Yesterday I explained why you need increased consumption to sustain growth and to  generate the need for investment. I pointed out that exports are not morally potent or special as a type of output. They just add to output and jobs as does supplying the domestic market. You need to export enough only in order to pay for the things you  import that you think are better made abroad. If you are unable to export enough to cover your bills in the longer term, then you need to make more of what you want at home.  Rebalancing in favour of more exports and more investment may be a good idea, but it can only happen if there is enough consumption demand at home and abroad. Nor can it happen if people are unable to borrow sensible sums of money to buy homes, cars, and other large ticket items.

            Today I want to look at why the state, just like individuals and companies, has to accept there are limits to how much it can borrow. My critics here have tried to argue I want there to be another consumer boom and property bubble based on excess borrowing by the private sector. No I do not. I do, however, want there to be sensible amounts of credit so people wanting to buy homes can borrow on mortgage, and companies wishing to expand can add prudently  to their loan capital. My critics should also understand that household wealth is now standing at over £7 trillion. The value of our homes net of our mortgages is £3 trillion, and the value of our pensions, insurance savings and the rest is £4 trillion. It may be perfectly prudent to borrow a bit against this big asset base.

           The issue is how easily in future will the state – or an individual or company – be able to pay the interest on the debt and meet the repayment schedules?  At extremes I would hope those who favour never ending debt fuelled state expansion will see the same rules apply to a government as to a company or person. If the state borrows too much, interest charges take up too large a proportion of the tax revenue of the country, and the state is no longer able to provide the services it wishes to offer.

                Once lenders to the state start to doubt its ability to pay the interest, so they force the  state to pay higher rates to borrow more. The state can lose its ability to borrow seemingly limitless sums to meet its desires and needs. This has been very obvious in the case of the crippled sovereigns of Euroland, where Greece, Ireland, Portugal and Cyprus have all found it impossible to borrow on the markets to sustain their spending and meet their obligations. They have been forced into special loans by the international community requiring deep cuts in spending. The same has happened in living memory with some latin American countries, led by Argentina, where they reach the point that they cannot sustain their debts and have far worse austerity forced on them than would have kept them out of trouble in the first place. Indeed, the 1970s Labour government got to the point where it had to pay more than 15% to borrow money from the bond market, around the time it was forced into spending cuts by the IMF. A state cannot carry on borrowing when the interest bill spirals out of control.

             It is true the combined powers to tax and to print which sovereign governments enjoy and individuals do not, give a state more leeway before the crisis hits. It does not, however, prevent a crisis in the case of states which borrow excessively for long periods. The UK has been borrowing far too much. The total build up of state debts and liabilities, often catalogued here, had gone too far by 2010 and did need correcting. Correction is taking  time, but the deficit is now falling  and in due course state debt as a proportion of output will start to fall. That is a necessary adjustment that has to be the fundamental concern in rebalancing the economy. If we do not do that we do just fuel an unsustainable debt burden for future taxpayers.  Borrowing is not free money. It is deferred tax.

           Growth in the UK economy is producing its fair share of discontents., They are often the same people who claimed there would be no growth under policies designed to cut the deficit. There is no pleasing some people.

            The new moan is that the growth is too dependent on consumers, without enough investment and exports. Let’s examine this a little. It’s a kind  of moral mantra – we must have the right kind of growth.

            The point in exporting is to sell goods and services we are good at for good prices, so we can buy goods and services that foreigners can produce better and cheaper with the money. An export is not especially moral or worthy. It is someone else’s consumption, rather than consumption for ourselves. The  only point of it is to earn us foreign currency which we can then spend on consumption of goods and services from foreigners.

            If we are unable to sell enough to pay for goods from foreigners, then we have to sell them our assets or borrow from them. We have been quite willing and able to do that for many years, so we have run a balance of trade deficit. The rules of the EU are especially difficult for us, reinforcing a permanently large deficit with the rest of the EU. They made it easier to trade in the things France and Germany were good at, and less easy to trade in the things we are good at.

             Saving and  Investment means buying things that can help us consume more in the future. An individual saves so he can buy a dearer item later, or so he can have more income in old age than he would otherwise enjoy. A company invests those savings in an extra factory or a new product, which means we can consume more once they have made that investment. Investment is only worth doing if you are using all your current investment capacity, or if new investment can produce to a higher quality and lower cost. The whole point of saving and investment is to consume more later. An investment will not be made in additional capacity unless people do plan to consume more and are therefore likely to buy the additional output.

           The big collapse of 2008-9 led to a shortage of demand . This led to people losing their jobs, to factories not having full order books, and investors being put off committing more capital to risky projects. It does take more consumption to put this right, which is now beginning to happen. Now is not the time to go all puritanical about the wrong kind of growth. As demand works through, then we should expect investment to pick up. Higher house prices and more mortgage finance is leading to a pick up in housebuilding. People buying more cars is leading to more investment in car capacity. The purpose of providing more homes and cars is so people can consume them, use them, enjoy them. That is not against the laws of economics. Those who dislike it have a very austere outlook.

So it’s official. Those of us who have been warning we do not have enough power for the future thanks to the EU’s mass closure programme of our power stations have now been vindicated  by Ofgem’s deeds. They say there could be a shortage next winter, so they will pay large industrial users of power not to use so much in the late afternoon and early evening when demand is often highest. They also say they will try to keep older oil plants available on stand-by.

      Why don’t they admit this is all the result of an EU policy that is backfiring badly? Why don’t they help make the case to the EU that we should not close old stations until we have  new ones to replace them with? We want a sustainable industrial recovery in the UK. It does not send the right message if industry is to be asked to use less power as there is a shortage.

          For many readers of this blog the new relationship wanted with the EU is very simple – the same relationship as all other independent countries around the world have with the EU today. Many now just want us to leave.

           The Liberal Democrat and Labour parties, currently accounting for around half the votes in polls want no renegotiation. They think the current relationship is just fine. Most Labour and Lib Dem MPs failed to vote for the Referendum Bill put through the Commons by the Conservativve MP  Mr Wharton. Their leaderships refuse to offer either a new relationship or a referendum on our current arrangements.

           The Conservatives have set out a clear policy of negotiate and decide. Many fear they would not be able to get much improvement in our current terms. If that is the case then the country can simply vote to leave.  If by any chance a good deal was on offer, then the c0untry could vote to accept it. The most important thing is that whatever is done is endorsed by the British people in a special vote.

          The issue arises, what kind of renegotation would a Conservative government undertake? The leadership has recently made clear it would entail taking back control of our borders and benefit system. It would also entail removing  the impulse to ever closer union from the different Treaty the UK was prepared to sign. That is progress. Added to it, many  as a minimum would want the proposal of the European Scrutiny Committee that we should have a Parliamentary procedure to amend or disapply any European rule or law that does not meet with the approval of the UK Parliament. That way UK Parliamentary sovereignty can be re-established, and one Parliament could no longer bind a successor by consenting to an EU measure.

          In recent weeks 3 senior Judges have made clear their concerns about the way the European Court of Human Rights  are seeking to overrule Parliamentary supremacy in a number of important areas. This could be significant too, as we seek to find a way at last to give the British people a new relationship and a proper say in how they are governed. It is interesting that some  Judges think the ECHR is gping too far in asserting jurisdiction, and removing the old certainty where Parliament passed a law and our judges interpret it. This could lead on to similar worries about ECJ matters, especially as the European Court is seeking to make human rights matters for them as well.

The recent US judgement that the extent of surveillance undertaken  by the US state is incompatible with American freedoms under the constitution is a welcome and important development.

As someone who was hopeful of something better from the Obama Presidency , he has been a big disappointment when it comes to civil liberties. He promised to close Guantanamo Bay, then failed to do so. He now supervises a very complex web of surveillance over the US people in the name of countering terrorism.

Guantanamo Bay was the very opposite of the system we fight to uphold – the right of every one to a fair trial, and the presumption of innocence until proven guilty. The surveillance of phone systems is said only to be about who you rang and when you rang them. It does seem very heavy handed to have to keep so many records about millions of innocent people.

Of course a relatively free society like the USA or the UK has to be realistic. There are enemies of a free society who do not play by our rules. We need to use our border controls, our police and courts to tackle them as need arises. We also need to be careful lest in the state’s enthusiasm to ward off evil, it goes too far in the direction of creating a Big Brother society where the state pre-empts our freedoms in the name of security.

            I do not normally dwell on the past. Last week I was phoned about a couple of memos the press had seen as more documents were released under the 25 year rule. As they are of some long term and even topical  interest I will set out some background.

            In the middle 1980s I was both Head of the Policy Unit and Economic Adviser to the Prime Minister. One of the memos they have found is my note on the state of interest rate and currency management in 1984, when I first detected that the Treasury and Bank were moving away from domestic money supply targeting to trying to manage the value of the pound . I strongly supported the stated  policy of money targets.  The Treasury went on  to shadow the DM, a policy I thought would prove damaging. When the government did eventually join the ERM, far from preparing the UK for possible Euro entry, it caused a UK boom and bust which was entirely predictable.

          The memo was just one of many communications sent to the PM to keep her up to date with these big issues, as we fought to grow the economy after the high deficits and inflationary tendencies of the late 1970s. During my time at Number 10 the PM did resist any official policy of shadowing the DM or joining the ERM. She did not want to believe at first that Treasury was managing the pound without that being the express policy, and then became worried when the evidence pointed in that direction.  I with others continued to brief her against the ERM right up the time when her colleagues effectively forced her to allow entry. In the later period Nicholas Ridley was the principal opponent of the ERM from within the Cabinet, who constantly made the case.

            The second memo was a piece about how we were  handling the Stock Exchange. The possibility of an OFT enquiry into the practises of the Exchange furthered the development of thinking in the markets which in due course resulted in Big Bang. I expected Stock Exchange reform to lead to a big expansion of the London markets, with many new entrants and much more capital and talent at work. I also expected it to mean the financial services and banking industries would break out of the narrow confines of the Square Mile, and help with the task of developing and improving the derelict  lands to the East around the old docks. So it proved.

           It is curious that out of all the memos and briefings I wrote with my Policy Unit team these two should be the ones that excite interest or have survived to see the light of day so far. The Policy Unit used to brief the PM on most domestic policy issues which crossed her desk. These briefs were welcomed by the PM who found they combined clear summaries of the different positions being taken around Whitehall with suggested ways of reaching a conclusion or an alternative strategy which might be superior. Most of the memos came back with underlining and notes to show they had been useful. Occasionally, as with the one I wrote  that proposed a major privatisation programme for the new Parliament in 1983 it did not get returned because she wanted to keep hold of it. After leaving office she donated it with other papers to the archives at Churchill College Cambridge.

          The government has decided not to require everyone to move to digital radios, and  not to set a deadline for a transition to digital.

     A few lively contributors have got back to sending me numerous contributions each day, and to writing very long essays from time to time. I am finding it difficult to moderate all of this, and would urge some restraint. Let us have the best of what you want to say. Otherwise I will just have to remove the longer  ones or the multiples from the same source.

           The amendment tabled by Mr Nigel Mills MP is growing in popularity in Parliament. It aims to extend the current transitional controls on Bulgarian and Romanian immigration for another five years.

             Some dismiss it as impossible, claiming it would be illegal under EU law. It is true Mr Mills has not tabled it to include an amendment to the 1972 European Communities Act 1972, which would make it legal in the UK. That is something the government could do as it improves and completes the  Bill if it wanted to. Mr Mills has highlighted an important issue, where he  has a lot of public support. It will be interesting to see how many MPs end up supporting it.

             Many support this measure because of the impact too rapid a migration could have on public services, benefits and the jobs market in the UK. I think we should also ask ourselves about the impact it can all have on the countries losing people to the migration.

            Many of the people who have taken advantage of EU freedom of movement laws from other lower income countries  are the amongst the ablest and most highly motivated. Many of them have degrees, learn English as their second language and work very hard when they get here. These are exactly the kind of people the poorer states of the EU need to keep to offer the enterprise and leadership they need so their national living standards can catch up with the richer countries of the Union.

           Mr Cameron and Mrs May have now asked the EU to look  at how appropriate free movement of people  is when benefit levels for those in and out of work are so much higher in the rich countries than in the poorer countries. It would be a pity if the need to equalise across the EU before income levels have averaged out more simply led to an exodus of talent from the countries that most need to build and grow their talent at home.

          As an MP I have not welcomed the strong strand of  thinking on government and politics in the last two decades  that more and more things need to be put beyond the reach of Parliament. Independence has been much in fashion. Monetary policy has to be under the control of experts at the Bank of England. Competition policy has to be under professional control. Environmental policy has to be given to an independent  Agency. Financial regulation should no longer be under Ministerial surveillance. Much of this has also helped conceal a huge transfer of power to the EU at the same time, which also means unelected officials with greater sway.  MPs pay and conditions must be settled by independent IPSA.

          The arguments are deployed that in all these cases- and many others- that we need the experts to be in charge. Politicians, we are told  are not up to the task of deciding these matters because they are so technical, or they should not  be allowed to because politics could get in the way of honest or sensible judgement. A lot of my Parliamentary colleagues subscribe to that view.  If you believe both those arguments then you should campaign for the abolition of Parliament. Juntas of professionally qualified people would surely be better at all important things.  MPs are unlikely to have the skills and training – other than by chance – that running any great service or making any set of  judgements needs.

   I hold the opposite view. I think it is right that a group of non specialists, chosen by the people, should take the best advice the experts can provide, but should decide on commonsense grounds what to do and how to proceed. The MPs and Ministers can of course appoint the best talent to run public services, to hold tribunals and the rest, but the elected Parliament needs to responsible for how they get on, for the policy framework they work within, and for the most sensitive judgements. The advantage of elected officials is they can be thrown out if they get it wrong, and they can be held to account because they want to keep their jobs. There is no-one as accountable as a  Minister or MP , always facing the reality that their tenure can come to an abrupt end if they cease to please.

        The problem with collections of experts is they may act as monopolists. They may keep out dissenters and  radicals from their profession. They can behave like the scientific establishment telling Galileo he was wrong that the earth went round the sun. They said then that  the science was settled and all the other scientists agreed that the sun went round the earth.  They can behave like the Bank of England on the eve of the bankruptcy of Northern Rock or RBS, telling us that it was better these banks went down than the Bank eased liquidity in the market creating moral hazard. There the elected official, the non expert, Mr Darling had to override the bank in 2008 and get them to loosen policy by cutting rates along with other countries before  more damage was done.

 So what will happen now, or in 2015, when IPSA intends to use its independence to put through an unpopular MP pay rise?  The leaders of the three main parties rushed to establish an independent body to settle MPs pay in 2009. If you believe in independent experts then it should be left to them.If the leaders  now think they are responsible still, and have a better understanding of the public mood, then they need to bring to the Commons proposals to end IPSA’s independence.

          It is a good test case of how many people really believe important issues should  be settled by unelected people. The case of IPSA has great symbolic importance, but the case of a host of other super powerful quangos rests on the same arguments as those for not meddling with IPSA’s verdicts.  What will most MPs do? They will accept a pay rise if IPSA retains its independence and pays it in 2015. They will vote to end IPSA’s independence if their leaders decide that is necessary in the light of public disquiet. The debate seems to be now, th0ugh the decision will probably  not be taken until after the next election, so it properly rests with the next Parliament or with an independent IPSA.