In the run up to the Labour conference I want to look at a few ideas that might be “game changers” for them. Today let us consider what might happen if they opposed HS2.

         At first sight this does not look likely or sensible. After all Labour started this project off when in government. They represent many of the northern city seats that are said to benefit from it. Traditionally Labour has been pro train and anti car. Their union backers tend to favour the railways, and the engineering unions like the idea of such a large project. Their Transport Shadow  Secretary soon got behind  the party line and has been a supporter.

          However, some of the Labour Big Beasts no longer back this scheme. Lord Mandelson has revealed that it was a  back of the envelope political calculation, partly to ensnare the Conservatives. Alistair Darling has looked again at the numbers and thinks that what might have been sensible at the old costings is unaffordable now the price has gone up so much. Maybe his old Treasury official contacts are also quietly lobbying him, as Treasury spending officials are clearly alarmed by the rise in prospective costs.

         Alistair Darling has some weight with the Miliband group. He has also proposed a neat way of u turning or climbing down. They can say that a project which made sense at £30bn does not make sense at £50bn or £73 bn. It could, they can argue, pre-empt too much of the budget.

          Mr Balls has always been sceptical about the costs. What better for him than to announce the cancellation or postponement of HS2 for the next Parliament. It would free a large sum of money which Labour could claim would pay for all the extra items they might wish to buy, without changing the spending totals from the Coalition plans.  HS2 could be a very flexible friend, the credit card that kept on giving, the source of funding for just about everything they might want to offer the electors at no extra tax or borrowing cost.

          Some of this might be a sleight of hand. No doubt they could exaggerate the true costs of HS2 next Parliament. But it would also make it more difficult for the Coalition, keen to keep Labour’s budgets tied to Coalition ideas of affordable.

         It would still be quite a  u turn. It would still leave Labour with some very bruised supporters who love trains and like this particular train.  You cannot, however, entirely rule it out. The Coalition needs to be careful, as it would be vulnerable if it is left supporting such an expensive project at a time when Prudence is meant to be back in fashion. Labour could even use some of the “savings” to offer a lower borrowing figure than the Coalition whilst being able to boost spending as well. That would be a cheeky move.

           Politicians often worry too much about u turns. U turns in opposition are exactly what the public wants, as they rejected the Opposition party’s approach at a previous election. Even in government  U turns  are no bad thing if you turn away from a very unpopular or unwise policy.

It is fashionable now for people with money to spend  to pull  down their homes and build new larger ones on the same plots. That counts as investment in the national accounts. Good luck to most of  them, I say. If that is how they wish to spend their money and enjoy the product of their labours they should be free to do so unless their aims violate planning laws or  upset the neighbours because the new structure is unreasonable. In London it is common for people to tear a house down from behind the terraced front wall, and build as big a new home as the planners will allow.

But is this an investment? Some will say we spend too much on our homes in the UK. Some argue that this type of investment is unproductive. After all, at the end of the rebuilding the same family lives in the same place. In accounting  terms, however, something real has occurred. A less valuable home has been replaced by a more valuable one. Lots of people have earned money out of the process of construction and demolition. The country is a bit richer as a result. The government has collected more tax revenue on the project. The bigger better home is there for future use, and may be used later by a larger family who need the extra space when they buy it off the owner who paid for its construction.

It is difficult to see this is less productive than the state’s investment in a new school building on the site of an existing school. The same considerations apply. The users would like something more modern, with better facilities and maybe more space. The same people may receive the same education after the rebuild as before.  Lots of jobs are created by the process of construction. The state ends up with a building with greater ascribed value, though selling it on might be as difficult as it would be unlikely.

Some commentators and bloggers say the UK invests too much in housing, and should go over to the German  model of many more of us renting.  This could only reduce the amount of investment we make as a country in housing if at the same time people accepted they would live in older, or  cheaper, or  meaner homes. We discussed the fallacy yesterday that moving to renting would prevent us “investing too much” in housing.  Shifting to rent merely changes the ownership, but does not reduce the amount invested. As some of you wrote, what people want in the UK is cheaper housing either to buy or to rent. High prices stem from   past monetary policy, and from  the balance of supply and demand for new homes.

Switching to more rented homes  would  remove much of the impulse of people today to undertake lots of work on their own homes for  no pay, as they seek improvement to their lives and to their property values through DIY. How is that progress?

Buying a home is often the largest financial decision an individual makes. In a free society being able to choose your home and improve it as your resources permit is an important part of the lifestyle on offer. People’s passion for their homes is visible in the media’s enthusiasm for home improvement programmes. It generates big industries in supplying the new kitchens, bathrooms, the tiles and paint, the patios and extensions which proud homeowners want. One of the most obvious signs of London’s current buoyancy and economic success is the endless parked skips outside houses, as the continuous and relentless drive for improvement is undertaken.

There are many cheaper houses and flats around the country. The dear homes are in the employment, business and city high spots, especially in London.  The government is going to have to live with some more upward movement in London prices as it wants the economic recovery to fan out to parts of the country with more depressed housing markets and with much cheaper property prices. London prices getting dearer relative to everywhere else is part of the process of adjustment which should encourage more people to take advantage of the cheaper prices elsewhere, setting up businesses, creating jobs and finding jobs outside the capital.

Most politicians think investment is a good thing. Indeed, Tony Blair and Gordon Brown thought it was such a good thing the redefined a large amount of current public spending as investment to justify their large increases in spending.

Today politicians urge more investment on the more conventional definition that investment is buying something that can be used for more than a year.  A new railway line, extra equipment for a hospital or a new school is on this definition an investment, as is a new private sector house, a new piece of machinery for a factory and a new business vehicle.

At the same time it is also fashionable amongst many to decry investing too much in property in general, and in houses in particular. Banks have for sometime since the crash been under regulatory constraints to cut the proportion of their lending that finances property.

Some  Commentators and bloggers urge on us the “continental model” of more people renting their own home, to cut the amount we “waste” by investing in property. Presumably they wish by this to have people living in cheaper and meaner properties, as the amount invested in residential property would remain the same if we simply shifted from owning to renting, as someone has to own the homes we would rent. The construction and improvement of the rented homes will still count as investment. I have never understood the  impulse to recreate a nation of tenants dependent on rich landlords or the state as the richest landlord of them all like some medieval King dishing out property favours to his supporters.

If you examine the patterns of investment, you soon discover that investment in new and improved housing, and investment in buildings and structures by business has always comprised a large element of total investment. Those who see the construction of a new hospital or school as a good investment in the public sector should not begrudge the private sector its equivalent investment in a  better home or smarter factory building. Investment in buildings is typically more than a third of total business investment in this country or one fifth of total investment, and investment in housing is another one fifth of total investment as well.

Not all investment is productive. Some investments turn out to be a bad idea, bankrupting their makers. State “investments” are especially difficult to evaluate, as in a free at the point of use or heavily subsidised service there will be no profit on the investment. The case has to be made for the investment on the basis that it will raise the quality, or cut the cost  or increase the capacity of the service in a  way which is needed.

If we wish to see total investment in our economy expand then we need to welcome more new buildings, and be ready to finance a new generation of better homes and more modern business buildings. Our banking system needs to be freed to finance these on a sensible and sustainable basis. The new bias against property is both unrealistic and cramping.

The July figures show government current spending up by 3.7% and net investment up by 49%. Borrowing, at £500m, compares to a repayment of £800m  in July 2012. For the four months April-July total borrowing was £36.8bn compared to £35.2bn the previous year. I do hope people will stop talking about the cuts and austerity, given these figures. The public sector is continuing to expand and to borrow substantially to boost demand.

The Treasury has recently released updated figures for past years. These confirm the analysis and forecasts of this site. Between 2009-10 (last Labour year) and 2012-13 total current public spending rose from £604bn to £657.5bn.  In real terms it also rose, by £14bn.  Large increases were seen in social security, up by almost £20bn, tax credits, up by £2.4bn, public sector pensions, up by £3.3bn and EU contributions, up by £2.7bn. Capital spending was cut, but this is also now rising again on the latest figures.

Labour likes to think of itself as the party of equality of outcomes, just as Conservatives like to think of themselves as the party of equality of opportunity.

Yet over the 13 years of recent Labour rule the gap between the richer and the poorer regions of the UK grew wider, not smaller. London, the largest region in 1997, expanded more rapidly than the rest. It rose from 20.5% to 21.9% of UK activity and income.  The South East also did well, reaching almost 15% of output. The North East, in contrast, fell to just 3.2% of UK output and income.

North Eastern household  income per head was £13,600, compared to London at £20,500 and the South East at £18,100.

This was not for want of public spending. There  were no cuts in overall public spending. Indeed for several years there was a very large increase in real public spending.  Public spending was much higher as a proportion of the total and per head in the poorer places than in the richer places. Labour’s strategy was to direct more public spending into the poorer areas to narrow the gap, but the more they did it the bigger the gap got.

By 2008 public spending  was a mighty 57% of the North East’s output compared to a modest 34% in the South East and 37% in London. From memory more recent figures shows the proportion in London falling further as the private sector recovery speeds up there.

By 2011/12 UK public spending was £8745 per head.  The South East had spending of just £7565 a head, compared to Northern Ireland at £10624.

Throughout the Labour years the regions with the lowest public spending per head grew the fastest. It looks as if the same is continuing to happen under the Coalition. Why doesn’t high public spending produce better answers, when so many urge it on us as an answer to poor economic performance?  Why have years of regional policies pursued by successive governments of differing political persuasions been so unsuccessful at lifting the growth rates and household income levels of the poorest regions? Is it coincidence, or is there any causal link between low public spending per head, high productivity, higher incomes and  a larger private sector?

            Much of my work as a government Minister was spent dealing with the issues arising in areas of the country dominated by Labour MPs and Councils. These areas attracted the largest sums of money in public spending, looked to government much more for the answers to their social and economic problems, and expected a good service from Ministers. 

             Ministers are in office to serve the whole country. They are there  to reach judgements in the national interest. If areas controlled by the opposition need more help, it is the Minister’s job to give it, or to discuss better ways of solving the problems. Democracy only works where the majority understand their duty to the minorities, and where the minorities accept the need to oppose in democratic ways.

            It is the same for an individual MP. You campaign as a party representative, but you do the job seeking to represent all and to understand those who disagree with you as well as those who support you.  I do not try to find out how people vote before taking up their cause or looking into their case. 53% voted Conservative in Wokingham in 2010, but that does not mean I can or should ignore the views of the 47% or regard all that they say and do which is different to my view as wrong.

                I would guess from the emails and letters I receive that I spend far more of my time dealing with the views and queries of those who do not vote Conservative, than with those who do. Many of the people who write in on policy issues write from a UKIP, Green or Lib Dem viewpoint on a range of issues, and some write in regularly on issue after issue.  I do not tell them I will not deal with their points because   UKIP only got 3% and the Greens 1% at the last Wokingham General Election . People who back single issue parties, or parties that are associated with single issues, are often more vocal and persistent than the majority. They sometimes raise difficult and important matters which MPs need to tackle.

             Indeed, I sometimes have sympathy with what UKIP are saying and am trying to secure a referendum on the EU which is one of their demands as well. I have sympathy with the Greens when they are seeking to defend great countryside from inappropriate development or have good ideas for reducing the use and therefore the cost of energy.

          It is a sign of a flourishing democracy that those elected regard it as their duty to represent those they disagree with. Government needs to lead, to argue, to convince, to impart a sense of direction. But it also needs to be able to compromise, to understand the other viewpoint, and to make timely concessions that are welcomed but do not derail its strategy. Getting the right balance between strategic direction and tactical accommodation is the art of elected politics.

                Too many UK politicians think spending other peoples’ money is popular. It’s how they define their job. In opposition the Conservative leadership did tell the party we needed to prepare to cut spending. We were advised that we would not find it comfortable or easy, but it would have to be done.

            Instead, in government, there are still a whole series of areas where Conservative MPs and many voters are keen to see cuts, where the government resists.  Tomorrow the government could make itself popular, and contribute to reducing the rate of increase in state borrowing, by announcing no more aid for Egypt. What’s not to like about that policy?

           Daily we see pictures on our tvs of an army in control with the latest in armoured vehicles, small arms, and plenty of troops. That may well be their spending priority, but it shows a state with plenty of money to spend on defence and internal repression. They could spend more of that alleviating sickness and poverty if they wished.  Giving them more money seems perverse in these conditions.

            The government could make itself even more popular, and possibly save some money, by saying it intends to persuade the EU to stop giving aid to Egypt as well.  Even better would be to secure agreement to that cut , along with agreement to sending the money the EU plans to spend on Egypt back to the impecunious member states. They could decide whether to cut their deficits a bit more or spend at home as they see fit. Again, what’s not to like with that policy?

           Over the week-end more news came out about the possible future escalation of the costs of HS2. The government has recently announced an enormous spending increase of £10 billion on delivering HS2. Critics think they will want to add more tunnels, more noise abatement, and more station  stops to win people over to the Midlands and northern routes, which in turn will mean more cost. If the government is not careful Labour will decide to offer to cancel HS2 as part of its future spending plans, and suggest much more attractive ways of spending all that money.

             There has also been recent news about increases in spending on consultants by government. There is plenty of evidence of that at local level in many of the higher spending Councils as well. As a necessary process of slimming bureaucracy is undertaken, it is most important to avoid simply hiring back the same or similar  people through contracted franchises or consultancies, sometimes at higher cost. The approach should be to slim and raise productivity by natural wastage, and avoid extra consultancy and contracting out costs in compensation.

                  Early in May as Mr Carney was preparing to take up his full duties as Governor of the Bank of England, the interest rate for the government to borrow 10 year money was just 1.6%. Yesterday the 10 year interest rate hit 2.7%, almost double the low point of September 2012.

                   We need to ask if this matters. After all, Mr Carney’s one major intervention in the monetary debate so far has been promise us the continuation of ultra low interest rates for the next three years, whilst unemployment comes down a bit and the economic recovery strengthens.  Mr Carney actively sided with the borrowers against the savers in his statement, because he clearly thinks we need more borrowing to promote recovery.

                  Some might say the rise in government borrowing rates does not have any impact on individuals, families and private sector companies. After all, mortgage rates are still between 4.5% and 6%, as they were three months ago. Banks and Building Societies still offer a concessionary first couple of years at much lower rates.  Savers can still pick up 1% for 1 year savings, and 2.5% for 3-4 year savings, levels well above the official 0.5% short term interest rate, as they could three months ago.  As I have written before, Quantitative Easing and low Bank base rate were devices which have kept the cost of government borrowing artificially low, whilst creating a parallel private sector market in money and credit at higher rates.

                  However, Mr Carney would be wrong to simply ignore the markets.  People in property are already talking about higher borrowing rates for new projects on the back of rising government rates. Savers canny enough to have cash will be able to buy into bonds or other financial assets at lower prices and on better income yields, whilst invested savers will lose on their current holdings. The government has been out of the main savings market for some time, refusing to issue National Savings products at the higher rates prevailing in the savings market when they can borrow so much more cheaply in the government bond market.

                 Mr Carney has three options from here. He could welcome the rising rates and help steer the whole market to more realistic rates for savers and borrowers. There is a bigger adjustment needed in the government market than in the private sector one. He could defy the markets, and state that when he said he wanted low interest rates to prevail he meant it. He will then have to initiate substantial new bond buying programmes to force the rates back down. Or he could largely ignore it, and take the line that he is relaxed about the cost of government borrowing going up all the time it does not hit the cost of private sector borrowing in ways which will derail his strategy.

                      I favour the first of these courses. I would couple it to more vigorous prosecution of the plans to break up and sort out RBS for the reasons often described here. We need competitive banking with more banks allied to rates of interest more subject to market selection. The ultra low government rates of quantitative easing have to end sometime. The quicker they are in mending the commercial banks, the quicker the special measures can be removed. It does need to be worthwhile to save. Many  borrowers would like greater certainty more than a temporary period of ultra low rates followed by a rush upwards in rates.

            The mass murders in Egypt, perpetrated by the authorities in the name of restoring order, are a reminder of how long and arduous the battle for true democracy can be. They are also a  vivid and bloody illustration of the tendency of many states to abuse their near monopoly of force in society in the name of keeping the peace.

            In 1819 in Manchester the Hussars were let loose on a peaceful assembly campaigning for “Liberty” and “Universal suffrage”. Yesterday was the one hundred and ninety fourth anniversary of that protest. On that dark  day 11 people died of their wounds at Peterloo and maybe another 7 died in related incidents. British democracy was far from perfect. A Englishman might have his liberty compared to many other societies around the world, but only prosperous freeholders got a vote in elections. There was a rule of law, trial by jury, and innocence until proven guilty, but the legal regime was harsh by modern standards, and society was  class ridden.

          Though the British establishment exonerated the Magistrates who had taken action to arrest the leaders of the protest and had unleashed the troops, many were rightly shocked and incensed by the barbarism of the slaughter. The  widening of the franchise and other democratic reforms  followed a few years later. The massacre, mockingly dubbed the battle of Peterloo, became part of the impetus to further democratic reform.

          Today states have even more power to control, subvert or harm their citizens. A strong state uses that power sparingly, and only with good cause. A state should be very reluctant ever to shed the blood of its citizens, when it normally has the power to arrest, detain,and punish where appropriate. The dead at Peterloo were a needless scar on the UK’s record. The far bigger massacre in Egypt is a huge tragedy. It will make governing and uniting Egypt that much more difficult. The only good would be if practically all Egyptians reacted in horror at the scale of the deaths, whatever their wishes concerning who should govern. Whether it will lead rapidly to a change of approach and a happier outcome, as in 1830s UK, is more difficult to believe.

           For democracy to succeed the majority in office has to govern in the interests of all the people as it sees it. It certainly has to avoid so damaging or suppressing the minority that they lose faith in the system. The opposition  has to accept that its way of redress is to win the next election and reverse what it does not like once it has the majority. Government has to allow democratic, noisy, peaceful challenge. Opposition has to accept the ultimate right of the majority to govern until the next election. In the UK case in 1819  the army was brought in by the magistrates with the effective acceptance of the democratically elected government, but it still proved to be a deeply unpopular move which affected politics.

                 It is fashionable now to criticise government housing policy. Some people argue that helping more to buy their own home through Funding for Lending and Help to buy will simply fuel a new boom. They then often go on to criticise the tendency for others to invest in buy to let properties, as savers seek some way of earning a real return on their savings at a time of ultra low interest rates. If you do not like either of these it just seems to leave the idea that the government should borrow or print even more money to build  more Council houses.

           I appreciate some here simply want to stop all inward migration and say we have enough homes. This is not about to happen, with only the Conservatives of the 3 main parties in Parliament pledged to make a substantial reduction in net migration, and with continuing membership of a common work and  border area with the rest of the EU the will of this Parliament’s  majority. There would still need to  be some new additional homes in popular parts of the country anyway. In some parts of the UK there are plenty of homes, but in others, there are acute shortages at affordable prices.

            I favour helping home ownership. Most people either own their own home or wish to do so. It is the most flexible type of housing, leaving you free to sell and move in a way which you cannot do from social housing. It is the kindest on the elderly, as by the time you retire you will have repaid the mortgage. If you live in rented accommodation you will pay the dearest rents in your elderly years when you have less income, which is far from friendly. It is the best to give you the greatest freedom to adapt, decorate and enhance your property as you see fit, and change it over the years as your family needs change and fashions evolve. It also means you own an asset, which may be useful as security for borrowings if you wish to venture in other fields.

             I have no problems with the government helping bridge the gap for people with too little savings to make the large deposit for a first home. Banking Regulators have lurched from allowing or encouraging banks to lend far too much against each home, to letting them lend too little. The government  has decided to intervene directly whilst the banks and their regulators are being so cautious.

             Of course I have no wish to see another unsustainable boom like the 2005-8 one. The government is limiting the time for its Help to Buy and Funding for Lending scheme. If it started to trigger high price rises and overheating  they would need to wind it down or reduce it sooner. If we wish to see more homes built where people want them  then we do need to ensure a sensible flow of finance to the home market. Recent years have seen all too few new homes built, making it more difficult for people to find the home they need in the parts of the country under pressure.

         I am also intrigued by the hostility towards Buy to Let. It was not so long ago fashionable commentators were urging the UK to be more like the continent and have a larger private rented sector. Now it is expanding it has its critics. I see nothing wrong with people  using savings or prudently assessed borrowings to own and rent out property. Government has not been a great landlord, and is itself so hugely overborrowed that it is not in a good position to borrow to build Council houses on a big scale.