Hi nottirednow.
There's a lot in your post. I'm going to start answering your individual points and hope they add up to a coherent reply.
"The structural deficit needs to be dealt with - and that involves dealing with the issues related to an aging population."
I agree that the structural deficit needs to be dealt with. I'm not sure I agree that it's due to an aging population. I think that it's as much to do with persistent overspending in the good years from Brown (i.e. we didn't put money aside for a rainy day in the boom, but instead increased public spending at a faster rate than tax revenues went up). I'm a left wing Keynesian when it comes to economics, but the whole point of Keynesian theory is that public sector spending should only prop up the economy when the private sector can't.
As well as rebalancing the economy in terms of industries (which I'll discuss below) we also need to rebalance in terms of private sector/public sector/consumer. Last week the independent Office of Budget Responsibility (OBR) forecast that household spending would rise by an average of 1.2% over each of the next three years. This is less than half the rate of growth seen in the decade before the credit crunch, when consumer spending was the most significant driver for growth.
Over the coming years consumer and government are likely to shrink as a share of the UK economy. Slower growth in consumer spending and an outright contraction in government spending are the symptoms of a rebalancing of UK growth. The government's hope is that much of the slack will be taken up by a revitalised private sector. The Chancellor's twin aims are to shrink the deficit and to raise rates of return on capital.
A higher return on capital increases the incentive for firms to expand, take on new people and invest. The good news is that corporate profitability has rebounded strongly in the last year. On average, profits for FTSE350 companies rose by 37% last year. Over the next three years, the OBR expects corporate profits to grow far faster than wages. This would spell a rise in companies' share of GDP and a decline in consumers' share of GDP.
The OBR is also forecasting a marked shift in activity towards exports and capital spending. Over the next three years the OBR expects exports and business investment to rise by an average of 8% a year - almost twice the pre-recessionary trend rate.
The latest jobs data offer some evidence of rebalancing in action. In the last year 132,000 job losses in the public sector have been more than offset by the creation of 428,000 jobs in the private sector. Rebalancing the UK economy means a desynchronised recovery, one in which the government and consumer spending take a back seat and the corporate sector thrives.
"This government have finally done something about that by increasing pension age but they are still devoting more attention to those of working age and imposing higher cuts on them. That is driven by ideology not economics."
The thing about the pensions time bomb, though, is that we're not paying out all that much to pensioners now (relative to tax income). So there's not much room for the Chancellor to manoeuvre when it comes to pensions - he can only make savings in areas where we're currently "overspending" - however you define that. The pensions time bomb is going to be a massive issue in 20 years, as the population ages and we have more people retire and fewer people working. But it's not a massive issue right now.
"We have a substantial number of unemployed young people in this country. The working population will increase if we postpone retirement and/or get young people into work. However there has to be work for them and they have to have appropriate training for it. The tories under Margaret Thatcher allowed a decling in manufacturing and permitted the heavy current reliance on the financial sector. Our education system fails to turn out enough employable young people."
I agree almost entirely. We really need to do something about youth unemployment. I do think that the announcement in the Budget about a massive (400%?) increase in apprenticeships and vocational training is the right way to go. I'm not really qualified to judge whether it's enough, but as a matter of common sense it's obvious to me that the number of graduates we're currently producing from our universities isn't matching what the economy needs.
FWIW, the part I don't agree with is that we're overreliant on financial services. As a sector, it's around the same size as manufacturing and smaller than oil and gas. FS and oil are the two sectors paying the majority of tax in the UK. But on the other hand there's no harm in promoting manufacturing and high tech industries, which the Chancellor did in the Budget.
"Finally the question - those with money often pay lower rates of tax than those on low incomes. This may be perfectly legal but is perceived as unjust and contributes to unrest in society. We allow a massive difference in remuneration between those engaged in financial services and others. This encourages the brightest and best into financial services. We also allow massive profits to be made from property transactions, with the profits being passed through various offshore accounts. I don't know how we deal with this - it is an international problem. Do you have any suggestions?"
As it happens, the main area where financial services employees make tax savings is by receiving remuneration in the form of shares rather than cash. Which are approved by HMRC and the government, on the grounds that it alings the interests of employees and shareholders.
The people who do take the piss are the private equity partners and hedge funds. This is because they receive their profits in the form of capital (taxable at 10% or less) rather than income (taxable at 50%). If I were the Chancellor I'd start taking a pop at them. Not enough to drive them offshore, but perhaps doubling their tax rate to 20%. I've said it before on this thread, but I really dislike the attitude of some private equity partners.
Property transactions aren't a big deal at the moment because of the depressed property market. The main reasons deals are structured offshore is to avoid stamp duty land tax. Stamp duty is a very odd tax, and one that is almost unique to the UK. Very, very few other countries have a tax on documents. Stampo duty raised a paltry £8bn last year (total tax take was £410bn) and I'd be inclined not to bother once the deficit's under control again.