Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.
The two main parties are locked in a budget battle. They are dug into OBR-provided trenches and fighting over the odd couple of billion here or there for a Non-Dom tax or VAT on private school fee tax.
£2 billion is under 0.1 per cent of our economy and around 0.2 per cent of revenues. Even when they get so far as to argue about a £10 billion tax cut or spending increase they are still only talking about a sum under 0.5 per cent of GDP. More to the point they are arguing over small rounding errors in the error-strewn OBR forecasts of the deficit. The OBR regularly has to revise its deficit forecasts down by several tens of billions.
I understand the need for parties to behave in a fiscally responsible way. They have to live down the huge spending rises necessitated by excessive lockdowns as the preferred way of tackling Covid. Labour was the bigger offender, always demanding the economy produced less and was subsidised more, always wanting longer and harder lockdowns and encouraging huge bills taxpayers could not afford.
I do not understand why people think following the OBR will give us fiscal prudence, as they cheered on the Covid excesses and now favour an economic austerity that will stifle growth and depress revenues.
However, in resigned acceptance of the cross-party and establishment’s wrong approach to necessary prudence, I have set out how there could be substantial cuts to public spending without damaging core services like the NHS and education. Within misleading OBR rules, the Government could find plenty of headroom to boost growth with tax cuts and find cash for investment for those who prefer that public sector-led route.
We start with my old friend: the heavily loss-making Bank of England. They have lurched from creating inflation by printing too much money and keeping rates too low, to causing a shallow recession by destroying too much money and driving bond interest rates too high. They have lost us £50 billion since 2022, all reimbursed by taxpayers. Stop the bond sales and follow ECB policy over bank reserves to make a big reduction in the losses and taxpayer subsidies.
Abolish the expensive and useless UK Government Investments. Get Ministers to supervise their departmental monitoring of the nationalised industries and state-owned shareholdings that report to them. They already duplicate the UK Government Investments work. Put in management that can stop the huge losses at the Post Office and Network Rail. Dispose of holdings as with Nat West to bring in cash and cut risks. Sell other assets. Mutualise the Post Office. Achieve a substantial reduction in the £33 billion cash injection this year into a heavily loss-making railway.
Get an accurate figure out of the Treasury/ OBR on early-year capital costs of providing a low-wage migrant with a new social home, NHS capacity, school places for children, and the rest. Identify the top-up benefits, tax credits, and public service running costs to support a low-paid new arrival. Increase current targets to cut legal migration by 300,000 and reduce future spending accordingly.
Remove the £20 billion carbon capture spend from future budgets. There is no need for this transitional spend which just makes existing electricity dearer. Press on with cheaper functioning low-carbon alternatives. The UK may have good carbon storage facilities so make these available for neighbouring countries producing too much CO2 financed as a future profit-making private sector opportunity.
Speed up policies to get more of the millions of working-age not in work back into the workforce. The Department for Work and Pensions has some good ideas to reduce the number of working-age people not in jobs by suitable support, more homework, and realistic pay.
Build on the announcement in the budget of a major public sector productivity drive. The 6 per cent collapse in public service productivity since Covid can be recaptured before embarking on an ambitious spending-to-save AI-led programme of work. The immediate task should be to impose a recruitment ban on civil service and public sector administration posts to recover 2019 numbers and levels of productivity.
These measures offer scope for up to £100 billion of savings through recaptured productivity, lower losses by state concerns, more private green investment, and fewer low wage migrants. These things warrant more debate. The odd £2 billion is an OBR fiction that will be washed away in their forecasting errors.
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Author: John Redwood MP
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