I have been asked to produce some ideas on reducing needless or wasteful public spending, and getting the deficit down, for a closed session at party conference. I thought I would try some of them out here first, before deciding which main ideas to concentrate on at the event.

            My first set of proposals seeks justice for UK citizens compared to others. The main aim of UK public spending should be to look after and support UK citizens. There is a danger of allowing soft touch UK.

1. Anyone travelling to the UK should be told that if they need NHS services whilst they are here, they will be charged the cost of the provision. They will be  advised either to come with health insurance, as most travellers to the USA take, or to come with a credit or debit card that can be used should they need hospital or doctor service. The NHS should require the card or insurance reference before giving treatment. If the treatment is emergency treatment, the individual should be required to pay prior to discharge. The present rule that they should pay is too often not enforced.

2. Any foreign lorry or van arriving in the UK should be required to pay a temporary Road Fund payment to pay for the wear and tear they impose on our roads. This would also help level the competitive playing field between domestic vehicles paying a full annual road tax, and visiting vehincles who at present pay nothing.

3. The UK should make clear to the IMF that it regards members of a single currency as no longer sovereign states entitled to IMF programmes. Members of single currency areas, like London or New York, do not look to the IMF for loans but to their states and Central Banks. The UK should decline to make money available for Euro bail outs in any form. As the Chancellor wisely said, we should not be in the business of bailing out currencies, especially one which we sensibly did not join. This thought needs following through with appropriate action.

4. The UK should make clear to the EU authorities, as DWP is seeking to do, that the EU is based on the free movement of workers, not the free movement of benefit seekers. Arrivals from the rest of the EU should not  be entitled to benefits on arriving. People can come to take up an arranged job, or to seek a job using their own resrources to do so. They can stay on losing a job if they use their own resources to find another job.

5. Regional money routed around the EU has been well criticised by recent Parliamentary studies. The UK government should make it an important negotiating condition of the next budget round in the EU that we wish to repatriate regional policy. That would enable us to  save money and spend more on troubled UK areas.

6. The UK was promised CAP reform in return for surrender of part of our rebate of contributions.  The UK should seek the repatriation of agricultural policy, which like regional policy woudl allow savings and a more generous UK regime of subsidy where needed.

7. The UK should stop overseas aid to India and Pakistan, as these are two successful nuclear weapon powers.

8. The UK should cut its overseas aid research budget, concentrating its spending on the  most deserving countries and causes where  most lives can be saved and most progress achieved towards self sustaining development.

9. More foreign prisoners should be sent back to their home countries to spare us the cost of looking after them.

10. More energy should be shown in requiring repayment of student loans by overseas students.

 

 

 

                 Yesterday’s announcement of a rise in the inflation rate to 3.2% (RPI) and 2.6%  (CPI) was a blow to the Bank’s promise of rapid falls to the 2% benchmark or below. It also puts another inflationary pressure into the system, as rail fares will go up by 3% more than the inflation rate in England. It means a further squeeze on spending power,as wages are still rising less fast than prices.

           The failure of the railway to control its costs and promote its revenues by selling more tickets is costing both taxpayers and rail travellers dear. The government  rightly says it expects the UK railway to get its costs down substantially to nearer comparable railway levels. The question is how and when will this happen? Why can’t the railway get on with it more quickly? Why does the current service pattern leave us so short of seats and capacity at times of day on routes where people want to travel, and so over provided with capacity on many other routes at other times of day? Why is the railway so unable to innovate, to use the tracks and trains more where and when needed?

           I received an unsolicited email yesterday from the railways. They were urging me to undertake some more rail travel. In was told  I could go to Brighton for £5, to Manchester for £12  and to Cardiff for £11.50 from London.  A little research on their site found a train to Brighton at 10.36 am  for just £7.50 single.  The £12 tickets to Manchester entail leaving before 9am from London, exactly the times you would have thought the business travellers would be hogging. My own recollecitons of these longer distance services  is of plenty of empty seats whenever I have gone by early morning trains. Clearly now the railway is dumping them at any kind of low price in an effort to boost seat occupancy.

           The railways are a wasted opportunity in the UK. They take their long suffering commuters for granted, providing too few seats and a poor service for ever escalating cost. Meanwhile they are having trouble filling many of the other trains, and are now dumping capacity at uneconomic fares in default of selling tickets at better prices. They do not seem to optimise the use of the valuable routes they command into our major cities, and they fail to innovate to put on more capacity where needed. When you have such high fixed costs as they do you need to be smart in using the network to maximise the revenue take, without doing it by large fare rises. The Channel 4 “interview” of the industry rep last night was lamentable. He was asked no questions about why the cost base is so high, no questions about how he might cut costs or take a lower profit. Mr Snow saw it as a great opportunity to conspire to say taxpayers should be taxed a lot more to pay all the railway’s bills, whatever they may be.

          It will be interesting to hear the Bank’s explanation of why inflation has picked up again, so soon after the Bank confidently predicted further falls. Air fares to Europe and fewer clothes discounts are said to be special factors, but there was considerable buoyancy in a whole range of prices and charges.

          It is interestign to note that the winning bidders for the West coast mainline reckon there is unused capacity on the line, at a time when the case of HS2 says we lack capacity.

Subsidy per passanger mile by rail franchise   2011 (DTp figures, some e.g.s)

Northern 34p

London Midland    17.8p

Trans Pennine   20.9p

SW Trains   2.4p

First Capital   -0.9p

 

       I picked this book up this evening  and could not put it down until I had read it all. It deals elegantly and comprehensively with why the UK cannot put up with the current relationship with the EU. It sets out why Europhiles think as they do, and how damaging an integrated EU is to UK interests.  He charts how a managed market and customs union is not the same as a free market, how the agricultural and fishing policies damaged the UK, how we have contributed too much in cash and had a bad deal on trade. He explains how the EU governors have plenty of interest in perpetuating their system, and how early idealism has been lost. He reinforces an argument we have often set out here, that the rest of the EU would not be able to retaliate against us and would see they have more to lose than us from UK withdrawal from their political and economic  union.

 

               I am full of admiration for the skill and determination of Team GB’s Olympic competitors. I am delighted for them, and share the nation’s joy at their success.

                 As someone who had a wasted youth from the sports point of view, I admire those who chose to spend their young hours training, training, and training some more. In my youth I read too many books and was too studious, as I sought to become an elite academic. It stopped me, or gave me the excuse, from turning out in all weathers to try to run faster or jump higher.

                 What I find most encouraging is the public reaction.  I  like my country and usually agree with my fellow countrymen and women about many things. I do not, however, like the politics of envy which can be a feature of UK life.  There are politicians and sometimes whole political parties, who specialise in attacking those who work hard and achieve things. There is a strong strand of political thought hostile to people concentrating on winning , and hostile to success itself. The politicians and tabloid newspapers sometimes  feed off negative  emotions in the wider public.

                Maybe it is understandable that elite footballers, who earn such large sums for their skills, have to live in a gold fish bowl, with their lives automatically made part of some national soap opera that calls into question their marriages, their love affairs, their leisure activites and their general conduct.  When a whole sector of the economy, like banking, is vilified because some at the top behaved badly, or because the last government foolishly subsidised them, we need to ask if the politics of envy is starting to attack too many of the  wrong people.

             The Olympics has allowed people to celebrate hard work and competitive success. It is not just athletes who do that. Some in business or public service work hard, put in the extra effort, strive to be the best. They do not receive gold medals. Let us hope that the public enthusiasm for being the best, and understanding how much effort is involved in achieving that, rubs off. Let us extend those principles more widely. If the UK can be the third most successful nation in Olympic sports, depsite having a much smaller population than several other competitor countries, can’t we show the same determination and achieve the same success as an industrial and service sector nation in the markets of the world?

      If we are not jealous or censorious of elite athletes competing hard, and becoming rich and famous as a result, can we overcome some of the collective jealousy of others who chose a different route to fame or riches?

 

          Amidst the understandable UK media attention to the great performances of Team GB there has been little comment on the titanic struggle at the top of the Medals Table between the USA and China. China  spent most of the Games just ahead, though faltered at the end compared to the USA.  Doubtless China was not expecting a crushing victory over the USA on the scale of Beijing, when China won 51 Gold medals to 36 by the USA, with the benefit of home advantage and the massive effort she put into doing well as host nation. This year is however important. It reminds us all that China is now the serious and established challenger to the US in sport. There have only been two teams in the competition to lead the Medals table from the beginning.  This has come to represent a wider truth, in the economy and world politics.

           Olympic Games should be a celebration of sport and its ability to unite peoples from a wide range of countries and cultures to enjoy together a shared passion. However, there is often a political message or undercurrent, intensified by the convention that people represent their country and display their flags with pride.

               The political message of the 1936 Games in  Germany  that Germany was the power to be reckoned with, was challenged by the stunning victory of Jesse Owens from the USA in the 100 metres.  The unexpected victory of  Abebe Bikila, a late entrant from Ethiopia, in the Marathon at the 1960 Rome Games also told a political story. Legend has it that he surged to victory from the obelisk taken from his homeland by the Italian fascist government during their period of occupation of his country. Running barefoot made the story more poignant and more remarkable.

                In “Superpower Struggles” published in 2005 I argued ” The EU has its global pretensions, but  is unlikely to emerge as a superpower….A much more effective competitor to the US….is rising in the Far East…” “There was no more magnificent image of China joining the first world… than the Chinese Grand Prix, held for the first time in 2004….China will make an even more dramatic statement to the world when she unveils  the 2008 Olympics in Beijing.” I charted her economic rise, predicting rapid moves into second place by the second decade of this century.

                 Much of this has now happened. London 2012 should serve to remind us whilst we still live in an American led world, the challenger to the US is now primarily China, as an economy, as a sporting nation, and in due course as a military power.

 

           Mitt Romney’s choice of running mate has galvanised Republican support for their candidate, and has ensured there will be a big debate in the USA over how to tackle the deficit and promote faster growth. Paul Ryan believes in cutting spending and cutting tax rates. He will give Democrats under Obama, and the so called “liberal” intelligentsia in the UK, a new hate figure.

           Some in the UK have sought to contrast the USA, growing a bit under current policies, with the UK, not growing at all. They have suggested this is because Obama has carried on spending whilst the UK has “cut too far too fast”. The  arrival of Mr Ryan on the scene provides a useful opportunity to remember the published  figures.

          Since 2010 UK total public spending has risen by 6.1%, with fast growth in current spending of 11.4%  more than offsetting the cuts in capital spending which the Coalition have continued from Labour’s plans. Meanwhile, in the USA Obama’s 9.8% increase in federal spending has been partially offset by  a 2.5% cash cut in State and local spending, meaning that US total public spending has risen a shade  less quickly than the UK’s.

         The big difference between US and UK policy has been on the tax side. The US has continued with lower tax rates. As   a result it has an economy which has grown faster, and done better at increasing tax collection. The US has also been quicker at fixing its main banks, which has helped.

 

 

          Listening to debates this week on whether Scotland should stay in the UK or not, I have been struck by the irony of the situation.

          Ever tolerant England agrees that Scotland should only stay in the union of the UK if most of her people are happy to do so. England will not stand in the way of a referendum for Scotland. Indeed, many English people want Scotland to get on with it and have the referendum as soon as possible. Unionists amongst us want the issue resolved, as we only want a union with volunteers. English people who would like Scotland to leave also think an early decision would be a good idea.

          Meanwhile many English people have no wish to be part of a country called Europe, governed from Brussels. Instead of Brussels encouraging a referendum and understanding English feelings, the EU does everything  it can to suppress Englishness,even  refusing to recognise the country and taking it off all its maps. The EU seeks to balkanise us, regularly criticises us for daring to be Eurosceptic, and generally conducts itself in a high handed and undemocratic manner.

         Our main political parties go along with the SNP idea of a referendum over the future composition of the union of the UK just in Scotland, and also go along with Mr Salmond’s delayed timing, as he pores over polls to see if he can ever find a time when he might win it. The three main parties also refuse England the referendum it wants on our collective membership of the EU through the UK.

          The issue of the UK’s membership of the EU is of course thrown up in the air by the possible exit of Scotland from the UK.  Technically if Scotland leaves our union, the UK has ceased to exist. Scotland says she will seek her own membership of the EU. That poses the interesting question of whether she will be able to without offering to join the Euro. That in turn raises the issue of how she could offer that as her current plan under the SNP is to remain in sterling using the Bank of England.

               Meanwhile, many politicians seem to  want us to believe the rest of the UK minus Scotland would continue with exactly the same terms of membership of the EU as the whole UK currently enjoys. Why? Surely the rest of the EU would want us to accept fewer MEPs, and the UK would need at the very least to negotiate new financial arrangements that reflected a smaller country.  In practice most English people would regard any exit of Scotland as an excellent opportunity to have a very different relationship with the EU than the UK currently suffers. The EU should not take for granted continuing membership of the residual country.

              The three main parties will discover, as the debate on Scottish independence gets on its long and twisting road, that the problem of England and the issue of the EU has to loom large in the debate. The EU may think it can sit it out and refuse to comment on the EU consequences of any Scottish withdrawal. This unsatisfactory cop out will not wash. The Scottish debate is likely to radicalise the English more. More will want England minus Scotland to be treated better, and will want to break the stranglehold of unloved EU government over the English regions, as the EU refuses to recognise the stronger sense of identity that is emerging in England as Scottish nationalists wrap themselves in the saltire.

           The many detailed complications coming out about how Scotland would leave the UK union serves to turn the spotlight on all those areas where England thinks she gets a bad deal from the existing union, as well as from the EU. England needs her identity to be recognised, and the UK needs to be properly self governing again. The Scottish debate  should allow others of us to argue that it is not just the position of Scotland in the union that is up for question, but the UK’s subservience to the ever more powerful EU and the poor treatment afforded England.  It makes the case for a referendum on EU matters even more compelling.

         Last night the BBC allowed a debate on the UK’s future in or out of the EU. Evan Davis chaired it well and allowed those arguing for the UK to leave and have a new relationship based on trade and friendship to make the case and appear sensible. The BBC format, of course, gave the main position to an avowed Europhile, who trotted out all the usual lies – apparently the EU has  kept the peace in Europe since 1945,  they would not allow the UK any changes to its current arrangements, they would retaliate successfully if we left etc etc. Sir Stephen, the pro EU anchor man,  seemed reluctant to talk about the main project of the EU, the Euro, and seemed unable to grasp the simple fact that when it comes to trade and money the rest of the EU has much more to lose from UK exit than the UK does.

 

               The resignation of “A” lister Louise Mensch so soon after becoming an MP has created an interesting political opportunity for the parties. Corby is a Conservative marginal. It is exactly the kind of seat Labour has to win convincingly in a by election to show they are a credible contestant to govern next time. It should be  in UKIP’s own thinking an ideal contest for UKIP to prove its own rhetoric that the public are now desperate to leave the EU and prepared to vote for that.

                UKIP contributors here are always telling me that UKIP is now poised to break through. They tell me Mr Farage is a far more electable and popular a politician than the three main party leaders. Will Mr Farage contest Corby himself?  If not, why not? In a by election like this, UKIP could expect to get more publicity than in a General Election if polls showed it  likely to they would  experience any surge in support.

                It is also of course a good test for the UKIP proposition that they are out to pressurise Mr Cameron into adopting a more Eurosceptic policy. There is always a danger for Mr Cameron in a marginal seat that UKIP could gift the seat to Labour by detaching sufficient Conservative voters to allow federalist Labour to win. My guess is Mr Cameron will not think this a likely outcome,  or will not think he should make any concession to UKIP. I do not expect him to  make any announcement offering a referendum soon or a renegotiation to get powers back.

               I suspect the Corby by election will come and go without helping us resolve the obvious need for the UK to have a new relationship with the EU, as it rushes headlong to an unfortunate political union.

 

2010 General Election    Conservative 42.2%, Labour 38.6%, Lib Dem 14.5%, BNP 4.5%

UKIP    polled 0.9% in 1997, 1.8% in 2001, 2.6% in 2005 and did not contest Corby in 2010. UKIP gained 16.4% of the vote in the East Midlands in the 2009 European elections and 3.1% overall across the UK  in the 2010 General Election.

 

 

                   This week the Chancellor made an important speech about energy policy. He was able to point to a surge of new investment and large projects to find and deliver offshore oil and gas,following his tax incentives in the Budget.

                      His own experience of oil and gas taxation should be an endorsement for the proposition that you raise more tax and get more success if you charge rates that companies are prepared to pay. His first chosen level of oil taxation, to get the industry to make a bigger contribution to cutting the deficit, was a turn off. New offshore activity fell sharply, as oil companies ran the  numbers and decided at those tax rates it made little sense to undertake risky marginal projects in the UK. The Chancellor’s change of heart got them to re-run the sums. With the new more favourable tax trateament there will be much more activity, and more oil and gas produced. That in turn will of course yield more revenue, from the extra production and the extra jobs it creates.

                   Seeing this work with oil taxes, the government should now ask how can they pull off this feat of cutting rates or making allowances more generous in a way which produces more revenue? Fortunately, UK tax rates on enterprises and personal endeavour are now uncompetitive, so more or less any reduction in rate is going to yield more revenue and more activity. The CGT rate is too high, so the yield is falling. The top rate of Income Tax is too high, so revenues have plunged. The government has grasped this point with Corporation tax, and is rightly cutting the rate. Their own forecasts expect Corporation Tax to be buoyant as a result. It’s time to do the same with Income Tax and CGT.

                 They need to carry on taking people out of Income Tax, to avoid the expensive overlap of distributing means tested benefits with one hand and removing money in Income Tax with another. They also need to look at the growing numbers of people on middle incomes being dragged into 40% tax rates when they need the cash to pay the family bills. The threshold for higher rate tax is now too low.

 

          The Bank of England has caught up with the rest of the economic forecasting world. Yesterday it acknowledged that its previous UK growth forecasts were too optimistic. 2012 is going to be a disappointing year.

           There is almost universal agreement amongst the political parties, Central bankers and the rest of the UK financial establishment, that the UK economy needs to grow again.  Envious eyes are cast across the Atlantic to the USA, experiencing slow but sustained growth since the Credit Crunch. Their combination of lower tax rates, bigger cuts in public spending at the State level than the UK is attempting, and  mended banks, is working better than our policy mix for the time being.

          This autumn the Coalition will relaunch itself, shorn of the large problem of Lords reform. Instead of using up political capital and a lot of Parliamentary time on a reform which had many critics, they have a chance to revisit the economic policy and do what it takes to push the economy into growth. So what should they do?

        Readers of this site will know I have long favoured the strategy of cutting the deficit primarily by spending reductions. The government said this would be their approach, but they put up overall public spending  instead.  This needs to be  allied to sorting out the problem banks quickly and setting competitive tax rates that people are prepared to pay.  This still makes sense. Income tax revenues have fallen too far, thanks to the higher rate. New enterprise and business has been put off by the tax and regulatory regime. Private sector demand has been weak owing to high tax rates and higher inflation than was desirable. The government said it planned to squeeze the public sector, but squeezed the private sector instead.

           I have not been a great fan of the Bank’s Quantitative easing  programme. I have always argued that with broken banks there is no easy transmission mechanism to get the money created into the private sector to fuel the recovery. If there were then they would need to be careful about overdoing it and triggering inflation. Keeping the state’s borrowing costs down is marginally helpful but it does not send a signal that we need to shift resources and activity from public to private sectors, to tackle the deficit problem. It has allowed the state to go on spending well beyond its means. It has not lifted us into growth despite the positive contribution to growth as officially defined by the rise in real public spending. Nor is it right to say it is loans and credit, rather than money we lack. The private sector is squeezed of cash, but parts of it remain highly borrowed.

          As the Bank clearly  wishes to address the shortage of money by creating large quantities,why doesn’t it  use  the newly printed money  in the private sector instead of  providing cheap funds indirectly to the public sector? I hasten to add I am not advocating this policy.   Did they look at the Japanese experience both of QE and of giving money directly to voters to spend?           Tomorrow I will look again at a tax based stimulus, the approach I favour. This would lead to a lower, not higher, deficit.