Can you inflate your way out of debt?


It is fashionable amongst the more cynical forecasters to say that of course the US, the UK and even Euroland will turn to inflation. When heavily in debt, they argue, governments love a bit of inflation. It erodes the value of their debt.

It is certainly true that the main Central Banks of the US, UK, Euroland and Japan are much more concerned today about the poor rate of gr0wth than about inflation. Japan has so little inflation that they want to get the rate up. The UK still has too much inflation, but the Bank has long been ignoring that. I do not doubt that the authorities now are much more tolerant  of inflation. None think it is about to become a major problem.

The issue though, is does inflation help an over indebted state? Is it the easy way of getting out of debt? I do not think so.

A relatively high rate of inflation in a given country is likely to cause devaluation of the currency. Where a state has borrowed from abroad in foreign currencies, the debts can get bigger as the domestic currency falls. The UK state has borrowed some money abroad – as with the borrowings of Network Rail – so would be vulnerable to lower sterling on these.

The UK state has also borrowed substantial sums in the form of Index linked gilts and National Savings. Here the state expressly cannot inflate away from the debt, as the debt goes up in line  with the rise in prices.

It is true that the bulk of the UK state debt is in sterling and borrowed at a fixed rate of interest. It is therefore true that this debt should get easier to repay as the state inflates. This debt does reduce in real terms. It only gets easier, however, if the state revenues rise in line with inflation or better, outpacing spending.

As the state is still spending well in excess of its income, we have to think about the impact of inflation on both its spending and its income. The danger for the state is that the gap between income and spending could get bigger, enlarging the deficit, if inflation gets too high.

The state guarantees real gains for many recipients of state pensions, and nominal gains for other benefit recipients. Inflation may make getting the deficit down according to plan more difficult. The government  has traditionally offered real rises to state employees each year. Expenditure in expensive areas like health tend to have higher rates of inflation than the average rate, and have budgets guaranteed to rise in real terms. Much  spending is likely to remain more buoyant than price rises, or to keep up with price rises.

Meanwhile, incomes are likely to be damaged by more inflation. Price rises can damage business profits and reduce the number of high incomes earned here in the UK available to tax.  We have seen how Income Tax and wealth tax receipts have fallen in cash terms in the last couple of years, at a time of considerable inflation.  The danger is that higher inflation could accelerate the gap between spending and revenue.

It is not guaranteed that a state can inflate its way out of debt. The danger is all too real that more inflation hits the costs and the revenues of the state in a way which widens the gap or deficit. The only ways out of excessive debt are to remove the deficit and grow the economy.

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  1. Alte Fritz
    Posted December 23, 2012 at 8:04 am | Permalink

    In other words, this or any other magic and easy solution relies on the private sector forever feeding the state irrespective of its own state of health. We can never improve whilst we have a state doing many pointless things with too many people and doing its necessary functions often very poorly.

    • Bazman
      Posted December 23, 2012 at 10:45 am | Permalink

      Your idea being that if we all bow down to corporate feudalism and the elite this will increase our prosperity? The whole idea that the “private sector” is independent of the public sector is totally bogus. In fact, “the market” is created by public laws, public institutions and public infrastructure. What pointless things is the state doing? Specific tasks or ram it.
      What the corporate sector is looking for is cheap labour and no taxes. Some companies are moving out of China as they say labour costs are getting to expensive as some Chinese wages are starting to hit $500 a month. They are considering moving to more poor areas of China and other countries that they can pay $50 or less per month. $50?! The fantasists will say living cost are cheaper. Like what? $50 is the same anywhere in the world. You know this argument will be destroyed so will say nothing. You think they do not have the same view here?

      • Disaffected
        Posted December 23, 2012 at 1:32 pm | Permalink

        I think Janet Daley has summed it up perfectly in her article today in the DT.

        • uanime5
          Posted December 23, 2012 at 6:54 pm | Permalink

          Her solution was to abolish healthcare, welfare, and the state pension. Hardly a viable solution.

          • Disaffected
            Posted December 24, 2012 at 10:10 am | Permalink

            Socialist drivel that indicates you do not understand what she wrote.

          • uanime5
            Posted December 24, 2012 at 5:23 pm | Permalink


            The fact that you were unable to explain what she wrote indicates my interpretation was correct.

        • ken from glos
          Posted December 23, 2012 at 6:58 pm | Permalink

          Spot on.

      • lifelogic
        Posted December 23, 2012 at 2:31 pm | Permalink

        “The whole idea that the “private sector” is independent of the public sector is totally bogus” – Of course it is bogus but no one is saying that. The state needs to provide law and order, defence, property rights and some other basic things but it does not need to be a 50% of GDP overhead pulling the private sector under water as now.

        20% (of what would be a far larger cake) is quite enough.

        $50 clearly is not the same anywhere in the world perhaps you have not travelled enough.

        • uanime5
          Posted December 23, 2012 at 6:51 pm | Permalink

          Plucking an arbitrary figure from the air and declaring that it’s enough doesn’t work in real life. Just because the wealthy can afford private healthcare and education does not mean everyone else can do without public healthcare and education.

          • lifelogic
            Posted December 24, 2012 at 5:42 am | Permalink

            Many countries do rather better with government spending of around 20% of GDP. Anyway much of what the UK government does is counter productive or simply pointless so how does that help anyone. All the wind turbine and similar subsidy nonsense for a start and the payments to encourage the healthy but feckless not to work.

          • Disaffected
            Posted December 24, 2012 at 10:12 am | Permalink

            We do not need to provide Africa, Asia and Eastern Europe free access to our public services while our elderly cannot afford to live. Wake up and smell the coffee.

        • Bazman
          Posted December 23, 2012 at 10:42 pm | Permalink

          Really? What western goods are cheaper in these places? First world living standard equals first world income.What for example would you find cheaper in Eastern Europe? Is anything cheaper if you are unemployed?

          • lifelogic
            Posted December 24, 2012 at 8:37 am | Permalink

            Labour is cheaper and since labour is the main input to most local products, foods, houses and services they are all cheaper too.

          • sm
            Posted December 24, 2012 at 3:35 pm | Permalink

            Labour is the main input into local products?

            Given the financialization of the economy i think fiat speculative money is the main driver e.g. houses and also other basics. Labour has done well to stand still in terms of costs.

          • Bazman
            Posted December 24, 2012 at 3:50 pm | Permalink

            You will find that this theory does not hold water. Food in Russia for example is more or the same price here. Potatoes and vegetables are in fact more expensive. Rent is less but electricity prices are the same. Gas is on a standing charge and would be cheaper for many if metered. Services like hotels are very expensive. Local vodka and cigarettes are cheap but as many only earn about $30 a month not as cheap as here. As I have said. Western lifestyle western income not your idyllic peasant fantasy that you try to put on Britain as well.

      • Electro-Kevin
        Posted December 23, 2012 at 4:42 pm | Permalink

        Bazman – A kernal of truth in all of that.

        What is democratic government if not an elected organisation to socialise funding raised through taxation ? Essentially that is all that Parliamentary debate is about – the allocation of public funding.

        The truth is that all western economies are a blend of socialism and capitalism and one does not exist without the other. Where one or the other is given too much precedence society becomes something else.

      • Edward
        Posted December 23, 2012 at 5:18 pm | Permalink

        The problem Baz, is how do you stop it happening?
        A strange alliance of socialist politcians and multi national big business is leading to the gradual ending of the nation state and increased power of corporate globalisation.
        The standard of living for the “workers” is falling in the west as standards of living rise in nations previously called “third world”

      • Alte Fritz
        Posted December 23, 2012 at 5:49 pm | Permalink

        Try Rochdale MBC’s £258m y/e 2012 on children and education which has dismally failed for decades to protect the most vulnerable. Where should that one be rammed?
        Try highway spending which fails to address the problem and creates hazard. Can’t ram that one because the highways are already blocked.
        Try translation of English into countless languages where people here need to learn the language of this country. Into how many languages do you want to ram that?
        It may come as a mega surprise to you that people seek cheap goods but it has always been the case and always will be. It’s not pretty but where does demand come from? From Mr Average maybe?

        • Bazman
          Posted December 23, 2012 at 10:47 pm | Permalink

          You assume the market set the rate for wages. It does not in many cases. Your simplistic fantasy is not true.

        • lifelogic
          Posted December 24, 2012 at 6:23 am | Permalink

          Indeed still no sackings in Rochdale over the UKIP farce I note. I assume their discrimination against foster parents who are not suitably socialist continues?

          In my experience socialists are often rather (unpleasant-ed) in reality anyway. They often have that evil and destructive envy gene and a chip on the shoulder too. Also a feeling that other peoples money should be taken off them and wasted I note, rather like Cameron in that respect I suppose.

          • lifelogic
            Posted December 24, 2012 at 7:15 am | Permalink

            Sorry Rotherham not Rochdale that was a different scandal.

          • uanime5
            Posted December 24, 2012 at 5:27 pm | Permalink

            Has the investigation into the actions of the social workers been concluded? If not then that’s probably why nothing has happened.

            Also I believe the foster parents were not allowed to foster children from eastern Europe because they were members of a political party that opposes people from eastern Europe coming to the UK.

  2. lifelogic
    Posted December 23, 2012 at 8:06 am | Permalink

    “The only ways out of excessive debt are to remove the deficit and grow the economy” indeed but Cameron has been there for two and a half years and has not even put in place conditions where either of those things is likely to happen.

    He needs to fire the 50% of the state sector that do little of any use (or worse just inconvenience the rest) and cut the pay/pensions of the rest by 30% to bring it in to line with the private sector. Then cut taxes, get some banks that are able to lend, inspire confidence, get from under of the dead hand of the EU and make it look like labour will not win the next election with a landslide.

    Has he made any significant moves in these directions at all?

    Having said that a little inflation can help – as surely most debt is in sterling and not inflation linked (my debts certainly are). But they need at least to get rid of the deficit now – they could do it without anyone seeing any decline in services so easily as so many government activities are totally pointless. Start with the climate change drivel and all the pointless regulations. No regulation should be enforceable where it can be shown to be silly in a court – that should get rid of most at a stroke.

    • lifelogic
      Posted December 23, 2012 at 9:09 am | Permalink

      Off topic –

      It was very depressing but alas not surprising to hear (on any questions radio 4) that even in the posh Haddenham Village, Buckinghamshire the “vast majority” of the audience had lost trust in the police.

      Following the Andrew Mitchell police outrages, Hillsborough, countless other incidents and the general lack of interest in real crimes relative to revenue raising “crimes” it is hardly very surprising.

      I was also pleased that Max Hasting has, belatedly, come round to thinking Afghanistan is a disaster. Surely this was all clear at the very outset to right thinking people. Alan Duncan’s defence of the war was (referring to girls in education) also rather weak and clearly not even true in the main.

      • stred
        Posted December 23, 2012 at 11:14 am | Permalink

        The loss of trust in the police is hardly surprising, despite their efforts to engage in expensive public relations exercises. The public will not forget the lack of interest shown in the crimes that affect them. As in the case of my friend, a skilled joiner who had all his expensive tools stolen from his security bolted van at lunchtime in a store car park. The police did not even ask him what tools had been taken. Similar thefts continue in the area six months on. When I confronted two burglars face to face trying to break into a neighbour’s house, when there was a community service group of miscreants working in the school adjecent, the police could not be bothered to call me on the number given to them.

        I note that there is a frequent radio advert for a Met Police rape counselling website going out on LBC. The ads are very professionally produced and follow a rcent payout to a victim that had incompetent treatment from their force.

        Then we have the Yew Tree investigation in partnership with the NSPCC. £2m spent so far, before the non- prosecution of a dead perve and prosecutions of old men for 40 year old sex offences, trawled up from the campaign. No notice has been taken of the parliamentary enquiry following previous trawling exercises and the large number of innocent people caught up, some having served longer sentences because they refused to admit their crimes and undergo therapy. Now the process is even easier, as the evidence of more than one ‘victim’ of crime commited many years ago will count towards an overall proof.
        The more the merrier. Easy polizey.

        • uanime5
          Posted December 23, 2012 at 7:04 pm | Permalink

          How do you expect the police to function when their numbers are being reduced and they’re getting pay cuts to meet the right wing demands for a smaller state?

          Well you could always contact your police commissioner about these problems. After all they’re supposed to be more in touch with the community.

          • lifelogic
            Posted December 24, 2012 at 8:43 am | Permalink

            I expect them to concentrate on real crime and act as a real deterrent. Not as so often now on revenue raising “crimes”, thought “crimes”, political correctness, deterring crime reporting, covering up Hillsborough, or trying to selecting the cabinet members.

          • Disaffected
            Posted December 24, 2012 at 10:18 am | Permalink

            The police numbers are more than sufficient. In the 1980s there was a huge increase in “civilianisation” to allegedly put more bobbies back on the beat. The numbers of civilians hugely increased, but more bobbies were found squads and desk jobs and NOT put back on the beat. The government introduced legislation that exacerbated the situation. Redefine what we want from the police and put them back on the beat like the public want.

            Examine the figures and you will see that there are more staff in office jobs and squads than on the beat. No other business would survive where there is more support staff than front line delivery. Policing needs reform, unfortunately Windsor has got it completely wrong. After all, what would a rail regulator know about policing and looking at the railway record it is the last place to go to seek a person to transform another public service.

      • Richard1
        Posted December 23, 2012 at 6:04 pm | Permalink

        Although he meant well & was doing his best to defend govt policy, Alan Duncan’s answer was, in effect, that 400+ deaths of British soldiers have been worthwhile because more children, including girls, now go to school in Afghanistan. I first heard this defence of the Afghanistan war offered by Harriet Harman, standing in for Brown I think. There is only one reason why British servicemen and women should be asked to risk their lives: because there is a threat to the UK or our allies which only miltary force can eliminate. Laudable though it is to have better education and gender equality in Afghanistan, it is unthinkable that this should be offered as a justification by ministers for death and injury to service personnel.

        • lifelogic
          Posted December 24, 2012 at 8:44 am | Permalink


    • Graham Cresswell
      Posted December 23, 2012 at 10:23 am | Permalink

      Spot on.

    • Disaffected
      Posted December 23, 2012 at 11:02 am | Permalink

      We can all see from the figures that Cameron and boy Osborne have no intention of taking substantial action on the economy, they want to pass the mess back to Labour for political reasons not national interest, the public, the taxpayer, but the power of being in government. No attempt has been made to cut inflation by the BoE. What has Mervyn King actually achieved apart from protecting his and senior colleagues pensions?

      Look at all key policy issues and departments. If the economy was the number one priority there would be a united obsessive stance on every single penny spent. When an examination takes place you name it they failed to deliver on it. All of which has a detrimental effect on the economy, currency, savings, pensions, society of scroungers and national culture.

      Look at Westminster and ask has Cameron and Clegg clean up politics as they both promised? Look at the cabinet members, select committee chairs and ask: are they there for their own gain, party advantage or national interest? When Westminster is cleaned up and standards raised we might start to get a truthful straight answer from politicians, until then, and contrary to what Cameron says, we can only hope and dream to be like a Greater Switzerland with referendums on key policy issues and all the economic advantages it has from being outside Europe.

      • helen jones
        Posted December 23, 2012 at 5:29 pm | Permalink

        The whole problem is power crrupts and they all have snouts in the trough
        theres not one single effort to deal with the defecit
        yet Pensioners like me are being forced to choose betweeen food or heat because we have no option but to depend on savings interest

        The first line of Merves speech in New York says it all

        “My pension is safe with your Roger ”

        in other words everything i have done has boosted my pension and to hell with all the Pensioners who stupidly went without to save for retirement

    • uanime5
      Posted December 23, 2012 at 7:00 pm | Permalink

      Typical right wing fantasy of cut everything you don’t need, no matter how much it hurts everyone else.

      How exactly is firing half the teachers, judges, social workers, fire fighter, and doctors going to result in anything but a disaster? How is cutting their pay going to result in anything other than strikes, which will further harm the economy? You need to come up with some real solutions, not attacking the public sector for the sake of it.

      Were you to go to court claiming that climate change isn’t real you would be the one looking silly.

      • Bazman
        Posted December 23, 2012 at 10:50 pm | Permalink

        Always happy with cuts until they are made redundant at 50 or the services they need have been reduced.

      • Leslie Singleton
        Posted December 23, 2012 at 11:09 pm | Permalink

        Unanime5–Says you, but how many times do you need telling that nobody is saying that climate change isn’t real? What is real is that a lot of us, increasing in number all the time, think only SFW. It’s ever so slightly obvious that there is nothing new in climate change and even if there were the debate should be on whether the change is significant and what its causes and effects are. On questions like that we are nowhere and we are suffering from alarmism of a decade or two ago whose bandwagon the likes of you jumped on for reasons that are obscure to some of us. Instead of wasting enormous amounts of dosh one might have thought you would prefer to spend it on the welfare state and other left wing causes. Even I might prefer that BTW.

        • uanime5
          Posted December 24, 2012 at 5:32 pm | Permalink

          In the post I was replying to lifelogic was saying that climate change wasn’t real. So it seems at least one person is openly saying climate change isn’t real, while the rest claim global warming isn’t real.

          Given that the scientific evidence has shown that if global warming continues its effects will be significant (especially in countries that are already very hot) these debates have already been had and lost by the deniers.

          • Leslie Singleton
            Posted December 25, 2012 at 7:29 am | Permalink

            Be informed that scientific debate is never won or lost but just moves on. Whether that is good or bad is another story but that is the way it is. Your use of “deniers” is tendentious and rude. I for one don’t just deny any need for alarm and the wasting of phenomenal amounts of money – mainly so the EU can consider itself a force in the world – but ridiculous and an exercise in the human psyche.

      • Robert Christopher
        Posted December 24, 2012 at 12:58 am | Permalink

        It is true that the climate is changing, but it always has, so why mention it in a court?

        • uanime5
          Posted December 24, 2012 at 5:33 pm | Permalink

          Well lifelogic thought he could prove climate change wrong in court without looking silly. I told him that was unlikely.

      • Edward
        Posted December 24, 2012 at 1:49 pm | Permalink

        Whenever the word “cuts” is mentioned there is a knee jerk reaction claiming that nurses, doctors, teachers and emergency services staff will all lose their jobs.
        No one wants that to happen and it does not need to happen.
        These are the needed services, what needs cutting is the HQ and dead admin costs.
        Where I live local councils are enjoying sacking librarians, youth workers and school crossing patrol wardens to prove how tight the budget is, whilst paying their top officers and managers obscene salaries.
        You think there is no room for cuts?
        Chief Execs of local authorities and Quango bosses and BBC bosses on several hundred thousands a year…….ad infinitum…

        • uanime5
          Posted December 24, 2012 at 5:35 pm | Permalink

          Lifelogic stated quite clearly that he wanted all state employees cut by 50%; so this would involve firing nurses, doctors, teachers and emergency services staff.

          As long as Parliament allows council to pay themselves huge salaries while sacking librarians, youth workers, and school crossing patrol wardens this will continue.

          • Edward
            Posted December 25, 2012 at 9:37 am | Permalink

            Carefully avoiding answering the question as usual.

  3. Major Frustration
    Posted December 23, 2012 at 8:43 am | Permalink

    JR – could a do a blog on “The Deficit” as I am not quite sure where we are with this. All too freqently we get Tory politicians saying that the deficit has been reduced by this or that % – but what was it at the start and and what is it now and surely with the current uplift in Government spending the deficit has increased.

    Reply I will do so afetr Xmas. The government is right in saying it has reduced the deficit – in other words the debt is going up less quickly than before, but is still climbing.

    • Manof Kent
      Posted December 23, 2012 at 12:04 pm | Permalink

      The Coalition came to power promising to eliminate the deficit by 2015.
      The Labour promise was to halve the deficit by 2015.
      The Coalition has cut the deficit by 25% ,so are half way to achieving Labour’s promise.
      Meanwhile tax revenues decline ,benefits and public pensions are inflated so we have to borrow more.
      This in turn makes the deficit target ever more difficult to reach.
      Nobody gets a grip to act in the national interest.
      It really is a pathetic state of affairs!

      • uanime5
        Posted December 23, 2012 at 7:06 pm | Permalink

        Given that the deficit has been increased every month compared to the previous year it clearly hasn’t been reduced by 25%.

        • Leslie Singleton
          Posted December 24, 2012 at 7:15 am | Permalink

          Unanime5–It is a bit confusing I agree and for a PR bunch Cameron’s lot are making a real pig’s ear out of the presentation. I think what might be happening is that the deficit is reducing apart from items that are increasing. Merry Xmas.

        • Edward
          Posted December 24, 2012 at 8:29 am | Permalink

          So you agree,no cuts in spending.

          • uanime5
            Posted December 24, 2012 at 5:37 pm | Permalink

            I only agree that there’s been no cuts in borrowing; spending cuts are another matter as some areas have been cut so more can be spent on other areas.

  4. Leslie Singleton
    Posted December 23, 2012 at 9:04 am | Permalink

    I always think it is a good idea to go back, if only in thought, to real money, or as near as we can get to it, and away from the printed sort of imaginary stuff and the entries on computer screens that we live with now. With that in mind, would the people who think inflation is a good thing, have, if they had lived then, thought they could achieve much, including lowering debt, by coin clipping and the debasement of gold and silver coins by adding base metal? Surely the answer is of course not and I don’t see why things should be different now. The necessary maintenance of the value of the currency means that there should be no such thing as inflation.

  5. Pete the Bike
    Posted December 23, 2012 at 9:15 am | Permalink

    How can we be having this discussion when an alleged Conservative prime minister is in charge? The Tory party used to be the party of sound money, prudent finances and some economic intelligence. Now it’s Gordon Brown Lite. Inflating the debt away will certainly get rid of the debt along with most of the economy and all of your savings. Are we really reduced to Weimar/Zimbabwe levels?
    Very nearly I think and with Dave and George in charge I can’t see any likelihood of a change.

  6. Ezra T Fernydew
    Posted December 23, 2012 at 9:27 am | Permalink

    Don’t forget that price indexes are not necessarily reliable measures of purchasing power lost … index linked benefits and pensions do not confer immunity from the rise in prices of essential goods and will soon become even less effectual.

  7. oldtimer
    Posted December 23, 2012 at 9:46 am | Permalink

    You make a good point about the impact of the top rate of tax on very high earners (the impact of the 50% rate and 28% CGT) causing a reduction in tax revenues. But over time there is the insidious influence of fiscal drag on earners lower down the scale. Larger and larger numbers of middle income earners are becoming entrapped in the top rate because it has not been adjusted upwards to reflect inflation. It would be informative to know, at some time, just how many have become entrapped in this way. I suspect that they will be counted in the hundreds of thousands. This process has suited successive Chancellors very well indeed – but not its victims. It is one of the more insidous impacts of inflation.

  8. Tim Robson
    Posted December 23, 2012 at 9:55 am | Permalink

    “The only ways out of excessive debt are to remove the deficit and grow the economy.”

    Phew John ! I wondered where you going with this in your dry ‘on one hand…and on the other hand’ style. Glad for the last sentence.

    I know you are tireless in BBC interviews etc in mentioning that state spending is still growing but do you know what, the message is still not getting through. Cameron is slowing the rate of increase in new debt, not cutting anything at all and nobody knows this !

    Therefore – my challenge to you – as an ex Tory and now firm UKIP – is with your colleagues try to change the terms of debate. I know this is difficult v the mainstream media preoccupation with ‘cuts’ and the 45% tax but it has to be done.

    More needs to be made of :

    1) Total debt
    2) Debt per person
    3) Deficit per person
    4) Interest per person and total yearly interest with all the trade offs.
    5) Average tax per year per person

    Every debate about spending should be equated back to these indices, ie

    “That’s all very well minister but do you realise that you are talking about spending 20,000 tax payers’ total contribution per year? If you asked them personally for this, do you think they would agree their total tax take finances this personal hobby horse of yours? (EU budget / Int aid / add name of batty scheme).”

    It’s time John we started redefining our language and the terms of debate so that those broadly on the right start hitting back ! The left have set the terms for too long.

    All the best as usual – love reading your blog.

    Merry Xmas to you and yours !!

    • Mark W
      Posted December 23, 2012 at 5:20 pm | Permalink

      Spot on

    • zorro
      Posted December 23, 2012 at 9:40 pm | Permalink

      Total debt should be clearly expounded, but a lot of that is private debt. The state is slowly inflating its nominal debt away, and will rely on taxing and means testing pension benefits in the future.

      There is no such thing as debt/deficit per person…..particularly when you are in credit. If the state tries to impose punitive measures to mug me, other options will arise….


  9. Gary
    Posted December 23, 2012 at 10:00 am | Permalink

    good article. We have run out of practical options. No realistic growth will bridge the fiscal gap. Inflation may help one side of the ledger, but it makes the other side worse. This ends in currency debasement and default.

    • zorro
      Posted December 23, 2012 at 9:37 pm | Permalink

      We will be in good company with USA, EU and Japan. All will be following the same route.


  10. JimF
    Posted December 23, 2012 at 10:03 am | Permalink

    Surely your argument just points to the fact that you need more devaluation and inflation to get rid of the deficit, rather than that inflation doesn’t get rid of it?
    On balance most government debt is Sterling denominated and repayable with sub-inflation rate interest less tax which pings back to the government. There is also the question of capital gains which conveniently aren’t inflation linked.
    The trick of course is to steal from savers, pensioners, bondholders and corporate Sterling balances to feed the LibLabCon government machine without people noticing and transferring their political allegiance. That is the difficult bit.

    • JimF
      Posted December 23, 2012 at 10:09 am | Permalink

      Made the classic mistake of writing deficit for debt – inflation will of course get rid of the debt quicker then the deficit….

  11. Wilko
    Posted December 23, 2012 at 10:31 am | Permalink

    Yes. Inflating into freedom from debt can work.
    A man who borrows £1m to buy a house which inflates to £2m pays interest only on the sum borrowed. Gaining from inflation involves securing ownership of those entities which others will buy next at well above their current cost. Most of us do it. Buying postage stamps before the massive increase is a minor example.
    If a nation is to gain, foreign income would be a main source of the remedy. Those who lead national economies should however be more sensible & efficient in their decision-making.

    • Electro-Kevin
      Posted December 23, 2012 at 11:58 am | Permalink

      Wilko – Do you not think that we’ve reached the end of the road on this trick ?

      House price inflation worked because of ever more exciting mortgage products, relaxation of lending requirements – which helped bring us to… the Credit Crunch !

      Now our children find themselves impoverished because of it and unable to raise mortgage deposits or their children without help from their ‘rich’ parents.

      Rising house prices is what kept Nu Labour in power and allowed them to get away with wrecking our economy and society.

    • Robert Christopher
      Posted December 23, 2012 at 3:03 pm | Permalink

      In other words, like a pyramid scheme, where it is imperative that the next generation buy into the fantastic future to which others are aspiring!

  12. Electro-Kevin
    Posted December 23, 2012 at 10:36 am | Permalink

    Thank you for explaining this so clearly.

  13. margaret brandreth-j
    Posted December 23, 2012 at 10:49 am | Permalink

    Thanks John. I use your blogs as a learning process.All the high flying chit chat about fiscal , finacial and monetary manoeuvres goes well above my head, but that does not prevent me from trying to understand and I can cope with your analyses of ebbs and flow in such matters. I havn’t sufficient understanding to give a counter argument at present so am happy to go along with what you say.

    Wasn’t quantitive easing a method of reducing the gap between inflation and spending , but where did that money go?

    Reply: The QE new money has been used to buy government debt – i.e. in a round about way lent back to the government so it can acrry on spending much more than its income.

    • zorro
      Posted December 23, 2012 at 9:55 pm | Permalink

      As we have said many times previously, this has been the real reason for QE – to keep government spending afloat whilst slowly getting back to a balanced budget. If I were a betting man, I think that they would be quite relieved that inflation isn’t higher. This has been achieved because of what has happened in USA and Japan (and soon Europe on a large scale).

      At the moment, they think that they are achieving the aim of slowly inflating/cancelling government debt through QE expansion. The £375 billion is about 30% of current government debt and they are getting away with just under 3% inflation after 3 and a bit years of these tactics. By the end of this Parliament, that percentage will creep up higher. It is very easy to say ‘oh well they can’t keep doing this….’…..but if someone had told you in 2007 that by 2012 we would have QE’d almost £400 billion, what would you have said?….

      John has previously conceded on another blog that the B of E has been issuing ‘greenbacks’….well perhaps they are in a roundabout way trying to cancel the debt through this monetary expansion?

      If they can get a grip on current spending over the next five years, who knows? What they will not do is raise interest rates, particularly since the FED made its statement about interest rate policy….Those who have savings will continue to suffer because they are a far easier mob to placate than the alternative…..That my friends is democratic government.


  14. Steve Cox
    Posted December 23, 2012 at 11:37 am | Permalink

    I’m surprised that there’s a discussion to be had on this subject. Inflation is theft, pure and simple. Anyone who advocates it is a criminal and should be locked up. What is the difference between somebody stealing £50 from my pocket and the government stealing it via inflation? Theft is theft. If interest rates are higher than inflation, which has usually been the case (except during the disastrous inflationary 1970’s) , then at least savers can keep pace, but now government policy is to fleece them completely of their savings via ZIRP.

    I’m being perfectly serious when I say that I regard promoting inflation to be as serious a crime as Holocaust denial, and it should be treated in exactly the same way, by shaming and jailing the offenders. Why should savers, pensioners and those on fixed incomes, some of the most vulnerable and defenceless people in society in may cases, pay for the government’s abject failure to cut public spending and the idiocy of banks that lent stupidly in the good days, as well as those who borrowed beyond their means? There is not a single, moral, sensible answer to that question.

    That a nominally Conservative administration might even be considering vile policies such as targeting NGDP shows how low the party has fallen. QE was bad enough, but spare us from these stupid children who seem to think that they have enough knobs and buttons to control inflation and even to fine tune it and switch it off when they so desire. They are idiots if they really think that.

    Why has the UK become such a sick, uncaring society? Thousands of the elderly freezing to death every year because government policy had removed their savings income and is inflating away their remaining spending power. And now they wish to make things a hundred times worse by pursuing a deliberate policy of high inflation. I’m afraid that the British government, and even all three main political parties, have completely lost their famous moral compasses. We are now given a choice between uncaring and incompetent social democrats no matter which party we vote for.

    • sm
      Posted December 23, 2012 at 1:46 pm | Permalink

      Inflation as theft is an interesting proposal which is gaining credence. Some argue government is now all about large business and vested interests and insiders. Given the failure of our regulators. Given the lack of faith in politicians ( expense saga). The lack of law enforcement, the arbitrary nature of prosecution unless you are the designated bag holder or the little person.

      Why haven’t we had extradition requests from the US?

      At what point do you conclude there all at it? and do we continue with QE drugs of go for radical surgery.

    • Denis Cooper
      Posted December 23, 2012 at 2:28 pm | Permalink

      “I’m being perfectly serious when I say that I regard promoting inflation to be as serious a crime as Holocaust denial, and it should be treated in exactly the same way, by shaming and jailing the offenders.”

      Are you mad?

    • Mark W
      Posted December 23, 2012 at 5:28 pm | Permalink

      I’m not sure i would draw a similarity with holocaust denial.

      But I believe it may have been Lenin that observed inflation was a suitable tool for confiscating wealth.

      For savers the government should fix base rate at inflation and make that part of bank interest free of tax for all savers

    • zorro
      Posted December 23, 2012 at 9:56 pm | Permalink

      Buy some gold or silver and chill out a bit, it is almost Christmas now…. 🙂


      • lifelogic
        Posted December 24, 2012 at 9:02 am | Permalink

        Gold I suspect is toward the end of its good run though it might still beat cash given the current BOE. Why not buy some real assets that produce some income/dividends and growth, and do not need a safe and insurance.

        Commercial property, hotels, equities in well run companies that operate in sensible fiscal regimes and growing economies (outside the EU). Best done directly with few or no “expert” middle men I tend to find. Or why not start a business, maybe even using the generous tax relief under the Seed or Enterprise investment schemes.

        Or maybe borrow money (offset the loan against tax is possible) and watch the debt decline in real terms.

    • zorro
      Posted December 23, 2012 at 10:04 pm | Permalink

      Inflation is how democratic goverenments rule and please the populace. Surely the history of the last hundred years and government record on inflation, and the loss in purchasing power in sterling proves that point….


  15. frank salmon
    Posted December 23, 2012 at 11:43 am | Permalink

    Just to point out John, that when prices rise while incomes are falling there is a substantial cut in real incomes. This is what we have at the moment. More inflation without wage increases will mean further cuts in real incomes. Without increases in interest rates and wages, this type of inflation cannot be seen in any respect as a cure for our debt problems.

    • Martyn
      Posted December 23, 2012 at 1:04 pm | Permalink

      Spot on – plus, of course, the fact that people’s buying power and indeed their willingness to spend in the face of cuts in real terms of their income reduces to the point of only spending on life’s essentials – such as keeping a warm roof over their heads, eating and transport. Hardly condusive to boosting the consumer economy and surely must be a causal factor in their being so many shops closing or facing closure…..

  16. A Different Simon
    Posted December 23, 2012 at 11:47 am | Permalink

    “The UK state has also borrowed substantial sums in the form of Index linked gilts and National Savings.”

    Can’t inflate away public sector pensions liabilities either .

    Even if you could the point would be reached where they would become eligible for means tested benefits .

    Still nobody mentions the elephant in the room – 8 out of 10 private sector workers retiring with less than £30,000 in savings including pension and being completely dependent upon the state , many on housing benefit too .

    • lifelogic
      Posted December 23, 2012 at 5:23 pm | Permalink

      Indeed private sector workers are often retiring with next to nothing. Well they have been robbed by Brown and now Osborne’s tax muggings and have also had to pay for all those over generous, state sector, quango, MPs and BBC pensions so did not have enough to save for any themselves.

      Anyway the benefit system encourages them all to spend it all and live off the state in their retirement – so that is indeed what many do.

      • Bazman
        Posted December 23, 2012 at 10:53 pm | Permalink

        Can’t touch you if you live in a council house with kids. Always been like that.

        • Edward
          Posted December 24, 2012 at 8:45 am | Permalink

          Sadly bazman, I think you are being optimistic
          As the recent break in the link between benefit rises and RPI showed inflation at say 3% per year will reduce your spending power by over 30% in just 10 years.
          And this without any other tax or benefit changes that may negatively affect you in the future as the Govt looks to cut the unsustainable welfare bill.

          • Bazman
            Posted December 24, 2012 at 3:57 pm | Permalink

            I don’t live in a council house, but how it would be possible to reduce the income of two non working parents with three kids by 30% in real terms and face no political and social backlash is not real in this country.

  17. Terry
    Posted December 23, 2012 at 1:31 pm | Permalink

    Can the UK inflate its way out of debt? As a test of that theory look back to the 1970’s when inflation was rampant (>25%) and the country became the sick man of Europe.

    I remember my mortgage interest rising to 15% per year, 3 times its starting rate. I became acutely short of disposable income. Should that happen now what would happen to the property prices? What would happen to our imports? The pound collapsing and Oil and Gas prices rising to unsustainable levels literally freezing out whole families of power for their homes. If any Government prefers a repeat of those terrible 70’s to properly repaying (instead of fiddling) the debt load, then they have no business representing us.

    Successive Governments will not do the right thing to cut expenditure and pull the plug on the Big State because they wish to perpetuate their term in office. They create a client State that is dependent on Government and the beneficiaries will always vote for the biggest payer. For example, mass immigration assisted Labour’s cause in this way and remains evident today.
    As there is a monthly deficit piling on the existing debt, Government has to borrow more to feed those same beneficiaries. The total debt rises as Tax income falls.

    Dangerously, our borrowing is ridiculously cheap because of the deliberate manipulation of our Gilts. Who, in their right mind, wants to lend £Millions to the UK government for 10 years at a paltry 1.88%?
    The BoE prints money to buy the Gilts to force up their value and thus drive their yields down. Interest rates are kept artificially low. Currently, private bond purchasers are joining in. Pension funds and Local Councils amongst them. What happens when their money stops flowing into the coffers of the Treasury? What happens when hedge funds and the like, take their profits? Prices start to fall. The prices crash in the ensuing collapse of the bond market, as everyone pulls out.. The £375 Billions of QE is lost. The £100 Millions invested by pension funds is now worth just £50 Million.. No longer enough to pay the pensions of their members. Local Councils go bankrupt from the massive losses. Teachers and schools suffer. And that is just the beginning. Stock markets will collapse as investors seek to dump their assets while they can. Bankruptcies will be common place along with high unemployment. This will cause social unrest and turmoil in the streets and it will only end when somebody gets a real grip on the problems and changes the status quo but not for a long time.

    And all because of our Labour government created the massive debt and the Coalition’s stupid attempt to inflate their way out of it. It does not look good for 2013, does it?

  18. Bernard Juby
    Posted December 23, 2012 at 2:01 pm | Permalink

    Too true – but try making the Labour party & Lib-Dems understand that! It’s not in their mindset.

    • uanime5
      Posted December 23, 2012 at 7:12 pm | Permalink

      Many of the Conservatives don’t seem to understand it either.

  19. forthurst
    Posted December 23, 2012 at 2:02 pm | Permalink

    Surely the answer to the question is, “it depends on whether real interest rates for government debt are positive or negative”. If they are negative, the government must be reducing its debt burden without either paying real interest or making repayment of capital, other things being equal. In that situation, the government is leeching wealth other than through taxation; those from whom they are leeching are typically purchasers of annuities to fund their retirements and banks whom they have obliged to hold their gilts to subserve government instituted capital requirements. Of course, the purchasers of annuities are more likely to require additional state support as the real value of their pitiful incomes diminishes further, and they will be less able to afford to pay indirect taxes on discretionary purchases, their burden of income tax is likely to reduce, and banks profits will be reduced so that their requirement to pay corporation tax will be diminished.
    Negative real interest rates in the real economy are also pernicious because they encourage misallocation of investment, such as the purchase of property at grotesquely inflated values, rather than encouraging the market to find its proper and safe level, or ensure investment leading to a real return. Furthermore, when banks see their profits squeezed by the compulsory holding of government debt of negative real value, they are more inclined to attempt to recoup these losses by predatory lending to the private sector.

    In some ways, it would be healthier for the government to pay real interest rates on its debt; this would act as an incentive to reduce its interest rate burden by repaying capital which would require real reductions in governmental profligacy, and those benefitting from the real interest rates, savers, will pay more direct taxes and be more motivated to spend thereby benefitting the wider economy as well as the Exchequer.

    It might appear that the economy is more likely to shrink in real terms with real negative interest rates as the government is inclined to spend more on itself without adding any real value and the real economy is correspondingly squeezed. There has to be some reason, apart from property bubbles, why economies with long term negative interest rates, shrink.
    In general inflation is a bad thing because it destabilises and reduces the profits in the real economy, as businesses are constantly in the position of receiving diminishing real income from sales until their next price hike and accurate product costing is made progressively more difficult.

    In summary, both inflation and negative real interest rates encourage the government and property bubbles to fail to deflate, and the real economy to shrink.

  20. Neil Craig
    Posted December 23, 2012 at 2:44 pm | Permalink

    The state can inflatr out of debt. The devaluation it causes may even be a good thing for the overall econmy. However it is paid for by the people.

    Moreover it does destroy the people’s faith in government (eg the Ferman inflation that preceded Hitler) & I don’t think the damage to society is a price worth paying.

    What we can do is grow our way out of debt. If the economy is growing at 10%, like China’s, unterest rates of even 6% would not be a problem. We all know that our government could, at least, match China’s growth rates if they made that their overriding priority and stopped all this eco-fascist Luddism. The truth is that none of the traditional parties care in the least about the national economy whenm it comes to their own inate conservatism (in the worst sense of the word).

  21. Muddyman
    Posted December 23, 2012 at 3:05 pm | Permalink

    And now we are bringing in a VERY expensive Canadian to oversee the BoE, whose proposed solution is to remove inflation control. Who thought that one up?.

  22. davidb
    Posted December 23, 2012 at 3:28 pm | Permalink

    I was under the impression in the 80’s that the policy of high interest rates, privatisation, closure of “old” state industries, mass unemployment et al was to rid us of high inflation and inefficient services for all time. Was all the misery inflicted then a waste of time?

    I have saved up. I bought a house I could afford. I did not borrow what I couldn’t afford to repay and I object totally to the notion that I should have just squandered the lot like so many of the lemmings have. For what is QE and inflating of our economy doing? It is stealing what I have saved.

    Yesterday, before I reached for the radio to switch off the propaganda on radio 4, I heard an item suggesting I should pay more taxes to travel on tolled roads. Motoring taxes already vastly exceed the cost of provision of the road network I understand. Next Item is a fellow from the Environment Agency explaining how his job is basically to listen to the weather forecast and relay what he heard to people at risk of flooding. And in a nutshell that sums up the mess we are in. Tax everything that moves and squander it on provision of services no-one wants save the people working in them. How many of those at risk of flooding have lost the ability to look out the window, or indeed to watch the weather forecast themselves?

    CUT. Get the expenditure down, get the inflation on target and stop lying to us. Inflation experienced by real people is way way above the 2% target. Sure a mortgage is relatively cheap but every year the railway fares go up faster than inflation. Petrol is up 52% in the last 5 years. Gas bills have more than doubled since 2005. Anyone shopping for bread, cheese, meat, fruit can see that their money buys less every week. Where is this mythical land of anywhere near 2% inflation?

    I despair of the politicians here. I really wonder why it is that whoever we vote for the same interest groups always win.

    • Edward
      Posted December 24, 2012 at 8:51 am | Permalink

      Someone who worked with me when asked why he never voted said, its a waste of time, the Government always gets back in.

  23. alan jutson
    Posted December 23, 2012 at 4:57 pm | Permalink

    “Can you inflate your way out of debt”

    No, but you can reduce it by devaluing the value of money.

    Is it honest to do that as a deliberate policy?

    No, because it causes pain and financial suffering to people who did not get into debt, or even argreed to fund that debt, and who had put their trust in the assumption that politicians would retain a sound money policy.

    Governments are in a unique position where they can borrow for the future, against someone elses income or wealth, and can then enforce payment of that debt under legal threat of taxation.

    The sooner governments are denied the ability to borrow, are made to live within their means, the sooner we will return to a more sound the money system.

    Any government wanting to borrow money should be made to hold a referendum, and let those who pay the bill decide yes or no. Simples.

  24. Jon
    Posted December 23, 2012 at 5:32 pm | Permalink

    Public, personal and mortgage debt is a factor this time round. Also is globalisation and that we won’t get the percentage we did in the post war years. Those two together means inflation will cause a bit of a disaster.

    For us to compete in the global market we need to get our costs down. Thats difficult for us in the West having lived off easy money in the past and built in lots of social costs but its the reality of today.

    I increasingly hear the young bemoan what they have been left to them.

    • LB
      Posted December 23, 2012 at 9:51 pm | Permalink

      I’m not convinced by the argument on personal debts. ie. Mortgage, credit cards and car loans make up the vast majority of the debts.

      Car loans primarily go for people who need them for work, to generate income. Short term, people can get out within a short period.

      For mortgages, most people are no where near negative equity. If you look at the outstanding loan figure, against the amount of equity, you’ll see that the average mortgage outstanding is quite small compared to the value.

      Credit cards for most people aren’t an issue.

      Now there are some people who have run up credit they can’t pay. They will have to go bankrupt or IVA. Unfortunately the IVA industry is just like the cash for crashes business making things worse for lots of them.

      Personal debts aren’t a major issue.

      Government debt on the other hand has made people poor. They might not realise the extent but they are about to find out.

    • zorro
      Posted December 23, 2012 at 10:16 pm | Permalink

      The only way we can compete is by a massive fall in house prices and what people have to pay for their cost of living. Then they will have money to spend. Pay rises and productivity gains seem hard to come by……Unfortunately, John’s voters will not be happy to hear the message that they are sitting on vastly over-valued paper assets when the next tranche of Ponzi wannabes have no disposable income and huge student loans.


  25. Reaguns
    Posted December 23, 2012 at 6:22 pm | Permalink

    I wonder if John or anyone else has a view on this idea:

    We have a Bank Of England, a Monetary Policy Committee and an Inflation Target of 2%. Now I understand that 2% IS the target, ie they are not aiming for 2% or less, but rather 2%, they believe, erroneously of course, that you can only have growth if you have a small amount of inflation.

    There is currently a row about whether benefits should go up at the same rate as inflation, which most people think is too generous, go up by less than inflation, not go up at all, or even be cut in nominal terms which most people think is too harsh. The government has opted for a 1% nominal increase, ie a real terms cut. Polls show the vast majority of the country agree, though if this causes hardship, a rise in crime etc some argue they might change their mind when it kicks in (I don’t think they will.)

    I think we should increase benefits, and everything else, by the same amount as the inflation target. Then people will know that the government and the Bank of England are doing a good job and making everyone better off when inflation is less than 2%, and doing a bad job and making everyone worse off when inflation is more than 2%. When someone like Mervyn King, a nice man but overconfident and too paternalistic, who I think is genuinely trying to help people, decides that for the greater good he must put inflation up higher and harm some people in order to help some more needy, he would then be accountable – he would need to explain why he thinks those people need help and how inflation will help them. This would put pressure on him. He would have to explain for example why he thinks people on minimum wage should have their wages cut because him and Cameron are scared of losing votes if people are not given mortgage assistance using inflation for example. Thats what I would like to know, why Merv thinks middle class homeowners need help at the expense of working class renters on minimum wage?

  26. uanime5
    Posted December 23, 2012 at 6:47 pm | Permalink

    The state guarantees real gains for many recipients of state pensions, and nominal gains for other benefit recipients.
    John linking the state pension to inflation means it is the same in real terms, increasing benefits by less than inflation is a cut in real terms. So the state guarantees at best the same and at worst a cut, but never a gain.

    Price rises can damage business profits and reduce the number of high incomes earned here in the UK available to tax.
    Given how the high income earners keep giving themselves above inflation pay rises I doubt they’ve noticed any problems due to inflation. The same cannot be said of those on minimum wage.

    Also the amount of tax won’t decrease unless the tax thresholds are also increased with inflation, something that isn’t happening in the UK. Given that the Government is lowering the tax thresholds to gain more tax revenues it seems that inflation won’t result in a loss of tax revenues.

    Reply You seem to ignore the triple lock pledge on pensions. The minimum increase guarantee for the pension can lead to real gains when inflation is kept under good control, and the wage match can lead to real gains.

    • uanime5
      Posted December 24, 2012 at 5:53 pm | Permalink

      What happens if inflation isn’t under control; for example when the target for inflation keeps being missed, and the cost of energy and travel keeps increasing above inflation? I doubt under these circumstances there will be real gains.

  27. Nick
    Posted December 23, 2012 at 9:40 pm | Permalink

    It is true that the bulk of the UK state debt is in sterling and borrowed at a fixed rate of interest.


    Not the case. It’s a lie often repeated.

    1. Gilts. Last time I looked, 222 bn out of 1,050 bn was indexed linked.

    2. PFI. About 380 bn. Almost all have inflation kickers. The lender has the right at set points to convert to inflation linked. If inflation takes off, they just convert and are protected. They were quite right in thinking that MPs would try and use that trick.

    3. Pensions. People have paid in, its a debt. They are linked to a rate above inflation. 0.5% above inflation assuming the BoE does it jobs. A triple lock. The maximum of inflation, wage inflation or 2.5%. A rather complex derivative, but it will always be greater than or equal to inflation. Inflation doesn’t inflate away this debt.

    So how much is owed? 4,700 bn, assuming some dodgy assumptions on the triple lock to make it smaller.

    Nuclear decommissioning. A reasonable assumption is that its work and materials and so linked to inflation.

    100 bn.


    Pretty much all of the debts is linked to inflation

    So its not going to work as far as the state is concerned.

    You can’t grow your way out either.

    7,000 bn of debt
    730 bn of spending
    550 bn of taxes.

    Get 1 million back to work, at 13K a head, and that is just 13 bn.

    Look at Vince Cable’s department. 21 billion of spending and not a clue (FOI request) as to how many jobs created.

    That leaves cuts and defaults.

    I suspect rather than being orderly, it will be a crisis, just like the Greeks.

    • uanime5
      Posted December 24, 2012 at 5:59 pm | Permalink

      Get 1 million back to work, at 13K a head, and that is just 13 bn.

      Given a personal allowance of £8,000 (only £5,000 is taxed), a tax rate of 20%, and an NI of 12% this means that only £1,600 per person or £1.6 billion in total is raised.

  28. Nick
    Posted December 23, 2012 at 9:47 pm | Permalink

    4.700 bn according to the state.

  29. Matthew
    Posted December 24, 2012 at 2:39 pm | Permalink

    It seems that growth may not come from domestic demand, where living standards will continue to be depressed.
    The Eurozone probably won’t provide a path for increasing our exports, the US remains uncertain.

    The best chance of growth is by increasing our exports to the emerging markets, the fastest growing markets in the world. It would help to throw off the yoke of Euro regulations that hamper our trade with these markets.
    I would like Mr Cameron, to put down a clear marker as to what he envisages our future relationship with the EU should be. He needs to be making a lead, showing his vision.

    As all this will take a while, an interim measure is needed – so reduce corporation tax to 15% and top rate of tax to 40%. This may give a kick before the next election.

    • uanime5
      Posted December 24, 2012 at 6:00 pm | Permalink

      How does giving the wealthy tax cuts boost manufacture to emerging markets? Surely it would be better to give tax cuts to the employees of companies that manufacture to these markets.

      • Leslie Singleton
        Posted December 25, 2012 at 7:43 am | Permalink

        Unanime5–“Surely” is a most unscientific word–I was for long forbidden to use it–instead try and appreciate that employees, whether you like it or not, would not invest their tax cuts.

  30. Lindsay McDougall
    Posted December 24, 2012 at 3:02 pm | Permalink

    You probably can, but you shouldn’t because there is another, more honourable, way to get out of debt.


    And if you want growth, remember that pensioners are spending less, not more, because of inflation.

    Merry Christmas, everyone.

  • 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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