The cost of living

The UK used to have a bad inflation problem. UK politics in the 1970s and early 1980s was fought over rises in the cost of living and which party had the best way of  controlling it.

Mr Miliband wanted to take his party on a trip down Memory lane, by making a central issue out of what he called “the cost of living crisis”.

This followed hard on the heels of his forecasts that the UK economy under the present government would go into double and treble dip recession and would end up with worse unemployment than it had suffered under Labour government. He abandoned that attack as the news gathered momentum of many more jobs being created, and many people getting out of unemployment into work.

This week the government announced that the present rate of inflation is zero. For the whole of the last year prices overall have stayed the same. Forecasters expect prices to fall a  bit from here. Wages are rising, so people are now experiencing some increase in living standards, after the sharp fall in real incomes at the end of the Labour period in office, and the continued squeeze in the early Coalition years when inflation remained high.

The government and Bank do wish to see better pay rises and further progress in raising people’s spending power. For the time being none of this threatens low inflation, which remains as a welcome achievement which eluded most post war UK governments.


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  1. Mark W
    Posted March 26, 2015 at 5:23 am | Permalink

    Cost of living crisis? Hmmmm. I have over the years had older staff reduce their hours of work with age. Always been flexible. One new trend is to be approached by younger people with families for flexible non full time work as they job share with their partner to look after kids. This is certainly one reason for some part time employment.

    However, anybody here who runs or works a small to medium independent business should be terrified of the thought of miliband getting in Downing Street, with or without a barmy collection of this progressive alliance. Listen to the comments of juniors in labour, google their names and see the anti business rhetoric. If you earn over £25k I’d be scared. Whilst picking words about the rate of NIC there was no confirmstion from miliband or balls that they wouldn’t complete the 1992 plan of removing the top ceiling from NIC. Or dropping astronomically the point at which the free pay allowance dwindles (currently at £100k but so secretly not visible to comment it would be a smart and sinister move to drop it).

    These lefties pathologically hate and resent success by effort. For all the faults of New Labour this time round it ain’t half as cuddly.

    • fedupsouthener
      Posted March 26, 2015 at 3:19 pm | Permalink

      Labour getting into power will be bad enough but worse if they align with the SNP which is very probable. If we thought a Cons/LibDim coalition was bad the this can only be worse. Nothing will get done and the national debt will go from bad to God damned awful. Getting back a stable economy will be nigh impossible after the SNP have creamed off what they can from the rest of the UK. Nightmare scenario spring to mind.

      Get rid of the green taxes. subsidies for something that made a profit before and was reliable stop giving out free health care to those who have not paid in, stop bringing in so many immigrants who lower wages and stop zero hours contracts.

      • William Gruff
        Posted March 27, 2015 at 1:58 am | Permalink


        Labour getting into power will be bad enough but worse if they align with the SNP …

        Very bad for Britain, very good for England.

        Here’s hoping for a SNuLab coalition in six weeks’ time, which cannot but ensure that demands for an English Parliament dominate the 2020 general election campaign, if there hasn’t been a revolution by then.

        Here’s to independence for England.

    • Mondeo Man
      Posted March 26, 2015 at 8:52 pm | Permalink

      Mark W – We are going to go bust whoever gets in.

  2. Lifelogic
    Posted March 26, 2015 at 5:35 am | Permalink

    Well there has been a large fall in World oil and gas prices which could well reverse itself rather quickly. This is the main cause of the recent decline in inflation.

    The UK still has a huge productivity problem, a huge trade deficit and a large government deficit. High wages need much high productively.

    Productivity is a problem mainly because of a bloated, 150% over remunerated state sector delivering little of any real value. A state sector which over taxes, over inconveniences, distracts, diverts (with daft green grants) and endlessly over regulates businesses. This combined with a lack of long term, patient capital, little real competition in UK banking, an absurdly complex tax system, a poor/slow/arbitrary and over expensive legal system and totally absurd employment laws.

    Over the top planning restriction such as those that encouraged Dyson to now manufacture overseas (and have also pushed house prices out of reach for many) do not help much either. Nor does the idiotic government policies of expensive, green religion, energy or the policy of misdirected soft EU loans, overseas aid or membership of an incompetent, expensive, over regulating and totally anti-democratic EU.

    But LibLabCon and Cameron clearly like all this damaging nonsense. They “think” like socialists and BBC people, they just cannot help it. They think government knows best. They could not be more wrong.

    • Lifelogic
      Posted March 26, 2015 at 5:36 am | Permalink

      Any comment JR on the free for all subletting lunacy. What is the driving force behind this latest government insanity?

      • alan jutson
        Posted March 26, 2015 at 10:15 am | Permalink


        Remember this was in part a Lib Dem budget as well.

        Perhaps the present crop in charge think the Buy to let landlords have had it all rather too easy in past years, and have perhaps distorted the market a bit.

        This latest wheeze may certainly help those at present without accommodation get it from those few greedy/needy tenants who choose to sublet, but it will certainly be at the Landlords expense.

        Given all of the additional costs which are being put on the buy to let market, as well as the normal risks of damage and void periods, I would think the buy to let market has become a rather more risky investment of late.

        Certainly agree the proposed policy sounds like a disaster waiting to happen, in more ways than one.

        Can you imagine a Tennant getting housing benefit to pay for their rent, and then subletting half the rooms to other people for additional income.
        The house would be in multiple occupation without the landlords knowledge, without a proper licence, and probably without insurance cover

        Ghetto’s of the future.

        • Jerry
          Posted March 27, 2015 at 8:39 am | Permalink

          @alan jutson; “Can you imagine a Tennant getting housing benefit to pay for their rent, “

          Surely that would count as income, something that would need to be declared by law at the time of the housing benefit claim or as a change in circumstances, thus the ‘income’ from subletting would affect the amount received – almost certainly cancelling out any financial incentive for such a subletting.

          “Ghetto’s of the future.”

          Many BTL areas already are… 🙁

          • alan jutson
            Posted March 28, 2015 at 8:28 am | Permalink


            Agree absolutely all income should be declared, but is it by everybody ?

            Plenty of cases of tax evasion and avoidance on record, not just the preserve of the rich !

            Thought renting out rooms in your home was made tax free up to £4,500 and did not have to be declared.

          • Edward2
            Posted March 28, 2015 at 9:21 am | Permalink

            The tax, if declared, would not cancel out the profit Jerry, as the first £10,600 is tax free and rates are not 100%.

          • Jerry
            Posted March 28, 2015 at 3:58 pm | Permalink

            @alan jutson; @Edward2; What are you two on about, once again, try actually reading what I said 🙁

            If you are still clueless as to what I’m talking about go and do some basic research, such as what Housing Benefit is. “Tax” is irrelevant.

          • Edward2
            Posted March 28, 2015 at 7:13 pm | Permalink

            You said sub-letting would not be profitable..because the income would be taxed..cancelling out the financial incentive and affecting the amount of housing benefit received.

            That was your argument Jerry.
            I was just pointing out this was not correct.
            Housing benefit tapers with your total annual income.
            That was what “I was on about”.

          • Jerry
            Posted March 29, 2015 at 10:45 am | Permalink

            @Edward2; Thanks for proving that you understand so little, as I suggested previously -before making a fool of yourself again by replying ad-hock, please go off and research UK Housing Benefits and its rules. Taxation and earnings has nothing what so ever to do with the issue of benefit fraud, a criminal offence, which undisclosed sub-lettering would be.

          • Edward2
            Posted March 29, 2015 at 12:57 pm | Permalink

            Wrong again Jerry.
            If you declared it the new legislation will make it legal.
            The current rules are being changed

            Tax treatment will therefore not remove the profits of sub letting.

            PS no need to be so beligerant and casually rude to everyone.

          • Jerry
            Posted March 29, 2015 at 3:18 pm | Permalink

            @Edwards2; What ever, carry on looking the utter fool. I just hope that no one reading our hosts site and claiming HB takes your “advice”… 🙁

            Talking about taxation is irrelevant and a red herring.

          • Edward2
            Posted March 29, 2015 at 5:31 pm | Permalink

            Try imagining we were chatting face to face in a bar Jerry.
            Then consider if you would be quite so rude.

          • Bazman
            Posted April 4, 2015 at 6:13 pm | Permalink

            A landlord would not allow sub letting for the reasons said. The house would become a slum. Many owners of large properties only allow a certain number of occupants also for this reason. Obviously you have never shared a house? The fun never stops.

    • Lifelogic
      Posted March 26, 2015 at 5:44 am | Permalink

      The presence of the free (or subsidised) at the point of use NHS, schools, Universities and social housing also prevents and kills so much innovation, efficiency improvements and real competition in these sectors of the economy. It is hard to compete with a “free” service even if it is very poor. The “customers” have already paid for it (under threat of imprisonment) so many have to use the “free” service like it or not. The public just do not have any money left as the government has taken it all and spent it on what the government (usually totally wrongly) thinks is best.

      • Bazman
        Posted April 4, 2015 at 6:10 pm | Permalink

        Not if you are on minimum wage as you believe should not exist. How will they pay for the healthcare and everything else you claim you do not use. Gouging out healthcare spending will help innovation just like defence spending one presumes? Still against road tolls though aren’t you? Funny that. Simplistic nonsense.

  3. Mick Anderson
    Posted March 26, 2015 at 6:55 am | Permalink

    Just because somebody has a slogan, it doesn’t mean that they have either a solution or have even correctly identified a problem.

    The more that slogans are bandied about, the less I am able to take them even remotely seriously. This counts double for politicians, and even more so at election time.

    • Liz
      Posted March 26, 2015 at 9:33 am | Permalink

      It is interesting that much of the media – particularly TV – have used Labour slogans without even saying “so called – cost of living crisis, bedroom tax” etc. as if they were part of everyday English language; thereby enforcing the Labour message. At least it shows where their political preferences lie despite their protestations of impartiality- but they shouldn’t do it.

      • Jerry
        Posted March 26, 2015 at 4:36 pm | Permalink

        @Liz; You mean like how much of the media – particularly the daily print based media – use the phrase “Right to Buy”, as if everyone has/had a right to buy (only those in social housing did/do), or “Labour’s banking crash” without saying “the so called…[etc.]”, you seem to want one rule for left-wing slogans that you object to but another for right-wing slogans that you agree with, yes?…

        • edward2
          Posted March 26, 2015 at 9:32 pm | Permalink

          What right wing slogans used regularly by the tv channels and news media are you referring to Jerry?

          • Jerry
            Posted March 27, 2015 at 8:44 am | Permalink

            @edward2; Try actually reading what I said, rather than just penning your usual ad-hock replies to comments you don’t like, I actually stated two such examples!

          • Edward2
            Posted March 28, 2015 at 9:23 am | Permalink

            But they are not “right wing slogans”

          • Jerry
            Posted March 28, 2015 at 4:03 pm | Permalink

            @Edward2; In your opinion, just as the “Bedroom Tax” is not a left wing slogan in many people opinions as it is a surcharge “tax” on the under occupancy of certain types of residential properties but not others.

          • Edward2
            Posted March 28, 2015 at 7:18 pm | Permalink

            Austerity, back to the 30s, the bedroom tax, the cuts, destroying the NHS, wicked nasty tories, etc regularly repeated on mainstream media as truths.

            If you have examples of similar often repeated right wing slogans then lets hear them Jerry.

          • Jerry
            Posted March 29, 2015 at 10:53 am | Permalink

            @Edward2; Stop acting like a rabbit caught in the headlights of political spin, the last 36 years -almost to the day- has been full of right-wing slogans, starting off with “Labour isn’t working” (when the un-spun truth was the unemployed are not working)…

          • Edward2
            Posted March 29, 2015 at 5:35 pm | Permalink

            That was an election poster headline, pointing out, quite correctly, that under the time of a Labour Government, unemployment had risen.

            Not a right wing slogan continually repeated by the media.

          • Jerry
            Posted March 29, 2015 at 6:15 pm | Permalink

            @Edward2; All political slogans are electioneering, even when no current election is planned, what other purpose do they have, so your point was what exactly, other than attempting to wriggle out of being proved wrong – once again.

            Edward, how about you stopping arguing for the sake of arguing, ho-hum…

          • Edward2
            Posted March 30, 2015 at 7:28 am | Permalink

            And yet still no examples of right wing slogans from you Jerry.
            After shouting down someone who correctly said that nearly all slogans are invented and repeated by the left.

        • William Gruff
          Posted March 27, 2015 at 2:02 am | Permalink


          My wife and I would like the right to buy, with someone else obliged to pay, of course.

          That’s the problem with rights: those without rights are obliged to ensure that those who have them enjoy them.

        • Hefner
          Posted March 28, 2015 at 8:03 pm | Permalink

          Labour’s banking crash … Didn’t the banking system (supported by both Labour and Conservatives) have any play in it?

          • Jerry
            Posted March 29, 2015 at 10:57 am | Permalink

            @Hefner; That was my point, the roots of the 2007-8 crash didn’t even start in the UK, so quite why the right-wing media thinks the UK Labour party could have done anything to prevent the US sub-prime problems…

          • Edward2
            Posted March 29, 2015 at 5:40 pm | Permalink

            Jerry ask yourself why nations like Germany France Canada and Australia, just as a few examples, did not have the disaster we had.
            Their banks were OK
            They had good State reserves They had good bank regulation.
            They recovered faster and got back to growth.

          • Jerry
            Posted March 30, 2015 at 1:24 pm | Permalink

            @Edward2; Many of those countries are politically soft socialist, now ask yourself what state some of the banks/mortgage providers in the USA are, a country that is a hot bed of your choice of ultra-capitalism…

        • Jerry
          Posted March 30, 2015 at 1:20 pm | Permalink

          @Edward2; I gave you examples, the problem is you don’t like them! What ever…

          • Edward2
            Posted March 30, 2015 at 3:58 pm | Permalink

            Jerry likes the phrase “ultra capitalists”
            I sense a new left wing slogan developing.

  4. Narrow Shoulders
    Posted March 26, 2015 at 6:56 am | Permalink

    Speaking from the cheap seats. .

    My housing costs continue to rise above my wage increases

    The higher rate tax threshold continues to reduce so I pay more tax.39% of all my earnings this year despite my income being substantially less thev £100k

    The oil price reduction is temporary. Any conflict or resumption of QE will lead to sharp rises.

    London costs principally driven by overpopulation have caused my living standards to plummet since 2009, this small respite from the inconsequential costs in a fictitious basket have not improved my lot.

    In short your indicators may be positive but out here in the real world things remain tight. Not helped by EU and UK government immigration policy.

    • Hope
      Posted March 26, 2015 at 9:20 am | Permalink

      This temporary blip should be seen for what it is. Water bill, energy bill and food have not stood still or been reduced they increased over the past 5 years. Petrol already on the increase. The coalition made pay freezes and derisory increases in pay for teachers, police and nurses, not very worker will get an unjustified £10,000 pay rise like MPs, who are only part-time workers after all. Nor will any other part-time job enjoy such huge pension and expenses additions. That is before the Rifkin/Staw type of money to be made on the side. Like Byers and Hoon before them. How many MPs will go into the green industry when not elected?

      (Words left out)We also saw Cameron in a subsidised MP canteen,read reports how MPs get drunk and fight in their subsidised bar, while there are food centers in the UK! But not every body is an MP, JR, so their living standards are not improved by some artificial statistic for an artificial debate among the Westminster elite. When will we the taxpayer get the clean up promised by the Cartel? In fact, when will MPs and ministers be held to account for what they promise and the travesties, like the NHS deaths and Libya, incurred under their name in office?

      • Jerry
        Posted March 28, 2015 at 4:15 pm | Permalink

        @Hope; The way you and others bleat on about MPs eating and watering holes within the Westminster village anyone landing in the UK from Mars might be mistaken for thinking that there are no (nor has there ever been any) other subsidised “works canteen” or social clubs, nor that their patrons ever misbehave etc!

    • dave roderick
      Posted March 26, 2015 at 11:02 pm | Permalink

      today i recieved the labour election bumph through my letter box stating that they had frozen the council tax for the last three years as i am a pensioner three years ago i did not have to pay any council tax the following year i was informed that i know have to pay 114 per annum and this year add another 20 i know it is not a lot but as the state pension has been increased by 4.50 with one hand and 3.50 taken off me with other hand all these claims by all parties are pie in the sky i would not vote for any one of them if my life depended on it

  5. Richard1
    Posted March 26, 2015 at 7:08 am | Permalink

    It’s quite amazing how wrong Miliband and Balls have been, supported by all those new-Keynesian economists. Miliband predicted the loss of 1 m jobs – 500,000 in the public sector and 500,000 in the private sector. In fact this govt has created 1.7m new jobs, the vast majority full time, The BBCs erstwhile favourite economist Mr Danny Blanchflower predicted 5m unemployed. We don’t hear from Mr Blanchflower anymore, but it would be good if he could get a slot, maybe on Thought for the Day, for a little piece on the merits of humility and recognising when you are wrong. There was no double or triple dip recession. It’s amazing Labour support is as high as it is given just how wrong they have been.

    • Denis Cooper
      Posted March 26, 2015 at 10:52 am | Permalink

      For impartial external observers, let us say visitors from Mars, it might have been rather puzzling that the Labour party retained so much support at the last general election, 30% of the votes cast, after the appalling economic and financial mess it had created; that is, unless firstly they realised that by adopting the cunning QE ploy Labour had contrived to dodge the worst consequences which would have had a severe direct impact on the electorate which could not be concealed, and which would have ensured its virtual annihilation at the polls, and secondly they took a good look at the alternatives on offer at the election.

      As for Labour’s support going into this election, the rapid collapse in support for the LibDems boosted it by about 11% to 41%, and then it edged up to a peak of 43% at the end of 2012, but since then Labour has gradually shed 9% and it is now on about 34%, just 4% above where it was at the last election despite some 16% of the electorate, generally leftish anti-Tory voters, having abandoned the LibDems since then; meanwhile support for the Tory party is about 3% lower than it was at the last election, also now about 34%; and despite fading recently support for UKIP is still at around 14%, which is 11% higher than last time, and clearly a rise of that magnitude must imply that many of the voters who have now transferred their support to UKIP have switched from supporting Labour rather than from supporting the Tory party.

      • Richard1
        Posted March 26, 2015 at 11:59 am | Permalink

        Could be, we will see at the election. I think anyone who either wants a re-negotiation with the EU and a referendum, or wants to avoid the chaos we saw under the last Labour govt (and the one before that BTW) will decide they need to vote Tory, even if they don’t give Cameron & CO 10/10.

        • Hope
          Posted March 26, 2015 at 3:39 pm | Permalink

          You must be joking. I will never give my vote to conservative again. UKIP is by far the only party to offer a choice from the EU management presented by the LibLabCon cartel. You cannot believe a word Cameron says, looking at the Speakers’ debate there are some who do not believe or trust members of their own Tory party!

          • Jerry
            Posted March 26, 2015 at 7:40 pm | Permalink

            @Hope; “I will never give my vote to conservative again.”

            Talk about cutting ones own nose off to spite the face of someone else. 🙁

            “UKIP is by far the only party to offer a choice from the EU”

            But first they need to get elected, in sufficient numbers, to even start being able to seriously talk about promising such a choice, never mind delivering anything. Vote UKIP in 2015 and it will be 2010 all over again, except this time the resulting coalition could well involve very pro-EU parties indeed and thus UKIP voters will have in effect become the best buddies of both the EU and the UK left.

          • Narrow Shoulders
            Posted March 27, 2015 at 8:34 am | Permalink


            When you say “first they have to get elected” you are correct if you take your vote as a method of choosing government rather than registering an opinion.

            The majority like yourself look to vote for a winner and so perpetuate the role of the two main parties. The SNP has shown what happens when enough people vote with their conviction or dissatisfaction. Over time momentum builds and the nose may grow back.

            A vote for any of the three main parties in May is an acceptance of the EU driven status quo with professional, protected law makers.

            A vote for the smaller parties will register dissatisfaction and real desire for change. Whichever of the parties gets in nothing much will be different (Osborne has only delivered Darling’s economic plan in the last five years) so this is your chance. Especially if you live in a safe seat.

            To quote from the Indianna Jones movies “Choose wisely”.

          • Denis Cooper
            Posted March 27, 2015 at 11:55 am | Permalink

            Or, vote Tory in 2015 and it will be 1975 all over again …

          • Jerry
            Posted March 27, 2015 at 8:03 pm | Permalink

            @Narrow Shoulders; “A vote for any of the three main parties in May is an acceptance of the EU driven status quo with professional, protected law makers.”

            Other than one is pledging a In/Out referendum of course.

            @Denis Cooper; “1975 all over again”

            You mean a democratic decision by the electorate that just happened to go against your wished for result, do you even know how to spell the word “democracy”? 🙁

          • Denis Cooper
            Posted March 28, 2015 at 7:41 pm | Permalink

            Silly question, Jerry, you’ve seen me spell “democracy” often enough to know that I can. And moreover I understand what seems to escape you, that when people vote they should each be able to do so having formed their own judgement based on true information, not on a pack of lies.

          • Jerry
            Posted March 29, 2015 at 11:15 am | Permalink

            @Denis Cooper; Another thing you clearly do not understand, besides democracy which again you prove you do not understand, is the rhetorical question! 🙁

          • Denis Cooper
            Posted March 29, 2015 at 4:09 pm | Permalink

            Boring, Jerry.

      • acorn
        Posted March 26, 2015 at 6:13 pm | Permalink

        Sorry Denis, but you will have to explain exactly how you got to your conclusion “… after the appalling economic and financial mess it had created”. I have assumed the mess was caused by securitisation of toxic mortgages, by poorly de-regulated western Banks. It that what you mean?

        Also, “… adopting the cunning QE ploy Labour had contrived to dodge the worst consequences which would have had a severe direct impact on the electorate which could not be concealed, …”. I/We have no idea what this means, nor can we generate a scenario to fit it; please explain.

        In March 2009, the Bank of England MPC, agreed to purchase £200 billion of financial assets, (QE), mostly UK Government debt. For reasons that are not clear, it decided it could not drop its cash rate below 0.5%. (The ECB has had no problem reducing its rate to a tenth of that.) The BoE would not have done that without agreeing it with the Treasury.

        Whichever amateur political tribe had been the titular head of the Treasury at that time, it would have rubber stamped the BoE technical advice in exactly the same manner. Consequently, we should all be thankful that Mr Osborne, has been shown the error of his ways and has decided to revert to Mr Darlings 2009 post-crisis fiscal plan.

        Do you really want to give Mr Osborne another go, and let his Dickensian ideology, rewind the UK economy back to 2012 qagain?

        • Richard1
          Posted March 26, 2015 at 9:32 pm | Permalink

          The appalling economic and financial mess left by Labour was caused by over spending and borrowing meaning that the UK went into the financial crisis with a 5% structural deficit. It was caused by incompetent bank regulation – leverage in the bank sector increased from 20x to 50x. And it was caused by the foolish and unnecessary bank bailout, opposed by Mr Redwood, but unfortunately not strongly enough by others. Let’s not be in any doubt, Labour left a terrible mess.

          • Edward2
            Posted March 27, 2015 at 1:25 pm | Permalink

            You are spot on Richard.
            Funny that Brown continually said that those at the top of the banks must take responsibility for their actions but then he, as top of the Govt refused to take any responsibility himself.

        • Denis Cooper
          Posted March 27, 2015 at 12:15 pm | Permalink

          “poorly de-regulated western Banks”

          So who wrecked the UK regulatory system? Who transferred the prudential supervision of commercial banks from the Bank of England to a new body, the FSA, which fell down on that job so badly that we had the first run on a UK bank for 150 years?

          “I/We have no idea what this means”

          Really, so what do you think would have happened if the Labour government had run out of money to pay its bills? What do you think the reaction would have been if public sector workers had been told that their salaries were being cut, those of them who were not being sacked, and pensioners were told that the government could not afford to pay their full pension so that was being cut, and the same with social security benefits, and if companies who had done work for the state sector were not paid, and so could not pay their employees?

          “The BoE would not have done that without agreeing it with the Treasury.”

          We don’t know what private exchanges there were between King and Darling, maybe they will be disclosed in thirty years time. We do know what they each said in the published letters, and while they read as if the initiative came from the Bank the letters from Darling are explicitly letters to authorise the Bank to take agreed steps, actions which would save the government’s bacon.

          I’ve repeatedly given the links to those letters, if you couldn’t be bothered to pay attention on the previous occasions then I don’t suppose you’d be bothered now if I gave them again.

          • acorn
            Posted March 28, 2015 at 8:37 pm | Permalink

            Denis, the government as the currency issuer , can’t run out of its own money, Pounds. It can never be insolvent in its own currency. There is no bill it can’t pay in its own currency. It does not have to borrow its own currency. The Labour government was never going to run out of money to pay wages.

            Until you understand the difference between a currency issuer and a currency user, you will not understand that the deficit is not a debt as understood by a currency using household.

          • Edward2
            Posted March 28, 2015 at 9:44 pm | Permalink

            What would a public sector employee’s wage be worth in purchasing power each week this “printing to pay” policy carried on?
            Week 1 a loaf of bread £1
            Week 52 a loaf of bread £1000

          • Denis Cooper
            Posted March 29, 2015 at 4:39 pm | Permalink

            I very well understand the difference between a currency issuer and a currency user, acorn; but what you don’t understand is that for the UK the currency issuer is the Bank of England, while the government is not a currency issuer but just one of the numerous currency users.

            Check for yourself, take a sterling banknote out of your wallet and see what it says on it. Likewise, if you have any euro banknotes you will see the initials of the European Central Bank in various languages and the signature of the President; again, it is the central bank which is the currency issuer while other EU institutions such as the Commission are only users of that currency.

            Moreover, if you check the EU treaties you will find that like all other member states the UK has agreed that the central bank, the Bank of England, will not extend an overdraft to the Treasury, and nor will it purchase debt instruments direct from the Treasury, so there is no direct way that the Bank can supply the Treasury with newly created money if the latter is running short of money to pay the government’s bills, not without breaching the EU treaties.

            Which prohibition on the direct funding of the government by the Bank was one reason for the pantomime of the Bank creating new money and using it to buy up previously issued gilts from investors while in parallel the Treasury sold new gilts to much the same set of investors at much the same rate, the “money-go-round” which transferred money from the Bank to the Treasury indirectly, through the conduit of the gilts market.

            Another reason being that this indirect method made it much easier to disguise what was being done and why; and as we can see even now, six years on from when it started, that subterfuge has in fact been very successful.

          • acorn
            Posted March 30, 2015 at 7:18 am | Permalink

            Wrong way around Denis. The Treasury is the currency issuer, the Central Bank is a currency user. The CB operates with a balance sheet, like Commercial Banks, the Treasury does not.The Treasury operates with a deficit or a surplus, depending on its need to add or subtract financial assets to or from the economy. That is how you know the Treasury, which is sovereign over the CB, is the currency issuer. In a dispute between the CB and the Treasury, the Treasury always wins.

          • Denis Cooper
            Posted March 30, 2015 at 9:48 am | Permalink

            Check the sterling banknotes in your wallet, acorn, and you will see that they are issued by the Bank of England not by the Treasury. If you had done that a hundred years ago you might have found some Bradbury pound notes which were issued by the Treasury, during the First World War I when the Bank of England was still a private bank; but there is no need for that to be done now that the Treasury can arrange for the Bank to create more money and indirectly lend it to the Treasury via the gilts market, and moreover recover the interest paid on the gilts as part of the Bank’s profits.

            If you cannot see that our present currency is issued by the Bank not by the Treasury, despite the evidence in front of your eyes, then you will not be in a good starting place to understand what QE was all about.

            In fact the Bank was under no legal obligation to follow the wishes of the Chancellor on this matter, insofar as he had never asked Parliament to agree to the activation of the Treasury’s reserve powers under Section 19 of the Bank of England Act 1998:


            Parliament is sovereign over both the Bank of England and the Treasury, and it has prohibited the Treasury from giving directions to Bank in relation to monetary policy without its approval through an order under that Section.

    • REPay
      Posted March 26, 2015 at 2:58 pm | Permalink

      The thing about Keynes that no one seems to know is that he expected governments to balance books in the good times. The modern Keynesians have probably never read him but basically take the view that all government expenditure is good. I believe that Keynes would be appalled at the general profligacy across the western world.

      • Richard1
        Posted March 26, 2015 at 9:27 pm | Permalink

        Indeed, Keynes himself said the govt should not borrow in times of good growth. He also said tax should not exceed 25% of GDP. It’s very doubtful Keynes would have supported the Laboir govt or the Labour party’s current tax borrow and spend policies.

      • lifelogic
        Posted March 27, 2015 at 4:43 am | Permalink

        Indeed I am sure he would have been, but then going on about paying people to dig holes then filling then in again gave politicians a good excuse to waste endless sums of money. Even things as daft as hs2 and wind turbines.

  6. agricola
    Posted March 26, 2015 at 7:47 am | Permalink

    Lady luck has gone our way with oil prices which has had more impact on inflation than anything else. Get fracking and you might keep it that way. The supermarkets are having a bit of a price war so that the customers benefit. Just see that it isn’t at the cost of our agricultural industries and dairy production in particular.

    For the time being all is well in the economic state of Denmark but don’t get carried away, it is all very fragile.

    Your real task is to persuade those, despite Miliband, who would still vote labour. With rigged boundaries, thanks to your friends the Lib/Dems, you have an uphill task. I would pray for a late surge for UKIP to ensure some real conservative support should your hold on power become less than secure on May 8th. Without them you will never get a truly conservative agenda, because the 200 or more Eurphiles you carry in your party will be back again.

  7. Anonymous
    Posted March 26, 2015 at 7:53 am | Permalink

    I’m still jealous of my Dad’s generation.

    By my age he was well retired – his mortgage and debt eaten away by inflation. A decent pension and home without Mum having had to work (he at the lowest rung throughout his whole career.)

    Most of all he had a sense of country and nationality that he could feel safe with.

    Low inflation will go to ramp up house prices yet again. And make us all poorer because we have to support our grown up kids.

    I have no inheritance coming. That’s all gone – care costs and the like as he insisted on remaining independent in his remote Dunroamin’ bungalow in the Wolds hundreds of miles from where he raised us.

    • Mondeo Man
      Posted March 26, 2015 at 6:36 pm | Permalink

      PS – If you want to make houses affordable for the young you need to think the unthinkable and put limits on BTL and multi home ownership.

      Not only are working kids having to compete for housing with each other, wefare dependents, newcomers and house-blockers, they are also having to compete with a new generation of oldies (who have had massive luck) buying up property to rent out at rates often higher than monthly mortgages.

  8. Ian wragg
    Posted March 26, 2015 at 7:56 am | Permalink

    By importing 600,000 foreigners annually, depressing wages and destroying the livelihoods of the natives of course inflation is down
    The fact wages are lower means people don’t have as much disposable income so feel no better off.
    Why haven’t my fuel bills fallen substantially
    I’ll tell you why because of green crap subsidies
    Tell us why you are now having to subsidise what were previously profitable power stations
    Third term? Dream on.

    • bigneil
      Posted March 26, 2015 at 9:04 am | Permalink

      You forgot to ask how many of those 600,000 have come to do nothing but be a financial, housing, social and cultural drain, contributing nothing but the beloved “multicultural diversity” that our leaders worship. A free house, money and healthcare, plus schooling for the hoard of offspring they have to get them more benefit income, has to come out of someone’s pocket. With the MP’s being able to claim all and sundry on expenses they are totally disconnected from the world they are deliberately creating. “Free lives for everyone – all on the taxpayer – come on in”. I really am glad my life is nearer the end – because I hold no hope for the future of the English young ( but the kids of bankers and MPs will be ok).

    • Hope
      Posted March 26, 2015 at 9:24 am | Permalink

      Well said, or the care home fees or the pensions for elderly while giving away £14 billion in overseas aid- a sixth of which is spent by the EU without any say from a UK politician or UK tax paying citizen! I am afraid this is rose tinted glasses to help the Tory election campaign and JR’s comments bear little resemblance to the real world, artificial figures for an artificial Westminster debate.

  9. Richard1
    Posted March 26, 2015 at 8:03 am | Permalink

    Sour grapes from Labour MP John Mann after Miliband was made a fool of by Cameron over VAT yesterday. Mann has pompously described George Osbornes perfectly legitimate response to his committee – that the Conservatives would not need a VAT rise – as the greatest breach of parliamentary committee procedure ever. I’m no expert but are ministers obliged to announce future party policies to select committees? Is the chancellor meant to tell Mr Manns committee what tax rises he might or might not plan ahead of budgets? The self importance and pomposity of Mr Mann is extraordinary. As far as I can see Mr Mann was himself using the select committee as a platform for a party political attempt to trap Mr Osborne on the subject of VAT.

    • Richard1
      Posted March 26, 2015 at 9:05 am | Permalink

      The BBC, recognising the disaster which PMQs was for Miliband, seems to be launching an investigation over who knew about the VAT announcement when. The left – including the BBC – need to get over it. There’s no need to raise VAT, the Laffer curve effect would kick in at much over 20%.

      Then we have the left wing Kings Fund helping the Labour Party by claiming the NHS is in some terrible crisis – the worst since the early 90s (when there was also a Conservative govt, natch). The BBc is helpfully amplifying this. The facts – that there are more doctors, more nurses, more people being treated, life expectancies improving (especially in poor or formerly poor areas) – are not mentioned.

      • Mockbeggar
        Posted March 26, 2015 at 12:23 pm | Permalink

        In any large organisation, managers – especially junior managers, will find good reasons why they need more staff. They become very adept at putting up excellent cases for expansion of their team to their own manager. Of course, the fact that their own responsibilities are thus increased and justify an upgrading and commensurate increase in pay is purely coincidental. This happens in both public and private sector organisations.
        The difference between public and private is that when commercial organisations get too bloated and more efficient competitors start to snap at their heels they downsize (witness the supermarket scene now) often pretty savagely. The public sector has no such constraints until their budgets are frozen and then, don’t they scream?
        I’m confident that the NHS can squeeze a lot more inefficiency out of its system yet. It could start, perhaps, with some of those absurd fat cat salaries its ‘top’ managers pay themselves.

      • REPay
        Posted March 26, 2015 at 3:08 pm | Permalink

        The BBC is having a good campaign! Clarkson is gone to general cheers from the left and I am enjoying a slew of BBC podcasts about how government needs to do more, spend more. For example, a recent program on the local public sector pensions crisis. Not a mention of how incredibly generous pensions that were used to illustrate typical local government workers, but the whole focus was on the greedy asset managers and how it was difficult for local councillors to understand pensions. The end of the program concluded there would be no change because the asset managers fund political parties…a clear reference to the Tories.

  10. alan jutson
    Posted March 26, 2015 at 8:05 am | Permalink

    You may well be right that government figures show zero inflation, but I am not so sure that the governments policies are totally responsible for such.

    The ” capitalist market of supply and demand” is more in evidence here, as lower disposable income from millions early on in the term, gave a shock to the system and customers became more savvy with what and when they purchased.

    We still have the situation where utility companies have increased prices hugely over the last 5 years (due to government subsidy policy) yes down a bit of late, but not by much.

    We are informed farmers are being screwed to the floor by the traditional supermarkets, only because they themselves are suffering from the new completion from the newer smaller entrants.

    The Banks are charging less for loans than in traditional times, but their margins have actually increased at the expense of the depositors.

    The Government cap on Local Authorities has kept the Community charge at sensible levels, but none of us really know how many services are being trimmed back until we need them.

    So whilst I certainly agree the headlines, that is perhaps not the full story, which I would suggest is rather more complex.

    I would agree however that Labour would be a disaster, all they seem to want to do is find fault, offering little positive action for their own ideas, which is always a sign of desperation.

  11. Lifelogic
    Posted March 26, 2015 at 8:07 am | Permalink

    I see it is reported that David Cameron is already plotting another deal with Nick Clegg. Hardly surprising given that he clearly is a Libdem at heart and soul, but what makes him think Clegg will even be an MP. On current poll the Libdems see to be heading for perhaps 11 seats at this rate and Cameron for just 276 so way short of a majority even with the Libdems.

    What is needed to win is a low tax, jobs galore, high growth, build more houses, cheap energy, far smaller government, far less EU, and a fair deal for the English, positive go getting agenda.

    Why are Cameron and Osborne totally unable to grasp this? The voters have certainly got it. The Tories could hardly have an easier opposition to beat than Miliband and Balls, made even worse by the fishy Scottish characters of (I will write the budget with Balls) Salmond and Strurgeon.

    • Hope
      Posted March 26, 2015 at 3:43 pm | Permalink

      Brown was an open goal to beat, Cameron still failed by not stating quite clearly what he stood for, as Lord Ashcroft wrote about. If he did state what he stood for Brown would have beat him!

  12. Roy Grainger
    Posted March 26, 2015 at 8:08 am | Permalink

    If zero inflation is a good thing and to be welcomed then why does the government have an inflation target of 2% and demand an explanation from the BoE when this target is not met ? You can’t have it both ways.

    • Lifelogic
      Posted March 26, 2015 at 11:00 am | Permalink

      Bank are mainly charging Libor + 3% up to 30%+ with inflation at 0% this is still very expensive. They are also absurdly slow and picky. OTT and misguided slotting rules and regulation are largely to blame.

  13. Narrow Shoulders
    Posted March 26, 2015 at 8:12 am | Permalink

    Notably inflation in the areas where government assistance for the ‘deserving’ distorts the market for those who have to pay for themselves remains rampant. Housing, childcare and items covered by Access to work spring immediately to mind.

    Conversely government propping up of low wages paid by companies through the tax credit system continues downward pressure on all wages.

    In each case the taxpayer can merely bend over and cough while government spends to our own detriment.

  14. mickc
    Posted March 26, 2015 at 8:23 am | Permalink

    Inflation is not zero if housing costs are included, and most people certainly have housing costs!

  15. A different Simon
    Posted March 26, 2015 at 8:32 am | Permalink

    Prices of consumables and food have fallen , partly because they got ahead of themselves and partly due to the discounters like Aldi and Lidl .

    The reduction in the cost of oil and oil linked gas flows on to every aspect of the economy showing the benefit of lower energy prices .

    OPEC are likely to need to keep oil to $80 to maintain market share and the futures market sees this as a price going forward .

    Sterling is very strong at the moment and inflation is likely to rear it’s head when there is a correction .

    However , the major expenses in people pocket are still going up :-
    – house prices
    – cost of making provision for ones old age – your Govt has not provided ordinary people with access to high quality secondary pensions .

    Unbelievably pensions are not even on the agenda of the main parties – collusion not to mention it no doubt . What a conspiracy LibLabCon is against the common man .

    People now have to save multiple times what they would have had to save only two decades ago to receive the same income in old age .

    How about adding a “making provision for old age” item to the inflation basket ?

  16. John E
    Posted March 26, 2015 at 9:21 am | Permalink

    Zero or negative inflation is not good. It further reduces social mobility, deepening the trench between the haves and the not-haves.
    The moves to negative interest rates will be looked at by future generations as a folly of the same order as the Weimar rush to print banknotes. When policies lead to lunatic outcomes it’s time to think again, not pedal faster.

  17. A.Sedgwick
    Posted March 26, 2015 at 9:38 am | Permalink

    My inflation calculation is how much more it costs to live the same lifestyle and in recent years it has been nearer 10% than 2% and I don’t see that changing much.

  18. Jerry
    Posted March 26, 2015 at 9:44 am | Permalink

    The cost of living depends on what stats are used, the official Index that broadly returns what the government want/expects (why else keep changing the measure, or padding it out with irrelevances for most people…), the set favoured by the (official) opposition or the one used by the Plebs every time they go shopping – trouble is non of the three actually tally with either of the other two, ever!

    • Hope
      Posted March 26, 2015 at 3:45 pm | Permalink

      Quite, in the past we have seen govt manipulate employment figures, immigration figures deficit figures and so forth.

  19. Brian Tomkinson
    Posted March 26, 2015 at 9:53 am | Permalink

    Despite the obligatory dire warnings by all the MSM that deflation is worse than inflation (who has put them up to this?), low inflation is very much welcomed by those of us who lived through the rampant inflation of the 70s. However, an index which compares prices of certain goods with those of the same month a year earlier may be useful but the average person will take more note of what is happening to prices today and regrettably petrol prices have risen significantly and are still rising (no doubt due primarily to the weakness of the pound against the dollar) and most people have seen no benefit of the reduction in oil prices in their energy bills. The benefits of the oil price drop, which of course had nothing whatsoever to do with this government but came as a lucky windfall, are already being eroded and that is what people will notice.

    • Denis Cooper
      Posted March 27, 2015 at 12:45 pm | Permalink

      I used to accept the conventional wisdom that a deflationary spiral was more dangerous than an inflationary spiral and so it was wiser to allow a margin for error and try to keep inflation low but still positive, which is what Clarke and then Brown aimed for with their inflation targets. However I’ve grown more cynical about this, having seen how the threat of deflation was used to justify QE in the UK when the primary objective was not to ward off deflation but to make sure the Labour government did not run out of money in the year leading up to the last general election, as the government of Greece keeps running out of money, and then that QE actually led to inflation in excess of the Chancellors’ target but nothing was done about that. The fact is that inflation generally benefits debtors as against their creditors, and often governments are the biggest debtors of all and actually need inflation to erode the real value of their debts.

  20. English Pensioner
    Posted March 26, 2015 at 10:16 am | Permalink

    As a pensioner, I am far from convinced that inflation is zero.
    When you look at the “basket” of items that are taken into account, many are things that pensioners buy far less frequently than their working colleagues.
    We don’t have a smart phone, my wife has a cheap PAYG phone for emergencies. This computer is quite old, running Windows XP, whilst our daughters and son-in-laws all have personal laptops, purchased within the last 18 months or so. The same with “white goods”; our fridge is so old it’s a wonder it is still working, whilst the younger members of our family seem to have the very latest kitchen appliances. Petrol prices contribute towards a large part of the fall in inflation, and whilst we run a car, we rarely go far and our mileage is well below the average, so we are not saving much here, and I note the price is on the rise again.
    When it comes to food, we are able to take advantage of special offers when it comes to non-perishable food, but we can’t take advantage of any on the perishable items. But we have noted that many packs are getting smaller, have those who work out the RPI noticed this? With metrication they can reduce the weight of something a few grammes at a time, (one make of instant coffee from 200g to 190g in the same sized jar). Small changes like this never happened when we had Imperial measures!
    At the same time our income has fallen; we no longer have any income from interest on savings, and investing £10000 in 4% pensioner bonds (taxable) is not going to make any vast difference. We’ve accepted the bribe, but it is unlikely to change how we will vote, which I assume was the government’s aim.
    So whilst inflation for some might be zero, for pensioners, and probably some other groups, it certainly does not seem to be so.

  21. Andy
    Posted March 26, 2015 at 10:53 am | Permalink

    Regarding the spider memos from Charlie, David Cameron is quoted as saying:

    This is a disappointing judgment and we will now consider how to release these letters. This is about the principle that senior members of the Royal Family are able to express their views to government confidentially. I think most people would agree this is fair enough.

    That might be his view, I would contest that most people (myself included) do not agree that senior members of the royal family should be able to do this. What are your thoughts?

    • Roy Grainger
      Posted March 26, 2015 at 11:45 am | Permalink

      The Guardian seems to think it has a right to obtain and publish the private letters of Prince Charles. Of course if it had been Hugh Grant or Steve Coogan the same newspaper would have been horrified at such an invasion of privacy.

      • Andy
        Posted March 26, 2015 at 1:15 pm | Permalink

        Hugh Grant has no constitutional standing or obligation to remain neutral and non-interfering, that I am aware of.

        Charlie can easily put himself in the same lowly position as the rest of us proles if he likes…

        Any letters you or I (or Hugh Gant or Steve Coogan) wrote to ministers would be available under the FOI act, and I doubt that hundreds of thousands of pounds would be spent fighting against their publication.

      • Hope
        Posted March 26, 2015 at 3:50 pm | Permalink

        Charles needs to be clear whether he should become involved in politics and wish to influence govt. policy or not. If it is the latter he should keep quiet and not write. If he chooses to write to influence govt. then we have a right to read it. I thought that is why the monarchy gave up that right to parliament? I would like to see William replace the Queen. Charles should follow his great uncle’s stance.

        • Denis Cooper
          Posted March 27, 2015 at 12:53 pm | Permalink

          The monarchy has not entirely relinquished that right; Acts are still passed by the Crown in Parliament, in theory the sovereign still has the right to refuse Royal Assent to a Bill passed by the other two parts of Parliament, the Commons and the Lords, and it is easy to conceive of circumstances where the sovereign would be acting in the interests of the people by doing so.

          Reply The sovereign will not veto a Bill!

          • Denis Cooper
            Posted March 27, 2015 at 3:01 pm | Permalink

            Could do, and it’s easy enough to conceive of a Bill passed by the politicians which should be vetoed.

          • Jerry
            Posted March 28, 2015 at 4:26 pm | Permalink

            @Denis Cooper; Your reply to our host really does prove that you do not understand the concept of democracy, nor how it works! 🙁

          • Denis Cooper
            Posted March 28, 2015 at 7:55 pm | Permalink

            Jerry, it is you who do not understand our constitution.

            In 1688 it was agreed that the monarch would not make laws without the consent of Parliament, but it has never been agreed that Parliament may make laws without the consent of the monarch, hence:


            “Part of the work of Parliament is to make laws. These are called Acts of Parliament. Usually the House of Commons and the House of Lords both debate proposals for new laws called Bills. If both Houses vote for the proposals then the Bill is ready to become an Act. It can only be described as an Act when it has received Royal Assent from the monarch.”



            “Royal Assent is the Monarch’s agreement to make a Bill into an Act of Parliament. The Monarch actually has the right to refuse Royal Assent but nowadays this does not happen and the Royal Assent is a formality.”

            “The Monarch actually has the right to refuse Royal Assent”, says the official website of Parliament, which presumably has been checked and approved by the clerks; that right has not been extinguished because it hasn’t been exercised for a long time, and I have no problem conceiving of a Bill which had been passed by the politicians in both Houses which would be so inimical to the interests of the people that the monarch would have a duty to veto it.

          • Jerry
            Posted March 29, 2015 at 3:45 pm | Permalink

            @Denis Cooper; I also believe that you can still be deported to Australia for sheep rustling, amongst other crimes that remain on the statute book…

            Your point, other than -seemingly- wanting to get rid of our democratic parliamentary system to be replaced -presumably- by an absolute monarchy is what exactly?

            Just because the UK constitution says the monarch is allowed to do something it doesn’t follow that the monarch will do so any time soon!

          • Denis Cooper
            Posted March 29, 2015 at 4:59 pm | Permalink

            “I also believe that you can still be deported to Australia for sheep rustling, amongst other crimes that remain on the statute book…”

            Do you really believe that? Show me the law, then.

            “Just because the UK constitution says the monarch is allowed to do something it doesn’t follow that the monarch will do so any time soon!”

            Nor did I say that monarch will do it any time soon; I said that the monarch retains the right to do it, and it is easy to conceive of Bills where the monarch would be right to do it.

            For example, suppose that the politicians in both Houses of Parliament passed a Bill to indefinitely postpone elections for the House of Commons and so keep the existing lot of MPs in place for as long as they liked, would you think that the monarch would be acting for, or against, the interests of the people, and of their democracy, if he or she refused to agree to that Bill becoming law?

            Oh, but it’s total paranoid conspiracy theory nonsense to suppose that they would ever pass such a Bill, I expect you will say. Except that they have in fact passed such Bills in the past, as you will find out if you look into it.

      • Hefner
        Posted March 26, 2015 at 4:09 pm | Permalink

        Is it so difficult to see the difference between the heir to the throne writing to various people in government and trying to influence them, (with potential impact on all of us) and some actors not wanting their private lives to be put on the public arena ???? Is it really the same thing?

        • dave roderick
          Posted March 26, 2015 at 10:53 pm | Permalink

          so what about all the large corporations etc pushing their agendas and getting away with it, this costs us the mugs a lot more than charlie sending a few letter s to cameroon and his clowns

    • graham1946
      Posted March 26, 2015 at 7:46 pm | Permalink

      At least these are just ideas which the govt can ignore. What is of far more concern is big corporations and rich donors ‘buying’ policy and legislative favours.

  22. Qubus
    Posted March 26, 2015 at 11:00 am | Permalink

    It depends which index you use for inflation. We have now all been conned into using the CPI. However, I understand that the old RPI index is still giving 1% inflation. What short memories we all seem to have.

  23. dumpling
    Posted March 26, 2015 at 11:32 am | Permalink

    The zero inflation is down to the drop in oil prices – as simple as that. The government cannot take the credit for it. In the meantime it is doing its best to increase inflation by continuing with the lunacy of renewable energy. To be fair you have highlighted this several times, albeit in polite terms. Meanwhile my subscription to the Telegraph newspaper continues to rise in the order of 18% year after year and my telephone/BB annual line rental this year has risen from £114 to £180.

  24. oldtimer
    Posted March 26, 2015 at 11:35 am | Permalink

    The drop in inflation is welcome but is mostly due to free market competition – in the international energy market and domestic supermarket sectors. It has nothing much to do with the government or government policy. That is pushing prices up because of subsidies for its absurd, destructive energy policy and spending on the so-called “vanity” projects such as HS2 and the 0.7% foreign aid budget.

    As for Mr Miliband and Mr Balls and their economic forecasts, they have revealed themselves to be complete and utter clueless prats. As for Mr Cameron and Mr Osborne the politest thing I can say is they rival Mr Blair and Mr Brown in the art of blowing smoke and tilting mirrors. None of these will get my vote or support.

  25. miami.mode
    Posted March 26, 2015 at 11:38 am | Permalink

    With cheap Funding for Lending, tax credits, housing benefit and the exclusion of Council Tax from the CPI it’s obvious that inflation will be low. Added to this are the commercial activities of supermarkets and the fall in oil prices.

    The Bank of England was always “looking through” inflation when it was stubbornly above 2% so surely it should be able to do the same with regard to current prices especially oil and energy.

  26. petermartin2001
    Posted March 26, 2015 at 11:40 am | Permalink

    “The UK used to have a bad inflation problem. ”

    Soon to be replaced by a bad deflation problem?

    We should all be worried about this but for the right reasons. The so-called “New Keynesians” are worried, but for peculiar reasons. The word “new” BTW should be read as NOT. The ‘Not Keynesians’ tend to believe that the variation of interest rates is the only legitimate method of macroeconomic control. You’ll know the theory: Raise interest rates to slow the economy , reduce them to speed it up.

    So what to do when the economy slows and interest rates are close to zero? Interest rates then have to go negative, according to this theory. But, what’s to stop everyone just saving cash in piggy banks, in safes or under the proverbial mattress? That way if the best they can do is get -2%, say, in the banks they’ll do 2% better by keeping cash.

    The solution, according to NKians like Kenneth Rogoff is simple. Eliminate cash entirely from the economy. Last year he wrote a paper “Costs and benefits to phasing out paper currency”. If you’re thinking Kenneth Rogoff is some crackpot swimming way outside the mainstream- think again. He’s a Harvard professor!

    There’s really no need to have the kind of deflation we see in the EZ and all the problems of rising bankruptcies and high unemployment that goes with it. Neither is there any need to remove cash from the economy. If anyone wants to know how to stimulate the economy and move from deflation to reflation, I’m always happy to enlighten anyone for free. If there’s one thing real Keynesians used to be good at, it was creating inflation! Given that deflation is the looming problem, it’s time to dust off the old textbooks and give Keynesian/Lerner theory another try. I’m sure we can all accept that mistakes were made in the 70’s which led to inflation becoming too high. But the economic and political establishment are making a big mistake by throwing out the baby with bathwater.

    • graham1946
      Posted March 26, 2015 at 8:12 pm | Permalink

      One of the reasons for high inflation in the 70’s was the power of the unions who could immediately demand and get above inflation pay rises and so the cycle continued. Now that they virtually don’t exist in any meaningful pay bargaining way, we are likely to continue to have ‘low’ inflation.

      Of course, those who actually go shopping, rather than just fantasize over the Office Of Notional Statistics figures (which disallow the biggest element – housing, so it’s fiddled), will know that their money is not really going further, except at the petrol pumps and where the supermarkets are screwing farmers, which is nothing to do with the government. Dairy farmers are going bust at alarming rates and vegetables are being flown in from all over the world. Factory produced goods (say soap powder etc) are not cheaper, in fact they go up, not by straight forward price increases, but by reducing packet sizes. It won’t last, because it can’t. Equally, the government claim to have ‘created’ millions of jobs is untrue – they have created nothing, – private firms have done that in spite of what the govt do to them with energy prices, business rates etc.

      • Denis Cooper
        Posted March 27, 2015 at 1:21 pm | Permalink

        “which disallow the biggest element – housing, so it’s fiddled”

        Well, Brown decided that we should fall into line and start using the EU’s preferred measure of inflation, and Osborne has done nothing about that despite his mutterings before the last general election.

    • Denis Cooper
      Posted March 27, 2015 at 1:15 pm | Permalink

      “Given that deflation is the looming problem”

      As it was claimed to be in early 2009, as one justification for a policy of printing money which in reality was primarily intended to fund the Labour government’s massive budget deficit in the year leading up to the general election.

  27. Denis Cooper
    Posted March 26, 2015 at 11:57 am | Permalink

    In the course of a recent Sky press review a participant mentioned that inflation had reached 22% pa in 1980, whereupon the presenter expressed surprise.

    That brought it home to me that many of the present population have little or no personal memory of those times. I now find that she has just turned 43, close to the median age in the UK, so it would be fair to say that half of the present population, although not half of the voters, are pretty ignorant of what it was like.

    Trade unions were much more powerful and some of their leaders had no scruples at all even about trying to bring down the elected government through strike action, let alone trying to get above inflation pay rises, which fed an inflationary spiral; with so many industries still nationalised, the government itself was involved in many of the disputes as the direct or indirect employer, and so they became deeply politicised in a way which no longer happens; and moreover as the government was still worrying about the threat of over-population and operating a policy of “would-be zero immigration” it was not so open to employers to simply replace recalcitrant native workers with cheaper and more docile foreign labour, as they have been able to do since the government reversed its position and moved towards allowing and encouraging uncontrolled mass immigration under a range of pretexts, shifting the balance of power towards capital.

    We certainly do not want to return to those days, but then I see little prospect that we would even if we now completely shut our doors to the effectively unlimited reserve army of foreign labour which employers can now call upon to depress wages.

    • petermartin2001
      Posted March 27, 2015 at 1:53 pm | Permalink


      inflation had reached 22% pa in 1980

      The peak of UK inflation was earlier than that.

      Depending on one’s political viewpoint, this is usually put down to the large jumps in the oil price, or the power of the trade unions at the time.

      What’s normally not mentioned, is the economic paradigm of the time, followed by Conservative and Labour alike, which was almost entirely Keynesian in its approach. The conclusion that followed later, especially from the right of the political spectrum, was that this failure to control inflation showed that Keynesian economics was somehow fundamentally flawed.

      I’d argue that is a mistake. In the sixties governments led by both parties somehow managed to keep unemployment from ever rising above 2%. Looking back, such a low level of unemployment seems impossibly optimistic now. After all the ‘adjustments’ made in the collation of unemployment figures that would be more like 1% using today’s counting methods.

      So, it is hardly a surprise that, sooner or later, inflation would creep up and become unmanageably high to the detriment of the economy. The strikes and industrial unrest of that period were a consequence of inflationary times rather than the cause of it. But , yes, the huge jumps in the oil price had an effect too.

      Damning Keynesian economics, on the basis of what went wrong in the 70’s, is rather like blaming the engineering of a car when driver error is the real cause. You might think that Keynesian economics has survived as New Keynesianism. Except it hasn’t. The NK’s are quite different and too hung up on controlling the economy with interest rate adjustments alone. They are now close to zero, this so approach has come to the end of the line.

      We need real Keynesian economics back, but with more sensible unemployment targets this time. This doesn’t have to mean accepting high levels of unemployment, only that some political rethinking is in order on that question.

      • Edward2
        Posted March 29, 2015 at 5:52 pm | Permalink

        New Keynesians seem to view any higher level of spending by the Government as “investment” and a good thing.
        Fair taxes is their motto.
        ie more taxes and higher rates of tax for all especially the rich.
        Borrowing, QE and money printing is all OK.
        Growth is their obsession.
        Inflation, rates of interest, control of the money supply,exchange rates and balances of trade figures seem unimportant to them.

  28. Denis Cooper
    Posted March 26, 2015 at 12:07 pm | Permalink

    According to some incompetent Sky reporter we are now enjoying the lowest prices for fifty years, a schoolgirl error on a par with government claims that because the annual budget deficit has been reduced the national debt has been cut.

    So maybe it’s not surprising that there is little mention of the fact that while prices as measured by CPI have been almost stable for the last year this is after a period of years when CPI inflation repeatedly exceeded the Chancellor’s 2% target.

    A large part of which excess inflation, contributing to Labour’s “cost of living crisis”, can be put down to the QE policy initiated by the last Labour government.

    • petermartin2001
      Posted March 26, 2015 at 8:30 pm | Permalink


      I think you’ve tried to explain before how QE causes inflation using some back of envelope calculations. Yet you never present ‘before and after’ graphs of inflation for the three countries, the USA, the UK and Japan, who’ve used QE. I suspect simply because you can’t find any that would support your case.

      But just accepting that for a moment it was true, at least in the UK, and that QE was at least partially responsible for the 3%, or so, inflation we experienced a few years ago, would you accept that was a price worth paying for the relative success of the UK economy both then and now? Things can’t be so bad. If they were we’d be like many other European countries with more people wanting to leave than arrive.

      • petermartin2001
        Posted March 26, 2015 at 8:46 pm | Permalink

        PS I had thought you might object to my “3% or so” claim. It’s true that the CPI figures would put inflation slightly higher.

        But is the CPI the best method? What about taxes? What about housing costs?

        If we use CPI-CT, and CPIH, which give a better indication of underlying inflation, we get a slightly lower inflation figures, not higher as some have claimed on this post.

      • Denis Cooper
        Posted March 27, 2015 at 1:37 pm | Permalink

        The Bank of England made the theoretical study to estimate the effects of the first £200 billion of QE, all I did was to extrapolate their estimates pro rata to the full £375 billion to come up with 7.9% as the increase in CPI attributable to QE, while empirically the excess CPI inflation over the 2% target accumulated to 6.2%. We discussed this in January:

        I haven’t looked at what has happened elsewhere in the world, it is enough to work out what has happened here without that distraction.

        It wasn’t the hyperinflation that some predicted – and nor did the external value of sterling collapse as some predicted – but it is an indication that QE is not cost free for the population even if the costs of not having QE at that level would have been far higher, and a warning that politicians should not be allowed to create new money ad lib to fund their profligacy.

  29. Gary
    Posted March 26, 2015 at 3:11 pm | Permalink

    There is inflation. It is in the bond markets which causes some asset prices bubbles(namely property) and also jobs to be lost as manufacturing disappears. But never fear, although not much anyone outside of finance has had a pay rise in years , we have low unemployment because you are considered employed even with a zero hours contract.

    don’t let them mislead you with their economic hocus pocus.

  30. Iain Gill
    Posted March 26, 2015 at 5:27 pm | Permalink

    Inflation is only zero if you exclude housing. And since we all need somewhere to live that’s obvious nonsense.

  31. Robin Smith
    Posted March 26, 2015 at 5:34 pm | Permalink

    We’ve spoke to Mr. Miliband and Mr. Cable. They convinced us they know exactly what are the more profound causes. But point out our naivity for imagining any successful politician could ever make a stand on the real causes. They know it, yet hide behind a timid political doctrine to maintain the best chance of getting elected. Even the Greens are now doing it now they can smell power.

    Here is an extract going some way to investigating root cause:

    Mortgaged Backed Securities (Virtual Mortgages) are not inherently a bad thing. They are what we make of them.

    “Neither are explicit individual ‘bare metal’ mortgages.

    The root of the last recession was what the mortgages were backed by.

    Mortgages are money created out of nothing, as loans, backed against the value of the land they’re used to buy.

    The ‘annual rental value’ of that land when capitalised into a selling price.

    That is, what would you be willing to pay for the perpetual rental stream of that property? (say 20 years worth @ 5%)

    That is what constitutes the selling price of property – its annual rental value, capitalised.

    The rent captured delivers an unearned income. That is, it increases in value 5% annually with zero further costs to its owner.

    Do not take this as a judgement. We’re just pointing it out so you can make up your own mind.

    You may well spend money to keep good the bricks and mortar. We’re talking about the location value underneath – how much are you willing to pay for exclusive access to that location – to monopolise that plot.

    The building may well be worth something, but its upside.

    This ‘unearned’ increase in location value is intangibly created by the entire surrounding community, most of whom are tenants paying rent, not collecting it.

    To to say its sustainable because everyone plays a part is pure fantasy. And to say you paid for the increase is also to be living on Pluto.

    Again we’re not moralising against wealth and power here. We are pointing out a legalised pyramid scheme that will inevitably collapse.

    And mortgage ‘interest’, is a euphemism for economic rent. The loan was money created out of nothing, no capital was involved. So to say it was earned is now to be living on Neptune.

    And it was a risk free creation for the bank. Mortgages are bailed out before all else in hard times. Underwritten by government of all party’s in all times and places. Don’t delude yourself by imagining anyone ‘dared’ here.

    So why is this ‘rent’ root cause of all economic paroxysms?

    If the windfall acquired by the title holder is unearned, then others who did create that value must have given it. That it is indirect and hidden is of no consequence to nature.

    The indirect effect is to grow a bubble of home owners wanting to get in on the only thing that make money free of work and tax and legal to boot.

    This positive feedback has no way to discover price through natures mechanism of supply and demand within a free market.

    So it will grow, and grow, and grow and grow, no matter how many new homes are built, no matter how many of those new homes remain empty.

    Eventually, the power of that economy to produce growing wealth will be exceeded by the selling price of rent.

    And the result will be that production gradually stops as enterprise falls below the threshold of bankruptcy, rent eating all its once hard earned profit.

    There is no escaping this. Nature forbids it. Man is not yet master of the universe, those as home owners that feeling is projected onto us through the psyche.

    When the land is sold forever like this, a recession and all the derivative effects are priced in at the root. We’re not religious, but that book called the bible is wonderful poetry as are all such wisdom. (Leviticus 25:23, Romans 13, 1 Samuel 8)

    Mortgage repossessions are on the increase over the long term. Go ask the Ministry of Justice about it. So this legal pyramid only serves a few lucky gamblers, despite the fact that everyone works hard to get on the ladder.

    If you were to go to the casino cashier and complain about your losses, would anyone still treat you with credibility? Was any mortgagee ever forced to sign their mortgage contract at the point of a gun? Show me any bank that would not go under if not competing for it.

    Do not get angry about this or take it as a judgement either as a banker or home owner. We’re just pointing out reality, so that you can integrate it into your psyche as an objective fact.

    And then be in a position to make confident decisions about your future, free from political or religious doctrine and poor advice from experts and professors. Look in the mirror, and rely on your own capable mind.

    Besides to oppose it will bring judgement on you. Nature is responding lawfully to the actions of the majority who selected it and elected it. Do not blame the politicians else be judged by ‘fire and the sword’.

    Not wanting to paint a dark picture, there’s always been a readily available way out of this maze. The pathway is alluded to in the great tomes above. You just have to read them… but not literally.

    Take what you find there to the ballot in May. Or should we say, “at the Pool of Bethesda””

  32. Lindsay McDougall
    Posted March 26, 2015 at 8:52 pm | Permalink

    We should manage the money supply so that zero inflation becomes permanent.

  • 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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