Wokingham Times, 23 Jan

The Coalition government came together to sort out the poor state of the nation’s finances. On leaving office Labour legislated to halve the extra borrowings in the years ahead, without making clear how they would do this and without saying which budgets would be cut. The incoming government said they would get rid of the structural deficit, the main bulk of the extra borrowing each year, over the lifetime of this Parliament. They intended to do it mainly by curbing public spending.

So how are they doing? The government tells us it has got the deficit down by a quarter so far. That means that instead of borrowing £155 billion more, as Labour did in their last year, this government got that down to borrowing an extra £120 billion last year. This year the government has found it harder to keep the pressure on. The latest figures show the government borrowing more this year than last. In the first nine months the government borrowed £106 billion, £7 billion more than the same period last year.

The government has had to abandon its plans to get rid of the deficit this Parliament. Why has this happened?

There are two main reasons. The first is spending. The Coalition, far from cutting current public spending, decided to put it up. They have delivered this promise. We have seen bigger rises in pensions and benefits, more generous payments to developing countries, a large rise in our EU contributions, further rises in money spent on schools and hospitals. Spending went up by £29 billion in the first year, £18 billion the second year, and a planned £17 billion this year.

The second is tax revenue. The Coalition inherited the planned rise in top rate income tax to 50% from the 40% Labour always thought appropriate when in office. This led to a sharp fall in receipts from rich people, as they left the country or rearranged their tax affairs, or simply earned less. The rise in Capital Gains Tax rates did not help, and company profits tax has also been weak. Only the increase in VAT worked and brought in more money to help pay for the public services.

So what should they do next? We need above all a stronger recovery in our economy. That takes more action to mend banks and to make it more worthwhile working.


  1. Ben Kelly
    January 28, 2013

    A neat précis thank you Mr Redwood.

    The aim was supposedly to cut the deficit 80% in cuts and 20% in tax rises. It does not feel that way to me (although I do label the removal of universal child benefit as a tax rise as there was no corresponding married couple’s allowance rebate).

    Do you have the actual breakdown of official figures for how the deficit will now be reduced?


    Reply : I have set out the figures many times. As spending is rising, I regard the deficit reduction as 100% dependent on collecting more tax.

    1. Narrow Shoulders
      January 28, 2013

      Thank you for the clarification.

      Your excellent blogs continue to highlight that spending is indeed rising and not falling so assuming that originally the defict was to be closed by £120 billion in spending cuts and £30 in tax rises (80/20 of 150) what does that breakdown look like now?

      How much of the increased tax requirement will be raised from those paying 45% which both you and your Chancellor stress will bring in more tax. Given that your coalition is determined to take many basic rate payers out of tax altogether we can state no extra tax will come from this source in fact we should get less. Corporate tax has been reduced. How much extra will attracting firms here raise? £1 or £2 Billion?

      VAT can surely not be raised nor duty on fuel, fags and booze much further. That leaves the usual target to shoulder the remainder of the load. Higher rate taxpayers who in another recovery might have been leading the spending but in this slump find themselves with less disposable income than their lower paid but better supported peers .

      If interest rates rise there may be carnage.

      Happy to be refuted

      Reply: The figures of the Plan always showed spending rising with a large rise in tax revenue cutting the deficit. Today I would say 100% of deficit cutting happens from extra tax revenue. Tax revenue from top rate payers has fallen.

  2. Lord Blagger
    January 28, 2013

    Still ignoring all those pensions debts.

    How’s that going?

    2.5% on top of 5,010 bn over two years, at a minimum.

    254 bn off the books. Not working is it.

  3. Lord Blagger
    January 28, 2013

    The government has had to abandon its plans to get rid of the deficit this Parliament. Why has this happened?


    Structural? Cyclical or actual deficit.

    Perhaps its the cynical deficit.

  4. Lord Blagger
    January 28, 2013

    We need above all a stronger recovery in our economy.


    Doesn’t work.

    How much are you paying the unemployed? 12K a year. About ball park. Get them working and most will be on min wage. So lets say 3K a year in taxes. 15K a year better off for each one, if you have some pixie dust that gets them working without any government spending.

    Get a million working and that’s 15 bn. Where’s the other 135 bn going to come from, and that assumes no increase in spending?

  5. David Langley
    January 28, 2013

    John which part of the banks is not working? If I turn up for a chat with the bank and want a substantial business loan, I must present a decent proposition eg business plan. If it fails the usual litmus test no loan. Whats wrong with that? I do not want my deposits lost on some unfortunate scheme that will probably go wrong. We do not want crazy risk taking by our retail banks. The investment banks know they are taking risks and now they hopefully will be ring fenced from retail normal operations.
    The government has failed, political parties have failed, senior politicians have failed. Your business model has failed, and I do not want to give you or lend you any money at all. I want to see the business case you stand by to take my money, which you do, you take my money I have no choices. All I have left is my vote, and why why would I give it to your party?

  6. David Langley
    January 28, 2013

    Spending is rising, I need a divorce and quick.

  7. margaret brandreth-j
    January 28, 2013

    Make it worthwhile to work is a lot more palatable ,than make it merciless not to work.
    If firms go overseas to escape taxes ,Iam inclined to think that they care more about their own micro empires than the British empire. Selling out your own country for excess profit …naah. Helping companies to succeed ,employ more and become productive ..yes, but the blackmailing tone leaves a bitter taste.

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