Month: November 2012

   I have been asked to post the lecture I gave at Oxford. I spoke without a text, but will post bullet points on Monday.

The main points I made were:

1. There is no positive correlation  between fast growth and large amounts of state debt. China has fast growth and low debt. Japan has high debt and low growth. Greece has high debt and recession, the US and UK have quite high debts and slowish growth.

2. In past UK crises – 1974-5, 1981-2, 1992-4 the formula of cutting the deficit and easing money policy  produced growth and recovery. Indeed, as the cuts came into effect, so the economy grew faster, reinforcing the drop in the deficit through the cyclical effect.

3. After the 2007-8 crisis, the Coalition government proposed the same forumula as in the previous three crises. However, they did not succeed in cutting the deficit as quickly or as far as  in the three previous crises, because they decided to keep on increasing current public spending. They did raise taxes.

4. Whilst they tried to expand money, and printed far more than in responsse to previous crises, the broken state of parts of the banking system and the tough regulatory framework introduced at the wrong stage of the cycle prevented credit growth in the private sector to fuel the recovery

5. So the main difference between previous recoveries and this is the government has neither delivered as low a deficit as before, nor as  much money and credit expansion as before. As  a result growth has been very disappointing.

6. Overseas evidence reinforces the message that tighter fiscal policy and easier money policy produces expansions This has been shown in countries like Canada and Sweden which went through substantial programmes of spending reduciton and deficit cutting which  produced growth from the better balance of the public finances.

It has been a traditional feature of IMF recovery plans that the deficit has to be cut as part of the package to generate private sector led growth and further cyclical falls in the deficit.

           Lord Hall has received a wide welcome as the new Director General. I wish him well. I trust he remedies poor journalism and the institutional bias which can disfigure the BBC’s news and current affairs output.

            It was a little worrying to hear so many enthusiasts for more EU government and  for global warming theory extolling his virtues. The rest of us who are sceptical of more EU government or who do not like the EU government we already have, will reserve judgement. The test for many at  the BBC is to understand that there is now a large chasm between their metropolitan views on the EU, carbon dioxide, immigration and the rest and where much of their audience is on these issues.

            I have a plea to Lord Hall. Could he first concentrate on the quality of journalism? Before we get into an argument about whether all sides in the main controversies are fairly represented, can we at least agree that journalists on quality programmes should read some  original sources rather than just relying on spin doctors? They should, if presenting economic arguments about debt, deficit and spending, know the main numbers and present them fairly. They should, when investigating an EU matter, read the underlying budget or document to understand its significance. When wishing to relaunch a very old story like the Welsh child abuse story, they should at least read the full public enquiry which has already reported on it, to understand it better and to see if they have anything new? When wishing to talk about climate change, they should seek independent scientific and economic advice from both sides of the argument, and not decide with forces on one side that it is all settled.

    There is clearly a political controversy about whetehr an economy recovers by borrowing and spending more or by borrowing and spending less in the public sector. It is not, however, possible to have an intelligent debate about this if the participants and the BBC expert do not know the figures or understand how much government spending there is and by how much it is increasing anyway.

             If Lord Hall recognises the need for change over these crucial issues, then I will join his fan club.

           I will today be talking to the Thames Valley Chambers of Commerce at lunchtime on growth and the UK economy. This afternoon, at 5pm, I am giving a public lecture on Growth and the UK economy in the Old Library, All Souls College, Oxford.  I will have limited time to moderate.

              There are now so many sources of authority and law affecting our country that this fundamental question does need to be asked.  Much of our law is now defined or influenced by EU law. There are laws Parliament cannot pass and stay within the EU legal framework. Our justice system is limited or controlled by membership of the European Convention on Human Rights. The judges of the ECHR, like the judges of the ECJ, can now dictate some of the answers to Parliament. The EU runs our agriculture and fishing policies, has a major say in our environmental policies, runs our trade and competition policies, and how has some influence over almost every  policy area.

                 Nearer to home the “independent” Bank of England decides interest rates, settles the regulatory framework of the commercial banks, and is often the decisive influence on how much money and credit circulate. A host of other quangos from culture to the environment operate with some independence of government in their chosen areas of activity.

                 These large transfer of power away from a sovereign Parliament has led some to welcome a new era of diffused or spread power, whilst for many others it has led to frustration that elected MPs and Ministers can no longer do as they think the electorate wish. A government can look impotent if it cannot extradite who it likes, control its own borders, decide what interest rates should be or how banks should be controlled, or settle the price of energy and how it is to be produced.

                   The fact that quangos, the EU and the ECHR have these powers does not necessarily  mean that Parliament has lost its sovereignty. We will only be able to answer that when we know what happens next. If the British people get fed up with the results of so much power given away, Parliament could still take it back on their behalf. Parliament is still technically sovereign, because it can repeal or amend the 1972 European Communities Act, the fount of the EU’s power in the UK. It could by agreement or unilaterally renounce the EU Treaties. It could withdraw us from the European Convention on human rights, or negotiate a new approach to the Convention’s powers.

                           If many more years pass when people and Parliament do not do these things, we will reach a point where in practice Parliament has lost its sovereignty. Meanwhile, it would be foolish of Ministers and commentators to underestimate the latent power of Parliament. Ministers can take our armed services into battle, but need Parliament’s support to do so. They can propose a wide range of new laws, but need Parliament’s votes to agree them. Parliament and Ministers can make or break Governors of the Bank of England, Directors General of the BBC, Field Marshalls and Admirals. Parliament can create quangos, change them and abolish them. If the so called independent Bank of England ceases to please Ministers with the backing of Parliament  will instruct it or Parliament will reform it. Parliament still makes and can break governments.

                          We had thirteen years of a poodle Parliament. There were far too few votes against the patronage and spin of the established governemnt to make much impact. Today we have a Parliament with no party in the majority, where every voice and vote can count. Whilst many of us want more MPs to be strong on remodelling our relationship with the EU, this Parliament is prepared to say “No” to the executive, and to probe the overmighty in the world of quangos and the established official government.

                            Parliamentary  sovereignty is not yet dead. It has been asleep. The issues for all of us, is do you wish to stir it to a much more energetic purpose?

This will be the title of tomorrow’s blog. If anyone has received a short and badly typed piece on this topic today, that is because the computer apparently sent out a half finished first draft with poor  typing at high speed. Please ignore. As soon as I saw what it was doing I sought to retrieve.

 Seeing the reporting of yesterday’s figures, I am amazed. They know a few of the figures, and give a most misleading view of what happened. They all claim the problem was the 9% fall in Corporation Tax revenues.

The actual figures are  that spending in October was up by £3.6 billion compared to October 2011 (including interest payments – which reduced the increase. Spending excluding interest was up by £4bn).  Corporation Tax fell by £0.8 billion to £8.1billion.

Borrowing rose by £2.7 bn more than in October 2011. That means the rise in spending more than accounts for the rise in borrowing, with tax revenues making some positive contribution. Corporation Tax is relatively small and had a bad month. VAT and NI did better.