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We have to cap the national debt

Jul 15th, 2011
by David Cowan.
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On July 12th Sajid Javid MP proposed a ten minute rule bill to cap the UK’s national debt. Ironically, he is seeking to enshrine in law what Gordon Brown originally established as his two fiscal rules. First was the ‘Golden Rule’ that the government should only borrow to invest in capital investment, such as infrastructure. Second was the ‘Sustainable Development Rule’ which dictated that the national debt should not exceed 40% GDP and the budget deficit 3% GDP. Though these fiscal rules are sound in principle they were not adhered to in practice. One of the key problems was the lack of accountability; the Chancellor decided whether or not they applied and ultimately tore them up after the financial crisis. This is the problem Sajid Javid MP hopes to remedy.

Sajid Javid MP proposes capping the national debt

Politicians are by nature short termist. They think about the electoral cycle rather than the boom and bust cycle. Gordon Brown was not the exception. He spent billions of taxpayers’ money and then left it to the next government to foot the bill for his excess. At first it might seem George Osborne is reversing this situation as public spending will fall from 47.7% GDP in 2009-10 to 39.9% GDP in 2015-16, borrowing will fall from £156.4bn to £29bn, and the budget deficit will fall from 11.1% GDP to 1.5% GDP. This would make it easy for a 3% budget deficit target to be introduced and new borrowing rules to be drawn up.

However, upon closer inspection we can see that fiscal prudence isn’t being pursued in every area. In cash terms public spending will actually increase from £669.7 billion in 2009-10 to £763.8 billion in 2015-16. When inflation is taken into account the cut to public expenditure being made by George Osborne is only 3.4%, less than Barack Obama is cutting in one year. Furthermore, the budget deficit will not be eliminated by 2015. It is the ‘structural budget deficit’ which is being eliminated. In practical terms this means the national debt will only stop growing in 2015 after increasing to £1.4 trillion. Fiscal responsibility cannot stop in 2015.

Sajid Javid MP’s ‘National Debt Cap Bill’ lays a clear path beyond 2015 with the suggested 40% GDP target for the national debt by 2025. However, the official Treasury figures do not reflect the true nature of the UK’s national debt, as this TPA report and video (below) demonstrate, as they do not include ‘hidden liabilities’ such as state funded pensions, nationalised banks, Network Rail, or PFI contracts which put the real national debt at £7.9 trillion (560% GDP). That’s £300,000 for every UK household. The official figures only make up 10% of the real debt. If Sajid Javid MP’s bill does not include these hidden liabilities within the Treasury’s national debt figures then we will fail to get to grips with the situation.

One of George Osborne’s most significant innovations has been to establish the Office for Budget Responsibility to maintain honest and transparent forecasting. If the fiscal targets set out are to be maintained then the OBR has to publish hidden liabilities on the government’s balance sheet. The existing targets also need to be supplemented by an expenditure target, as we recommended in our book How to Cut Public Spending.

Of course merely passing a law capping the national debt will not actually reduce the debt in itself, just as the Bank of England’s inflation target and monthly letter to the Chancellor haven’t kept down inflation. That law can always be changed if it is felt to be necessary. It does however help to keep the state of the nation’s finances in the public debate and force politicians to think more long term when making fiscal decisions instead of pursuing short term electioneering.

EU hypocrisy over austerity

Jul 1st, 2011
by David Cowan.
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The Greek Parliament has voted narrowly in favour of an austerity programme, which will enable a new bailout from the EU and IMF. This cash is designed to tackle the national debt and reinvigorate the economy. But the threat of default remains, and rioting continues on the streets of Athens. A similar fate looms large over other member states. So the European Commission will be suitably austere in their own Budget proposals for 2014-2020 then?

Of course not. They are proposing a whopping 5 per cent increase in the EU’s finances, five times the official EU inflation rate, and worth up to £100 billion. This will produce a mammoth €1 trillion budget. For the United Kingdom this will mean increasing our already substantial contribution by £1.4 billion every year for the next seven years until it reaches £23.1 billion. In addition to this a new funding formula will be negotiated, with the aim of further reducing the UK’s rebate. The rawest of deals, at a time when necessary spending reductions are being made within domestic departmental budgets.

Your money, or your life!

It doesn’t stop there. The EU wants its own tax powers to raise revenue independently. This includes a new EU-wide tax, a tax on financial transactions, and greater power over green taxes. This will only increase the ever increasing cost of living, crush economic growth, and punish motorists. Even Jean-Claude Trichet, head of the European Central Bank, has spoken out against such plans by describing them as “putting sand in the machine” of Europe’s financial hubs, including the City of London. The UK already has a large, complex, and unfair tax burden without the EU imposing a new layer of distortive taxes on people.

These proposals are scandalous. And only promising a bailout to Greece on the premise of passing an austerity budget is a bit rich, considering the Court of Auditors has repeatedly refused to sign off the EU accounts for 16 years. As we all know, there are many, many areas where the EU could cut its spending radically. For example, Dr Lee Rotherham’s report ‘From thespians to death rays’ exposed numerous examples of waste in EU expenditure, such as €2 million to ‘define God’, and €81,345 spent on a European Masters in Drug and Alcohol studies. Tired and broken structures will be propped up too. Under the new budget proposals the CAP will consume a grand total of €386.9 billion. This programme of agricultural protectionism has wasted billions, created wine lakes and dumped surplus products on struggling third world markets. It must end instead of further subsidies being pumped into the market. In the long term, removing trade barriers would be an effective way to slash our aid budget too, allowing farmers in developing countries to enter the market.

But sadly none of this is in the least bit surprising. The Government must resist these increased budgets and work for reduced contributions to save taxpayers’ money. If that involves flat-out refusing to hand over the money, then that’s the answer.

£1.5 million for propaganda in Tower Hamlets

Jun 24th, 2011
by David Cowan.
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On Conservative Home today John Moss, a Conservative Candidate in the City & East constituency for next year’s London Assembly election, wrote about Tower Hamlets Council’s decision not to scrap their newspaper ‘East End Life’, in defiance of the DCLG’s new ‘Code of Conduct’. He said “one London council is holding out against common sense and continuing to produce a weekly newspaper, delivered free to 87,000 homes in the London Borough of Tower Hamlets… and the cost of this to Tower Hamlets taxpayers? A cool £1.5 million a year.”

Lutfur Rahman's 'Truth'

Tower Hamlets’ ‘East End Life’ is a taxpayer-funded propaganda ‘pravda’ newspaper which will now become weekly, be redesigned, and have a website, despite the ‘Code of Conduct’ calling for such newspapers to be scrapped. Takki Sulaiman, the Director of Communications at Tower Hamlets who receives a hefty salary of £100,000 per year, conducted the review of the newspaper’s future, which makes up the bulk of his portfolio, and decided against abolition. The consultation process involved a grand total of 624 people – out of the 87,000 households which receive the newspaper – who decided to respond. With this 0.7% self-selected response rate Takki Sulaiman announced he had 51% of local people’s support.

The Executive Mayor Lutfur Rahman declared a £200,000 cut to the council’s budget. However, the report on scrapping the newspaper claimed that abolition would cost £2.1 million due to contracting costs and therefore it would be more efficient to keep it going. But the council did not give any figures for the long term savings that would be made by getting rid of ‘East End Life’. Mr Rahman is well acquainted with the culture of public waste, having been backed in the Mayoral race against the official Labour candidate by Ken Livingstone, who spent £3 million a year on his own propaganda rag ‘The Londoner’ (and reviving ‘The Londoner’ is one of the few solid pledges Mr Livingstone has made so far).

Tower Hamlets Council are resisting the cuts being made by DCLG and have refused to act in line with the new ‘Code of Conduct’. Their excuse is that they’re one of the most deprived areas in London and any serious reductions in public expenditure can only do them significant harm. However, this claim is blatantly false when one considers the fact that they have the fourth highest spending power of any UK council. In 2011-12 they will spend £1,889.64 per head with a population of 234,765. That’s a total of £443,621,334.6. Tower Hamlets Council have taxpayers’ money pouring out of their ears yet instead of using those resources to help the most deprived people in the borough, they are wasting £1.5 million a year on a newspaper which competes with real journalism.

Between December 2010 and March 2011 the council spent £154,431.16 on publishing and distributing the newspaper. This consisted of £128,013.02 for Trinity Mirror Printing Watford Ltd and £26,418.14 for The Distribution Company, which are both based in Tower Hamlets. It is time for accountability and efficiency to replace cronyism and profligate spending in local government. Tower Hamlets need to accept that East End Life is an unacceptable waste of taxpayers’ money and a gross distortion of a fair debate.

A step forward for HR transparency

Jun 17th, 2011
by David Cowan.
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The Cabinet Office has today published online the names, job titles and salaries of all civil service directors and more senior civil servants in departments and agencies. The TaxPayers’ Alliance first advocated HR transparency in our response to the ‘Code of recommended practice for local authorities on data transparency’. Starting at the top is a very welcome first step. However, there has to be progression towards full HR transparency. As we’ve outlined before, this needn’t include salary details for junior staff, but taxpayers are entitled to know what jobs their money is paying for.

The publication of all payments to suppliers over £500 was a welcome step forwards but this data excludes the greatest cost in local government and other public services: staff. So knowing exactly what job everyone at the council is doing is crucial for accountability and financial probity. Hammersmith & Fulham and Kensington and Chelsea councils have already published full structure charts of how many people they employ and what they do. Full HR transparency should be extended to every council – and public body – in the UK.

There are other benefits. Our ‘Non-Job of the week’ blog highlights the bureaucratic public sector jobs that continue to be advertised. If all public bodies published a list of jobs and job titles, then taxpayers would be far more aware of the work their council does and can assess their priorities. Another bonus could be that Councils stop using the jargon that bewilders and confuses those who read the job adverts.

Taxpayers are aware of the necessary spending decisions that councils have to make. However, with greater transparency, the full extent of non-jobs, excessively high salaries, and profligate waste can lead to greater accountability and make this job a lot easier. Full HR transparency would be a triumph for localism too, as it would allow ordinary taxpayers to debate and engage with the priorities for their area.

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