Author: johnredwood

Whilst people in the UK are preoccupied by our election debates, the IMF and World Bank meeting with Finance Ministers  is happening  in momentous times.

The most significant thing that is happening is the rise of China. China has a plan. They are in transition from relying on exports and investment to grow quickly, to depend more on consumer spending at home. After years of making good value goods to sell to foreigners, to build up a large reserve of foreign exchange, China is now making more to sell to her own citizens. Her  economy is also in transition to higher tech and to delivering more service output.

China is liberalising its financial system. It now has more two way investment into and out of mainland China to Hong Kong. It is putting its currency, the renminbi, forward as one of the world’s great trading currencies. It is seeking the entry of the renminbi into the Special Drawing Right basket of the IMF alongside the dollar, yen, sterling and the Euro. It has set up the Asian Investment Bank to extend credit across Asia and the Middle East.

The most dramatic plan is China’s proposal of a new Silk Road and silk maritime road. The idea is new and improved sea and land transport links from China through Central Asia to Russia and Europe. China has in mind a new large economic zone with joint investment projects in transport, communications and  energy, with more common trading and co-ordination of economic and development policies.

China is working with the City of London, recognising UK excellence in finance and valuing London’s ability to make markets in the renminbi. We need to make the right diplomatic response to China’s developing wish to play a bigger role in the world, and to use some of her great industrial and financial muscle to extend her influence. The UK government was right to back China’s Investment Bank initiative.

There’s a lot of class war rhetoric around in this election. There are some who seem to think you can make the poor rich by making the rich poor. There are certainly many who speak divisively about society, seeking to set poor against the better off, as if their interests were incompatible.

I have spoken and written before against austerity. I want greater prosperity for all. I want tax cuts for all to help bring it about. I want people at all income levels to keep more of the money they earn, and to pay more tax when they earn more money. Cutting tax rates, and lifting some people out of income tax and some capital taxes altogether is one of the best ways of stimulating more enterprise, more activity and more prosperity.

The Conservatives are not the party of the rich as endlessly stated in Labour and Lib Dem caricatures. We want the rich to pay more tax, and think the best way to bring that about is to set rates that mean they will stay and pay, and rates which encourage them to venture more with their money, employ more people, contribute more to our economy. We want everyone who can work to have the chance of a job. We want everyone in a job to have opportunity for promotion, training, higher pay.

You do not rule well by seeking to divide society, and by thinking that differences of income are of all consuming importance. You rule well by enforcing a fair law equally on everyone. You rule well by ensuring the many can aspire to better jobs, higher incomes, better homes, and by looking after those who cannot manage.

The danger is we spend too much time arguing how to divide the cake up, and far too little time and effort thinking how to bake a larger cake. Some want to break the country up, setting rich parts against less well off parts. Some want people to depend more on the public sector. I want to see policies which promote better training and education, more people setting up their own business and working for themselves, more small businesses expanding, more people owning property and other assets.

£742 billion is a lot of money. It is £11,600 for every man, woman and child in the country. It is what the UK state will spend this year whoever wins the election. It is time to ask a few more questions about how this money should be spent.

I agree with Conservative policy that we need a further period of restraint in public spending to help get the deficit under control. I think the cash near standstill for a couple of years is just what is needed as per the present Red Book plans. I do not think this need be difficult for the public sector, as there are some relatively easy ways of achieving it. Having zero inflation helps.

There is considerable scope for better buying, more quality driven systems of management, getting more  right first time and more reduction of error and waste in many parts of the public sector. There is considerable scope to reduce the benefits bill for the best of reasons, by helping more people into better paid jobs or into any kind of job.

I disagree with the official party line over HS2. I would cancel this project tomorrow,and did vote against it in the last Parliament. There is no capacity problem from London to the north. There is a commuter capacity problem into the main cities which could be more easily and cheaply solved by improvements to current lines.

The large subsidies being pushed into Network Rail, a nationalised industry, have not bought us cheaper peak hour fares, but have bought us gross inefficiencies. I would seek a new management plan to do more and better for less on the railways. Our railway performance is way below that of comparable European railways.

I would spend money on overseas aid in relation to the need of countries for help and in relation to the priorities of UK foreign policy. I would charge all the costs of the military in the ebola mission and similar activities to the aid budget. I would also charge all treatments offered free in the NHS to visitors from abroad to the aid  budget. I would do more to ensure the NHS recharges all treatments for visitors from the rest of the EU through the EU recharge system to the relevant member state governments, and expect most overseas visitors  to have insurance or cash  to pay for any non emergency treatment whilst here, if not covered by the EU arrangements.  The government has been taking action to remind the NHS of the need to charge people from abroad who are not eligible for free treatment.

I would also expect a major reduction in our dues to the EU. Either we will negotiate a new relationship based on trade and political co-operation, which should include lower charges, or the UK electorate will vote to leave. Either way there should be large savings.

According to the Labour Manifesto they now buy into a policy they criticised as being a policy of austerity . They seem to wish to cut the deficit from £90 billion to £30 billion by 2019-20. Their tax increases are modest in terms of how much revenue they will raise, even on their own figures. Some of their tax proposals may end up losing the Exchequer revenue if Labour won and implemented them. It must mean they are planning a lot of what they used to call “spending cuts” to achieve their goal.

The single main message of their Manifesto is that the last government was right – the UK government  did need to get the deficit down, and we do need to finish the job of getting it down. Labour leave it to the Greens and the SNP to make the case for bigger spending and more borrowing. Labour give us the headline that they will get rid of the deficit, and suggest the debt will be reducing. If you examine the numbers more carefully you see that in practice they will push up borrowing by considerably more than the Conservative plans, and will not be cutting the stock of debt by 2019-20. They will carry on borrowing to finance investment.  Debt  may be falling as a percentage of GDP, depending on how much growth is left. The detail does not back up the headline.

Some of the high level rhetoric of their Manifesto is often inoffensive or sensible. They want “hard work to be rewarded” – who doesn’t. They want more “high skill high wage jobs” – who doesn’t. They want more new homes. The problem is the policies to bring them about may be counter productive.

They now mention immigration.  They wish to curb EU migrants from getting any benefits for the first two years here, compared to the Conservative four years. They think all public service workers should be able to speak English.

Perhaps the dearest ( and entirely uncosted)pledge in the whole document  is their wish to remove all carbon (dioxide?) from electricity production by 2030 and to set more demanding whole economy targets for carbon. They offer little to England, with no English votes for English issues in the Commons, and no detail on how the finance would be negotiated once Scotland has more of her own tax raising powers.

The Manifesto is full of proposals to intervene and regulate business more. Their proposals on energy are especially complex,  and could be dangerous given the overriding need for more investment in more capacity as soon as possible to keep the lights on.

The election debate has got tangled up in discussion of a few billion extra spending, rather than a sensible analysis of the  £742bn of total spending this year.

Worse still Labour and some in the media seem to think if you wish to propose any additional spending you need to show hypothecated new revenue to pay for the item.  They rarely propose offsetting economies in public spending and never discuss the overall  balance of the budget and the rate of increase in tax revenues. Uk government does not of course work on the basis of hypothecation.  Most revenues are aggregated in the Treasury and used to pay for whatever bill comes up next in the general public spending budget. Thus NI contributions, Road licence fees, Vat, Stamp duty and the rest are just part of the general pot.

Conservatives say they will increase Health spending by £8Billion a year by 2019-20. It will be paid for out of the general rise in tax receipts likely over the next five years and already in the Treasury budget figures from economic gr0wth. The Conservatives point out that health spending is up £7bn in real terms over the last five years, paid for out of rising revenues,so the deficit was still able to fall. Over the next four years the Treasury forecasts an increase of £124 billion a year in tax revenues on present tax rates.

Labour say they will increase health spending by £2.5bn a year paid for out of specific new taxes. In practice anyone running the government will end up spending  more than an extra £2.5bn a year for the NHS.

There are two important  issues  to discuss. How quickly can tax revenues rise? With more growth and lower tax rates there should be faster growth in total tax revenues, which will help. That is why the main deate should be about how to sustain the current good gr0wth rate of the UK economy. Higher taxes as in France will not do that.Labour knew that in office but has forgotten it in opposition. How can total spending be brought under control and how can we secure more value for the large sums now being spent and promised?

Debating the odd  additional billion is debating the rounding errors or ralatively small changes in total public spending. There is too much sound and fury over a few billion of “new” money and far too little debate about how to spend the bulk of the money wisely. I will deal with these issues in future posts.