficit will have decreased by 40%. That sounds like a reasonable record in the circumstances, given the damage done to the banking system in the great crash and the problems in financing a normal recovery experienced in the period 2009-13.

The Conservatives can improve on this record free from coalition. They could cut a wider range of taxes than just raising the Income Tax threshold, boosting output as a result. In some cases like CGT and Stamp Duty they could boost revenues by choosing more sensible rates. They can renegotiate our relationship with the EU, which should include cutting the costs and burdens the EU imposes on business based in the UK but not selling into the rest of the EU. They can produce more imaginative policies to promote wider ownership and entrepreneurial success for the many.

Above all a majority Conservative government could tackle high and rising energy prices. The country’s energy supply needs to be shifted more to domestic production of gas and away from very expensive wind energy and imports. Labour signed us up to the EU and domestic climate change agenda in a way guaranteed to drive industry out of the UK. This now needs to be changed.

All my life as a writer I have been in awe of Shakespeare’s way with words. All human life is contained therein. His timeless messages and understanding transcends the minutely observed circumstances and daily items of his own age, as they leap out of the page.

For anyone interested in politics the perceptions of Macbeth show just how easy it is for power to corrupt. Loyalty and friendship are replaced by violence and deception in the pursuit of the crown. King Lear reminds us how close to madness court life can bring people, and how a powerful man who gives away his powers lives to regret his folly. As the Fool reminded him, it is not a good idea to get old if you do not also become wise. Hamlet captures the difficulties for a thoughtful Prince to decide what to do where some urge strong forceful revenge whilst others might favour forgiveness and acceptance of the state of the world.

Midsummer Night’s Dream is my favourite of the comedies. The beautifully crafted play within a play never ceases to amuse. The magic verse of Puck and the fairies enchants, as they play with the fickle feelings of mere mortals, getting into bizarre pickles of their own.

On today of all days we think of the histories set in war torn England before the Tudors. These great dramas capture the shifting fortunes of the rival houses of York and Lancaster. They portray perfect martial kingship in Henry V, weak vacillating kingship in Richard II, and calculating kingship in Henry IV. Their hero is England, long suffering England. We know, as Shakespeare knew, that England emerged from her long time of troubles and strife. England of 1600 had claimed many more glories than the England of the wars of the roses could even dream about.

Let us hope the same is true again today. I look forward to England casting off her current European tribulations. Her greatest days surely lie ahead, as Shakespeare knew they did when writing about the fifteenth century.

John of Gaunt’s famous speech in Shakespeare’s play is one of the most famous eulogies to England. Its tearful ending refers to the damage done to England by the civil wars. Today the troubling issue is England’s relationship with the EU.

“This royal throne of kings, this scepter’d isle,
This earth of majesty, this seat of Mars,
This other Eden, demi-paradise,
This fortress built by Nature for herself
Against infection and the hand of war,
This happy breed of men, this little world,
This precious stone set in the silver sea,
Which serves it in the office of a wall,
Or as a moat defensive to a house,
Against the envy of less happier lands,
This blessed plot, this earth, this realm, this England,
This nurse, this teeming womb of royal kings,
Fear’d by their breed and famous by their birth,
Renowned for their deeds as far from home,
For Christian service and true chivalry,
As is the sepulchre in stubborn Jewry,
Of the world’s ransom, blessed Mary’s Son,
This land of such dear souls, this dear dear land,
Dear for her reputation through the world,
Is now leased out, I die pronouncing it,
Like to a tenement or pelting farm:
England, bound in with the triumphant sea
Whose rocky shore beats back the envious siege
Of watery Neptune, is now bound in with shame,
With inky blots and rotten parchment bonds:
That England, that was wont to conquer others,
Hath made a shameful conquest of itself.
Ah, would the scandal vanish with my life,
How happy then were my ensuing death! “