The Terry Smith solution

Wookster

Terry Smith, the straight talking old school broker has written in The Times:

Today, The Times published my views on how the UK can extract itself from the economic bind in which it currently finds itself with zero growth. I outline the key messages that George Osborne and Vince Cable need to take on-board. In short we need to stop the notion of pretend austerity and make noticeable reductions in public spending whilst stimulating the economy through a programme of tax cuts.
Here is my comment in full:

Cut spending and taxes. That should be the message that George Osborne and Vince Cable hear today from the business people attending The Times CEO Summit. You cannot borrow and spend your way out of a debt crisis.

So-called Keynesian solutions will not work in these circumstances - the bond markets limit your scope for spending, as the eurozone has discovered. Just because the UK has so far retained its triple-A status and low borrowing costs does not mean that we are immune from this. The market takes a benign view of the UK because we are outside the train wreck going on in the eurozone and because of government rhetoric about cutting spending. But there are almost no cuts: public spending in 2011-12 was £681 billion against £689 billion in 2009-10, Labour's last year in power. Our debt is rising significantly at more than £100 billion a year. As a percentage of GDP we are more indebted than Spain.

The only solution is to cut the size of the public sector, which is 50 per cent bigger now in real terms than a decade ago. What did we not have from the Government ten years ago that we cannot live without now? Nothing. Get it back to where it was then.

Having made the markets supportive as a result of that policy of spending cuts, the economy can be stimulated by cutting taxes. Money is spent more effectively by those who earn it than it is by governments.

Nothing can be sacred in these cuts, and that includes the health service. Two reforms are required: first, the proportion of non-clinical staff to clinical staff needs to be cut to less than 1:2; and, second, the NHS should be restricted to covering, for example, just oncology, pregnancy and genuine A&E - all of which might be difficult to insure privately or inhumane to refuse to supply. Everything else will have to be purchased privately.

Pensions cannot be ignored. The first social security system was implemented by Bismarck and he set the retirement age about six months short of the average life expectancy. This was not a coincidence.
Pensions are merely claims by those no longer in work on those still working. We cannot support an ever-growing non-working proportion of the population as people live longer.

The statutory retirement age for public sector workers and state pensions needs to be raised significantly - by more than ten years; most of the population's pension provision must be provided from their own savings. (These reforms are not impossible - the President of Brazil, a former Marxist, has just implemented something very similar.) Then the Government should establish a fund with investments that will insure all future state pension entitlements.

This should be part of a general move by the Government to accrual accounting; government accounts are at present produced on a basis that would attract criminal legal sanctions in the private sector. This will bring "on balance sheet" future benefits, healthcare and pension liabilities and, let's hope, would stop politicians making promises for which the bill only falls due long after they have left office.

You can tell this is the right way to go as the Government is moving in the opposite direction, having recently announced that it would transfer the Royal Mail fund, which has £28 billion of assets and £37.5 billion of liabilities, to the Exchequer. The assets will be used to reduce the figures for government debt and the liabilities will simply disappear from view.

Mr Osborne should make it clear that we will not contribute to any rescue of the eurozone, directly or indirectly. In particular, we will not increase our International Monetary Fund contribution unless this is explicitly and irrevocably excluded. We should renegotiate our relationship with the EU with a requirement that our contribution to the EU budget (currently £50 million a day) is reduced by at least 90 per cent. If necessary we should leave the EU to achieve this.

We should not be worried about leaving. The EU is the least competitive trading bloc in the world as it sinks into a morass of regulation and social spending. The EU will still need to trade with us: count the number of Audis, Citroëns, BMWs, Fiats, Mercedes, Peugeots, Porsches, Renaults, Skodas and VWs on our streets. Do you think they can afford to cut that off? The EU has a positive trade balance with the UK that it cannot afford to lose. Once we have renegotiated our position, we should hold a referendum on continued membership on those terms.

Overseas aid should be stopped immediately to any country that has GDP per capita higher than the UK; or a nuclear weapons programme; or more billionaires than the UK.

Cease all measures to support or "rescue" the housing market. The obsession with home ownership and house prices is part of the UK's problem, not the solution. We cannot become wealthier by selling each other more and more expensive houses. Houses cannot be exported. It is no coincidence that in the most successful economy in Europe, Germany, less than half of people own their home.

Stop subsidies for all alternative energy sources. Wind power does not work - full back-up capacity needs to be built to cope with cold and still conditions in winter. Solar power is not economic in the UK for obvious reasons.

To quote M&S: there is no Plan B.

All of these seem imminently sensible.

HAMISH_MCTAVISH

the NHS should be restricted to covering, for example, just oncology, pregnancy and genuine A&E - all of which might be difficult to insure privately or inhumane to refuse to supply.

Everything else will have to be purchased privately.

What a lunatic.

There is precisely ZERO chance of any UK government enacting such a plan. Or any of his other drivel.

chewmylegoff

HAMISH_MCTAVISH wrote: »

What a lunatic.

There is precisely ZERO chance of any UK government enacting such a plan. Or any of his other drivel.

i agree, although i think this makes the UK as a whole the lunatic (with it's blinkered view towards its so-called "national treasure"), rather than terry smith, whoever the hell he is.

HAMISH_MCTAVISH

chewmylegoff wrote: »

i agree, although i think this makes the UK as a whole the lunatic (with it's blinkered view towards its so-called "national treasure"), rather than terry smith, whoever the hell he is.

I've lived in the USA, and I wouldn't trade the NHS for a private system for any amount of money.

Even though I have private insurance here, and have never really used the NHS for much of anything, I'm well aware that all of us are just one unlucky moment away from that system saving our lives.

Don't disagree that it could be more efficient, it could and should be better than it is.

But healthcare free at the point of use is an absolute red line in the British psyche and no government would ever dare try to take away what most consider to be a basic right.

the_flying_pig

This guy knows plenty about some stuff & has got a good brain.

As an aside his book 'accounting for growth' was in its time a minor classic.

His article is fairly good quality writing in that it's got some hooks, some good comparisons, some snippets that are true & important...

But mostly his actual suggestions are a bit meh because they're nearly all mindless, ideological stuff. Mr Smith has emphatically not in practice been able to observe such policies alongside alternatives to know that they are actually good for economic growth.

He's right though, of course, when he says that, "We cannot become wealthier by selling each other more and more expensive houses".

Conrad

HAMISH - so what was so awful about the vastly smaller PS we had in 1997?


Yes this is what we need, back to a free enterprise less greedy entitled society, back to trading our way out with less state intervention and lower taxes.

We should cut all but emmergency fammine aid. Aid does not work, what S Korea did, works. Aid perpetuates ineffective Governance.

The lunatics are the entitle westerners that have got this sick headed notion we have a God given right to costly entitlements, even down to folk be able to sew employers for cash because of a couple of Irish jokes.

The FSA have choked off the mortgage market, which in turn has but trades and other sectors into a state of morass. A classic example of just how badly Government spends resource.

Wookster

the_flying_pig wrote: »

As an aside his book 'accounting for growth' was in its time a minor classic.

He was actually fired from UBS for 'Accounting for Growth' as two of the companies he discussed were clients of UBS.

He was subsequently vindicated when both companies went bust some time later.

the_flying_pig

Conrad wrote: »

HAMISH - so what was so awful about the vastly smaller PS we had in 1997?...

It sounds impressive but I don't know where the author's "50 per cent bigger now in real terms than a decade ago" comes from to be honest. It sounds like, well, a bit of a nonsense to me, probably turning on some definitional trick [e.g. reclassifying stuff as public vs. private sector] of the sort that he professes to dislike so much. Osbourne's cuts will push most definitions of PS employment below late nineties levels.

kabayiri

What political party would survive to the next election if they implemented his suggestions, regardless of the validity.

Changes on this scale would be mired in court cases; strikes; total EU hostility to anything the UK does; boycotts to UK goods as soon as they entered France. Look at the furore caused by relatively limited changes to PS pensions thus far.

Here's an example. 2 new shiny aircraft carriers being built at the cost of tens of billions. Because of the way contracts are drafted it would be almost as expensive to pull out now. We might as well build them both; paint them shiny white and sell them to Roman Abramovich as his new yachts. I bet the same holds for a lot of crappy PFI deals done.

purch

HAMISH_MCTAVISH wrote: »

I've lived in the USA, and I wouldn't trade the NHS for a private system for any amount of money.

Certainly.

Anyone who has had the unfortunate experience of visiting an ER at a US Hospital, receiving a far lower level of service than you would get at any NHS Hospital, and then been presented with a bill for many hundreds of dollars would echo that opinion.

ILW

Not so sure that the nhs should be open to the whole world though.