Britannia Radio

The pleadings and the suggestions come thick and fast before tomorrow’s PBR. Then the post-mortem will take another week. I will try to cover the lot. But already it is clear that our situation gets worse as foreign investors and the rating agencies get more wortried by the day - THEY can read our polls too!!! The one thing it is clear frightens them is the thought of a paralysed ‘hung’ parliament. That would be national suicide.

Next week the shouting will subside and I will also subside by ‘hanging up my mouse’ .

Christina
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TELEGRAPH 8.12.09
Pre-Budget report: Will anyone lift Britain out of the debt crisis
Government borrowing is at unsustainable levels, but Matthew Elliott is not convinced by the parties' plans to get the country back in the black.

By Matthew Elliott

For every £5 the Government spends this year, it will raise less than £4 in tax revenue, an almost unprecedented 25 per cent difference between what the Treasury collects and what it spends. It doesn’t take Charles Dickens to tell us that the net result of this situation is misery.

So what are the political parties proposing to do about this untenable fiscal situation? We will find out the Government’s response in the pre-Budget Report tomorrow, but the £12 billion efficiency drive announced yesterday (assuming that it is effective) would save the equivalent of 9p in every £5 of spending. Similarly, the £7 billion of actual spending cuts announced at the Conservative Party conference in Manchester would save 5p.

Clearly we are in the run-up now to the general election, but that should be no excuse for Alistair Darling, George Osborne and Vince Cable to avoid the debate about solutions to solve the fiscal crisis, where trimming is no substitute for responsible surgery.

Britain has the second-highest budget deficit in the EU and the second highest structural deficit (ie even allowing for the recession) among the G20 advanced economies. The IMF estimates that in order to stabilise debt at 60 per cent of GDP – still high compared with just a few years ago – well over £150 billion will need to be found in cuts, taxes or a combination of the two.

If that structural deficit isn’t addressed then the cost of borrowing will rise sharply, particularly once the Bank of England stops buying Government debt as part of the Quantitative Easing programme. After the next election, the markets’ patience is likely to run out and there is a serious risk that we will lose our credit rating. This is why it is so worrying that the parties’ announcements so far are completely inadequate.

The Government’s efficiency programme is unlikely to succeed. The National Audit Office report on its last efficiency drive, the Gershon Review, was scathing and suggested that only 26 per cent of the reported efficiency savings fairly represented efficiencies made.

Huge amounts could be saved – £58.4 billion according to the Centre for Economics and Business Research – if the public sector matched the private sector’s record of productivity growth. But these savings would only come slowly by reforming how public services are delivered. They are no substitute for immediate cuts in spending.

On the revenue side, the Government has proposed a series of measures to increase tax rates on the rich but they are unlikely to raise significant revenue. Research by the independent Institute for Fiscal Studies suggests the 50p rate is likely to lose money as high earners leave the country or otherwise reduce their taxable income. The sum of their plans is so inadequate that the Government’s Fiscal Responsibility Bill is little more than a hollow joke.

The Conservatives have proposed some important cuts in public spending. A one-year pay freeze for public sector workers earning more than £18,000 would save a lot of money. The National Child Trust Fund is a wasteful exercise in taxing people then paying the money back in benefits; it should be abolished, and not just for higher-income families as the Conservatives propose.

Tax credits for high-income families should be cut and will save significant amounts of money in the short term, but cuts in middle-class welfare should be no substitute for root-and-branch benefit reform.

Some cuts proposed by the Opposition won’t raise a huge amount of money themselves but will make wider savings easier, such as cuts in the cost of politics and Whitehall interference in local public services. All this adds up to less than £10 billion in fiscal tightening though, nowhere near what is needed.

Too many people seem to regard an increase in VAT to 20 per cent as inevitable and prudent under a Conservative government. A hike in VAT would raise a lot of money, but it would come out of the pockets of the poorest families. VAT hits low-income households twice as hard as rich ones. That means an increase in VAT would lead to greater poverty and benefit dependency.

At the same time, the already high cost of climate-change policies is also expected to rise significantly under the next Government, threatening an “affordability crisis”, according to analysts.

The Liberal Democrats have a range of plans. Some of their ideas are good ones. Regional Development Agencies, for example, have failed to deliver results to justify the billions spent, and should be abolished.

But overall, politicians have clearly not stepped up to the mark yet on addressing the fiscal crisis. Part of this is strategic, given the imminence of the election, but the severity of the crisis and the likelihood of our credit rating being downgraded mean that immediate action and ideas are necessary.

A good first step for the pre-Budget Report tomorrow would be for the Chancellor to acknowledge that tax rises aren’t the solution. It is no accident that proposals to raise tax tend to fit into two categories. They are either attacks on capital and the rich, which may be politically satisfying but hurt the economy and raise very little money. Or they hit ordinary households – people who can’t move from country to country who are already struggling to cope in the recession.

The crisis in the public finances hasn’t followed 10 years of tax cuts, but a steady increase in the tax burden on everything from flying to moving house. Britain didn’t go into the crisis undertaxed and an additional burden will either compromise economic recovery and job creation or produce an intolerable burden on ordinary families.

So a credible strategy for the Chancellor and his opposite numbers needs to focus on the source of the problem: spending. Over the past decade, the Government spent as if a temporary boom was a permanent improvement in our economic fortunes. When that boom turned to bust a huge structural deficit became apparent. High spending is the problem, cuts in spending are the solution.

In a recent report with the Institute of Directors, the TaxPayers’ Alliance recommended £50 billion in immediate spending cuts. At the launch of this document, a number of audience members made the point that this was £100 billion too little, and they are right, but it would be a start.

Our proposals covered a range of areas from £12 billion of cuts in middle-class welfare, to a pay freeze for public-sector workers, which would save more than £6 billion, and cuts in public sector organisations that are non-priority or failing to perform.

Our proposals, which the Government picked up yesterday, will see the government advertising and publicity budget halved, with up to £270 million saved. Consultancies have recommended that the Bus Service Operator’s Grant should be abolished for a saving of nearly half a billion. Local councils maintain expensive bureaucracies that interfere in schools; scaling those back could save nearly £600 million. Quangos also need to be cut, and that can’t just mean merging them into new superquangos, as the Government proposed with 123 quangos yesterday. There are many that could be abolished overnight, with no loss to public wellbeing [the paper has a section showing “10 quangos ripe for abolition” but this is apparently not on the website! - see below -cs].

There also needs to be an ambitious pro-growth agenda. As Michael Forsyth argued in this newspaper yesterday, cuts, particularly in corporation tax, could bring higher growth at a modest cost of £5 billion. Such a package of cuts would almost certainly pay for itself in short order and would significantly improve the long-term health of Britain’s public finances.

The election is still a while away, and we might not know what the next government really has planned till some time after that. A genuine reckoning with the scale of the problem cannot be delayed indefinitely, though. Politicians need to take credible action to cut borrowing or ordinary taxpayers will pay a heavy price for years to come.
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Matthew Elliott is co-founder and chief executive of the TaxPayers’ Alliance

[NB The “10 quangos ripe for abolition” are listed as:- ‘Standards Board for England’ £8.3m , ‘National College for School Leadership’ £104.6m, ‘BECTA £61.3m. , ‘British Waterways’ £62.7m , ‘ NHS Professionals’ £10.3m , ‘Sustainable Development Commission’ £3.1m , ‘11 Million’ £3m , ‘School Food Trust’ £6.4m , ‘National Police Improvement Agency’ £535m , ‘Regional Development Agencies 9x9) £2.2 bn
Nearly 3 3 bn in total -cs]

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TELEGRAPH 7.12.09
We must stop stealing from our youngsters
Britain is living way beyond its means - taxes have to be cut to create wealth, says Michael Forsyth.

Whoever wins the next election will face unprecedented challenges. The Brown spending binge continues, financed by borrowing and printing money. The Government hopes that by May it may look as if we have turned a corner on the economy and Labour might just squeak back into power. After all, people in work with mortgages will have benefited from the lowest interest rates in our history, and the flood of printed cash appears to be pushing up shares and house prices again.

But with an astonishing £900 billion to be borrowed over the next Parliament, big increases in interest rates and cuts in public expenditure are inevitable. Generous and guaranteed pension schemes for the public sector seem unaffordable and many much-trumpeted grand designs will need to be put on ice. If youngsters are to have any hope of a prosperous future, we must stop stealing from them by financing consumption with debt that will take generations to repay. If public services are to be preserved, reforms will be needed in health, welfare and education to tackle bureaucracy and waste.

We got into this mess by living beyond our means. We spent more than we earned and saved nothing as a nation. Of course, families and businesses know that – and many have begun the painful transition, paying off debt and cutting back on non-essentials. Only the Government believes that you can fix a problem caused by borrowing and spending too much by doing more of the same. Tax revenues Gordon thought were permanent, and based his spending plans on, were temporary revenues that came from the bubble. These have evaporated, leaving a black hole in the budget that he is filling with higher taxes on the wealth-creating sector and with more borrowing and printed money.

Living standards will fall, unemployment will rise and public services will decline unless we can create new wealth. The key lies in curbing the growth of government and by nurturing small and medium businesses.

Of course, we are doing the opposite. Government bureaucracy is out of control. Instead of lowering burdens, the Government is crushing businesses with higher taxes, charges, National Insurance contributions and quango-imposed bureaucracy. Last week, we learned that manufacturing's share of the economy has almost halved under Labour.


The UK is now ranked 84th out of 133 countries on the "extent and effect of taxation" by the World Economic Forum. KPMG's most recent survey found the number of companies considering leaving Britain had risen from six to 14 per cent – including four in the FTSE 100.

The Prime Minister's plans to hammer entrepreneurs, investors and businesses with higher taxes will kill the golden goose. The Chancellor would be wiser to listen to his backbench colleague Greg Pope, who said last month: "If Gordon really wants to find a dividing line with the Tories, here's one – cut taxes." George Osborne has promised to cut corporation tax to 25 per cent on a revenue neutral basis, by abolishing capital allowances, and to cancel the proposed increases in National insurance rates. But we need to go much further. With public spending at almost half of national income and tax receipts barely above a third, public spending has to fall. Consumer demand is unlikely to return to its previous levels and the financial services industry will emerge from this crisis smaller.

Our future depends on getting business growing again. That means making Britain attractive to investors and allowing successful businesses to keep more of their hard-earned cash when credit is harder to obtain.

Corporation tax should be cut to 20 per cent to restore Britain's competitive position and the Government should abandon its foolish plans to raise income tax to 50 per cent. It beggars belief that the Chancellor is reported as considering lowering the threshold at which people begin to pay the top rate. This is a tawdry piece of political theatre that will do enormous damage to tax revenues and investment. High marginal rates on income tax will result in leakage, as clever accountants enable wealthy people to convert income into capital gains. Capital gains should be taxed at the same rates as income tax, with a 10-year taper to a zero rate to encourage long-term investment. Stamp duty on share transactions should be abolished. This would boost the stock market and cut the cost of capital to companies. These measures, taken together, would reduce revenues by around £4.7 billion – a small fraction of the cost of supporting the banking system and much less than the £12.5 billion loss from the reduction in VAT to 15 per cent. One advantage of our predicament is that because revenues have fallen, the costs of cutting rates are lower.

The Chancellor is fond of describing public expenditure restraint as taking money out of the economy. He should remember Gladstone's advice that money is best left to fructify in the pockets of the people. He should cut taxes to cut debt and get growth.
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'Go for Growth: cut taxes now to cut debt' by Michael Forsyth and Corin Taylor is published today by the Centre for Policy Studies