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Beyond QE: ways to kickstart the UK economy

With the UK economy stuttering from one piece of bad news to the next, we ask fund managers and economists how else the Bank of England and Treasury can stimulate the ailing economy.

Beyond QE: ways to kickstart the UK economy

As the UK economy lurches from one round of bad news to the next, markets are preparing for a further round of quantitative easing (QE). But a number of investors say now is the time to consider the alternatives.

Five years since the credit crisis hit and after £325 billion in quantitative easing on top of record government spending, UK GDP contracted by 0.7% in the second quarter of the year, following two quarters of consecutive negative growth.

With interest rates hovering at record lows of 0.5%, some are calling on the Bank of England and Treasury to consider alternatives to quantitative easing and their commitment to austerity in order stimulate the ailing economy.

Thames River Capital Global Bond fund manager Paul Thursby is one fund manager who is calling for a rethink. ‘There has to be a plan B, but the question is how quickly do they go to that plan,’ he said.

He and co-manager Peter Geikie-Cobb argue the government’s focus on austerity is not working because it is predicated on historic trend growth numbers, which do not reflect the reality of a deleveraging economy and the headwinds from the eurozone crisis.

Meanwhile low borrowing rates are irrelevant because ‘the people that want to borrow can’t and the people that banks want to lend to don’t want to borrow’.

‘Two to three per cent growth in a deleveraging economy is not going to happen. They need to halve the pre-2008 trend growth figures,’ Geikie-Cobb said.

Tax rebates

He suggests the Treasury steps in to guarantee infrastructure projects in order to stimulate employment, investment and demand, but recognises that the results could take years to feed through to the economy. An option that could have quicker results could be ‘helicopter’ money in the form of tax rebates.

Their view is supported by the National Institute of Economic and Social Research, which suggests that the near £9 billion worth of money that has been set aside by five of the largest of the UK’s banks to cover payouts relating to payment protection insurance mis-selling claims could raise GDP by at least 0.1% after it feeds through to consumers.

Kames High Yield Bond fund manager Philip Milburn also suggests that one-off tax rebates and tweaking income tax rates to lower the bottom and mid range bands. ‘It would therefore be fiscally neutral and the Lib Dems would love it, but the bit it would hurt the most would be middle England, which would outrage the Conservatives,’ Milburn said.

Another unorthodox option to boost consumption could be to change the format of the lottery. ‘You could tweak the lottery so at least 50,000 people are guaranteed to win £1,000 prizes. It is a bit of fun and would give money to people with a greater propensity to spend it. The only problem is the number of tickets people buy is hugely correlated to the size of the jackpot, but you could have one-off weeks where you do this.’

He also echoes calls for greater infrastructure spend. ‘More government infrastructure spending would help. They could get bond market financing. Institutions like us would happily do this if we could get a national investment body or a replacement for Ambac, which oversaw many PFI deals.

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92 comments so far. Why not have your say?

Kris Vincent

Aug 20, 2012 at 12:02

BOE buying private sect assets and a huge push on infrastructure projects sounds like a great idea.

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Alan Tonks

Aug 20, 2012 at 12:25

The best way to kick start the economy is to kick out Mervyn King and his useless cronies.

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Aug 20, 2012 at 12:26

Try removing the vast amounts of red tape and regulations piled on by the previous government and the economy might be able to grow again.

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shaon mukherjee

Aug 20, 2012 at 12:30

the best way to kick start an economy is by building new homes and infrastructure, This is tried and tested or BOE gives everyone in the country 5K each

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Aug 20, 2012 at 12:45

Building is the only way forward. More rail/roads and affordable housing. Produces immediate employment and long term infrastructure improvements.

PS QE is not "stimulus" the BoE's own money supply figures clearly show it is used simply to partial offset the money destruction of the deleveraging financial sector. Indeed despite £375bn of QE to date M4 is still down £170bn from peak (thats £545bn of money "destroyed" since 2010 peak). If QE was ever meant to stimulate they'd have had to be injecting more than was being deleveraged out of existence and they never did.

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Aug 20, 2012 at 14:56

Is this government so useless that they don't know how to sensibly stimulate the economy? Obviously you invest in the areas where you spend now and gain efficiency in the future ... there are a whole host of options. Let me give just one example ... where they spend some now get people employing others ... save huge amounts in the future ... only problem with this one is that it may be too cheap and the savings too large:

There are many many possibilities it is just this one is so obvious ... starts with chopping employer's NI ends with super efficient tax and benefit system ... a fitter retail banking sector and software systems our companies will sell to the rest of the World... what could be better.

Will they do it ... of course not!

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Paul Wynter

Aug 20, 2012 at 16:18

one things for sure, the present lot in gov't will find a way to give lots more cash back to their mates who helped fund them into power, just like the last lot did.

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Anonymous 1 needed this 'off the record'

Aug 20, 2012 at 16:33

Why this obsession with previous generation motor cycles, almost pedestrian!

Just get on your bikes and start pedallingideas for aded value rathert than inhibited artificial growth . It is not Mervyn's job to have ideas about exchanging four wheels for an unbalanced two wheeler. . ...

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mark jukes

Aug 20, 2012 at 17:07

There is no plan B we cannot spend our way out of this mess by borrowing yet more money to invest in temporary projects. When the projects are finished what then? Borrow more money to fund even more temporary projects - where does it end?

Plan B is an idea put around left wing groups who either do not have a clue (mostly)or to garner support for their political parties and ideology. The idea has been picked up by the media as a great alternative to the problems caused by plan A. It is plain rubbish.

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Geoff Downs

Aug 20, 2012 at 17:51

Mark, you are right. The problem is there are two camps. First the austerity and second the spend. Neither of these appear to be the answer, so more radical ideas are needed.

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Anonymous 1 needed this 'off the record'

Aug 20, 2012 at 18:07

Where do you get the value to either "save" or "spend".

That is the reason why the Japanese have lost a generation. They inhibited their capacity to produce value, and now can do neither. The focus is rightly on details, but where in either analysis is the value without which there is no "economy", and against which "fiat" money supply is issued.

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Geoff Downs

Aug 20, 2012 at 18:19

In Japan they had a massive equity bubble fuelled by easy credit and debt. The bursting of this bubble along with other issues eventually created deflation. They tried everything to kick start the economy, just as the West are trying now. They still have deflation and to much debt. There are no easy answers but certainly creating more debt is a recipe for disaster.

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Ryan McC

Aug 20, 2012 at 18:24

If great investment is made in providing an adequate education for the entire population, the intelligence derived from such an investment will surely create better prospects for all!! Unfortunately as someone else has pointed out, much of the QE goes to the crooked cronies thus better prospects for them and not for all. Get all of these sneaky 'buddies' out of office/authority and implement only those benevolent persons with the appropriate level of knowledge (thus a greater ability to make better judgments) as our leaders. QE (stolen money) for the rich cronies and austerity for the rest of us - f*** off!!!! These cronies should have realised subsequent to the recent riots that the people they refer to as 'idlers' (the very people our ostensible leaders have failed to provide with an adequate education) are perhaps less idle and more aware than the cronies like to think. They may not understand the intricacies of economics, politics etc. but they sure as hell know when the piss is being taken! The cronies then use their media buddies to make the impoverished look like the bad guys! I really hope the majority of the population some day wakes up to the realisation that acts such as riots are a manifestation of the disparities in society. It is an implicit message (albeit an explicit act) from the majority of the impoverished to the rich cronies that they want to be seen and heard in society. Be careful who you label as the bad guys people. Don't believe everything you see/hear on the media and when events such as riots occur, ask yourself why...don't be tempted to just think the people involved are just evil, lazy etc. They are not; this is their only way of communicating in accordance with their poor level of education, representing the failure of our futile 'leaders'!!! CRITICAL THINKING IS A MUST PEOPLE!!!!!!!! Best wishes to all!

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Geoff Downs

Aug 20, 2012 at 18:37

No one could possibly argue with a good education for all. The fact is though even if everyone was educated to degree level we would still need people to do the less attractive and least well paid jobs. You will always have wide discrepancies in peoples wealth and standard of living.

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Aug 20, 2012 at 19:14

Any additional spending would lead to cash leaving the UK and make our balance of payments worse. Until we can pay our way in the World then we are going to continue to suffer.

And also just as GDP went up when people spend loads of other people;'s money, so it goes down as they repay their debts. This does not mean that the UK economy is in long term recession - just a correction after 15 years of false boom.

So we have to be patient and not create false markets which will do us more harm than good.

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Geoff Downs

Aug 20, 2012 at 19:29

Jon, Agree with some of your comments. Alas don't think this will just be a correction and then back to normal. This is a much worse economic crisis than anyone of us has seen and as yet there are no solutions for it.

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Robert Gripes

Aug 20, 2012 at 21:04

Do we want to creat ten's of thousands of jobs in the UK, surley this needs to be done on a Europe wide basis, to avoid more mass migration to this country, looking for these new jobs, probably incresing the the unemployment in the British work force

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Jack Belfitt

Aug 21, 2012 at 08:39

We could try and get the Labour Party to pay off the huge debts that they have left in their train! Of course just starting with Blair could be most helpful. Then of course there are 'Financial Instruments' . Does devaluation come under this heading or is it too honest a term to use in these financial pretend games that politicians play?

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Aug 21, 2012 at 13:21

I think part of the UK's problem is we don't make anything & we pay too much for our imports. We have a huge prison population & mass of unemployed taking benefits. With some government backing, we could be churning out all manner of goods at competitive prices. As we could essentially churn out mass produced items with low labour costs, we could compete with the far east & Germany/US. We could buy the goods ourselves thus lowering our consumption costs, bring our BoP back into line, raise our GDP and put Britain back on the map. Until people have some disposable income we will never get out of this black hole. Of course, this would all be considered too right wing and we wouldn't want the human rights of our prisioners I guess we'll just muddle on and still pay too much for everything and remain in debt for most of this centuary.

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Aug 21, 2012 at 13:31

I agree with richb but can you imagine the hysteria from people like Polly Toynbee and Harriet Harman with screams of slave labour and social cruelty. I am always told that there are no jobs but the people who say this can never explain how the Polish immigrants all found work.

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Anonymous 1 needed this 'off the record'

Aug 21, 2012 at 14:14

The Polish immigrants got work, got scolarships, took qualifications, got qualified and provided an international entrance into EU markets, with the result that they are beginning to take over the London City and its law firms.The welsh are still learning welsh in schools. There is no incentive for UK children to leave the country get work and intellectual experience and come back, in exchange.Most EU university education is not fee paying.

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Aug 26, 2012 at 09:17

Well how about removing some of the disincentives to employ people, and getting rid of a quango or hundred. - I don't think there are any on that bonfire, but they continue to proliferate. (equality and Diverstiy - a total waste of money. Procurement, costs more than it can possibly save, Waste and resource action group: - A new one paying outside consultants to 'anounce' the bleedin onvious. -- Don't wash things so much an you'l save money.

And how about avctually launching the 'green deal'? = They've been atlking about it for over two years, and it's all over the compulsory Energy Performance certificate you have to get done every time you sell any building whatsoever, full of even more bleedin obvious 'advice'.

. All illustrated with moronic stars and big infant school coloured tick. - But the grean deal does not actually exiist. - How about some help with internal insulation of solid walls?

Dump everyone working in soical and behavioural engineering, recognixe that lower tax receipt are a direct result of allowing our compnies to be sold abroad. )Boots; £90 million annual corportion taxe reduced by 90% for example). Encouraging people to stop smoking increases the tax burden on everyon else. - Smokers ucontribute 10 time more the the econimy than they cost the NHS with their dieseases, and by dying earlier, pay their inheritance tax sooner, and stop drawing their oension sooner.

And shit down every government website the "2" instead of "to" and "4" instead of "for", on the basis that tey too are only for the moronic.

Chnage the public sector payscales to incentivise good and efficient work , rather than employin as many people as you can get away with.

Basically, if you remove the shackles from the private sector, the ecnomy will grow by itself.

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Prof Eman

Aug 26, 2012 at 09:19

The Plan A has come bottom of the class in the G7 league.

There is a desperate need for modification to it, irrespective of how you want to call it.

As to how this is to be done, there are some pointers in the Forum discussion-A point of view: What would Keynes do?

Well worth a read if you can find the time. Any comments here or under the Forum discussion would be helpful.

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Luke1976 via mobile

Aug 26, 2012 at 10:12

Those of you who say that, "obviously",we cannot spend our way out of this mess demonstrate a lack of understanding of macroeconomics both in theory and in history. Some spending has strong multiplier effects.. Though I think one has to be careful where you spend it. Building Heathrow on the Thames would be a good one, delaying state pension reform would not. The beauty of infrastructure projects is they create employment now, boost confidence, and increase long run potential output. The returns on a big infrastructure project would outweigh the 1.5% cost of 10y uk borrowing I last saw or whatever it is. At the moment we have the worst of all worlds... Unplanned borrowing without the growth or confidence boost. The lack of leadership is actually disgusting and I am left in a dilemma as a conservative voter about who to vote for next time.

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Geoff Downs

Aug 26, 2012 at 11:53

Luke 1976, So in simple terms you want to create more debt. Austerity isn't working true but spending won't either. The old arguments are dead, new ideas are required.

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steven fieldfare

Aug 26, 2012 at 12:00

Why not increase Defence spending to around 3.5% GDP, done in a way that invsts primarily in the UK and that skews primarily to lever other areas of the economy?

First, capital equipment expenditure in one of the UK's remaining major manufacturing industries as a spur to re-orienting to a manufacturing economy, with attendant increase in apprenticeship and manufacturing skills.

Kick start infrastructure development with building programmes to improve and re-furbish military establishments and housing, and to facilitate the return of the Army from Germany (few planning delays and reduction in Euro costs ahead of forecast).

Restore the Defence Medical Services and hospital infrastructure to provide sound base for long term care of disabled veterans (upcoming cost unlikely to be fully met by charitable efforts), to provide contingency capacity for NHS and to support overseas disaster relief and aid in kind.

Emphasise engineering and support capabilities (a la US Corps of Engineers) that may be readily deployed to civil relief and infrastructure development at home (eg flood defences), in dependent territories and as overseas aid in kind.

Expand lift capacity in support of above endeavours: hospital ships; field hospital capacity; aid lift and charity support.

Re-introduce National Military and Civilian Service on a voluntary basis to tackle problem of youth unemployment, to help with skills and to inculcate notions of service and self discipline. Employment costs partly met by concommitant reduction in benefits. End of Service bounty would be provided in further education bonus points accrued from length of Service and risks. For example, 3 years which included frontline military Service could allow free University education in subjects in demand.

Crazy idea? Ingrained within it are facets of the New Deal and military expansion by Hitler before WW2 and the US in WW2 that revived their respective economies (albeit with different motives). 3.5% GDP spending remains less than that sustained in the Cold War and is achieved by reducing priorities elsewhere. But offsets are within the proposal: less unemployment and other benefit payments; more Company tax and VAT returns; quicker reduction in Euro expenditures;quick implementation of New Deal style infrastructure spending; reduced pressure on providing education and health spending; and greater provision in kind of overseas aid.

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Aug 26, 2012 at 12:27

Luke1976 has a good point, although his first sentence is a bit harsh! The austerity v spend, spend argument is far too simplistic. Some of the right sort of spending and the right sort of austerity is surely called for, and then the politicians have to convince the electorate, who have become accustomed to thinking about a problem for milliseconds and then being sure they know the answer, (or believing what the Press tell them to think!) Comparing the country to a family in debt may be helpful. Suppose the family in debt runs a shop. One member says, (wisely), “Look we are in debt; we will have to work hard and spend as little as possible.” But another member says, “But we can borrow very cheaply and increase the shop area, and make much more profit. Then we will soon be out of debt.” Both points of view have validity. Now the ‘spend’ strategy may well work, but it must be approached very carefully. The family should discuss such a strategy at great length with every possible ‘what if?’ being voiced and considered. The ‘work hard spend little’ advocate may well be persuaded by the ‘increase the shop area strategy’ but he will probably add, “OK, but you can’t have a pay rise because it is a bigger shop. We have been living beyond our means and that has to stop.” And that is what applies to us as a country, surely? I suspect that the government would claim that they are doing just that. They trouble is we need to examine the boring detail, and some of it is pretty boring, rather than shouting simplistic slogans at each other.

While writing this I see that steven fieldfare has made some specific suggestions. Is he right? I don’t know at the moment. If he is wrong he should be courteously challenged with reasons supplied. First I must have some lunch!

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Geoff Downs

Aug 26, 2012 at 12:43

ICD, This easy credit and huge debt problem has gone on for many years. It has fuelled the rise in ALL asset classes especially property. This has become the norm for how are politicians believe you can run the country. We are stuck currently with massive debt that outweighs any likely growth in the economy, plus significant over regulation. Until our leaders truly believe this strategy cannot continue we won't solve the problems, in fact they will get much worse.

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Aug 26, 2012 at 13:11

Geoff Downs. I cannot disagree with anything you have said, but I have three comments. First you seem to be hinting that there is some different way of solving the problems. What are you suggesting? Revolution! Surely we have struggled towards the 'least bad' solution which is a capitalist democracy with a caring side? Second point. The Japanese have had their problems before us and perhaps we can learn from them. During their years of stagnation has normal life in Japan been so bad? Should we not start learning to appreciate life without ever increasing wealth? I am all for caring about those for whom life is unreasonably tough, unrewarding etc but there are large numbers of folk in the UK, (me included) who should stop complaining and appreciate our relative good fortune. Third point: Although I don't disagree with your last post, I choose to take an optimistic view. A worse example of our situation is Greece. Although our media associate every doom scenario with Greece would it not be reasonable to describe what is happening there as good for fairness and democracy? The elite who have ruled Greece in such a self serving way are getting their come-uppance, and I think that in a few years, after much pain Greece will emerge a better place, and still in the Euro!

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Geoff Downs

Aug 26, 2012 at 13:27

ICD, I know you have raised several points but can I for now deal with your comment about Greece. Firstly do you actually believe the politicians in Greece are seriously tackling the problems or even know how to tackle them? Secondly do you believe Greece can stay in in Euro? My answer is no to both.

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Aug 26, 2012 at 13:46

G D, first question, simple answer is yes. More complicated answer is that surely they are being forced to, almost at gunpoint. If they don't dance to the EU (German) tune they will have no money to pay all the bills (within Greece) that have to be paid. If they don't pay, the whole infrastructure will surely collapse. That is why Merkel is playing her tough line. "No money unless you start putting in place proper measures." The Greek representatives are doing their best to get more time. There is a poker game going on and the Germans/ EU will win. As for staying in the Euro, I am sure that it would be better for all for them to stay in, but I am slightly less sure that they will because of the political dimension. In my view people can be persuaded of almost anything as long as it is put to them eloquently and frequently enough

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Geoff Downs

Aug 26, 2012 at 14:27

ICD, The Greek policy is basically austerity, which may make the position worse. As they don't have their own currency they cannot take action that would help them. The Euro is basically flawed, for a whole host of reasons, and it will fail eventually. If Greece came out of the Euro it would have a better chance of solving their problems, but of course the Eurocrats believe in more and more bailouts.

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Aug 26, 2012 at 14:55

GD I am sure you would agree that Greece and the Euro is a big subject, but my understanding is that many aspects of Greece were just ridiculous. Was it the railways where the employees pay bill greatly exceed the total income? And it was 'cool' to not pay any tax. Many aspects like that have to be corrected. That's not austerity, that's putting your house in order. This perception that we Brits have that the Germans think the only answer is austerity is a myth put about by our media. Naturally any lender is entitled expect reasonable behaviour from the borrower. The EU is saying to Greece, "you are poor, you have to live according to your means. That means low pay, hard work etc, and if you want a BMW you better sell something to the EU to get the funds to pay for it." In the days of national currencies I am sure you would have argued that the Drachma would have naturally been devalued. But let's consider that more closely. The overpaid civil servants would not have got a pay cut or reduction in numbers as would have been deserved, they would have just had to pay more for their holidays. Also it would have been unfair to holders (savers) of Drachma. The 'devalue your currency policy' is an easy option for politicians and suits the financial world but a fairer world is created by a single currency in my view. There is more to this of course, but I am trying to be brief!

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Prof Eman

Aug 26, 2012 at 15:07

On the growth debate.

it is possible and has been achieved under the last Labour Government.

They got into a mess, but had a way of coming out of it.

I quote Payguy comments at 09.50 arising from an article in the Telegraph - Kate Baker: Osborne's austerity could be self-defeating.

"Before the election the economy was recovering and growing at above historic trend. The public sector deficit was shrinking. Alastair Darling achieved 2.9% growth and a reduction on public sector deficit in his last 12 months."

"Osborne has put in ideological policies aimed to benefit Conservative Party's political funders (banks and multi-nationals). As a result economic growth has ground to a halt." 0% in the last 18 months.

"Note the UK economy grinding to a halt happened before other major Western economies e.g. USA, Germany, who did not put in austerity measures." etc.

The result has been a huge squeeze on family finances.

Payguy's comments are well worth a read.

Do not believe growth with appropriate policies is not possible, this is blinkered dogma, as shown by international comparisons.

I am not surprised that some Conservative voters are starting to look for other parties to support

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Aug 26, 2012 at 15:40

can't find payguy at 9:50 or any payguy, for that matter. Have I got to go to the Telegraph?

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Prof Eman

Aug 26, 2012 at 16:36


Yes it is a comment to The Telegraph article.

To save time, please go to Post 57 in the discussion topic - A point of view: What would Keynes do? at the side of this citywire article, and click on Kate Baker.

Payguy is one of the persons involved in the comments that follow the Telegraph article.

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steven fieldfare

Aug 26, 2012 at 19:12

I have followed further debate with interest.

It seems to me that stimulating what has gone before would fail ie a consumer and service oriented economy that relies on shopping for consumer tat and giving each other advice and haircuts. The tat has to be mainly bought in and either breaks or has to be passed on in big bags to Lagos market before it can make effective contribution to further wealth creation. Likewise services, for when wealth goes, lawyers are foregone (unless, of course, you can get the taxpayer to provide them or there is no fee without win).

Pumping up the present economy cannot sensibly be argued for unless to buy time while the switch is made to a genuine wealth creating economy. Loss of Empire ended unfettered access to cheap natural resources. Failure to invest wisely has largely squandered North Sea oil ("our best opportunity for 100 years", as Callaghan recognised). Classing intellectual prowess as a resource is false, as everybody is at it (or attempting to steal it). That leaves making stuff that people elsewhere (preferably with resources) want to buy.

Other comments have identified infrastructure investment as a starting gate but not been clear that this promises only efficiency to a future economy. It surely would mean relatively little unless implemented hand in hand with other wealth creating measures. Earlier, I suggested Defence as another entry gate - if for no better reason that historically it has provided dynamics for rapid progress: roads and trade in Britain to support the Legions; resources and trade that followed in the security provided by a national enterprise called the Royal Navy, railways and communications in India and aerospace and IT in the US.

But surely QE or borrowing more real money for the private economy alone, to do as it will, always carries high risk and uncertain result. Hallmarks ever will be just in time investment and training and just in time implementation, without contingency - as Philip Hammond finally recognises.

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Aug 26, 2012 at 19:18

Prof Eman

I followed the route to Payguy as suggested by you. Very technical, I'm sure, but I am not impressed when people use technicalities instead of plain English. Also using the word 'blathering' lets down the user rather than the person being described. Also I wasn't too impressed by Kate Barker, despite her credentials. However on a positive note while clicking around the internet I found someone whose diagnosis did ring true to me. His proposed solution is a bit daring, but perhaps that is what is needed. I can give you a link that is via the Telegraph so it is rather lengthy! Please visit

What do you think?

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Prof Eman

Aug 26, 2012 at 23:35


i am impressed by your perseverance in this matter, it shows great interest which is commendable.

Now as regards Payguy, the person/s whom I do not know personally, appear to be well conversant with economics, and hence using technical knowledge and data to support his/her/their conclusions.

However, leaving technicalities to one side, it should not be too difficult to understand the gist of what is said.

On austerity, there is a good time to repay loans and a bad time. A good time is when you are employed and earning and a bad time when you are unemployed and not earning. Trying to clear loans in the second scenario often means eating not well and less. The result being that one will get weaker and weaker and eventually could die. Internationally it is UK that is getting weaker, and if medicine is not applied is likely to have permanent long term ill health effects and in which feeding more money to the rich through QE does not solve most of the problems (the rich are well fed anyway). In the extreme we could become like Greece which is about to die.

On medicine. I will use asthma as an example. There are normally two medicines used- the reliever for quick but short term relief, and a preventer which needs to be used for a while but which gives long term relief. Short term relief and longer term relief is what is required in our economy.

In response to the article on Building bridges etc, I have the following to say.

In the economy-

What we need is in the Short term is QEP (Quantitative Easing for the people). Further details in the discussion -A point of view : What would Keynes do?

In the Medium term what we need is TARP, as mentioned in the article.

In the Long term what we need is investment in Building bridges etc

Long term investment on its own will not solve our problems, it takes too long to become effective. As such I am generally in agreement with the article on the proviso as above.

We need action for the Short and Medium and Long Term, as suggested, co-ordinated together.

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Geoff Downs

Aug 27, 2012 at 09:08

Prof Eman, By QEP I,m assuming you mean the Government giving money freely to people. If people were given money directly, it is my view because of the fact that many are already in so much debt they would use it to pay off existing debt. In other words it would go back to the banks. If you mean something else by QEP perhaps you could explain.

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Aug 27, 2012 at 09:23

Prof Eman (and also Geoff Downs)

There’s not much I would disagree with but I would add a few comments. The fact that the coalition is seen as reluctant to spend is one reason we can borrow for low rates. Also there is an ‘attitude’ element here. Osborne needs to create an image of a chancellor who is very tight, otherwise everyone will be saying to him, “I’m a special case, I need more money”. If he is being criticised for reluctance to spend I suspect that he has got it about right. I think our economy looks bad because we were living foolishly before 2008, with our unwise mortgages and excessive credit card debt. Also I think people will find ways to get jobs and cope with what you might call austerity but I might call living within our means. I can see Danny Gabay’s point that people who took out an unwisely large mortgage assuming that their property would go up in value making their mortgage a bargain, and then found that the opposite happened are a bit stuck. Mr Gabay’s plan would be for this unwise mortgage to be transferred to the government books. Let’s say Mr Smith took out an unwise mortgage for £90000 for a house valued at £100000. He is struggling to pay his mortgage but knows that he can’t possibly sell his house for more than £80000 and what’s more the bank show the mortgage of £90000 backed up by an asset worth £80000, so they are troubled and won’t lend any more until they have sorted out their books and also succeeded in meeting the new stricter requirements. If I have understood him correctly Mr Gabay’s remedy is for the government to pay the bank the £900000 for the unwise mortgage, getting the bank out of trouble, and the government saying to Mr Smith, “As your house is now worth 20% less than it was we are going to scale down your mortgage by the same amount. You owe us £72000.” Mr Smith breathes a sigh of relief. He is no longer trapped and can sell and move, or perhaps afford his mortgage, the bank is happy and can lend, and the government will feel that it’s QE or TARP has been spent wisely. Am I right? Is Mr Gaby right?

Getting back to your post, economists surely say you should save in the good times and spend in the bad times. But if you didn’t save in the good times you are a bit stuck in bad times. On the other hand I think Brown did a good job during the banking crisis of 2008

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Prof Eman

Aug 27, 2012 at 09:59

Geoff Downs/ICD

On QEP Posts #27,#28 and #29 apply, in the discussion at the side- A point of view: What would Keynes do?

It is possible to direct the QEP money to specifics where one feels there is the greatest need for them.

My starter for QEP is to give people 20% back for money already spent on investment, without interference of intermediaries like banks/finanacial services, and then perhaps direct it to people at the poorer end who have a very high propensity to spend, and who do not have properties /assets debts.

ICD will give a fuller answer to the issues you raise later.

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Prof Eman

Aug 27, 2012 at 11:23


You state we can borrow at lower rates-that is if you are one of the lucky ones who is allowed to borrow.

On attitude it is possible to become mean not just very tight.

The economy should consider special cases if the effect is for the good of the economy as a whole.

Your understanding of TARP is not quite correct it veers to a QEP application of the programme.

TARP- Troubled asset Relief Program allows banks to recoup losses already incurred rather than individuals.

TARP allows The Treasury to purchase illiquid assets, including toxic loans/mortgages, difficult to value assets from banks and other financial institutions. It allows participating institutions to stabilise their balance sheets and avoid further losses. Thus freeing them to be able to lend and prosper.

Further details can be found by searching the net -TARP Program. Wikipedia give a very good account of how it has worked in the States.

On QEP - In summary it is intended to reach the parts that our QE has not reached.

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steven fieldfare

Aug 27, 2012 at 13:01

Prof Eman

I'm unsure that QEP would be practicable, for it does not account for likely economic and ploitical outcomes.

You would seem to aim at 2 categories of recipient:

those who overborrowed to provide housing beyond safe reach and/or house borrowing used as a piggy bank to fund consumer spending - cars, holidays, new furniture etc.

those without substantial assets who are disadvantaged and/or unemployed.

While the overborrowed may use the money to pay down debt and help free up the housing market, would they simply not renew their short term efforts to get ahead with renewed borrowings especially in a low interest rate environment?

While clearly there is sympathy for those unemployed, without assets and in debt, there are also relatively generous social nets and/or legal recourses for reducing debt/wiping slates clean. Within this category, there are also substantial numbers who are there because of an inability/unwillingness to manage prudently their affairs.

In the first category, the solution would perhaps right the ship but only to restore a casino economy based on property and "services" to continue on awhile. Many would see the solution as further reward for those whose imprudence partly led to current problems; why would everyone not join the bandwagon next time around?

As for those in the second category, the social safety net provides at a level roughly equivalent to that allowed to many State Pensioners. Are they to be provided with QEP too? And what about the elderly just above the safety net, overcharged for care? Is Dilnot to be implemented on the back of all this? Is the motability racket to be extended to those above 65?

Finally, at one point, you seem to suggest that high food costs are causing hunger at the bottom of society and so enfeebling ability to return productively to the economy. I watched a Tonight programme last week on this theme along with some elderly people. As the Army recruit's wife explained how she was eating left overs after the children had finished (and didn't want to bother her husband or family with her perceived difficulties), those around me started muttering "2ozs butter, 2 ozs meat....". While there may be specific difficulties of food management and budgeting, look at film of crowd scenes before, during and after WW2 and contrast this with the crowd weigh in at ASDA. Less visits to Pizza Hut and more sandwiches in the Park maybe, but out and out hunger affecting the economy I doubt.

These musings draw me back to my previous conclusion: any moves that do not include genuine wealth creation measures carry high risk of only short term and delusional relief. QEP, as portrayed, would seem to invite irresistable political backlash.

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Prof Eman

Aug 27, 2012 at 15:39

steven fieldfare

I portrayed QEP as a short term boost in the 'here and now' to help get things moving. It is not a solution to our long term problems.

I suggested two categories of recipient -

The smaller business investor who is currently starved of funds, to help the economy recover. Within it one could favour manufacturing/industry which would help re-balance our economy.

The other end is to boost retail and other sales via a higher propensity to spend, again these would not provide a solution in the long term.

These do not have to be exclusive to any other boost, and could be run in conjunction with them.

So the short term boost would be co-ordinated with TARP in the medium term to try and get us out of the fix we are currently in, and to put the banks/financial services on the route of lending again.

In the long term we could try to become more competitive by infrastructure and long term spending to promote productivity.

All these hopefully would give us the opportunity to invest wisely, so as to become more competitive in the future based on a rebalanced economy.

My reference to food and shortages of it, was intended to be illustrative, but as you point out, in the final analysis some people are affected in the way indicated.

Please do not forget that we are in a double dip recession, and on a downward slide. The backlash to that could become much bigger than QEP or anything we have seen before. Irrespective of politics, the effects warrant QEP use.

Finally the suggestions I make do not have to be exclusive to some other form of QEP e.g. for pensioners or the elderly or similar.

What I have suggested is concentrated on the biggest identified problems which are for priority-

-Lack of investment

-Banks not lending

-Falling aggregate demand.

As to how the economy is run next, we can only hope that it will be in a more sensible manner.

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Geoff Downs

Aug 27, 2012 at 16:05

Over the last 40 years the profits made in equities has been absurd, the profits made in property has been absurd, the profits made in commodities has been absurd. We have had the boom of booms fuelled by credit and debt. It is inevitable that there will be a bust. The Bankers and politicians are simply delaying this bust for now.

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steven fieldfare

Aug 27, 2012 at 18:11

Prof Eman

OK, we are probably closer together than I thought in recognising that short term measures should link with longer term re-generation.

To take matters on, I am beginning to wonder whether conventional mantra of firing up small businesses is the key path to growth. Political booing over bank lending to small businesses continues to be popular, but less thought and discussion is given to banks' counter arguments that risk worthy demand has been satisfied.

While small businesses contribute mightily to the economy, many are incapable of substantial growth and their success is dependent on providing low level skills and services to those who find it convenient to pay for them. They are not innovative and depend on surplus wealth provided by wealth creators and/or higher end service providers. Judging from local restaurant and hairdressing salon closures, and numbers of landscape gardeners, handymen and wannabe bin cleaners sticking their flyers through the door, I too would not be keen to finance their white vans.

I fear that focus on small business has caused us to take our eye off what has been happening to the big hitters. While globalisation may be a virtue, a result has been that a majority of our privately held infrastructure is now foreign owned (or being stalked); reverse holdings are patchy, and mainly unachievable in Europe Further, the lauded industrial success of the car industry has simply protected jobs, but the capital fruits of labour have gone elsewhere. Resource gatherers like BP and Falklands' oil explorers seem under political attack; and are diminished in their enterprise.

Even London based financial services are under sustained pressure from the US, while shop keeping is also targeted - the latest rumour focusing on M&S. Inevitably as overseas economies mature, resource and manufacturing providers will attempt to own their markets.

There is therefore a potential longer term problem in firng up again the consumer economy. More tat is sucked in from China et al and wealth exported to them. We are already attempting to borrow back the money exchanged for previous tat to build our next generation power stations. Buying out major Companies has started to follow, including innovative companies like Autonomy that cannot grow beyond critical mass.

It may be that re-orienting the economy needs more of a top down focus to encourage the remaining national big hitters to invest and market, and be less vulnerable to takeover, so that less innovative small businesses can supply or feed from them. Otherwise, supply of components and key labour from abroad will increase. In hard times, companies inevitably withdraw their investment to home bse.

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Prof Eman

Aug 27, 2012 at 18:32

steven fieldfare

Whilst we have deficits, others have surpluses.

That allows them to buy into our economy and not v v.

The worst case scenario is that they buy our companies and then move production/expertise abroad. An example of this can be found in post no 35, in the discussion topic, A point of view: What would Keynes do? at the side.

Post numbers 31 to 34 are also worth reading.

China has got the money and it is going to use it.

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Aug 27, 2012 at 21:51

I have to stress that I was quoting a professional in my recent contribution. I happened to come across someone whose views seemed to make sense to me. Let me assure everyone that this is a rare event for me. Prof Eman did you read Danny Gabay of Fathom Consulting's piece or are you going by by my description? I strongly urge anyone interested to go to this rather lengthy link, via the Daily Telegraph and decide for yourself.

My view is that the diagnosis is right. Whether Mr Gabay's solution would work is another question. I invite better brains than mine to consider it?

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Prof Eman

Aug 27, 2012 at 22:35

steven fieldfare and others

On food shortages, which I intended to be illustrative, they might be more real than I and many believe.

Have just come across an article in The Guardian, 2012 aug 21.

Breadline Britain: councils fund food banks to plug holes in welfare state

Local authorities asking 'big society to deliver crisis aid to vulnerable people after social fund budget is cut next April. (Mainly about food banks)

Well worth a read.

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Prof Eman

Aug 27, 2012 at 22:49


On The Telegraph -Buildng bridges... article

I have read the article and have stated that am sympathetic to its findings.

In fact the suggestion of TARP is included in my suggestions under the medium term strategy.

I hope that the above clarifies matters.

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Geoff Downs

Aug 27, 2012 at 23:01

My problem with a lot of these comments seems to be the suggestion that politicians and bankers can pull certain levers and we will solve the problems. Indeed more scary than that is the fact that these two groups seem to believe thmselves that they have the answers. The problem is debt, nothing I have read on here or anything that has been done so far remotely gets near to solving the debt problem.

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Prof Eman

Aug 28, 2012 at 13:04

Geoff Downs

This might help you understand what debts and deficits are about, or help to confuse you even more.

Please read the article in The Independent -Don't know your debts from your deficits? You're not alone.

Public, MPs even headline writers are confused, reports Andrew Johnson Monday, 27 august 2012.

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Aug 28, 2012 at 13:53

The Telegraph article is insightful, and re-iterates what my slightly right wing view of using the prison population & the unemployed as cheap labour. We will always be in debt if we can't make & buy our own products. We are no different to Germany in our levels of income and costs of living, yet they have core manufacturing at the heart of their economy and it fuels their growth. If the government wants to inject capital expenditure, forget roads subsidise a British car, dishwasher, microwave etc manufacturer. We can finally buy British goods, our disposable income gets ploughed back into the UK, and we stop borrowing.UK blue collar workers get employment and incomes start to rise (including tax receipts) so the Government finally claws back some of its borrowing. The UK needs to stand up for itself and bias its home grown talent. It still irks me that Wembley was built by an Australian company, if we're going to massively overspend on projects, lets at least keep the money in the UK economy.

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Prof Eman

Aug 28, 2012 at 18:28


I am all for helping our British car, dishwasher, microwave etc Manufacturer. I have been harping on about this in many past posts.

As regards ownership issues, it has to be noted that selling off services etc to the private sector does not always bring the rewards one hopes for. There is the profit motive to pay for, dividends to pay, never mind the bonuses.

As such a lot of the work gets farmed out to abroad, because it is cheaper and because that gives better profits. As such private companies are interested in own profits, not how to help the economy come out of the recession. Their actions often contribute to it, whilst they turn to government for help.

Often we get lower, even unacceptable standards e.g Group 4s recently and the Olympics fiasco.

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Paul Wynter

Aug 28, 2012 at 19:42

The answer is so not QE, bailing out people instead of banks through a debt jubilee is the answer why give 375 billion and rising to the bunch of crooks and bent economists who caused this mess in the first place. If publishers and newspapers had any forsight atall they would be more actively lobbying for this obvious cure, try reading Michael Hudson for the answers, he's the only economist who gets close to the solutions. Heres a link

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Prof Eman

Aug 31, 2012 at 16:12

Paul Wynter

If you want to discuss democrcy, pleae have a look at BBC News Magazine APoint of view: The trouble with freedom by John Gray 24 august 2012.

As somone I know remarked to me one day. The trouble with our democracy is that we are allowed to say what we want, but they (the powers above) us can do what they want. e.g Iraq.

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Prof Eman

Sep 18, 2012 at 22:43

Dear All

Just letting you know that I had an invitation to attend a Nick Clegg Q & A session in Nottingham c/o Charles Walker of Nottingham Post Group on Thursday 13th.

However I was not selected to ask my question, relating to Property tax and matters relating.

I have now sent in my question to Nick Clegg, copies George Osborne, Vince Cable, and Charles Walker.

Hope to get some answers soon.

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Prof Eman

Sep 19, 2012 at 13:05

Dear all

On the Property Tax issue, I suggest a name PVT-Property Value Tax which used wisely would do the following-

1. Give the Councils 10 to 15% of the funds collected to help them with their finances

2. Pay for reduction in VAT in construction

3. Provide direct Govt grants on investment in for example engineering/manufacturing

4. Reduce/delay some of the cuts at the lower end

5. Any balance left over could be used for other uses like reducing our deficit, thus helping us retain our AAA rating.

Net effect- Stimulus particularly in construction and thus to improve GDP, more confidence, fewer cuts, improved aggregate demand based on higher propensity to spend, help to move out of recession, whilst rebalancing the economy.

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steven fieldfare

Sep 19, 2012 at 15:58

Prof Eman

I'm uncertain that a Property Tax would have the effect you envisage; even if the voting classes could be persuaded to go along with it. At the expensive end of the market, the London set may be inclined to move back from whence they came and take their assets/business with them. At the modest end of the market, rents would likely go up as buy to let owners passed costs on and anger among home owners grow as they were squeezed further. Why not give up and join the benefits crowd?

Taking your points:

1. Lancashire County Council have recently made economies by cutting numbers of middle ranking execs and, for example, increasing Day Care charges sevenfold; yet the CEO maintains salary and benefits around 25% more than the PMs. What makes you think that the extra money would go much further than adding to the pay go round? At best, it would probably have to fund rent increases.

2. Reducing VAT on construction may not be such a magic elixir. Building companies have no interest in seeing major falls in house prices if that affects profit margins. Much more likely is the "banking effect" of using the saving to restore balance sheets and allow prices to slip only gradually.

3. Direct government grants to engineering may work over a longer term, but is unlikely to make a difference soon; unless like the salvage scheme, it is pumped into the bottom line of available (and foreign owned) capacity. Since i commented previously on large company investment, or perhaps using Defence, as a way forward, one of the few remaining companies BAe Systems has come into international takeover play.

4. Reduce/delay cuts at the lower end inevitably favours an already costly "homeless and hungry" end of Society. I perhaps exaggerate the case but pumping up welfare further can only squeeze those at the margins just above the benefits level.

5. The idea of a left over balance seems a bit elastic. Some hard proposals with numbers would be needed to see if there was anything left. Also, the overall advantage would need to be judged against keeping all of the proposed property Tax to pay down deficit directly, with consequent and presumably accelerating savings in interest payments (presently more than Defence or Education spending, as I understand matters).

All in all, the proposal would seem to be more of soak the illusory rich to keep the bottom end spending programme going than a direct effort to reduce debt through wealth creation.

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Sep 19, 2012 at 18:57

One of the problems with boosting the construction industry is that it employs many foreign workers who send cash home, thus weakening the balance of payments. In order for a long term recovery we have to eliminate the current balance of payments deficit.

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Prof Eman

Sep 19, 2012 at 19:05

steven fieldfare

Than you for your very well thought out contribution.

The London set keep threatening to move on, every time there is any suggestion that they might have to pay some tax, in some cases any tax. But they are still here. Frankly most of them are incapable of moving because their foreign language skills are in many cases non-existent. AS such not a concern of mine.

Rents could go up in BTL, but they are going up anyway, how much they would go up would depend on people's ability to pay and the respective council band the property would fall into. Top earnings might start to fall in future, so there would be a very real limit as to how much rents could rise. At the lower end the PVT would be zero or low and as such of little impact.

Few people at the margin could gain by moving to benefits as there would be little effect as PVT at the poor end would be zero or little at the lesser value bands. No advantage in moving to benefits therefore.

1. Time Lancashire sacked him and got better value, and services all round, or put him on a zero hours contract as per to-day's BBC News Business article - ZERO hours contracts for NHS staff explained.

2. A VAT reduction worked well for the last Government. I think you under estimate what it could do for construction.

3 Direct Govt grants would be for money already spent by individual businesses, particularly the lower/smaller end where finance for expansion for example cannot be found.

4. Reducing/delaying cuts means putting money into pockets that will immediately be spent. A boost to aggregate demand which we are short of, and as such beneficial to all.

5. Does depend on figures, but should help.

6. There are other ways of reducing expenditure like withdrawal from Afghanistan, which would hurt the public less, alternatives should be considered.

I think the illusionary rich do exist and have been getting richer (according to many studies). So, some contribution from the would not go amiss.

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Prof Eman

Sep 19, 2012 at 23:22


A very good point. No doubt some of the money earned in construction does leave our shores. But these foreign workers live here, so the amount they send home is after all the expenses of living here. Very often, the bulk of their earnings remains here, and some bring their families/girlfriends over, so they do not send any money abroad at all.

Also I would rather have construction than not, and not shore up more problems for the future.

Finally, if we take your comment to its logical conclusion the best thing is not to have any construction at all. Not something I would like to contemplate seriously.

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Sep 20, 2012 at 08:42

Prof Elman - I would not be that extreme !! My point is that for Keynsian measures to work one needs an economy which is more closed than ours.

In the same vein you recommend a reduction in VAT generally in that you state that the last VAT reduction worked. That was not my impression. By reducing the cost of "discretionary" spending by around 2% did not cause a shopping spree but hid underlying inflation. Furthermore, since most essentials are zero rated, encouraging people to buy VAT rated goods again encourags imports of white goods, clothes and gadgets. Perhaps by raising VAT we would tax the better off and reduce the deficit !!!

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Geoff Downs

Sep 20, 2012 at 09:05


Raising VAT hurts the lower paid workers much more than the better off. How would that help economic growth? If you tax people more now they will spend less surely.

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Sep 20, 2012 at 10:33

The process of lowering debts had a valid basis for the government. But the knock on effect on consumers living off credit has meant that the flow of money has slowed. In theory printing more money should have the reverse effect. But while people's disposable income is being reduced, any extra money is being spent on essentials. I don't think another round of QE is going to make that much difference.

It is time for government to take the short term painful step of reducing its tax receipts. An across the board cut in VAT would be a good start, but in addition tax incentives for manufacturing companies. Why not consider lowering Corporation tax or raising the threshold, to get small business going. Regeneration grants & tax cuts for business to locate in deprived areas, compulsory work placement schemes for the youth unemployed. Why not provide better availability of money for business startups. I mentioned it in another blog, there is not reason why we can't follow Germany's example, invest in manufacturing. Instead of blanket spending or tax cuts on construction, reduce our balance of payments but backing companies that are producing goods on these shores. This makes us less reliant on the state of other economies.

As for trying to finance this by taxing the rich, the relative returns will be small and generally only line the pockets of good accounts & lawyers who will always find new ways to protect their money. Better to focus on the masses, than trying to squeeze some pennies from the minority. Even if it does make us feel better.

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Geoff Downs

Sep 20, 2012 at 11:11


Perhaps I wrong but you seem to be saying two main things. Firstly reduce taxes and secondly spend more. How might that reduce debt?

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steven fieldfare

Sep 20, 2012 at 11:20

Prof Eman

Some of your response I can go along with for your view of outcome may be as valid as mine. But the point is that all your proposed measures are highly prone to unintended consequence, as Geoff Downs and Jon promptly debate. They are certainly nothing without number estimates.

But my main unease concerns the social justice lean with which all your remedies seem laced. Tax at the top to spend, or as Gordon used to say invest, at the bottom end of small business and impoverished Society. Invoke Keynes and assume that growth results.

Grubbing around to pick off remaining national or personal wealth can only be worthwhile if the bonfire genuinely energises wealth creation and debt reduction -sometime soon. QE may contribute by inflating debt away but I am mindful also of what happened to the Sterling Area where devaluation in the UK was simply matched by other members until the system imploded and left us weaker than ever. So solutions should be based on sound money and any further money raising be as risk free as possible. I am leery of firing up the discredited consumer/property economy, even as a short term measure, before the economy is shifted to something more substantial.

With regard to Property Tax, I remain sceptical that, even if desirable, it can be politically delivered without an uprising from Thatcher's property owning democracy. Inevitably, there would be backlash against other spending programmes seen as profligate still: International Aid, Welfare and Defence insurance (as long as nobody's tanks will be coming down my street anytime soon).

Incidentally, whatever the rights and wrongs of Afghanistan only marginal savings are likely, for capability spending has been made, hurried withdrawal will require additional short term lift and savings from operations are limited to those above normal peacetime training and maintenance costs (capacity savings have already been taken by recent measures assuming the War will end).

That is why I see any emergence from our present economic hole as one that keeps a tight grip on spending while boot strapping our way to a more balanced, efficient and productive economy. Some investment spending , yes, but at the start focused on initiatives that lever effect across current spending while also tackling unemployment. I suggested some measures earlier - and will not repeat them - but they were intended as a twist on Keynes and with an eye to how economies were revived after their last great heart attack.

By way of postscript, any path forward may need considerable contingency against unfolding World events. Am I alone in thinking that fractious and ongoing incident - Iran and the Moslem world, Japan/China and even Argentina are beginning to follow the pattern that preceded the great convulsions of the 20th Century?

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Sep 20, 2012 at 11:23

Hi Geoff, initially it doesn't. But short term the Government will have to stomach an increasing deficit. But short term tax reduction to boost industry and consumer spending will in the long term increase tax receipts. Particularly, if we're producing our own white goods and not importing them. Increasing employment, provides income tax receipts to the government, lowers their social care bill. Corporation tax can eventually return to its current levels, where we can benefit from the growth of fledging companies, encrouaged to start up during the tax break period. It worked for Ireland in their boom times. Short term pain for long term gain. Probably more beneficial than large scale construction programmes, and currently as our BoP is sliding further into the red it will make us no worse off.

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Paul Wynter

Sep 20, 2012 at 11:58

It is very simple, if you give 375 billion (and rising) to banks that are totally broke, you create more public debt, these banks are zombies that munch as much cash as is kindly handed to them by their friends in political circles, mainly though excessive salaries and payments or squirrelled away offshore, or simply to create an even more fictitious balance sheet, which is banter fodder for smart currency speculators to exploit.

Let them die the death they deserve, the whole rotten core of them

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Prof Eman

Sep 20, 2012 at 13:06

Dear all

You never cease to amaze me with the quality of your responses. Well done.

However, let us assume that for once we got a Government that would be really interested in providing long term benefits to all, and prepared to be unpopular in the S/T for L/T benefit. On that basis please look at my letter to Nick Clegg, and comment, advising any modifications you would make to it if relevant.

From Prof Eman of citywire. Please reply via citywire website.

Dear Mr Clegg

I attended your Nottingham Q & A Nottingham Post session on Thursday 13th September, but you did not select my question.

Nevertheless, I would like you to answer the question below.

It is generally recognised that amongst our problems the following are of a serious nature.

1. Falling aggregate demand

2. Banks not lending

3. Lack of investment/construction

The following solutions are suggested

1. In the S/T QEP - Quantative Easing for the People. However not just helicopter money, but money targeted in particular ways, for example - reduction in VAT in construction, reduction in cuts in the public sector, reduction in cuts at the benefit bottom end, and similar.

2. In the M/T a US style TARP approach to our financial sector, to reduce their burdens and get them lending again.

3. L/T infrastructure investment and similar to have the economy become more competitive again.

Coordinated in a manner that in future we rebalance our economy and are not over reliant on the financial sector ever again.

The above would be funded by a Property Tax, to be collected by the Councils, as part of their Council Tax set up, as opposed to your answer to a VAT rate cut for construction - where is the money coming from?

Full details of the points relating to the above can be found on the citywire website under -

-Beyond QE: ways to kick start the Economy

-QE hasn't hurt pensioners? A £25b hit says otherwise

-Draghi's OMT: is this the ECB's big gun or fudge?

As well as the discussion topic started by Prof Eman, relating to Prof Koletsky and others - A point of view, what would Keynes do?

I would be pleased to hear your views on the above. Can the above be implemented and if not, why not?

Perhaps one of your research people can look into this matter , as the above could be a useful economic topic to be discussed at your forthcoming conference at the week-end.

Similarly I would like to have a response from Mr George Osborne MP.

Kind regards

Prof Eman of citywire

Not my real name

Copies George Osborne MP

Vince Cable MP

Charles Walker- Nottingham Post Group

Please note that I have now called the property tax, PVT-Property Value Tax

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Sep 20, 2012 at 14:10

Geoff - in answer to your comment

1. What is your basis for stating that raising VAT would hurt the lower paid workers more than the better off? The better off spend a higher proportion of their income on VATable goods (eg many clothes, meals out, new cars, new white and electrical goods, new kitchens/bathrooms......).

2. Hopefully it would cut spending on non-necessities, especially imports. This would help our balance of payments deficit which is damaging us all in the long run. It would also drive employment to the more productive part of our economy which is far too skewed to internal demand and unaffordable services.

Short term measures may well worsen the long term prosperity of our country. We need to rebalance the economy even if this is painful.

And spending in the shops is not necessarily a measure of success.We all saw a false boom when people were spending other peoples' money. Now the GDP is bound to go down a little as the false rise is eliminated, and then people start to repay their debts rather than spend.

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Geoff Downs

Sep 20, 2012 at 16:11


VAT, No the lower paid worker spends a higher proportion of their income. The higher paid worker may spend a larger figure but we are talking the proportion or percentage of income.

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Sep 20, 2012 at 19:25

Geoff - the lower paid worker spends a higher proportion of their income on zero rated items such as food, rent, rates, public transport, childrens' clothes and so on. If the energy rate is kept at 5% then this would not affect them either

Unlike our EEC cousins our top rate is lower and we have much wider categories of zero rate.

Somehow we would have to de link the VAT increase from the index used for those on inflation linked incomes as that would defeat the object !!

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Prof Eman

Sep 20, 2012 at 22:07


If one is on a lower income or worst still on a fixed income, the VAT increase is significant, because these people can buy less for their money, and that is irrespective of %ges or any other issues.

As regards VAT rates I know a number of EU countries still have VAT rates at 19%,lower than ours.

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Sep 20, 2012 at 23:39

Prof Eman - It is bloomin' obvious that with a VAT increase one is going to pay more for anything which attracts VAT at the full rate !!! What I am challenging is the assertion that it hits the poor harder than the better off in terms of the proportion of extra tax paid as a percentage of income. Thus the Treasury should receive more from the wealthier which could be part used to alleviate real poverty and the rest reducing the deficit.

VAT here was reduced to 17.5% and then put back to 20%. In most of western Europe the rate is 21%, but my comment on the rate was incidental and NOT part of my argument. The bottom line is that we need to balance our trade with the rest of the world before we can experience a proper long term funded recovery, and anything which can help this is welcome such as measures to deter consumer spending on imports. With a trade surplus we can start to repay our debts with real money which has not been debased at a cost to so many in the UK.

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Paul Wynter

Sep 21, 2012 at 05:07

if all we do with our hard earned cash is give it to zombie bankers, whats the difference between 15% 20% 25% vat, we may as well give it all to them and collect whatever. all this lot in govt are interested in doing is re-distributing to the wealthy.. screwing students, and privatising the NHS so their rich m8s can get richer. to be honest Labour are not much better, PFI schemes stink as well and just fund private equity mayfair types at the expense of our health. its all a ticking time bomb, until we learn that only collectively can society work, and we get rid of all the ego head self obsessed out for myself mentality politicos and bankers with as big sense of entitlement to a luxury lifestyle, at the expense of everyone else.

rant over

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Prof Eman

Sep 21, 2012 at 10:58


What I was trying to point out that an increase in VAT leads to less goods and services sold, which means aggregate demand falls, a reduction in economic activity takes place, followed by a reduction in tax take which can offset the increase in VAT. i.e. it can assist a downward recessionary spiral.

Ideally any increase in taxes should impact as little as possible on aggregate demand.

Hence my suggestion of PVT - Property Value Tax, a significant part of which hopefully would come from sources of money that would not normally be spent in the UK, and when spent wisely by Government would give a boost to aggregate demand.

I trust this clarifies my point of view.

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Prof Eman

Sep 21, 2012 at 11:05

Paul Wynter

There are many people who feel exactly the same as you do.

However we are where we are, and we should try to influence things for the better.

Although having said that, influencing politicos and their rich banker friends is often believed to be an impossible task.

However we might as well try.

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steven fieldfare

Sep 21, 2012 at 11:25

I have observed the VAT debate with interest and come down on the side of Jon.

Re-balancing the economy into a more widely based, efficient and productive one remains the highest priority, as the best chance of permanently reducing debt. Whether or not VAT rises affect the poorest most is surely less telling, than the threat of again igniting consumerism and pulling in more tat and overseas debt to pay for it. At the poorer end of Society, there are measures in place to protect against VAT in essential spending: food zero rated, energy lesser rated, children's clothing protected and adult everyday clothes still of modest cost. Housing benefit is available for those who qualify.

That is not to say there are problems, especially for those above benefit thresholds, among the elderly for example. But I doubt that the VAT increase makes the critical difference. Surely inability to fund Dilnot, increase State Pensions and fund care and help for those in need has more to do with shortage of created wealth and limited ability to fund generously by further borrowing than it has to do with increased VAT burdens.

For Paul

Keep sticking those pins in the political dolls although I haven't seen any one fall off their perch yet!!!!

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Geoff Downs

Sep 21, 2012 at 11:47


I have to say I don't understand your final paragraph. All welfare, of any type you care to mention, is provided by the taxpayer and in turn the private industry sector. The health of the private sector is critical for jobs, wealth creation and the well being of our welfare state. In the UK we do not have a true market economy and are also to dependent on retail and financial services. Extra regulation, tax increases increase in Government spending are all reasons why the economic situation will get worse. There is a culture of entitlement, fed by politicians, that needs to be wound back. Soon or later it will have to happen.

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Prof Eman

Sep 21, 2012 at 13:07

steven fieldcare

VAT rates do have an impact on the economy, as they do affect aggregate demand, and further the higher the VAT, the more cash payments take over, with the Government the loser.

As to long term creating more wealth, I think everyone is with you.

The issue is how quickly the economy can be rebalanced, and how?

Bumping along the bottom with zero or negative growth is unlikely to create the UK you are hoping for.

So a a short term stimulus is what is called for.

So how could it be done?

My suggestion is via PVT (Property value Tax) as the lesser of any other evils available, with no need to increase borrowing, if for no other reason.

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Sep 21, 2012 at 13:13

I think its easy to blame groups and individuals for the state we're in. But when times were good few people were complaining. I think it will take some brave politicians to radically shake up the system, I personally don't believe many would have the stomach for it.

Firstly, we have to educate future generations. Perhaps returning to the previous system of streaming those with an aptitude onto further education. Whereas those who would previously have left with no GCSE's (or the new equivalent), would be forced to complete 1-2 year vocational courses. Additionaly, compulsory education on finance and money. Explain how to live within your means, may put a stop to people living of credit.

Secondly, cap government benefits. The welfare state will support you & up to two children. If you choose to have a third it will not be financed by the state. Hopefully, stopping those who are housed in 8 bed mansions at tax payers expense.

Thirdly, and I have mentioned this before. We have a huge prison population, each one I believe costing us £30k a year. These prisons would provide us with a cheap workforce to provide manufacturing output. It would allow us to develop a manufacturing centre for goods which would be bought by British consumers and possibly exported. A controversial, right wing view but why do we pay for them to sit in their cells with TV's & 3 square meals. They should be contributing back to society for minimal wages.

I don't think a PVT would be particularly useful as many people have seen their house value rise. But this is unrealised wealth, I assume many would have to sell their homes to pay for the tax as they have just been fortunate to experience 200% inflation in house prices. Better, to raise tax receipts by encouraging people to work and get business moving again. Again, short terms cuts, get the economy going and then recoup the greater tax revenues from business and consumers.

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Sep 21, 2012 at 14:38

Prof Eman

PVT a single hit on property value and therefore wealth would appear to be possible but I doubt it could be collected efficiently or spent wisely.

What we need to do is simplify the tax system and re-train tax acountants to do something useful - along with bankers! We should also reduce benefit entitlement, expect benefit claimants to do something for their payout - along with those serving custodial sentances. We should close loopholes on high earning non-doms and trust fund recipients and close much of the offshoring currently available to those with no need to mainatin a PR profile.

We should increase stamp duty and allow a stamp duty relief for owner occupiers of residential property. We should imediately impose new and sustainable pension arrangements for all government workers whilst allowing retension of accrued pension rights. We should stop paying benefits to anyone above average wealth and minimise cash benefit payouts wherever possible to reduce the possibility of fraud.

A serious look at the higher education system is needed as it has been developed on the basis of unemployment reduction and empire building and there appears to have been very little incentive to bring it in line with the benefits and efficiencies and cost reductions that the internat has made available. Its ridiculous that most univeristies are subsidised to operate in the same manner as 30 years ago only with in most cases less access to the tutors involved. Universities appear to have developed to promote the experience of being a student rather than the benefits brought about by the learning. Whilst the reduction in government support has cost me directly via my kids I believe it is right and is gradually re-focussing the students attention on what they will achieve with their 3-5 years of expenditure.

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Sep 21, 2012 at 16:26

PVT does nothing to improve prosperity. In any case why tax property and not fine art, expensive cars yachts, savings, pension funds..........

Prof Enman - where does the cash come from to pay the tax? probably from savings which are already showing a negative real return. If the idea is to tax the VERY rich, the firstly they are a small proportion of the population, and despite the popular appeal of envy, not much will be raised (especially after they have got their tax lawyers involved and registered their houses as business head offices etc). If you are thinking of the middle classes, then their houses are part of their pension funds.

One possible way to help the economy is to increase the basic State Pension, eliminate most additional benefits, apart from those needing special care, and then to phase it out for those with higher additional pensions, such that this saving would finance the increase. This would also tend to balance out some of the aparteid between those who retire on DC schemes and who have seen 2/3 of their projected pensions wiped out and those who retired on final salary protected pensions !! :-)

By evening the spending power of the growing retired population, fewer retirees would need to work thus creating employment for the young, and the mix of expenditure may be more beneficial to the "home supply" of goods and services.

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steven fieldfare

Sep 21, 2012 at 16:41

For Geoff

Oops. Sorry about the last para, poorly expressed and/or punctuated.

What I was expressing is belief that VAT increases may affect most those who are struggling just above the State support level, who have seen their disposable income diminished by rising prices, poor interest rates and high taxation; also increased needs for which they have to pay themselves. My examples were focused on the elderly or retired, but there are other categories.

I was not, however, suggesting that we should immediately fund Dilnot and provide large pension increases; simply that measures on this scale are probably needed to make real improvement in disadvantaged Society and that can only be achieved by substantial and permanent improvement in wealth creation. As others point out, VAT rates remain within the European norm and a small reduction may have only marginal benefit for those struggling with essential expenditure. VAT and its Keynsian influence on helping the wider economy, I address next.

For Prof Eman

I agree that VAT rates impact on the wider economy and that the higher they are more likely is diversion to the black economy. But I suggest that a 20% VAT rate may make marginal difference for miscreants. Once decided on, VAT evasion is nearly as profitable at 17.5% - just a little more at 20%. You suggest, therefore, that the difference represents the straw - unlikely I think, when rates remain within European norms.

But the main issue is over whether a VAT reduction would be a good short term stimulus en route to a more balanced and creative economy. My fear remains that it would re-start the consumer/property merry go round (given our short term and immediate self interest tendencies), with little long term improvement in place for when the music stops again. We would be left with an economic position akin to Spain or Greece.

I do not see how a PVT would help much either. You make no proposal over amounts, but to harden earlier argument, let's say those in the 3-5 million bracket are charged 1% (to meet your Robin Hood leanings). Is that enough to make them move abroad? High income tax in the 1960s certainly had that effect on the Rolling Stones et al. The rule of thumb seems to be whether you can continue to earn effectively from afar - and modern comms can only help with that. For lesser mortals, stuck with their 250-500K residence and mortgage, let's assume 0.5% is to be found from disposable income; 1250-2500 after tax? And for average Injuns at 150-200K, 0.25% would still require 375-500 pounds after tax to be found annually from hard pressed budgets or 75-100 pounds of VAT gone missing.

If I had to choose between the 2, I would favour VAT reductions as less risky although not in the consumer way you envision. I would remind Keynes was born in 1883 and came to maturity in an age when raw materials and energy were cheap, transported here by us, manufactured in the UK and sold on to mainly captive markets (as Gandhi came personally to complain). As others have argued, more likely nowadays would be sucking in goods from the "global economy" thus stimulating others, but benefiting us only if we were in position to provide more to them than they supplied to us, so reducing debt.

Better to avoid stimulating beer, fags, haircuts and mobile phones by using any VAT reductions to target industrial and manufacturing recovery - perhaps spreading the jam more thickly on a narrower front. Reducing VAT to 10% on HGV repairs comes to mind; on machinery purchases and repairs in selected industry and so forth, wherever EU rules can be got round.

Defence and other Government equipment spending also comes to mind. I have long thought it barmy and inefficient that a Government Department has funding delays on projects, and consequent increase in cost, when 20% of content is VAT to go back from where it came via another route.

Perhaps others have ideas on how to use Keynesian effect in a way that links short term stimulus directly to re-balancing the economy for the long term?

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Sep 21, 2012 at 17:16

One fatal flaw of PVT is that certain groups of people ie government employees may be wealthy in pension promises and poor in property ownership. How do you intend to tax this group of people since it is the payment of their pensions in the future that will keep the economy in the red. And as mentioned previously for a great many middle income property owners their house asset is part if not all of their pension fund.

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Paul Wynter

Sep 21, 2012 at 17:58

lets forget all this and get on with a tax that its gets it back from the culprits, with a stiff robin hood tax on financial transactions for a start.

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Prof Eman

Sep 21, 2012 at 19:42

Dear all

Thank you for your contributions, I will think through what you have said and reply.

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Sep 22, 2012 at 00:43

I do not feel competent to comment on how the government should raise money and the secondary effects of the different approaches. I don’t believe there are many easy answers. Some taxation could certainly do with being made simpler. What I rather cautiously suggest, and this is just a hunch, is that perhaps things aren’t so bad. I would never deny the nastiness of being unable to get a job. I was twice made unemployed when in a well-paid job and remained unemployed on one occasion for 9 months and that was a totally miserable time for me. But what I am suggesting is that when Prof Eman says the economy is “…bumping along the bottom with zero or negative growth…” maybe that is because the many who had lived extravagantly in the past are now living more frugally, making things last etc until they have got some money in the bank, and then, eventually, they will resume spending more freely and we will all live happily ever after. Injecting money into the economy, “here’s some money, go out and spend it and we will all become better off” some how doesn’t seem right to me.

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Sep 24, 2012 at 08:49

Paul - a tax on financial transactions would NOT tax the culprits. It would tax our pension and savings funds and make the City pay less corporation tax (when they have used up their tax losses brought forward) and make th UK less attractive for financial businesses By the way - we already have stamp duty which is an outdated tax We berate the banks for creaming off a slice of every transaction, but the Treasury does this too..

ICD - you are right. The GDP went up when people and the Government was maxing out on credit and we had a false boom. It is bound to drop as debts are repaid and does not necssarily mean a long term depression. But the medium trm will be flat.

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Geoff Downs

Sep 24, 2012 at 09:30


I think a lot of what you say is true but if the idea we can just drift along as we are I suspect is to optimistic.


Same as above really. Think the idea that it may be just flat is to hopeful. In many ways some of the problems look POTENTIALLY worse than the 30's.

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