I have the following letter in the London Evening Standard today:
George Osborne is wrong in his fears for sterling - national economies are not like households. You do not have to balance the books. As Keynes showed, in a recession when inflation is likely, government spending creates a multiplier effect, especially if you can keep the benefit of that spending within your own economy, with the result that the market recovers. It is the speed of recovery that pays the debt. Cutting services does not come into that equation.
But Peter Mandelson has also got it wrong. Tax cuts guarantee that government money goes into consumer spending, much of which ends up in China. We need that money here. Instead, government spending should go into an immediate employment fillip for the UK economy by paying people to install insulation in homes and to tackle the backlog of repairs in our public infrastructure, such as the 64,000 council homes in Birmingham that need upgrading to meet basic standards. That way we keep people off benefits; those people have more to spend, which provides a consumption boost; others become more confident so they keep spending; we get a green boost for the economy and enjoy the long-term benefit of better housing. That long-term benefit matches the debt repayments so there is economic logic in the equation.
The reality is we can't spend our way out of recession, but we can work our way out of it.
Richard Murphy, director, Tax Research LLP.
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Hi Richard – not relevant to the blog post above but I thought you might have a word or two to say on this video I spotted – http://www.herecomestheboss.com/video/55A21884E448106A/Russian+Roulette.html
BDO offering help to tax evaders?! Strange, I thought.
Cheers,
Ed
Richard,
Is this really going to have a significant effect? Are there any numbers to back this up? Because to me the idea that a few insulations in homes here and a few repairs to council houses there is somehow going to drag us out of what could be the most severe recession in 3 decades, seems fanciful in the extreme.
Obama reckons he can do $150 billion dollars in the US on this
How much would you like here? The backlog is vast – 64,000 houses in Birmingham alone…..
Richard (and the world!)
Your idea to Fast-track insulation is good. Especially if it is SUPER-INSULATION on external walls at the sides and rear – see pasted document below – a very good idea – A NEW GOLDEN RULE
At a time of almost an energy crisis – teetering on gas shortages – it seems obscene to continue to leak energy at a rate not much better than when the “North Sea gas holiday” first happened. We should know better now. A world-wide super-insulation programme would be even better than your excellent proposal: to reduce gas demand and therefore price. Bonus – fossil fuels last longer and less warming of the planet. Super insulation helps in hot climates too by allowing overnight cooling and retaining the cool.
Below is a paper I prepared which should interest any local authority. I give it to attempt to get them to see sense and help to get government onto this the scale of it is enormous – we need to aim for a million homes a year – to help us out of the “triple crunch” but allow the silly consumerism here and in China to fade away – estimates for this run as high as 6% pa “DEFLATION” of the silly consumerism to allow refocus on localisation and investment in quality.
Readers – please email for copies of the other paper we prepared for Tower block residents and Apartment dwellers – increased size Garden Room works like a conservatory off the balcony at each level – paid for mostly out of energy savings and maintenance savings and a real boost to well-being. Increased quality of life all round. If the Swedes can do it (they were the pioneers and are organised ready to start here to show the way quickly with the highest quality) – so can we! See also http://www.STEERglobal.org or email ian [at] STEERglobal [dot]org for the cartoons and zip file
I note the comment above – “fanciful” – not a word I’d use unless government is slow to act. There was £700 million shortfall of spend in the newbuild sector alone – lots out of work: yet to feed thru fully into the downturn. Then there are all those surveyors NOT doing energy surveys ‘cos the market is dead – they could be more usefully employed actually doing the work to insulate than looking at the problem and not getting hands-on! AND THEY ARE ALREADY HALF TRAINED.
Add to this the bloke who’s laid off half his groundworkers near here already and gone to Vegas for his 50th. When he comes back he will only keep the barest few, until maybe he HAS to fold the company. We need action SPECIFIC SPENDING ON THINGS THAT MATTER. Politicians need to learn from past failures of both Conservative and Labour in the cycles of the last 30 years. From now on – create the Central bank money interest free to stimulate the economy ONLY ON INVESTMENTS – A NEW GOLDEN RULE and divert half the new credit money created as loans (for insulation etc) to the public purse – which would be a really flexible adjustable system, especially if the ENVIRONMENTAL TAX sent to you before was enacted at the same time – each measure to balance each other .
Heres the paper “Every town an Eco Town”:
EVERY TOWN an ECO TOWN summary:
This simple technical proposal has been proven in two full-scale tests on different jobs over two winters to improve 10-fold the energy efficiency of walls. Deploying the system with results 4 times better than the current UK Building Regulations could bring micro renewable energy firmly into the realms of possible affordability, especially if incentives beyond current grant levels could be funded. In this way fast-tracking of thermal efficiency of existing buildings becomes possible and something approaching carbon neutrality achieved without replacing Britain’s Victorian housing stock and other buildings that have mainly solid walls (Office of Climate Change: 12.2 million houses).
By applying Triso Super insulation or similar (that came in from France some years ago and rapidly became popular in loft conversions because of its ease of use) in a new situation on walls externally to Victorian and other housing the thermal mass efficiency of “hard-to-treat” houses can be harnessed trapping solar gain or energy from heating: “space-age” insulation. This simultaneously solves draught and suction energy leakage problems with vertical natural boarding or render finish and is only 50 mm thick. Polystyrene alternatives interlock and are more like 180 mm thick. A brick skin can be used (especially at ground level).
The process is so simple it can be understood by schoolchildren so should be more effective than some other innovations. Bypassing long lead-in times that require extensive research and development would be a huge advantage in current economic conditions – it beats nuclear or big coal – sequestration of CO2 is unproven. In this document we invite those in key positions to see for themselves. We have already contacted the Building Research Establishment. By placing “space-age” insulation externally a material such as Triso Super 10 (which is a series of foil layers separated by foam) can then be fixed between cross-battens screwed to existing poor quality brickwork, render or stucco or indeed any situation not visually as important as front elevations which are part of the precious heritage of the UK. By applying the system to side and rear walls however, the added value becomes immediately obvious. I am informed that production of the materials needed could be doubled overnight.
If the overall carbon leakage from existing buildings can be halved and a similar exercise achieved in hot situations requiring air conditioning, then energy stress and fuel price rises could be made a thing of the past with knock-on positive effects throughout the economy — gas prices could be reduced if consumption came down a lot. Rapid deployment of these as emergency measures could also prevent the global economy going further towards free-fall and provide employment in Building —a form of fast-track regeneration! (without excess consumption)
Balancing any tax rises needed to fund these and other measures is important so other attachments available describe two innovative proposals to enable an energy sustainability offset. These can help tax-neutrality, protecting the vulnerable using a banking adjustment that is urgently necessary to stabilise inflation caused by excessive rewards to the finance sector, but equally could be a source of middle income “rump” borrowing – creating new money. Our recommendation is to divert the base rate on any new money. This could give industry a solid foundation for the future — see CMBA Treasury.
Ian Greenwood +44 (0)121 449 0278 July 2008
STEERglobal Group
Quote from Businessman “The key thing is to utilise existing thermal mass and in doing so extend the life of fossil fuels until hydrogen, renewables, solar, etc are available. There must be a better financial incentive — a new mechanism. There would be considerable benefit by supporting employment in current conditions of economic downturn and these proposals give long-term global benefit. UK Treasury must act with confidence to adopt.” M. Symonds 2008 Summarising: The new need is at least an urgent incentive towards energy-enveloping of “hard to treat” buildings i.e. preventing heat leakage, but also useful in promoting natural air conditioning (overnight cooling) both in the UK and in many parts of the world. Utilising the thermal mass of existing buildings and a new mechanism to allow those increases in funding would be relatively simple and could offer a way out of Stagflation as well as a way to stabilise energy prices. An offset can be provided from the free money currently enjoyed by banks, building stability for industry and a new, more stable finance sector.
See other feedback comments on the website.
Best wishes and thanks
Ian
I agree with Mr Murphy on this one.
All tax cuts do in a recession/depression is cause those people still with jobs to save more, as they will still feel job insecurity.
Capital flow from government into infrastructure allows the government to direct spending and keep people in jobs.
Just look at the construction industry in London, the house building boom came to a crashing halt and now much needed people are moving over to the Olympics project, workers who would now be employed.
Q4 this year is going to be very, very nasty, the retail sector particularly.
WE HAVE THE FUNDS TO INITIATE THE TURNAROUND IN THE WESTERN WORLD, IT IS ONLY SITTING UNTAXED IN OFFSHORE CENTERS
My analysis of the Julius Baer Cayman data shows that the damage of tax evasion etc. is massive up to USD 40 Mio yearly ONLY caused by Julius Baer Cayman and that in 2002. The assumption is made that none of the taxable income of Trusts & Companies, none of Julius Baer’s offshore structures and Mutual were declared to tax authorities which is not an unreasonable assumption. Cayman is a tax free enviroment. Again, the damage was up to USD 40 Mio tax losses yearly in 2002 caused by only ONE institiution. Julius Baer Cayman has increased its volume several times (e.g. Hedge Funds) over the last six years in Cayman and the figures …….
Assuming that also the Assets were tax evaded funds and taking into account that penalties of 2 to 3 times of the defrauded tax payable have to be applied – based on Swiss Tax Law – the tax loss amounts to 20 to 30 times of the USD 40 Mio. This is a one time issue but the amount is staggering and that only caused again by ONE institution. That’s funding the Western World needs and that right now!
Offshore there are the HIDDEN RESERVES parked (untaxed money) which the Western World will need to
– rebuild the infrastruture and competitive plants, factories e.g. to produce systems to create alternative energy
– invest in technology
– streamline procedures in value-creating industry
– etc
in order to become competive again with the Eastern World.
Only a wise investment policy into the future will change the present situation. Unfortunately, we have to pull up the sleeves again and make severe calls and more or less immediately on OFFHSORE MATTERS otherwise funding of investments will not happen timely. The present small cash flow in the system will turn into an even worse cash drain for the Western Countries in the future.
It just needs a bit of honesty and courage to make those calls!
Osborne is entirely correct (although it seems clear you have misunderstood him), and Mandy is partially correct, but the Keynesian argument is irrelevant; much that you proscribe in his name makes no sense in the current economic environment.