Eliminating the deficit?

Yesterday we had an important debate on removing the deficit that has dogged UK public finances for more than a decade. Labour switched sides again, opposing the idea that in normal times there should be no deficit.

The present government plans to cut the deficit from around £70 billion this year to £6bn in 2018-19, and to move into surplus in each of the two subsequent years. This will end a long period of huge build up in public sector debt, which will exceed £1.6tn by 2017-18 (excluding the capitalised value of future unfunded liabilities and without imputing a value to future tax receipts to pay for them). Net debt as a percentage of GDP hit a high of 80.8% of GDP last year and is planned to fall this year and over the next five years, down to 68.5% by 2020-21.

The government assumes the economy will be operating at full capacity by the end of this decade, so the cyclically adjusted borrowing or repayment is the same as the actual one planned. The reduction in deficit comes about through a large increase in tax revenue. The plan is to raise £210 billion a year more in 2020-21 than last financial year. This will both remove the deficit and allow an increase of £109 billion a year in total public spending over the same time period.

It is curious that Labour have decided to ignore the deficit again and to argue for more borrowing. As the debt and deficit fall later this decade so the interest burden reduces, giving more scope to spend on public sector services with less going on interest charges.

UK state debt was £380 bn in 2001-2. It soared to £1080bn by the time Labour left office, and has risen to around £1600 bn since. It is currently falling as a proportion of GDP but still rising in cash terms.


  1. Lifelogic
    October 15, 2015

    I was in Cambridge yesterday, one road was about two thirds bus lane and one third for cars. Not a bus to be seen. Do the fools that design UK traffic systems not know that if you give 2/3 of the road to 3% of the traffic you decrease the capacity of the (expensive) road asset to nearly 1/3 of what it would have been without the daft scheme?

    Congestion by government design, all no doubt worth it (from their point of view) by the many motorist mugging bus lane cameras. The congestion and empty bus lanes tempting the odd mugging victim into the bus lanes. It also ensures far more fuel use and pollution.

    1. Iain Gill
      October 15, 2015

      Correct any political party adopting the policies of the abd.org.uk would gain a lot of voters…

    2. Richard1
      October 15, 2015

      hills Rd by chance? A construction project as big as HS2 has been going on there for over 2 years and shows no sign of an end. A very expensive bike lane like the one along embankment is being added by the generosity of us taxpayers.

      1. petermartin2001
        October 17, 2015

        A very expensive bike lane like the one along embankment is being added by the generosity of us taxpayers.

        All cyclists are taxpayers too! The last time I checked, there was no VAT exemption on my puncture repair kit! It was still 20% 🙂

        Nearly all cyclists are motorists too. Even Jeremy Corbyn these days perhaps, if we count his official car. But if he’s cycling instead of using that car he’s saving the taxpayer money. Just like we are all making a contribution by using our bikes for our journeys. Motorists do tend to become irate on the rare occasions they are held up on narrow roads by cyclists but 99% of the time hold ups and delays are caused by other motorists.

        Cyclists, by choosing to leave their cars at home, are helping all other motorists to minimise their journey times.

        1. stred
          October 18, 2015

          Peter.The puncture repair kit I bought recently cost about £2.20, with 20p going to HMG. My car had to have its cambelt changed and cost £450 with £72 VAT.

          While crawling along the now 2 lane road beside the 2 lane Embankment Cycle Superhighway, there was a sign telling us ‘Do not overtake cyclists’ and as a result even fewer cars got through the camera fining traffic lights. If Mr Corbyn has to cycle home alongside 4 miles of queuing traffic everyday, presumably accompanied by bodyguards, he may be in danger of being gassed by NOx. The latest spin from the BBC is that it causes dementia as well as heart attacks. What a horrible thought.

  2. Lifelogic
    October 15, 2015

    Sorry corrected version:

    The real problem is that Osborne tying to fix the deficit in totally the wrong way. He is increasing tax rates, while still wasting money, hand over fist, on the largely inept state sector. Much of it on things of no or value to the public or things that are actually damaging. Things such as the dysfunctional, death causing & competition destroying NHS (and the similarly poor education system). The potty expensive energy agenda, HS2, the EU costs and OTT regulation of everything. This of course reduces the tax base and ultimately kills the goose that lays the eggs.

    We need the private sector to be released from this government straight jacket of over taxation and over regulation and for the state sector to be halved in size. The state to do only the very few things that the state can actually do better and do them efficiently. Largely these are defence, law & order, ensuring fair competition and basic infrastructure.

  3. Lifelogic
    October 15, 2015

    Osborne’s major con is pretending his enforced minimum wage increases as if they were a gift from government to individuals. It is actually just another huge tax grab by the state. The self employed clearly will not get it and may will find themselves perhaps 10% worse of in take home pay due to the tax credit changes. Many business will also be unable to pay these increase and will have to reduce staff numbers or close down. Government has not got clue how much various individual employers can afford to pay their staff.

  4. Antisthenes
    October 15, 2015

    We do not have a written constitution so winning the vote for the budget charter is a pyrrhic victory for those who believe in sensible and responsible economic policies.

    If Crobyn becomes prime minister which is more possible than many of us think for as we all know “there is many a slip twixt cup and the lip”. This piece of legislation can be quickly overturned. By 2020 the Labour party will have purged itself of all moderates(relatively speaking as to me no lefty is a moderate) as that is what revolutionaries do. Make no mistake Corbyn and McDonald are revolutionaries not yet in the bloody sense but are in their ambitions to impose their socialist Utopia on the people of the UK and their erroneous belief that they represent the masses and those masses are downtrodden . They will use that purge to stuff the Labour PLP with stalwart card carrying Marxists who will work with the zeal of the worst religious fundamentalist(make no mistake about it socialism equates to that of a religion as it is a belief founded on faith not evidence) to impose upon the UK their far left vision.

  5. Lifelogic
    October 15, 2015

    I see that the wonderful (priority in three letters) N H S has one of the highest still birth rates in Europe. In 2013 it was 4.7 per 1,000 total births in 2013. More than double the best countries. Perhaps over 2000 excess baby deaths a year for the UK as a whole.

    1. rita webb
      October 15, 2015

      What do you expect if it has to deal with the consequences of an open door immigration policy?

      1. Iain Gill
        October 15, 2015

        Still birth rates are due primarily to poor healthcare from our state religion the NHS, which we can all see is a shambles, but our political class are not prepared to say the emperor has no clothes

        1. Lifelogic
          October 16, 2015

          Exactly, according to them it is just wonderful and working there are, but as a system it is a disaster.

  6. Richard1
    October 15, 2015

    The Labour Party has moved even further to the left than it did under the hapless Mr Miliband. labour are now back to where they were in the 1970s and 80s. Class war and the politics of envy is their inspiration. Tax, borrow, regulate, intervene and spend is their solution to every perceived problem, and is their aim even where there is no Labour Party is a profound threat to the economic security and prosperity of the U.K. and her people. With a leader and shadow chancellor in open sympathy with anti-British terrorist murderers, and a deputy leader, Mr Watson, who has contempt for justice and truth and who has used parliamentary privilege to smear innocent political opponents, we should be very worried indeed at the prospect of these people ever achieving power.

  7. Rita Webb (Mrs)
    October 15, 2015

    Everything you need to know is in the final para. But what can you expect with this lot?Parliament acts as a sort of junior debating society wasting time talking about stuff that it will never implement, because of the “normal times” get out clause. Are they so deluded to think that things will be normalised by 2020? If so why are we still on ZIRP after eight years? In the meantime economic migrants are being ferried around in stretch limos. You can bet the reaction of the friends back home when they see the photos from their mobile phones.

    1. Anonymous
      October 16, 2015

      Indeed. The bottom line is that we are becoming more indebted.

      If Britain were a business or a household the bailiffs would have been called in by now.

      The Mass Immigration model does not work on any level – least of all economic, not even in the best of times.

      God knows how high government costs will go in the next downturn, with so many more people entitlted to welfare.

  8. mickc
    October 15, 2015

    Did Labour argue for more borrowing? Or did they oppose a political gimmick?

    There is nothing inherently wrong with government borrowing, it is the purpose and use of the money which is important.

    If a company borrows in slack times, at low interest rates, to re-equip and thus enhance efficiency and productivity for the better times, that is good management.

    The problem Labour have is the Brown legacy, where investment simply meant any old spending, and the “business cycle” meant what he said.

    Tying government with meaningless charters subject to flexible interpretation is ridiculous.

    1. Peter Parsons
      October 15, 2015

      mickc, this is political gimmicry of the highest order. Labour have opposed something they proposed themselves when in government which at the time was itself opposed by the now Chancellor when he was in opposition as the clip in this article shows:


      1. Peter Parsons
        October 16, 2015
  9. Duyfken
    October 15, 2015

    Much as I enjoyed your measured and effective speech in the Charter debate, I feel the outstanding contribution was the intervention by Caroline Lucas proclaiming “You stop borrowing when you can no longer afford to pay back”.

    1. Richard1
      October 15, 2015

      I heard about this intervention by Ms Lucas, which was extraordinarily and very helpfully revealing of the far left mindset. When lenders decide a borrower is unable to pay loans back, that borrower finds the capital markets closed and has to resort to political non-market borrowing as eg the UK had to do with the IMF under Labour in 1976. If the borrower can’t repay a loan then it is insolvent, like Greece, and requires bailouts and externally imposed restructuring and austerity. Greece is an excellent example of what happens when a country borrows as Ms Lucas would have the UK do until it can’t pay back. Lest Greece’s plight be blamed only on the euro, let’s remember socialist countries such as Zimbabwe and Venezuala, which have their own currencies but also find the markets closed to them. We should make the most of Ms Lucas’s helpful clarification on this issue, and make certain people such as her and Corbyn / McDonnell never get near power.

  10. JoeSoap
    October 15, 2015

    This post could be summarised as follows:

    The Conservative party in government is increasing debt faster than Labour did between 2001 and 2010. Whereas Labour borrowed to fill the gap, the Conservatives are taxing more to fill the gap. If there is a choice of taxing people i.e. confiscating their wealth, or borrowing from them, on balance the more Conservative approach and lesser of two evils would be to borrow more and tax less, but only temporarily. The real Conservative answer, as we know, is to spend less in the first place. There are legion ways this could be done. They stare us in the eyes every day. Tax and spend. Soft on immigration. Soft on defence.
    This is a socialist government.

    1. zorro
      October 15, 2015

      The unvarnished truth… and as we know you cannot polish a……


      1. Anonymous
        October 16, 2015

        Zorro – You can’t polish a… but you can bury it.

        That chance was missed earlier this year.

    2. Lifelogic
      October 16, 2015


      Tax, tax and more tax while absurdly Dave and George claiming to be cutting taxes. Waste waste and more government waste everywhere you care to look. Plus evermore daft regulation and expensive religious energy on top of this.

  11. alan jutson
    October 15, 2015

    I only hope growth continues, because up until now as you say yourself, it is only due to tax revenue rising that we are even where we are.

    The coalition Government had simply failed to control its spending over the last five years let us hope that a Conservative Government can get to grips with it at last.

    Only time will tell.

    As for Labour,they are simply away with the fairies and the magic money tree.

    1. Dennis
      October 15, 2015

      ‘As for Labour,they are simply away with the fairies and the magic money tree’

      But every party is simply away with the fairies and the magic resources tree.

  12. Know-Dice
    October 15, 2015

    You say “The reduction in deficit comes about through a large increase in tax revenue. ”

    First Government and councils need to reduce their wasteful spending policies, £3000 to take seven migrants or were they asylum seekers from London to their “new homes” in Manchester is exactly the type of waste that needs to be addressed.

    And what happened to “Conservatives the party of low taxation”?

    1. zorro
      October 15, 2015

      Paid for by the loss of enforcement jobs to deal with this… or at least from the same overall budget.


  13. Lifelogic
    October 15, 2015

    Spare electricity generating capacity at yet another new low I hear, all due to the vote blue get green religious drivel that it seems is more important than real engineering.

    Still some good news from Sevenoaks a new grammar school (well almost, it is actually an extension of an existing Tonbridge one). Why on earth do Cameron’s lefty Tories still ban new ones? The state should just give parents education vouchers to use as they choose for education and get out of running schools completely as they are so bad at it.

    1. John C.
      October 15, 2015

      I suppose the arguments marshalled against Grammar schools are a cover for the envy of the Left of anyone with ability and aspiration, and of course the fact that they embody the lack of equality that Nature seems regrettably to provide; and as for the Right or the moneyed class the Grammar school offers a threat to the standards of achievement that they can buy in the private sector for themselves alone.
      Given this double whammy from Left and Right, it’s a miracle that any survive at all. I suppose under Corbyn they would vanish on Day One of the New Era.

  14. Chris S
    October 15, 2015

    Surely the nub of the argument is in your last paragraph :

    State debt is STILL rising in the UK in cash terms even though it’s falling slightly as a percentage of GDP.

    That means that the amount of debt needing to be repaid and the interest on it are still on the increase and adding to the liabilities on our children.

    Far from being the Iron Chancellor bent on imposing Austerity on the nation, Osborne has taken things very gently and not cut anywhere near enough to reduce our debt burden as many Conservative supporters like me would have liked.

    So why doesn’t the government blow Labour’s Anti-Austerity arguments out of the water with these facts ?

    This isn’t real Austerity and what Labour, the rump of the Libdems and the SNP are in favour of is an indefinite continuation of living beyond our means.

  15. JoolsB
    October 15, 2015

    Off topic, but prior to that there was a debate on the Cities and local government devolution bill your party along with the opposition is trying to impose on England. Balkanisation by stealth and of course not once when our self serving MPs were discussing amongst themselves how best to carve up England, did they mention the nation of England. In fact typically they deliberately avoided mentioning the word England at all, using their preferred ‘the country’ instead, even when they know full well their plans only apply to England.

    I didn’t see all the debate John so missed you if you were there. Were you there, and if so, did you have anything to say against this bill? In fact, are you still speaking for England? I only ask because I haven’t heard anything from you on the subject for a while and when is the vote going before the house on the watered down sop of a sop – English Vetoes for English laws which was supposed to be brought back in the autumn after your party’s cowardly retreat on the matter in the face of SNP opposition.

    Reply Yes I intervened in the debate, will write about it tomorrow, and English votes will be voted on on Thursday

  16. Ian wragg
    October 15, 2015

    I think we all know that the deficit isn’t going to be eliminated this Parliament or any time soon.
    It will fall by the wayside like reducing immigration which is rising.
    The thing is that the public will not be conned again in 2020 on any topic. You are sowing the seeds of your own destruction by making promises that you immediately break whilst pouring money down the drain of Europe and aid.

  17. MIke Stallard
    October 15, 2015

    I am all in favour of reducing the debt so that interest rates can go back up again and also so that we “mend the roof etc” and also so that we can again be seen as honest brokers. I see being in debt as an absolute bad: I also recognise the massive interest which we have to pay out of our taxes. If we want to keep up with the new chums from abroad, then we have got to build a huge amount of schools’n’ospitals pdq. With debt repayment, this is going to be very much harder.

    What fascinated me was Mr Corbyn’s face while his embarrassed spokesman was on his feet. He is trying to market himself as some kind of nice old granddad who wants the best for all his grandchildren. What I saw was a very sour, even angry, old man.

  18. Bert Young
    October 15, 2015

    Paying your own way is a successful approach to life and should always be encouraged from the top down . Labour , who shifted its ground yesterday , once again displayed the irresponsibility in its thinking . Of course there are differences in the levels of wealth ; those who have strived and succeeded are bound to accumulate and enjoy benefits in life that others envy ; they should be models to emulate rather than be regarded as the wicked who should be taxed to the hilt .

    Governments who take the short term view by spending beyond their means are nothing but deceivers `who seek popularity and votes ; there is nothing in the history of these Governments to show that our products and services were sought after in world markets and the economy was healthy . High interest rates are the consequences of these Governments resulting in lack of enterprise and high unemployment . There is only one viable objective and that is to stay in balance .

  19. Iain Gill
    October 15, 2015

    The BBC news channel business segment did a long explanation of what the deficit is yesterday, and got its facts completely and utterly wrong. Their definition of the deficit is not the deficit at all. What hope can we have with the population being fed this false information?
    Re “falling as a proportion of GDP” yes but the definition of GDP has changed along the way, adding things like prostitution into the productive figures clearly muddies the water.
    Ongoing borrowing advocated by all main stream parties is far too high. Much of public expenditure is wasted on inefficient services that do not meet the needs of the public. I have watched first hand again this week the most appalling allocation of resources and wasted headcount in the NHS this week, a real travesty of gigantic scale, letting down my relative the patient with staff running round primarily concerned with covering their own backs and taking the path of least resistance. A total and utter waste of money. While failing to deliver what should be simple cheap treatment. The change from primary care trusts to clinical commissioning groups has not resulted in any improvements, and the NHS is operating as lots of little fiefdoms in which the individual patients have no say whatsoever. And there is no rational scientific review of which of the many approaches doled out by CCG’s in different parts of the country is best, it’s simply service provision by whim of a mandarin. We have treatments being done in primary care with no peer review, repeated failure to correctly fix the problem, when a specialist would have knocked the problem on the head in a few weeks primary care are allowed to play around for years getting it wrong. More work being dumbed down and given to nurses, and more to junior docs instead of consultants, we are running a sub 3rd world money wasting machine. We have basic rules of care not being followed, and complete disregard for NICE rules although clouded in waffle as consultants are pressured not to recommend treatments to which the patients are entitled.
    Then we have massive tax avoidance going on. On that point the labour party are correct.
    The problem with yesterday’s debate is that whoever wins the next election can change the rules anyways, in that regard it’s nonsense. The other problem is that none of the main stream parties are really in favour of living within our means, or have sensible policies which would result in that happening with fair changes and burdens across all parts of society.
    Labour swapping sides is a joke, and a symptom of wider problems they have. They are like a medieval religion where the priests continue to advocate views which have been proven wrong by modern science time and time again, they need to move on. They are not even being good advocates for the poor and disadvantaged who are being swamped by immigration, are being abandoned in sink estates far away from the modern jobs market, and get some of the worst schools in the developed world.
    Hey ho keep plugging away John.

  20. petermartin2001
    October 15, 2015

    We have heard this type of argument in the previous Parliament too. Does anyone really think the process of reducing spending and raising taxes will work any better this time? In this Parliament? Reducing spending tends to displease the left. Raising taxes displeases the right. There’s no votes to be had! It doesn’t work for anyone. It just sends the economy into a downward spiral. Experience has surely taught everyone that by now.

    When one approach doesn’t work, intelligent people have a bit of a rethink. They look at the problem from another angle. They use some lateral thinking even!

    So let’s do that! Lets say a Govt introduced a new currency. They’d start by spending some money into the system – say 100 million. They’d set taxes and maybe collect back 60 million. So the Govt would have a deficit of 40 million. Where has that 40 million gone? It has, of course, been saved by the users of the new currency.

    Govt Deficit = Non Govt savings. ( A very simple but important equation!)

    So, to reduce the deficit the government needs to discourage the users of the £ from saving too many of them. This would include the central banks of the big exporters. One way to do that would be to stop selling gilts and, instead, offer savers fixed interest term deposit accounts of say 1-2%.

    There’s still a problem though, when inflation is 0% or even slightly negative. To make 1-2% relatively unattractive to savers we need to deliberately create some, but not too much, inflation. Say 3-4%.

    So, there you have it. Next time you see George Osborne, you might want to tell him that to reduce his deficit he needs to stop selling gilts and ‘print’ (by QE or PQE or whatever you want to call it) enough extra spending money to be able to cut taxes and set an inflation rate of 3-4%. The “printing” won’t be a permanent requirement.

    Otherwise, he’s wasting his own and everyone else’s time.

    1. Edward2
      October 15, 2015

      We need to reduce State spending and then reduce taxation, not increase it.

      In the sixties and seventies chancellors used to reduce taxes to boost the economy. We seem to have forgotten that bit.

      1. petermartin2001
        October 16, 2015

        We need to reduce State spending and then reduce taxation, not increase it.

        From a right wing perspective this sentence makes (almost) perfect sense. Except I’d remove the word “then” !

        If you wait until the deficit falls before you reduce taxation you’ll wait forever!

        1. Edward2
          October 18, 2015

          Depends which way round the economic circle you wish to travel.
          Some economists feel reducing taxation levels would create economic growth and so reduce the deficit.

          Is it really a right wing policy to leave people with a little more left to spend at the end of a working week?
          I would have thought many Labour voters would find it a popular policy.
          Perhaps that is why they are in opposition again.

          1. petermartin2001
            October 18, 2015


            You’re right . Reducing taxes would be a popular policy right across the political spectrum. Of course, deciding just which taxes should be cut could be contentious.

            And yes reducing taxes would stimulate the economy and create economic growth just like you and many economists say. More economic growth would generate more tax revenue to make up for tax cuts in the first place.

            I’d say the two effects would approximately cancel out and the deficit, as always, will be defined by the amount people wish to save domestically and the trade gap. I think John understands this point about the sector balances.

            The only downside is possible extra inflation – but you need that anyway to reach your 2% target. The Conservative Party has a majority. It doesn’t need Lib Dem or Labour support so it can choose which tax cuts it wants.

            So why not just do it? What are you waiting for?

          2. Edward2
            October 18, 2015

            But the sectors are not in balance currently.
            And inflation of 2% is not the target to achieve just the figure not to exceed.

          3. Edward2
            October 18, 2015

            The sectors are always in balance! All deficit/surpluses always sum to zero.

            George Osborne said in a January speech that:
            in case of an inflation undershoot or overshoot of more than 1 percentage point, the BoE would need to publish a letter to coincide with its inflation report forecasts.

            You might want to Google that phrase for verification.

            Which the bank has done. But I’m not sure how George Osborne expects the BoE to conjure up 2% inflation from nothing. The government can only do that using fiscal adjustments.

          4. Edward2
            October 19, 2015

            You must be my twin “Edward2 plus photo”

    2. APL
      October 17, 2015

      Petermartin2000: “They’d set taxes and maybe collect back 60 million. So the Govt would have a deficit of 40 million. ”

      You know that is incorrect? Or are you deliberately trying to mislead people?

      Petermartin2000: “So, to reduce the deficit the government needs to discourage the users of the £ from saving too many of them”

      Ah, it’s deliberate.

      But if that were true, the low interest rate and inflation policy pursued by the government this last tentwenty five years, would have brought on your financial nirvana. But it hasn’t.

      1. petermartin2001
        October 17, 2015


        I’ve checked and I don’t believe my arithmetic is incorrect.

        Governments, or their “independent” central banks if you prefer, have the power to set interest rates at whatever they like. They can also use their fiscal powers to minimise inflation – even to the extent of making it negative as now.

        Mind you, they themselves have chosen to target inflation at 2%! Whatever their other failings, UK govts used to be good at generating inflation. It seems quite sad they can’t even manage 2% these days!

  21. Paul
    October 15, 2015

    I’m beginning to believe it’s not odd, it’s some sort of illness that stops them thinking in any sort of logical fashion.

    Labour types point out (pretty much continually) that the debt has gone up massively under Cameron.

    Which is absolutely true.

    I then ask them , do they want £70 bn in cuts, £70 bn in tax rises, or a combination of the two.

    I have yet to get any answer, apart from an occasional “we should go for growth” ; which is like saying “we should cure cancer” ; no-one disagrees with it, but it gets you absolutely nowhere near doing it.

    1. petermartin2001
      October 15, 2015


      Can I suggest that it’s you who isn’t thinking “in any sort of logical fashion”? Your ‘logic’, if that is the right word, appears to run along the lines that if we need a £70 bn reduction in govt debt we need “£70 bn in cuts, £70 bn in tax rises, or a combination of the two.”

      Your logic doesn’t appear to go any further than that. Yet if we make cuts in spending, if we don’t provide a job for, say, a teacher or a soldier, we lose close to 30% of what it costs to employ them as we no longer receive income tax and NI payments. VAT revenue, fuel, alcohol and tobacco revenues (notwithstanding the health benefits), and many other taxes fall too as that person no longer has that income at his/her disposal. Then there is the multiplier effect of that loss in spending power to subsequent transactions. Then we have to pay out unemployment benefits….

      Similarly if we increase income tax, say, we can probably raise revenue from that particular tax, but we’ll lose revenue from other taxes such as VAT as disposable income falls. We won’t get anywhere. There’ll be no great reduction in the deficit.

      So what you are suggesting is that the government chases its own tail in this fashion. Eventually it might get some result but that is because the cuts will mean everyone is too poor to save anything = like they are in Greece! Is this the kind of economy you want? If you’re good at logical thinking perhaps you’d be so good as to point out any flaws in my approach to logic in my previous comment just above.

      1. Anonymous
        October 17, 2015

        Peter – How does this work ?

        A teacher or a soldier is paid from the tax pot.

        Are you seriously saying that their tax and NI is profit for the country ?

        We pay them, say, £100. They give back £30 in tax and NI. I see a cost to the government of £70. Not a profit of £30 as you seem to.

        (Obviously teachers and soldiers have worth – but they are a cost, not a profit.)

        1. petermartin2001
          October 17, 2015


          The point I was making was that when calculating how much money the government would save by ceasing to employ a teacher or a soldier, we’d have to look at more than the primary savings. The primary savings are the salary of the person concerned plus any overheads. However there are then secondary costs. These are the loss of the NI insurance and tax paid by the person. Tertiary costs would be loss of VAT paid and any unemployment costs. We can continue to look at who else is affected by that loss of spending power and how it affects their tax payments.

          Of course, govt will hope people will get new jobs but, if the labour market isn’t good and they dont……

          It doesn’t make any sense to think in terms that government should make a profit in the same way as a company would make a profit. What’s govt going to do with any profit? Give it back to the shareholders? The taxpayers? It wouldn’t be a profit if it did that!

          Government has a duty to do the best it can for the whole country regardless of whether they are voters or not. Or, if they are voters, regardless of who they voted for. It has the ability to create and destroy money but money to government isn’t like money is to us. We can’t create our own money. Govt can. But, government can use its monetary power to control and co-ordinate all our creative abilities. That’s waht matters to government.

          For example if it is fighting a war it can’t lose the war by running out of money. But it can lose it by running out of soldiers. It can’t just create new soldiers if they are killed or injured. Government is constrained by the real resources which are available to it so its goal should be to not waste too many of those resources, which it is doing if too many people, who wish to work, can’t find jobs.

          So on the one hand Government needs to maximise the productive capacity of everyone at the same time as maintaining the value of the currency. ie minimising inflation. Whether it makes a ‘profit’ is neither here nor there.

      2. APL
        October 17, 2015

        Petermartin2000: “Yet if we make cuts in spending, if we don’t provide a job for, say, a teacher ….”

        Speaks the Statist who cannot conceive of a circumstance where teaching is the exclusive preserve of the private sector. As such, no longer a burden on the tax payer and an actual source of revenue for the exchequer – given that every penny paid in tax by the public paid teachers first has to be distributed by the government and raised in real taxes in the private sector, or on tax paid by the next generation via interest paid on the debt taken out today but paid for tomorrow.

        Petemartin2000: ” …we lose close to 30% of what it costs to employ them as we no longer receive income tax and NI payments.”

        How can you write such nonsense? The NI* payments and income tax received from *anyone* (including MPs ) ‘working’ in the public sector are nothing more than a book keeping entry. Government workers no more pay tax than the government collects it from them.

        *When you look at the “National insurance fund” you realize it is nothing more than a ponzi scheme anyway.

        1. petermartin2001
          October 17, 2015

          Government workers no more pay tax than the government collects it from them.

          Of course public sector workers pay tax in the same way as everyone else pays tax.

          Has a postman who previously was working for the publicly owned Royal Mail and who is now doing exactly the same job for the, largely, privately owned Royal Mail, and earning pretty much the same as he was, suddenly switched from being “a burden on the tax payer” to being a real tax payer himself?

          1. Edward2
            October 18, 2015

            What is the point of the State taxing its own State workers?
            Why dont they just pay them a net amount.
            It would save time admin and money.

          2. APL
            October 18, 2015

            Edward2: “Why dont they just pay them a net amount.”

            Because it would highlight what a privileged group of people State employees are. We’re just talking about their income here, don’t forget they frequently get ‘gold plated’ pensions and favorable working conditions too. Early retirement and gold plated pensions are common place in the State sector.

            Edward2: “It would save time admin and money.”

            Of course it would. But it wouldn’t do much for worker solidarity across the public private divide.

            Reply Public sector workers must pay tax on the same basis as others. They may have interest or other income in addition to their public salary which needs to be taxed

          3. APL
            October 18, 2015

            petermartin2001: “Of course public sector workers pay tax in the same way as everyone else pays tax.”

            Of course they don’t.

            There are only two sources of income for the government. Tax of private sector economic activity today, and tax of the private sector economic activity tomorrow, that is borrowing. The latter is almost always more expensive than the former but it tends to allow politicians to buy elections.

            So they like borrowing much more, natch.

            How often do politicians raise taxes before an election?

            How often to they promise to spend loads more before an election?

            Now, if the government didn’t tax the private sector today, it couldn’t employ anyone in the public sector today, since until it raises tax on the private sector it has no funds to spend. Therefor there are no salaries in the public sector ( the government having no funds ) and it follows no tax paid.

            Now the government decides it wants to employ some people in the public sector, I don’t know – civil servants, for example. And raises tax from the private sector to do so, it then channels that money so raised into salaries, expenses and massive pensions.

            So as the vast majority of the private sector wage slaves don’t notice, the government includes a book keeping entry which pretends the government has paid the public sector employee more than it actually has, then says that it has confiscated that amount and calls that notional amount income tax & NI. ( There is no National Insurance fund, and NI is simply a future obligation that must be funded out of taxation on the private sector).

            Now it must be clear, the public sector employee never had that money, and the government never actually paid it.

          4. APL
            October 18, 2015

            Petermartin: ““a burden on the tax payer” to being a real tax payer himself?”

            Now you are getting it.

          5. Edward2
            October 18, 2015

            You’re including all our doctors and nurses who work for the NHS? All our service personnel? All our policemen? All our MPs? Are saying John Redwood is a burden on the taxpayer?

            I may disagree with some MPs but if they do them job with dedication, and this blog is testament to that, then what else can anyone be asked to do?

            And what about private companies who receive government contracts? Are they a burden too?

          6. APL
            October 19, 2015

            Edward2: “You’re including all our doctors and nurses who work for the NHS? All our service personnel? All our policemen? All our MPs? Are saying John Redwood is a burden on the taxpayer?”

            Yes, yep, yes, yes, yes and most definitely, yes.

            Unless you can demonstrate how you can raise money from people who haven’t yet been employed thus don’t have any to pay – then distribute that imaginary revenue to people who then use that imaginary money to fund their own tax obligations? Don’t forget, by definition, you raise less money by tax from the public sector than you pay in salaries, because tax is usually a fraction of the salary paid. If you can show me how that works. Fine, I’ll reevaluate my assertion. But at the moment it’s pretty much self evidently true.

            In every case, in a healthy economy the public sector should be a minority fraction of the economy. Thus the opportunities for collusion, graft and corruption are much reduced.

            There are certain ‘private’ sector firms that almost exclusively make their money out of running projects in a disastrous manner for the government, cost overruns are outrageous and the norm. Yes, they too are a burden on the tax payer.

          7. APL
            October 19, 2015

            Edward2: “I may disagree with some MPs but if they do them job with dedication ..”

            Which is irrelevant.

            Is there a better model that we could use for sending representatives to Parliament that the one we currently use.

            We could abolish MPs salary and fund receipted reasonable expenses. MPs could attend Parliament on a similar basis the TA use, the rest of the time doing actual work in the actual economy.

            The advantage of not paying MPs as a group, they no longer have an incentive to work for their own group interests. They are more properly aligned with their constituents interests.

            An MPs expenses could then be reflected in the council tax returns just like any other service people pay for.

          8. Edward2
            October 19, 2015

            Can you take a different name please eg Edward3 or some other

          9. petermartin2001
            October 19, 2015


            Sorry that was just a mistake on my part! Meant to address comment to you rather than assume your identity!

  22. Brian Tomkinson
    October 15, 2015

    JR: “The reduction in deficit comes about through a large increase in tax revenue”
    You would never know that by listening to the BBC, Channel4 News et al. We are bombarded daily with talk of cuts. Your own ministers are forever talking about “difficult decisions” with regard to government spending. You seem to be the lone voice prepared to say that, just as in the prvious 5 years, the government intends to balance the books on the backs of the taxpayer.

  23. Bob
    October 15, 2015

    Your govt needs to rationilise services provided by the NHS.
    Fertility treatments should be chargeable at cost.
    Any couple that cannot afford the treatment should consider whether they can afford to support a child.

    Underpopulation is not a problem that currently affects this country.

  24. Tad Davison
    October 15, 2015

    I watched the debate yesterday. You should have heard Caroline Lucas from The Greens!

    She said, we should ‘keep borrowing until you reach the point where you can’t pay it back.’

    Some economist! She’s a bigger comedian than Groucho Marx!

    Is this the best we can do? Where the hell do these people come from, and how do we stop them?

    Tad Davison


    1. petermartin2001
      October 15, 2015

      I would agree that Caroline Lucas hasn’t got it right. But not for the reasons you suggest.

      The £ is just an IOU of Govt/the BoE. So just as you or I can’t borrow our own IOUs back neither can government. We can swap an IOU which pays some interest (a bond) for an IOU that doesn’t (cash). That’s all govt can do too.

      So for us all to have any money Govt/the BoE does have to issue by spending IOUs of different types. Govt/BoE also engages in the markets to swap its bond IOUs for cash IOUs or the the case of QE the opposite way around.

      Government never repays its IOUs. It can tax them away from us and tear them up but that’s about it. If inflation is an issue then that’s exactly what it should do but not right now though.

      1. Tad Davison
        October 16, 2015

        I know how the system works Peter, but I’m worried that a lot of our elected representatives appear not to – too many in fact – and that’s why we are, where we are.

        Ms Lucas seems unconcerned by the prospect of a sovereign debt crisis. Perhaps the Greens believe that our own national debt will just get written off, if or when it becomes unmanageable. And no doubt they also believe there are fairies at the bottom of the garden.

        But somebody voted for her, and that makes me wonder if the electorate are as well-informed as they ought to be. That is going to be crucial in the run-up to the referendum on the UK’s membership of the European Union. The people need to know the truth and the harsh realities of it. We simply cannot trust the judgement of people like Ms Lucas when they make such ridiculous statements.


        1. petermartin2001
          October 17, 2015

          It’s not just Caroline Lucas! We have economic illiterates in the Labour Party too! Many seem, including our ex shadow chancellor, to have a weird notion that all the ££ that are available to government were at one time created by God and He’s left strict instructions that under no circumstances are we to create any extra of our own!

          Caroline Lucas doesn’t have any position of influence though. It’s those who do have that influence and responsibility and think like Chris Leslie who we should be more worried about!

          1. Edward2
            October 18, 2015

            If that were true, which it is not, then in the last 100 years there would have been no increase in living standards and no increase in the amount of money in circulation.

    2. Anonymous
      October 16, 2015

      I wouldn’t want to be in a club that would accept her as a member.

  25. oldtimer
    October 15, 2015

    Much of the political class seems to live in a fool`s paradise where they believe money really does grow on trees. This has infected the current political debate with its obsession with “cuts” in public expenditure, when overall there are none. Eliminating the deficit asap is fundamental to the long term health of the UK economy, as is then running surpluses to reduce the national debt. I doubt that the UK economy will continue to enjoy the relatively benign environment it currently enjoys. Life is not like that. An unknown or unexpected event or development will be along, sooner or later, to mess up the sums. Everything rests on the growth continuing; if, or when, that falters then the UK national accounts will be in even worse shape that they are today.

    The other big failing of the present government is lack of reform of the UK tax system. There has been some tinkering around the edges but nothing fundamental except to spread the tax tentacles further and deeper into our pockets.

    1. John C.
      October 15, 2015

      I don’t think that the politicians live in a “fool’s paradise”. I think they know as well as you or I what the situation is, but they need votes to keep in office in the same way that we have to satisfy the customers or the boss to keep in employment.
      In a democracy, alas, the politician cannot tell the whole truth or act rationally in the public’s best interest: he has to tax surreptitiously and to hand out the goodies (other people’s money) with the greatest publicity. He needs votes to survive, and so cannot endure too much unpopularity.
      Essentially, then, we will never willingly eliminate the debt and only nibble at the deficit. I see no hope whatsoever.

  26. Bob
    October 15, 2015

    Bearing in mind that the govt has offered the small island of Jamaica £300 million pounds to improve their roads, I wonder why (with all the various motoring taxes we pay) I spent Friday evening queuing at various bottlenecks on the A406.

    This is a route I normally avoid but I was trying to avoid yet another road closure on the M25 (resulting in a seventeen mile tailback and a one and a half hour delay).

    Can we stop giving away so much money when there is so much that needs fixing in our own country?

    1. Iain Gill
      October 15, 2015

      Re “Can we stop giving away so much money when there is so much that needs fixing in our own country?” absolutely correct

    2. John C.
      October 15, 2015

      No. neither the socialist Conservative party nor the socialist Labour party can resist that wholesome feeling of goodness that they enjoy when giving away other people’s money, especially to foreign nations.

    3. The PrangWizard
      October 16, 2015

      And did we not have an announcement that they were to give another £50 million to build a new prison.

      My guess is there is so much money allocated to overseas expenditure that they are running out of ways to spend it, and thus we get plans like this. But they occupy a different world and are not listening to the people who provide the money.

      If they are so determined to spend money rather than reduce the deficit could Cameron spend some of it on the roads where I live. Spare a thought for the unfortunate occupants of ambulances, – and frankly everyone else – who must be caused avoidable pain when they travel the roads in the centre of Wantage, Oxfordshire – they are barely passable in some places.

  27. Ian wragg
    October 15, 2015

    Something rather bizarre John. For the first time in I don’t know how long we are actually exporting about 1gw to France. Does this mean that the French won’t have any excess power this winter further undermining the security of our grid.
    We really are going to be up the creek without the proverbial if we lose the 1.5gw from France.
    I see from the Labour Out group some of the P.M.s negotiators are fully paid up Europhiles either in receipt of EU pensions or scheduled to get them. Not a very strong negotiating team then.

  28. bigneil
    October 15, 2015

    Off topic – -any chance of the govt telling us how many immigrants here who haven’t contributed a penny – how much have these cost in benefits – how much has their kids schooling cost -how many houses are they taking up – how much have they cost in NHS – how many have come here already “disabled” – and been given a Mobility car to drive around in – and how many of these cars are now driving round Europe – paid for by the taxpayer – being used as taxis etc?????
    and WHY is the govt allowing them to come here and do nothing – while we have to pay them – and for them – to do zilch?

  29. stred
    October 15, 2015

    There was nothing interesting on the tele last night, so I tuned in to the debate. It was a credit to the HoC and very amusing in places.Your own contribution and Mr Quin’s were very well put. Gideon Powerhouse was on his usual form and was able to make fun of the Marx brothers. But it was not all one way. McLenin had hit on the ideal way to hit back and even admitted that he had originally decided to support the proposal in order to ‘ out Osborne Osborne’.

    They could give the figures for previous missed targets in the previous government, quote the hugely increased national debt, then ask what difference it would make , whether they supported the motion or not. It would probably fail to achieve the targets as they were so far in the future and the debt would be increasing anyway. In other words anything you can’t do we can’t do better.

    October 15, 2015

    “It ( UK Debt ) soared to £1080bn by the time Labour left office, and has risen to around £1600 bn since….still rising in cash terms.” This fact was not made as transparent as glass by Mr Osborne in the debate yesterday.

    Mr Osborne spoke to his desire of having a budget surplus creating a law compelling all future Chancellors to do the same.
    Surprising the Corbynistas and non-left wing members of the Parliamentary Labour Party did not pick up on Mr Osborne’s examples of Canada and Sweden about running such a budget surplus Surprising because British finance pundits across the board laughed at the idea. It is generally known Canada’s budget surpluses are engineered by what they call the shell game, that is, moving money from one box to another creating an observable but artificial surplus. The Swedes, in that there’s is not a shell game, have made attempts of returning to deficit enabling vital infrastructure building which a continued budget surplus prevented.
    Mr Osborne’s rhetoric is largely gimmicky albeit its underlying wisdom places Corbynomics as a whole into the realms of fairytale.
    The late Mrs Thatcher liked for ease of general understanding, to relate economics to the household budget or corner shop. Mr Osborne’s philosophy if so analysed falls into the same kids’storybook as Mr. Corbyn’s.
    Mr Corbyn will beat Mr Osborne.
    The government is persuading the public to engage in Corbynomics yet simultaneously theorising to the opposite. The family budget and pensioner budget surplus in the form of savings has been eroded and in many cases destroyed because of its low interest rates; encouraging such surplus to be frittered away.It encourages people to borrow, to get into debt over their heads by irresponsible speculation in the commodity market…the commodity being housing. Encourages such gambling. Without a clue when and if interest rates will rise; inflation will rise or sink into deflation; the economy thrust into the “bust cycle” as Mr Osborne highlighted. All these things would bankrupt many thousands of good people, their businesses and destroy family life. Therefore when Corbynomics highlights the contradiction between Mr Osborne’s macro-economics and his preached micro-economics to the populace it is correct. Making Mr Corbyn correct. Mr Osborne proving him correct. All Mr Corbyn needs is someone to answer back to Mr Osborne and those foolish voices from the Parliamentary Conservative Party who scoffed so disagreeably. You can knock their ideas over with the feather they have kindly provided.
    Mr Osborne and Mr Corbyn, together, will destroy the economy and well-being of this country. The “bust” which Mr Osborne predicts and which he has encouraged and constructed by Tory Party policy will in a “bust” scenario lead to Mr Corbyn coming to the rescue, for that is how it will be viewed generally, and imposing the most destructive economics known to Man .
    The Tory Party should drop it “Own Your Own Home” mantra which has nothing to do with capitalist economics and in fact is a handicap to a properly functioning capitalist society, and bring our people on the course of lowering and eliminating household and personal debt. Bring our people back to personal and household budget surplus.

    1. Iain Gill
      October 15, 2015

      That debt figure misses a lot of unfunded liabilities, so understates the problem quite a lot too

  31. Kenneth
    October 15, 2015

    Forget passing gesture laws that bind future Parliaments.

    Our current socialist government should concentrate on getting public spending right down so we can free up the economy and improve wealth for all, especially those on the lowest incomes who usually suffer the most from socialist policies.

    The government should also put every effort into freeing us from the lame duck eu which will drag us under unless we get out pronto.

  32. Gary
    October 15, 2015

    In this debt based fiat currency world, where every pound is created when a loan is made(but the money to service the debt is not created), the gross debt in the economy must keep rising if the GDP grows. And when the economy inevitably contracts and the velocity of money falls the govt steps in to create jobs so that the total debt can continue to be serviced. The only way to do that is for the govt to run a deficit.

    The debt of the govt grows proportionately to the contraction in the economy, but to obsfucate , by a sleight of hand, the govt debt spending grows GDP !. That’s why I don’t believe the govt GDP numbers. Rather watch how govt debt grows.

  33. lojolondon
    October 15, 2015

    It is unbelievable that Labour actually have a policy of spending more than their income – but I fear that is how almost every economy, from the USA through the entire Eurozone is run, unfortunately – I can’t believe there isn’t going to be another global crash in the near future. One thing I want to speak out against very strongly, always, but in these times especially, is that the duty or our elected Parliament is to put Britain first, and also that charity begins at home. So, before we send a single penny to the Middle East, Africa or any other country, we should ensure that our NHS is funded, there are enough policemen, the army and our transport systems are fully funded etc. It defies belief that Cameron announced £6 Billion provision for Syria, money that we actually have to borrow to lend, meanwhile British people are not well cared for.

    1. John C.
      October 15, 2015

      I am very inclined to agree with what you say, but I hesitate when I see the mention of “funding the NHS properly”.
      It seems to be the biggest money pit in our history; the more it is given, the worse its reputation and the bigger its howls of anguish. Something is very,very wrong with it either in principle or in practice.

  34. Ralph Musgrave
    October 15, 2015

    Much the best arguments against the fiscal responsibility act were put (hilariously) by Osborne himself when Labour were proposing the idea. See:


  35. Mike Wilson
    October 15, 2015

    Mr. Redwood – I have asked this question a number of times but never received a response. I’d like to try again.

    How long do you think it will take to repay our debt?

    And, subsidiary questions:

    How much a year do you think we should pay off the capital?

    How many times will the debt be rolled over and, if this is going to be over an extended period, how can future governments cope with a massive debt that, then, may be attracting much higher interest rates.

    Reply There is no likelihood of paying off all the debt over the next 30 years as it is so large. Much of it will be rolled over. The aim of the new policy is to run a modest surplus every year that the economy is “normal”, and only borrow if growth falls below 1% per annum. Over a ten year period we could perhaps repay £30 bn out of the 1600 billion. The more important thing is that such action will cut the proportion of public spending going on interest charges as the economy grows, and debt will continue to fall as a proportion of our national income. The immediate task will be to get it below 60% of National Income from the current 80%, as we are meant to do under our EU obligations.

    1. ian wragg
      October 15, 2015

      So getting the deficit down to 1% and the debt below 60% would put us
      ideally suited to join the Euro.
      Coincidence or what??

    2. graham1946
      October 15, 2015

      Reply to reply.

      There is no chance of paying back the debt over the next century, let alone 30 years. If we ccould pay back ‘only’ 10 billion a year, (as against the 3 billion you reckon on) which clearly we won’t, it will take 160 years without interest payments added. That’s the true scale of the thing and why the politicians will never let the public know it. You can tell them we owe 1.6 trillion pounds, but who actually knows what that means? It is actually just unpayable, so we will be paying out interest rates in excess of what we spend on defence in perpetuity.

    3. petermartin2001
      October 15, 2015


      If I can be allowed to make a slightly more direct answer to your questions:

      “How long do you think it will take to repay our debt?”

      Apart from the odd blip, the National debt has never fallen, since its creation in the late 18th century. The debt represents the assets in ££ of all of us. The govt issues currency, assuming a liability, and the savers end up with the assets. No debt/liability means no ££ assets. So do we ever want it to be “repaid”? We know who’ll be doing the paying but there is really no-one to repay it to!

      How much a year do you think we should pay off the capital?

      If you are happy that your own personal ££ holdings should be reduced by x% per year then you should suggest x%. But in a growing economy I’d hope you might have saved a bit more rather than having it taxed away from you. Reducing the debt is only necessary if inflation is an issue and the economy needs to be cooled.

      How many times will the debt be rolled over and, if this is going to be over an extended period, how can future governments cope with a massive debt that, then, may be attracting much higher interest rates.

      Government always has the power to set interest rates at whatever it considers appropriate for a healthy economy. It can even set them at zero through the process of QE. Some economists favour doing this permanently. But I’d argue against that. Base interest rates should, under normal circumstances, be just enough to protect savers against inflation.

    4. Mike Wilson
      October 16, 2015

      Thank you for your response.

      ‘Over a ten year period we could perhaps repay £30 bn out of the 1600 billion.

      Which means it will take over 500 years to pay down the debt. Hmm.

  36. Peter Lloyd
    October 15, 2015

    The Labour Party never talks about the cost to the country of servicing the higher debt it wants. This has already gone from about £20bn per year pre-the last Labour administration to over £50bn forecast for this financial year.

    You can do a lot with £30bn of extra public spending, not to mention the likely lower debt costs because the deficit is under better control.

    1. petermartin2001
      October 16, 2015


      Public debt payments as a % of GDP are really nothing to be too concerned about on an historical basis. The government always has the power to set interest rates at whatever it feels to be appropriate for a healthy economy.


  37. Scottspeig
    October 15, 2015

    The bill is mere hogwash – What does this achieve in reality? Either Osborne does what he says or doesn’t. What is the punishment for failing to achieve the requirement of the bill? Or is this a method to attempt to bind future governments (which is not possible)?

    It was clearly a stunt (which kinda worked) and as such should have been ignored by just not turning up to vote.

    What’s the betting that Osborne will still rely on growth to fund the reduction in deficit then debt? Why not just accept that you can spend in the current year the receipts of last year? Perhaps the BBC should go back and having a programme of govt debt. I am told that this used to happen in my parents day.

  38. james c
    October 15, 2015

    Dr Redwood, you do not have stupidity as an excuse, so I can only assume that you are being deliberately misleading.

    Anyone with the most basic understanding of economics will understand that there is a flow of funds from the various sectors of the economy.

    A permanent surplus from the government sector has, as a matter of an accounting identity,to be matched by an equal and offsetting deficit from the other sectors.

    Money which is drained from the economy by a government surplus must thus be replaced by money from a private sector deficit or a positive current account. Following the financial crisis, the

    There is no chance of the UK turning its near record current account deficit into a surplus, so the funds drained from the economy by the government surplus and the current account deficit will have to be replaced by an equal amount of net borrowing from the private sector.

    We will be in the absurd position of the government becoming ever richer, while the private sector will have an ever increasing debt burden.

    Reply Why be so pessimistic about the balance of payments? We might be able to run a much lower deficit or even a surplus. I agree sector balances sum to zero. For 3 years Mr brown ran a public sector surplus and they were his best years running the economy.

    1. james c
      October 15, 2015

      Dr Redwood:

      I am glad you take my point about the sector balances. It would indeed be nice for the UK to run a current account surplus, but I won’t be holding my breath waiting for it to happen.

      A more realistic scenario would be of an Osborne surplus of 1-2% of GDP and a similar current account deficit, which would entail a private sector deficit of 2-4% of GDP.

      Private sector indebtedness would thus be increasing by 2-4% of GDP each year, which is not sustainable at all.

      Since you are such a fan of Mr Brown, you might prefer his policy of a balanced current budget.

      1. petermartin2001
        October 18, 2015

        ” It would indeed be nice for the UK to run a current account surplus”

        Well possibly. But what is more worrying is that there is hardly any connection made between the two deficits. Ie Current account (trade) and budget deficit.

        Reducing the budget deficit without tackling the trade deficit will only cause the economy to crash and there’s no votes in that!

    2. anon
      October 16, 2015

      Accounting identities are useful, but not when the external sector is treated as if there were only one currency in the world. Assume international traders are not stuffing foreign currency under their mattresses. Then, modulo government reserve transactions, current account and asset purchases (investment) by foreigners must balance in a simple accounting identity. AFAIK, there is no explicit accounting link between domestic and foreign sector accounts.

      1. petermartin2001
        October 18, 2015


        The external sector, as all sectors, is treated for the users and holders of ££.

        So if pounds are being lost from the domestic economy to pay for net imports they have either to be saved as pounds overeseas or they come back when the govt sells gilts. If they come back as payments for goods and services they reduce the net imports total.

        That net imports total is currently about 5% of GDP. So the Govt has to respend the proceeds of the gilt sales back into the economy to prevent it running out of money and into recession.

  39. Ralph Musgrave
    October 15, 2015


    You make the same mistake of thousands of commentators: you assume that a rising deficit is inherently bad and a reduced deficit is inherently good. Not true.
    The important question is: what’s the OPTIMUM debt and deficit.

    I realise the concept “optimum” is beyond the comprehension of 95% of the population, politicians included. But the optimum deficit is whatever brings full employment without excess inflation (as Keynes pointed out). If that happens to be a large deficit, so what?

    Anyone who answers that by claiming a large deficit increases the debt and hence increases interest payments needs to go away and study economics. As Keynes, Milton Friedman and many economists have pointed out, a government which issues it’s own currency does not need to borrow ANYTHING. So forget about interest. And if such a government does choose to borrow, it has complete control of the interest it pays on its debt. It needn’t pay any if it so chooses.

    1. Edward2
      October 15, 2015

      Im puzzled by your comments Ralph. Govt debt if created by selling gilts will always have interest offered on them otherwise purchasing institutions would have no incentive to buy them.
      Or are you just talking about the process of just printing money?

    2. petermartin2001
      October 16, 2015

      I realise the concept “optimum” is beyond the comprehension of 95% of the population

      I don’t think this is necessarily true, Ralph. It’s more that the mainstream narrative ever gets beyond the comparison of the national economy with a household budget. But, of course everyone knows that government is not at all like a household. Except if the household has cracked the BoE on-line security codes and can create ££ for itself at will!

      Once we see the govt as an issuer and a spender of currency then its all straightforward enough.

  40. margaret
    October 15, 2015

    The arguments against steeply reducing the deficit centred around a two way option of firstly building up a surplus or on the other hand investment in manufacturing. I do not see why there cannot be a balance between the two thereby reducing the deficit , reinvesting and looking at the performance of the investment and making adjustments along the way.
    The shadow chancellor changed his mind due to the human aspects of people losing their jobs ,as in the steel industry and backed his change of heart with academic papers. Why not? His insistence that he was trying to be nice though to the interventions was uncalled for.

    One conservative MP talked about consistency . This could be interpreted as stubbornness and a refusal to change course when new evidence presented itself.

    The silly attempted ridicule at our lady green MP showed the buffoons to be what they are.

    1. Iain Gill
      October 15, 2015

      Re “investment in manufacturing” what fantasy land is that? The political elite have shut manufacturing down on purpose with over inflated power prices, over zealous expensive to implement anti pollution measures that our competitors don’t use, and so much more. The national strategy in as far as we have one is to be a financial and insurance salesman to the world, not a balanced economy.

    2. Richard1
      October 15, 2015

      You seem to be arguing the govt should be investing in manufacturing? This has always been a disaster when tried before, eg with the de Lorean car company. It is of course the ideological direction of the new Labour leadership who believe in public ownership and detest markets.

      The ridicule heaped on Caroline Lucas is entirely justified. She has chosen to enter public life and has a platform where we obliged to hear her views. If she says something as foolish – and immoral if she really understands the consequences – as saying the UK govt should borrow until it finds itself unable to repay loans – then she deserves every bit of ridicule she has had!

      1. margaret
        October 18, 2015

        Caroline Lucas was making a sensible suggestion, but before she could even explain , she was jumped on by a group of boys with overgrown egos and band waggoner s shame on them
        The NHS seem to be finding a way of combining public and private money!

    October 15, 2015

    I hear today the deficit is likely to increase in terms of money and hospital staff. It has been determined nurses from the Philippines will after all be allowed to enter the UK on an on-going basis at least until February 2016.

    Putting aside for the moment questions as to why amongst the over 300,000 net migrants to the UK in the last 12 months there did not seem to be enough of the much applauded Labour Party quota of nurses and simultaneously those doing jobs “no-one wants”. And, putting to one side that the UK has failed to train sufficient nurses ongoing….just how can very poor countries like the Philippines have sufficient trained personnel to teach their nurses ; build, sustain and staff their teaching hospitals; maintain a sufficient number of hospitals in their own land to create a atmosphere and culture of Medicine in the broadest sense; and, export in great numbers the staff and trainers of all those establishments to the four corners of the world? In addition, what a profoundly deep and excellent the Philippines’ schools for school pupils must be. So many well-educated kids, so many intelligent kids.
    About time the UK government stops the hype about “tacking the deficit” and all the other catch-phrases and explain just what is happening in this poor world of ours where educated and very intelligent people are awash and we, are not.

    1. Iain Gill
      October 15, 2015

      We have the people they are just not prepared to work for the money, especially in the more expensive parts of the country, so instead of market forces forcing wages up and more training of Brits we import cheap foreigners.

      1. a-tracy
        October 16, 2015

        Do Nurses have to pay for their degree Iain like other English students, in Scotland and Wales degrees are no cost to Nurses? I wonder if nurses from the Philippines have to undertake three years intensive training in a University before they can become nurses or do they train on the wards as we used to?

        Basic salary for junior doctors starts at about £23,000 but increases in the second year to about £28,000. Working alongside doctors, a fully qualified nurse starts on about £22,000. Hours worked on Saturdays, Sundays, public holidays and on weekdays between 20:00 and 06:00 receive a pay premium.

        Nurse pay and roles
        Band Pay range Typical role
        5 £21,692 – £28,180 Nurse or midwife
        6 £26,041 – £34,876 Nurse team leader/specialist
        7 £31,072 – £40,694 Senior nurse/manager
        8 £39,632 – £81,618 Nurse consultant or matron


    2. ian wragg
      October 15, 2015

      Putting aside for the moment questions as to why amongst the over 300,000 net migrants to the UK in the last 12 months there did not seem to be enough of the much applauded Labour Party quota of nurses and simultaneously those doing jobs “no-one wants”. And, putting to one side that the UK has failed to train sufficient nurses ongoing….
      That’s because all the refugees interviewed by the BBC were Doctors, Engineers and Architects… aren’t you following. etc ed

      1. APL
        October 19, 2015

        Ian Wragg: “That’s because all the refugees interviewed by the BBC were Doctors, Engineers and Architects…”


        Yea, don’t forget ‘human rights lawyers too’, coming to get their human rights. As the ……woman the BBC interviewed put it as she was standing next to the battered and damaged fence outside the channel tunnel rail link.

        The BBC has a unique way of divining the superior qualifications of people who have discarded their nationality papers, passports, and oddly any identifying documents except their university degrees.

        Which of course the BBC scrupulously scrutinizes before it attributes a profession to an otherwise utterly anonymous individual.

        It must all be down to the unique way the BBC is funded.

        Or it could be, the BBC is lying?

  42. M Browne
    October 15, 2015

    The Conservatives are the party of low taxation, or so I thought, yet we now have the new dividend tax to steal money from investors, who will already have paid tax on the money so invested. Meanwhile, immigrants are ferried around by luxury stretch limo.
    Incidentally, can someone tell me why they being taken to Manchester ?
    I would suggest that they should have been taken to Witney. Then the member for Witney might start to control immigration.

  43. a-tracy
    October 15, 2015

    Caroline Lucas ‘keep borrowing until you reach the point where you can’t pay it back.’


    I’d love to know if she follows this through in her own life, does she borrow excessively, does she set up any business ventures using loans to create any jobs for others at all? Just what sort of a risk taker is she? Does she hock her own future up to anyone willing to borrow her money, is she personally risking insolvency or bankruptcy. Tell us, this is what’s got us in this shitty mess in the first place!

  44. Lindsay McDougall
    October 16, 2015

    If anyone doubts the need to reduce the national debt, just consider the following figures in £ billion for 2014:
    Central government debt interest 48.7
    Central government defence 44.3
    Central government education 43.4
    Local government education 45.8

    These numbers come from the UKpublicexpenditure website. The red book numbers may be slightly different but not by much. Furthermore, the debt interest bill might be expected to rise as interest rates rise.

    Therefore, reducing State debt is urgent – and eliminating the annual deficit is essential.

    I’m not as optimistic as Mr Redwood is about achieving it through public expenditure reductions alone:
    – reducing the amount spent per capita on the retired elderly will be essential
    – 24/7 health care will be costly
    – ring fencing some departments makes no sense
    – if we cut back police and justice budgets crime might increase

    The Conservative Party is in denial on many of these items – and it doesn’t have any contingency plans to raise tax, relying mainly on economic growth and fiscal drag.

    Correct me if I’m wrong.

  45. Mark
    October 16, 2015

    It is surely unrealistic to expect to raise a further £210bn in taxes, which is around 10% of GDP.

    1. petermartin2001
      October 17, 2015

      “It is surely unrealistic to expect to raise a further £210bn in taxes, which is around 10% of GDP.”

      If growth had continued at pre GFC levels GDP would now be about 15-20% higher than it is.

      Taxation revenues would be higher by the same proportion so something like close to the figure you’ve mentioned wouldn’t be out of the question.

      But it doesn’t mean that we’d have no deficit though. That would still have to equal what was saved domestically and internationally by our suppliers who chose not to spend all the money they earn from us.

      1. Edward2
        October 18, 2015

        You assume that Governments would not have increased state spending even further if those increases in gdp had been achieved.

  46. adams
    October 16, 2015

    The most valuable change that could be made to councils is to change the FPTP voting system which is a democratic disaster . We the people are not represented , just as in parliament .

  47. a-tracy
    October 16, 2015

    “If the government is running a deficit, it may make investments on top of this, and will therefore need to borrow to cover both. For example, in the calendar year 2007, the Labour government borrowed £37.7bn, of which £28.3bn was invested in big projects (the balance of £9.4bn represents the current budget deficit). Conversely, in 2013, the Conservative-led coalition borrowed £91.5bn, with just £23.7bn invested. A neat, if rather simplistic, illustration of the different philosophies of the right and left in UK politics, some might say.”
    What was the £67.8bn borrowed to do?

    What are you doing with tax credits? Can you write a blog post about it because it’s all anyone’s talking about at the moment.

  48. The Answer
    October 17, 2015

    Only 2 regions of the UK in surplus according to SNP government figures obtained via a FOI request

    budget surplus per head (+/- £)
    +£1,300 South East (+£12bn)
    +£1,100 London (+£9bn)

    budget deficit per head

    -£1,100 England (£61bn)

    -£2,300 Scotland (-£12bn includes £4bn oil & gas revenue)

    -£3,100 Scotland (-£16bn excluding oil & gas)

    -£4,700 Wales (-£14bn)
    -£5,400 Northern Ireland (-£10bn)


Comments are closed.