On both sides of the Atlantic 2013 begins with the hang over from 2012. Just how much more debt will the US, the UK and Euroland take on this year? Can they go on adding to borrowing at the frantic pace of 2009-12? What do they all mean when they say they are cutting the deficits? Can they achieve it?

All main political parties in the US, UK and Euroland agree that the deficits have to be brought down. All understand that faster growth would help bring that about. By their deeds, all acknowledge that the huge deficits being run are not in themselves able to bring about the faster growth they crave. Some parties of the west speak with forked tongues on the deficits. They both claim with the rest that they need to be brought down, but also claim that prolonging a larger deficit for longer would somehow help speed growth.

In the USA the row over the so called fiscal cliff arose because the last time the US had to confront its excessive debts the politicians put in automatic tax rises and spending cuts in case no-one got around to making some necessary changes. These came back to haunt them. Neither the Republicans nor the Democrats wanted the combination of tax rises and spending cuts they had enacted to trigger  at the end of 2012. Both parties had every incentive to find a different way through. The Republicans wanted no tax rises at all. The Democracts only wanted tax rises for the rich. The Democrats wanted very few spending cuts. Even some Repuiblicans were uneasy about defence cuts. Compromise entails borrowing more, the easy way out. That is why they are bound to end up doing just that. The US will borrow more, and will raise its borrowing ceiling. We have seen the first compromise to keep most of the Bush tax cuts. Now there will be a row about the spending, before they solemnly decide to raise the permitted borrowing ceiling.

What was  bizarre in the USA was to see a Democract President claim credit for renewing Republican tax breaks from the Bush era, whilst increasing taxes on the highest payers to fulfill a campaign pledge, whilst the Republicans came over as split and part of the “problem”. They did not get across to much of the media that the tax cuts were originally Republican, and that Obama care entails higher taxes and charges offsetting some of the benefit of the tax cuts.

In the UK the Chancellor towards the end of 2012 admitted he would not start cutting the state debt as a proportion of our output by the end of this Parliament as originally promised. The UK is likely to end up borrowing more. In the second half of the Parliament Ministers are likely to want to relax spending totals. The big welfare reform package starts to come in and will doubtless need large sums to pump prime the changes.  The government is itching to boost capital spending, the one area the outgoing Labour government and incoming Coalition did make large cuts.

In Euroland they will carry on cutting in the distressed countries. Continuing recession will undermine revenues more, forcing more spending cuts. The German economy will recover as the emerging markets improve and take more German exports. Their recovery will be assisted by the German government’s own spending cuts, as they are more determined than most to control their deficit.  There is also some scope for extra private sector domestic demand in Germany. Meanwhile, the weaker countries will struggle with the iron discipline of the Euro, and without the ability to offset it individually by the kind of national monetary action the US and UK are taking.

 

   Today the government invites MPs to vote to peg increases in benefits to just 1% a year  for the rest of  this Parliament.

   The government does not propose to limit increases to pensions, nor to disability benefits this way. They will continue with the triple lock on pensions to ensure a better uprating each year.

     The idea is to limit the rise in benefits to make it more worthwhile to work, at a time when  pay rises are low or non existent. In recent years out of work benefits have gone up by more than average wages, making it less worthwhile to work.

      Labour’s criticism of the proposal points out that the 1% will also apply to in work benefits going to people on low pay, as well as limiting increases in out of work benefits. The Coalition government counters by saying that the lower paid will benefit from the more substantial increases in tax thresholds, reducing or removing their income tax liability.

       I will vote with the government. However, I think the best way of cutting benefit bills is to remove eligibility from recent arrivals in the UK, and to be clear that someone out of work who can get a job should do so. The biggest problem with the benefit bill is that there are too many people on benefits. We need positive ways out of no pay and low pay, and better controls on who has access to our benefit system.  UK citizens suffering disability or now retired deserve to be treated decently.

 

           When Mr Cameron makes his speech today welcoming the Coalition’s decisions so far and saying what they wish to do next, he intends to tell Conservatives that they should  be happy with what is being achieved. We are told  he will acknowledge ” Conservative frustrations” about the Coalition, but say that this is a radical reforming government which will do many good things.

           It is true they are busy reforming welfare, schools and some other public services. So why are some rank and file Conservatives so unhappy that they are worth a special briefing by the Prime Minister’s team to reassure them? The Prime Minister’s own message to Conservatives who say they now do not want to vote Conservative   is “I think I understand why you’re frustrated and I want to try and win you back”.   Will this new speech do the trick?

          There are two main reasons why some Conservative grassroots members  are unhappy or have gone elsewhere – Europe and money.

          Conservatives  want to be out of the EU altogether, or want a new relationship based on trade and co-operation where the UK can always say “No” if it disagrees with a proposal.  They are unhappy that many more powers have gone to Brussels thanks to the ever more energetic legislative programme pouring forth from the EU, unhappy with decisions of both the ECJ and the unrelated European Human Rights Court, unhappy about unlimited EU migration, concerned about EU judicial powers, dislike the scale of the EU budget and much else besides. They want a referendum now on whether to stay in or not.

           Here Mr Cameron is in no position to deliver what they want. As leader of a Eurosceptic party without a majority  in a more federalist Parliament, he does not have the votes for decisive action over the EU. Much is riding on his speech. He has to strain to use what power he has as a Coalition Prime Minister to point the country more rapidly and firmly towards a new relationship with the EU, and set out how as a Conservative Prime Minister after 2015 he would rapidly bring this about.

            When it comes to the money, he has much more scope to do as Conservatives wish. Many in the party feel the government needs to do more to be on the side of the strivers, the prudent, the hard working. If you drive or go  by train to work you are taxed and charged to death for daring to travel. If you earn more you are taxed heavily on your success. If you make a  capital gain you pay 10% more than under Labour. If you are  in the middle income you move more rapidly from 20% to 40% tax, and more rapdily lose your in work benefits. When you need to burn energy you have to pay the price of the energy policies being pursued.

          The government can say it is now cancelling Labour’s fuel duty rises, seeking to exploit  cheaper energy,has taken many people out of Income Tax altogether, and has kept the cap on train  fare rises the same as Labour’s.

        If the deficit had been removed and the debts were under control Conservatives would be happier. Some  Conservatives are worried at  just how much extra current spending continues under this government. The government  promised to eliminate the deficit in one Parliament. Now it will take almost two Parliaments. They said in opposition Conservative MPs would be queueing up by mid term to demand an end to the cuts. Instead Conservative MPs are queueing up to demand cuts to overseas aid, cuts to EU budget contributions, cuts to automatic   benefit entitlement  for recently arrived EU migrants, cuts  to public sector employees earning far more than the Prime Minister, cuts  to the still over mighty quangos and nationalised industries, cuts to expensive energy generation, and much else besides.

       Mr Cameron is right to want the Conservative party to be proud of the government he leads. Some grassroots members of  the  Conservative party and some defectors  say in response they want the government to do as it promised – eliminate the deficit, promote a vigorous recovery, and create prosperity based on private sector revival. That will take mended banks, a tax system that rewards enterprise, and a benefit system that is generous to those in need but not open to all regardless of their circumstance. I wish him well with the task. I am sure it is one he wishes to bring about, so his critics should understand he does want what they want.  Following his  speech about the Coalition,  the speech on the EU and a speech on the future  has to start to set out how a Conservative government would make a bigger difference faster.

 

 

 

           It is difficult holding modern nationalised industries to account. The Coalition has accepted much of the protective mumbo jumbo inherited from the previous government  that makes it difficult to get at the losses and excesses of state owned enterprises.

             The first is denial that a state owned enterprise is part of the public sector. Many questions about RBS are parried with “it’s a private sector company”. It just happens to be a company with a dominant taxpayer shareholding, dependent on taxpayer money for its very protected existence. Network Rail is said to be a private company! Some private copmpany, when the shareholder representatives are all chosen by  the state, and the whole thing is in effect  taxpayer owned and taxpayer subsidised. Even the Post Office, still technically a nationalised industry, fends off reasonable questions with a refusal to answer on the grounds of  “Commercial in confidence”.

           I tried to make the Post Office accountable for its decision to make huge increases in stamp prices last year. My questions as to how many first class stamps they sold before the price rise, and how many since, are blocked. Surely, as a representative of the taxpayer owners we are entitled to know how successful or otherwise this business strategy of huge price rises has been? As customer owners, are we not due some analysis of what impact pricing policy has had on our use of this important service? I assume my question was blocked because there has been a large decline in first class mail use, as you would expect with such a price rise. It was probably  big enough to lead many users of first class post to consider switching to second class or to some other way of communicating.

            I am seeking to make Network Rail accountable for its purchase of derivative products. Parliament does not apparently wish to investigate the £1 billion plus of marked to market losses at Network Rail, when MPs can get agitated about much smaller sums. Any discussion of the current rail fare rises is incomplete without exploring the foreign borrowings and the derivative positions of the leading rail company which happens to be in public ownership.

               I want to know more of the total cost of the bridge “improvement” programme which is gobbling up huge sums of money at the behest of the railway. Near  my own area the A4 Woodley bridge has been replaced at considerable cost, and now the Duffield Road bridge nearby is also being completely replaced. Why is this necsssary? What is the alleged return on capital? Why don’t they put in more road capacity at the same time so it would be more useful spending?

               I want to know why RBS is still such a large congolmerate. Why hasn’t the disposal programme continued more rapdily? Why has the bank been so persistently loss making since being in public ownership?

                Ministers should summons executives from these wayward baronies of the public sector, and start to instil value for money and cost control to save the taxpayer the continuing drain on our pockets. There is big money to be saved or earned for taxpayers  in these titans.

 

           I had to pinch myself this week listening to the run of political news.

           A senior Lib Dem has been up and about demanding that the state takes on much more of the cost of elderly people in nursing homes so they can leave more of their capital to their children. Whilst he said this could be paid for by some cuts in benefits to the better off elderly, the longer term liability is likely to prove much larger than the cuts. In other words he wants to transfer more money from the elderly to their often   richer children by raising taxes on everyone to do so.

         Labour has been out and about saying they want to offer everyone out of work for more than two  years  the minimum wage for six months, to pay them more than benefits, with a view to giving them some experience of working. They would pay for this by a further raid on savings in pension funds.

          Many lobby groups are back in full cry for more money. Councils want more to spend. People want bigger subsidies for the railway industry as the fares have gone up yet again. It’s business as usual. There’s apparently nothing wrong with the UK that a bit more public spending would not put right.

          Meanwhile the UK is still adding to its borrowing at more than £100 billion a year. State debt just keeps increasing at an alarming rate. This week the UK ten year cost of money for the government rose again, to 2.1%. This is still a low figure, but it is 40% up from the bottom and rising. Every 1% added to the average  interest rate is a large increase in future spending on just servicing the ballooning debt. (£10 bn extra cost if you include the Bank of England owned debt)

            Let’s try and get these huge figures across in a more accessible form. For every man, woman and child the UK now has borrowed nearly £17000. On top of this is all the bank, PFI and pension debts of the public sector, which take  it to £40,000 of borrowing per person.  As each person’s income is only £25000 on average, the task of repaying the debt is now gargantuan. Meanwhile instead of starting to rein it in, the state borrows more, so people are adding £1700 a year extra to their already large debts.

           Would any indvidual or family behave like this? If you were so much in debt already, would you be allowed to borrow so much more? Individuals are reducing their big debts of the Credit bubble period.

             Tomorrow I will look at the excessive spending and losses of some of our nationalised industries, where managing them better could start to make a difference to their costs. More politicians and officials need to spend more time thinking how to do well with less, instead of looking for yet more areas where the state should accept the liability.

           The big issue with the benefit bill is not the level of the benefits to the deserving, but the eligibility criteria. The cuts people want to see is disallowing benefits to people who come here to work of their own volition but are not citizens, as they could return home if there is not sufficient well paid work here. Many also want  to find ways to encourage more people on benefits  to take the jobs available.

 

 

          The Sun has told Argentine in no uncertain terms that the Falkland Islands are self governing under the UK crown, and wish to remain that way. If they wish to drop the relationship with the UK they are free to vote to do so.

           They are not a UK colony. The irony is that Argentina wishes to make them an Argentine colony against their will. They tried to do just that by unwelcome force not so long ago and lost the war they started.

            What part of  self determination does Argentina not understand?  It is very last century to pursue territorial claims against those who do not welcome your advances.

How many hours does an MP work?  This is one of the questions I find it very difficult to answer. There is of course no single answer, as there are 650 ways of being an MP. Some work longer hours than others. Some achieve more in an hour than others do. Many people in managerial and professional activities will find it equally difficult to define when they are working and when they are not.

The problem of working out how many hours a year anyone  works as an MP  comes mainly from  how you define work. Like many managerial and professional jobs, an MP can be working in many different places and at  many different times of the day. You are not just working in the office.

The answer about “office hours” is easier to answer. When Parliament is in  session  an attentive MP is at Westminster, in the chamber, in his or her office, in a committee , or meeting Ministers and colleagues.  On Mondays we are there from 2.30 pm  to 10.20 pm. On  Tuesdays through to Thursday we are there from around 9am to 6 or 7 pm. In practice I start the day around 6 am to get the emails and web comments dealt with before the Parliamentary day begins, and to fit in any breakfast briefings and meetings.

Fridays and non sitting days  gives the MP much more flexibility about when and where to work.

The questions raised about working hours include :

If I listen or watch the late news and reports on Parliament is that leisure or working?

 If I watch a tv documentary is that work?

If I travel to a different city in the UK, only to have my ear bent by people there when I am just visiting, is that work?

If I read newspapers and books which cover governmental and public policy topics, is that work?

If I am stopped in the street when shopping, to be told of a problem, is that work?

If when shopping or out for a walk I notice something that needs fixing or asking about, how much of that time is work?

If I attend a play or concert in an official capacity in my constituency, is that work?

If I attend a local play or concert in a private capacity, is that not work?

If I appear on Any Questions or Question Time, is that work part of being an MP?

If I write a newspaper article or web piece about public policy, is that part of my job as an MP?

When I go out campaigning for local elections, or in  by elections elsewhere, that is regarded as politics, not as part of the MP’s paid for role.

An MP has to accept week-end working as necessary. It is no good on Remembrance Sunday on Carnival Sunday  saying you do not work week-ends.

An MP is always on call. If a major disaster hits your constituency people rightly expect you to turn up and help.

Many people in managerial or professional roles have similar definitional issues before answering how many hours do they work.  A true professional is always alert to views, news and opportunities that relate to his or her main profession. Just as a well known professional sportsman or woman always has to watch their diet, stay in training and be aware of the public reaction when they are out and about, so an MP has to seek to stay in tune and up to date to do the job properly.

Senior executives spend a lot of time visiting business locations, encouraging or training staff, attending dinners or other corporate hospitality to stay in touch with customers and employees, appearing at industry events. Some of these things are pleasurable as well as having a business purpose.  Senior executives  need to respond to troubles or disasters of their business or staff members whatever the date or time.

 

 

           Much of the debate in the UK about work is conducted based on a simple minded distinction between work and non work. People imply that work is going to a place of employment in return for wages. Everything else the person does is non work. If someone spends too much time doing paid work he or she will be told to “get a life”, “spend more time with their family”, “take some time off” etc.

           This type of thinking can cause people not to enjoy much or anything of their time at paid work. It muddles up the rest of a person’s time with leisure and pleasure, when much of it  may not be pleasurably spent. It often assumes that all paid for work is hard and undesirable from the point of view of the employee, a necessary evil or interruption to their private lives.

          It is probably better to think of four main chunks of time we have. There is time spent on work for pay. There is time spent on work without pay to look after our homes and families. There is leisure time. Then there is chill out, relaxing and sleep time, when we do very little at home.

         I am particularly interested in the first two periods of time, paid for work time and unpaid work time. Some people think it better to do more paid for work, so they can hire in more help with the household work. If you earn enough you can pay someone else to undertake child care, pay the supermarket and food industry to prepare your meals and bake your cakes, employ a cleaner, window cleaner, house maintenance people and the rest. You end up paying a lot more tax doing this, as you have to pay extra income tax on your higher earnings for daring to work more, and then VAT and other taxes on the bought in goods and services.

         Buying in help is not just the preserve of the rich. Every household does it to some extent. Low income households do not usually hire a cleaner, but they often buy lots of prepared food rather than peeling the  vegetables and making the soup themselves. Some mothers buy disposable nappies even when they have modest income because they prefer not to wash textile ones. An elderly person on a small  income may have to pay a decorator to repaint the living room. Most people hire plumbers or electricians to fix problems.

          It is difficult to judge how much time people in practice spend working. The idea that we should be able to finish with work  after  a 37 to 40 hour working week full time job is silly. Most people have to put in many more hours preparing meals, hoovering carpets, washing floors, making beds and doing odd jobs. Some have to weed the garden as well. The interesting question is the choices make about the split between the amount of unpaid work they are willing to do, and the amount of paid work they wish to do to give them more choices over the domestic chores.

         One of the features of our economic growth figures is the economy appears to expand if more people decide to work more and earn more, so they can spend more on help for the home. At times of retrenchment more work is done unpaid, as people have to do more themselves because they have lost bonuses or overtime, or even lost their jobs. Some of these changes make little difference to what work is done, but they change who does it.

          Some seem to think that for most people the only option is to undertake just one full time job, and then make the family budget work around that. The amount you have to do unpaid is simply forced upon you by the adequacy or inadequacy of your pay relative to your domestic wishes. As we will see tomorrow, more people have more choices than this way of looking at it suggests.

          It is also wrong to say that all paid for work is done because you have to rather than because you want to. Many people now do have jobs they like, or have jobs with features that they enjoy. The workplace can provide social contact with a wide range of people. People can sometimes get a job related to a hobby, pastime or passion they have. Some musicians are paid to play, some collectors are paid to be antique dealers, some sporting enthusiasts are paid to play the game they love.

 

Over the next few days I want to explore work.

Both the Labour and Coalition governments of recent years say they value work. They urge everyone of working age who can do so to get a job. They want people to take financial responsibility for themselves and their families.

The arguments between them are not ostensibly about the aim, but the effectiveness of their chosen policies. The Coalition has said it is concentrating on making it more worthwhile to work, and easier to create jobs. It has cut Labour’s planned National Insurance hikes, and cut income taxes for the low paid. That is all helpful. Labour favoured paying more in work benefit to subsidise low wages subject to taxes.

However, the cruel paradox is both in government have carried on taxing both job creation and earning. Both are strongly in favour of taxing people who choose to work long hours and take business risks,  claiming that high earners should make a bigger contribution to tax revenues. They thought a higher rate would bring more tax revenue, but it brought lower revenue instead.

 Taxing things does deter people from doing them. Governments tax smoking, drinking and driving because they see these things as wrong. They wish to reduce the amount of them that takes place, and punish the people financially who do them.  The more government tax job creation, earning and effort, the less they should expect of each of them. The irony is they need the hugh tax revenues from them  to subsidise the low net pay people earn after tax or to pay  people not to work.

The Coalition says it wishes to break into this mad cycle. It has had some success in creating a climate in which the private sector has created a lot of extra jobs. It has had modest success so far at reducing the rate of new inward migration, so more of the new jobs go to people already here and on benefits.  The next stage of this programme may need lower taxes on earning and job creating to give it more impetus, and more action to tackle EU as well as non EU migration.

It is now fashionable to say that the UK economy needs more capital spending in general, and more public capital spending in particular. The one area where both the outgoing Labour government and the Coalition government did decide to cut was capital spending. Both now think they need to abate these cuts.

It is always advisable where there is an establishment consensus in the UK to probe it. It is often wrong. The establishment combined to recommend the ERM, and to claim the benefits of belonging to the EU as designed  by centralisers on the continent. So how well have they thought through public capital spending?

The first thing to recognise is there are various types of capital spending. Let us identify four:

 

1. Spending to put in new facilities and to open new services – “growth” spending. E.g. HS2, to provide a new faster train service to Birmingham from London.

2. Spending to extend existing services to cope for increasing demand – as with new schools or hospitals in  busy areas, often coping with the increase in population  E.g. new primary schools in Wokingham

3. Replacement capital – new schools or rebuilt roads to replace existing capacity

4. Investment in labour or energy saving or other productivity enhancing improvements in service delivery.

More of type four, cost reducing and productivity enhancing investment in the provision of public services could be a very good idea. It helps to bring the deficit down over time, assuming a decent return on the investment made through cost saving.

Type one is clearly incompatible with bringing the deficit down. Anything which increases the future current spending of the government through offering new or additional service makes it more difficult to control the deficit..

Type two also swells the deficit. Controlling migration better would reduce the need for such expenditures. Having more success than the previous government in fostering private sector led recovery outside London and the South east would also help, as it would reduce the need for internal migration and extra facilities in the hard pressed south.

Type 3 spending can be helpful. It should be allied with type four, so that the replacement facilities can be run more effectively and cheaply.

All capital spending boosts total UK output, as most of the money is spent on UK building and construction work, and provides jobs for people who have to be based in the UK to carry them out. There will be imported elements in the building supplies consumed, where UK industry could probably do better at import substitution given favourable circumstances for industrial expansion here.

Those who simply urge more capital spending should recognise that some is good and some is unhelpful when it comes to curbing the deficit. Schemes with high future running costs for the state are not helpful. It is most important that new capital concentrates on doing things better and more effectively to help control running costs. Privately financed capital projects with no recourse to the taxpayer to pick up the losses would be most welcome to use some of the slack in the building industry.

I wish all my readers a happy and prosperous new year.