I had to pinch myself this week listening to the run of political news.

           A senior Lib Dem has been up and about demanding that the state takes on much more of the cost of elderly people in nursing homes so they can leave more of their capital to their children. Whilst he said this could be paid for by some cuts in benefits to the better off elderly, the longer term liability is likely to prove much larger than the cuts. In other words he wants to transfer more money from the elderly to their often   richer children by raising taxes on everyone to do so.

         Labour has been out and about saying they want to offer everyone out of work for more than two  years  the minimum wage for six months, to pay them more than benefits, with a view to giving them some experience of working. They would pay for this by a further raid on savings in pension funds.

          Many lobby groups are back in full cry for more money. Councils want more to spend. People want bigger subsidies for the railway industry as the fares have gone up yet again. It’s business as usual. There’s apparently nothing wrong with the UK that a bit more public spending would not put right.

          Meanwhile the UK is still adding to its borrowing at more than £100 billion a year. State debt just keeps increasing at an alarming rate. This week the UK ten year cost of money for the government rose again, to 2.1%. This is still a low figure, but it is 40% up from the bottom and rising. Every 1% added to the average  interest rate is a large increase in future spending on just servicing the ballooning debt. (£10 bn extra cost if you include the Bank of England owned debt)

            Let’s try and get these huge figures across in a more accessible form. For every man, woman and child the UK now has borrowed nearly £17000. On top of this is all the bank, PFI and pension debts of the public sector, which take  it to £40,000 of borrowing per person.  As each person’s income is only £25000 on average, the task of repaying the debt is now gargantuan. Meanwhile instead of starting to rein it in, the state borrows more, so people are adding £1700 a year extra to their already large debts.

           Would any indvidual or family behave like this? If you were so much in debt already, would you be allowed to borrow so much more? Individuals are reducing their big debts of the Credit bubble period.

             Tomorrow I will look at the excessive spending and losses of some of our nationalised industries, where managing them better could start to make a difference to their costs. More politicians and officials need to spend more time thinking how to do well with less, instead of looking for yet more areas where the state should accept the liability.

           The big issue with the benefit bill is not the level of the benefits to the deserving, but the eligibility criteria. The cuts people want to see is disallowing benefits to people who come here to work of their own volition but are not citizens, as they could return home if there is not sufficient well paid work here. Many also want  to find ways to encourage more people on benefits  to take the jobs available.

 

 

          The Sun has told Argentine in no uncertain terms that the Falkland Islands are self governing under the UK crown, and wish to remain that way. If they wish to drop the relationship with the UK they are free to vote to do so.

           They are not a UK colony. The irony is that Argentina wishes to make them an Argentine colony against their will. They tried to do just that by unwelcome force not so long ago and lost the war they started.

            What part of  self determination does Argentina not understand?  It is very last century to pursue territorial claims against those who do not welcome your advances.

How many hours does an MP work?  This is one of the questions I find it very difficult to answer. There is of course no single answer, as there are 650 ways of being an MP. Some work longer hours than others. Some achieve more in an hour than others do. Many people in managerial and professional activities will find it equally difficult to define when they are working and when they are not.

The problem of working out how many hours a year anyone  works as an MP  comes mainly from  how you define work. Like many managerial and professional jobs, an MP can be working in many different places and at  many different times of the day. You are not just working in the office.

The answer about “office hours” is easier to answer. When Parliament is in  session  an attentive MP is at Westminster, in the chamber, in his or her office, in a committee , or meeting Ministers and colleagues.  On Mondays we are there from 2.30 pm  to 10.20 pm. On  Tuesdays through to Thursday we are there from around 9am to 6 or 7 pm. In practice I start the day around 6 am to get the emails and web comments dealt with before the Parliamentary day begins, and to fit in any breakfast briefings and meetings.

Fridays and non sitting days  gives the MP much more flexibility about when and where to work.

The questions raised about working hours include :

If I listen or watch the late news and reports on Parliament is that leisure or working?

 If I watch a tv documentary is that work?

If I travel to a different city in the UK, only to have my ear bent by people there when I am just visiting, is that work?

If I read newspapers and books which cover governmental and public policy topics, is that work?

If I am stopped in the street when shopping, to be told of a problem, is that work?

If when shopping or out for a walk I notice something that needs fixing or asking about, how much of that time is work?

If I attend a play or concert in an official capacity in my constituency, is that work?

If I attend a local play or concert in a private capacity, is that not work?

If I appear on Any Questions or Question Time, is that work part of being an MP?

If I write a newspaper article or web piece about public policy, is that part of my job as an MP?

When I go out campaigning for local elections, or in  by elections elsewhere, that is regarded as politics, not as part of the MP’s paid for role.

An MP has to accept week-end working as necessary. It is no good on Remembrance Sunday on Carnival Sunday  saying you do not work week-ends.

An MP is always on call. If a major disaster hits your constituency people rightly expect you to turn up and help.

Many people in managerial or professional roles have similar definitional issues before answering how many hours do they work.  A true professional is always alert to views, news and opportunities that relate to his or her main profession. Just as a well known professional sportsman or woman always has to watch their diet, stay in training and be aware of the public reaction when they are out and about, so an MP has to seek to stay in tune and up to date to do the job properly.

Senior executives spend a lot of time visiting business locations, encouraging or training staff, attending dinners or other corporate hospitality to stay in touch with customers and employees, appearing at industry events. Some of these things are pleasurable as well as having a business purpose.  Senior executives  need to respond to troubles or disasters of their business or staff members whatever the date or time.

 

 

           Much of the debate in the UK about work is conducted based on a simple minded distinction between work and non work. People imply that work is going to a place of employment in return for wages. Everything else the person does is non work. If someone spends too much time doing paid work he or she will be told to “get a life”, “spend more time with their family”, “take some time off” etc.

           This type of thinking can cause people not to enjoy much or anything of their time at paid work. It muddles up the rest of a person’s time with leisure and pleasure, when much of it  may not be pleasurably spent. It often assumes that all paid for work is hard and undesirable from the point of view of the employee, a necessary evil or interruption to their private lives.

          It is probably better to think of four main chunks of time we have. There is time spent on work for pay. There is time spent on work without pay to look after our homes and families. There is leisure time. Then there is chill out, relaxing and sleep time, when we do very little at home.

         I am particularly interested in the first two periods of time, paid for work time and unpaid work time. Some people think it better to do more paid for work, so they can hire in more help with the household work. If you earn enough you can pay someone else to undertake child care, pay the supermarket and food industry to prepare your meals and bake your cakes, employ a cleaner, window cleaner, house maintenance people and the rest. You end up paying a lot more tax doing this, as you have to pay extra income tax on your higher earnings for daring to work more, and then VAT and other taxes on the bought in goods and services.

         Buying in help is not just the preserve of the rich. Every household does it to some extent. Low income households do not usually hire a cleaner, but they often buy lots of prepared food rather than peeling the  vegetables and making the soup themselves. Some mothers buy disposable nappies even when they have modest income because they prefer not to wash textile ones. An elderly person on a small  income may have to pay a decorator to repaint the living room. Most people hire plumbers or electricians to fix problems.

          It is difficult to judge how much time people in practice spend working. The idea that we should be able to finish with work  after  a 37 to 40 hour working week full time job is silly. Most people have to put in many more hours preparing meals, hoovering carpets, washing floors, making beds and doing odd jobs. Some have to weed the garden as well. The interesting question is the choices make about the split between the amount of unpaid work they are willing to do, and the amount of paid work they wish to do to give them more choices over the domestic chores.

         One of the features of our economic growth figures is the economy appears to expand if more people decide to work more and earn more, so they can spend more on help for the home. At times of retrenchment more work is done unpaid, as people have to do more themselves because they have lost bonuses or overtime, or even lost their jobs. Some of these changes make little difference to what work is done, but they change who does it.

          Some seem to think that for most people the only option is to undertake just one full time job, and then make the family budget work around that. The amount you have to do unpaid is simply forced upon you by the adequacy or inadequacy of your pay relative to your domestic wishes. As we will see tomorrow, more people have more choices than this way of looking at it suggests.

          It is also wrong to say that all paid for work is done because you have to rather than because you want to. Many people now do have jobs they like, or have jobs with features that they enjoy. The workplace can provide social contact with a wide range of people. People can sometimes get a job related to a hobby, pastime or passion they have. Some musicians are paid to play, some collectors are paid to be antique dealers, some sporting enthusiasts are paid to play the game they love.

 

Over the next few days I want to explore work.

Both the Labour and Coalition governments of recent years say they value work. They urge everyone of working age who can do so to get a job. They want people to take financial responsibility for themselves and their families.

The arguments between them are not ostensibly about the aim, but the effectiveness of their chosen policies. The Coalition has said it is concentrating on making it more worthwhile to work, and easier to create jobs. It has cut Labour’s planned National Insurance hikes, and cut income taxes for the low paid. That is all helpful. Labour favoured paying more in work benefit to subsidise low wages subject to taxes.

However, the cruel paradox is both in government have carried on taxing both job creation and earning. Both are strongly in favour of taxing people who choose to work long hours and take business risks,  claiming that high earners should make a bigger contribution to tax revenues. They thought a higher rate would bring more tax revenue, but it brought lower revenue instead.

 Taxing things does deter people from doing them. Governments tax smoking, drinking and driving because they see these things as wrong. They wish to reduce the amount of them that takes place, and punish the people financially who do them.  The more government tax job creation, earning and effort, the less they should expect of each of them. The irony is they need the hugh tax revenues from them  to subsidise the low net pay people earn after tax or to pay  people not to work.

The Coalition says it wishes to break into this mad cycle. It has had some success in creating a climate in which the private sector has created a lot of extra jobs. It has had modest success so far at reducing the rate of new inward migration, so more of the new jobs go to people already here and on benefits.  The next stage of this programme may need lower taxes on earning and job creating to give it more impetus, and more action to tackle EU as well as non EU migration.

It is now fashionable to say that the UK economy needs more capital spending in general, and more public capital spending in particular. The one area where both the outgoing Labour government and the Coalition government did decide to cut was capital spending. Both now think they need to abate these cuts.

It is always advisable where there is an establishment consensus in the UK to probe it. It is often wrong. The establishment combined to recommend the ERM, and to claim the benefits of belonging to the EU as designed  by centralisers on the continent. So how well have they thought through public capital spending?

The first thing to recognise is there are various types of capital spending. Let us identify four:

 

1. Spending to put in new facilities and to open new services – “growth” spending. E.g. HS2, to provide a new faster train service to Birmingham from London.

2. Spending to extend existing services to cope for increasing demand – as with new schools or hospitals in  busy areas, often coping with the increase in population  E.g. new primary schools in Wokingham

3. Replacement capital – new schools or rebuilt roads to replace existing capacity

4. Investment in labour or energy saving or other productivity enhancing improvements in service delivery.

More of type four, cost reducing and productivity enhancing investment in the provision of public services could be a very good idea. It helps to bring the deficit down over time, assuming a decent return on the investment made through cost saving.

Type one is clearly incompatible with bringing the deficit down. Anything which increases the future current spending of the government through offering new or additional service makes it more difficult to control the deficit..

Type two also swells the deficit. Controlling migration better would reduce the need for such expenditures. Having more success than the previous government in fostering private sector led recovery outside London and the South east would also help, as it would reduce the need for internal migration and extra facilities in the hard pressed south.

Type 3 spending can be helpful. It should be allied with type four, so that the replacement facilities can be run more effectively and cheaply.

All capital spending boosts total UK output, as most of the money is spent on UK building and construction work, and provides jobs for people who have to be based in the UK to carry them out. There will be imported elements in the building supplies consumed, where UK industry could probably do better at import substitution given favourable circumstances for industrial expansion here.

Those who simply urge more capital spending should recognise that some is good and some is unhelpful when it comes to curbing the deficit. Schemes with high future running costs for the state are not helpful. It is most important that new capital concentrates on doing things better and more effectively to help control running costs. Privately financed capital projects with no recourse to the taxpayer to pick up the losses would be most welcome to use some of the slack in the building industry.

I wish all my readers a happy and prosperous new year.

Today’s story in the Times that federalists in the EU are thinking of a new associate status for the UK as a privileged trading partner outside the emerging political union is great news. It shows that the UK can negotiate a new relationship with them. I shows  that many on the continent now recognise that the UK cannot join their Euro union and needs a looser relationship with them based on trade.

 

There are still commentators who find it difficult to distinguish debt from deficit. The UK government itself sometimes says it has “paid down a quarter of the deficit”. Whilst this phrase does not say they have paid off any debt, it can mislead the unwary into thinking maybe they have. Polling shows that many think there have been big spending cuts in the UK  and that the debt is now falling.

The truth as many readers here will know is all too different. The UK is still running a deficit of over £100 billion a year. Current public spending  has been increased by this government.  That means that the UK state is still adding to our debts by more than  £100 billion again this year, or by nearly  £1700 for every man, woman and child in the country. Meanwhile total state debt exceeds £1000 billion, excluding the state banks’ debts, PFI, PPP and various pension items.  That’s nearly £17000 per person of debt already racked up.

All these debts have to be repaid one day. This generation is building up debt to live beyond our means, in the hope that our children will come along and be able to pay it back, or be able to refinance it at sensible  interest rates.

So far the Coalition has cut the deficit, which means they have cut the rate at which the debts increase, by around one quarter. Recent figures imply some backsliding even on this modest improvement. If all goes according to plan  this Parliament they will add around £600 billion to our state debt, or almost £10,000 extra borrowing for every man woman and child in the UK. The increase in the debt this Parliament will be more than the total official state debt ten years ago.

In summary, the UK state has a large mortgage, its big inherited debts, and is still running up ever bigger bills. Living so much beyond its means  requires it to keep increasing the mortgage.  The only good news is the last two years have seen a bit less added to the total debt than in 2009-2010.

There are some who seem to think increasing the debt like this is essential to growth. They have to answer why there have been two recessions at periods of very high borrowing. They may well say the borrowing goes up owing to the recession, but that still does not explain why such huge rises in debt failed to get the economy going again. They also need to answer why past recoveries have begun with  reductions in planned or actual public sepnding to bring the deficit down as part of the recovery plan.

 

 

 

It looks as if the world’s authorities  are all determined to do what it takes,  to print as much money as they dare, keep interest rates low for a long time, in a desperate bid to move the world economy forward more quickly.

In 2013 the whole world will be reflating. China and the other emerging economies have served their penance for high inflation, and are now shifting back to a more accommodating policy stance. Meanwhile the Fed, the Bank of England the Bank of Japan are all planning to expand money and credit as much as possible. Inflation fighting takes  a back seat.

2013 may be another year when the Euro area muddles through its debt problems, at the expense of poor output figures and continuing unemployment. The US should continue to grow somewhat, whilst Chinese and emerging market growth may pick up a little from the lower rates hit in 2012. The UK too should start to edge forwards next year, as some of the easy money the Bank is creating and injecting will at last get into the real economy. Who knows how long or deep a recession the electors in the most damaged parts of the EU will put up with as a result of the Euro experiment. Falling output will prolong the period of time it takes to get on top of the debts and deficits.

I doubt the UK will accept it needs to cut tax rates to increase the revenue and to stimulate activity, though that would help. I expect the US to come up with a temporary fix for the so called fiscal cliff, but do not expect the fiscal tightening in the USA to remove the modest growth in the US economy. The new Chinese leadership seems to have made a solid start and will doubtless wish to implement the policy of expanding domestic incomes and demand more rapidly, in the face of more limited opportunity to expand exports.

In other words, 2013 will be more of the same. The emerging market countries will grow fastest. The US will be the best of the west. Europe will be a weak performer, held back by stressed banks and by poor state finances, as well as by the Euro scheme.  The UK will undertake more monetary experiments, and should meet commentator expectations for some  slow growth in 2013.

 

Mr Carney the proposed new Governor of the Bank  made clear in his recent lecture that a bit more inflation might be a price worth paying for more growth. I doubt that more inflation helps in that way. Past UK experience shows that when the authorities become cavalier about inflation it is possible to lose control of it, with bad consequences for output and jobs in due course.

However, Mr Carney has certainly got off to an inflationary start when it comes to his own salary and housing allowance. A total package of more than £870,000 is generous in a public sector and regulatory job.  The basic pay of  £480,000 is 57% higher than the present Governor’s basic. Then there are arguments over how the rest of the package compares to the present Governor’s generous pension arrangements.  Even allowing for this, the Bank seems to be exempted from the public sector pay feeze policy.

As a supporter  of free enterprise, I have no problems with people in the private sector earning large sums. All I ask is that their customers, shareholders and other providers of finance pay for it and accept it, and that none of it comes from tax revenues. There should be no recourse to state subsidy.  I do have issues with people charging the taxpayer for very large salaries.

The worry about Mr Carney is already that he will not be hawk enough on inflation. He will need to send clear anti inflaiton signlas when he arrives, to avoid losing confidence in the authorities’ resolve on these matters. He also needs to woo, not undermine savers.

I wish him well when he arrives in this country. I hope when here he listens carefully to those of  who want him to succeed. There is much he can do, but being careless about inflation or public sector value for money would not be a good idea. Savers have had a poor deal in recent years, yet we are trying to recover from a borrowing crisis, where people did not save enough.

He also needs to examine what he can do as Governor to create stronger banks sooner, in a position to finance a decent recovery from here. The exisiting Bank’s policy towards commercial banks has left some of them pensioners of the state, and unwilling or unable to finance a normal recovery.