Author: johnredwood

Free lunch or magic money tree? How to pay for public services.

November 7, 2025 59 Comments
Magic money trees and free lunches.
When politicians tell us the hard  truths that there are no magic money trees and no free lunches many do not want to believe them.  In recent years a so called independent Central Bank wrongly created a money tree called Quantitative easing. It  allowed government egged on by all the Opposition parties  to spend and borrow a fortune  to lock down the country for too long and pay people for doing nothing. It led to a predictable high inflation, vindicating those of us who warned against Latin American style government finances paid for by a printing press in the Bank.
It would be more reassuring if more officials from the Bank and Treasury would speak out against a repeat of the Magic Money Tree experiment. Instead when the Bank Committee yesterday met it did not even discuss and comment on its damaging bond sales programme, apparently oblivious to its importance to money policy, fiscal policy and the state of the economy.Getting off dependence on the magic money tree is coming at huge cost to taxpayers  which the Bank top people will not even talk about.
Politicians occasionally hit back against disgruntled voters expressing anger at bad government. They complain the public want both  lower taxes and better services. They say the public  think there is a free lunch.
I think the public are right to want lower taxes and better services. They sense the public sector is awash with money and recruits many extra people year after year. It would not be a free lunch if the public sector spent its money more wisely, employed fewer people, and helped them work smarter. That is what all good private sector businesses try to do. It  would be a better value lunch for the hard pressed customers, the taxpayers.
It is  bizarre that UK public sector productivity is no higher today than in 1997. That’s despite 28 years of big investments in computing by all parts of government, years of more training and promotions in the civil service and wider administration of the public sector. So why has none of this resulted in efficiency gains to match those of the private sector? Big employing departments like tax collection and benefit spending were obvious beneficiaries of the greater productivity putting more on computer and on line could  bring. Productivity  fell under Labour 1997-2010 as they spent more and hired more staff. It rose a bit under the Conservatives 2010-19, as they tried to get some better value out of the public sector. It fell disastrously over covid lockdowns and still has not properly recovered despite heavy spending on remote working, on line meetings, better data handling and now AI.
Working away to capture the possible productivity gains in the public sector would give us a trend line of at least 1% gains in productivity a year. Some would say the public sector in catch up mode should be able to achieve 2% a year. At 1% a year  after five years the public sector would cost £30bn less to run the current level of services. That would be a handsome free lunch, allowing service improvements and tax cuts without borrowing more.
Surely public sector managers, now well remunerated and plentiful, could achieve this? Why aren’t their bonuses dependent on it? Where are the plans to amalgamate posts and improve jobs as people leave? All this can be done without any compulsory redundancies as staff numbers fall around 7% a year if you do not replace them by external recruitment.
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Time for Ministers to own their problems

November 6, 2025 81 Comments

From the moment you are appointed a Minister you are on duty, on risk, and have powers to improve or prevent things that are wrong. The present government 16 months in still behaves like a dissatisfied guest in Hotel Government, blaming the previous managers for things not working. They are the managers now.

Worse still they are the managers whose actions to date are making things much worse, not improving them.  Take the   most sensitive issues where people wanted change for the better. Illegal migrants have increased a lot instead of smashing the gangs. Inflation has nearly doubled as they put up energy bills, water hills and the costs of employing people. The number of people wrongly let out of jail has more than doubled. The deficit has been greatly increased by a big increase in public spending with no matching improvement in service.

So why? Ministers have done things that were bound to make things worse – increasing prices and costs, removing past attempts to cut ilegal migration, cutting sentences that have to be served, giving more money without seeing what it will buy,  hitting business, entrepreneurs and savers with penal taxes.

Ministers have proved incapable of leading their officials. David Lammy instead of taking the blame and working with officials when there was the first high profile wrong release, denounced his staff in public and announced a new way to release without getting buy in from the people doing it. No wonder there was another big embarrassment a few days later.Rachel Reeves has pencilled in big numbers for more efficiencies and productivity gains in future without setting out a joint work programme with departmental managers to deliver the savings. Wes Streeting has announced the abolition of NHS England without thinking how to pay the redundancy bills or get the work done that will still need doing.Ed Miliband Announces unrealistic targets  then refuses the blame for the rip off costs and prices needed to try to hit them.

Ministers need some training on how to do these demanding jobs. Mouthing press releases about what they would like  to do jars when reality is so different.

Rachel Reeves is right that our poor productivity is no puzzle, but is wrong about how to put it right

November 5, 2025 69 Comments
Rachel Reeves yesterday in her speech set out reasons for her poor performance. She is still claiming the problems stem from her inheritance, but she took over with 4% unemployment, now 4.8%, with 2% inflation, now 3.8% and a faster growing economy in the first half of 2024 than since. Most commentators see the damage  was done by  the run up to her first budget, hitting confidence by threatening all sorts of taxes, followed by a tax raising budget. Targeting extra tax on rich people, on companies, on small businesses , farms and above all on employing people was a sure fire way to undermine confidence, reduce new jobs and lead to closures of plants and  shops and loss of jobs.
Food prices surged as shops struggled to meet the new higher wage and property bills. Energy prices surged as Mr Miliband’s enforced transition turned out to be dearer, not cheaper. Jobs dried up, and many young people now languish on benefits, unable to get their first foot on the employment ladder.
She says the poor rate of productivity growth is not a puzzle. I agree with that. She says it stems from years of underinvestment, Brexit paperwork and austerity economics. Wrong on all counts. The public sector collapse of productivity from covid was not owing to too little public sector investment, but to bad management. Just look at the wasted investment into the Post office  and NHS computers, and into HS2. Our trade went up, not down after Brexit, with soaring services trade helping boost our economy. Far from 2019-24 being years of public sector austerity they were years of large increases in public spending and public recruitment, which lay behind the falls in productivity as too many people achieved too little extra.
So why is the productivity slowdown no puzzle? Because it results from the UK’s mad dear energy policy, closing high energy using factories and shutting down our highly productive oil and gas industry prematurely. It is because the public sector has greatly expanded its employee numbers and spending levels without delivering more service. This started after covid under the previous government and was clearly visible when Labour took over. Instead of demanding better public sector productivity they made the problem worse. They recruited more and boosted  pay considerably without requiring smarter working. They intensified the closures of oil and gas, preventing any new wells being drilled or new investment being put in. They pushed up energy prices more in a dash to introduce more high cost renewables. The rate of factory closures speeded up. The ever higher energy taxation drove two oil refineries to close and two big olefins petrochemical plants to shut. No wonder productivity struggles as these are the capital intensive businesses that boost the national average productivity figure.  People who serve in bars and restaurants work hard and are much needed but their labour productivity, the amount of revenue they earn for their business, is much lower than the revenue earned by the oil production worker or the refinery staff in very automated settings.
To get the UK back on the road to higher productivity, faster growth and higher living standards we need lower energy prices to price industry back into world markets from a Uk base. We need lower total public spending and borrowing to start to bring our very high long term interest rates down. Rachel Reeves drove those up well above Truss levels in her first year by spending too much.  She is wrong to say our high rates are the result of international markets. Our rates have gone higher than others thanks to a very bad budget. She recognises the need to get more people into work to cut the benefit the bill the right way. The trouble is without other spending reductions and some tax cuts on investment and business she will not get all the jobs it needs to bring that about.
She needs to redouble efforts to help the public sector work smarter. Bonuses need to be aligned to doing things better and cheaper. There needs to be an immediate staff freeze on all external recruitment apart from uniformed staff, medics and teachers. That way the organisations can slim as people leave, amalgamating roles and promoting existing staff into more rewarding and demanding positions.

Government IT programmes

November 4, 2025 79 Comments

As this government embarks on a large AI investment programme in digital technology we should remember past disasters and learn from them. The infamous nationalised Post Office computer programme Horizon  led to the false imprisonment of staff and haywire accounting. Taxpayers are picking up a huge bill for bad computers and big compensation.The contracts have cost around £2,5 bn with £1.4 bn on compensation and legal defences of the PO.

We should  also remember the Blair government launching the very large £6.2 bn digitalisation National Programme for IT in the NHS. Doctors and hospitals found a centralised solution did not work for them so the system development was abandoned in 2011.

The Home Office Emergency Services Network has experienced large delays and cost overruns. Their eborders system had to be terminated.

The government has so far failed to set out how it is spending its budget of an extra £3.25 bn for AI over three years. What will we get for this? How will the contracts be drawn up? How will it be distributed between departments and Agencies? Will it be carried through without the extra costs and stress of redundancies? When and how will the staff savings be achieved?

Past experience of too many programmes is cost overrun and sometimes big project failure. Both the expensive National Programme for IT for the NHS and Post Office Horizon started under the previous Labour government and had to be terminated/ remedied under a successor government.

Crimes of violence

November 3, 2025 87 Comments

 

 

There are too many crimes of violence. Knife, bomb and gun attacks against people on the streets, shopping, at entertainments or on public transport naturally alarm many people.

Much of this  is also now being seen by the public through the lens of the failure of governments over all too many years to take the Pakistani rape gangs seriously and to follow up for the children and young women who suffered in many towns and cities.  That has led to distrust of the various authorities including Councils and the Home Office who should have  pursued the allegations properly.

The current Home Secretary needs to get better at handling these tragedies. Yesterday she did not tell us anything about the man  being arrested for the woundings of many people even though he was  apprehended at the scene of the crime and is presumably being charged with attempted murder.Her  long silence meant people could speculate about who carried out the atrocity and why, in ways which could make false allegations about groups who were not to blame.

The Home Secretary needs to keep the public informed. She needs to stress how justice will be applied impartially. She needs to work on policies more likely to deter people from random and wanton violence.

 

COP 30

November 2, 2025 97 Comments

What is the point of COP 30? The US does not believe in man made climate change as a threat and is pursuing growth through producing more cheap okl and gas to give it a big competitive advantage against the EU and UK with their dear energy. China has been expanding its CO 2 output in the ten years since the Paris Treaty Agreement for others to get it down, whilst building  a dominant position in renewables, batteries and battery cars to sell to others as well as for home consumption. Other leading  CO 2 emitters including Russia, Iran, India, Indonesia are still expanding their CO 2 output.

It is stupid for the UK and other parts of Europe to cut its CO 2 output by closing down industry, only to import the goods instead. This increases world CO 2 output with all the extra transport.

The Climate Change advocates want to cut air travel, air conditioning and meat eating as all these add to CO 2. A COP Conference in Brazil will increase all of these are many people fly out to air conditioned hotels with grand dinners. Doing all this on a government expense account is unwise. People hate hypocrisy and waste. This Conference looks like both on stilts.

The UK cannot spare more money for the usual whip round the richer countries to give to the poorer. The UK should not promise to hit tougher targets as it is already signed up to targets that are too high.

Don’t do as I do, do as I say

November 1, 2025 89 Comments

When I was an MP railing against more rules and higher taxes I still knew I had to pay all the taxes and obey all the rules I disagreed with. I would not have been a hypocrite to  ignore  them but I would have been breaking the rules and the laws.

Labour Ministers want higher taxes and more rules, especially on people like them who are paid more than three times the average wage. It means when they are breaking the rules they may not only be breaking the law but they are being hypocrites.

Angela Rayner thought she could carry on despite misunderstanding tax rules on her complex property portfolio. It turned out she could not. Blaming advisers did not help. She is a  tax hawk who thinks people like her then on a big salary with large capital gains should pay more tax, not less. No surprise she had to resign.

The Chancellor has called for more places to require someone letting  out their home to  have to buy a licence and file various certificates to prove the house systems meet modern standards. It is therefore surprising she did not check the need for and the provision of   a licence in her own case. We now have two different statements from her over why the licence was missed.

I think it is all too easy to miss a requirement when you do something new in an over regulated world.I think there should  be a bit more tolerance of honest mistakes. I cannot see how  this extends to the Chancellor who not only knew about licencing but was urging it to be more widely adopted. Failure to buy a licence and show the certificates is a criminal offence with a large possible fine. Surely the Chancellor should consider her position. She cannot say this was an over the top rule as they will not get rid  of it. Why go easy on enforcement with a Minister who believes in this imposition. 

Lending to the government can be costly for investors

October 31, 2025 56 Comments

One of the bizarre features of the Pension fund led collapse of government bonds prices  after the Truss budget was how little many involved in pension fund investing seemed to understand about the way bonds changed in price. For some years when interest rates were artificially depressed by massive official bond buying with newly created money called Quantitative easing, many pension regulators, experts and commentators piled Trustees into UK government bonds as “safe assets” or “matching assets”. They so believed in them they told them to buy many more bonds than they could afford. They put claims on  bonds into heavily leveraged funds or LDI funds so the pension fund could own several times what it could afford and only have to pay a small proportion of the cost. The small print said they had to pay up more if the bonds fell in value, but the assumption was the bonds were “safe” and would not tumble.

 

What they should have known and more importantly should have set out clearly was a government fixed income bond will fall a lot if interest rates go up. The longer the time  before the bond repays, the bigger the fall will be. A simplified sum shows why. A bond issues at say £100 and states what the interest will be each year. A 1% bond means the government will pay 1% or £1 on your £100 bond every year until repayment, which is stated as a maturity date.  If you lend the government £100 at 1% for a year and rates then go up to 2% the bond will fall in price if you want to sell  to £99. The new buyer wants not only the £1 of interest for the year he will own it, but the £1 capital gain he will get when it repays at the original £100 issue value. That then gives him the 2% the market now wants. If you lend the government £100 at 1% with no repayment date, and rates go to 2%, then the value of the bond halves to only £50, as the new buyer wants the £1 of income on the bond to be 2% not 1% of what he invests. The very long dated  bonds perform more like the no repayment date bond for obvious reasons.

So many funds bought gilts, UK bonds, at interest rates of around 1%. Look at some of them now.  Anyone who lent to the government for 0.5% until 2061 has a bond worth £26.62 today for each £100 of stock . Anyone who lent  at 0.875% until 2046 has a bond worth £47.20 today per £100 of stock. Far from being safe and reliable investments these bonds proved to be very volatile and have so far lost their owners more than half their money. Of course if they hold to redemption they will get back the full capital lent, but they will have suffered from a very low interest rate over the whole time of their ownership when deposit rates are now so much higher for less risk and more convenience.  Owning a bond that repays in 36 years time means a long wait to get all the initial advance back and a long period of very low returns. It is difficult to see how such an investment matches the liabilities of pension funds, seeking to pay a pension that people would like to  go up with prices rather than eroding value as inflation hits.

This is important background for the government as it asks itself if UK pension funds should invest more in the UK, and if they should invest more in shares  than in bonds. You can of course more than halve your money  by buying the wrong mix of shares at the wrong time just as with long bonds. In good years you tend to make more in shares, as the successful companies which tend to dominate the index grow their profits, earnings and dividends by more than inflation. A matching asset for a pension fund is an asset which over time earns a return that takes care of wage inflation.

Mr Windsor

October 30, 2025 42 Comments

When I wrote a piece saying Mr Windsor would pose constitutional issues to be resolved some of you criticised me. You thought this was not a serious topic. You thought it wrong to call the ex Duke of York Mr Windsor.

I hope now the King tells us he is Mr Mountbatten Windsor  you will agree with His Majesty. Now the King is using prerogative to strip him of titles formally you see this is a serious constitutional issue. He will presumably  be taken out of the line  of succession.

It would clearly be best if after cross party soundings this use of royal prerogative  is widely supported and ideas of new legislation  be shelved. The wise decision to move to private property and to rely on family money removes the need for Parliamentary investigation of the properties of the Crown estate in this connection.

Private renting and the Chancellor

October 30, 2025 82 Comments

The revelation that the Chancellor failed to apply for a licence to let her home in Southwark shows just how expensive and complex the rules now are if you want to be a small landlord. £945 for an on line licence with extra for an invoice, or £1174 if you apply in writing. You need to show at least four certificates about features of the property, supply floor plans, show compliance with planning and other requirements.

If government was serious about easing the housing  shortage and bringing rents down they would make it easier to rent out your home or second home for a limited specified period. These complex requirements and high charges put many people off renting out property they may need back.

Labour usually  hound people who fail to comply or make mistakes. They are anti landlord. Why are they so forgiving of the Chancellor and why did they seek to keep the Deputy PM when both failed to follow their own complex rules to save themselves money?