The UK deficit reduction programme


Most of the debate about the UK deficit reduction programme is about whether the government is doing too much too quickly. There is another side that rarely gets examined – is it doing enough and is the programme going well?

Before critics get to work claiming falsely I want to see  cuts in schools and hospitals, let me confirm I do not. There are, however, other areas and budgets, starting with the state owned banks and going through the large EU expenditures, moving on to the pace of sorting out the administrative overhead  where there is some scope to cut the deficit more quickly.

Let us today look at the strategy so far. The government in June 2010 said it planned to borrow an extra £451 billion over the five years to 2015. This entailed substantial reductions in the rate of increase in the state debt, from the very high levels reached in 2009-10. The aim is to get rid of the structural deficit by 2015, leaving a relatively small running deficit in that year.

Eight months later, in the March 2011 budget, the government decided it could afford to borrow £485 billion over the five years. It decided to increase spending over the period compared to July 2010 plans, and had to allow for a small revenue loss owing to a downgrade of the growth forecast for 2011. The amount the state plans to borrow in five years  is more than the total UK state debt in 2004. The growth forecast was lowered from 2.3% to 1.7% for 2011, and from 2.8% to 2.5% for 2012.

As controlling the debt and deficit is crucial to our economic future, something all commentators and political parties agree, we need to ask how robust is the current plan? Is the March 2011 budget the last when we should expect an overrun or increase in the planned borrowing, or could the same happen in any future budget?

Let us take the growth forecasts first of all. The plan assumes growth will accelerate to a lively 2.9% in 2013, a further 2.9% in 2014 and 2.8% in 2015. This could happen. If the banks by then are mended and capable of lending more money on mortgage and to businesses, that would help. If the world economy is growing well, that will provide a good background. The government’s welfare reforms should  be kicking in with their contribution.

If, however, the world economy faltered, or if the banks were still unable to finance a robust recovery, there could be a disappointment. Every 1% of growth less means a revenue loss of around £6 billion each year. If 2013 saw 1.9% growth instead of 2.9% growth, for example, the government would need to borrow an extra £18 billion over the period to reflect the three years of lower revenue from the lost growth. There would also be some consequential increases in public spending, as there would be fewer jobs.

We need also to ask if the public spending figures will be delivered as currently planned. Normally as a government gets closer to an election it wants to increase public spending. Lobbyists intensify their efforts to persuade politicians to give them more money for their causes in a  more fevered atmosphere.  We have seen the government giving some ground on spending related issues already when it faces criticism. It seems likely that the government will increase spending somewhat compared to plan as we get nearer to 2015. Some of the cuts pencilled in for 2013 may not materialise.

I think it unlikely the final outturn for total government borrowing over the five years will be as low as the forecast £485 billion. Looking at the figures I think other actions need to be taken to allow for some increases in spending on core programmes, and to allow for any disappointment in the global growth rate which could adversely affect UK growth. The government is right to warn that it must cut the deficit to keep the confidence of the markets and keep interest rates low by Greek or Irish standards. That is why delivering the strategy is important, and why we need to ensure something like the forecast numbers is delivered.


  1. Stuart Fairney
    May 22, 2011

    Hopelessly modest. Growth projections of 2.9% are not lively they are woefully sluggish when you compare them to China typically around 10% or Singapore at 23% currently. They serve only to seal our relative decline against the prosperous and industrious Asians. Why on earth are we consigned to such awful failure even of aspiration?

    And as for only adding to the national debt by £451B, am I alone in seeing the absolute ruin in this?

    Truly there is no-one to vote for anymore, the choice is mad, mad over-tax over-spend over-borrow big statists or more or less the mirror image who differ only in degree not philosophy.

    1. forthurst
      May 22, 2011

      Unfortunately, public employees are only able to add value on a pro rata basis, unlike in the private sector where added value per individual can be many times their salary. Some would argue that much activity in the public sector is self-inflicted rather than demand led and some would argue further that postulating that all or most public sector workers are worth at least their salaries to the economy except in nominal GDP terms is a gross overstatement of the truth.

      Look at a fast growing economy and you are not looking at one with a large public sector work force and public sector. It helps also to have a state education system which is designed to produce graduates capable of generating added value rather than one designed for Cultural Marxist grooming and social engineering in general like ours.

    2. electro-kevin
      May 22, 2011

      Hear hear.

    3. Javelin
      May 22, 2011

      2.9% is a massively over optimistic figure. When you see we export our goods to the US, Ireland and very little to the developing nations you see our exports will dry up – regardless of the strength of the pound.

  2. lifelogic
    May 22, 2011

    “Too much to quickly” You have to be joking. The government has done virtually nothing to encourage growth, the banks are still not lending, taxes too high, the state sector is bloated and much it does in negative or pointless, they have a mad energy policy and have done nothing about regulations EU or other ones.

    They will be lucky to get any growth at all at this rate and all the wealthy and investment will go.

    I see the BBC Radio 4 on “More or Less” has attacked the 43% better paid and pensioned reported figure for the state sector. This it seems to think is due to comparing state sector workers who are by “BBC think” similar to highly qualified “doctors” with the private sector who are comparable to unqualified “Tesco shop workers”.

    In my experience many of the state sector worker would be virtually unemployable outside the state sector and quite the reverse situation is the case. With the more capable and hard working being mainly in the private sector.

    Has Cameron asked Huhne about his speeding points yet? Surely he must know the true position and make some decision. Huhne has clarified nothing at all.

    Huhne’s absurd job destroying energy policy is enough reason to fire him forthwith anyway.

    1. mchael mcgrath
      May 22, 2011

      I see on the front page of the Sunday Times that Huhne says “I may have driven car”.
      Perhaps DC, in avoiding comment, is playing a more subtle game than many had thought
      Whatever, I smell (more trouble ahead -ed)…
      Cable next?

    2. Sean O'Hare
      May 22, 2011

      Huhne’s absurd job destroying energy policy is enough reason to fire him forthwith anyway

      Trouble is it’s Cameron’s policy as well!

      1. lifelogic
        May 22, 2011

        Yes probably it is Cameron’s policy too but I still give him the benefit of the doubt for some reason. He might change perhaps if someone explains it to him.

        Such a shame they have no sensible engineers or just someone who can do basic the sums on his energy policy.

    3. Bazman
      May 22, 2011

      The solar pv scheme doesn’t look a bad bet of the face of it if you have the 10k+ to install the panels could turn out to be a good investment giving returns much better than any ISA as well as saving a few quid on your electricity bills. Might as well get something from the government. Better fill your boots before they move the goal posts on the FITs scheme.

      1. lifelogic
        May 22, 2011

        It does not make economic sense even after the absurd feed in tariffs – just allow for installation, maintenance, depreciation and cleaning the the moss of them and you will loose money and do nothing for CO2 either – even if you do still believe in absurd AGW exaggerations – contrary to all the sound science.

        1. APL
          May 23, 2011

          lifelogic: “do nothing for CO2 either”

          If CO2 was a factor we should be caring about, which it isn’t, PV cells are the most CO2 expensive form of electricity production when you take into account the cost of:

          extracting the oil and refining silicone. Very energy intensive.
          Manufacture of the cells. Mass production but still very energy intensive.

          Building the infrastructure to agregate all the low voltages from each cell into something more useful, very inefficient.

          The cells themselves are only about 15% efficient, when you add in the electronics required to make them useful that will drop to about 7% efficiency.

          We can only do this because we all have lots of reliable relatively cheap energy derived from fossil and nuclear energy.

          The Green fascists were complaining about the ‘carbon cost’ of concrete used in nuclear power stations. Then we should see a full accounting of the cost of this so called nirvana of PV cells.

      2. BobE
        May 22, 2011

        Solar panels cost £12000 to install. After 15 years you might break even. By this time the panels will be down to 60% effecency. At the 20 year point you will need to reinstall the panels.
        Thats why nobody does it in the UK. Not enough Sun.

        1. APL
          May 23, 2011

          BobE: “Not enough sun.”

          Which is obvious really.

          But lets have a fact or two. At the equator at mid day on a cloudless day the estimate is for 1Kw to fall on one square meter.

          The further north you go from the equator the less energy will hit the earths surface and more of it will be obscured by cloud cover. So at higher latitudes the 1Kw falls to about 700W. which equates as you say to ‘not enough sun’.

          Now wind power? Our experience of Wind power at the depth of Winter for the last three winters, it has been most cold with least wind. Don’t forget that winter is cold, so Solar PV cells cannot help us during the winter, not least because they may be completely covered by snow.

          So where you need it most, in Northern climes, Neither PV nor Wind power can deliver the energy we need when we need it.

        2. alan jutson
          May 23, 2011

          Bob E

          Agree entirely, but people do because of government subsidy.

          So we have a government spending taxpayers money, so that taxpayers and business are forced to have higher energy bills.

          You could not make it up anywhere else but in the UK.

        3. lifelogic
          May 23, 2011

          And that is despite the government taxing people and using the money to subsidise with feed tariffs this nonsense house bling.

      3. APL
        May 23, 2011

        Bazman: “giving returns much better than any ISA”

        The government penalizes ISAs with artificially low interest rates and incentives wasteful ‘green’ investment with subsidies.

        Since it is an political decision not an economic one, the politics and subsidies can change ‘on a sixpence’.

        When the population becomes aware that their electricity is costs more to subdize greenery, it may not turn out to be such a good long term investment strategy.

        1. Bazman
          May 23, 2011

          From the number of sources I have read on the internet the panels have a lifespan of about 30 years with an average of than less than 1% drop per year in output Moss is not considered a problem and lifespan of other components is not a real issue, with a typical 10k system taking about 8-10 years to break even and 17k profit over 25 years. More with a just less than 4k system. There is some gamble with this. Who can predicate the weather and the government? Has got to be a safer bet than shares and the banks are paying next to nothing on 10k, so they can ram it. The system will be permanent and will add value to the house. It could be amusing to see how the investment goes and a controversial talking point.

          1. lifelogic
            May 26, 2011

            It won’t add to the value of the house, it won’t make the returns they actually claim in practice, it will need expensive cleaning, insuring, repairing, make roof repair more difficult/expensive, will get damaged in storms, depreciate and the feed in tariffs may well not continue when the government finally sees sense.

            A good honest “Enterprise Investment Scheme” with 30% tax relief on entry and no tax on gains is about the best bet at the moment if you live in the UK but avoid any “green” ones.

  3. Javelin
    May 22, 2011

    Ive never believed the Government figures can add up. The economic models I’ve used at both the worlds largest bank and now hedge fund show the deficit as remaining pretty much steady – only being eroded by inflation. Growth will not be what the ONS predict because politicians have relied on government spending for GDP, allowed the majority of the country to become enterprise free, become too reliant on banking, not globally protective. Plus the civil service will cut front line services before management.

    It is very interesting to see the Arab uprising moving to Spain – I think 47% youth unemployment. In the UK it’s 20%. I’ve pOsted on the site a few times that Spanish youth unemployment could destabilise the country and shift politics in Spain to the far right or left – which will cause problems for their large spending.

    I’ve also said on this site that the lack of democracy in the UK but especially the Eu is a cause for concern. Poor democratic processes become a bastion not just for those who built them but for those who take them over.

  4. alan jutson
    May 22, 2011

    John with the greatest of respect. you have highlighted the situation time and time again on this site and elsewhere, that government spending is increasing, but no one seems to be listening, or at least admit to listening and agreeing with you.

    The media in particular remains strangely silent on the subject.

    I do not dispute for one minute that you are correct, that the figures are for all to see in the red book, I also do not dispute that the government wants to cut the deficit, but all of the promises of 80% cuts 20% tax rises to pay for it seems a distant broken promise.

    In todays press we see reports of a spending spree on government issued credit cards, last week it was reported that the NHS spent millions on a chaotic (and probably out of control) purchasing system where they all (PCTS, Hospitals, etc) buy the same consumables at different rates, in differing quantities from different people.

    Philip Green outlined the huge waste in Goverment spending months ago, has anything changed ?

    Whilst the Government outlines a plan, the public sector just seem to carry on as normal, deliberately spending their budget as end of year approaches, someone needs to get a grip of the basics, and a grip fast, as growth is not going to happen on the scale suggested, and on which the calculations have been made.

  5. Peter
    May 22, 2011

    The problem is the debt not just the deficit. Any deficit at all increases the debt which eats up more cash to pay interest. What we should be talking about is deficit elimination and moving into surplus to pay down the debt. Anything less is theft from future generations and is morally unacceptable. Whatever the whining from public sector lefties about how awful cuts are, a failure to deal with this debt problem is a total failure of this government.

    1. Javelin
      May 22, 2011

      I agree the debt is a huge problem. Inflation has been rising constantly since 2002 – with a downward blip in 2009 that is now resuming. But this is not inflating away our debt because we owe the money abroad and we are not seeing rises in wages or rises in the exchange rates.

      Italy got down graded by Standard and Poors this week partally because of their high debt levels and low growth. I still think Italy will cause the Euro to collapse because of their debt levels (and not their deficit). I’ve said on your site for a few years that its rising interest rates, when we come out of a recession that causes the most damage to an economy. Just like a Tsunami after an earth quake. Those counties with high debt levels(uk, Italy and US) will be most hurt once rates rise and they need to roll over their debt. The reason for this is debt before a crash is much cheaper than after it because cash is worth so much more at the start of an economic cycle because returns on investment are better, and those left holding cash are like shop keepers who overbought last years fashion.

      1. Javelin
        May 22, 2011

        Sorry I meant to say “those left holding debt” not “those left holding cash”

  6. A.Sedgwick
    May 22, 2011

    The Cameron/Osborne 5 year economic plan could quite easily have been written by GB. The growth figures are a wing and a prayer job. There is no cut in expenditure and someday unless we devalue to a basket currency payback will happen. The support for developing business is minimal if not invisible to most and serious success in increasing employment in the private sector highly dubious.

  7. Brian Tomkinson
    May 22, 2011

    Thank you for stating this so clearly. Why no one seems to be concerned at the lack of real effort in sorting out the economic mess remains a mystery.
    You write: “in the March 2011 budget, the government decided it could afford to borrow £485 billion over the five years.” A very interesting statement which says so much about spendthrift governments of any political colour. Because it decided it could afford to (how can that be?), it planned to do so. Was any consideration given to whether there was a NEED to do so? We all know the answer to that rhetorical question. Today we learn in the Mail on Sunday that civil servants have their own ‘procurement cards’ –’ credit cards embossed with the words HM Government – have been handed out to staff, who are using them to spend more than £1 billion of public money every year.’ That shows just how little effort was put into going through public spending line by line. If it were not the case that Labour would make things even worse than the coalition and other countries’ problems are more immediate, I suspect the management of the economy would be receiving much more critical treatment in the markets.

  8. norman
    May 22, 2011

    One end of the world theory passed by without happening last night.

    Maybe it’s time for the government to reconsider it’s fiscal path?

    I say this as I’m now a firm believer that the government believes the world will come to an end in December 2012, as prophesied in some conspiracy theory or other.

    I’ve thought about it at length and there’s no other logical explanation for the things they are doing.

  9. acorn
    May 22, 2011

    The World Bank does a little instruction manual for starting up your own country. This link is to the common problems bit. .

    Look out for “Public sector wage bill as % of total public sector spending”. 25% is considered to be the upper limit, which is about where the UK is.

    Also, “Difficulties with Autonomous Agencies”. “Policy Lock-In. Are autonomous agencies undermining policy objectives by creating constituencies that will compel governments to maintain existing policies? Agencies are created but rarely closed or merged. Policy becomes what the agencies do, not what the government proposes”. (Think NHS and Education).

    1. Mike Stallard
      May 22, 2011

      Allow me to expand on the education bit, please.
      You like to quote sites. Well here’s one for you for a change!
      Press “Process Guide”.
      You will see that, far from being allowed to set up a free school (like an independent school) which sinks or swims according to the feelings of the parents of the pupils, we have yet another Government Comprehensive with the children, teachers, exclusion policy, punishments, national curriculum, Ofsted all carefully controlled by the DfE.
      This changed earlier this year when the Proposals were withdrawn for six vital weeks and then replaced with the current “Procurement Process”.
      To get hold of a Provider, apparently, we have to apply Europe wide but, amazingly, we have not even been told of the process of how to go about it yet. The final decision as to when we are to be allowed open at all will be next September, leaving exactly 12 months before the school opens. That means getting a Head, a staff, a Principal, tghe vital building and an organisation to do it for us because we simply can’t.
      This is absolutely not why I have been working my butt off for some two years – at my own expense – along with a number of concerned parents in the neighbourhood.
      Perhaps you can tell me why Michael Gove changed so radically in just 12 months?

      1. acorn
        May 23, 2011

        Mike, stick with it. I have experience of dealing with the, now, DfE in a former voluntary job; painful. I use links because in the day job I have to quote sources; justify using them; and, investigate who is funding the source. Your link for instance is a registered charity that has yet to file any accounts. JR hates links, cos he has to check them out. That is understandable as a politician, he can be miss quoted anywhere in the media. Mind you, he is looking a bit grey in the Mail today 😉 .

    2. lifelogic
      May 22, 2011

      Indeed the UK has all these problems in great profusion.

  10. oldtimer
    May 22, 2011

    The official forecasts of the UK public finances are not credible. For the moment the UK government appears, and certainly claims, to enjoy the benefit of the doubt. For the moment there are bigger issues elsewhere, but this is unlikely to last indefinitely. There remains spending that could be cut (extensively discussed by you and others here) and tax changes that should be made to encourage enterprise and investment and not the opposite as they do today. The government should get on with these changes without delay. Instead it seems fixated on political trivia. This is a leadership issue.

  11. Gary
    May 22, 2011

    The real problem is not even the govt debt, as big as that is, it is the total debt. We need to grow at >15% p.a. if we want to just make the interest payments on that.

    Total Debt = 466% of GDP=~£8Trillion[ref:Taxpayers Alliance, McKinsey]
    Govt debt = 76% GDP=£1.1trilion[ref:

    So, if a growth rate of ~2.5% is required to keep pace with the interest payments only on the govt debt, a growth rate of 466/76*2.5= 15.3% is required to do the same with total debt. Actually is it more, since private debt carries a higher interest rate than govt debt. Of course, this depends on the accuracy of all the numbers.

    I may be wrong, but it looks impossible to achieve enough growth to save us from some very difficult years/decades, indeed.

    1. Stuart Fairney
      May 22, 2011

      It is absolutely not impossible to achieve growth rates like that*. Impossible for the moribund main party thinking that dooms the economy to stagger on with high taxes, regulation and debt, but entirely possible if these boneheads just got out of the way.

      (* Singapore first quarter growth adjusted up to 23%, if they can do it, we can do it, but these clowns don’t even aspire to it).

      1. lifelogic
        May 22, 2011

        I agree, many people think very high growth in the developed UK is not possible but it is. Just not if the government put most of it effort into preventing it and deterring it and the wealthy from living in the UK.

        The UK is stable, fairly safe, has a pleasant climate, good time zone and connections and much going for it.

        It just needs sound government and there is no sign of that for perhaps 8-9 years at least alas.

  12. Ron Whitehand
    May 22, 2011

    Perhpas one place the government is not looking to reduce debt is in its own back yard in local councils. Woking, which you know well, continues to pile on debt, latest count is £220 million, which is supposedly backed by good assets. The debt pile is scheduled to grow as Woking uses cheap government loans (cheaper than the commercial sector can get) to build yet more shops right at a time when when High Street across the country are in decline. For some reason this council thinks it can buck the trend of every other shopping district in the country. The situation was not helped when on a recent visit to Woking, David Cameron who is ‘fighting’ to reduce national debt actually praised Woking Council’s plans to increase debt (mond you they were running cared of the Lib Dems at the time and needed a boost of some sort). Thus the council think they have the green light to increase the debt still further – which they intend to do to the tune of sveral more millions. Woking is already the most indebted council in the country, yes more than the leftie northern councils. How’s that for an accolade?
    The Conservatives can’t have it both ways, i.e. national debt bad, local debt good. Which is it John?

    Reply: I agree debt and overspending need to be controlled at al levels, but I do not know the figures for Woking nor can I confirm they are spending too much. Did I see a new leisure centre under construction as well in Woking?

    1. Ron Whitehand
      May 23, 2011

      Thanks for the reply, and my apologies for all the typos in the original comment.
      You asked about a leisure centre – that is not what is happening. Spending in recent years has been on an art gallery, The Lightbox, and on the shopping precinct.
      The impact of all this ‘investment’ can be seen in the council tax bills that are analysed here:
      You will note that tax growth has outstripped inflation and average salaries by a significant factor.
      Woking’s spend is also the highest per head in Surrey. See this link for the details:

  13. Gary
    May 22, 2011

    Obviously the figures I used are ballpark, and there is obviously an anomaly between the GDP numbers used in the total and govt debt calculations above. If we just use the debt numbers to measure this : 8/1.1*2.5=18% growth rate required to cover total debt. Even worse. But even if the lower figure are out by a factor of 2 ie. 100% overstated, the growth rate required will be somewhat more that 7.5%. Still not likely.

  14. David John Wilson
    May 22, 2011

    Instead of all this concentration on how much is being borrowed we need a greater emphasis in telling the public on what is being done to improve the country’s economic position. We hear a little about increasing manufacturing output but nothing about any efforts to reduce imports.
    For example. It is extremely worrying that major initiatives like the proposed large milk production farm was allowed to fail on minor planning issues while nothing is being done to pay farmers economic milk prices to stop dairy farms closing down. The Environment Agency objections could with a little imagination have been met by improved energy production from the waste. Berkshire is losing dairy farms at an alarming rate, meanwhile milk imports from Europe are rising rapidly.
    We need to see a government initiative to drive investment in import reduction

  15. grahams
    May 22, 2011

    At my right hand is a copy of your 1988 book “Popular Capitalism”. Why not follow its advice and sell the Government’s bank holding company to the public, so that we may have a permanent veto over much of our banking system.
    Half the state holding in RBS would have to be excluded and sold in the market to avoid too much concentration. Otherwise, sell 70 per cent of the holding company in minimum lots of £1,000 with a proviso that no corporate entity could own more than 5 per cent. The only other condition is that the likes of Goldman Sachs should not make embarrassing millions out of the sale.

    Privatising our bank stakes in this way would immediately help the deficit and the debt. It would keep a taxpayer interest in any upside. And it would ensure that any restructuring of our banking system did not simply mean that more banks would come under foreign controllers with not the slightest interest in lending to small firms. In other words, it would be popular capitalism.

  16. Tim
    May 22, 2011

    I believe the cuts planned by this Governement are very modest. I and most middle Englanders get very little return from the vast taxes taken from me at every turn. When I earn it, invest it, save it, spend it , travel our Governemnt is on the take. We should follow the Canadian model and only provide state services that are essential. Get rid of everything else and the nannying state and let people choose to pay for additional services themselves. Then cut taxes to free people from this big brother state.

  17. Damien
    May 22, 2011

    The bond vigilantes have woken up to Ireland, Greece and Portugal and the EFSF/EFSM/IMF bailouts so far of $363 billion have not been sufficient to stop the rut. After the markets closed on Friday the ratings agency S&P announced a downgrade of Italy because its doubts Italy’s resolve to deliver on its promises to cut spending and raise taxes.

    We saw last week yet another crisis meeting over a weekend to grant Portugal $111 bailout from the $1 trillion EU fund (750 billion euros). Both S&P and Moody’s announced that the US was at risk of a downgrade because the gridlock means politicians there may not be able to agree how to reduce the deficit. I do not think that the ratings agencies will hesitate to downgrade the UK if the Chief Economist of the BOE comments this weekend turn out to be accurate when he said he was “not confident that the recovery has taken hold”.

    Our commitment to the EFSM could amount to £ billions now that Portugal is to receive the $111 billion as we are liable to pay our contribution of 10.2% (EU) and 4.8% (IMF). This shows that even if we are successful in controlling our budget it can be seriously undermined by the worsening situation in europe.

    If the EU is to avoid moral hazard then it cannot allow Greece to reprofile/restructure/default on its debts as Ireland and others will immediately do likewise. This means that Greece should leave the euro and France and Germany must face up to its bad loans made to Greece by the banks. A disaster for Greece who will then be frozen out of the markets for a decade but a worthwhile warning to Ireland Portugal Spain and Italy?

    Europe is our biggest export market , especially Ireland and undoubtedly this is what Spencer Dale had in mind when he made the comments above. Last week Nouriel Roubini in his speech on ‘Crisis Economics’ made specific reference to the coalition when he questioned if they would be able to “make the tough choices” on cutting spending and raising taxes. Do you think the ratings agencies will wait long before they pass judgement.

    As I mentioned before any solution that the government puts forward that does not address the personal debt issue in the country will fail. Those who can are redeeming their mortgages (amounting to a withdrawal of £10 billion per month potential spending on the high street). If Spencer Dale can persuade his colleagues to raise interest rates on the remain 11.2 million mortgagees the BOE will have created the Keynes paradox of thrift. The alternative is to encourage the banks to allow those who choose to reprofile their mortgages. Not all of the 11.2 mortgagees would participate and those who do will exit the deal when they sell in the next few years. This would ring fence borrowers, restore confidence and allow the BOE to address inflation and savers need to rate rates.

  18. Stephen Gash
    May 22, 2011

    Does “mending” the banks mean selling them off to foreign competition?

    My guess is that the English assets will be sold off to foreign competitors while Scottish assets, RBS and BOS (the cause of the problem), will be returned to Scottish ownership. The latter even if it means handing them back to the Scottish goverment as nationalised institutions.

    So, far only England’s assets have been sold off for the sake of the Union, if I’m not mistaken and the banks will be no different.

    1. grahams
      May 22, 2011

      You have blown the gaff on the Emperor’s wardrobe malfunction here. Your point deserves responses from Mr Redwood and from “our” Government.

      1. alan jutson
        May 23, 2011

        If Scotland were to get Independence, what would their share of the UK National debt be ?

        Perhaps some figures should be discussed, or does Alex think they can just walk away debt free !

        Certainly should be part of the discussions before a referendum.

  19. Steve Cox
    May 22, 2011

    Well, we could save a useful few billion quid each year by drastically cutting back what is (according to media polls) probably the most unpopular element of government spending – namely, the Overseas Development budget. Sadly, Mr. Cameron is too pink in the middle to accept this.

    There is a massive amount of fat to be cut in education, health, and local government, but the government lacks the tools to force them to behave responsibly. Eric Pickles is on the case, but he has no power to make councils cut excessive upper-echelon salaries or pointless posts (e.g. the famous diversity and five-a-day coordinators – daft and unnecessary positions like these are STILL being advertised, which shows how powerless the government is unless it passes some draconian new legislation). Something needs to be done to cut NHS management far more radically than is proposed, not to mention getting sanity back into GP and consultant salaries. And teaching assistants – who needs them? I had an excellent state education back in the days when teaching assistants had never been heard of, but the teacher had the power to slap you if you misbehaved. Classroom discipline was generally very good. Why has the government allowed it all to fall apart, and at such great expense in every way?

    Most sensible people, those who realise what a crock of sh*t we have been landed in by Brown and Bliar, regard the Coalition’s deficit reduction plans as the fiscal equivalent of waving a handkerchief to put out a bonfire. What happened to the promise that “75% of the deficit reduction will come from spending cuts”? As you have pointed out, John, 100% of the reduction is coming from tax rises instead. Meanwhile, Mr Osborne seems to think that high inflation will partly solve his problems, but that will hardly dent the deficit as so much of it is index-linked. It may reduce the real value of the overall national debt, but that is not the pressing issue, it’s the rate at which that debt is increasing that must be tackled. So far, I see little progress, or any sign that the Coalition really has the cojones to do so adequately.

    Reply: The government calculates its figures from Labour’s planned budgets which contained even higher spending.

  20. Geoff M M
    May 22, 2011

    For those who like the historical explanation simple.

  21. Mike Stallard
    May 22, 2011

    Is the only place on the net that sense, with relevant figures is discussed? Sometimes, like Alan Jutson above, I despair too. Time and time again, you give the relevant figures clearly and so that even I can understand them. Then on the news we get Robert Preston stammering away in his affected way and Stephanie Flanders showing us a film about circuses or ice creams. Hilarious!
    I can see (look at the Telegraph letters today) a massive backlash of anger building up which, I very much hope, will result in another Mrs Thatcher.

  22. Neil Craig
    May 22, 2011

    And if we matched China’s 10% growth we would be outb of deficit in 2 1/2 years (or 1 1/2 if we had started after the election).

    China is a bureaucracy with a lot of nationalised industries, low education and most of its growth concentrated in a few, well run coastal areas taking the former British colo9nies of Hong Kong & Singapore as their models. So yes – obviously we could at least match China’s record(I think far surpass) if our government were not deliberately preventing growth by banning the production of inexpensive power, subsidising expensive Ludditry, spending half the money in the economy & massively increasing the cost of doing almost anything with useless regulations.

    Note that despite low wages China’s space development costs are far higher than the free market SpaceX’s though far lower than NASA’s. We can easily compete with them in high tech industries indeed the deck is heavily stacked in our favour, if only we were not being prevented from playing.

    1. APL
      May 22, 2011

      Neil Craig: “.. if only we were not being prevented from playing.”

      Not … by our own government?

      You could have knocked me down with a feather!

  23. BobE
    May 22, 2011

    Today on the radio there was a promise to make public the Public Sector workers Gold Card accounts. These accounts are paid out of taxpayers money. It seems that trips to thorp park and many meals out have been taken. John, the public release of these taxpayer funded gold card accounts would be much apreciated!. This is akin to the expenses saga. They talked of lavish card claims whilst planning cuts for everybody else.
    Just make taxpayer funded credit card accounts public please.

  24. BobE
    May 22, 2011

    Today in the Mail on Sunday was reported that civil servants have their own ‘procurement cards’ –’ credit cards embossed with the words HM Government – handed out to staff, who are using them to spend more than £1 billion of public money every year.’ Please can you ask that these accounts be made public. Or can sombody explain why not?
    Reply: I will look into it – all items of spending other than the very small are meant to be on websites already.

  25. Alte Fritz
    May 22, 2011

    The short point is that we need strong leadership to get through this.

    It looks like Der Alte Fritz must go campaigning soon, but he looks forward to rejoining the debate.

  26. Paul
    May 23, 2011

    One way in which the government could raise revenues while not costing UK PLC a single dime is to levy a tax on expatriates who wish to maintain UK citizenship and rights (access to NHS etc) once they return (even at a low rate of say 20% on income above GBP50k this raise significant revenue).

    This would do many good things for the economy, with no apparent downside:

    1) slow up the brain drain of talented people leaving
    2) increase revenue
    3) Decrease the comparative advantage of companies going abroard.

    Would this not be a reasonable thing to do given the governments current finances.

    If we then used this money to not only get rid of the 50% tax but also say reduced the 1% additional NI that Labour brought in this would be a nice jump start for the economy.

    1. Bazman
      May 25, 2011

      This type of scam already exists on Russian citizens. £200+ To renew a Russian passport last time my wife tried. The embassy was told to ram it on the phone as she has British citizenship. A lot of pleasure in talking to these post communist parasites like this. Not just for me either. This is part of a wider post Soviet belief extending to wanting Russian citizens living abroad to pay Russian taxes as if they are oligarchs who of course do not pay any taxes. You see? This is one of the endless examples of why the Soviet Union and communism is alive and well in Britain.

      1. Bazman
        June 4, 2011

        The latest scam is to make a person born in Russia even with a British passport buy a Russian passport. Thought they would one day they might do this, but I did not really believe they would. The person has to register with the Russian embassy also for what reason is not clear, but you can be sure it involves money.

  27. Conrad Jones (Cheam)
    May 25, 2011

    There are alternatives on how to take control of the National Debt:

    “Recommendation for Clearing the National Debt
    We have not mentioned paying off the national debt in the legislation itself, as it is entirely up to the elected government of the day how it spends its revenue. However, we would suggest that over the 30 years after implementing the reform, national debt should be reduced to no more than 5% of GDP. Realistically, it should be possible to completely clear the national debt and for fluctuations in the government’s income to be made up from its own savings. However, there may be situations in which the government needs some ‘breathing space’ so we have avoided setting the target for national debt at 0% of GDP”

    “One Beneficial Side-Effect of Paying Off the National Debt
    Besides saving up to £200 million per day on interest costs (if national debt rises as expected up to 2014), paying off the national debt has other benefits for the economy.

    By phasing out government bonds as an investment option, we force pension funds and other investors to look for alternative investment options. The next safest option after government debt is the debt of the ‘blue chip’, FTSE 100 corporations. By investing in bonds or even new share issues from these companies, these companies should be able to pay off more expensive debt, which in theory should lead to lower costs for customers, or more jobs being created, or more profit being declared and therefore more tax being paid.”

    1. Conrad Jones (Cheam)
      May 26, 2011

      “The Mechanics of Creating New Money
      When the Monetary Policy Committee has authorised the creation of a specified amount of new money, it will be created in the following way:

      1. The government will hold an account, known as the ‘Central Government Account’ with the Bank of England.

      2. The Bank of England’s Issue Department will simply increase the balance of this account by the amount authorised by the Monetary Policy Committee. They will not simultaneously reduce the balance of any other account – by making a credit without making a matching debit, they are creating new money.

      3. The government can then withdraw the money from its Central Government Account and add it to the pool of tax revenue, and then use it in accordance with the principles discussed in the section ‘Distributing the Newly Created Money‘.

      In contrast to printing physical cash or coin – which costs around 3p for every £1 created -a creation of money by the method is costless. To create £20bn or £200bn both requires one authorised official with the right passwords and a computer connected to the Bank of England’s central accounts system. Of course, it would also require witnesses and formalities to be observed, but all in all, £20bn could be added to the economy in a little under 20 minutes, at the cost of just a few hundred pounds.”

      There are examples in History where Private Banks did not create a Nations money – such as in the United States under President Andrew Jackson; which show Golden ages of economic stability, growth and rising living standards for all. A Government that has easy access to credit will always spend it unwisely. The UK has been involved in Three Wars over the last ten years alone- the Libyan War – a questionable noble cause – has money thrown at it soon after students are told not to expect any help with their tuition fees. It seems clear that the message delivered by the current Government – just like the last – is War First, Education Last.

      Is £9,000 pa of debt for tuition fees alone (never mind accomodation, food
      and books) is supposed to enitce the best and the brightest into Higher Education – or just the privileged few?

      Mr Cameron might be hiding behind NATO in Libya – but who’s paying the costs?

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