Autumn Statement as forecast


The latest forecast for the UK economy thinks there will be growth of around 6% for this Parliament, compared to the 13.2% the OBR forecast in June 2010. They attribute the worse performance largely to the weakness of the European economies, and slower growth world wide.

As a result of the slow down, they now forecast tax revenues some £50bn a year lower in 2014-15 than their June 2010 forecast. I have long argued that the forecast big surge in revenues looked problematic, especially given the higher rates. The Chancellor confirmed with some arresting figures in his Statement that the 50p tax band has cost the Revenue £7bn of tax income, as rich people have gone elsewhere to earn.

Total additional borrowing for the five years now comes out at £565 bn, not such a bad figure as feared. It is lower thanks to the large savings on interest payments, now amounting to savings of over £30 billion over the planned period. This compares with original forecasts of £451 billion extra borrowing this Parliament in the June 2010 figures. The extra borrowing has been brought on by loss of revenue. The higher spending forecast in 2010 is staying close to the original budgets.

Future growth rates depends crucially on changes in credit and money in the private sector over the next year or so, and over demand levels which will be affected by inflation. The future growth rate will be strongly influenced by progress in mending or bypassing the commercial banks. I will keep you posted of progress.

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  1. Max Dunbar
    Posted December 5, 2012 at 4:19 pm | Permalink

    “The extra borrowing has been brought on by loss of revenue”.

    Perhaps I have an over-simplified view of this but because we have discovered at the petrol pump that we only had £70 in the wallet instead of £90 as we thought, then we will borrow the rest from the obliging Chinese man at the adjacent pump. That big V8 engined car that our neighbour Mr. Brown kindly passed to us a couple of years ago and has been running ever since the 90s is heavy on juice.

  2. They Work for Us
    Posted December 5, 2012 at 4:42 pm | Permalink

    The effect of coalition politics and the official opposition is dismaying. One would hope that if as a country we have got our backs to the wall then MPs of all parties would rally round to support measures to make the situation better. The country is like a wounded soldier trying to make his way to safety through a treacly bog with socialist vested interests – Europe, Benefits cost, the Human Rights Act and so called green energy doing their damnedest to cling to his legs to impede him and drag him under

    • uanime5
      Posted December 5, 2012 at 11:41 pm | Permalink

      This is probably going to shock you but some people do support benefits and don’t want their human rights removed so the rich can get richer.

      • zorro
        Posted December 6, 2012 at 9:51 am | Permalink

        I see, so it’s a ‘human right’ to continually receive benefits……


        • Bazman
          Posted December 6, 2012 at 8:08 pm | Permalink

          Yes it is. There is certain entitlements to living in this country weather you like it or not and those entitlements help the non recipient too. This is not the third world or even the second one. Your plan of absolute desperation will come back and bite you on the bum.

          • zorro
            Posted December 7, 2012 at 12:44 pm | Permalink

            Well, I think it’s bonkers if you think it is right to continually pay people public money to do nothing. No ambition, no innovation, no adventure…. Ram it.


          • Lindsay McDougall
            Posted December 7, 2012 at 2:46 pm | Permalink

            But the incomes of people on benefits have gone up faster than those of people in work and that simply cannot be right.
            Nor can it be right that the government cannot enforce a public sector pay freeze because the courts say that seniority (time serving) payments cannot be scrapped.

          • Bazman
            Posted December 7, 2012 at 6:23 pm | Permalink

            It cannot be right that those in work see continuous cuts in their pay. Making a benefit claimants have less money does not make the one working have more. Remember the mantra? Many large companies cut pay, and cut pay by refusing rises despite making large profits. They are in effect making money from poverty. The dole is seventy one quid and a 10% rise would be less than a tenner so don’t try that one. The recipient is still skint and that is not acceptable. This idea that the poor should be more poor and deserve to be is what you are saying.

      • APL
        Posted December 6, 2012 at 12:39 pm | Permalink

        uanime5: “benefits and don’t want their human rights removed so the rich can get richer”

        Putting your hand in your neighbours pocket, taking his wallet and helping yourself to his or her money, is not a human right, it’s theft, just because you have the state buying you doesn’t make it right.

        Leaving the ‘rich’ with their own money doesn’t make them richer, it leaves them with just the same amount of money they had before you ganged up with the State to forcibly take their money from them.

        PS. If further discussion is to have any merit, kindly define your term ‘rich’ please?

        Would you for example say that Ed Balls with his shadow ministerial salary of, what £100,000 per year plus living expenses, is rich?

        Would you agree Ed Balls is rich if in addition to his salary we included the salary his wife Ms Cooper collects along with her expenses.

        Between them they must be collecting half a million per year. Are they rich or are they scions of the working classes looking after the poor man?

        Just curious.

        Reply Shadow Ministers do not receive additional salaries to their MPs pay. Only the Leader of the Opposition, the Opposition Chief Whip and a few others get extra salaries.

        • Nicol Sinclair
          Posted December 6, 2012 at 2:54 pm | Permalink

          “The Chancellor confirmed with some arresting figures today that the 50p tax band has cost the Revenue £7bn of tax income, as rich people have gone elsewhere to earn.”

          Why am I, as a non-economist, not surprised? This was always going to happen. Where does the Treasury lie? Cloud cuckoo land? Frankly, it was a no brainer. So WTF did the Chencellor do about it? Bugger all. If this has already been commented on – my apologies.

          “Total additional borrowing for the five years now comes out at £565 bn, not such a bad figure as feared.”

          Not such a bad figure as feared? It is GBP 565,000,000,000 or in my school days GBP 565,000,000,000,000…

          I need to go & lie in a dark room.

          “The extra borrowing has been brought on by loss of revenue”

          FFS. Why do you think this? Increase of the tax-paying elite = OFFSHORE. It’s happened exactly as predicted by better minds than mine.

          “The higher spending forecast in 2010 is staying close to the original budgets.” Those were false…

          Otherwise, Mr Redmond, I have nothing to argue with you…

          Reply The blog is called John Redwood when I last checked.

          • Nicol Sinclair
            Posted December 7, 2012 at 12:42 am | Permalink

            Reply to reply. My humble apologies Mr Redwood. My laptop/finger combination seems to have had a bad day.

          • Bazman
            Posted December 8, 2012 at 12:43 pm | Permalink

            To make millionaires work harder then they should be given more money, but on the other hand the working poor and those on benefits should be paid less to make them work harder. Do you see any problem with this Nicol? I would take these figures with a bucket of salt. The 50p tax rate payers have many ways to reduce their taxes and defer payments, but they like the rest of us still have to find a job and many would have lost theirs and would have found it difficult finding any company abroad daft enough to pay them the same assuming they were able to go due to many other factors.

        • APL
          Posted December 6, 2012 at 3:10 pm | Permalink

          JR: “Shadow Ministers do not receive additional salaries to their MPs pay.”

          Thank you for the correction and clarification.

          But you are goin’ to make me weep for Mr Balls and Ms Cooper, the poor things having to manage on £168,000 per annum. Not including their expenses . Poor souls not even half millionaires.

          I’d still be interested to hear from uanime5 his working definition of ‘rich’, though?

          Reply Twice an MPs salary is not £168,000 – an MP gets under £70,000

          • APL
            Posted December 6, 2012 at 11:24 pm | Permalink

            JR: “Twice an MPs salary is not £168,000 – an MP gets under £70,000”

            Thank you for the correction once again, I should pay more attention to the back of my fag packet.

        • Credible
          Posted December 6, 2012 at 3:52 pm | Permalink

          Deliberately putting your money offshore when you are a UK based company to avoid tax is theft.
          Running a cash-in-hand business is theft.
          Fiddling expense claims is theft.
          Setting fuel prices at a level people can’t afford in order to increase payouts to shareholders is theft.
          Not paying someone the minimum wage is theft.
          Breaching pension contracts is theft.
          There are many ways to rob.

          Reply Theft is defined by laws. Running a cash in hand business is only theft from the government if you fail to declare the income. Fiddling expense claims may well be theft. The others are n ot theft, though you may not like them.

          • Credible
            Posted December 6, 2012 at 7:39 pm | Permalink

            Okay then
            Running a cash-in-hand business and not declaring the income is theft.
            So I take it you’re happy with not paying the minimum wage. Isn’t that illegal? Maybe I’m wrong.
            APL seems to think that receiving a benefit is theft, you didn’t seem to counter that particular argument with the strict legal definition of theft.
            Just for clarification. Do you approve of the way Starbucks, Amazon, Google, Boots etc are apparently finding loopholes to avoid tax?

        • uanime5
          Posted December 6, 2012 at 4:48 pm | Permalink

          I was talking about two separate issues; human rights and benefits, not one issue.

          Unless you want the poor to turn to crime in order to survive and want to pay a huge amount of money to keep them in prison it’s far better to give them benefits.

          Given that employers get rich by paying their employees as little as possible it’s only right that they’re taxed appropriately.

          At present I’d say anyone who receives an annual salary of over £150,000 is rich as they’re the richest 1% of earners.

          • JimF
            Posted December 6, 2012 at 7:44 pm | Permalink

            A strange and negative attitude.
            We bribe and prop up poor people with benefits so they don’t commit crime?
            Why don’t we bribe them to work instead, so they won’t be poor any longer?

          • Edward
            Posted December 6, 2012 at 8:08 pm | Permalink

            Thats a terrible slur on those decent and honest people currently on benefits of whom, 99% would never turn to crime whatever their situation.
            Benefits are not a huge amount but they are still rising which is more than any rises I and many of my friends and work colleagues have had on our salaries and conditions over the last few years.

  3. alan jutson
    Posted December 5, 2012 at 5:08 pm | Permalink

    Sorry, but I cannot get excited about future growth figures which are the basis for working out future tax revenue, with a guessing system, which has been the case for years past.

    The above method is one of the reasons why we are in the financial state we are in.

    I do not work out my household/business or personal expenditure based on increased future guessed income.
    I budget on known financial facts, figures based on last years income for this years planned expenditure, I then apply a 20% safeguard (reduction to those figures) and I have yet to get into debt with this method.

    Why cannot the government work out its expenditure for next year on 80% of the tax take revenue of last year, and then repeat this excercise every year.
    Then unless something very exceptional happens to take up more than that 20% safeguard, you will always be in a surplus position.

    Is it really too much to ask for future expenditure to be based on sound historical facts, instead of pie in the sky calculations (which always seem to have an error.).

    • alan jutson
      Posted December 5, 2012 at 5:10 pm | Permalink


      Yes we all want growth, but it is not a God given or automatic right, as far too many seem to wish.

    • Lindsay McDougall
      Posted December 6, 2012 at 2:06 am | Permalink

      I’m not sure that we will see too much growth. The UK had a very poor position in 2010, not only because the government deficit was high but because the average ratio of household debt to household income was 160%, well up from the 90% of 1997. It is now down to about 140% but I imagine that many are still slightly uncomfortable and want to reduce it further. I had a look at the Eurostat time series data for this statistic. The ratios for Denmark and The Netherlands are very high (over 200%) and I wonder what the prospects are for them.

    • Nicol Sinclair
      Posted December 6, 2012 at 2:58 pm | Permalink

      You & Maggie must have been joined @ the hip. She REALLY knew how to balance her (housekeeping and Government spending) books.

  4. Credible
    Posted December 5, 2012 at 5:25 pm | Permalink

    I see that lots of people commenting on the BBC website about the Autumn Statement are complaining that the reporting is too biased in favour of the government!

  5. Credible
    Posted December 5, 2012 at 5:43 pm | Permalink

    “The Chancellor confirmed with some arresting figures today that the 50p tax band has cost the Revenue £7bn of tax income, as rich people have gone elsewhere to earn.”
    Where are these arresting figures, I can’t find them?

    Reply: In his Statement to the Commons

    • graham
      Posted December 5, 2012 at 7:29 pm | Permalink

      That doesn’t make it true – where are the figures to back him up?

      Still, never mind, according to his last budget, next April they are all going to flood back in for the 45p tax band and instead of complaining about paying only 100 million 9which he said is not worth having) are going to happily stump up 4.25 BILLION. Jackanory, Jackanory, Jackanory

    • Credible
      Posted December 5, 2012 at 7:57 pm | Permalink

      OK found it now.
      “HMRC data reveals that in the first year of the 50% tax rate, tax revenues from the rich fell by £7 billion and the number of people declaring incomes over one million pounds fell by a half.”
      It doesn’t say anything about the rich going elsewhere though, you just added that bit. Perhaps they just avoided paying more tax. You probably think that’s a good thing and therefore a good reason to keep the top rate down so that sort of behaviour doesn’t get out of hand. I’m not in favour of a very much higher tax burden on the rich, I don’t believe in penalising success, but they should pay what they are supposed to. In a time when everyone else is taking a cut in their standard of living, with serious consequences for some, the richest shouldn’t be getting a tax cut. That can come in more plentiful times.

    • wab
      Posted December 5, 2012 at 9:29 pm | Permalink

      “In his Statement to the Commons”. Oh right, since Osborne said something we are supposed to take it at face value then, are we. When is the last time Osborne said something in the Commons that did not hide 90% of the reality, only for him to be found out after the fact. If Mr. Redwood takes anything Osborne says as the Gospel Truth then I have a bridge to sell him.

      Let Osborne publish the full Treasury analysis of this without the Tory spin added on top and then we can perhaps see what is what. As usual, the biggest problem is that multiple factors are responsible for any change in tax take, and disentangling the various effects is not easy, but of course if you have a simplistic slogan to sell, as Osborne and Redwood do, then it is best not to do any thinking.

      • Mark
        Posted December 6, 2012 at 11:40 am | Permalink

        I actually drew attention to the full figures from HMRC here:

        You will see that those on incomes of over £500,000 were paying £18bn p.a. in income tax (and yet more in other taxes) before Darling ever mentioned 50% rates. The 50% rate announcement caused early payments that actually raised revenues at 40% from £17.6bn to £20.8bn – an extra £3.2bn for Darling’s last year as Chancellor. That has been more than offset by the subsequent declines.

        If we extend the analysis to cover all incomes of £150,000+ we get the follwing table of comparison:


        That clearly shows that early estimates of the revenue from the 50% rate were hopelessly optimistic. It also shows that for those on incomes of a little over £150,000, there was an immediate loss of revenue.

        • Lindsay McDougall
          Posted December 6, 2012 at 2:58 pm | Permalink

          I wonder how much the Wilson, Heath and Callaghan governments raised from income tax on the rich when the top rate was 80% or more. Old fogies remember the Beatles song Taxman: “……It’s one for you, nineteen for me………….”. Later, they got more sophisticated – it was ‘only’ 80% on earned income and an eye watering 98% on ‘unearned’ income. Thuggybear Dennis Healey announced at a Labour Party conference that he was going to ‘squeeze the rich until the pips squeak’. It didn’t get him re-elected.

          reply: It led to a very large “brain drain” and co-existed with a poor country with bad economic performance.

        • uanime5
          Posted December 6, 2012 at 4:52 pm | Permalink

          How exactly are you calculating the “old” figures? Are you guessing at how much tax would have been collected without the 50% tax rate?

          • Mark
            Posted December 6, 2012 at 10:11 pm | Permalink

            The calculations all come from HMRC. Any spin is theirs alone.

          • Mark
            Posted December 7, 2012 at 12:29 pm | Permalink

            The figures are all produced consistent with the tax regime in force at the relevant time. See the footnotes in my previous post linked above.

      • APL
        Posted December 6, 2012 at 1:24 pm | Permalink

        Wab: “Oh right, since Osborne said something we are supposed to take it at face value then, are we. ”

        A minister is supposed to tell the truth to the Commons. There can be quite serious penalties for misleading Parliament.

        • uanime5
          Posted December 6, 2012 at 4:52 pm | Permalink

          Have any MPs recently been punished for this?

          • APL
            Posted December 6, 2012 at 11:29 pm | Permalink

            uanime5: “Have any MPs recently been punished for this?”

            Don’t know, a couple over the last decade or so. Write to the Speakers office and ask him.

    • Acorn
      Posted December 6, 2012 at 6:39 am | Permalink

      Nobody moved, the money stayed off-shore waiting for the promised reduction in the highest rates. Exactly the same happened in the US some while back.

      • Mark
        Posted December 6, 2012 at 11:45 am | Permalink

        I think you should ask Geneva estate agents about that. I certainly know a number of people who left on the back of taxes.

  6. Denis Cooper
    Posted December 5, 2012 at 5:54 pm | Permalink

    Even without going into whys and wherefores, I’m not surprised that the process of reducing the budget deficit has fallen behind the schedule projected in 2010.

    That schedule was based on economic projections which are never reliable, and tend to be over-optimistic.

    I’m more concerned that apparently many people STILL don’t understand the magnitude of the problem, which has of course been masked by the £375 billion that the Bank of England has created and indirectly lent to the Treasury so the government can avoid making drastic cuts to its spending.

    • graham
      Posted December 5, 2012 at 7:36 pm | Permalink

      And he also takes back the interest from the BoE. So, lets see how this works – you get the Bank to print money which you borrow, then when the interest falls due you take that back as well and add it to your own totals. Brilliant! Looks like the answer to perpetual motion. Then he reckons Starbucks does dodgy accounting!

      • Denis Cooper
        Posted December 6, 2012 at 10:28 am | Permalink

        Basically the Treasury is indirectly borrowing from the Bank interest-free.

        It would have been much simpler and far more transparent if the Bank had just extended an interest-free overdraft to the Treasury, but there were two objections to that direct route compared to the indirect route, the rigmarole of the Bank creating new money and lending it to the APF so that the APF can buy up previously issued gilts from investors and so make it easier for the Treasury to borrow money by selling new gilts to much the same set of investors at much the same rate.

        The first, and perhaps less important, objection would be that the direct route would have blatantly contravened EU law, Article 123 in the Treaty on the Functioning of the European Union:

        “Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as “national central banks”) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.”

        The second, and probably more important, objection would have been that the direct route of the Bank extending an interest-free overdraft to the government would have been FAR TOO TRANSPARENT and would not have created the same scope for misleading and confusing the public about what was being done and why.

        • zorro
          Posted December 6, 2012 at 3:06 pm | Permalink

          Of course, the simplest thing would have been to create it debt free, but obviously there are reasons why this did not occur. As you mention, the tortuous charade of QE has been purely for public consumption so as not to be too transparent and seemingly not to contravene EU rules….not that it stops them contravening their own rules when they want.


          • Denis Cooper
            Posted December 6, 2012 at 7:05 pm | Permalink

            Well, new money issued by the Bank becomes a liability on the Bank’s balance sheet, and if enough of the money lent to the APF to buy gilts is not repaid to the Bank then it will go bust. The same if the Bank had extended an overdraft to the Treasury and that was never cleared.

          • zorro
            Posted December 7, 2012 at 12:48 pm | Permalink

            Let us see what happens with the QE programme. Do not be surprised if none of this is ever paid back officially. They are slowly but surely de facto cancelling the debt. They have cancelled in effect almost 30% in three years without too much adverse (other than what could be expected anyway) effect on the economy…..


      • Mark
        Posted December 6, 2012 at 12:01 pm | Permalink

        That isn’t quite how it works. The Treasury is entitled to any profit made on QE gilts, in return for guaranteeing against any losses. The interest payments are an element of profit.

        At the moment, the gilts that cost £375bn to buy are worth just under £400bn in the market, so there is also a capital gain. However, it was not always like that: I can recall posting here about £8bn of loss on QE gilts during the last months of Labour.

        Also, if the gilts are not sold, but simply held to redemption, they will only generate £326bn in redemption payments – a loss of almost £50bn against what was paid for them that the Treasury will have to pay over time as they mature, so they won’t be able to take all the interest income in future anyway.

        There is some sense in the Treasury taking the cash sitting at the Bank of England and spending it, rather than adding yet more to their borrowing. The idea is just the same as spending some of your rainy day savings rather than adding to your credit card bill: it saves some interest payments.

        The tricky bit is that there will be more focus on the exposure of the Treasury to falls in the market value of QE gilts if interest rates increase – something that the OBR appear not to have grasped. These are in addition to the exposure to increased interest bills on new issues that the OBR do acknowledge. The QE exposure is about £30bn for a 1% increase in yields. The new issues exposure in any one year is less than half that.

      • Nicol Sinclair
        Posted December 6, 2012 at 3:19 pm | Permalink

        @Graham. As we former physicists know, perpetual motion doesn’t exist. So. It’s not gonna work – is it?

  7. lifelogic
    Posted December 5, 2012 at 6:11 pm | Permalink

    “The Chancellor confirmed with some arresting figures today that the 50p tax band has cost the Revenue £7bn of tax income, as rich people have gone elsewhere to earn.”

    So why on earth did he (and the mad Libdems) go along with it in the first place it was bound to have this effect. The 50% is still here and even the 45% next year will cost tax revenue and jobs next year. So too will the lack of an uplifting vision that a £1M IHT tax threshold could have given (he lifted it by a hugely insulting 1%, not even inflation, on the current £325K). Reminding us yet again of his huge broken promise and the fact that Cameron and Osborne are clearly spent goods where any credibility is concerned.

    Why earn money pay 50% tax on it then have the government steal another 40% of it off your children on death – perhaps best not to bother or move.

    Another shameful attack on the already robbed and destroyed private pensions of the wealth creators.

    • lifelogic
      Posted December 5, 2012 at 6:19 pm | Permalink

      “The future growth rate will be strongly influenced by progress in mending or bypassing the commercial banks. I will keep you posted of progress”

      If he just stopped RBS/Natwest that the government owns pulling back funds from solid companies all over the place it would be a start. Yet the coalition clearly prefers to build schools, throw money down the EU pigis drain and to put up pointless wind turbine/rotating cross (0r more often not rotating) religious monuments all over the world. Do these people have brains or ever look at the numbers on these nonsense bird and bat chomping machines. An hour with a spreadsheet is enough to rule them out for anyone numerate.

      • Mark
        Posted December 5, 2012 at 8:38 pm | Permalink

        The amount of “financial interventions” added some £1,525bn to the National Debt at the end of 2008: it’s now down to about £1,100bn as banks have repaid financing provided by the Special Liquidity Scheme and the Credit Guarantee Scheme. Of course, most of that £425bn has come instead in the form of £375bn of QE, rather than retained earnings by banks. Moreover, as the Bank of England noted in the Financial Stability Review:

        …uncertainty about bank capital adequacy. One factor which may make stated levels of capital misleading is underrecognition of expected future losses on loans. Information from supervisory intelligence and banks’ own public disclosures suggest that expected losses on loans, including those subject to
        forbearance, are in some cases greater than current provisions and regulatory capital deductions for UK banks’ expected losses.

        In recent years, UK banks have also underestimated and underprovisioned for costs for conduct redress, notably for payment protection insurance mis-selling. In 2012, the number of identified conduct issues has grown and it seems likely that banks could face additional sizable costs.

        Banks’ capital positions could also be overstated because of aggressive application of risk weights. The current framework for calculating risk weights used in determining regulatory measures of capital adequacy is complex and opaque…

        Presumably these factors affect the book value of the debt and equity for “financial interventions”.

        More on the FSR here:

      • zorro
        Posted December 5, 2012 at 11:14 pm | Permalink

        They are talking heads….nothing more nothing less.


      • Nicol Sinclair
        Posted December 6, 2012 at 3:24 pm | Permalink

        @ Lifelogic. Loved your comment.

        I have been a saver/spender with RBS for 53 years and they are now calling in my borrowings. If I get to meet management, keep out of the way for I do not hold myself responsible for the outcome.

  8. Brian Tomkinson
    Posted December 5, 2012 at 6:11 pm | Permalink

    I think we need to wait till you’ve had a better look at the figures before commenting. All such statements are spun and the devil is in the detail. However, why should we have any confidence in the new forecasts when all the previous ones were wrong? You tell us that: “Total additional borrowing for the five years now comes out at £565 bn” although in June 2010 they thought it would be £451 bn. What is it Cameron keeps saying? – “You can’t borrow your way out of a debt crisis”! Your main salvation was the appallingly inept performance of Balls.

    • zorro
      Posted December 5, 2012 at 11:31 pm | Permalink

      Nothing too unexpected here John as we have discussed previously….I have mentioned that I thought that 7% might be achievable depending on what policies were adopted. The OBR target was always rather fanciful……They are now going for 6%……Somehow, I don’t think so. As you mention, QE is (in a roundabout way) allowing them to pay less interest on the loans. Based on what has been espoused today, I do not expect any substantial improvement in the next few years. I see that the funding initiative for business supposedly to be lent to businesses by banks has been singularly unsuccessful and is gathering dust in digital bank vaults….


      • zorro
        Posted December 5, 2012 at 11:41 pm | Permalink

        Interesting visit to the Bank of England museum the other weak…..Apparently, according to the bank, ‘inflation is a general rise in prices, and deflation is a general lowering in prices’……So why is the bank QEing because it is worried about deflation…? What’s to worry about lower prices? 🙂


        • APL
          Posted December 7, 2012 at 12:02 pm | Permalink

          zorro: “Apparently, according to the bank, ‘inflation is a general rise in prices, and deflation is a general lowering in prices”

          How convenient and disingenuous.

          Convenient in that it cleverly sidesteps the question, what causes inflation. Laying the blame for the general rise in prices firmly at the door of the pixies.

          Disingenuous in that it’s a lie. A general rise in prices is a symptom of inflation not the thing itself.

          • zorro
            Posted December 7, 2012 at 12:54 pm | Permalink

            Indeed, it is a worthwhile museum to visit just to see how they present the information. There is an interesting bit with Pitt and Fox having a discussion on money when Pitt was issuing lots of paper during the Napoleonic Wars and Fox was warning about the over issue in relation to gold and silver deposits. Interestingly, it mentions that one of the main reasons for setting up the B of E was to fund William of Orange’s wars against France.
            They have an inflation balloon which you can steer to keep inflation at 2% whilst coping with internal and external pressures. Needless to say my performance was better than the monetary committee….not that this would be a difficult thing to do…… 🙂



          • zorro
            Posted December 7, 2012 at 12:57 pm | Permalink

            You are quite right about the definitions and I wanted to leave a comment in the visitor book but we have mentioned it here enough anyway…..


  9. Caterpillar
    Posted December 5, 2012 at 8:00 pm | Permalink

    The two ‘forecasts’ that I would make are;

    (i) The coalition and BoE will continue with a 3.25% per year CPI inflation rate (when smoothed) as appears to have been pursued since January 2008.
    (ii) The coalition and BoE will continue with a ZIRP policy to, it appears, prop up boom-marginal businesses and mortgagors driving production and market inefficiencies.

    No medicine just ‘zade. (Mind you, it appears the official opposition wouldn’t be any different).

  10. David John Wilson
    Posted December 5, 2012 at 11:18 pm | Permalink

    While I understand the logic I don’t think the 1% reduction in corporation tax is significant enough to make much difference. The money would have been much better spent on reducing employers’ NI contributions, particularly at the bottom end and for under 25s. This would have had the advantage of helping smaller companies and increasing the possibility of more employment.

    • sm
      Posted December 7, 2012 at 3:54 pm | Permalink

      Indeed NI is a cash cost every month on UK labour costs.

  11. uanime5
    Posted December 5, 2012 at 11:40 pm | Permalink

    How exactly did the Chancellor determine that the higher tax band resulted in lower tax revenues. I trust that he didn’t just blame any loss in tax revenues on the 50% tax rate while ignoring that the collapse of city pay and bonuses had resulted in those in the upper tax bands earning much less than before the crash. Also how many wealthy people have left the UK and where did they go?

    Here’s a summary of the budget:

    The 40% tax rate is being lowered to raise more tax revenues but the 50% tax rate isn’t being lowered because that would effect the wealthy.

    Benefits will no longer increase with inflation meaning that they decrease in real terms. So for some reason giving people less money is meant to help the economy.

    Corporation tax is being cut because for some reason giving companies more money, even though they have hundred of billions of pounds they’re not investing, is meant to help the economy.

    The Lib Dems increase in personal allowance is continuing but most people won’t get much benefit because of the lowering of the 40% tax rate and benefit cuts.

    If you’re unemployed expect to get even poorer as you lose out due to benefit cuts but can’t benefit from the increased personal allowance.

    Well it’s clear who this budget is meant to benefit.

    Reply The raising of the Income tax threshold is Conservative policy as well as Lib dem policy. Conservatives are very keen to cut taxes on income and effort and this is a move in the right direction.

    • uanime5
      Posted December 6, 2012 at 5:08 pm | Permalink

      How exactly is lowering the 40% tax rate’s threshold a move in the right direction for cutting income tax?

      • Lindsay McDougall
        Posted December 7, 2012 at 2:10 am | Permalink

        I think it’s everybody below the 40% threshold that gets an income tax cut. The LibDems believe in progressive taxation, hence they seek compensation on the higher incomes. The Conservatives have somehow to escape from taxing single income households earning between £40,000 and £60,000 so highly. It’s not just the lower 40% threshold, it’s the lost child benefit. They will lose a lot of votes unless they do.

  12. zorro
    Posted December 5, 2012 at 11:55 pm | Permalink

    David Cameron – 10th October 2012 – “Here’s the truth: the damage was worse than we thought, and it’s taking longer than we hoped. The world economy – especially in the Eurozone – has been much weaker than expected in the past two years. When some of our big trading partners like Ireland, Spain and Italy are suffering, they buy less from us. That hurts our growth and makes it harder to pay off our debts.”

    No we haven’t paid off any of our debts….QE is the only way in which we are able to survive at this moment, not that the international markets have any confidence that the government has reduced the annual budget deficit a tad over the last two years……The government has clearly lost control of the finances and I suspect that if there are any further shocks it will deteriorate even more quickly. Can we really expect Cameron to cut in the run up to election? History will prove the liar there…..They could be well over 200 billion pounds out even on their original deficit predictions by then.


    • zorro
      Posted December 6, 2012 at 12:16 am | Permalink

      Our economy has been in the doldrums for the last four years but has still managed 15% inflation…..No real danger of deflation.


      • APL
        Posted December 6, 2012 at 1:28 pm | Permalink

        zorro: “No real danger of deflation. ”

        The deflation is all being stored up behind the dam of RBS, Lloyds & HBOS, the Spanish financial crisis, Greece, Italy & so on.

        If you think that structure is sound – then you can probably sleep safe at night sure in the knowledge that deflation isn’t going to occur.

        • zorro
          Posted December 6, 2012 at 3:14 pm | Permalink

          The deflation will only occur if it is allowed to happen……but they won’t let it happen.


          • APL
            Posted December 6, 2012 at 11:32 pm | Permalink

            Zorro: “but they won’t let it happen.”

            What makes you think they are in control?

          • sm
            Posted December 7, 2012 at 4:03 pm | Permalink

            They wont let it happen until they have socialized the privately created lending losses until the point of collapse if lucky.

      • APL
        Posted December 6, 2012 at 1:30 pm | Permalink

        zorro: “the last four years but has still managed 15% inflation”

        You are worried about a pin prick of inflation, since 1918 successive governments have devalued sterling by about 98%

        • zorro
          Posted December 6, 2012 at 3:13 pm | Permalink

          I am just commenting on the reality that there is no real deflation because the governments will not allow it to happen – hence my satire on inflation/deflation definitions further up the thread. Deflation is always held out as a threat – God forbid that people can access things more cheaply…..It is clear that the world financial system will not allow deflation to occur and they will do that by QE (in one form or another) and inflate away any debt. Let’s face it – that’s what always happens…

          You are of course correct that since 1913, the value of the pound and dollar has been destroyed by continual inflation……you only have to compare the difference between 1814 and 1914 to see the stark reality.

          Of course, this gives a rather clear steer as to how they will try and get out of any financial crisis…..


          • Lindsay McDougall
            Posted December 6, 2012 at 6:11 pm | Permalink

            The real reason (the hidden reason) that pundits and politicians dislike deflation, even zero inflation, is that some people would have to take a cut in salary if demand for their services decreased. Contrast this with the ‘happy’ situation where some people get 2% pay increases, more than offset by inflation and fiscal drag. For myself, I would rather have my nose rubbed in reality; it’s motivating.

          • APL
            Posted December 7, 2012 at 12:06 pm | Permalink

            Lindsay McDougall: “Contrast this with the ‘happy’ situation where some people get 2% pay increases, ”

            Aye, but with a gently deflating currency, say 1% per year you get a pay rise anyway as a result of your increasing purchasing power.

            I rather subscribe to the theory that governments prefer inflation because they can spend like maniacs yet pay the devalued debt off in twenty years time. Actually, the guy that makes the spending decision now doesn’t even have to pay off the debt at all.

          • APL
            Posted December 7, 2012 at 12:09 pm | Permalink


            Leads to civil unrest, strikes for more pay, annual demands for more money. It’s almost inconceivable that none of these things that we take for granted need occur under a deflationary capitalist economic model.

            In my opinion, it is no coincidence that our economic and social decline has coincided with inflationary economic policies persued by the political class.

          • zorro
            Posted December 7, 2012 at 1:04 pm | Permalink

            Just like happened with he Western Roman Empire……


          • John Doran
            Posted December 11, 2012 at 3:13 pm | Permalink

            Not coincidentally, 1913 was when the FED got it’s grip on the US economy by becoming the Central Bank.

            It refuses to have it’s accounts audited, Milton Friedman blamed the FED for the 1930’s depression,(it called in dealers short money on the NY stock exchange), it helped build the dotcom bubble, & the more recent housing bubble.

            When the credit bubble we are now in, again built by the FED, pops, we are in for meltdown. China is already lending less to the US, getting nervous about getting repaid.

  13. zorro
    Posted December 6, 2012 at 12:01 am | Permalink

    If they are in any way serious, they have to tackle spending on the NHS, Pensions and Social Security…Now, we are spending over 300% what we spent on NHS and pensions in 1997…..


    • zorro
      Posted December 6, 2012 at 12:39 am | Permalink

      UK ‘debt credibility’ oh the irony….they are busily monetising the debt through the QE programme which they have no realistic wish of unwinding…..


  14. Lindsay McDougall
    Posted December 6, 2012 at 1:56 am | Permalink

    The Chancellor is saving a lot on interest payments. However, if he got rid of inflation by setting base rate at a realistic level, he could afford to bear down harder on payments to the retired elderly. Swings and roundabouts but zero inflation is virtuous.

    It beggars belief that he is targetting what might be called the upper middle class so much (threshold for the 40% income tax down in real terms, reduced or zero child benefit). Does he really think that we will turn round and kiss the rod that beats us? Luckily for me, I am semi-retired. I will ensure that my income does not exceed the 40% threshold.

    I will be interested to see the effect of reducing the top income tax rate from 50% to 45%. If it restores some of the £7 billion lost when the rate went up to 50%, then logically he should reduce the top rate back to 40% in the 2014 budget.

  15. Steve Cox
    Posted December 6, 2012 at 4:50 am | Permalink

    You write that, “It is lower thanks to the large savings on interest payments, now amounting to savings of over £30 billion over the planned period.”

    I’d describe that as cherry picking your good news, or maybe sugar coating the bad. Interest payments will be lower because of the effect that massive QE has had in depressing gilt yields. But one cannot look at this piece of ‘good news’ in isolation as that is completely misleading. QE has had many insidious negative effects as well as the supposedly good effect of lowering the government’s borrowing costs. For example:

    How much has the persistently higher inflation that has resulted from QE cost the government in index linking of pensions and benefits?

    How much VAT income has been lost by depressed consumer sales resulting from peoples’ reduced real spending power caused by the inflation that QE has stoked?

    How much has QE depressed companies’ growth by forcing them to put aside large sums of money to fund their pension schemes in the face of the lowest annuity rates in history, a direct result of QE?

    How much wealth has been destroyed and potential tax income lost by investors pursuing high yield in risky investments, resulting from a lack of reasonably safe levels of acceptable yield caused by QE and ZIRP?

    I could go on, but I hope you get the point. The above may be largely unquantifiable, but there is no doubt that QE has had some major negative effects for the government as well as the positive effect of lowering its interest costs. I dare to say that these negatives outweigh the £30 billion of interest savings, so although this number is easily quantified, it’s disingenuous to quote it as if it an absolute. It is not.

  16. Acorn
    Posted December 6, 2012 at 6:45 am | Permalink

    We would have commented last night, but we couldn’t stop laughing at the OBR’s GDP forecast for, what is looking like, our lost decade to 2017.

  17. Single Acts
    Posted December 6, 2012 at 6:53 am | Permalink

    “They attribute the worse performance largely to the weakness of the European economies, and slower growth world wide”

    Problems and failures always seem to be someone else’s fault.

  18. colliemum
    Posted December 6, 2012 at 7:37 am | Permalink

    There are two points in regard to the budget, i.e. how the Chancellor is going to spend our money, which are veiled in obfuscation and lofty words.
    One is the fact that, bad economy or not, there are not and have not been sufficient cuts in the public sector. Is this government that scared of the Unions? Why has this government not got any proper PR to refute once and for all the wails of the Unions and the party they support, Labour, about how bad ‘austerity’ is affecting them?
    Is this government not capable of of answering the more and more ludicrous accusations of ‘the poor are being hit and the rich are not’?

    The other fact is the unspeakable ‘green’ energy policy of this government, which is crippling the economy, stifling small businesses and really affecting the old, the very young, the disabled who have to stay home.
    Why give 2 billion £ to the 3rd world’s green projects, which help rich international corporations but not those it’s supposed to help?

    Aren’t the Tories supposed to be pragmatists? Where is the pragmatism here?
    Why are they always defending against the socialist accusations, why are they never attacking the socialist agendas which have driven this country and the economy onto the buffers?

  19. Pete the Bike
    Posted December 6, 2012 at 7:42 am | Permalink

    How can the economy grow when 70% plus of a persons income is stolen by government?
    We don’t need more credit, we need more real earned money that can be saved and invested in business. The funny money, credit balloon is over. Unfortunately politicians do not seem capable of understanding that.

  20. Muddyman
    Posted December 6, 2012 at 2:19 pm | Permalink

    Why is it impossible to insist that any company operating within the UK must have its financial operations for any activity(within the UK) based and fully liable here?.

  21. Vanessa
    Posted December 6, 2012 at 3:20 pm | Permalink

    The trouble is that the government only talk of the “poor” and seem to think that the rich are a bottomless bank to squeeze. We need the rich to be rich! They create jobs and pay a disproportionate amount of tax but all you can do is to moan about them being rich and say they are not doing their bit. Do you have any idea of the amount they pay into your coffers and into charities and into the job market? I am sick and tired of reading about how the “poor” are so hard done by and we should give them more. Tell them to get off their “butts” and do an honest day’s work so this country starts to prosper.
    John, either your secretary has lost the ability to type or they cannot use spellcheck but your pieces are becoming more and more riddled with errors and are difficult to read. “You just can’t get the staff nowadays!”
    Also your energy policy is killing this country.

    Reply: I type them myself and have had little time to check and post this week as it has been very busy with the Autumn Statement.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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