Who will be the first politician to tell the truth about Britain's public finances?

ConservativeHome today publishes a report entitled "Bankrupt Britain".  The report by Malcolm Offord - a City fund manager with 21 years experience and an adviser to the Centre for Social Justice - paints a devastating picture of the UK government's finances.  The Sunday Times covers the report - Britain faces £100bn cut in spending according to 'Bankrupt Britain' report - and you can read a full PDF here.

You do not have to accept Malcolm Offord's full analysis to agree that Labour will bequeath an appalling fiscal position.  At some point the Conservatives are going to have to face up to this situation and tell the British people what they will do to restore order.  Raise taxes?  Cut spending?  Both?  What is clear is that the current Tory position of growing spending more slowly will make little material difference.  Malcolm Offord says spending cuts of £100bn might be necessary.  That would be politically impossible but also economically impossible would be large increases in the tax burden.  Offord's paper also recommends significant welfare reform - more significant than currently proposed by David Freud, the very welcome new addition to David Cameron's government-in-waiting.  ConHome will be writing more about these welfare reform ideas tomorrow.  In terms of setting our their recovery programme, the Conservatives could wait until they are in office and have completed their Domesday reckoning.  But the levelling with the public should start now.  There can be no steady-as-she-goes.

Key findings from "Bankrupt Britain"

The characteristics of a sensible fiscal position: "As a rule of thumb, a well-run country would be characterised by government borrowing not exceeding 40% of GDP, a budget deficit of zero over the economic cycle (Gordon Brown’s now abandoned “golden rule”) but where public spending did not exceed tax receipts by more than 3% of GDP in any given year (the Maastricht Treaty rule)."

Britain is hurtling away from a sensible fiscal position: "In his Pre-Budget Report on 24th November 2008, the Chancellor Alastair Darling announced that he was planning a budget deficit of 8% of GDP in 2009-10... The Treasury does not plan on bringing the budget deficit down to the Maastricht target of 3% until 2014...  If we add the initial £77 billion of financial stability measures taken by the Treasury to deal with the fall-out from the recent banking crisis (Bail-Out I) this figure rises further to £973 billion – 65% of GDP."

Worse than the 1970s: "The biggest single annual budget deficit since 1970 was recorded in 1993-94 at 7.7% of GDP; compare and contrast this with the 2009-10 projection of 8% of GDP (which was calculated before the two Bank Bail-Outs and the rapid deterioration of the economy in the last three months)."

Britain is haemorrhaging tax revenues: "Tax receipts are now in free fall. To put this in context, in their peak year of 2007-08, tax receipts from the financial and housing sectors alone combined to contribute £60 billion to the Treasury. The Chancellor’s forecast that tax receipts in the worst forecast recession since the War will fall only by £10 billion is likely to be unrealistic. For reference, tax receipts fell by 6.4% of GDP (£94 billion in today’s money) in the last boom-to-bust cycle from 1985 to 1994... "City bonuses have been slashed, financial sector and company profits are collapsing, the property market has stalled, capital gains are non-existent, savings rates have slumped, VAT has been reduced, the price for North Sea oil has fallen – and the list goes on. HMRC must be haemorrhaging tax revenues."

The consequences of a 5% recession: "If we assume that in 2009-10, UK GDP falls by 5% overall in real terms, we think that “business as usual” levels of public spending and taxation would lead to national debt (on the Maastricht definition) rising to around 105% of GDP by 2012 and continuing to rise thereafter to 156% of GDP by 2020."

Public spending has soared over the last fifteen years: "The first point to note is that current Total Managed Expenditure (TME) of £623 billion has grown over 15 years by 5.4%pa from the equivalent figure in 1993/94 of £283 billion. This is a long-term trend of real spending ahead of inflation: if TME had grown over 15 years in line with actual inflation of 2.4%pa during that period, current TME would amount to £404 billion. On that basis, we have increased real spending by £219 billion over the last 15 years."

Tim Montgomerie

Comments

[David Belchamber]

We cannot wait for a Domesday audit of the country's economic state of play. We must have it asap to prepare the public now - while the authors of our misfortune are still in office - for the enormity of the task ahead.

Tim, is there any chance of getting some real stats from CCHQ (with like for like comparisons against 1997)? e.g.

* total of people who are able to work who are not doing so (i.e. not just the official unemployment figures)
* an index that shows inflation as it actually affects ordinary people (last year this was above 10% but the CPI was about half that).
* what government debt actually is as a percentage of GDP (i.e. bring in the off-balance sheet items that best accountancy practice would insist putting on the balance sheet).

Other contributors will no doubt add to this list (what about aggregating personal IT and the NI contributions - they are both a tax?).

In opposition we are constantly shooting too low and it is better to get to the truth now rather than find out when we get into government.

Anyway, if we could show the public quite how much Brown has deceived us, we might be able to bring pressure on him to hold an earlier election.

[Oberon Houston]

Although many Woolworths staff etc., will completely disagree, whilst things are indeed a mess, the effects haven't fully filtered through to many people. Politically it will be interesting to see 'deep cuts in public services' under Brown. Suspect that Brown is mentally incapable of accepting that need and would rather allow debt to climb. Its 1977 all over again.

[Oberon Houston]

... sorry got caught between two thoughts, what I meant to muse on was at what point will the electorate accept cuts? They are so used to spend spend spend, politically the timing of the message is important.

[Tim Montgomerie]

I'll talk to CCHQ tmrw David and get back to you. This is the most important ConHome post for some time. It marks the beginning of a big discussion on the need for openness about the seriousness of the situation and what needs to be done...

[expatinsingapore]

Interesting report. Of course Offord is completely wrong when we writes that raising taxes will result in higher revenues- as well as writing that this "shouldn't" lead to high earners leaving the UK.

Wanna bet?

[Tim Montgomerie]

Agreed expatinsingapore. Appreciably higher taxes will only depress the growth we need to get us out of this mess. It's a good report but I don't sign up to all of it.

PS There must also be a worry that the recession will be deeper than 5% meaning an even bigger black hole :-(

[Adam]

I can't see our leadership coming out and saying that we wil need to cut spending or increase taxes - they are too timid for that. They have only recently got away from matching labour's pre credit crunch spending plans!

[Lindsay Jenkins]

So Britain plc is a sell.

And that accords with friends and family who have either just left for foreign parts or are planning to do so.

In particular how can anyone with a young family give them a good education and a decent life in high tax, give away Britain. Many of the brightest and best will leave.

The revolutionary changes needed now, as highlighted by this report, are likely to be beyond any current leading politician.

[christina Speight]

For heavens sake! Some of us here for nearly a year now have warned of this moment and have continually said that if drastic public expenditure cuts are not made soon we will forced to make cuts of an even more drastic scale later. It's later than you think. "Later" is now!

It's not petty savings we've got to make - it's wholesale slashing. This will fall to the Tory party to carry out and as half the party and almost all the rest of the electorate are still not awake it will bew hugely unpopular. Unemployment will soar and rtge economy will collapse. We've fiddled while Rome has burned.

Which makes it all the more astonishing that the most perspicacious Tory MP has been ignored for appointment by the Cameron-Osborne team - Michael Fallon. His article in the S. Telegraph today spells it out exactly and shows what must be done NOW - later is too late.

[Anthony Scholefield]

I notice that the report does not mention two critical areas to which the leadership and its new spokesman Kenneth Clarke are particularly wedded.
First, Blair has promised huge net increases in Britain's budgetspayments to the EU . The quid pro quo for this was supposed and non-existent reforms.These will kick in next year,amount to several billion and are dead money.This is of course in addition to the billions and billion already wasted on EU membership.
Present policy is to fight for reform from within and has never achieved a single cent in saving.
Second ,the whole Tory heirachy and its media support has continued to insist that Britain must accept further immigration as well as temporary labour migration from within the EU. They base this on misunderstood Ricardian economics of comparative advantage, mixing up free trade with free movement of the factors of production.
In fact ,immigrant labour is a colossal cost as it requires capital expenditure to support it in industry,infrastructure,health,education.At a rough guess around 30% of net British capital expenditure should be going to support immigrants if the capital ratios of the whole population is to be maintained. In fact,this is not done and the politicians accept immigrants living a non-British lower standard of living as well as a deterioration in the capital and social infrastructure of the rest of the population. It is called impoverishment.
If immigration was stopped and Britain withdrew from the EU,there are potential massive savings.
Personally I dont think the leadership has even focused on these costs and are still in a cocoon dismissing them as the vapourings of 'right wing nutters'.

[expatinsingapore]

And it's relatively easy for a UK subject to live abroad and not pay UK taxes, while maintaining their nationality.

Whereas, the only way a US citizen (no matter where they live in the world) can get out of paying US taxes is by taking the rather extreme step of renouncing his citizenship.

What empirical or other studies has Offord provided to support his point that raising income taxes wont lead to a migration of high earners from the UK?

Indeed, over the past decade of Labour rule- despite not raising direct income taxes, there has been a significant outflow of Brits to parts abroad. One can only imagine how much larger this flow will become if income taxes are raised on the most productive members of society.

Furthermore, the beauty of the idea that higher taxes will lead to more revenue- is that becomes a virtuous cycle on its own. That is- when higher taxes leads to less revenue than expected, why that becomes justification for even higher taxes, etc etc etc.

[Tapestry]

Britain is not financially bankrupt.

But Britain is finished as a civilised country. The monetary issues are big but as nothing compared to the collapse in standards. Tens of thousands die in British hospitals every year of lack of cleaning staff. The Police are hopeless in the face of crime. Schools are teaching to standards that are an international embarrassment.

Britain is morally bankrupt.

The financial performance is a reflection of the loss of any kind of competence in government. Bring back competence and you will raise the performance level across the board.

They call it management. Conservatives are good at it.

[Lindsay Jenkins]

Tapestry, I dispute your 'Conservatives are good at it'. They used to be good at it.

Will the present leadership end our relationship with the EU (Anthony Scholefield is right - the cost is unbearable and getting worse by the second).

Will the present leadership unwind all the socialist tendrils wrapped around every part of our body politic? The NHS cries out for radical reform. Red tape smothers every part of our activities (much of it from the EU).

Guts and experience are needed. Where are they?

[ukipwebmaster]

Let's see.....Where we could find the money to make a dent in the public debt....?

[Tony Makara]

Its easy to be blinded by science and a plethora of figures often tends to deflect from seeing the real situation, as it is on the ground.

There are certainly areas in spending that can be reined in but we must always have one eye on what effects certain cuts are going to have, particularly in areas like health for example. Would a reduction is spending lead to the closure of mental health crisis teams or would cuts in welfare entitlement impact on children etc.

The fact is Britain has borrowed too much and those borrowing commitments have to be met, so how are we going to balance the books while at the same time reducing taxation and maintaining essential services?

Either way the room for manoeuvre afforded to an in-coming Conservative government is limited, move too quickly in cutting services and it might lead to public wrath and the return of a Labour government. The strategy for re-balancing the books has to be based on the long haul. Thirteen years of mismanagement can't be rolled back overnight, or even during a full term of government. The figures are frightening but looking for a quick-fix would be foolish.

[Simple Tory]

Tim,
I can't see anyone in our front bench team who has the guts to 'come out' and say it as it is.
This is a great time for you and Con Home to declare the new financial facts of life in Brown's Britain.
David Belchamber made a few good points above, the key thrust of which must be a massive reduction and wholesale simplification of our tax and welfare systems.
Finally, the £ multi-trillion liability of public sector pensions will sink us if the current depression does not. Boris made a half-hearted attempt to raise this issue last week - someone now needs to take up this batton.
How about it Tim?
Happy 2011 to you all!!!
S.T.

[Felicity Mountjoy]

With interest rates and exchange rates giving business a big break there must be some room for exporting and borrowing businesses to pay more tax?

[christina Speight]

Lindsay Jenkins asks "Guts and experience are needed. Where are they?" They are not in evidence in the Cameron-Osborne duopoly but they could make a start with Micael Fallon who has the gutrs and the realism needed.

Tapestry says we are not financially bankrupt. I'm sorry Tapestry but you're wrong. We are and we going to be forced to make the cuts some of us have been demanding continuously right here. The longer it's left to ferment and fester the worse it will be.

The Governor of the Bank of England says he regrets that it is savers that will have to pay for all this. Spare us your crocodile tears please. With the state of most savers reserves their savings have already been squandered and now the the rest of the ostrich-like feckless generation will have to suffer in turn.

[David Cooper]

In answer to the question introducing the thread: "John Redwood - and he has been a voice in the wilderness doing exactly that already, day after day." Only this morning he has coined slumpflation as a description for many of the key findings set out above. If JR was Shadow Chancellor and Michael Fallon Shadow Chief Secretary to the Treasury, thereby able to tell the truth to a wider audience from a more public platform, we would gain far more credibility as a government in waiting than we are from a policy of hedging bets by timidly backing Labour panic measures and equally timidly criticising them later when they have gone wrong.

[Patsy Sergeant]

I would agree with both 'Tapestry' @ 10.53 and Lindsay Jenkins @ 11.08.

I have seen, and heard examples of our 'moral bankruptcy', if not EVERYday certainly on a regular basis - a beach ball rolls out of a shop, and a couple walking by - 'Oh! lets have that!', pick it up and take it away!
- A young woman who's husband in the
armed forces, has her son in the local state primary school (at the moment), where chairs are thrown around, and recently another child put a thermometer into the Bunsen burner flame, resulting in several children receiving burns (from the explosion), the school REFUSED to say how these burns occurred, and just closed the science class for two months! Her son aged thirteen is even happy to go to a boarding school to get away from the present one!

While you have the BBC tolerating if not actually encouraging extremely questionable behaviour, ostensibly 'pushing at the boundaries' in order to flush out talent - is there no other way???? Messages will continue to percolate that - ANYTHING GOES!! and of course makes money!!!

[David Belchamber]

"It marks the beginning of a big discussion on the need for openness about the seriousness of the situation and what needs to be done..."

I agree, Tim. If you can get CCHQ to come up with an objective statement of facts and figures, it will show us just how serious the situation really is.

Lindsay at 11.08 points at where we must be looking to effect economies and we will need a 1940 Churchill moment, which I believe the nation will accept - if we are told the stark facts about where we are after 12 years of Nulabour, on top of which we have had the sub-prime fiasco.

Things ain't good but there is so much waste in the system that they could start to get better quite quickly. The question is: is there a Churchill around at the moment?

[RichardJ]

"Raise taxes? Cut spending? Both?"

Freeze taxes, cut spending. Massively. Raising taxes would be economically unwise and would potentially cripple those already suffering financial difficulties e.g. those trying to pay off mortgages. Indeed I suspect spending cuts would probably be less unpopular because it wouldn't turn up on one's payslip.

To get the economy moving again we also have to deregulate the economy - at a time like this we simple can't afford the social chapter and various other regulations and inhibitions on business.

[RichardJ]

In addition swe have to cease this madness of lowering interest rates. Economic growth is created by voluntary saving and holding down interest rates will only set in motion another artificial credit boom. We need to end central control over the money supply and interest rates , privatise the BoE and turn it into a normal commercial bank without any special powers and accept any short term pain that this causes.

[Edward Huxley]

David Belchamber`s posting just about sums it up: is there a Churchill around at the moment? Afraid the answer is no. The present Tory leadership is too worried about not being the nasty party, staying in the middle of the road and afraid to say anything that might offend our "European partners" or the PC brigade. Chris Grayling`s pathetic uttering about the Dutch MP`s visit in support of our ghastly Home Secretary says it all for me.

Oh and don`t forget; with a few honourable exceptions, all the Tory MPs joined in the standing ovation when chum Tony retired. All members of a jolly good club.

[GB£.com]

01 May 2007:
"We're incredibly fortunate, we've got a successful economy"

Yes, David Cameron thought we had a strong economy in the middle of 2007, not one on the edge of a cliff.

It probably will be Cameron who comes out with this, but it won't be until the tabloids have been all over it and already shaped public anger and thus created the bandwagon for him to hitch a lift on.

Link:
http://www.youtube.com/watch?v=LcRpb76YoNI

[The Bishop Swine]

Well it looks like Browns friend (John)Vincent Cable, is preparing the ground. Even if the Lib-Dem's are still living in cloud cuckoo land were a simple increase in taxation for those earning above average incomes can still be passed to the low paid.

"Tory MPs joined in the standing ovation when chum Tony retired. All members of a jolly good club."

You could put it down to the kind of politeness that used to be a hallmark of our nation. However, I suspect that you are quite right in your cynicism about the no choice politics we are all the victim of. The very same choice which means that we are stuck with the fallout from Labours spending binge.We need the figures even if they are awful reading, and we will need them as soon as possible. I suspect that we will be having to cut spending and raise taxes, most likely we will also have to reduce benefits and tax credits (or its replacement) this is going to be more than bumpy it could well be a white knuckle ride,with outbreaks of civil disobedience very likely. Instead of dealing with these important issue we are struck whining about the payment of an average £1000 to some relatively poorly paid staff at Lloyd's. A Bank who has bent over backwards to help the nation, and which is now expected to swallow up RBS debts whole. If Lloyd's itself made a profit then its only right for its staff to be rewarded. As always it is the majority of underpaid tellers etc who will be expected to pay for the mistakes of the boardroom.
"In addition we have to cease this madness of lowering interest rates." It hurts those who saved for their old age. However, it allows banks to apply almost unlimited leverage to their accounts...a sickness of our promissory note money system and the inevitable fallout of abandoning the gold standard. There is no more subtle a form of theft than inflation, a fact that John Millard Keynes was well aware of.

[Steve Tierney]

Plenty of people have been telling the truth about the countries finances here, and elsewhere, for many months.

Nobody listened. Everybody assumed it "couldn't be as bad as that."

People are listening now though, huh?

[strapworld]

Cameron, should call a special one day Conference in which he should be absolutely open and honest with the British people.

He must start by telling them that all his previous promises must be put on the top shelf and his immediate object is to get this country back on its feet.

He should be clinical and ruthless in his description of what Brown and the Labour Party has done to our country, both economically and constitutionally.

That, because of Labour and his mistakes, there will have to be a major cut back in public spending. He should then lay
out what a Conservative Government will MAINTAIN. Then what a Conservative Government will not maintain.

There is a time for honesty and I believe we have reached that point now.

Time, Mr Cameron for belt and braces. Be brave.

Then let John Redwood Ken Clarke,
and George speak in that order

[Englandism.co.uk (FTP complete/URL resolving)]

'But the levelling with the public should start now.  There can be no steady-as-she-goes.'

My breath is neither held nor baited. Today we are told that David Cameron has been directed by 'internal focus groups' to stop being beastly to Gordon Brown because it turns off the key middle class easily frightened female demographic.

http://tinyurl.com/d3mdh8

Apparently, Cameron will only be Mr.Shouty at PMQs:

'At other times, the party will follow a "good cop bad cop" strategy to woo female voters, with Mr Osborne and Mr Clarke in the role of bad cops, and Mr Cameron the calm voice of reason.'

Osborne? The phrase 'unleash hell' does not spring vividly to mind.

Unleash hell. David Cameron levelling with the public about the impending economic End of Days and a societal Hiroshima? Never mind turning off timid spinsters in Budleigh Salterton this revelation would be so pant-wettingly terrifying that the entire electorate would be queuing up for a mass jump off at Beachy Head.

Personally, I will mostly be growing vegetables, erecting barb wire pickets and stock piling diesel for my generator.

[Adam in London]

I think it's quite interesting to read the responses here - especially with regard to talking about tax rises. There is something a little hypocritical about telling policians to face up to the truth when you fail to do so yourself.

Offord's plan is raise taxes and butcher spending. There is a trade-off between raising taxes and blunting economic growth, but Offord maintains that it is an acceptable one for a top rate of 50%. It was, after all, a heck of a lot higher for most of the 1980s. But, be under no illusion that you can trim spending a bit more in order to avoid the tax rise - Offord's plan already involves taking public spending from 47% of GDP to 32% of GDP. How much more 'fat' do you really think will be left to trim?

If you want to argue against tax rises, that's fine, but be honest about arguing for higher debt for longer at the same time.

[Tapestry]

A focus on money exclusively will be weak politics. Better to focus on the general collapse in mangement and standards of behaviour which has caused the financial collpase in the context of a collapse in management of all public services and poor delivery of government's overall role, and lack of moal leadership.

Cameron wants to focus on GWB as well as GDP. The two should be seen as one and the same, and money should not be so singled out in the thinking about what the Conservatives will do when in power. They will deliver all of government's roles to a higher standard including money management.

It's the era of broader values and parallel thinking. Returning to single statistical economic objectives is not necessary or likely to appeal to voters. Money management should be a given in a good government, not the only thing being focused on and the main message, but a key plank in the overall platform.

Making things work better obviously including not running out of money.

[Tapestry]

Money should not be the sole focus. Delivering an overall programme of competence in government quite clearly includes not running out of money, and spending excessive quantities. But it is the lack of effectiveness of Labour in all areas of government competence that needs continual exposure not only their monetary failure.

The message is far more powerful because they are vulnerable on all fronts not just on money.

[George Osborne is not the Antichrist]

'At other times, the party will follow a "good cop bad cop" strategy to woo female voters, with Mr Osborne and Mr Clarke in the role of bad cops, and Mr Cameron the calm voice of reason.'

Well I have to say that G.O. comes across as something more akin to a love struck puppy than a bad cop.

"Osborne? The phrase 'unleash hell' does not spring vividly to mind."

Exactly, he could be playing to the sympathy of the female voters as in "isn't he cute, with those big doleful eyes." In which case he is doing a good job of it.

[Philip]

Yes they’ll need to be massive cutbacks to pay off Labour's disastrous level of debt and reduce spending to something more that can be afforded by taxpayers.

However there are some promises that must be carried through at the earliest opportunity as soon as we get into government, most particularly urgent welfare and tax reforms to support marriage etc, and essential national infrastructure spending (e.g. improving the efficiency of our railways and building a high speed line) to ensure we have the infrastructure for when there is recovery, and which would now be productive ways to stimulate the economy. There are other areas such as law and order and defence that probably need an increase in spending in order for the state to effective do what it should do.

Cutbacks should instead be aimed at radically reducing the size of the state, particularly its’ unproductive activities that erode basic freedoms and seek to control.

Anyhow, as has happened before, it seems we will have to make unpopular decisions on spending to repair the economy from Labour, then as the economy improves, Labour could gain power again due to our unpopular decisions, to only mess it up again. We need to think of a way to stop this happening.

[expatinsingapore]

Adam in London.

Ok, let's have an honest argument about raising taxes.

Your argument or Offord's would be that by raising the top tax rate to something at or near 50% would generate sufficient revenue (alongside significant reductions in public spending) to put the public finances in order.

I don't believe that will happen. For a few reasons.

1) Unlike the US (which is very unique in the world in doing this) the UK does not tax UK residents abroad. Those top earners who would be the ones affected by this tax shift are highly mobile and highly desired by other- lower tax economies. As UK PLC. has crumbled, not just economically, but culturally and socially as well, over the reign of New Labour- there has been a significant and demonstrable exodus of talent outward to countries like Australia, Singapore, the US etc. These are the very type of people you want to stay in the UK to rebuild the economy but by penalizing their earnings, you are sending a very clear message to them. Stay here, earn a decent wack, and we'll tax you even more.

2) Per J. Rogers, the UK PLC. has become a produce nothing economy. It doesn't grow its own food, it's manufacturing base is a joke, it is not on the cutting edge of science or technology. What is needed therefore is not ever higher taxes but rather a pro-growth (kill the regulations, health and safety regime, and quango state) regime.

[Andy]

The States finances are a complete mess and it is high time the political class were honest with the People. It also means that the time has come for a fundamental review of what the State does or does not do. That means taking an axe to the State and reducing it in size once and for all.

[Matthew Reynolds]

The Tax Payers Alliance has identified £100 billion of waste - the Tories should ask Ruth Lea to produce reform plans to deliver those savings so that taxes can fall and budget deficits be reduced. A tax cut induced recovery would boost revenues as avoidance would fall while productivity appreciated. That would add to the governments tax base. If HM Treasury wants more revenues then looking into ' The Laffer Curve ' idea could be a good start.

£50 billion of deficit reduction and £50 billion of tax cuts over say eight years would get the economy moving again. Big tax cuts under Coolidge & Harding produced ' The Roaring Twenties ' while big public spending cuts under Charles Haughey in Eire during the course of the 1980's paved the way for the Irish economic upswing of the 1990's.

A strong economic recovery would produce a growth dividend that could enable even more cuts in the budget deficit and in taxation to boot. A far smaller state is needed as the Big Government experiment has ended in failure under Gordon Brown just as it ended in Malaise under President Carter.

[BrianSJ]

In generating 'real' numbers rather than the distorted government ones, could ConHome find some common cause with the TPA?
Duplicating effort is what we want to stop rather than do.

[expatinsingapore]

Ratchet, ratchet.

One other point about taxes.

It would seem that if one were to follow Offord's advice- then the next Tory government would not only alienate the left (which must be done) through massive cuts but also the right (through larger tax cuts). This is political suicide and would only enable the ratchet effect- whereas the Left gets to implement their policies while in power that ALWAYS stay whereas the Right has to clean up the mess through unpopular measures and then is chucked.

No- if anything, Cameron and the Tories need to finally make a choice about where they stand. They need to not only cut public spending much deeper than even Offord suggests- but cut taxes as well.

It would also not hurt, and I write this as a gay man, if they embraced social conservatism. Who cares what the Economist thinks? After all- the Economist and all "good opinion" were entirely supportive of Blair, Brown, and new labour throughout their reign of terror.

Screw them. Go to the right- go for it hard. The country will improve and ratchet back for the right.

[expatinsingapore]

Am I the only one who is actually thinking that what the country needs, and what would actually be more popular than wishy washy Cameron type policy- would be a "nasty" and "mean" Tory party?

Am I the only one who thinks that Cameron is no more than a Ted Heath like political actor who is fundamentally incapable of embracing the change and reform this country needs?

Am I the only one who thinks that despite their total incompetence and horrid rule over the past decade, that Labour is so obsessed with power that in the upcoming election they will do everything- and anything- including getting to the right of Cameron- on a multiple of issues, immigration, crime, even taxes and spending- to bring about their fourth electoral victory?

I supported Cameron once. But then, during the Crewe and Nantwich by election, I saw a Labour produced video of a young married women with children who was voting for the ghastly Tamsin because in her words, she "was sick of the crime and filth" of her neighborhood. Despite the fact that Labour has had a stoncky huge majority for twelve years, despite the fact that she had been represented for decades by a Labour MP- she had still not made the connection.

Perhaps the fault did not lie in her- perhaps the fault was in Cameron and the Tories.

[Lindsay Jenkins]

expatinsingapore is right.

The only way to slash the size of the state - and most of the items listed by the Taxpayers' Alliance - is to leave the EU.

Stay and we have big state, high tax, high regulation and the added drawback that we have little say in our own affairs.

Go and we get our freedom back, our country back and we can slash budgets to our hearts content.

It is an either or choice. One or t'other. No half way.

[Jeremy Poynton]

Slash the Quangos. To the bone.

£100 billion, there you go.

[Hopkins]

Speaking as a Tory by predisposition, but one who was prepared to vote Labour in 1997 (well, we all make mistakes), I would love Cameron to stand up and be counted for some principles. Unfortunately I think that he hasn't got any (why isn't he making more of Smith's expenses, even if it is uncomfortably close to home?) and instead is just another pragmatic Blair-alike who wants everyone to like him and won't say anything that might scare the political horses.
Yes of course Brown and co. have demonstrated their willingness to steal policies so caution is understandable. However that needn't stop Cameron being bold about what he believes in. Even if I didn't agree with all of it, I would trust such a man as PM.
There is no danger of Labour stealing principles since most of them wouldn't know what one looked like if it walked into the room with a large "I am a principle" sign around its neck. They certainly don't have the competence to turn one into a policy.

[Edward Huxley]

Lindsay Jenkins is right. All this argy bargy about what the Tories might or might not do is pointless. We are completely ruled by Brussels and nothing will change unless we leave the EU.

[expatinsingapore]

And to Adam in London:

Do you really think that high earners who would have to bear the brunt of higher taxation are going stay in the UK only to have to subsidize 12 year old's having babies and receiving benefits- although apparently they have enough to money to afford play station?

It's really this simple. The Uk is a desperately beautiful country with a rich heritage and tradition. It is however- a small country, a country that has made minimal contributions (other than derivative finance and North Sea oil) to the world economy and technology and civilization in general in the past fifty years. It has relatively high taxes, relatively high regulation, is horrendously expensive to live and visit, does not manufacture much, imports most of its food, and despite all this and despite the fact that it has been living off its history and heritage for the better part of a century, has in the last twenty odd years decided to go to war with it's own tradition and history in the name of "Cool Britannia".

There is crazy crime, crazy social pathologies, and the worst of it is- that the people are crying out for an opposition that is angry, that will make radical reform, even "turn the clock back" on several things.

Instead we are given, "Call me Dave"- the "heir to Blair".

That won't do it old boy. Atlas has well and truly shrugged. Too bad Cameron doesn't get it.

Oh well- he'll be alright, I'm sure after his four years at Number 10- there will be a few directorships for him.

[Jack Stone]

So people think David Cameron should go to the country at the next election and say if you elect me I will raise taxes and massively cut public spending.The answer he would get from the public is that he would lose.
If you want to win you have to convince the public that things will be better with you in government and with this message you will just not do that.
I believe that Cameron must steer a moderate path.He must lay out a path he wants to go down and the sort of Britain he wants to see but he should not commit himself to drastic cuts in spending or to raise taxes.
Frankly I think the sort of spending cuts that are being suggested on this site are anyway not achievable in a modern Britain. They would involve big cuts in frontline services and would result in massive public anger.
Personally i believe Britain as a country must accept its no longer the power it was in the world and I would like to see cuts come in the military and diplomatic services overseas as I think we should cut back on our overseas commitments.I also think we should also make cuts in the amount of civil servants we employ.There is scope for savings in spending by becoming more efficient but not of the type that is being mentioned here.

[expatinsingapore]

Ha tis funny Jack Stone.

You write that we cannot do anything but bow down before the altar of run-away public spending. That it is simply impossible to actually chop away at the growth of the state.

In the same post, you advocate a modern version of "managing the Uk's inevitable decline."

Do your sums. Even if we were to entirely abolish all defense and FCO spending (outside of course spending on International Development- ie giving money to countries which themselves have aid budges-) this would make a very little dent in the public finances.

Do your sums! What exactly is your solution? Raise taxes- which will not only NOT raise revenue but lead to an even more massive drain of the talent that WE NEED IN THIS COUNTRY TO SURVIVE.

Ratchet, ratchet, ratchet. All the while, our servicemen go without proper body armor but heaven forbid thirteen year old boys who father children, himself (what is it? ) a third or fourth generation welfare state pleb, has enough money to buy play station, thanks to benefits!

Do you really think this is sustainable? Do you?

[expatinsingapore]

Also, Jack Stone.

Who in your mythical future is going to continue to pay for this crushing welfare and public-service state?

Who is going to pay the high costs of living in the UK?

Who is going to pay the high taxes of living in the UK?

Who is going to subject their children and families to the increasing crime of the UK?

Who is going to pay for the regulatory state that crushes small businesses and only seems to reward corporatist types who are politically connected?

You might then write, well those who respect their heritage! But this same heritage over the past few decades has been, frankly, guttered. We are in Cool Britannia now. So you can appeal to any historical or cultural links.

No, I'm afraid- that those who are smart will have moved on- or will be moving on fairly shortly. And then, my dear boy, you will have to rely on (to fund your welfare state that apparently can't be touched) 1) 13 year old children who father children while on state benefits but cannot understand what "financial" means- all the while playing their play stations 2) hard nosed immigrants from cultures which will not allow for any type of liberal tolerance and will- once they get a modicum of political power- bring about a reaction that will make the Cornerstone Group look very socially liberal in the extreme.

No, the only way forward is to cut spending on welfare and civil servants to the very bone, cut taxes to make the UK competitive, return to a form of social conservatism whereas those who were different were tolerated but not promoted as the ideal, and retrench and preserve the heritage of the UK.

Any other way is quite the road to destruction. This may not be popular- you are right. Any PM who took this course would no doubt, be on the bad end of many a Economist editorial. It is simply, however, the only way out.

The great irony being- the sooner we realize this and act- the less pain it will involve, for everyone.

[christina Speight]

expatinsingapore at 15:49 "Am I the only one who is actually thinking that what the country needs, and what would actually be more popular than wishy washy Cameron type policy- would be a "nasty" and "mean" Tory party?"

Not by any means you're not. i've been screaming my head off here for nearly a year that it's all going to get mean and nasty and we ought to come clean about it NOW. I entirely agree with your most recent at 1717 too.

Personally I fear the global crash will precede the election and the foolish public will demand a coalition. No way should it include Labour.

See Evans-Pritchard in Telegraph business today. Apocalalyse NOW he warns! (maybe tomorrow!)

[expatinsingapore]

The great irony (and I do use this word in its correct context) is by Cameron being a squish he is only enabling the BNP and the UKIP.

I would wager that the UKIP and BNP do amazing in the upcoming EURO elections.

And then Cameron would only have himself to blame. He is the Ted Heath of our generation. Who is our Thatcher?

[David_at_Home]

" ...the only way forward is to cut spending on welfare and civil servants to the very bone, cut taxes to make the UK competitive, return to a form of social conservatism whereas those who were different were tolerated but not promoted as the ideal, and retrench and preserve the heritage of the UK."

Quite agree but this just will not happen with Cameron and Osborne. There is a desperate need for a change at the top of the Tory Party.

[expatinsingapore]

The great tragedy of course is that these so called "Third Wave" politicians, Blair and Cameron- never actually address the right questions.

If social liberalism were so great, why all our problems with community and division here in the UK?

If ever higher public spending were so great, why the financial bust and horrid, quelle horror! state of the public finances?

If taxation had hit the "sweet spot" why are so many small businesses and talented people going bust or leaving the country?

If "Cool Britannia" was the answer, why all the social pathologies?

The point is, they can't answer these questions- because they don't care to. All Cameron et al care about is being on the receiving end of a flattering Economist editorial.

[The Bishop Swine]

The States finances are a complete mess and it is high time the political class were honest with the People."

In many ways the is in a worse mess than we are. Mainly this is the result of tax deferment on a generational scale. At least the British will accept taxation well beyond what the American would rebel in mass over. In the medium term that is very much in our favour. Thank the good Lord we are not american say I. Its becuse of american debt that intrest rates must fall to near zero.
At 1% a penny can leverage 100 times its face value, at 0% it can leverage Trillions.
This promissory nonsense is the direct fall out from abandoning gold. Sod the Market buy Gold. I know its not what people want to hear but we really should consider our own change of currency back to gold and prepare to slow our economics to a crawl. The Muslim world would have no problems with Christians if Christians behaved like godly men. We can draw back from the brink, but most seem to have the urge to fight the inevitable return to more orthodox behaviour. I propose we conserve the world for later generations and concentrate on an end to debt card servitude.
Further I propose a clearly signaled purge of some elements, that is the undeserving poor who had better shape up and prepare for hard work or except grinding drug free poverty. I don't think we have a choice we need a new Iron Doctrine and the nerve to see it through. I welcome the downturn may it worsen and be a rod for our backs, may the dow jones fall another 1,000 it makes no difference to the real politic, the reformation when it comes will be all the brighter. You know most of the world freight could be moved around on sail boats, we need to slow down and enjoy our wealth rather constantly striving for more...its out of reach its fairy gold.

[Adam in London]

Expatinsingapore,

You seem to be labouring under the misapprehension that Offord or myself are offering tax rises as some way of not making significant spending cuts. Look at the figures in the report.

Next year, the projection for public spending is to be 47% of GDP. The "balanced solution" involving a top rate of tax of 50%, also has public spending falling to 32% of GDP (a £100bn cut). The last time it was that low was the 1930s. The point is that we don't face a choice of levers any more - we have to pull every one.

Your apparent preferred solution is to simply cut spending even further. Offord considered this - it involves taking spending down to 27% of GDP (a £185bn cut). Does that sound remotely realistic?

As for the world caving in should the top rate of income tax rise to 50% - this is not the case in other countries. Indeed, the great brain drain of the UK occurred when capital gains tax was running at 98% - we have a long way to go until we reach there. People are fond of quoting the Laffer curve, but I see no evidence that the curve's peak lies at 40%, whilst academic opinion tends to place it near 60%.

[True Bred Pomponian]

Think £350 billion, then you're being serious and have a good understanding of the issue.

[Robert]

Adam in London - 2 things,. Firstly, we are in essence paying 50% tax when you include the so-called NI , a tax but in name. Secondly, the world is a more global place than it was, and yes even under economic stress there will opportunities abroad, particularly if inflation takes off as most likley it will. Finally, yes we probably do need to cut government expenditure to 27% of GDP. There is so much waste and unnecessary expenditure on things we do not need or need to do. Welcome to the age of enlightment, with tough love and hard work. We need to do what is necessary to get us back on to the 'straight and narrow' ( i.e. reality) and away from the illusory existence of the last 10 years or more.

[expatinsingapore]

No Adam in London,

I appreciate you and Offord proposing cuts in public spending in comparison to GDP. A few things however,

1) I believe that both you and especially Offord are offering these cuts assuming that this is a normal recession and that GDP begins to recover. What exactly in Offord's analysis suggests that this is more of a severe recession (dare I write depression?) and that it will simply take more than cuts in the rate of growth of public spending, but real actual cuts. Even more, what specific cuts has either you or Offord offered? You seem to be quite clear about what "lever" you would pull in terms of higher taxation- but remarkably unclear about what exactly you would cut.

2) Even if I were to grant you your specious arguments about tax hikes=higher income. Surely, you must agree that in the long term UK PLC can simply not afford the welfare state it has enjoyed (especially given its demographic and social screw ups) these past fifty years- and most especially in the past ten. What then, say you? Say Offord? Simply "efficiencies"?

3) Actually, if you were to study the brain drain you would understand (which is why even "new Labour" were so hesitant to raise direct income tax rates) that nothing, NOTHING is more harmful to growth than increases in direct income taxes. As your great example, you might claim that Bill Clinton raised taxes- although only to a shade under 40% under top earners in 1993 and this did not seem to hurt the US economy. Actually what happened, is you witnessed a massive migration out of high income tax states- into low income tax states- which effectively negated the influence of higher income taxes on a national level. This is something, obviously the UK can't experience. Furthermore, the high growth of the 90's didn't really occur until the GOP took over Congress and instituted large scale tax cuts on families and capital gains. Even Clinton's own Economic team admitted that his "tax raise" did not raise revenue. It was simply a measure- a feign towards the left- so that he could focus on debt reduction.

4) Finally, finally! One point which you haven't answered: If you are going to massively raise taxes to around 50% then you would at the same time have to institute a regime (a la America- although they have quite lesser taxes) whereas all Brits pay UK taxes even while abroad. Because, yes, yes you are quite wrong here- high income Brits are moving out of the UK in droves and if you are going to squeeze them even more for high taxes, even more will move out. You will then simply have to tax them while abroad. There is no way out of this.

5) What high earning UK subject is going to blithely agree to massively higher taxes because both Labour and the Tories were unable to get spending under control? The bet you are making is that people in the UK will be willing to pay Scandinavian style taxes, but receiving UK style public services- meaning thousands die in hospitals because of lack of proper cleaning- horribly awful and expensive transport- tremendously high levels of crime etc. I simply don't think that people in the UK will agree to pay for that high level of taxation without a much (MUCH) higher level of public services. Can the Tories really deliver this? Because if they raise taxes and don't- they will be more hated than they ever were.

5) Finally, your views on the Laffer curve are laughable. Krugman won his Noble for Trade not micro or macro policy- see Barro, R.

[expatinsingapore]

And Adam, if you think the Laffer curve doesn't really matter until it hits 60% why not take direct taxation up to 60% why stop at 50%?

Because in reality, the people of the UK already pay almost half their income in all sorts of taxes and fees- it's already hitting that.

And the fundamental question still remains: If taxes go up that high, why remain in the UK?

Why not go to Denmark or Norway- you would at least have decent public services?

Or even better, Singapore- where you have both amazing public services and low taxation and an environment where you don't have to worry about the corporatist-government "Health and Safety" regime?

FYI: As someone who studied economics under Laffer, he was writing about all taxation, not just direct income tax.

[TomTom]

Die Welt has an article about Ireland's woes as does the Sunday Times. Now they have bank assets 11 times GDP and bank guarantees at 220% GDP it does not feature in BBC broadcasts as "the Celtic Tiger" because rather like Korea et al in 1998 - it is bust.

Funny how the BBC fails to research and analyse why Ireland lived high on the hog using EU transfer payments to develop tax haven status in the port area for US IT companies and major corporates to operate invoicing centres and tax shelters.

Such business operations do not however create jobs for anyone not a tax accountant or lawyer unless they sweep floors and run escort agencies. Now the great Irish Miracle has burst the BBC does not want to know. When they move to Salford maybe we will get real news about real people doing real things and suffering real problems ?

[Malcolm Dunn]

I expect the answer will be both. I doubt that we'll be able to cut IHT as we'd planned nor envisage any increases at all in defence spending as I'd hoped.
I do hope that George Osborne will soon start providing detail on where spending will be reduced. Even Clegg has announced cuts in several areas. We'll need to go much ,much further than he has.

[expatinsingapore]

Let's forget for a moment Jack and Adam and Gordo and let's think about the future.

How will the UK grow? What exactly will attract people and businesses to our realm?

For many decades we thought that we could have it all- we could on the one hand not reform our welfare state, yet not raise taxes. We thought that we could bank on our proud heritage and culture- while on the other hand institutionally destroy it.

We thought we could join Europe and spend boatloads of money, but really never take any of the advantages of it- just the negative externalities.

So here we find ourself. A middling country. Not attractive when it comes to taxation, not attractive when it comes to infrastructure or transport (Lord knows in Singapore, how many executives I know who fly into Amsterdam)- and this is more than a decade after New Labour and their boatloads of money on investments.

Our children are not well educated, not well versed in either Science, Technology, Maths, or even their own Culture (Classics, LIterature etc). Rather, they seem to know how to scrounge for benefits, "Media Studies", falling over ass backwards in front of pubs etc.

We are leading the world in social pathologies- we import most of our food. We have a tremendously high crime rate- despite an almost total ban on gun possession.

We have the world's most well-funded public broadcast service (BBC) and yet it seems to hate us more than ever.

We have more public servants than ever before, gold-plated indeed, and yet the public services are worse than ever.

Our children are not property educated, our mothers and fathers not well looked after, even dying because we can't seem to clean hospital wards correctly.

We are four or five generations into a sub-class of benefits scroungers who are growing more and more feral. More and more outrageous.

We shout our "tolerance" and "diversity" to every country on Earth- and yet Keith Vaz and his ilk are allowed to reign and ban a Dutch member of Parliament.

Seriously- why would anyone stay? Why? What exactly about the UK is so great that anyone with half a brain would stay in this country?

The saddest thing, is that we don't even have an opposition party who seems to oppose. The nation, the realm is crying out for Anger, for Cameron to say, "No this is enough, this is wrong!"

Instead, he is so worried about being unpopular with BBC reporters, Economist lead writers, and the Notting Hill Set- that he can't even manage this.

Atlas has shrugged.

Deal with that.

[Michael Hewlett]

A great post Tim, let's hope one of our elected representatives decides to respond (from either side of the house) People always 'shoot the messenger' a la Robert Peston. Being a lone voice is never fun and current day politicians lack the courage of a 1930's Churchill. Standing against the tide takes real guts....

[Julian L Hawksworth]

The first politician to tell the truth, regarding the state of our public finances? Well, it will be a Conservative, no doubt about that! Probably, either John Redwood or George Osborne.

Labour tend to prefer half-truths or lies, as genuine people usually know. And of course, Labour is obsessed with spin, leaks and the timing of press releases......

[expatinsingapore]

Actually Julian, I'm not so sure.

Where is Redwood? Has he been brought into the Cabinet? No, I think not.

Do you really think that Cameron is going to be able to untangle the gordian knot which is UK PLC?

When it comes to history, or perhaps, hopefully sooner- when it comes to a time of accounting- about what went wrong and who it is to blame, I think you will find as many Tories on the list as Labour- for the Tories allowed it to continue- while the Libs/Labour amped it up.

I even am beginning to think, and this is perhaps quite controversial, that HM ER II has a role to play in our decline.

But if we are to survive as a nation, we must be fearless in understanding what lead us here.

Only then, only then can we begin to rebuild.

[John Scott]

Having just read this report it is now understandable why George Osborne is as pale as a sheet. What a sickening waste the last ten years have been.

[Steve Tierney]

From a government income point of view it doesn't matter if you cut or raise taxes. The government gets much the same cash out of it.

If you cut taxes people have more to spend, and get taxed on the expenditure, and the companies supplying the goods and services get taxed on the profits they make.

If you increase taxes people spend less, but you get more from them.

The only genuine argument about how much tax to take is based on the question: who is better placed to know where to spend money, the goverment, or the individual?

My money is on the individual.

[Michael Taylor]

I know things are wretched, I know the public finances are a car-crash, I know New Labour have been a force for corruption and wickedness, I know that tax rises will push an even higher proportion of the most skilled Britons abroad (I write from Beijing), and I suspect that Mr Cameron isn't the Great Prime Minister we urgently need. Nonetheless. . .

The people writing along the lines of 'Britain's a useless dump, doesn't do anything any more, manufacturing's a joke, science is a dim memory' etc are wrong. This is not a matter of judgement, it's a matter of numbers: on virtually every indicator you can measure for international connectedness and competence, Britain remains extremely competitive. EVen, I shoudl say, if you measure international patents. Those who ignore the country's measurable strengths are doing no-one any favours.

And it's allied to a second point: outside the M25 (have any of you been to this strange land?), Britain has grown an economy which is almost unbelievably diverse, globally-connected, and, from a statistical view-point, almost invisible. It's very easy to see that we no longer are good at marching down to the shipyards or car-factories (pace the NE). Statisticians can count it, TV cameras can pan across the barren wasteland. It's very difficult, or almost impossible, to spot the person who's designing semiconductors from his cottage in the Pennines, and which get made up in Korea/Taiwan. It's very difficult to count the contribution to GDP of a N Yorkshire farmer who also cultivates swathes of, say, Ethiopia.

I could go on and on and on. The point is this: just because it's difficult to count, doesn't mean it isn't there. And the policy implications of this type of economy. There are two, both very obvious, and both, I think, worth thinking about. First, you can forget raising taxes - people will not necessarily offshore themselves, but they'll have no difficulty in offshoring their earnings. Second, and this is a 'duhh' thing: Supply Side Reforms. These types of businesses have the capacity to expand in the UK, if they want. But the regulatory environment makes it hugely expensive to do so - rather, these people will expand by hiring people in with less expensive regulatory environments (invisibly).

Britain's recovery from the trauma of Labour will be tough, but probably not impossible. The country harbours great resources, many of which are scarcely visible to the statistician. Where these businesses are global, hefty tax and regulatory burdens have quite legitimately 'offshored' the business, even if the person stays at home. The scope for repatriating these businesses is there, but this is a prize to be won only by those prepared to put in major Supply Side Reforms.

Supply Side Reforms.

Why haven't I heard that phrase from Conservative lips at any time over the last 10 years?

Supply Side Reforms, guys. Supply Side Reforms.

[Oberon Houston]

Mmm, I still would like to reiterate that this isn't simply a budgeting exercise, its very political. If we go out on a platform of cutting taxes whilst receipts are already reducing we need to be sure the public will accept severe cuts in public services. If we get this wrong, Labour can remain in power another 5 years and after that. I'm of the opinion that its too early to make a promise on this, despite the obvious need. Its not just the economy stupid.

[Bexie]

There are a couple of points that run counterintuative to a lot of left influenced thinking.

Firstly, reducing taxes actually increases tax take. Arthur Laffer waxed lyrical on this, all the evidence points to this being true, from Thatchers tax reduction policy through to Clinton. The maximum point of tax revenue appears to be around 35%, go over 40% and you start to see a rapid tailing off of revenue after a period of adjustment.

Second, Excessive regulation also hampers growth. Culpability Brown managed to put in an onerous level of regulation into the city, but without any achieving real benefit. Having audit trails and documentation levels that loaded on about 10% extra administrative cost, he failed to spot the macro problems that he had created in destroying the previous order. He further compounded this by sneaky back office deals with his "mates" in senior positions culmanating in the forced merger between Lloyds and HBOS, which as a shareholder I was never invited to vote on.

Simply put, (I refer to the Freedom Foundations work "habits of a successful country") rules are needed that are consistent effective and enforced. If you have a Prime Minister that is running around behind the scenes allowing exceptions then it is all a sham.

Finally, looking at Culpability Brown's record in this, both as the Credit Card Chancellor and latterly as the Ditherer of Downing Street, I would suggest that he is worthy of investigation for malfeasance in public office.

[chris southern]

The cuts to public spending are easily done without interupting or decreasing the public services, why?
Because of all the middle management statistic counters, because of all the non police and because of all the quangos/fake charities that the UK does not need, nor want anymore.

[oldrightie]

Where has all the money gone?

[Jonathan]

Hate to say it, but in light of the above - perhaps we should cancel Trident. After all, can we really afford it? And no I'm not against nuclear weapons, quite the contrary - they kept the peace during the cold war.

Other Big savings - ID cards, NHS computer...

As for smaller savings - how about creating a one-stop website for all public job adverts. This would be cheaper than advertising in the press + scupper the Guardian at the same time :)

[Ross Warren]

"Hate to say it, but in light of the above - perhaps we should cancel Trident. After all, can we really afford it? And no I'm not against nuclear weapons, quite the contrary - they kept the peace during the cold war. "

Its not like we don't already have quite a bang available. I agree Trident is too expensive at this time. We of course will not be able to avoid all spending the old equipment will be expensive to keep viable.
However, it can be done and we could save a bundle in the short term.

"Other Big savings - ID cards, NHS computer"

I agree and I would love to see the end of the hated ID card. I am not against a National ID in principle but what Labour wants is way more than a simple ID card. If we must have an ID card lets keep it simple and cheap to produce. Biometric cards will be no more secure because criminals will always be one step ahead.

"Where has all the money gone?"

This is a good question. Some of it has simply been taken off the table, so its still out there but its not being cycled. However a great deal has simply been destroyed. Bankers talk about leverage, which is a complex concept that allows money to be lent out a number of times. This is why they talk about £1.00 having £30.00 leveraged against it. Of course this house of cards works fine if everyone pays up, but when a significant number fail to pay there simply isn't any money to under right the debt.We have a situation were money was over lent. Up until the bubble burst there appeared to be many trillions of dollars on banks balance sheets than existed in the world economy. In many cases the money has gone forever as it was secured against nothing, or over valued assets. The housing bubble was very much a symptom of this over leveraging by the banks. Of course this is a highly simplified account. Perhaps a few other posters might like to add to my explanation as the more people understand what has gone wrong the better.

[A Reformed Labour Voter]

It is the constitutional job of HM Opposition to hold the Government to account and keep the voters informed. So then who takes the role of Dr Doom?

Cameron and Osbourne must remain clam, positive and represent hope. So they do not want to front the 'Public Finances reality check' initiative.

The bad news must come from someone who has broad shoulders, experience and credibility. And it must be someone who can get the message across - ie a first class communicator.

Enter former Chancellor Mr Ken Clarke MP.

[Andrew Smith]

I recently reviewed an online training system which included the following cautionary observations about money laundering:

Be wary, if clients:

• without obvious sources of funds want to buy insurance, financial products or a mortgage
• seem determined to enter into financial commitments well beyond their means
• readily accept expensive products when better deals are available
• appear to be more interested in short-term cancellation rates than the policy itself
• are introduced by agents in countries noted for drug production or terrorism
• make overpayments and request refunds
• assign policies or investment products to apparently unrelated third parties.

You really do not need to change many words to fit Brown's financial management and our payments to the EU into this:

A.
Brown has run the economy badly throughout his term in office and it is a shame that most of the political class really did not notice until the Brown stuff hit the fan.

B.
We continue to send cash to the EU despite its obvious incompetence, secrecy and corrupt financial practices.

[A Reformed Labour Voter]

Everyone knows that the country has lived beyond its means under Labour. So we accept that cuts have to be made. But where?

Here's a few ideas:

1. Withdrawal from Afghanistan

2. Privatisation of the BBC
- costs us a fortune (eg Jonathan Ross) and in return the News team force feed us pro-EU/pro-multi culturalism/Labour sympathiser broadcasts

3. A 'Bonfire of Quango's'
- didn't someone promise this in the mid 1990's? An even better idea now.

4. Scrap the Nuclear Deterrent
- we can't use it without US satellites, so what's the point?

5. Sensible contributions for Public Sector Pensions
- current arrangement is unsustainable so they need to chip in before they bankrupt us (even more than we are already!)

[John Coles]

Hats off to Tim Montgomerie for at last making expenditure CUTS an acceptable topic on ConservativeHome. For all too long Mr Cameron's acolytes have limited such discussion by describing it as politically naive.
Come the hour, come the man and Gideon Osborne is certainly not the man to make budget cuts - put Redwood in his place. a man at ease with numbers and prepared to do the necessary, albeit hard and unpopular, thing.

[Matt Buckingham]

When the Tories get into power, obviously we need to (somehow?) reduce the overall tax burden for all. However a new tax should be introduced to pay for all the borrowing of the present government. We could call it the "B.L.T" or "B.B.L.T". This would be "The Blair Legacy tax" or "The Blair & Brown legacy tax" for decades we could frighten the voters into never letting the Labour party in again because we haven't paid for the last one yet! No spin needed, just tell the truth! This debt will probably take longer to pay off than the second world war debt.

[A Reformed Labour Voter]

Good point Matt Buckingham re: the Blair & Brown Legacy tax

But don't forget that Brown still has 18 months left. Just think what damage he can do in that time.

As he becomes increasingly isolated and desperate, it doesn't bear thinking about...

[David Parker]

I agree that the nett revenue to government is unlikely to differ very much whether direct taxation is increased or decreased.
It is also true that the destruction of small and medium businesses, or the relocation of larger businesses in other countries, due to over regulation and high taxation, is likely to have a long term adverse effect upon the economy, which outweighs any short term increase in tax revenue. However, the argument that this will lead to a mass exodus of highly paid talent, is more doubtful. One of the underlying factors in our economic decline is the distinct lack of talent amongst the highest paid members of society, in both the public and private sectors. Leaving aside the banking and bonus fiasco, the failure of numerous so called "blue chip" equities has been due to blatantly improvident management at board level, whilst the performance of some of our highest paid civil servants would have led to dismissal in the private sector.

There are plenty of very able, talented and productive people in Britain, many of whom may be very well, but not obscenely excessively remunerated and whose departure would be a real loss to our economy. However, these do not fall within the category of the "fat cats" and would be unlikely to be driven out my a tax rate of 50% on a top band of income over £250,000.

The fat cats, however, are a powerful part of an international cabal of self interest, who have created a culture of the "super employees", whose salaries are seldom justified by their contributions to their companies or the general economy. With a worsening world financial climate such lucrative appointments elsewhere may well become more difficult to find, but, if they did decide to leave, many of them would be no great loss.

Clearly, any increase in higher rate taxation would need to be introduced in such a manner that it did not deter the genuine entrepreneurs who make real contributions to employment and the economy.

[Ian Parker]

The extraordinary thing about this report is that it is grossly 'optimistic'; the UK's fiscal position is far worse than stated.

RBS & Lloyds HBOS alone are set to add £1 to £1.5 trillion to government debt (100% of GDP). A further £1 trillion will be needed to fund, currently unfunded, public sector pensions. Add in other 'off balance sheet' unfunded liabilities, and the true level of government debt quickly swells to over 200% of GDP.

All of this at a time when the next big waves are lining up to decimate the financial system.

This year will see the massive collapse of the commercial property market, to go with the residential sector. Corporate failures and loan write offs will follow. Manufacturing output will continue to decline with unemployment rising sharply. Defaults will thus balloon upwards.

Then, we have the implosion of Eastern Europe where collapsing local currencies make their foreign currency denominated debt increasingly unserviceable. This is likely to set in train a domino effect, collapsing mainstream European banks who have advanced the loans to the likes of Poland and the Ukraine. The European banks are far more exposed to Eastern Europe and emerging markets than their US counterparts.

All the UK has left is 'quantitative easing', the quasi-scientific term for debasement of the currency. This is no more than the Latin American economic model which leads to sovereign default. Britain is, indeed, heading full steam towards bankruptcy.

[Rupert Butler]

With this sort of evidence, assuming it is undisputed, the Conservative
leadership and the rest of us should turn our back on the prime minister and
his fellow politicians and talk only to the electorate.

We should spell out what the next government can do and, above all, what the citizens will have now to do for themselves.

We have just enough time to write the manifesto for a radically smaller government and to sell it to the electorate. If we fluff it, our parliamentarians will deserve all the scorn that they are at present pouring on the nation's bankers.

[Stephen Gash]

Only Tories can fail to see the irony in the title 'Scottish Conservative and Unionist Party'.

England has been bankrupted for the sake of Scotland.

Only this week has it been announced that only in England will people pay an upfront stealth-tax to save their homes should they need social care. Some Tory bozo was on the Daily Politics today saying on the face of it, it seemed a good idea.

The best thing to sort out 'Britain's ' economy is to make the English equal to the Scots at every level, from democracy to social care.

If Britain's finances can't stand that, then the Union is not worth keeping.