One of the reasons I stand for Parliament is I want to help create the conditions in which living standards can rise. I want everyone to have the chance to be better off through their own efforts, or to be able to participate in the nation’s economic success if disability or old age means they have difficulty in providing for themselves.

        The recent prognosis by the Governor of the Bank of England that inflation could well stay above target for longer came as no surprise. It may be one of his more accurate forecasts, after years of understating the rate of price rises and overstating the rate of economic growth. The bad news  is higher inflation  could well prolong the period of falling living standards, which started with the collapse during the deep recession of 2008-9.

          You would have thought the main objective of the government’s economic policy would be to create the background where living standards can start rising again. You would expect the Opposition, seeking to rebuild their reputation for economic competence after the disaster of the Big recession, to be equally keen to set out views that could help bring about some restoration of living standards.

              There are two ways of doing this. The first is to get on top of inflation, so people’s wages buy more. The second is to grow the size of the economy, making sure the extra income generated goes to people who already live here.  The first aim does not seem to figure prominently in current political debate. Let me make the case as to  how it could be done.The second is proving difficult, with much of the extra effort being made by recent arrivals so it does not add to per capita output and income.

                  Getting inflation down is not as difficult as it might at first seem for government, because government itself is one of the main causes of it. There are three immediate areas where better public sector management and different policy could make a big difference.

                The first is energy. Go for cheap energy, so people on low incomes can afford to keep warm, and businesses can afford to make things here. The government has imposed large extra costs whcih the US, China, India and others do not incur.

                  The second is transport. Fares are far too high, especially on the railways. The government now accepts that the railway is massively inefficient, but there are few signs of a culture change that might make an impact with lower fares and less subsidy. The poor management of the road network also adds greatly to business costs. The public sector sees private road travel as an easy source of large amounts of revenue which makes us all poorer.

                 The third is the stifling cost of tax and regulaiton on a wide range of activities. Just consider the very large costs now on buying, improving and selling property. CGT at 28%, high fees for planning permissions and building regulations, high stamp duties. These all stand in the way of more jobs in construction and home improvement. They block off one of the main ways people in previous generations have made some capital.

 

 

 

 

The cost of 10 year money for the UK government has risen above 2.2% today.

This compares with the low point of just 1.4% hit in July 2012.

The cost has averaged 7.5% from 1980 to 2013, reaching a high of 16.1% in November 1981.

Clearly the recent Bank forecasts of less growth and more inflation are a worry to some investors.

 

 

           If food companies have passed horsemeat off as beef, it is a fraud which should be prosecuted. If they have passed any meat into the food chain which is unsuitable for human consumption, that should be  a worse offence, and should also be punished appropriately.

             We now know that the standards at the Staffordshire hospital were appalling. We hear that more hospitals are being investigated. There are serious allegations of poor care, and even more serious allegations that patients died in very bad circumstances.

           The media and some of the politicians seem  to regard the food problems as worthy of far more denunciation than the hospital problems. Why should this be so, and do you agree? Surely the bad practice, the suffering of patients, and the deaths are different in kind from the food problems? The politicians have it seems to me a much bigger duty of care and need to take action over the hospitals, which are all owned and run by the state.

 

             Today as the government wrestles with the huge bills of the state, and the large inherited debts of the nation, it has to ask how much help should we offer our neighbours?

              Most of us want to live in a civilised society where no-one need go without food, warmth and shelter. We are all children of the post war welfare state.  We want the disabled and those unable to find work  to be given state benefits, children to receive a free education and all to have medical care free at the point of use.

               Much of the debate is still about how far should we expand our collective provision, even though we are finding the bills very high for what we have already. This week the government has edged towards the state offering more provision for care for the elderly for people who do have some assets – the state already guarantees care for those without savings or a property.

               It was not so very long ago that the welfare state promised free education for 5 to 16 year olds, free medical treatment for all, and old age pensions for 60 year old women and 65 year old men.

               Since this post war settlement was hammered out, longevity has shot up, giving many people ten years or more extra pension than the original plans envisaged.  The school age has been lowered, to allow a big expansion of nursery and pre school state provision. The school leaving age has effectively been raised, allowing many more to stay at school or in College until 18.

            In the other direction, there have been moves to raise the pension age, but by less than the increase in longevity. University students are now asked to pay fees from student loans. The short term effect of this has been to raise the levels of public borrowing, as the state stands behind the student loan scheme which builds up extra liabilities in the first few years before repayments start to balance it.

             Do you think we have our obligations to our neighbours about right? Are there further areas where you want taxpayer support? Are there areas of current benefits and welfare service where you would like to see more self reliance and less state spending? Are there changes to the eligibility rules that you would like?

 

 

           Yesterday in the Commons even Labour gave a welcome to the lower 7 year budget settlement achieved by Mr Cameron and Mrs Merkel.  It is good to see cross party agreement that the EU has increased and should be rolled back, a general acceptance that it it should be easier to cut EU spending than national spending.

             Later the House considered a short piece of legislation to allow each member state of the EU to continue with a Commissioner, and to endorse the work programme of the EU’s very own Human Rights quango. Some of us used this debate to highlight yet again the need to stop the EU interfering and overreaching itself. We pointed out that we do not need an EU quango as well as the European Court of Human Rights and the Council of Europe.

           I said that a democracy like the UK should be able to defend and advance our own human rights through a sovereign Parliament, instead of submitting to ECHR and EU law on these matters. There was considerable agreement on the Conservative side that we do not need an EU human rights quango. I also advanced the proposition that our membership of the European Human Rights Convention should be amended to the original intention, removing the right of individuals to take cases to the overloaded and slow court. Most cases should be settled in the UK by our own courts. The role of the ECHR should be redefined as originally drafted. It should be about high level human rights administered by states, not about a further layer of appeal for individuals. It should be a check on a states’ general level of human rights by the other signatories, not a new system of supranational justice.

 

           The 2010 Conservative Manifesto said “We will raise the inheritance tax threshold to £1m to help millions of people who aspire to pass something on to their children, paid for by a simple flat rate levy on all non domiciled individuals”

            The Lib Dems palced a veto on doing this in government in the current Parliament, and it did not appear as a Coalition promise in the Coalition Agreement. They did raises taxes on non doms and spent the money elsewhere.

            Today we are likely to be told that the next Conservative manifesto will say that the Inheritance Tax threshold should  be frozen at £325,000 until 2019. It has been frozen this Parliament at the request of the Lib Dems. This will help pay for the care costs cap.

           Which policy do you prefer, the 2010 one or the 2015 one?

 

          The Coalition’s policy in the first two years in office was to expand current public spending. To pay for this and cut the deficit, they decided on private sector austerity, requiring large increases in tax payments. The extra tax revenue was  to result from higher rates of tax (VAT, Income Tax, CGT, Stamp Duty, fuel duties etc), from economic growth, and from higher levels of compliance with tax law in a crack down on  gross avoidance. As the public sector was still growing, the private sctor ended up  shrinking  to pay for the public sector.

             They said they could bring  this about whilst growing the private sector, thanks to an easy money policy agreed with the Bank and inherited from the outgoing Labour government. Unfortunately, the easy money policy has not generated the private sector led growth they sought.  This is partly because the banks are still stressed and under  regulatory pressures, and partly because the tax and inflation squeeze on the private sector has been too hard. Real incomes have continued to drop, as they did in the later Labour years.

            The next budget should lift the squeeze on the private sector, to encourage the private sector led growth the economy needs. This in turn could increase the amount of tax revenue brought into the Exchequer at a time of high public spending.

          The aim should be to set tax rates that maximise the revenue. 50% Income Tax cuts the revenue. 28% CGT cuts the revenue.  Pushing too many into the 40% tax rate cuts consumption in the economy. Setting rates of 40% for Income and 20% for  CGT would boost growth, transactions and activity and increase revenues from richer people. Taking more people out of the 40% tax band, as well as continuing to take people out of Income Tax altogether, would boost private sector purchases.

          There is also a case for temporarily suspending Stamp Duty to get the residential property market moving more quickly. This would then promote more housebuilding, by helping make homes more affordable and removing some of the current blockages in the market.

 

            Today newspapers are seeking the guilty in the FSA and the UK government.

           This is rather curious, when agriculture policy is settled in Brussels. Most of the subsidy, the controls and the regulations are EU ones. So too are all the rules concerning the single market in food products, food labels and the rest.

             I thought the whole point of the EU according to its supporters was to take power over the food industry (and the rest) so that it could ensure high standards in Romania as well as in the UK. We have to accept product from the continent in return for assurances that the EU government will guarantee and set high standards throughout the zone.

             Maybe it is time a Commissioner was woken up on on a Sunday morning and made to answer.

 

              In recent weeks the value of the pound has gone down. The government’s cost of borrowing money has gone up.

               Maybe the authorities are happy with the first of these changes. They are keen to create more money. That is always likely to lower its value. The pound has fallen from $1.63 to $1.56, and has also fallen against the Euro.

              The authorities will see this as evidence that the  Quantitative Easing is working. They might also hope it will lower imports and boost exports.  Last time the devaluation tended to boost profits more than the volumes of exports, as some companies took the advantage of the devaluation with higher  prices rather than volumes of exports.

               The danger is that a further devaluation can boost inflation. Ever since the crisis hit, private sector incomes have been falling once adjusted for rising prices. Inflation has ben higher in the Uk than in Japan, Germany and the USA. As we import such a large proportion of our needs, we are vulnerable to a falling currency. It makes things dearer and cuts the value of our pay.

               The authorities are probably not so happy with the rise in the cost of government borrowing. Despite the large bond buying programmes of the Bank of England, the cost of ten year money for the state has gone up from 1.5% to 2.1%. It’s still a low figure by historic standards, but it is a 40 % rise in the interest cost. As the state still plans large deficits for the next couple of years, and has record levels of debt outstanding, this is a problem to watch carefully. On £1.1 trillion of debt every 1% increase in the borrowing rate matters  as the debt comes to be refinanced at higher rates.

 

           In 1971 the USA decoupled the dollar from gold. From that day onwards inflation rose rapidly in many parts of the world. Whilst it is perfectly possible to enjoy monetary discipline without a gold standard, the Central Banks and governments of many major countries could not resist the temptation to allow more credit and money to circulate, which led to more inflation.

            This tendency was particularly rife at times in the UK, especially in the 1970s. Inflation in the UK since 1971 has averaged a very rapid 6.2%. You would need £12 now to provide the same value as £1 in 1971. The value of money has fallen by a massive 92%.

              The rate of fall in our money was brought down from the very high levels of the 1970s, but has remained quite high by international standards. In the last two years inflation has averaged 4.2%, taking the value of our money down by another 8%.

             There is little evidence to support the idea that a higher rate of inflation produces more growth. Indeed, the recent inflation has eroded real incomes and made it more difficult to generate a private sector led recovery. When inflation was out of control in the 1970s, the UK economy performed especially badly, with a recession and a trip to the IMF  to borrow to keep the country afloat.

                Mr Carney the new Governor of the Bank of England  may well wish to produce a monetary policy which fosters more growth. He needs to also be aware of the tendency of the UK to too much inflation. I suspect he will wisely decide to keep the inflation target. He should also ask why it has been missed so much in recent years, and ask whether better control of inflation might not be part of the answer to instilling confidence and encouraging more growth.

             Dropping the inflation target gives him no freedom he does not enjoy anyway, given the way the Bank has behaved in recent years. It would, however, worry some people in the markets in a way which would be unhelpful. Making it more flexible may be more honest than the present regime has been over the target, but implying it is not being taken seriously at all would also be an unwise move.