Today in Parliament at the instigation of the Backbench Business Committee we will be debating Iran.  Many of us feel it is high time Parliament debated the whole question of UK intervention in the Middle East. We need to review what has come of wars in Iraq, Afghanistan and Libya. We need to ask again the fundamental question, can you wage a war on terror? We need to ask, how far should the west go, if at all, in insisting on regime change where we do not approve of the government.

          I want the UK government to recognise the strong limits there are on how much political influence the UK does have and should have over who governs in each Middle Eastern country.  We believe as part of  a group of leading western nations in the self determination of peoples.  We fought successfully to liberate Kuwait from an invader. Most of the neighbouring countries agreed with us. We fought successfully to free the Falklands of an invader. As allies with the US we fought for the self determination of the western European peoples to free them from Nazi domination. There is a case for the UK and her allies to intervene on the side of an oppressed country if it has been invaded and its government changed by force from outside. This is best done with UN support and with a multinational force, to abate any suggestion that the motives for the intervention are other than to restore legitimate national authority. We did not intervene to uphold the right of eastern European peoples to self government during the Soviet terror. We judged it would have killed too many people to do so.

           The more recent doctrine in Libya has been based around the proposition that where there is a civil war, with a strong opposition coalition of internal  forces seeking to bring down the undemocratic government of the country, the west can with UN backing move in and help the rebels. This doctrine does not encompass such western action in Syria.  This is partly because Russia and China block UN support for such intervention. It is also partly because the military task would be more hazardous and the opposition forces are less strong and focused than in Libya. The new doctrine is rightly flexible, responding to differing circumstances.

         In the case of Iran and her possible move to own nuclear weapons, neither of these doctrines applies. Iran has not been invaded from outside to need our help to restore national government. There is no strong opposition in  Iran seeking military help to topple the regime. The case of considering any kind of action against Iran, including diplomatic action and sanctions, is based more on the type of argument used to justify the wars against Iraq and Afghanistan. It is the progeny of the war on terror.

            The argument went for the war in Afghanistan that the Taliban were allies of the terrorists who attacked the twin towers. They needed to be displaced as the government of Afghanistan, for that government was harbouring terrorists who could do more harm to the west.  More than a decade on, and the main western powers are now in discussion with the Taliban over the future government of Afghanistan, recognising that depsite all the force expended they remain a political organisation of influence within the country.

           I always had difficulties with the argument about waging a war  against terror. Tomorrow I will consider the case in more detail.

            When I have been involved in turning round companies in difficulties I have always concentrated on managing the cash.  When the banks are becoming  reluctant to lend more – or want some of their money back – the business has to concentrate on getting more cash in and letting less cash out. It’s not just a question of spending less and trying to raise more revenue, though that is essential. It’s also a question of reviewing all the assets of the  business and seeing which ones can be converted into cash, and which are no longer needed.

             Stopping spending is a lot easier than the government seems to find it. You put in place a comprehensive freeze on recruiting people from outside, and only override this   if you need some specialist skill which you cannot find already on your payroll. You run down stocks of everything before allowing any more purchases. You review every item in your budget and ask if you could run the business without it in the future, or with less of it. You do without so many external consultants, asking your own managers to do more of the tasks.

             Finding assets that you do without, or assets which can be sold to others for cash is also usually an essential part of battling an overborrowed business back from the brink. Here the government is in strong position, as some of the past spending has built up a wide range of public sector assets. Some of these are of no immediate use to the public sector and can be sold for that reason. For example, there is plenty of spare land and should soon be some spare office buildings as the overhead numbers come down. Some are of greater value in the private sector than they enjoy when under public sector management. The commercial  forests – as opposed to the heritage and recreational forests – would be better off in the private sector and could raise the state some cash, as Labour used to do with their annual sales programme.

             Two areas I have identified where improvements could run alongside raising cash are the cases of service housing and motorways. I am pressing again for the service personnel to be given the option of buying their own homes where the MOD still owns them, with a right for the MOD to repurchase and sell on to a new staff member when the person leaves the services. This transaction would be at market price, so the individual would get the full benefit of ownership and have their deposit for their next home, assuming house price rises during their period of ownership. This scheme helps tackle the problem of homelessness some service personel face on leaving MOD employment, whilst producing a one off cash injection into the government.

           The question of privately owned and financed roads is more contentious. The aim would be to lease franchises, so the state still owned the long term underlying asset.Tthere could also be a system based on motorists opting in to paying tolls only if they thought they would be better off than paying the Vehicle Excise duty the tolls would  gradually replace. The government could then say that tolls only applied automatically to foreign vehicles, currently avoiding most of the taxes, and to commercial vehicles. Private motorists could opt between carrying on with their present level of tax, or switching part of their tax to tolls. Meanwhile the state would get a sum of cash for the franchises, and the motorist would have a manager of the highway more interested in keeping it open and earning revenue.

          The future is China’s for the taking. In the story so far, very hard working Chinese have built a huge surplus from successful exports. They have more than $3 trillion in the reserves. Millions of people have left the land and moved into more productive jobs in factories. China has grown to understand western markets, to design and produce goods that the west wishes to buy. She  has lent money back to the west to help maintain the west”s spending. She wishes to avoid dollar or Euro collapse, to maintain her competitiveness against these large currencies, and to protect her investments through her reserves.  There are many more Chinese who can move into better jobs, earning more for China. There is huge scope for Chinese expansion based on expanding domestic demand and higher wages.

           In her latest 5 year plan China recognises that there are limits to how much she can sell a west becoming very overstretched financially. She also is aware that the Chinese people will themselves expect to benefit rather more in the next five years from their energy and productivity. Chinese people will want to buy the fridges and cars, radios and cycles that China can produce in large numbers.

             China is now using her financial muscle to acquire resources and technology. She is buying into important raw material deposits around the world, recognising she will be the main consumer of these items and will need privileged access to them. She looks to the west for technology. China wishes to move rapidly to equal or surpass the  west at designing and making computers, tvs, cars, machine tools and the rest. She is prepared to buy into western companies with good technology to gain title to it.

             Some years ago I remember being asked by a distinguished Chinese visitor to the UK why the UK government  had not got behind one of its companies bidding for a Chinese project. The UK had not won the competition. My guest was explaining the importance of government engagement and backing to the Chinese purchasers of that time. I explained that the UK government had not been able to, owing to the fact that more than one UK company was bidding. The UK government does not see it as fair to back just one UK company and denigrate or ignore the rest. My Chinese visitor saw our competitive system as a weakness in this case. The UK government could not back one company and instruct others to back away from the competition, as China would have done in a similar position. China also grasped that the west is fairly free with the sale of companies and technology in many fields.

         China has learnt that competition does have its role to play. She has also learnt that freedom, competition and democracy western style can leave the west vulnerable to Chinese competition, and to informed Chinese buying of technologies and resources that have strategic significance. China has a different view of how to govern from the west. She runs a different system from competing party elections and western style law codes. She does have a developed system for listening to public opinion, and for trying to avoid protest or mass disagreement with government policy. 

          China is busily buying up gold, showing her worries concerning the west’s paper currencies. Whilst she talks about supporting the Euro, she backs gold. Maybe part of her strategy is to build a very large gold position, then one day to seek to remodel the world’s monetary system with a new role for gold. The UK’s short sighted sale of gold at low prices looks increasingly foolish, as Central Banks as well as individuals look for a safer haven than low yielding paper money subject to the vagaries of quantitative easing. The west needs to take seriously the Chinese success story. It also needs to be aware that if too much technology and too many raw material deposits are sold, earning our living will be more precarious and difficult.

               Recent figures revealed the extent of transfers between the regions in the UK sterling area.  It reminds us that the Uk is far from a perfect economic area for a monetary union, and reminds us that monetary unions are in practice expressions of nationhood. If we were only thinking of economic sense, London maybe with the South-east would have its own currency to reflect the very different financial position of that part of the country.

                As Alastair Heath of City AM has already pointed out, only London and the South east are in surplus, sending large transfers of tax revenue to the rest of the UK.  London is required to raise 45.2% of its GDP in tax but only spends 34.9% on public sector activities. The large surplus is sent elsewehere. Meanwhile the North East runs a deficit of 32.2% of its GDP, Wales 36% and Northern Ireland 40%. This extra public spending is paid for from London’s taxes and from UK wide borrowing.  London and the South east pay most of the 50% Income Tax and the high Stamp duties. Scotland is said to be in balance, but still borrows 10% of GDP for extra public sepnding.

                  It serves to remind us why the Euro is struggling. German taxpayers do not want to send anything like those large sums to Greece and Portugal that London sends to the north and west of the UK, as they do not feel they belong to the same country.

                 The huge imbalances between London and the western and northern parts of the UK are usually seen as a problem for London. The reaction of many in  the political classes is to see how London can be punished more for being so successful. Most of the higher taxes being talked of or imposed are mainly taxes aimed at London, as they aim at financial services and banking, at high incomes and high property prices. Much of this is concentrated in the capital.

                     The politics point in the direction of being anti London, as the tax base is very concentrated in the richer parts of the capital whilst the recipients of the extra tax revenues are widely spread around much of the rest of the country. For Labour it is a no brainer, as they represent areas in receipts of the transfers but do not represent many  of the places making the payments.

                   These underlying transfers account both for the brutality of rhetoric about public spending in much UK political debate, and for the prevalence of spenders over taxers. The tax base is highly concentrated and therefore vulnerable to political attack. The only question is how far can they push it until it emigrates on a large scale? Greece shows what can happen to the tax base if you push too far. Their income tax revenues are plunging as the rich and successful take their deposits, their assets and their businesses elsewhere. Meanwhile the UK sits back and discusses fairness and banker bonuses, confident in the knowledge that as most  parts of the country are in receipt of transfers many electors just want the government to raise more in tax and send the money.

PS: Some have asked about the sources. These figures come from the Centre for Economic and Business Research, and have been picked up by City AM. In the case of Scotland, for example, they do include North Sea tax on one side and Scottish levels of public spending on the other via the Barnett formula.

This site has drawn attention to fundamental problems with the UK economy as a result of the Credit Crunch and the huge increases in state borrowing in recent years.

The first is the broken banks. The authorities are relying on huge money printing operations. This money can only subsidise the public sector. The failure to sort out the state owned banks, and the decision to shift to much tougher bank capital requirements at the wrong point in the cycle mean the private sector is starved of cash for recovery.

The second is the  squeeze was placed for the first two years of the Coalition government on the private sector rather than the public sector. The government decided to bring the deficit down by large tax increases. It carried on with most of  the big tax rises of the outgoing government on incomes and employment, and imposed new ones of its own on capital gains, energy and consumption.  Energy prices also shot up as the full effects of the previous government’s  devaluation hit consumers. This resulted in a fall in living standards, cutting private sector demand when extra demand was needed to boost growth.

So what should the government do now? To fuel its much needed private sector led recovery it needs to change both these approaches. I have set out in detail how it can revamp the banks in its ownership, creating several strongly financed competitive domestic banks that could start to finance recovery. They could provide the money for new roads, broadband, water supply schemes, homes and all the other items the economy needs.

The Budget also needs to tackle the squeeze on incomes. That requires income tax cuts at all levels of income. It requires putting capital gains tax to a lower  level which will stimulate more business activity and increase the revenue it raises.  It means having a policy of affordable energy. Some of the tax changes wikll be self financing as they boost the growth rate. Some will need to be offset by spending reductions. Let’s start by cutting overseas aid to countries like India, and by demanding a better financial deal with the EU.

Meanwhile, we still need our productivity revolution in the public sector. Where are the new approaches to public service delivery? We do not need cuts to teachers or nurses. We do need new employee led service provision, more contracting out, more concentration on providing better value. And we still need to stop doing some things the government cannot resist doing.

                Greece has around one sixth the population of the UK, yet is has about the same number of military personnel on the payroll.  The Greek military comprises  around 170,000 active personnel paid by the state, with a further 280,000 in the reserve forces. Maybe instead of heaping ever more misery on the Greek private sector in an effort to pay for the very high Greek public spending the government should take a look at this cost.

                The Greek navy has around 80 warships. The army has more than 1200 tanks. The airforce has around 1000 planes and helicopters. (these are figures taken from public websites).  The question is, who should pay for all this?

                If Greece had armed forces proportionate to her size of country she would have far fewer military personnel and military vehicles, ships and planes. She would save a lot of money , bringing her budget deficit under better control.

               Greece argues that she needs this large military as she does not trust her neighbours. The west could offer her security guarantees – indeed they already do in effect. I do not believe the west would stand by  and watch any invasion of Greece, nor do I think one is any more likely than it has proved in the last few decades.  She probably argues that with recession now would not be a good time to sack a lot of soldiers. Greece believes that the EU and the IMF should pay for her military for a bit. She also believes her creditors should pay permanently for her past maintenance of these large forces, by writing off great chunks of her debts.

                     I am surprised the west has not suggsted other options to nervous Greece. If her allies could persuade her that any threat to Greece would be countered by UN combined action, the country could consider a substantial down size of her forces. There is no immediate need to lose the capability to mobilise rapidly if ever needed, if many more of her forces went over to being reservists.

                     The plan could be to ask many on  the current military payroll to go over to part time contracts, encouraging them to find other work for the time they are not being paid in the military. Success in finding other work could be followed by conversion to reservist, where the individual was paid a retainer and came for a specified period each year to keep up basic training and learn any new requirements.

                  Paying for this large military machine seems to be imposing strains. Maybe it is time to look at other answers for Greek security.

            The public sector, as we have seen, likes to assume that all last year’s current  public spending is a given and should be repeated next year. If you want something extra, as the public sector always does, when budgets are tight, you therefore have to cut something.

            Council officials live in hope that their Councillors will raise taxes or car park charges or successfully lobby for higher government grants. So they pile on the nice to haves and the unavoidables extras in their budget papers. Councillors are often forced to say in return that they cannot find all the extra money “required”, and ask for some cuts instead. The game playing officers will then often choose the most politically damaging or the least popular cuts to try to persuade the Councillors that they should look again at getting more money in from some source or other.

               The same thing happens in some government departments. Officials reluctantly put forward cuts when they just want their Minister to go off and have a battle royal with the Treasury for more money. Why not, they reason, put forward a clumsy cut. The Minister may spot it and come to see he needs more money to avoid it. If he doesn’t, he may lose the cut in the execution. This may  force the government to spend  more money after a bruising encounter with Parliament and the media. Either way the department “wins”. It requires a strong and confident Minister to reject the budget paper, and say it is based on false choices.

            I never recall as a Councillor or as a Minister receiving a budget  paper which recommended cutting the administrative overhead unless I had insisted on it. I was never voluntarily offered big savings on paper, pens, administrative staff, pensions, early retirements, absentee rates, volume of reports, postage, staff travel , conferences and all the rest. On the contrary. I remember letters sent out in government urging Ministers to do more overseas trips and conferences. Some of those were good, but they were always popular with the officials. They wanted to make sure their department kept up its totals and spent a full budget.

       In a competitive private sector company there is constant review of overheads. Management is always challenging itself to do more for less, or to do it better as well as cheaper. There is a common interest in buying better, in simplifying systems, in using talent better. In government there is often a common interest in maximising spend for no good reason other than that is what government does. Some politicians even send out claims that service X is better than service Y because more is spent on it, with no attempt to question how well the money is spent or what the users of the service think of its delivery.

       When I walked into one Ministry to take over as the Minister in a previous government, one of the first questions I was asked by my officials was what additional magazines I wanted to see. There on a large side table were set out an impressive range of glossy publications. They must have reflected the interests and passions of previous Ministers. It was a cameo of how the government traditionally does business.

        The question was what extra ones did I want? No-one mentioned the budget for newspapers and periodicals. No-one suggested I might like to cut out ones that previous Ministers valued but I did not. The public sector proceeds by base budgets plus growth. It accepts that all previous magazines ordered for good or bad reason need to be taken permanently thereafter. Any Minister who queries the base is upsetting the applecart, giving ground to the Treasury, taking money away from the Department. It assumes it is good to add some more. It seeks to take the decision without informing the decison taker of the relevant financial information.

              As a businessman joining government I just saw a cost. I wanted to know how much the bill was. As a politician I saw a potential bad story. Say a journalist found out  the names of the publications the Department was buying for the Ministerial office? Wouldn’t they unkindly have suggested some were a little off the mainstream of the Department’s duties? I pruned  the magazine budget. I looked at the budget for the department as a whole, not just for the Ministerial office. I asked them to review  how many copies of needed periodicals the whole Department required. If I had a personal interest and wanted a magazine about it, I had a salary and could buy it from that. It was a small drop in a large ocean, but it was meant to illustrate a more business like way of approaching spending.

              Too many proponents of more public spending are like children in a sweet shop with a rich and friendly uncle. He takes care of the bills. There is no need to ask how much each item costs. The child is spared the bitter sweet task of having to weigh up the delights of each sweet against the dent it makes in the pocket money. Public spending to some in government  is not about choices, and seeking value. It is about finding the rich uncle, and then just ordering what you think you will like, even at the risk of too many sweets making you sick. The big difference of course is when the state finds the rich uncle it does not presume on his voluntary generosity, but threatens him with prison if he does not pay up. This can make a lot of rich uncles go missing, or hide offshore. It has even been known that  leading proponents of more state spending  find ingenious ways of avoiding tax for themselves.

               Any government or Council that wants to cut spending without damaging services has to change this approach to buying and budgets. The base budget has to be reviewed at least annually, as well as the incremental items that officials and lobby groups say need to be added. The Treasury’s public spending division should constantly be challenging the cost and delivery of all programmes, as well as the need for the more marginal ones at all.

I find myself in agreement with some of the Greek left wing parties. I think cutting the minimum wage in Greece by 22% is wrong. It is too far too fast when the Greek economy has stalled for lack of demand. There are other easier cuts in spending that they might make, but only if they also take some positive action to stimulate the economy. That means getting out of the Euro.

I think it wrong that the EU tells Greek politicians what budget they should set. It removes the last vestiges of proper democratic accountability in Greece. The surprise is not that it triggered six resignations by Ministers,  but that it did not trigger the resignations of most of the rest. However, it all makes perfect sense if they are to remain locked into a single currency where other countries have to pay a lot of their bills. They need to resolve the issue of Who governs? They need to persuade all the voters in Euroland of a new political architecture which shifts decision making to the centre if they are to have any chance of getting the politics to reinforce the bureaucratic imperatives of a shared money.

There is a passive sullen response from much of the Greek establishment. They follow EU and IMF orders because they are told they have to. They are totally dependent on the next loan or hand out, so they feel they have to accept what they are told. Unfortunately for them too much of the “assistance” comes in the form of loans, and not enough in the form of grants. This leads to bigger debt problems. The Greek establishment then retaliates in the only way left to it, demanding a larger “hair cut” on the debt.

There is a fundamantal dishonesty in all this. If all concerned want the Euro to stick together they have to pay more for Greece. Surely it is more orderly and seemly to pay more up front, instead of pretending to lend them money and then conniving at default on the debt at a later date?

The Germans know from bitter experience just how dear it is to pay for a single currency in a state which struggles to keep up with the rest of the zone. They found they had to put billions into East Germany when they went for a premature currency union in 1990. They did not do that by “lending” money to East Germany. They just paid up. They do not want to do the same for Greece, because they do not have public consent to do so. Yet all the time Greece stays in this union, there are liabilities building up for German taxpayers. They may end up being paid by default rather than by voluntary grant, but it will come to the same thing.

           For the third winter in a row we have lots of weather, instead of the warmer climate forecast by many. Last week when I got up early to see how the roads were being treated, it was minus 8 degrees in what by now should be   mild Berkshire. Yesterday morning I woke to another covering of snow concealing the ice and compact snow  beneath.

          Given our vulnerability to weather even in an era of global warming, energy prices matter a lot to us as we have to turn up the heating and huddle indoors to keep warm. We also need to recognise just how big a cost energy is to anyone in manufacturing business. As the UK government wishes to have an industry led economic recovery, it needs to pay attention to this large bill.

           In order to write this piece I researched relative UK energy costs from the copious official figures put out by the UK government. Their Digest of UK Energy Statistics may not become a best seller, but it is a very professional compendium of price and volume information about our energy use, with international comparisons. 

          The comparisons are  also very revealing. They compare our energy prices with the USA and Canada, and with every European country in great detail, but fail to include our  big industrial competitors and suppliers  in China, India and Brazil. It just shows how Euro centric the establishment remains, and how inward looking Europe is, at a time when the exciting  industrial and economic action is happening a couple of continents away.

           The comparative picture is far from rosy. If we start with diesel, the lifeblood of transport, the UK diesel pump price after tax is the highest of EU 27, and far higher than the USA and Canada. Interestingly, the pretax price is the fifth cheapest in the EU, so the private sector is performing quite well, only to see very high taxes turn it negative. Unleaded petrol is the fourth cheapest in the EU pre tax, but is also the dearest  post tax.

           When it comes to electricity for industry, the UK at 8p per KW hour is in the pack of EU countries, but double the level paid by US businesses.  Gas is relatively cheap in the UK by EU standards, but the industrial charge of 1.7p per KW hour is  still 40% higher than the US charge of 1.2p. The Climate change levy imposes an extra 1-6% on gas bills, and an extra 2-5% on electricity bills here. If we were allowed to see the Chinese figures, they would also reveal how uncompetitive we are in this area.

            When the UK government was setting the carbon price for its policies I was consulted. My advice was to set a carbon price of zero until the rest of the world caught up with this way of doing business. High energy prices here do not stop the fuel being burned, they just divert the burning to cheaper countries who are not imposing these levies, taking industrial activity and jobs away from us. The Treasury, I read, did try to get the price down in its arguments with Mr Huhne. It is now working with the Business department on offsets or subsidies to the energy price for large process industry, understanding  that all we can really do here in the Uk with our energy prices is decide how much is burned here by industry, rather than helping control the world’s burn.

                The UK has a great advantage in the energy field. We have large new resources of shale gas available, some untapped conventional gas and oil resources, plenty of coal, and the possibility of more hydro and nuclear. I am all in favour of strict control over pollution, and encouragement of maximum energy efficiency. I am also very conscious that we are now paying a price for very dear energy. People on low incomes are suffering in their homes. More industry is going elsewhere to burn its fuel. The government needs to accelerate its programme for new energy sources, and to keep in mind the need to get prices back into a competitive range. While they are doing it, could they start looking at how far adrift we are from our true competitors in Asia and Latin America, as the EU slips beneath the gathering storm waves of the Euro.