The budget: we need more enterprise, not more public spending

Wouldn’t it be good if we could hear a message of hope from the government – hope that we could have a faster recovery, hope that it could be more worthwhile to work hard and be successful, hope that we might earn and innovate our way out of the national poverty we see all around us.

The reason for the dreadfully slow and feeble recovery is as clear as can be – wrong government policy. The governent is obstinate. Its approach is to offer more of the same. As we see spending, borrowing and taxing too much does not do the trick , so they recommend taxing, spending and borrowing more! Why can’t they see that if you spend more in the public sector, you have to take more money away from the private sector to pay the bills? That does not fuel a strong recovery. If you borrow too much in the public sector, that can undermine confidence. It puts people and companies off spending more, because all they hear from politicians is talk of what new taxes they can impose. It worries markets that interest rates will be forced up, as investors become reluctant to back Britain and offer the huge sums the government wishes to borrow at low rates.

Worse still are the damaged banks, residing in the public sector, and the banks being punished for being banks in the private sector. The single biggest cause of the feeble recovery is the government’s approach to regulating them. Its current insistence that the banks find and hold much more cash and capital than they had to in the good days is acting as a great brake on the recovery. If Labour were serious about recovery they would change these rules immediately, to allow more lending to business and individuals to get things going again. We don’t want out of control private lending as we had in 2007, but we need more than we are getting at the moment.

The second biggest brake on recovery is the huge public deficit itself. We need immediate action to start to bring it under control, to stop the upwards drift of market interest rates we have been experiencing in recent months.

The third problem is the huge cost and intrusiveness of regulation. Some of it is a sledgehammer to miss the nut, and some is a nutcracker to crack a nut that does not need cracking. They need to make is easier for people to set up new businesses to run them.

The fourth problem is the UK is no longer tax competitive. We need lower corporation tax rates to keep and attract more larger businesses here. We need to tax the rich more, which means scrapping the 50p tax rate to stop the race for more people to leave or go offshore, and to send a message out again to the world that the UK is open for business.

If we made these changes in the budget, then we could turn our minds to providing sufficient reaonably priced energy, improving our transport systems and sorting out our planning system so the UK could once again be truly friendly to enterprise. We need to earn our living again. We have to start to repay the huge national debts Labour has piled up for us. The only way to recover from this is to have a more dynamic and successful private sector to pay the bills and create the jobs we need.


  1. […] The budget: we need more enterprise, not more public spending … […]

  2. alan jutson
    March 22, 2010

    Front page of the Telegraph this morning it is reported that Government spending is now 52% of GDP, which does not include the Bank Bailouts, (or perhaps a number of other huge items)

    Welcome to Communist Britain, where the State controls most of the spending, and introduces a law a day to keep you under control.

    Brown will soon have most of the electors in his pocket, if he has not already.

    See we also fund foriegn Students to study in our Universities as well. Would appear that all students from EU Countries also get our Student Grants funding, which do not have to be paid back until their level of earnings reach £15,000 per year or equivelent.

    Wonder who is responsible for collecting all of this cash, and what the success rate is.

  3. Richard
    March 22, 2010

    This am I heard on the radio that state spending is now for the first time over 50% of 'national income' (= GDP? – not sure what definition) – up from 38% when the Conservatives left office I think. This is an amazing and shocking statistic. Even now, every time Labour ministers open their mouths its to talk about spending more money. This should be something the Conservatives can make great play of. All the fastest growing economies in the world have much lower state/GDP ratios. It will be a massive task for the next government to undo the damage Brown has done.

  4. Antisthenes
    March 22, 2010

    I see another potential threat if immediate action is not taken along the lines you propose. QE, debt, bloated civil service and shrinking private sector being encouraged to shrink even more for the very reasons you mention above is leading to the money that is in circulation being there not by virtue of wealth creation. Something will have to give and the only outcome is going to be the rebirth of inflation and that at very high levels. But then perhaps that is a cunning ploy of the government, inflate themselves out of debt. When you need a £1000 note to buy a cup of coffee the national debt will look paltry.

  5. Andy Hoff
    March 22, 2010

    Mr Redwood
    All the point's you make are good but I have a question about the word "recovery". Recovery to what? To an unsustainable housing boom? Extremely high personal debt fueling imports that we cannot really afford?
    Britain has been living beyond it's means for many years and paying for it with debt and North Sea oil, both of which are pretty much over. Foreign investors won't keep funding us forever as you have rightly said many times and oil production is dropping at a frightening rate. We are now a nett importer of oil, gas and coal and all of them are set to rise in price to levels that will shatter any "recovery"and quite possibly lead to a continuous downward trajectory for the economy. Not one of the major parties even address this issue, in fact the BNP are the only ones to mention it.

  6. lola
    March 22, 2010

    "As we see spending, borrowing and taxing [and regulating] too much does not do the trick , so they recommend taxing, spending and borrowing [and regulating] more!

  7. Simon D
    March 22, 2010

    I agree with all your points but we have to ask what is 'enterprise'. If it is just another mobile phone shop or pizza parlour what good does it do?

    In the last century we successfully disembowelled our heavy and manufacturing industries and under the present Government we were told that something called 'the knowledge economy' was all the rage. Meanwhile millions of British jobs have been exported overseas – many to the developing world where they pay a fraction of our wages.

    My suggestion is that we need to encourage making things and providing services which (1) are currently bought in from abroad or (2) can be sold to foreigners. This even encompasses the BBC which is now a market leader in selling trash television to foreigners on a global basis. We may not be proud of it but it helps the balance of payments.

    Last year I bought a little wooden garden table for £25. I was amazed to find the words 'made in Vietnam' when I unpacked it. What is the matter with us? Why can't we make little wooden tables in the UK?

    I suggest that the problem is also partly cultural. The political and media opinion-formers in London and the Home Counties don't like manufacturing and despise the people that are involved in it. Getting your hands dirty by making something is a pretty low form of human life in left-liberal Britain. It is far more acceptable to make a killing in derivatives or earn a six figure salary in a public sector job.

    On one of your future postings it would be helpful if you could paint a picture of what this 'enterprise' renaissance will actually look like.

    1. Liz
      March 22, 2010

      This absolutely hits the nail on the head – the liberal left are really terrible snobs who get out the smelling salts at the mention of "trade" like a Victorian maiden aunt. BBC has a programme "Rogue Trader" but no "Bungling Bureaucrat" type ones which says it all about their attitude to and knowledge of trade. Commercial Rent laws are also in urgent need of reform as as they exist at present they make enterprise very expensive in the UK.

      1. JimF
        March 22, 2010

        This is where we in this Country come unstuck. We define enterprise very broadly, everything from the bloke buying and re-selling dodgy cars to the great creators and innovators, at the sharp end of technology and commerce. I'm not advocating a "National Economic Plan" here, but our European neighbours do have a greater sense of the value of innovation in manufacturing than we do. In a sense we have to ensure the “transfer” of great swathes of public sector employees to either work in creative services or creative manufacturing, and to make goods and services for use both here and abroad. To have these people turn themselves into lottery-ticket sellers, car-clampers, estate agents and dodgy car dealers will get us nowhere.
        If the Thatcher revolution went wrong here in some way, that was it. This is the next leg down, and it will be harder but we really need to invest in the creative services and manufacturing jobs rather than some silly personal rip-off get-rich-quick schemes.

      2. Martyn
        March 22, 2010


        What a cracking idea! Trouble is, if the BBC seriously lined up a series of programmes called "Bungling Bureaucrats" as you suggest it would make "Rogue Traders" look like charitable organisations and there would be little air-time left for anything else on TV….

      3. A.Sedgwick
        March 22, 2010

        Bungling Bureaucrats – great, super.

    2. alan jutson
      March 22, 2010

      Simon D

      Reason why we could not make your little wooden table here is because the wood would probably cost more than you paid for the table.

      I completed an indentured apprenticeship (a proper one 45 years ago) in engineering, and ran a high volume production factory employing 60 people for many years, before moving into the Construction industry.

      Now no one I know is in manufacturing, because we cannot compete with imports from third world countries due not just to wages but ever increasing overheads and Regulations.

      I know very well the argument that we make better products here, and this is somtimes true, but the vast majority of the general public want low cost products full stop. Quality only raises its head when the cheap product fails.

      Would you have paid £50.00 for the table if it was made in the UK, or would you still have spent £25.00 on the import ?

      1. waramess
        March 23, 2010

        …and yet Germany runs a highly successful manufacturing economy.

        1. alan jutson
          March 23, 2010

          Yes they do, but most products are high end, high quality, but I see now some Germans are emmigrating to Poland to work, because of unemployment in Germany.

          We also have such industries here, but not enough of them to make the huge difference that is required.

          In addition the German population like high quality products, and are prepared to pay for them, we used to be the same but no longer.

      2. Stuart Fairney
        March 23, 2010

        The total abolition of business rates and income tax would be a shot in the arm like no other to UK business. It would make all the parties petty schemes to "help" business look like the feeble, triffling baubles that they are.

        Relieved of the tax burden you would be surprised just how much would be manufactured here, indeed we could end unemployment in a couple of years, for good.

        And this is wholly possible and do-able today, though no major party will consider it because it relieves us of the need for so many politicians. And as Mr Byers and co showed us, they care for themselves rather more than us or the country.

        If we don't vote for change we can expect none.

        1. alan jutson
          March 23, 2010


          Agreed, we need a complete rethink, all Politicians seem to want to do, is extract more and more money so they can fund their pet projects.

          They are killing the goose etc.

        2. Stuart Fairney
          March 24, 2010

          Curiously, Ayn Rand suggested it would all end like this, yet I always regarded 'Atlas Shrugged' as more a vehicle for the philosophy and less of a prediction.

          But it is true, politicians see us as nothing more than cattle to be raped for cash so thier own prejudice can be top-down imposed. Indeed a certain tory MP's recent complaints about lingerie ads on the side of buses did not fill me with encouragement for a free future.

  8. JohnRS
    March 22, 2010

    Unfortunately I dont see Cameron doing much (if anything) to implement the agenda you correctly set out for our recovery.

    1. James Morrison
      March 22, 2010

      You are absolutely right, and when one of the opposition front-benchers comes up with the following comments, all the questions about where DC stands are answered:

      ‘At its best, New Labour was a recognition that the values of enterprise and aspiration could be fused with a commitment to social justice and fairness. And the party that best exemplifies that view now is David Cameron’s Conservative Party.’

      (Shadow Schools Secretary Michael Gove)

      I'd be interested to hear JR's take on that comment!

      1. Stuart Fairney
        March 23, 2010

        You probably won't hear mine as the mod would never allow the profanity!

    2. Norman
      March 22, 2010

      While I would like to see more conservativism from the leadership I understand the course they are setting. I've been following the US health care reform and one commentator summed things up for me. He was saying how people were sick of the Republicans in 2007 and were saying there was no difference between the parties, it doesn't matter who you vote for, etc. and this gave the Democrats control of both Houses.

      He then went on to say could anyone imagine any Republican controlled House / President implementing the kind of policies now transforming the USA and asked the rhetorical question: Now do you think there is any difference between the Parties?

      I think the same of Labour / Conservative. Regardless of our gripes does anyone really think that if we'd had a Conservative government, any type of Conservative government, the last 13 years things would have come to where they are today?

      I realise there is a certain schadenfreude in wishing to see David Cameron fail to win an election then watch Labour sending the whole thing come crashing down around our ears but I'd rather try and rescue the situation.

      1. David B
        March 22, 2010

        Thats funny. I had a conversation about this today. I suggested that had Mrs Thatcher or Norman Tebbit been running the show I think Northern Rock would have been allowed to fail. I think this was the crucial mistake. Once the Government blinked first the bankers knew they were home and dry. Bonuses safe.

        And that is what is galling to people. The banks were reckless, we bailed them out, yet they had the brass neck to take their bonuses. Thats what annoys about public sector workers. They screw up, some kid gets killed or the early released scumbag kills or rapes someone and those who allowed it don't have even a payday docked.

        I don't think the boom would have been tempered by the Conservatives in the last 13 years. I cannot imagine any other chancellor being vain enough to claim no more boom and bust, but apart from perhaps more of our taxes being left for us to bid up house prices with, I suspect it would not have been much different. Less immigration maybe. But otherwise much the same.

        But I still detest Gordon. And I want the Tories back. And Mrs Thatcher was our best prime minister, hands down.

  9. APL
    March 22, 2010

    JR: "If you borrow too much in the public sector, that can undermine confidence."

    Mr Redwood, do you think that spending *any* money to engage Ruby Wax, [ f'ing RUBY WAX!! ] to lecture 'top civil servants' on leadership represents an acceptable use of public money?

    I don't. Nor do I believe Ruby Wax has anything useful to say about leadership?

    "The Home Office has refused to reveal how much Ms Wax is being paid for her services, "

    I bet they have refused.

    I have already identified one cut that won't affect front line servics and by the way, this cost should be clawed back from the salaries of the officials who approved the expenditure.

  10. Antisthenes
    March 22, 2010

    A lot of doom and gloom comments today, enough to make you leave the country. Oh! I forgot I already have. It was however a jump from the frying pan into the fire, however here the kids are well behaved and respectful, the health service is excellent for the rest of it 5 more years of Labour and you will experience the same horrors. I love my country of birth so please some sanity vote in the Conservatives so that I can return from my exile. Besides my state pension is worth Jack s**t with the exchange rate as it is.

    1. Simon
      March 23, 2010

      On Friday I just had my implantable cardiac defibrilator replaced by the NHS .

      Received professional care throughout my overnight stay and expect to receive proper follow up .

      It's not perfect and I know other people have had bad experiences .
      However , it saved my life when I returned ill from an overseas business trip and has enabled me to keep exporting my expertise as a database designer and paying taxes for the last 12 years .

      I'd dearly love to be providing competitive advantage to U.K. clients but the industry I service is completely foreign owned now .

      Don't blame you for moving overseas , it is painful to watch the country decline around you .

  11. waramess
    March 22, 2010

    But who is there that will deliver to us these panaceas. All three parties seem to want to deliver big government and all see a problem, any problem, as requiring government intervention to sort it out.

    Right wing MP's who one would hope still believe in small government are willing to be pushed around in deference to the otherwise career limiting potential of rocking the boat and will wait for change to come about rather than to initiate change.

    We have yet to come anywhere near penury, not for some structural reason but because we still have £50 billion coming into the economy each year from our hydrocarbon reserves, but these are no more than temporary.

    Then we have a black hole. Not tomorrow and not next year but it is coming and if we have not repaired our economy by then, we will go the same way as all the other countries that have gone past their latest sell by date for hydrocarbon discoveries.

    Maybe it doesn't matter for some of us but for a good number of middle aged citizens it will be a simple matter of pensions not being affordable, at all.

    If we fail to take serious note until it is too late then we will have nothing to save us from the fate of Zimbabwe, for our present apparent prosperity will evaporate with the oil revenues if we fail to implement measures to reduce taxation and regulation soon

  12. Chris
    March 22, 2010

    It would be useful for you to point out the government's "deception" over deficit and debt. A promise to halve the deficit is not the same as halving the debt, yet many in the electorate (and the BBC apparently) have no idea of the distinction and Gordon Brown et al seem happy for the misapprehension to continue. After all, it sounds very impressive. To halve the massive debt is a herculean task; to halve the deficit much less so. A recent article in Coffee house spectator blog explained it very succinctly.

  13. gac
    March 22, 2010

    I borrowed £100 last year to fund profligate (for me) spending. This year I planned to borrow £120 to continue my unaffordable spree.

    Good news however; I only need to borrow £110 so I have a windfall of £10 to spend.

    Bad news; I cannot find this tenner anywhere!

    Could somebody tell me where it is please?

  14. Ian Jones
    March 22, 2010

    Its going to take 5 years before the economy starts to grow as thats how long it will take before the debt level comes down to a realistic level. It will be brought down via inflation and printing money to keep interest rates very low.

    However, cutting Govt spending isnt going to fix the issue of jobs being outsourced to India and China. Its all one way as British firms are blocked in those countries.

    Unless something is done soon it will end in disaster.

  15. Neil Craig
    March 22, 2010

    Bravo sir.
    And yet your party leader, unless I have misunderstood, far from freeing the banks wants to introduce an extra tax on them all to pay for the fact that the ones Brown bought aren't worth as much as he paid for them. Basically Barclays should pay for RBS mistakes.

    Such economic illiteracy I expect from Vince Cable (who did not disappoint) but not from a serious Conservative leader. If the Tories don't get an overall majority it will be entirely down to Cameron's antics in playing up to media spinners, rather than produce real answers, in the belief that they represent popular opinion.

  16. Steve Cox
    March 22, 2010

    If I was Alistair Darling, I would address the House with a steely glare, and then put a loaded revolver to my head, and shoot myself for having presided over the worst financial crisis in a century. The only honourable alternative would be to use said revolver to shoot his boss, who actually caused the worst financial crisis in a century – for this sad country, at least. The Chinese, Indians, Australians, Brazilians, etc., etc., are wondering what all that financial crisis nonsense was about? Get back to work, bro.

    1. ManicBeancounter
      March 23, 2010

      Please do not be too hard on Alistair Darling.
      – It is not he that changed the definition of investment to include increases in salaries or the government payroll.
      – It is not he that pretended that busts had been conquered.
      – It is not he that allowed the National Debt to increase during the boom years.
      – It is not he destroyed the pensions, by extra taxes.
      – He is not a man of conjuring tricks, that cuts taxes for those on average income, at the expense of those on the minimum wage.

      Alistair Darling would have made a good chancellor ten years ago. By the time he took office, the seeds for Labour's £600bn+ increase in the National Debt had already been laid by his predecessor.

  17. Mark
    March 22, 2010

    I agree with your points 2,3 and 4 and your overall conclusion. However, at this stage I do not see that either businesses or households are queueing up to take on more debt: they have too much on their books already. Meantime, because even with the best of economic management, it is going to take a long time before we regain the economic heights of the boom, there are going to be more loans that default – and banks need capital to finance those losses.

    I hear that the Treasury has "ordered" RBS and Lloyds/HBOS to lend £80bn to UK businesses as part of the budget measures. Apart from rolling over existing debt (and maybe switching their loans from other lenders if the terms are more attractive) it's hard to see what UK businesses might be keen to spend such borrowing on. Ideas on a postage stamp?

    We're in a liquidity trap.

  18. Javelin
    March 23, 2010

    The problem is that the voters know we need spending cuts, but the politicians are to afraid of saying so. The voters know spending cuts are coming and not being told only makes the more cynical and less likely to vote.

    If you understand psychology the election slogan should be "Are you bankrupting Britain?"

    Try it on a few doorsteps are see the reaction.

  19. Lindsay McDougall
    March 23, 2010

    As a percentage of GDP, public expenditure was about 13% before WW1, about 25% in the inter-war period, and between 35% and nearly 50% since WW2.

    For a fair comparison with the present day, we should restrict ourselves to the period since the NHS was introduced. The 35% figure was achieved in 1957 at the end of Eden's premiership, and again in 2000 after Labour stuck to the public expenditure plans of the outgoing Conservative government.

    We are now back up to 48%, and over 50% if you include local government expenditure. The historic figures quoted include grants from central government to local government but omit the portion of local government financed by rates or council tax.

    The point is that 35% is achievable without any great hardship, and the best way of achieving economic growth is to move steadily towards that percentage.

    Taxation was about 33% of GDP in the mid-fifties but has otherwise bobbed up and down just below 40%. Getting back down to 33% would be beneficial but perhaps that will have to wait until the next parliament but one.

  20. ps
    March 23, 2010

    Hi John

    Actually there really isn't any viable alternative to what you are advocating here if the next government has ambitions to govern for the long term good of the country.
    The alternative is either a soviet era communist country or the madness of an Argentina with the country moving from one crisis to the next.
    I hope your colleagues at CCO are coming round to your way of thinking.

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