Recently the Online Journalism blog produced two graphs – one we produced for the Guido Fawkes blog and another produced by the IFS – with one suggesting that increasing the personal allowance was progressive – benefiting those on low incomes most – and another that it was regressive – benefiting those on high incomes most. That blog, based on a tweet by Guardian data editor James Ball, misunderstood the reasons for the difference between those two graphs.  Now the fact-checking website FullFact has looked at the issue and concluded that they have “little reason to doubt the calculations used by either side, and both seem to accurately present different sides of the argument” it is worth explaining why we feel the personal allowance is a good thing for taxpayers on low and middle incomes, and deserves to be called progressive.

The difference between the two graphs is nothing to do with whether the figures are given a percentage of income (gross or net). Relative to their income is the right standard despite what Mary Hamilton, another Guardian journalist quoted in the Online Journalism blog, says (and almost always used in distributional analysis). But regardless there is no way that in terms of individual earners it will be regressive for those who use their personal allowance.  It will benefit every earner who makes more than the new personal allowance to exactly the same extent: the increase in the allowance multiplied by the basic rate of income tax.  That just makes a bigger proportional difference for those on low incomes.  As Rory Meakin showed in an earlier blog, and here I’ll introduce a third way of looking at the issue, it will remove a larger share of their income tax liability:

The critical difference is whether you look at households or individual earners. There are two reasons why the IFS analysis finds increasing the personal allowance is regressive:

1. People who don’t pay income tax won’t benefit from an income tax cut, however it is structured.

2. They work on a household basis, and higher income households are less likely to include someone who doesn’t use all of a higher personal allowance.

It’s all about those who already don’t pay income tax or pay so little they won’t use the new allowance completely. Plenty of low income households will include someone – perhaps doing part time work – who earns under £10,000 whereas a higher income household is more likely to include two earners who both make well over the personal allowance.

Of course looking at these changes in per household terms is perfectly normal and legitimate. But in this case I think it muddies the water. If someone earns £12,000 they are still a low earner even if their spouse makes £50,000. Taxing them at a marginal rate, including both forms of NI, of 40 per cent probably isn’t a good idea – particularly as you are often talking about women who are relatively likely to drop out of the labour market if you tax them too much (there is an extensive economic literature on that issue).

I think the Guido Fawkes blog summarised the situation perfectly. Direct taxation isn’t an issue for the very poorest but the working poor will see the biggest cut in their income tax liabilities. That has to be both progressive and efficient (as it will improve their incentives). But if politicians want to cut taxes on the very poorest, then cuts cigarette or alcohol duties or a reversal of the rise in VAT (which both the TPA and Guido Fawkes campaigned against) would be great too.

PFI has been associated with some of the worst excesses of Gordon Brown’s irresponsibility with the public finances.  Along with other debts like the bill for decommissioning early nuclear plants it is a part of our total liabilities that was hidden off the balance sheet.  The amount at stake is substantial, tens of billions of pounds, though tiny compared to the biggest hidden liability: public sector pensions.

The release of the Whole of Government Accounts has led to fresh scrutiny of the PFI programme with the Independent, for example, reporting that there was a liability of “£131.5bn on the private finance initiative (PFI) such as hospital and school building – four times more than the assets secured by the deals”.

It doesn’t sound good.  But does that mean PFI is an inherently bad way of paying for worthwhile investments?  Not necessarily.

The Whole of Government Accounts mention that the lifetime of a PFI contract is typically 25-30 years.  That is a long commitment that the firms investing in PFI projects are making.  Based on current gilt rates, it would cost even the Government nearly £70 billion to borrow the £30.9 billion book value of the PFI assets.  That is more than double and therefore – just on the basis of that very rough calculation – the risk free cost of capital can account for about half of the difference between the asset value and cost figures.  If you want to invest a pile of capital in something then one way or another you are going to pay a price for that, however you finance it.

This isn’t a simple, risk free investment.  The point of PFI is to transfer risk and management responsibility to private sector firms, who are generally required to turn over a quality hospital or something like that at the end of the process.  That way you avoid the mismanagement that has seen too many major projects go way over budget and arrive late.  In 2009, the National Audit Office found that most PFI projects are “built close to the agreed time, price and specification”.  But again private sector firms have to be paid a price for taking that risk on their investment and managing the project.  If the interest rate goes up to about 5 or 6 per cent then that can explain what looks like a quadrupling in costs.

All that doesn’t mean that PFI is always, or even generally, good value.  There have been some ridiculous stories about the cost of replacing lightbulbs or electrical sockets which suggest something funny could be going on in the contract.  This wouldn’t be the first time politicians and bureaucrats have let canny operators rip off the taxpayer.  And it is important that we have a more honest account of the real liabilities that politicians have been racking up on taxpayers’ behalf.  Mike Denham explains the issue in a video below.  But let’s be realistic about the cost of PFI and how that compares to other ways of financing major investments.

Last week I wrote about how it was wrong for Stephen Hester to be getting a bonus of nearly a million pounds, while taxpayers were still so far from getting their money back after the massive bailout.  Last night it was announced that he was going to turn the bonus down.  He deserves credit for that, but some commentators have pointed to a fall in the bank’s share price this morning and argued that taxpayers have lost out as a result of the decision.  The problem with their argument is that other British and European banks are down even more.

At the time of writing the RBS share price is down by 3.21 per cent, which is certainly bad news when every one of us owns thousands of shares in the bank, our share of the 82 per cent the Government has owned on our behalf since the bailout.

But Lloyds are down 4.47 per cent, Barclays are down 4.33 per cent.  Banks in Continental Europe are having an even worse time.  Credit Agricole is down 7.54 per cent; BNP Paribas is down 6.76 per cent; and Deutsche Bank is down 3.66 per cent.  As I wrote in my post last week, “most European banks have had a hard time this year” and they are continuing to struggle with fresh worries in the eurozone.  British politicians and commentators can be very self-obsessed and think that just because we’re all talking about Stephen Hester’s bonus it must be the critical issue affecting the firm’s share price.  But there is little evidence that is actually what is going on.

Earlier this afternoon, in a debate on Sky, I argued that Stephen Hester had done the right thing, and that this wasn’t the time to be paying him a big bonus.  You can watch the debate above.

What kind of value have taxpayers got out of RBS over the last year, as the majority shareholders?  Does it justify the substantial £963,000 bonus that has been announced for their Chief Executive Stephen Hester this morning?

Taxpayers own 82 per cent of the bank, which has a total market capitalisation of £29.6 billion.  This time last year the RBS share price was around 43p.  It is now around 27p.  If that decline in the share price had not taken place the taxpayers’ stake would be worth around £38 billion instead of around £24 billion.  That means we are down £14 billion – or around £500 for every family in Britain.

UK Financial Investments Ltd (UKFI), the company that the last Government set up to manage our stakes in the bailed-out banks, has argued today that the bonus reflects “the significant contribution he has made towards rebuilding RBS in 2011″.  And most commentators do seem to agree that Mr. Hester is a good choice to lead the bank’s recovery, with an impressive CV.  But if he and UKFI are confident this strategy will pay dividends at some stage, why can’t a bonus wait until it actually does?  When taxpayers’ get their money back, then he can be rewarded for that hard work.  In the meantime, he should be able to get by on his salary of over a million a year.

Another argument that could be made, and shows up in the UKFI annual report, is that most European banks have had a hard time this year.  The performance of RBS has been alright by comparison.  But again, isn’t that an argument that RBS will see a real turnaround when those economies recover?  That we shouldn’t be paying out bonuses now when it just isn’t clear what real value has been delivered to taxpayers as shareholders?

There is more the Government could have done to limit or stop this bonus.  With the bank still dependent on a bailout, still owned by taxpayers who can’t sell their shares if they don’t feel they are getting good value, it is very hard to justify.

The Prime Minister recently said that the British film industry should support “commercially successful pictures”. The statement has obvious important implications for the British Film Institute, which takes taxpayers’ money and subsidises film-making in Britain.

Mr Cameron’s assertion makes sense, but many have pointed out the difficulty in selecting successful films before they have been made. In a discussion on Wednesday evening’s BBC Newsnight, film-maker David Baddiel explained to presenter Gavin Esler why films ought to be funded privately despite appearing to argue for more taxpayers’ money for his industry.

DAVID BADDIEL:
The problem is what constitutes commercial viability as far as David Cameron might think it.
To choose the example of the film I made last year or two years ago, it was funded independently, privately, cost a million pounds. It’s now taken over five million dollars worldwide so it’s commercially viable in his terms but it’s about a Muslim who discovers he was born a Jew.
Now, I am convinced (in fact I was convinced at the time because people did say “no”), that if I took this to the quango or whatever it is set up by David Cameron looking for commercial viability, they would say “that’s not a commercial idea” they would say it’s too niche that not that many people would come and see it. That turns out not to be true.

GAVIN ESLER:
But you got it made because you’re good doing these things so you perhaps didn’t need the money.

DAVID BADDIEL:
We did need the money. We absolutely needed the money: it took a while to come in and people took risks on it.

The fact that private investors take risks and therefore take their time to assess a project is precisely why they, not some bureaucrat spending other people’s money, should be controlling which projects get funding and which don’t.

Britain has a huge budget deficit and it’s a matter of practical urgency to axe things like film subsidies to help us avoid a sovereign debt crisis like those engulfing some of our European neighbours. But even if we didn’t, taxpayers shouldn’t be asked to cough up so that film investors don’t have to think before they take risks. We should scrap these subsidies.

2012 was supposed to be the year when everything would start to look up for the Government, according to the received wisdom back in May 2010. This was to be the year when the economy would rebound into strong growth, monarchists would celebrate Her Majesty’s Diamond Jubilee and the gaiety of the nation would be lifted upwards as Londoners in traffic jams wished Olympics VIPs Godspeed as they whizzed past in exclusive Olympics traffic lanes. But that’s not how it looks now.

A Deloitte survey of Chief Financial Officers has found that 54 per cent now expect a double-dip recession – twice the figure making that prediction last year. Meanwhile, a survey of companies by Lloyds Bank shows business confidence has plummeted back to levels not seen since 2008 and assesses the likelihood of another recession to be 75 per cent.

The sluggish growth in the US and Japan means that lacklustre British economic growth is unlikely to be dragged up by booming export orders. The unfolding debt crisis in the eurozone, meanwhile, means companies are once again battening down hatches and preparing for a possible disaster.

In the UK, high taxes and Byzantine regulations continue to choke off the growth that we’d be enjoying without them. While politicians often say the right things about red tape, it’s becoming clear that far too little is happening to reduce the burdens on business and pave a path for prosperity.

Even the Government’s moratorium on new regulation for micro businesses employing fewer than 10 people will make little difference as it has emerged that it will only apply to one new regulation, a single new rule regarding forthcoming equalities legislation. Alexander Ehmann, Head of Regulatory Affairs at the Institute of Directors said:

“It’s the Emperor’s New Clothes. The moratorium exists but it hasn’t been applied to anything. Unless it is applied to something it is meaningless.”

John Walker, Chairman of the Federation of Small Businesses, summed up the increasing frustration with the Government’s failure to act on its diagnosis:

“The Government has talked a good game on deregulation. But small firms are still waiting to see action on the ground that matches the rhetoric.”

With the deficit still at eye-wateringly high levels and grim prospects for our major trading partners, the Government needs to take decisive action now to free up enterprise to create the jobs and prosperity which the economy and the public finances desperately need. Announcements and statements are not required. Abolition, amendments and cuts to regulations and taxes are.

Getting debt under control is proving harder than anyone envisaged

- David Cameron last week

At the time of the March Budget, the Office for Budget Responsibility forecast that borrowing would overshoot the Coalition’s original 2010 forecasts by a cumulative £46 billion. The overshoot was entirely attributable to a spending overrun:

Since then growth prospects have deteriorated, largely reflecting the turmoil in the Euro area. So how much worse are things now?

According to the latest monthly public finance data (covering April to October) borrowing this year seems to be only slightly higher than the increased March forecast. However, tax revenues are coming in below expectations – Corporation Tax receipts have been especially weak. And some elements of spending – including debt interest and social security – are running higher than expected.

Against that, there is now evidence of retrenchment in other areas of government spending. Public sector employment fell by 4 per cent over the last year (to Q2), although average earnings are still increasing (up 2 per cent in the year to September).

The overall fiscal picture remains one of slippage. Borrowing is already forecast to be higher than originally planned, and the setback to European growth prospects means that the OBR’s new forecasts will be worse again. On unchanged policies, eliminating the current deficit by mid-decade now looks unlikely.

Yet despite that, the bond markets have continued to support the government, with funding costs down to a 60 year low. It is an impressive pay-off for maintaining fiscal credibility.

However, the gilt market is on very thin ice. Inflation is now more than twice the yield on 10 year gilts – 5 per cent inflation vs. 2.3 per cent yield – implying that the market is taking a huge amount on trust.

The lesson of history is that such trust can be very fragile. The UK may be viewed as a haven of fiscal stability compared to the Euro area, but negative real yields are unlikely to be sustainable for long.

The forecasts built into the March 2011 budget allowed for higher average gilt yields than those currently in place – rising up to 5.1 per cent by 2015-16. So right now, the public finances should be turning out better. But as we’ve seen, they’re not.

And given the inflation background, yields could easily go higher than allowed for in March. According to the OBR, for every one percentage point increase in yields above their baseline assumptions, debt interest payments would be £6 billion a year higher by 2015-16, with further cumulative increases beyond that.

And of course, the official debt is only one component of the real national debt. To get a complete picture we also need to take account of the government’s off-balance sheet debts. These include its unfunded pension liabilities and PFI contracts. Servicing of those liabilities means that the true cost of debt servicing (debt interest plus public sector pensions plus state pensions plus PFI) over the next few years will be around treble the official debt interest forecast:

This highlights an important longer term issue – the cost of our aging population. Because of the rising cost of pensions and healthcare for the elderly, we will need to continue our programme of fiscal consolidation far beyond 2015-16. According to recent calculations by the IMF, between 2010 and 2030, the UK needs to tighten fiscal policy by 13 per cent of GDP – the fifth biggest tightening of any advanced country. Against that, the current budget projections only allow for a tightening of around 8 per cent.

In these difficult circumstances, the Chancellor must use the Autumn Statement to underline his fiscal resolution. There is certainly a case for growth promoting tax cuts, but any such moves must be backed by a tougher stance on public spending.

In particular, we continue to believe that that the government should commit to a third fiscal rule, limiting the growth of public spending over the medium term. Such a rule could allow the Chancellor scope to cut some taxes in the short-term while reassuring the markets that the overall budget remains on a sustainable path.

It is a long time since Northern Rock was last regularly hitting the headlines, as its funding dried up at the start of the credit crunch.  Then politicians were busy playing down the cost of the bailout.  But we weren’t convinced.  TPA Research Fellow Mike Denham argued that we would be left with a hefty bill for the poor quality assets we had taken on.

And I looked at the extent to which politicians were “committing taxpayers money to the risky venture of trying to revive Northern Rock instead of taking the more cautious approach of trying to get value from the assets as they stand”.  Now part of the bank is returning to the private sector and the losses on the bailout are starting to be crystallized: the BBC reports that we are down £400 to £650 million.  But that’s just the start.

The big money is in the bad bank.  Again the BBC reports that the losses there could be as much as £21 billion.  That’s over £800 for every family in Britain.

And even more of our money is at stake in the other nationalised banks; particularly RBS and the Lloyd’s Banking Group.  It wasn’t so long ago that they were worth more than they are today, but wise commentators were telling us that we needed to hold on to those shares so we could enjoy the gains as their prices inevitably rose.

Now, with their talent for identifying every possible opportunity to lose huge amounts of money, and the unfolding eurozone crisis, it is possible that RBS could even need another bailout.  At that stage, surely we would need to finally put the bank out of its misery and look at bail-ins of the kind envisaged in the Vickers Report instead of putting yet more of our money on the line.

The deal today will at least create more competition for high street banking and get some money back.   Ed Balls suggesting after three years that we should keep holding on in the hope of a turnaround is ridiculous.

The critical mistake that politicians have made at every stage in this crisis is to think they know best, that they can see a safe opportunity for profits where people playing with their own money can’t.  Taxpayers weren’t queuing up to put their money into Northern Rock, quite the opposite, but politicians did so on our behalf.  The best guess as to the long term value of the taxpayers’ shares in the nationalised banks is their market price.  Now we are starting to pick up the bill for the politicians’ hubris.

Today the Department for Business, Innovation and Skills announced the results of the second round of the Regional Growth Fund – which we last looked at when we uncovered that one of the directors is from an organisation that doesn’t support growth.  Nick Clegg told the BBC that the £950 million would help create or safeguard “hundreds of thousands of jobs”.  The opposition’s only criticism was that the money was too late, or not enough.  That it wouldn’t match the scale of the wasteful and ineffective Regional Development Agencies.  That means it is up to the media and groups like the TaxPayers’ Alliance to scrutinise how the money is being spent, and whether it will deliver on the hype.  After all, we’ve seen enough dodgy claims that policies will create jobs before.  So what did we find when we looked at the projects approved?

Nothing.  There is a list of recipients and an estimate of the number of jobs that will be created in each region but no suggestion of how much each recipient is getting or what projects are being funded.  All we have are questions:  Why are British taxpayers funding Santander UK plc, a subsidiary of the major Spanish banking group Santander?  How will funding for miscellaneous national projects that they expect to create 200 jobs directly create 16,500 indirectly? What are any of the 119 firms getting our cash doing with the money?

As Jim Pickard has pointed out in a blog for the Financial Times, even the names of ten of the winning companies haven’t been disclosed.  At some point apparently we will be able to see where the money is going.  But until then grand claims about the numbers of jobs that will be created are a complete joke.  As far as we know, the money is all being spent on procuring the latest generation of the Turbo Encabulator (above).

Maybe the money is all going to projects that will be incredibly economically valuable but, for some reason, can’t generate a return for private investors and therefore need support at taxpayers’ expense.  Or maybe this is just ugly corporatism.  Taxing all businesses then giving the money to a few who have won the favour of politicians or bureaucrats.  No one knows and until we do I would assume the worst, that this announcement was calculated to get the jobs figure out there and reported before anyone could judge for themselves looking at the actual plan.

The only mitigating factor is that many of the projects are being required to raise private capital as well.  That means it is less likely the taxpayer is being sold a complete lemon.  But it could equally mean that these projects would have gone ahead anyway, so public funding hasn’t achieved anything.

As Fraser Nelson has written for the Spectator this morning there is a critical contradiction between this funding and the Government’s wider narrative on how economic growth is best encouraged:

No wonder that so much confusion surrounds the government’s growth strategy. The government is sending out conflicting messages all the time. Osborne talks about tax cuts, while delivering tax increases. It says “there is no money left” while doubling the international aid budget. Clegg talks about the problem of the Man in Whitehall trying to direct regional economies, before going on to direct regional economies. In Vince Cable we have a Business Secretary who seems to regard his job as complaining about businesses. He is perhaps the only business secretary who disparages capitalism as a system which “takes no prisoners”.

If people really want to fight crony capitalism, the answer isn’t moralising about misleading figures on pay for FTSE100 directors.  It is properly scrutinising schemes like this that make a company’s success more about their ability to convince politicians they’re worthwhile and less about their ability to efficiently produce goods and services we need or want.

In her piece for today’s Guardian, Polly Toynbee describes her trip to the protest camp outside St Paul’s in the City of London on Sunday night, shortly after her “fierce argument” with me on Sky News on the subject.

I’ll overlook the fact that she misquotes me in the piece – and for branding me “disgraceful” in a Tweet yesterday – in the hope that she can be persuaded that not only are there more useful responses to the economic crisis than setting up camp in the City, but also that there is much on which all of us frustrated  about the situation should be able to agree.

In the initial statement agreed by Occupy London – which Toynbee commends – there are key points on which the TaxPayers’ Alliance can find common cause, namely in our opposition to bailing out the banks and in wanting “regulators to be genuinely independent of the industries they regulate”.

At the time of the last Government’s £50 billion bank bailout, we expressed our opposition to the move, not least because of the increased risk to which taxpayers’ money was being exposed. Why didn’t the politicians instead look at making deposit protection more credible, changing broken rules that were making the crisis worse, or push for faster interest rate cuts?

Moreover, there are big questions to be asked about the regulatory framework in the City and the mistakes made by politicians which led us to the position in which we find ourselves today. Again, the TPA has done work on this, as published in our comprehensive report, How inept regulation and poor policy decisions drove the financial crisis.

Why did ministers encourage off balance sheet debt, whilst driving up borrowing – and claiming to have put an end to the economic cycle of boom and bust? Was it not wrong that the Bank of England didn’t have the information it needed to work effectively as a lender of last resort? Why were concerns about the FSA’s incompetence and ineffectiveness ignored? Were there not regulations in place that made the crisis worse – including those emanating from the European Union?

Considering all these questions and more would be far more productive than merely condemning bankers and the capitalist system which has doubled people’s wealth every generation around the world, lifting countless millions out of poverty. Moreover, I fear that this new wave of protests has already lost its focus, with all manner of other causes tacking along to campaign against the military, in favour of the NHS and so on, which distorts the message they were trying to get heard.

Furthermore, the protesters are signalling their support for the nationwide strike on November 30^th, whilst refusing to accept the Government’s cuts as “either necessary or inevitable”. On these matters, I’m afraid they are they are starkly out of step with public opinion – as evidenced by ICM polls for The Guardian, no less.

There is not majority support for strikes: people recognise that as we are trying to harness economic growth, the last thing the economy needs is for the country to be brought to a halt for the day. And on the issue of the cuts, only 8% of Britons believe that the Government should not be cutting public spending at all, whilst there is massive net support (66% to 12%) for the statement that the government has been spending too much [of our] money.

So the 500 protesters in the City purporting to represent 99% of the country ought to not only spend their time a bit more productively by establishing the lessons to be learned  from the economic crisis, but also considering the evidence, as published in The Guardian, which shows that the British people by no means share all of their views.  We can differ on what needs to be cut and when, but most people understand that spending cuts are right and necessary.  The Government can’t keep living beyond taxpayers’ means.

It is a real tragedy that so many young people aren’t able to find work. According to the Office for National Statistics, 721,000 16 to 24 year olds were unemployed in the three months to August this year, excluding full-time students. Lots of young school leavers and graduates are facing pretty grim prospects with a slow recovery from the economic crisis across the developed world.

But it is important that we are clear about the source of our particular relative problem. The graph below uses OECD data to show how the percentage of young people not in education, employment or training (NEETs) rose in Britain between 1997 and 2007 – before the recession – while falling in the rest of of the developed world:

So why did that happen?

Young people with less experience tend to be less valuable to their employers. That’s why we tend to earn more as we get older. If the Government takes action that makes it more expensive to employ people the first to be priced out of employment, as it costs more to employ them than it is worth an employer paying, are often young (or female, or from an ethnic minority).

Politicians have done a series of things that have made it more expensive to employ people, particularly on low incomes:

• Increased employers’ national insurance.
• Implemented domestic regulations like the National Minimum Wage.
• Implemented European Union regulations like the Agency Worker Directive.

By contrast, back in 2002 then German Chancellor Gerhard Schröder confronted the country’s economic malaise by cutting non-wage labour costs. He took on opposition from the haves who liked the expensive entitlements that those policies provided. Along with an education system preparing people for the world of work, which hopefully reforms like free schools can start to build here, the action he took then has been critical to Germany’s strong economic performance now.

Other taxes like Corporation Tax are also important. If they deter investment and enterprise then that means fewer employers looking to hire people in the first place. And we need to reform a benefit system that seriously undermines the incentive for some people to work.

But the critical thing now is that we stop driving a wedge between what employers’ are able to pay and what employees receive that leaves many sitting at home on benefits who should be in work. Cutting non-wage labour costs is vital to help the most vulnerable people in the labour market.

The Chartered Institute of Personnel and Development (CIPD) has released a note warning the Government that it is meeting its public sector headcount reduction targets faster than projected but recommending that it should announce a temporary halt to the progress being made. The CIPD’s chief economic advisor, John Philcott, expresses concern that the number of new jobs created by the private sector might not be able to keep pace with reduction in the numbers in the public sector:

Public sector job cuts in this context would be a false economy – exacerbating weakness in the labour market, adding to unemployment and in turn hindering rather than helping the task of fiscal deficit reduction. A more sensible course would be to delay all further public sector job cuts to the end of this Parliament and, if necessary, into the next, thereby enabling them to be more easily absorbed without nasty macroeconomic side effects.

Too slow?

The Government’s modest austerity program leaves no room for further loosening of the purse strings. It is in no small part because of the credibility of Britain’s deficit reduction plan that borrowing costs are still manageable, despite our deficit being just as large and unsustainable as Greece’s. And we shouldn’t be running up debt hoping today’s low interest rates will last forever. They won’t. When they do rise, the cost could quickly become crippling.

It is worth noting that the Government plans are expected to increase the size of the national debt by 50 per cent over this Parliament already. And even if it was sensible to increase borrowing, any measures should cut taxes and promote real growth rather than carry on wasting taxpayers’ money on keeping staff whose jobs aren’t necessary on the payroll.

Lloyds TSB International Wealth revealed yesterday that 17 per cent of wealthy individuals surveyed reported as ‘actively considering a move overseas’, compared to 14 per cent six months ago, which adds to the growing pressure for tax cuts as a higher priority than raising spending. If we leave tax cuts until they’ve all left, that really will be a false economy as jobs and tax revenues leave with them.

The economy is weak and growth is faltering but high public spending and unnecessary public sector jobs are not the solution to the problem – they are the problem. Growth will pick up when the barriers to growth are removed. This means when businesses are freed from the overzealous regulations of the type recently identified in a report by the Institute of Directors, and when taxes are cut which are getting in the way of value-creating economic activity by making it prohibitively expensive. But it also means when buildings, land and employees are reallocated from poor value tasks in the public sector to more useful jobs in the private sector that genuinely create wealth.

This task is always going to be bumpy and cannot and should not be micromanaged to ensure the numbers always match in each quarter. It’s also hard for the people whose jobs are being cut and the businesses whose contracts are being scaled back. But the underlying rate of growth cannot be raised without taking tough decisions. Britain needs lower, simpler taxes for real growth and that means we should cut spending by more than the Government plans to, not less.