The latest gloomy review tells us that there is now too little spare capacity in our electricity generating system. The Energy Secretary tells businesses to prepare for reductions in supply, and suggests a system of offering them payments to avoid using electricity at times of stress in the system. This is not rationing, we are told. More accurately it is the acceptable face of rationing as it not compulsory and offers compensation for the inconvenience of too little supply.

The problem with this approach is it is still damaging to the UK economy and to consumers. We, the consumers, will have to pay for the payments to business to scale back their consumption. We are going to have to pay higher prices for our own power, as Mr Davey uses the price mechanism to ration energy use further.

The main reason we are in this predicament is our membership of the EU, which has driven a policy of dear energy and has now required us to close some of our power stations prematurely as the EU is against their emissions of CO2. The failure of the previous government to make alternative provision has compounded the problem. They did, of course, sign up to all this at EU level in the first place without considering how to keep the lights on.

Mr Davey now has to cut loose from his pro EU pro dear energy sympathies and show he can solve our immediate and growing problem. I have called for the retention of the power stations that we have recently closed for a period whilst we are building new conforming plant to generate power. This is an easy and cheap way of resolving the crisis. All Mr Davey has to do is to negotiate a derogation from the Enissions Directive for a limited time whilst he sorts out the underlying problems of power supply.

We are told  Euro friendly Ministers have influence in Brussels.  We are told by Europhiles that  Brussels is there to help make us more prosperous. This is a simple way to test out these propositions. Surely Brussels can see that driving up the price  of energy and finding acceptable  ways to ration are the last thing the UK needs at the moment?  It’s time for Mr Davey to save our recently closed power stations, and have them available to produce the power we need for the next few winters.

The EU would be well advised to grasp that of all its unpopular and costly policies which damage the UK, dear energy is one of the most unpopular.

         In 2009-10 total UK government spending was £669.3bn. The latest forecast of spending for 2015-16 is £744.7bn.

         Over a six year period that is a rise of £75.4bn or 12.65% in the amount of cash spent by the state.

          Most commentators and many politicians claim that this represents a severe squeeze, a  major cut. If challenged about how overall it can be called a cut when there has been such a big rise in cash spent, they resort to claiming it has been a real terms cut. They suggest the cash rise has not been enough to compensate for inflation.

         Alternatively, they highlight those budgets and areas within the total that have been cut, to allow faster growth in the government’s priority areas of welfare, pensions, health and education which have gone up.

            I have never denied that some budgets have been cut in both cash and real terms. Defence, for example, has clearly been cut. So too has the government overhead, which is a good idea. I just think that we need to start from the overall figures, and recognise these have been rising.

             The 12.75% increase in total public spending over the six years is around the same as the inflation rate as measured by the GDP deflator (using official forecasts for the future years). It appears that the first half of the Coalition government period in office saw small real increases in public spending as I highlighted at the time.These are  to be followed by small real declines in the second half, perhaps reaching 0.4% real decline per annum. If the government and the Bank do a better job on controlling inflation, then we could experience further small real increases in spending on these numbers. The recent declines in world commodity prices and the relative stability of sterling will help keep inflation down. Past inflation owed a lot to weak sterling and rising commodity prices.

              These so called real declines could be offset by proper control of public sector costs. With the cash increases available, it should be possible to increase the total amount of public service. Government priorities for above average increases in some areas  will still mean cuts in some others of course.

          The use of the language of cuts is a major obstacle to a proper debate on how much we can afford to spend and how much we get for our spending. If the government does more for less, as the private sector regularly does, there are those who would see the lower cost as a “cut”.

            However, some elements of public spending are treated differently. If MPs had a cash increase in their pay, this would be seen generally as an increase or rise. If MPs pointed out the increase was less than inflation  and was therefore a cut, few would see it like that.  They would correctly argue that MPs had had a rise. Before your blood pressure explodes, fear not. You will be relieved to know that  MP  pay last year after pension deductions was lower in cash terms than in 2009-10. 

          As most public sector spending is either the pay of public sector staff or the benefit and pension pay of people not in work, is it right to use very different language for describing public spending changes from the commonsense language we use about pay, where a cash increase is a rise? The truth is we are still spending a huge amount on government account. We need the government to do more for less in the priority areas, and to slim the overall size of government.

          The Spending Statement  concentrated on spending totals for 2015-16. The government does need to plan ahead. The Coalition government will preside over the first two months of the financial year 2015-16. The new government elected in 2015  may continue with the year’s spending plans for the rest of  the year, or could decide to have a summer budget to make adjustments.

         The Announcement seems to have be greeted by agreement between all three main parties  in the Commons that the totals are correct. Labour did not wish to propose spending  and borrowing any more. Labour never suggests spending less overall. A Lib Dem Chief Secretary undertook much of the Minsisterial level work to get the Statement agreed. It was signed off by both the PM and his Deputy.

          Labour’s position is to say that whilst they accept the totals of spending, they disagree with the detail and the priorities. I look forward to hearing more from them nearer the election over how they would shift the  budget around within the agreed totals. It is helpful to know that they, like the Coalition, think a cash increase of 2% is as much as can be afforded.

        The durability of these totals may be high from the political point of view, but it could be tested by the markets and by future economic changes.  The Green Book backing the Statement centres around the reduction in the deficit. To cut the deficit the government both needs higher tax revenues from growth as well as controlled increases in spending under these plans.

           If growth starts to outperform the reduced forecasts it would be good to think extra revenue will be used to cut the deficit faster, rather than triggering a hunt for ways to spend more money. If growth were to disappoint again owing to say another severe phase to the Euro crisis or from a continuing failure of banks to finance the recovery in various parts of the world the government would also have to revisit the strategy and make some more difficult decisions.

          The development of the detailed thinking on the welfare cap will be important. So far we learn that they wish to strengthen job search by unemployed people and require them to attend Job centres weekly; to require all applicants to improve their spoken English; and asking all lone parents to prepare for work when their child turns three.

        Living within a 2% increase in overall budgets will be much easier if the reforms and effficiency drives set out by the government work well.

      The slim Green Book reveals that total spending will increase 2% in 2015-16 over 2014-15. Within this pensions and welfare spending is forecast to rise  by £15.3bn or 4.45% (AME) whilst departmental expenditures will decline by just  £0.9 bn.(DEL including depreciation).

       The Green book suggests that this will be a real terms reduction of 0.4%. However, with a continuing wage control allowing only 1% pay growth, with productivity gains and with proper control of general inflation, these figures could end up delivering a small real terms increase if properly managed.

The 2012-13 Accounts for Network Rail make interesting reading. This public sector owned company escapes most comment and attention, because Ministers seem to think it is not their responsibility to tell us about its profits and losses or explain in any detail its peformance. It is a so called independent company, but one which in effect is taxpayer owned.

Taxpayers indirectly supply much of its income through the subsidies to the railways, routed into Network Rail via the access charges it places on operating companies. Most in the press seem to ignore what is a most interesting document, accounting for billions of public investment and cost.

Network Rail’s debts now stand at a large £30.3bn, an 11.3% increase over the last year. Operating costs rose by 9.5%, in part reflecting the big increase in capital. Capital expenditure ran at £5050 million for the year, an increase of 9.8%.

The current value of its large portfolio of derivative financial instrument liabilities is a negative £1208 million. Its current value of derivative assets is £673 million. Is this a good portfolio of assets and risks for taxpayers to own? Operating profits fell 5.5% in the year.

At a time when Ministers are planning further increases in rail expenditure, and are keen to promote more railway construction, they would be well advised to examine these accounts. They should be asking why costs went up so much last year, why profits fell, and how the balance sheet is constructed. They should be asking how much more of their planned future programme Network Rail could finance out of improved cashflow from improved financial performance. The debt build up is fast and large.

I am in favour of Network Rail improving its stations and facilities for travellers. I am also in favour of Network Rail financing more of this from property transactions bringing more railway property into more productive use, and harnessing private improvement, finance and development adjacent to the stations and tracks where there is land available.

On the day when the government is going to announce a reduced rate of increase in spending, proper demands for improved efficiency and effectiveness at NR would be a good idea as there is a lot of public money at risk here.

Before Mr Bernanke spoke about the need to curtail and then  stop Quantitative Easing the markets behaved as if there was no cloud in the investment sky. Since he spoke, they have behaved as if we would never see the investment sun again. Both positions seem unrealistic.

As the market declines have continued for longer, we need to ask could the markets talk and move themselves to a crisis?  There is no immediate prospect of the kind of credit crunch and banking crisis in the west that drove the markets down in 2007-8. There is no-one forecasting a recession in the USA to match the crashes of the last decade.  On that basis the  Stock market reactions to higher bond yields looks overdone.

There are some problems out there which in its current mood the world Stock market takes more seriously. There is the trouble on the streets of Turkey and Brazil, once fast growing emerging market economies in favour. In China, still growing at more than 7%, suddenly the authorities seem to want to teach the banks and financial instituutions a lesson about controlling their lending instead of making easy liquidity available. Will they judge that right, or could they start to do damage to the very institutions which power and finance the growth?

Worse still, in Euroland, the markets are now driving up the cost of government borrowing again. For the time being Spain  and Italy will have to pay 1% more to borrow, but the levels are still below the panic levels of the past. However, again market watchers will get more nervous if bond yields continue to rise, placing bigger  question marks over the capacity of these governments to afford the money they need to raise from the bond markets.

The Uk has seen the 10 year cost of borrowing rise from 1.7% to 2.56% yesterday. It’s still low, but means a bit more cost to taxpayers as the government continues to expand its borrowing.

For the time being the markets worries have not done enough to interest rates and to the financial system to cause justified major worries. However, the more they slide, the more we need to look at the collateral damage it does. Mr Bernanke may be pleased with his work, as the US economy is strengthening and he needed to blow away some of the exuberance. He also seems to have knocked parts of the world like Euroland that are still struggling,  and hit emerging market economies that are slowing anyway, which is not such a great result.

              I do wish people would report the public spending discussion accurately. In the last Red Book the government  planned current spending of  £694.2 bn in 2015-16  compared to £672.9 bn this year. Now they plan to make the 2015-16 figure £682.7bn. This is still  an increase of £9.8bn over this year, though a smaller increase than the previous plan.  

        Capital spending was already planned to increase from £47.2bn to £50.4bn, and is apparently to increase by more under the revised  plans.  Endless media discussion of cuts of 10% are very misleading in the overall context of these figures and the large borrowings needed to sustain them.

Several bloggers have complained that homes are too dear in the UK. They have advocated policies to bring the prices down further, following the falls of recent years outside London.

I have been finding out if there are better value homes already available in the Uk that individuals on average income or below could afford. I accept that London is now very dear for all of us.  I am pleased to report that there are numerous cheaper homes in our larger cities outside the capital.  On one site I found 398 homes for sale  under £60,000 in Liverpool, 108 under £60,000 in Manchester, 52 under £60,000  in Nottingham and 59 under £60,000 in Birmingham. Any of these could make homes for people with a job or  going  into business in these great cities.

Nearer to London things do get dearer. Even here there are 35 homes for sale under £100,000 in Wellingborough, 51 in Corby, 55 in Swindon and 63 in Hastings on the one internet site.  Close to London there are park homes and shared equity properties in the lower price ranges.

The UK’s housing problem is not a simple case of too few homes in London and the hotspots. It is also a case of more homes in some places than there are people wishing to live there. Policy needs to find more ways to encourage people to make their homes and find their employment in the great northern towns and cities and in other locations outside London, where there is more residential property available at more affordable prices. All three main parties in the Commons want a better balanced UK. There are policies being followed to create one. The debate needs to be about how we can accelerate that process, so more of the empty homes on the market can be used.

Earlier this week  we saw the May figures for UK spending, tax revenues and borrowing. The figures are complex and have taken me a little while to understand, as there are so many special factors at play.

In April-May this year current public spending is 6.2% higher than in April-May the previous year.  The leap was large in April, with current spending at £62.2bn compared to £53.2 bn a year earlier. The explanation given is more rapid payments to local government. I cannot find a figure to compare between years  allowing for timing differences in these grant payments. It does mean, however, Councils received  a large cash flow injection in April. The benefit bills are rising much less quickly than a year earlier, as this year’s uprating is less than half the previous year’s 5.2% rise.

Receipts are well up, mainly owing to two special factors. The first is the Treasury now receives £3.9bn a month from  the Bank of England’s Asset Purchase scheme. The second is the Treasury has taken a credit of £3.2bn for tax receipts likely to be coming from Switzerland following the Swiss tax deal. The credit is for the whole amount they think they might receive over ensuing months.

Underlying tax revenue is mixed. National Insurance is up 3% and VAT up 2.1% in May, whilst Income Tax and CGT are down 2%.

 The longer term perspective can sometimes be useful. Total current public spending  was £3.6bn in 1946, £10 bn in 1966, £45 bn in 1976 and  £138 bn in 1986. In 1996 it reached £283 bn, and £480 bn by 2006.  In 2010 it stood at £605bn, to rise to £631bn in 2012.  Over many years there has been endless talk about cuts, yet current spending in cash terms and usually in real terms as well has gone on rising.

As the economy picks up it is likely receipts will rise a bit more, helped by the lower rates where these have been applied. Spending should start to come under better control, as the Coalition’s plans always assumed growth in public spending in cash and real terms for the first two years, to be followed by slower cash growth in the second half of the Parliament. This may start  to happen, assuming the big boost to Councils is a timing issue and not an overall increase.

 Next week the Chancellor will announce spending totals for 2015-16, with a view to putting more downward pressure on the growth in cash spending by the public sector.

            When Mr Bernanke of the Fed speaks, the world listens.

             Last month he made the commonsense point that Quantitative Easing would not continue for ever. It is surprising so many people needed telling. He explained that sometime it woudl be  tapered back and eventually ended. Indeed, on two past occasions US programmes of QE have ended without major financial disruption.

            This week he provided a little more detail. QE will be tapered later this year, and ended possibly by the middle of next if the US economy continues to grow well. There did not seem to be anything surprising or even worrying about that. Surely it is good news if the world’s largest economy can soon manage without the artificial stimulus of printing extra dollars to buy its own debt.

              It fits in with the progress made to restore most US banks to health, to have more normal credit creation in the private sector, to see a recovery in growth, progress in getting more people into work and relatively low inflation. The US has experienced a sharp downward adjustment in property prices, and more recently a good bull run in shares reflecting the better prospects.

           So why has there been such a sell off around the world? These days large operators in markets move rapidly and together when the mood changes. They decided Mr Bernanke’s speech marked a change of mood. So now everyone is hunting bad news around the world to justify the sudden reversal in attitudes. They have been selling gold, usually a safe haven in a crisis, as well as selling  emerging market shares. Japan had a bear market in a  few days, falling 20%. They have sold bonds as well as shares, fearing and creating higher interest rates.

             Commentators looking for bad news turn to the Brazilian and Turkish riots, to the slowing of growth in India and the build up of credit in China. The outlook is not as bleak as some now suggest. Forecasters are beginning to move their forecasts for the US, the UK and even Euroland up . There is no likelihood of higher short term interest rates on either side of the Atlantic this year, and little likelihood of any increase in the UK or  Euroland next year either.

              There is still a big bond bubble, but the western authorities will not want to explode that too dramatically yet.