Rt Hon Sir John Redwood MP (Wokingham) (Con): Would it not in future be possible for the Government, when offering a subsidy to companies, to specify that they need to meet certain labour standards so that the subsidies regime would apply?

Paul Scully, Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy: Again, that is up to the public authorities. The whole point about this regime is that it is a loose, permissive framework, rather than something more onerous which adds layer upon layer to recreate the EU state aid system. None the less, I would expect that, again, because of value for money and good governance, any public authority, whether national Government, local government or another public body, would expect to have exactly that kind of criteria—

Comment A lack of clarity over the  terms of public procurement

The ONS published revised figures for the debt and deficit in the year to March 2022. Compared to the figures released as recently as the Spring Statement they now think borrowing last year was £20bn higher than they thought in March, though still massively down on the budget 2021 forecast. They also warn us that the figures will be subject to future revision and that could be material. As the cash requirement figures they published are so much lower than the deficit figures it seems likely the deficit will be revised down again before we are finalised with the history.

Revenues were well up on the original 2021 forecasts and were even up on the recent Spring Statement forecasts. it leads me to ask again how can the Treasury be so sure they needed an extra £12bn from a National Insurance rise when the revenues increased last year by several times that amount over their forecast? And how come they can afford to withgo a portion of the £12bn now they have raised the threshold for paying National Insurance?

The latest figures tell us that there has been a large rise in debt interest, to £69.9bn.  This figure combines genuine cash payments of interest on borrowings, with more complex non cash items relating to index linked borrowings repayable often in many years time.

Debt interest remains low relative to GDP and spending thanks to low interest rates . Much of the borrowing is long term, locking in these favourable low interest rates for the full term of the loans.

The fact that the Bank of England owns a large portion of the bonds is also helpful as a 100% owned servant of the state. The Treasury pays interest to the Bank on these loans, but can get a dividend back from the extra money  the Bank receives as a result.

The Treasury now adds the increase in repayment value of indexed gilts each time inflation numbers emerge to the debt interest figure. This is not a bill the state has to pay month by month as inflation rises. As they confess it is a non cash item.

The extra cost of the debt is only passed on to the bond owner on maturity of the bond. At this point the state will simply refinance it, so there is never an immediate cash cost that needs financing out of tax revenue. Some of these bonds are  not repayable for many years.

Normal bonds do incur cash costs with the payment of interest and these are properly considered a running cost to the state.

Last year  out of the total cost of debt interest attributed by the Treasury of £69.9bn, £34.7bn was indexation. The true cash cost of the debt was £35.2bn, around half the stated figure.

The  most infamous cake quote came on the eve of the French revolution from their Queen. “Let them eat cake” as a solution to the poverty of those who could not afford bread became a phrase to sum up just how out of touch governments and elites can become from the reality of the lives of many of those they govern. Marie may never have said it but it is all most people know of her.

More recently Boris Johnson’s famous statement that he was in favour of having cake and of eating it was a welcome dose of common sense and optimism against those who favour austerity and bad choices. There is no point in having cake unless you are going to eat it. Leaving it to go mouldy is a bad plan all round. Selling it to someone else may be a good idea for a producer but for the rest of us the whole point of  cake is to eat it.  The aim of economic policy should be to allow all those who want it to earn enough to afford cake, and for there to be a good supply with plenty of choice for the cake eaters.

The latest intrusion of cake into our politics has come over whether a birthday cake appeared at a work gathering in Downing Street. If it did did it turn a meeting into a party? Was any cake eaten? Suddenly the pressure was on to show this was a time when cake if had was not  eaten so no rules were broken.

Meanwhile Keir Starmer’s keen wish to see all rules applied and all statements to be truthful does not seem to impose these important standards on himself. Drinking  a beer with colleagues himself apparently does not constitute a party nor an offence against lockdown rules. Accusing the PM of something he never said about the BBC   is apparently not worthy of a review by the Privileges Committee.

Last year economic policy was expansion minded. The  Bank of England carried on printing lots of money and kept interest rates around zero. The Treasury decided they could live with a large deficit and allow more spending. No big tax rises were allowed. As expected the economy  recovered quickly from the lockdowns.Inflation leapt up as the monetary stimulus was too big.

Some including the Treasury blame world energy prices for the inflation. This does not explain why Japan still has practically no inflation despite depending on imports of oil and gas. Nor does it explain high importing China’s low inflation. The U.K. has almost as much inflation as the USA and Euro area who printed even more money and kept rates lower for longer.

This year the Treasury has hiked taxes and the Bank has hiked interest rates whilst  ending money printing. They have chosen to do this as energy and food led inflation is taking a huge lump out of people’s spending power, acting like a bumper tax rise. This means the economy will slow sharply.The Treasury and Bank have gone from being too lax to being too tough.

Taxing jobs through National Insurance rises is wrong. Hiking the company  tax rate next year will deter investment. These  policies will cripple  growth and lead to a bigger budget deficit. You need growth to get the borrowing down. The government also needs better spending discipline .

Parliament has failed to have a proper debate on the economy for many years. The main reason is that  it has fallen for the lie that the Bank of England is independent. Because many commentators and politicians think that they fail to debate the crucial reliance we have had on the Bank printing loads of money and keeping the government’s borrowing costs very low. The Opposition keeps off all matters that the Bank is involved with and wishes to blame the government for any economic failing in a way which reveals a deep misunderstanding of how the modern Treasury and Bank work together.

Let me have another go at explaining. The Bank under the last Labour government at the end of its time in office, under the Coalition and under the more recent Conservative government has relied primarily on printing more money and buying bonds to keep rates low. There were times when this was the right policy, most  notably in 2020 to offset some of the bad economic consequences of lockdown. There were times when this was a bad idea, as with continuing it throughout 2021 when it was bound to be inflationary. The crucial thing about this central economic policy is it is a combined responsibility of the Chancellor and the Bank. Indeed, the Chancellor not only has to give approval for the Bank’s recommended money printing, but he has to underwrite the Bank against losses on the bonds it buys. So far the Bank in several bursts over the last thirteen years  has created and bought up bonds to the value of £895bn.

Despite these enormous moves, Parliament has preferred to argue about the odd £10bn of spending or savings either way in a succession of budgets, or to laser in on individual  spending programmes arguing over whether they are a few billion too light. The recent centre of the national debate has been £12bn of extra tax in a £2.2 trillion economy. The Treasury absurdly argued they needed exactly £12bn extra for social care and health, when they overestimated public borrowing for last year by a stonking £95bn. As they did not have much of a clue about how much revenue existing taxes would bring in it was a particularly precise nonsense to say they needed £12bn. Then in the Spring statement they decided they did not  need a third of that £12bn after all so they raised the threshold before you pay national Insurance!

Such a pity we did not debate the £895 bn and it’s more recent inflationary impact. The  Treasury says the  Bank is independent and is responsible for controlling inflation. Now the  Bank has visibly failed to control the inflation or to even predict it until  recently maybe  we are due a proper debate about economic policy.