The gopvernment has a long wish list of new infrastructure projects. Some of the items on it are necessary and desirable. A few new power stations and some extra road capacity would be most welcome. Some of the dearest ideas, like HS2, are far more contentious. They have keen supporters, but also many strong critics claiming they are a waste of money.

     As I have written before, it is a strange idea that any item of public spending classified as capital spending is now thought of as good. We are told it must be a good idea, because it creates jobs for the building industry, and offers us the prospect of returns in years to come. The trouble is, some of the public sector capital spending does not offer us future dividends but guarantees future public spending to service the debts and pay the running costs of the new facilities. It is not a good idea to agree to everything with the label of capital spending.  We have to consider future affordability.

         My view is the government’s £310 billion wish list is too big, and includes some projects that are not going to produce a sensible future return. Doubtless it will not all the built in a hurry anyway.It also excludes some other projects that could be good value and are needed.

       The government has to ask itself how does it pay for all this? £310 billion is  a large sum of money. Let’s look at it per head. It runs out at £5000 each for every man, woman and child in the UK.

        We could raise this money in tax if the government decided to take over all the projects, or if private finance was difficult to come by.

       We could borrow it for now, and then get people to pay extra taxes or user charges over a period to pay back the debt. This will be dearer than an immediate tax rise, but spread over a longer period. If the investment broke even people would pay around £10,000 extra tax or charges   if it was borrowed for around 25 years. If the investments lose money or require susbisdy then taxpayers will end up paying a lot more.

         The government could print the money and not aim to raise it through borrowing or taxes.

         The government could borrow it but aim to inflate away some of the real cost of repayment.

          None of these options sounds great. The last thing we need to day is higher taxes. Relying on more money printing or inflation is not a good call. Borrowing more when we have too much debt already has been ruled out by government rhetoric.

          So what should be done?More of the necessary investment, like new energy capacity, and broadband, should be financed in the private sector and subject to a market test. That way we are more likely to get investments that add to our total wealth and income in years ahead, instead of cursing taxpayers with more tax and borrowing bills.

         What new infrastructure do you want, and how should we pay for it?

 

          I have been very tolerant of the UKIP bloggers who regularly use this site to tell us UKIP is about to make a breakthrough. Unlike the supporters of other parties, they also write in a more party partisan way, a course of action more appropriate to confine  during elections  to proper leaflets under normal election expense rules.

       I have been regularly criticised by UKIP supporters for pointing out their lack of electoral success so far in Council and Parliamentary elections.  I argued prior to 2010 they would not win a single Parliamentary seat, even though they fought Buckingham where there was no Conservative, Labour or Lib Dem candidate. They have not  won a single by election for Parliament either.

         So let me indulge them again, by asking this simple question. What would constitute a “break through” for UKIP in the County elections? How many Councils would they need to win outright? How many seats in total would they need to take? Anyone can express a view, as it is the question UKIP have wanted us all to consider.

          If  UKIP members now think their party will not this time make a break through by winning control of County Councils, what would they regard as a good result?  Is the main aim in effect  to get more Councils into Labour hands, by taking more votes from Conservatives than from Labour?  How many such results  would represent a “UKIP victory”?

Memo:  There are 2409 seats up for election. Conservatives currently hold 1477, Lib Dems 480, Labour 255 and Others 197. I think UKIP is defending 3 County Council seats, but would be happy to be corrected if I have missed some.

 

 When some politicians talk of red lines I start to count the spoons.

The worst offenders were Labour Ministers telling us they had defended the UK’s essential “red lines” when agreeing to the wide ranging federal Treaties of Nice, Amsterdam and Lisbon.They assured us  the UK would still be free to settle its own tax, welfare and benefits policies, and would still have its own criminal justice systems.

 Try telling that to Mrs May as she tries to find a way of deporting someone, or to Iain Duncan Smith as he loses yet another case on benefits at the ECJ, or to the Tresasury as they witness yet another European Court judgement on corporation tax, or further requirements on VAT, a common EU tax, or to Mr Harper as he considers the latest Commissioner demand that we help more EU migrants to receive our benefits.

This week-end the issue is Mr Obama’s use of the red line phrase over Syria. Let’s hope the delay and the spin in taking action in response to the likely use of chemical weapons in Syria is a sign that he did not really mean his red line after all, just like Mr Blair in Europe. The administration is rightly demanding more proof that chemical weapons were used, that they were used by the Syrian government, and that the user had the full authority of Assad. If this is forthcoming then it is a war crime. War criminals need prosecution once they have been toppled from the protections of state power.

Let us suppose they can prove war crimes – there is plenty of evidence anyway  of how loathsome this Syrain government is, and how cruel it is towards its own citizens with or without using chemical weapons. Shelling and bombing civilian populations with conventional munitions can impose horrendous injuries and deaths. The issue should be how could western military intervention help, rather than whether there is sufficient pretext for such intervention.

The problems with any military  intervention are manifold. How could western bombs rain down without killing some people who are not part of the government and state armed forces?  If the west uneashes some of its might to tip the balance in  favour of a rebel victory, what kind of a government might replace Assad’s?  How would any such replacement government heal the wounds of the current civil war? Is there a danger that more people who do not share the west’s beliefs in democracy, freedom and human rights take over in this blighted state? Could a change of government usher in a new instability, as pro Assad forces became the new rebels?

 

 

         The first quarter figures for the US shows faster growth than in the UK. They also show that US government spending was cut by 4.1%. Those who say the UK is pursuing a path of public sector austerity and the US a path of fiscal expansion should try looking at the figures. In the most recent quarter UK public spending went up and US went down. The US grew more quickly.

 

           The government and Opposition in the Uk are united in wanting an industrial recovery. Now they need to agree on a radical change of energy policy, as you need cheaper energy to get the industrial revival.

          The most recent GDP figures show the economy grew in the first quarter of this year, despite a further fall in manufacturing output. Rising public spending and higher private sector service output combined to more than offset the further falls in construction and manufacturing.

          Leading manufacturing nations like China and the US have much cheaper energy than the UK and western Europe. Energy costs are crucial in areas like cement, glass, ceramics, aluminium and steel production. Energy costs are also often more important than wage costs in highly automated modern factories, where machines do most of the work.

          Within the EU high energy costs are a way of life and a policy choice. Germany, the most sucessful manufacturer within the area, is increasingly cutting loose from EU policy, in a dash for coal based electricity production. The EU itself has offset some of the damage being done by its carbon scheme, through issuing so many permits that the carbon price has collapsed. The UK has imposed a carbon tax  above the carbon price, and is still engaged in developing more high cost energy.

          I have renewed my calls this week for a short term policy to save our old power stations and keep them running for longer, and a medium term policy of going for shale gas and more gas based power production from new stations.

          I read today that the new Japanese government is preparing to ditch its Kyoto carbon reduction targets and generate more power from coal as part of its policy to help industry and consumers.

Mr Miliband has suggested that the much fancied centre of UK politics is moving to the left. Mr Blair and Mr Reid have denied any such thing. Labour are divided on whether they can shift leftwards safely or not.

Some Conservative members fear that the Coalition is dragging the centre to the left, thanks to the influence of the LibDems on Coalition rhetoric and policy. They want the Conservative leader, Mr Cameron, to be more Conservative. Some LibDems fear that UKIP is dragging the centre ground in the opposite direction, highlighting the issues of immigration and the EU which Lib Dems prefer to skate over.

So who is right? Does it matter?

It does matter, because it is a common prejudice for the main figures in each of the principal parties that they can only win by occupying the centre ground. Their problem comes in trying to define what right and left mean in the muddle of modern UK and EU politics, and in trying to discern where the true centre lies amidst the babble of voices and the myriad of viewpoints captured by the more sophisticated and wide ranging polls. Is it being in the centre to say there should be no changes to the current immigration policy, or do you have to move sharply in the direction of less inward migration to be in the centre of the public’s view? Is it being in the centre to say you are happy with the amount of EU power we currently experience, or do you need to propose far less EU interference to hit the centre of the UK electorate? Is it being in the centre to say the deficit should be cut at the rate proposed by Labour as it left office, or at the rate first proposed by the Coalition, or at the rate now proposed by the Coalition, which is slower than either?

Those who believe the centre is moving leftwards point to the popularity of higher wages for most, to the wish by many to see the banks and bankers punished more, and to the demands for a further clampdown on tax abuse by the rich. There are many who now run populist campaigns to blame bankers for the crisis, to demand more money from the rich to pay the bills, and to attack large companies for planning their affairs to minimise tax legally. These campaigns are so popular that they have already been adopted in one form or another by all three main political parties. In this sense all three parties just assume the centre ground is to the left as traditionally described.

Those who think the opposite point to the polls on a range of other issues. People want the Government to be tougher on permissions for migrants to come to the UK than it has been. They want welfare reform which makes it more difficult for people on benefits to receive more money than someone on average wages. They wish to stop recently arrived people having access to benefits at all, and wish to charge visitors for use of the NHS. They want the Government to stop the EU interfering as much as it does in government decisions in the UK. They want a tougher approach to law and order, and wish the Government to expel more foreign criminals from our country altogether. They think there is plenty of waste and undesirable spending within the public sector that the government should cut or control.

The balance of these arguments implies that the centre ground – to the extent that it exists – is shifting more to the right as conventionally described, than to the left. We do need, however, to examine the crucial debate on how to institute economic recovery. Here those on the left say the government should cut less and borrow more in the short term, as the best way to encourage growth. Those on the right say the government should cut more from the public sector, to energise the private sector more by tax cuts and monetary means.

Here the surprising thing is there is practically no disagreement between Labour, Conservative and Lib Dem over monetary policy. The massive sums being created and used in Quantitative Easing programmes evoke no critical response from any of the three parties. All agree Mr Carney is the best man to be the next Governor of the Bank of England, and all seem to accept that more monetary easing is needed. The battles occur over far smaller sums at the margins of total public spending For choice Labour would like to spend a little bit more in the short term. All three parties have agreed Labour’s cuts just before leaving office to capital spending were too large, and steps are being taken to reduce their impact.

The debate over public spending  is undertaken in a fog of statistical ignorance by most in the three parties. Many seem to assume public spending is being cut, when the figures show clearly that so far under the Coalition current public spending overall has risen substantially in cash terms and a little in real terms. The UK’s so-called austerity is nothing like the big programmes of spending cuts in troubled Eurozone economies. The austerity instead has been visited on the private sector through major tax rises, and via the impact of inflation on real incomes.

All three parties seem to think the electorate will not take any cash or even many real cuts in current public spending, so they all perch close to each other behind maintaining the status quo on current public spending. The public would like the Government to break out onto the common ground, away from the so called centre ground. They want change and reform. They do not like large build ups in public debt, do want a new relationship with the EU, and do think welfare reform of the right kind is a priority.

This article was written for ConservativeHome and published on their website earlier in the week.

 

 Despite all the talk and rows about cuts, the public sector keeps on growing in real terms.  In the first quarter of 2013 the public sector added 0.5%. It added 1.6% in 2012, 1.1% in 2011 and 0.6% in 2010.

Would all those who keep talking cuts try reading the latest output figures.

 

           Let’s hope the Co-op’s decision to withdraw from buying the Lloyds Bank branches will make the authorities think again. The Co-op said that the increasing regulatory burdens on UK banking made it no longer in  their interest to expand their banking business. The weak economy they said  also impedes decent profitability.  Indeed, they are reviewing their existing bank at the same time, and could decide to sell or cut that as well.

          It is good it was the Co-op which took this view. People who hate banks on the left of the conventional political spectrum will find it more difficult to criticise the Co-op when it stands up for the need for sensibly regulated and profitable banking. Their statement was moderate and considered.

           Most participants in  the banking debate have come round to the view long proposed here that we need more banks to offer competitive services. If we are to achieve this the Regulators have to be realistic in their demands for cash, capital and staffing levels. The market has to sustain profitable banking, however loud the cries of bank critics everytime a bank dares to make a profit. It is profits that allow banks to increase their capital base and sustain more lending to people and companies that can make good  use of it.

           It is a difficult debate to conduct, against a background of such hsotility to banks and bankers whipped up by polticians keen to find a group more unpopular than themselves. The Archbishop of Canterbury called for the break up of RBS, a sensible cause. He did, however, also state that the banks had made two big mistakes – borrowing short and lending long, and lending to people who could not repay.

         The truth is all banks have to borrow short and lend long to some extent. That’s how they make their money.  Some current and on demand deposit account money can be lent to others for longer periods, as long as the bank keeps enough cash to handle demands for withdrawals.

          They also have to lend to some people that will not in the end be able to  repay. They back businesses, and not all will succeed. Good banks manage the risk of the different term structures on their balance sheets without misadventure, and keep the numbers of defaulting clients under control.

          We need more banks. The Regulators are still not getting it right.

You would have thought the left and the Greens would be very hostile to the Germany economy in general and its car industry in particular. Germany burns a lot of coal and depends on manufacturing to a considerable extent. You might have thought that the EU, a well known leader in trying to curb carbon emissions and excess remuneration, would turn its full attack onto the car industry. After all, it has made its hostility to banks and bankers ever clearer, seeking to regulate their pay, stop some of their activites, and tax others. So much so that many in the UK now think the EU has been picking on its lead activity to do it harm.

The German car industry has been very successful at making large fast cars that appeal to rich people. Indeed, you have to be seriously rich to be able to afford the £100,000 for a top of the range BMW or Porsche, or the £165,000 for the S class Mercedes AMG. No, I am not thinking of buying one, as they are well beyond my budget for a car. I have never yearned for one. Nor am I jealous of those who like them and can afford them. That’s because I am no carbon campaigning green or an envious socialist.

If you do dislike people being too rich and think they ought to be taxed, then taxing luxury cars more heavily would surely be a good place to start. After all, it brings you two gains in your jealous universe. It hits the rich directly, and it may cut the number of high emission large engined cars sold.

In fairness to the EU, they have tried a bit of this. German lobbying and influence, however, has been most astute at ensuring the EU’s carbon attacks do not drive BMW, Mercedes, Porsche and Audi out of business at the luxury end.

Motor manufacturers are also famous for paying their senior executives very high pay. This has not become such a big issue as bankers pay has become, again owing to excellent news management and lobbying. The CEO of VW earned $23m in his best year. Remuneration in excess of $10m a year is common at the top end of the industry. So far there have been no EU proposals to cut this pay.

It all goes to show being good at EU politics is important if you wish to keep these contentious industries and activities going and if your country stays in the EU.

On Monday Parliament received the Treasury’s 2012-13 “Convergence Programme for the UK: submitted in line with the Stability and Growth Pact”.  It was a timely reminder of more powers surrendered by the previous government.

We were told at the time that the UK would not submit its budget to EU scrutiny or decision prior to the Chancellor delivering his Statement to the Commons.  The UK would merely send the EU the Budget Red Book as a matter of record after the Budget.

As so often with EU matters, it is not as simple as that.  The government has sent a 235 page document to Brussels about our budget, spending and tax plans, and economic forecasts.  Part of this, is a series of extracts from the Budget Red Book and part of it a long extract from the report of the Office of Budget Responsibility.

However, page 5 in the introduction and pages 29-30 on the Excessive Deficit Procedure go further than was suggested at the time of the agreement on the Pact.  The introduction explains that the UK has to submit an annual Convergence Programme.  The country is under an obligation “to endeavour to avoid an excessive government deficit” under Protocol 15 to the EU Treaties.

The section of the Excessive Deficit Procedure is even more concerning.  The UK first accepted this requirement under Labour in 2008.  “In November 2009, the Council made recommendations to the UK, including a target to correct its excessive debt by reducing the Treaty deficit below 3% of GDP by 2014-15.”

The new government reports that it “remains committed to bringing the UK’s Treaty deficit in line with the 3% target set out in the Stability and Growth Pact”.  This is now planned for 2017-18, delayed from 2014-15.

This filing reveals the absurd paradoxes and contradictions of modern UK politics.  Labour who now say we should not cut the deficit so fast or so far signed us up to an EU policy which requires us to cut further and faster to comply with the EU Excessive Deficit Procedure.  Conservatives, who think it is right to cut the deficit and get more quickly to the point where debt as a proportion of GDP is falling, do not think the EU should be involved in these UK budget decisions.

It would be interesting to hear on this site from the bloggers who both think the deficit reduction is too fast and who think the UK should be following EU policies faithfully.