When Tony Blair allowed Gordon Brown to step up the rate of increase in public spending after 2001, he did have a mantra which said extra money had to go hand in hand with reform. He attempted to introduce more types of school, developing the Academy model. He came to the conclusion that he had been wrong in his first period in office to remove the outgoing Conservative government’s reforms in the NHS to try to give patients more choice and more control over how the money is spent. All this proved very contentious with his own side, and especially with the public sector trade unions.

          One of the main problems with monopoly public services is there is no way of ensuring change, innovation and progress. Whenever the service disappoints or lets people down, the cry goes up from the providers that more money is the only thing that is required to put it right.  There is no easy way of closing down, replacing  or stopping a public service which is no longer needed, or which is failing.

           The customers of public service, the taxpayers, have little choice or authority over the providers in most cases. I do not get to use many public services. I do have to use the Council rubbish collection service, and pay for it through my Council Tax.  If it were a bad service, I would have to try to complain  through a Councillor. I cannot simply switch to a cheaper or better supplier. There is no competitive edge in the service market, and the end user is not necessarily   the customer. The customer of the refuse service is in many areas in effect  the Council not the homeowners. This means the service provider is more interested in wooing the Council officials than the users, unless the Council is well run and focused on end customer satisfaction.

           Various reformers have sought to find ways to strengthen the customer voice, to empower the end users who pay through their taxes. With the current monopoly model for most services there are rows over rationing -some  users cannot get the school place they want for their child, or cannot get the treatment they need when they need it from their local hospital. There is also a reluctance to close down failing services, as any closure always produces a small group campaigning to keep the service open, or petitions and protests from the providers.

            There is also a heavy reliance in public service on enforcement and penalties for improper use of services as defined by the public provider, and practically no reliance on incentives or rewards. My local refuse service limits people to a certain number of refuse sacks a year to limit the cost of landfill disposal for the Council. If you need to dump more you have pay extra. I am happy with that idea. I would also like an incentive proposal. As I do not use all the sacks they supply me with, why do I not get a rebate on my refuse charge? One of the ways to test out how popular some suitable free public services really are might be to allow incentive payments for non use, as with my refuse sack idea.

 

I do not agree with the idea that taxpayers should finance political parties. It is healthier if parties have to raise money from their members for their political purposes. There has been some movement towards more taxpayer funding of parties in the UK, but they still need money from voluntary donation to survive and prosper.

The rule behind voluntary subscription is simple. Any UK elector, individual, company or union can give money to a political party which they agree with and wish to support. What they should not do is to give money to a political party with conditions attached. It is against the rules to give money to buy a change of policy or to purchase a particular candidate at a selection.

So if an individual wants a referendum in the next Parliament on the EU it is fine for them to give money to the Conservative party who wish to hold one. It would not be fine for that individual to go to one of the other parties not offering a referendum and say they will give them the money if they change their policy and offer one.

Issues over candidate selection depend on the rules of the individual parties and constituency associations. It is not against the rules to enrol more people into an association prior to a new candidate selection, though parties usually have some requirement for people to be members for a specified time period before the selection to qualify to vote in it. Selection competitions have rules over how candidates can approach members to seek their  votes. In order to prove malpractice in any given selection procedure those making the allegations would have to prove that people were enrolled without their knowledge or consent, or their votes were manipulated or given without their own control over how they were cast.

Parties normally  wish to ensure that there is  no concerted attempt by an outside group or external institution to control or influence the type of candidates  selected or the views of the candidates selected.

Next week I want to look at the issue of how the public sector lobbies, and the extent to which public money is used to try to persuade decision takers in the public sector to spend more public sector cash.

 

On Wednesday night I heard a lecture by Grover Norquist, the Head of the Americans for Tax Reform, who is in London.

I used to talk to Grover when he was working for Speaker Gingrich on visits to Washington. He has been the leading light behind the campaigns for lower taxes and smaller government in the USA.

He told us that the 25 Republican states are cutting public spending at the state level in the USA, and setting lower state taxes. As a result there is migration from some of the 12 Democrat states like California into the lower tax Republican areas, as the enterprising and successful seek more favourable tax terms for their businesses and savings. I have remarked before on how the US deficit has fallen further than the UK’s thanks to states level spending reductions, now allied to Federal level cuts as well. Apparently the lower taxes that some Republican states have introduced are also acting as a good stimulus to growth and greater prosperity.

He also told us of the success of schemes to offer parents proper school choice by empowering them to spend the money for their child’s education themselves, allowing parents from low income backgrounds to have the kind of power and choice only enjoyed by the richest in the UK when they opt out of the state system.

Grover calls his coalition the “Leave us alone coalition”. He works with all sorts of groups who want the government to do less in their areas, or who seek greater freedom. He calls the Democrat coalition the “Taking Coalition”, groups of people who seek money from the state or especially those who earn a good living out of distributing or spending state money. His language would be thought a bit sharp this side of the Atlantic, but his passion for lower taxes and his ability to demonstrate their benign effects on all went down well with his large audience in Church House.

 

           Western admirers of democracy are having difficulty deciding whether to condemn Egypt for an army coup against an elected President, or praise the people power which triggered a change of regime and the promise of new elections after alleged anti democratic decisions by the outgoing President. 

          It is all too easy for us in the west to feel morally superior, knowing that in the UK and the US the army does not intervene in politics, and that regime change occurs if people want it at General elections. In practice power in western democracies is more nuanced than the theoretical models suggest. It is all more complex than the slogans and soundbites we learn in our youth.

             It is true that in the UK the army has not visibly and directly intervened in politics in an unconstitutional way  since the English civil war. Even then, the army was a major force in politics largely because it was led by MPs who used the army as an adjunct to their Commons strength. In past centuries the UK has prided itself on having only a small army in peacetime, and making it clear the army leadership should only undertake tasks that the elected government proposes to them.

          However, US democracy was partly created by the field army the rebel colonists used against the British forces and the loyal settlers. Winning the war of independence led to the rest. In Great Britain the use of the army against the King in the 1640s assisted Parliament’s assertion of rights to influence and shape government.

          There has been plenty of exchange and mutual influence between the army and politics in both the US and the UK since those founding battles. Top Generals like Washington and Wellington became President or Prime Minister. Modern US Generals are potential recruits for the roles of Secreatry of State or Secretary for defence. UK Generals can end up as legislators in the Lords, and an Admiral became a Minister in the last UK government. The UK Defence chiefs join War Cabinets in the event of conflict, and have influence at all times over senior members of the government.

          The Egyptian issue raises another fundamental question – can the establishment in a country curb or even change an elected government which goes beyond the establlishment’s view of what is reasonable or permissibile conduct? In the UK a Minister is regularly advised of the legal restraints on his or her actions and is rightly expected to obey the law. The Minister’s privilege is he can change any law he does not like if he has  the agreement of his colleagues, but only for the future.

          Mr Blunkett experienced the unwillingness of his officials to implement an instruction he made concerning a prison riot. Mr Blunkett changed his mind the next morning and de facto accepted the advice he had expressly overruled before. It was an extreme and public example of a continuous process of debate between Ministers and officials. Ministers may decide (within the law) but officials may choose the timing and method of implementation unless the Minister has been very precise and foreceful in following up. A Minister may think he has decided, but officials may regard the decision as provisional or something they intend to return to later.

            More fundamental to limiting the power of the elected official is the ever looming presence of EU government in the UK. Just as the army in Egypt sought to limit or direct decisions by the elected President, so in the UK the unseen hands of the EU are constantly shaping and reshaping Uk policy on a myriad of items. Modern UK Ministers have very limtied powers of decison and discretion thanks the huge powers transferred in recent years to the EU, and thanks to the massive build up of EU law. Ministers in Euro area economies have even less power, with new governments forced to continue with the otugoing government’s economic policies however unpopular they may be.

            So before we feel too superior about the maturity of our democracy and too dismissive of those in Egypt arguing over how to find a democratic model athat works for them, we should remember two things. The army has at times played an important role in UK and US politics. Our own UK democracy is facing a crisis of authority and accountability thanks to the many decisions that now cannot be made  by any elected official, whatever the wishes of the UK people.

Parliament voted some time ago to set up an independent body called IPSA. This authority was charged with the task of setting and administering MPs pay and expenses, free of interference from MPs and without further Parliamentary votes. There was a  mood in the media that independent people should take evidence, listen to the public view, and conclude on pay and expenses.

The establishment of IPSA followed several previous attempts to have some external setting of MPs pay within the context that MPs still had to vote it through once the outside body or indexing system came up with its proposal. MPs were variously linked to a certain grade of civil servant, Headteachers, senior officers in local government and the like. Each time there was a link the comparator pay went up and MPs voted to detach themselves from it as the pay rise was thought to be too generous.

Now we learn that IPSA may propose a pay rise for MPs at the beginning of the next Parliament. Suddenly some want MPs to comment on this, or to find a way to overrule the independent body to prevent the pay rise. Many MPs are reluctant to comment, having voted for  the view that the pay has to be set independently. MPs have rightly  not been appearing on the media to complain of the pay freeze and higher pension contributions imposed this Parliament by IPSA, accepting the discipline at a time of general pay restraint and public sector pension reform.

I am not planning to expressing a view on the leaks of IPSA’s intentions. Now we have an independent system IPSA should propose and IPSA should defend  its proposals,  explaining them to the public. I am quite happy, however, to let you have your say about the leaked reports on IPSA’s plans.

 

The debates over this year’s Finance Bill have been predictable and repititious. The Labour opposition has been keen to find new ways of taxing people. Their biggest hope was to move an amendment to bring in a Mansion Tax, trying to tempt the Liberal Democrat backbenchers into voting for what was Liberal Democrat policy. They still want to tax banks more, and wish to add further anti avoidance measures to the Coalition’s tally.

The results were poor, with most Liberal Democrats staying away from the debate, and all Liberal Democrat Ministers happy to support the government line. Even if Labour had been more persuasive and found a few more backbench Lib Dem rebels they would have been well short of victory. The arithmetic of the House is simple. Labour and Lib Dem backbenchers can never win a vote. Labour and enough Conservative rebels can win  and have won a vote.

The Treasury did produce some numbers to give us an insight into a Mansion Tax. Labour wish to raise £2bn from it, and wish to confine it to properties over £2m. That would mean an average tax of £36,000 each year per property, though Labour stressed they wanted to have a higher rate on dearer ones and a lower rate on the ones near the £2m threshold.

There still seem to be a good many MPs who think the UK’s problem is too little tax rather than too much spending. Though all three parties now give voice to the idea that the deficit has to be brought down and the rate of increase in cash public spending cut, underneath lies an urge to tax more. Parliament devotes too little time to exploring how parts of the public service could do more for less, or thinking about which parts of public spending are less desirable or necessary. The PAC is busy running campaigns over companies and institutions which pay too little tax in their view, rather than highlighting waste, fraud and over the top spending.

MPs often quote the figure that the Coalition has made 80% of the adjustment to the deficit by cuts in spending and only 20% by tax rises. Yet the cash figures show a very different picture. The Coalition so far has relied entirely on higher tax revenues to cut the deficit, as cash and real terms current spending is up, and they increased the capital spending figures a little from the deep cuts Labour announced whilst still in office.

The new Governor comes with a great deal of goodwill and cross party support. All want him to succeed. Success means using monetary and banking policy to promote faster and sustainable growth. Dangers include allowing a new asset bubble or two to overheat, and failing to do enough to spur the UK economy in the right direction. The latter is probably the bigger worry for more people.

The new Governor also has at his  disposal a wide range of powers he can use  and measures he can pursue. He is both the regulator of the commercial banks,and the fixer of the main short term interest rate. He can both advise on whether to buy in more government bonds and other instruments, and influence the balance sheets of all the main commercial banks in the system. He is  both Chief Regulator and a major player in the financial markets.

The central anomaly in recent policy has been the divergence between the wish of the banking regulators, who want bank balance sheets to carry on contracting so banks have much more capital relative to their loans outstanding, and the  Monetary policy Committee, who have wanted to increase the amount of money in circulation, which should mean expanding commercial bank balance sheets. Some Regulators now say they want banks to lend more whilst raising their capital ratios, or keeping a b igger reserve. In practice their requests to do this have  not been implemented in the main, as banks have struggled to be profitable enough to justify more business, and do not think they can raise large amounts of new capital from the markets. RBS has reduced its balance sheet by £900 billion to try to improve its capital ratios. The government would not have been keen to put huge new sums into its share capital instead.

Most money today is not held as bank notes or gold coins, but held as deposits in commercial banks. It is deposit account and current account  money that makes up most of the money supply and is what most of us and companies  rely on to pay our bills and make any investments   business can afford.  If the authorities now want a faster expansion, they need to accept that more money will be held in bank accounts. The balance sheets of commercial banks will therefore exapnd, as your or my bank balance is the commercial banks’ liability.

They need to put our money to work. They need to lend a sensible amount of it on to make a profit. We will have stronger banks if they make a bit more money and keep some of the retained profit to strengthen their position and finance more loans. Demanding more capital and demanding more lending can be like trying to drive with your foot hard down on both the accelerator and the brake. The brake tends to win. How to have both stronger banks and finance a decent recovery remains the central policy conundrum. Sorting out RBS is central to resolving this issue. Moving on from treating the banks as the whipping boy for all the ills of society may also be necessary if we are to make faster progress.

 

Dear Jeremy,

           I was pleased to read in the Sunday press that you are working on the issue of access to free health services in the UK by visitors. I have raised this matter as have  other MPs for some time, and think we need to ensure we are running a National Health Service, not a World Health Service.

          The rule we want and thought we had is simple. Any UK citizen is entitled to free provision of  both GP and hospital services. Any foreign visitor should have to pay, by holding insurance or having sufficient money to pay for treatments needed. Anyone involved in an accident or needing emergency treatment would of course be looked after without first querying their ability to pay, but for all non urgent treatments patients from 0verseas will be asked to provide insurance or a credit card or other means of payment before any consultation or  treatment is offered.

         British citizens do not wish to be asked each time they go to a GP or hospital to show their ID or other credentials. The hospitals and doctors wish to devote their time to offering medical advice and treatment, not to policing a fee system. The best way to do so this is to ensure our current NHS system works as intended.

          Everyone going to see a hospital consultant or seeking non emergency treatment in a hospital should be referred by his or her GP. Anyone seeking GP help should go to the practice where they are registered. Thus the policing of payment should be ensured through checking that anyone wanting to see a GP first has to register with a GP  practice. When you register with a GP you should show your birth certificate or passport or some other document which establishes your entitlement to free treatment. Otherwise if you are not a UK citizen you set up the payment system when you first register.

          People attending accident and emergency, when able to answer sensible enquiries about their status, should have to tell the hospital the name and address of their registered GP. Those who are not UK citizens should be asked for payment in most cases, and visitors to the UK should be advised to hold health insurance. EU visitors would need their EU health  card.  The UK should not deny life saving emergency treatment for lack of the means to pay or lack of clarity over future  payment.

          People coming from the rest of the EU have use of the health card system. GP practices and hospitals must insist on proper recording of all EU  card cases – who should not be able to register with a GP without establishing their health  Card status, so the UK can receive the money back it is owed.

 

Yours sincerely

 

John Redwood

My views on Mr Carney’s first day in the office are in this morning’s Times.