Why we need growth to cut the deficit

Let me have another go at explaining the importance of growth  to all those who follow the Treasury/OBR static model. They  say we need to raise a tax every time we spend some more money. They miss the dynamics of growth bringing more  tax revenues and the dangers of higher tax rates slowing growth and cutting them.

In Budget 2021 the Treasury said the deficit for 2021-2 would be £233.9bn. They used this and related forecasts to insist on tax rises for the following year to bring it down. The outturn as reported in Spring Statement 2022 was a deficit of £127.8bn for 2021-2 . So they exaggerated the deficit by £106.9bn . They had made a similar error of overstating the deficit the previous year.

The main reason they got the deficit wrong was they underestimated growth in revenue. The HMRC reported that in 2021-2 total tax revenue rose by a massive 22.9%, far more than the OBR/Treasury model expected. Tax revenue is very sensitive to the growth rate, which outperformed their forecast. They had not put up tax rates that year.

The danger is the OBR/Treasury will lurch from greatly overstating the deficit to understating it as the economy is slowed by higher tax rates, the cost of living squeeze and the monetary tightening now underway. The paradox they need to grasp is higher tax rates could slow growth and so damage the natural growth in tax receipts which you get from a growing economy with a bit of inflation.

The government does need to rein in waste and less necessary spending, but it also needs to promote growth to get fast expanding revenues. 2021-22 shows us that fast growth can come with maintained tax rates and selective tax cuts, clearly assisted by the end of lockdowns. Slow growth or no growth comes from hiking taxes too high, making it more difficult to get the deficit down.

124 Comments

  1. Mark B
    July 17, 2022

    Good morning.

    They have borrowed and printed too much and now need to real in all that extra money. They clearly do not have their hand on the countries economic and financial tiller.

    As we change Captains perhaps we may need to consider changing crews too ?

    1. Hope
      July 17, 2022

      JR, I just heard Raab (charisma bypass worked) on TV supporting Sunak he does not have a clue about economics based on what you say!

      You are speaking to a brick wall of fake Tory dummies. Your party is economically doomed. We cannot afford your party in govt.

      The chart showed Sunak to implement the highest taxes of any Tory chancellor, he thinks a lame pledge of 1p off income tax in 2024 will convince people he is low on tax! Did he forget the manifesto broken promises he is currently breaking!

    2. turboterrier
      July 17, 2022

      Mark B
      Always thought that. You can change the captain as many times as you like. If you don’t change the support team they are not always at one with the new thinking, so that it in it self causes problems as people do not like or want change. That is why civil servants should be on short term contracts.

    3. Lifelogic
      July 17, 2022

      They had the hand on the but were steering in completely the wrong direction of tax, borrow, print, waste, manifesto rat, lock down for hears and push up energy costs hugely for no reason with the insane net zero carbon dioxide devil gas religion . Sunak still wants to continue with this mad agenda.

      1. Lifelogic
        July 17, 2022

        They had their hand on the tiller that is!

      2. Lifelogic
        July 17, 2022

        What is needed is more incentives to work and fewer incentives not to work. With far higher taxes everywhere, higher energy prices and higher commuting costs & inflation far higher than wages are rising Sunak has delivered the complete opposite. The highest taxes for 75 years and this while delivering largely useless, misdirected and still declining so called “public services”.

  2. Bloke
    July 17, 2022

    Simplifying the tax system includes removing the simpletons in the OBR.

    1. Nottingham Lad Himself
      July 17, 2022

      And to think, that “the deficit” was the blunt instrument used to cudgel Labour’s reputation…

    2. Enough Already
      July 17, 2022

      That means leftie Richard Hughes who Richie installed there.

  3. Original Richard
    July 17, 2022

    The only way to explain the Treasury/OBR’s lack of understanding of the importance of growth and BEIS’ failure to understand that attempting to achieve net zero through wind and electrification will destroy our economy is by applying Robert Conquest’s second and third laws of politics to the Civil Service.

    1. Hope
      July 17, 2022

      No, do not fall for pass the blame tactics. The Treasury are running rings around those called chancellor and chief secretary to treasury. They are in charge NOT Treasury, civil service or OBR. If they do not implement the policy of chancellor get shot of them, how did Lawson manage? Look at the mess he inherited.

      The real problem is you have socialists and Lib Dems with posh voices thinking they are now Tories. This is because of the Tory party selection procedure to only allow 2 clones to be voted for. In the case of MPs 3 EU loving green Lib Dem socialist clones.

      1. Hope
        July 17, 2022

        Mordaunt got Blaire to endorse her book. What does this tell you? Why not a former Tory? Why did Gates endorse her book as well? Globalist drivel.

        We read she was more interested to promote her book at Haye-on-Wye than sign a trade deal abroad! She still fails to convince everyone she know the difference between a man and woman, very basic. Lord Winston very clear that genetically it is not possible to change the biology of a man and woman.

        1. Mike Wilson
          July 17, 2022

          Yes, someone’s view on the fashionable ‘gender issue’ is just sooooooo important.

          1. Mickey Taking
            July 17, 2022

            love it !

  4. DOM
    July 17, 2022

    I see it as an issue of personal freedom versus political control over how we spend our money versus how our political masters spend our money.

    John is correct in his assertion that the Treasury is playing political games with the economy but the issue goes far deeper than that. It’s Treasury officials and those like them (Labour, public sector vested interests, unions, SNP, some Tory Socialists) who find it intolerable that the civil population should have greater control of how they spend more of their own income

    I am convinced that if Labour-SNP-LD gain power they will implement a plan that finally cements their grip on power beyond democratic control and that control will extend deep into the heart of a person’s economic and financial life.

    Hayek warned of excessive and politicised State intervention in the economy and how it could lead to totalitarianism. He’s about to be proven right as he has on so many other issues. Keynes was a filthy charlatan which explains why so many politicians and grubby bureaucrats adore him

    The more the political State spends the more powerful and insulated from change it becomes

    1. formula57
      July 17, 2022

      @ DOM – you make it a tough challenge sometimes, but finding in your posts your underlying relentless optimism is a joy that sustains. Thank you!

    2. Cuibono
      July 17, 2022

      Well…we are most certainly on the road to serfdom!
      We will own nothing ..not even money and we will be so happy😳!

      1. Mickey Taking
        July 17, 2022

        I’ll have some of whatever you are taking…

    3. Lifelogic
      July 17, 2022

      +1

  5. DOM
    July 17, 2022

    ‘Unions grabbed the opportunity to demand the right to stop working if temperatures hit 25c’

    This is what happens when you bend to and try and appease the unions. They sense weakness and then go for the jugular. The Tory party’s capitulation to Unite, RMT etc and other public sector unions is simply putting Tory party interest before national interest. That is despicable politics

    1. Roy Grainger
      July 17, 2022

      It’s also a result of the Covid policy which was to shut things down when the scaremongering press said we should do. The unions have got a taste for it now. They’ll want to stop work when it gets cold in winter now. What we need is a PM who will just ignore the press and refuse to do stupid things like closing schools.

      1. Mike Wilson
        July 17, 2022

        The press took their cue from the government and its advisers.

    2. Christine
      July 17, 2022

      So it’s forecast to be hot for two days and the Government is following the hysterical media by suggesting that we all stay at home. How on Earth do they manage in the rest of the World where temperatures soar to much higher levels? Schools will close; workers will demand to stay at home. Will people stay at home? No, they will be at the beach and the pub quenching their thirst. We have become a lazy, nanny state, where workers look for any opportunity to skive off work. In recent years it was just the state schools who behaved in this way, following lockdown this mentality has spread.

    3. Original Richard
      July 17, 2022

      Dom :

      Yes, when the indoor temperature reaches 25 degrees C teachers should be allowed to go and soak up the sun on the beach as the way of keeping cool.

  6. Ian Wragg
    July 17, 2022

    We have a socialist chancellor who believes all money belongs to the state and we should just be given spending money.
    The public sector is far too big and needs slashing by half.
    We are rapidly going back to the early 70s.

    1. formula57
      July 17, 2022

      @ Ian Wragg – surely the jury is still out on Mr. Zahawi, no?

      1. Mickey Taking
        July 17, 2022

        who?

    2. turboterrier
      July 17, 2022

      Ian Wragg

      Only half?

    3. Peter Wood
      July 17, 2022

      I feer you are correct, BUT it is our own (the electorate) fault. We keep asking more from the state, and our government/civil service is only too happy to oblige – FOR A PRICE. We have become a nation, the majority of whom are, looking for some sort of state handout, be-it the simple bus-pass all the way up to a fabulous terminaton payment for a job poorly done.

    4. Cuibono
      July 17, 2022

      Would that be the 1370s?

  7. Shirley M
    July 17, 2022

    Incompetence or deliberate economic damage? It has to be one or the other! Do the Remainers in Parliament deliberately damage the UK in order to push us back into the EU? The EU is hardly an example of economic competence itself!

    Brexit has opened my eyes to the disrespect and defiance shown to the electorate by many members of Parliament, and not just in relation to Brexit. The disgusting and selfish behaviour and actions of many should automatically bar them from Parliament, or any positions of trust. No wonder this country is going to the dogs. It starts at the very top and works its way down.

    1. acorn
      July 17, 2022

      Talking of Brexit, did you read how much better deal the EU got with New Zealand than the UK did?
      https://meatmanagement.com/flaws-in-the-uk-new-zealand-trade-deal-exposed-by-separate-eu-arrangements/

      1. Peter2
        July 17, 2022

        The article shows the protectionist attitude of the EU
        Consumers in the UK will get NZ lamb at decent prices whilst EU consumers pay more.
        Maybe UK farmers may try and compete.
        Better deal for the EU you say acorn…

        1. hefner
          July 17, 2022

          From the document posted by acorn UK lamb/beef farmers got a worse deal than the EU ones did. As for what the consumers will actually pay in the shops I guess it might depend on the strength of the £ vs €. Things might not be as simple as you say.
          So ‘maybe UK farmers may try and compete’. Good luck to them.

          1. Peter2
            July 17, 2022

            Farmers do well in the short tern but is your heart not siding with the consumers heffy.
            Many struggling to find enough funds to buy a nice Sunday roast leg of lamb.
            Gosh
            I’m shocked.
            I really am.0

      2. Shirley M
        July 17, 2022

        No surprise there, acorn. The rogue Parliament of 2017-2019 betrayed the country in their attempts to scupper both Brexit and democracy. As far as I know, the Benn Act gave Boris three choices: (1) we had to have a deal (no matter how bad or damaging to the UK) else (2) no Brexit, or (3) postpone Brexit, which may have taken us into a new EU budget period with all the additional costs but with no advantages (and more time for the undemocratic Parliamentary remainers to cause further damage to the UK). I am sure someone will correct me, if wrong.

        1. Peter2
          July 17, 2022

          Well said Shirley

        2. hefner
          July 17, 2022

          It is rather strange to continually come back to the rogue Parliament of 2017-2019: the UK/NZ agreement discussed above has very little connection with that Parliament. Liz Truss and her people led the discussions with NZ, I don’t think any of the ‘traitors’ of the previous Parliament had anything to do with them.

          1. Hope
            July 17, 2022

            I am not sure this is correct Hef. If the UK had to agree level playing field on a host of areas (state aid, environment etc, also N.Ireland protocol, then the UK does not have a free hand to negotiate if it were free from all EU ties.

          2. Peter2
            July 17, 2022

            The argument seems to be heffy, how good the New Zealand trade deal is and that depends whether you are on the side of farmers trade bodies or the people of our country who have to buy their food in a free market with limited budgets.

          3. hefner
            July 19, 2022

            And why do the people of our country have to buy their food in a free market with limited budgets?

          4. Peter2
            July 19, 2022

            Because a free market with good competition creates power for customers and results in good prices and quality.
            I’m surprised I have to explain this very basic fact of economics to you hef.
            PS
            Apart from a few elite people everyone has a limited budget.
            Surly you realise this.

          5. hefner
            July 20, 2022

            Interesting P2 that you are only able to repeat this tired mantra of ‘a free market with good competition creating power for customers and resulting in good prices and quality’.
            Are you so unaware of the reducing ability of most people to go on with their normal every day life? Are you not doing some weekly shopping for food? paying utility bills or paying for transport whether by train, bus or car?
            Are you only able (to try) to reverse the argument by claiming that I might be part of an ‘elite’? What a lark.
            You are the one in your little rosy ‘free market’ bubble, which has actually never existed apart in the writings of some long dead economists.

            At least I recognise, you don’t seem to have joined (yet?) the ranks of the Great Reset Conspiracy Theory enthusiastically adopted by some of the most eccentric contributors to this blog.

          6. Peter2
            July 23, 2022

            Tired mantra eh heffy.
            Presumably because your leftyness means free markets are the opposite of the real Marxist society you desire.
            Big state trying to control the lives of tens of million.

            We have crony capitalism not free markets.
            Your solution is to go the other way.
            It doesn’t work.

    2. Hope
      July 17, 2022

      +1
      Shirley it is deliberate. They had the best education money can buy, while still giving third world education to the masses since the seventies, so they know what they are doing. JR valiantly puts a veneer on it to point out another direction, they are not stupid nor tone deaf either.

      It is levelling down. Commentators in Holland think they are being used as the forerunners to the Great Rest by the govt. stealing 30% farmers land to build houses for mass immigration!

  8. Wanderer
    July 17, 2022

    I’m convinced tax reductions would stimulate growth.

    However I did see an interesting interview by Prof Davarajan of Georgetown Uni (with CNBC, so possibly suspect) where he blamed Sri Lanka’s reduction in vat from 15% to 8% as kicking off their economic problems. He was scathing about their bloated public sector, too (Sri Lanka Airlines burns up the equivalent of 0.8% of their gdp), but anti substantial tax cuts.

    I’m not ecomically literate enough to know the merits of his argument.

    1. Christine
      July 17, 2022

      Net zero was the reason. The reduction in the use of fertiliser cut the crop yield dramatically. This reduced income and meant they couldn’t afford to import fuel and other essential supplies. Meanwhile, politicians continued to live the high life.

    2. Cuibono
      July 17, 2022

      Sri Lanka has been screwed by globalist policies like the imposition of organic farming.
      Never mind economic mambo jumbo.

      1. Mike Wilson
        July 17, 2022

        Indeed. Farming without spraying carcinogenic crap over crops is so stupid.

        1. Cuibono
          July 17, 2022

          Starvation isn’t much fun.
          *mumbo jumbo

  9. Lifelogic
    July 17, 2022

    You are quite correct on this. So much government waste and misdirected expenditure to be cut too. HS2, net zero, the soft loans for often worthless degrees, about 50% of civil servants…

    So Sunak wants to scrap loads of EU regulations – great an excellent job for him after he loses this leadership if he does not sulk, resign and go off to the US that is.

    Also Sharma promises to resign if we abandon the unscientific net zero religion. Another good incentive to do so as it costs a fortune and does nothing for world CO2 let alone climate. Sharma read Applied Physics and Electronics after a good private school so I assume he struggled with his A levels. Perhaps he should go to Holland or Sri Lanka to see the damage his green crap agenda is doing.

    1. Peter from Leeds
      July 17, 2022

      Holland and Sri Lanka – indeed. I have been watching WEF videos from 2016 and 2017 with the Sri Lanka PM and other ministers thanking the assistance that the WEF was giving them in reshaping and developing their economy. Strangely some of the WEF web pages on Sri Lanka are now not available anymore (only on archive). With friends like the WEF …

      So Sharma resigned if the new leader doesn’t commit to the WEF target of net zero by 2050 sounds good to me.

      1. Lifelogic
        July 17, 2022

        +1

    2. beresford
      July 17, 2022

      There seems to be something anti-democratic about the way an elite are able to force green zealotry on us without a public vote. When we have raging inflation because of the energy shortages they have caused, ordinary folk are supposed to accept the fall in their living standards without issue. When we cannot heat or light our homes this winter, and the government are telling us when we can make a cup of tea, no doubt the media will channel hatred against those who protest. I’m not against green measures in principle, but a measured and balanced approach is needed.

  10. Javelin
    July 17, 2022

    xxx

    If you want to see evidence of how climate change grifters manipulate the temperature records and spread misinformation and hysteria you need look no further than the BBC weather department issuing an “extreme weather alert” for Monday 18th July 2022 and telling everybody to stay in a Chinese style lockdown at home. Remember this “alert” will cost the UK economy millions in lost revenue.

    On Saturday the headline figure on the BBC weather forecast iphone app said the maximum temperature on Monday in Esher Surrey was 40 degrees in the late afternoon.

    Today, on Sunday, the same headline figure says the maximum temperature is 39 degrees, but when I look at the temperature on an hour by hour basis it says the maximum temperature is 38 degrees in the late afternoon.

    However the MetOffice Web Site for all afternoon on Monday says the maximum temperature is 34 degrees. A whopping 6 degrees difference.

    Given the green propaganda at the BBC can’t get the temperature correct within 6 degrees over 2 days but is predicting a less than a degree rise in temperature over the next decade you realise the evidence for climate change would not pass the scrutiny of any jury in court.

    Further when you hear the BBC is calling for Chinese style lockdowns off the back of very buggy predictive software modelling, just like the pandemic, you then realise how this is not science but technocratic left wing propaganda.

    Screenshots of the BBC green misinformation, hysteria and propaganda are available.

  11. Donna
    July 17, 2022

    I can almost hear the sigh of frustration in Sir John’s voice, in having to explain “Economics for Dummies” to these stubborn, lefty, arrogant bureaucrats who are running the OBR and Treasury – and I include Sunak in that description.

    They have recreated the conditions of the 1970s and the last thing they want is “another Thatcher” to proven them wrong yet again.

    Mrs Thatcher changed the UK for the better by taking on the destructive unions in the heavy industries, who were often led by Communists and had an Agenda which had little or nothing to do with improving their members working conditions.

    We need a Prime Minister now who is prepared to take on the destructive Civil Service/Quangocracy lefties, who are doing little or nothing to deliver prosperity in the UK and have a left-wing Agenda which they have no mandate to force on us.

    But none of the “talent show” candidates currently on offer have the ability or determination to do it ….. certainly not Sunak who doesn’t dare admit that it was his policies which created the mess in the first place.

    1. Lifelogic
      July 17, 2022

      +1

    2. Mickey Taking
      July 17, 2022

      ‘his policies which created the mess in the first place.’
      while his boss was brain occupied elsewhere?

  12. Lifelogic
    July 17, 2022

    Two good pieces in the Sunday Telegraph today:-

    No, Rishi, Mrs Thatcher would not have raised taxes to a 70-year high
    Sunak’s obsession with immediately balancing the books would sabotage growth just when we need it most

    Patrick Minford
    and
    How MoD mandarins crippled Britain’s aircraft carriers
    Lewis Page details the chain of events that sealed the fate of the UK’s most critical defence system

    A good book too. Defence procurement is absurdly wasteful and misdirected in my opinion.

    1. Hope
      July 17, 2022

      MoD needs scrapping and start again. Loads at home claiming to work when they are clearly not. It is a well known secret how lazy and incompetent they all are. Look at the kit for Iraq and Afghanistan.

      Same for Local Authorities, they all need to get back to work, scrap woke Marxist agenda and reduce our bills while improving services. The govt is using public sector to change our society and at our expense! We need total change with a new political party, I will vote for Reform if at all possible.

      The Lib lab con socialist deserve to be scrapped.

    2. ukretired123
      July 17, 2022

      Absolute MOD shambolic systemic failure to protect not only the country, armed forces and taxpayers money. Disgusting.
      Whenever I have had dealings with them professionally they were always don’t call us high and mighty, not invented here and closed shop. They abused their secrecy to hide these mega failings like cowards not taking responsibility. It seems they never budgeted for conflicts way back to WW2.
      Professional management and project management required plus the SAS to sort out their plans.

    3. IanT
      July 17, 2022

      I’ve just read the Telegraph article – and if true, then heads at the MoD really should roll.

      It’s a huge scandal and yet the main TV UK channels don’t seem interested in anything other than heatwaves and leadership contests. We may be on the brink of serious conflict and we seem to unable to equip our armed forces on budget and on time. No wonder Putin doesn’t take us (and the other European NATO members) seriously.

  13. Richard1
    July 17, 2022

    All true. But the message would be more obviously palatable if there wasn’t such widespread and abject waste in the public sector. Wasteful public spending is damaging not only because the £s spent can’t be spent on something else but also because resources are deployed doing things which are at best useless and sometimes actively harmful. Stopping hs2 for example would save £100bn+ (Lets not be hoodwinked by the sunk cost fallacy) but would also release potentially productive resources for other, more useful activities. I suspect this is why mr Sunak put through tax rises – if he didn’t, spending under Boris would have got even worse.

    We must convince him that once there is proper control of spending it’s no longer necessary to put through these damaging tax rises.

  14. Cuibono
    July 17, 2022

    Bit difficult to get growth when what the govt really wants to do is impose a universal basic income ( already failed elsewhere) catastrophe. Not to mention the businesses that have been forcibly shut down and the workers who no longer want to work. And why would they?
    Oh but I forgot. Immigration will solve all this…AND keep the property portfolios riding high!
    Counties were not meant to be the playthings of the rich and powerful, nor the people in them their pawns.

    1. Cuibono
      July 17, 2022

      *countries

    2. Lifelogic
      July 17, 2022

      The real problem with a universal basic income is people have such very different needs depending on disabilities, ages, where they live, do they live alone, housing costs, child care cost, single parents, commuting costs… for some it would be insufficient to live for others a major disincentive to bothering to work at all.

  15. Walt
    July 17, 2022

    Agreed, Sir John. Why can’t, or won’t, Chancellor Sunak and the Treasury see it? I don’t trust Mr Sunak (because of his change of the RPI formulae without compensation for existing RPI-linked contract holders), but he is an articulate and probably intelligent man. So why, when major countries set a 15% lower bound on Corporation Tax, did he decide to raise ours to 25% instead of lowering it make us a more attractive place to do business?

    1. Donna
      July 17, 2022

      There’s an informative article about Sunak in The National Pulse, containing information about his globalist policies you won’t find out from the Debates or in the MSM.

      Worth checking out.

      1. Lifelogic
        July 17, 2022

        Thanks, not that I have much doubt over this. His support for net zero, tax, borrow print money and waste, lockdown, test and trace, enforced vaccinations of some worker and the young were/are economic and scientific insanity.

        But then such are most PPE graduates it seems.

        1. Mickey Taking
          July 17, 2022

          and for those who live on an estate. No! not that sort of estate.

  16. Lifelogic
    July 17, 2022

    Surely the top issue for most voters are:- very high manifesto ratting tax increases, the rising costs of living, very poor and declining public services particularly the failing NHS, Sunak caused inflation, expensive energy/net zero lunacy, all the woke lunacy, lack of affordable housing and the failure to even attempt to control our borders. Certainly no one cares much about the nice weather other than the BBC, climate alarmists and the Met office.

    Yet most leadership contenders and MPs seem rather desperate to avoid these issue – why?

    1. Christine
      July 17, 2022

      We are heading for a digital currency with a Social Credit system as they have in China. Step out of line and your privileges will be revoked. Dissent will not be tolerated. They started with the few outspoken so-called right-wing agitators but soon they will be coming for you. The next PM will take us faster into this world, all for our own good of course. In a few years, we will be a basket case like Sri Lanka. Civil war is what they want to take ultimate control and remove democracy. This will happen across the Western world. Is it a coincidence that all these WEF leaders have taken over most Western countries at the same time? I don’t think so.

  17. Berkshire Alan
    July 17, 2022

    Agree Growth is the key, but each time taxes rise disposable income falls if there is no wage rise, Likewise for companies profits drop if there are no price increases.
    I see it is reported that our ex Chancellor is suggesting he will tackle inflation first before tax reduction, surely this is the wrong way around.
    Is the ex Chancellor Blind to the fact that tax rises stoke inflation, as do raw material increases, and the necessary wage rises if they are to keep up with prices.
    Far from being the solution, the ex Chancellor has fuelled inflation with his past policies, which will probably restrict growth at the same time.

    1. Berkshire Alan
      July 17, 2022

      Just viewed Penny M on BBC this morning, clearly she is absolutely clueless on any sort of economic policy, plan, or strategy.
      She looked like a rabbit in the headlights.

  18. ukretired123
    July 17, 2022

    Liz Truss agreed with your low tax to growth now unlike green Rishi who wants tax first which could have been the cue for the first National strike in decades 2 weeks ago totally unaware of their plight completely out of touch with nurses, bin men etc being posh so zero empathy @ end July, 2 weeks to zero GDP disruption.
    TT is the Joker Remainer,, Madam Mordant is the woke broke airhead and KB sensible youngster. LT is the only adult aware to what ordinary people need and what is necessary may vital for the country.
    Lapdog Lavrov didn’t realise Liz Truss was mirroring Putin when he said it was like talking to a deaf and dumb person – exactly how he treats his enemies.

    1. ukretired123
      July 17, 2022

      Nay not may

    2. formula57
      July 17, 2022

      @ ukretired123 – Truss did indeed say she would cut taxes but withstood vert poorly Sunak’s attack on her give away. Had Sir John been there to deliver on oral version of today’s diary, Sunak would be toast (instead of Truss perhaps).

    3. Lifelogic
      July 17, 2022

      If you tax first you prevent and deter private sector investment in the UK (so they invest elsewhere or not at all) so they grow less or decline. You this get even less tax in years to come. Surely even a PPE graduate can grasp this? Plus he wants expensive (by choice) net zero energy on top of this too! Bonkers!

  19. Sir Joe Soap
    July 17, 2022

    If Sunak had any sense he could sell tax reductions as pay rises and have some moral grounds for being anti-strike. As it is, who can blame these strikers for a/ using their muscle as he is using his and b/trying to counter the pincer impact of his inflation and tax increases?
    He really is an uncompromising tin-eared man who will lead us (even faster than the others) into a Labour plus goodness knows what government.

  20. Richard1
    July 17, 2022

    Dan Hannan draws attention to the excellent law forced by Congressional republicans on the Clinton administration in 1994 after they won the mid-terms, decreeing that any $ of spending must have a corresponding $ of spending reduction – or a tax increase. What happened? The budget headed towards balance. And there was strong growth.

    Meanwhile the telegraph has a long but interesting article on defence procurement. Apparently our aircraft carriers have a capability far short of what they should have as the MoD chose not to fit them with catapult and arrestor equipment, so they have to have massively expensive jump jets, of which we can only afford a small handful. I’ve often wondered why it is the U.K. has the 4th highest defence budget in the world but we hear constantly how tiny the army is, how few aircraft and ships we have etc, often in comparison even with much smaller countries such as Sweden and Finland! The answer it seems is the baleful hand of U.K. officialdom. The extraordinary capacity of our system for public sector waste. Ministers are ultimately responsible though. We need a Thatcherite radical to cut through this. A big cut in civil service numbers is surely the place to start.

    1. Martyn G
      July 17, 2022

      Carriers without catapult systems, purchase of Chinook helicopters for special ops without the essential night/blind flying systems leading to huge cost overruns and modifications? And for those and other defence purchasing cockups the blame can be fairly and squarely placed upon the Procurement Executive, the civil service organisation holding the real reigns of power in the MoD do. Professionally, I have had to work with them in the past and seen it for myself.

    2. formula57
      July 17, 2022

      @ Richard1 “A big cut in civil service numbers is surely the place to start.” – perhaps, but recall starting with the Heath government in the 1970’s reduction in uniformed personnel numbers was justified in good part by the transfer of their duties to civil servants.

  21. Bryan Harris
    July 17, 2022

    Economic mismanagement is but one outcome of a woke establishment that wants to erase history and start afresh, with no concept of anything that worked before.

    Didn’t those in the Treasury now making the decisions get a classical education, or where they part of the dumbed down that had to make do with labour’s secondary modern schools?

  22. dixie
    July 17, 2022

    So what strategies, policies and actions do you suggest to establish sustainable growth that benefits our people and not just a select few in finance and law?
    For example, if you compare engineers per 10,000 employees (Israel Ministry of Finance 2004);
    UK 28
    Switzerland 38
    Netherlands 53
    Japan 65 83 in 2011
    USA 70 85 in 2011
    Israel 135 140 in 2011
    The numbers are a bit old I grant you but illustrate the disparity. So is there a plan to grow the number and breadth of engineers and scientists, companies and investments to deliver Net Zero, for example, or is the government’s plan simply to be the number one importer of these technologies and number one generator of lawyers, journalists and banksters?

    It is all very well offshoring critical manufacturing because it is cheaper and the city darlings can turn a cent on the money flow and keep the Treasury happy, but what is the point of cheap if you cannot get it? – gas, petrol, diesel, oil, chemicals, fertilizer, wheat, semiconductors, steel, etc.

    Foreign Direct Pillaging doesn’t count as investment. So what is the plan?

    1. dixie
      July 17, 2022

      .. And we need the growth outside London.

      1. Mike Wilson
        July 17, 2022

        I live in West Dorset. We don’t need your pesky ‘growth’ here. Keep in London and the Home Counties where it belongs.

        1. Fedupsoutherner
          July 17, 2022

          Mike. And I live in Shropshire and we don’t need or want another 38000 houses.

          1. dixie
            July 18, 2022

            I am talking about growth in sustainable STEM based enterprise in industry and commerce, that can employ our existing people in high value add careers not in growing the general population. Though if we need to import skills and brains to succeed then that is welcome.

    2. hefner
      July 17, 2022

      dixie, Very interesting, thanks. I also looked at:
      embibe.com 16/07/2022 ‘Top ten countries that produce the most engineers’
      statista.com 20/04/2022 ‘Number of scientists and researchers per 1,000 employed in comparison between countries 2020’
      ifr.org 07/02/2018 ‘Robot density rises globally’ and 27/01/2021 ‘Robot race: the world’s top 10 automated countries’.
      cityam.com 05/01/2022 ‘The jobs, sectors and countries most at risk of automation and robotics in 2022’

      It is absolutely depressing that the UK only appears once in these datasets (thecitiam)
      So a question: looking at all these datasets and in particular the very last one, where will the growth come from?

  23. Javelin
    July 17, 2022

    Kemi is the stand out candidate. Her policies are most conservative and I think she could win in a landslide. I hope MPs vote for her to be in the final two.

  24. glen cullen
    July 17, 2022

    Tom Tugendhat this morning confirmed on the BBC that he wouldn’t leave the Council for Europe ECHR, wouldn’t stop HS2 or stop Net-Zero…..he doesn’t get my vote – just another left wing socialist wannabe

  25. XY
    July 17, 2022

    Certainly true. Last I looked there were 11 million working adults and 3 million of them are civil servants.

    That means that for every working couple, there’s a civil servant dedicated to providing their needs.

    Does anyone feel that their needs for passports etc really need someone working a full time to service those needs? Often at a salary and benefits far in excess of the salaries of the people they are supposedly servicing.

    In the leadership race, only Badenoch has mentioned the need to sort this out.

    1. Mike Wilson
      July 17, 2022

      I think you’ll find civil servants do a bit more than passports.

      1. mancunius
        July 17, 2022

        Exactly, and not just ‘a bit’ – they ‘do’ a great many other unproductive tasks equally inefficiently!

  26. Leslie Singleton
    July 17, 2022

    Dear Sir John–When Pitt I think it was brought in Income Tax to pay for the War with Napoleon did he do right? “Growth” is “just Motherhood” as the Americans say, meaning everybody is in favour of it. If the spending needed is exceptionally large as it has been, higher tax makes sense to me. Mind you Motherhood doesn’t mean what it once did (and Apple Pie gives you cholesterol).

  27. XY
    July 17, 2022

    Regarding Sunak’s stance that no-one needs a 10% pay rise because “the inflation is only temporary”.

    Does he expect that prices will fall back to their previous levels after inflation returns to 2%?

    If that were to happen, we’d be in a massively deflationary position which would be harmful, therefore prices will remain at the levels they are after the inflation spurt – which means that people need a permanent one-off 10% pay rise in order to pay for them.

    The point is that one-off giveaways will not suffice to pay for the increase over the years. People can say with equal validity “Well, when inflation returns to normal, we will stop demanding 10% so the pay demands will also be only temporary – for one year only if your predictions are correct”.

    And of course if inflation “peaks” in the autumn, that doesn’t mean it will instantly return to <= 2% it means that there will be some unknown period of time before it returns to normal levels and during that time, prices will be rising by more than 2%.

    1. Sir Joe Soap
      July 17, 2022

      This type of statement by him makes me think he’s not as numerate as is generally thought. Something’s missing for certain.

  28. glen cullen
    July 17, 2022

    Penny Mordaunt confirmed on the BBC this morning that she wouldn’t leave the Council of Europe ECHR, or stop HS2 or stop Net-Zero….are there any real Tories out there

  29. Roy Grainger
    July 17, 2022

    Just hypothetically, if Sunak wins (unlikely) how can he find a competent Chancellor who will actually agree with his tax-till-the-pips-squeak policies ? I haven’t heard a single one of the other leadership candidates, or senior experienced backbenchers, who agree with the planned corporation tax rise for example – who does (apart from Labour) ? I assume he’d have to appoint a middle-ranking Yes Man/Woman which is not what is needed in that job.

    1. formula57
      July 17, 2022

      @ Roy Grainger – your point, sound enough, will be wholly lost on Mr. Sunak for recall he himself became Chancellor because someone suddenly had to resort to appointing “a middle-ranking Yes Man/Woman” who vividly went on to show ” which is not what is needed in that job”.

  30. majorfrustration
    July 17, 2022

    You are preaching to the converted

  31. agricola
    July 17, 2022

    The government lives on a commission rate they set and are free to set at a higher rate if the resultant does not meet their spending ambitions. What an arse about face way of governing the finances of our country.
    Your argument that the wealth creators will respond to a low rate of government commission by creating more wealth that produces more government income is very valid. I know from experience that any move to limit wealth creation leads to the creator changing direction. Our problem is that government is largely populated by people who have never created any form of wealth in their lives. Getting a fat salary for this is parasitical. I await any sign that the remaining five contenders understand this basic truth.

  32. No Longer Anonymous
    July 17, 2022

    Growth ?

    We’ll all be dead by Thursday according to the Met Office. Then there’s the NHS telling us Covid is on the rise again.

    So the advice is to sit indoors with the windows closed and if you do have friends around masks must be worn.

    ———

    Growth.

    Plenty of new housing estates plenty of people to fill them – no services or infrastructure. When do we get new reservoirs ?

    1. Fedupsoutherner
      July 17, 2022

      NLA. Don’t forget the Monkey pox. The WHO is considering calling it out as a global problem. Another lockdown? Or a case of No sex please we’re British.

  33. Mike Wilson
    July 17, 2022

    I am not a fan of this endless growth. More consumer crap imported. More waste, more plastic etc.

    Be honest, Mr. Redwood. Say out loud ‘The government cannot run the economy properly so we need growth in immigration and people buying more and more stuff so we get more actual tax receipts to try to keep up with our borrowing.’

    Or, you could limit public spending at a fixed proportion of GDP and work towards that.

    Reply Do you read anything I write here? I want less migration and growth in GDP per head

    1. Mike Wilson
      July 17, 2022

      Reply to reply. What you want – re. Immigration – and what your government wants – are two very different things.

      As for ‘growth in GDP per head’ – that’s still more stuff and more services. People making more stuff for the same cost and people buying more coffee from each other. You just want more consumer spending to generate more tax. The alternative is higher tax and no growth. Sounds a lot more environmentally friendly to me.

  34. Stephen Reay
    July 17, 2022

    Rishi says “I want to get a grip on inflation before reducing taxes “. Rishi needs to own up that he’s part of the problem.
    He kept printing money for to long. He allowed the BoE to keep interest rates low for to long, and he’s chucking money at Ukraine.
    Rishi will be saying next that there isn’t a magic money tree,yes we know, but I think Rishi forgot about that and thought there really was a tree.

  35. Denis Cooper
    July 17, 2022

    Earlier in the week I was struck by this headline:

    https://www.cityam.com/economic-green-shoots-to-coax-bank-of-england-into-steepest-rate-rise-since-independence/

    “Economic green shoots to coax Bank of England into steepest rate rise since independence”

    The economic green shoots being:

    “Figures published today by the Office for National Statistics (ONS) revealed gross domestic product (GDP) jumped 0.5 per cent in May, much higher than analysts’ expectations of growth flatlining in the month.”

    “The ONS also revised up its calculations for March from a 0.1 per cent contraction to 0.1 per cent expansion. April’s print was also adjusted upwards.”

    Which apparently requires the Bank to take firm action to crush said economic green shoots.

    1. ChrisS
      July 18, 2022

      When so much money is being taken out of the economy in higher energy bills and sky high road fuel prices, it seems totally insane to be putting up interest rates at the same time. Yes, it will choke off inflation – eventually – but only because of the inevitable recession that the Bank of England itself is causing.
      Nobody has been able to explain to me why increasing interest rates are necessary in these circumstances.

  36. Cuibono
    July 17, 2022

    Why is Sunak only now talking about a bonfire of EU regs?
    Since Brexit we have taken on some 2,800 new ones.
    Greasing our re entry I guess!

  37. outsider
    July 17, 2022

    Dear Sir john, All of us except the New Puritans favour growth. But what do you mean by growth? Surely not demand-led cyclical recovery at a time when there are already widespread labour shortages.
    For the Treasury, any kind of growth will do but what matters to most people is GNP per head, rather than higher figures driven by a near-infinite supply of labour. As you know, a famous economic graph shows 1.8 per cent trend growth in US incomes per head during the “American Century”. Before aspiration overtook reality, the old Bank of England reckoned UK trend growth was 1.75 per cent.
    For nearly 40 successive years, the UK as a whole has spent more it produced. It is hard to see trend growth per head improving until this chronic deficiency is remedied with higher domestic savings and investment.
    I quite understand that you want tax cuts now to forestall a recession caused by current cuts to real incomes. Fair enough.
    The underlying growth problem is caused by lack of supply not demand. A form of Reaganomics might work, if public spending focused on buying (principally British) marketed goods and services rather than on handouts. As Mervyn King has reminded us, continuing Budget deficits could only work if the Bank was prepared to raise money interest rates to credibly anti-inflationary levels .

    1. acorn
      July 17, 2022

      Keep in mind that there are high levels of Household debt at the moment. History says, tax cuts will create little growth under current conditions. They will be used to reduce debt and increase savings; they will not encourage Households to start buying new cars and white goods. The Australians did a major tax cut two years back and predicted a 2.9% increase in GDP; it did not happen. Like wise with the US CARES Act; it didn’t create the boost to demand the models said it would; again, this helicopter drop of cash was used to reduce debts and increase savings. Only the poorest Households spent most of it on food and energy.

      1. Peter2
        July 17, 2022

        Do you define mortgage repayment as debt.
        I suppose you do.
        Yet it is really a long term version of rent yet that isn’t defined as debt.
        Pay 300 a month for a car as most do that is regarded as debt.
        Have a credit card yet pay regularly pay it every month then that is regarded as debt.

  38. LJones
    July 17, 2022

    ”…Slow growth or no growth comes from hiking taxes too high, making it more difficult to get the deficit down.”

    So why is this being done, then, if it’s so obvious? Is there an unspoken plan to bankrupt our precious country?

  39. Gary
    July 17, 2022

    Cuibono don’t worry they won’t let us back in again – ever – not in a million years –

    they just want our market to sell into.

    Looking from outside the rest if the world think we are too much trouble to be bothered with.

    1. Peter2
      July 17, 2022

      Predicably you remainers keep reducing our great countrywide you endless derogatory comments Gary.
      We are of world’s biggest economies and biggest markets to sell into.

      1. Mike
        July 17, 2022

        Yes Peter2, we are a very big market indeed but that’s the only thing they are interested in

    2. beresford
      July 17, 2022

      Makes little difference whether we are in or out. The leaders of the EU dance to the tunes of the same WEF puppetmasters as those of our own Uniparty.

  40. Margaretbj.
    July 17, 2022

    Just watching TV the ITV debate.All the candidates are ok and the differences complement each other.

    1. glen cullen
      July 17, 2022

      But they all have the same policies as Boris…..why did we get rid of him if we aren’t going to change his policies

  41. ukretired123
    July 17, 2022

    We need growth and incentives to cut the deficit not high taxes Rishi, listen to Truss who stood up to him tonight on ITV debate several times.
    Rishi and MMM have been practising their PR spiel longest, he talks over his critics esp on his own inflating track record. MMM generalisations and woolly thinking but froze rabbit in the headlights at her summary!
    Liz finally stood her ground, why she became an MP, as did Kemi.
    TT generalised like MMM unproven on defence unlike Liz proven standing up to Putin. She knows what the country voted for and has proven delivered Trade agreements, quietly working getting Brexit done. Kemi and Liz should be the last two.

  42. Sea_Warrior
    July 17, 2022

    I see from The Sunday Times that the cost of those smart-meters installed to date is similar to the cost of a large nuclear power-station.

  43. Sulis
    July 17, 2022

    Dear Sir John
    I’m struggling to have a wish for any particular candidate to win the premiership role; I’m rather afraid as experience has taught me to be careful what I wish for.
    I have just returned from Northumberland visiting the sacred and the ancient – in cows and springs as well as at shrines and groves, borders and battlefields. It was a welcome relief too from the Capital’s heat, much like Kassandra was from the Athenian sun in the summer of the referendum; when Boris passed through, which I mention only because both Boris and The Borders prompt me to remember the wisdom attributed to Emperor Hadrian in a book I lost, before finishing:
    “Our great mistake is to try to exact from each person virtues that they do not possess”
    The sentence continues with;
    “and to neglect the cultivation of those which he has “. (Yourcenar, M; 1951)
    which may be an opportunity for readers’ suggestions on the pursuits and pastimes that some in Public Office might be better suited cultivating? gardening, fishing, cooking, dancing etc:)
    Thank you Sir John as always for your relentless and exceptional effort serving this Country with your wisdom and virtues.

Comments are closed.