The first was the chest-beating statement made by Bill Brooks about £100m being available for new schools in the Putting the Learner First programme (aka Putting the Wishes of the Parents Last) and the second, the likely strike by council workers to force a higher pay rise.

Taking the second topic first Alistair Darling said lately that "Pay awards in both the public and private sector have got to be consistent with our inflation target of two per cent".

Why? Because if pay rises were higher than that, prices would rise and eat up the value of higher pay.

This sounds logical but is actually more politics than fact and if Mr Darling believes this then he has not really the brains to be Chancellor.

In short; he would have you accept that, inflation is being caused by the price of oil, the price of food and greedy capitalists and trade unionists who insist on having enormous wage rises, none of which Darling and Brown can control.

However, there is a thing called M4, which is the supply of money in the economy, this is just cash in circulation plus bank and building society deposits.

How is this linked to inflation and government policy? Well M4 is linked to inflation by something called the 'monetary exchange equation', which basically means that the amount of money multiplied by the number of times it is used in a year has to be equal to the prices of goods sold in the UK times their quantity.

Putting this into English the amount of money washing around has to equal the value of goods sold by UK Ltd.

As a consequence, if the money supply grows faster than real Gross Domestic Product (GDP) growth ('unproductive debt expansion'), inflation is likely to follow as more money chases the same goods.

More money in the system means that either prices have to go up (inflation) or volume of goods sold has to increase (growth) to keep the equation in balance.

So when money was cheap and easy to borrow, house prices went up because more people could get their hands on the cash and relatively few new houses were being built.

Now, the banks will not loan so easily, hence reducing the supply of money, because they lent too much to too many who could not pay back the loan (eg Northern Rock/Sub primes) and prices are falling.

But prices are rising, cries the government and they will only stop if we stop big pay rises. This is pure nonsense.

Saying high prices cause inflation is as daft as saying spots cause measles, you can't have measles without spots but spots are not the cause of measles.

Wages are simply the price of labour and when there is inflation then prices/wages go up.

To say this is not the case is a both mistake and more often a political excuse allowing Brown and Darling to avoid doing what they should; that is take money out of circulation by spending less or raising interest rates, even both.

Yes there would be pain and some firms would go to the wall but having less money around would ease inflation. As a bonus, no one could be lectured about asking for decent pay rises, a topic which Parliament seems to ignore when it comes to their own pay packets and expenses.

So what has this got to do with Bill Brooks and schools?

Well to deliver all of these schools requires cash and surprise, surprise instead of making it government debt (£590bn and climbing) the council used a Private Financing Initiative (PFI) adding that they would also need to raise cash by selling the surplus sites (is this why two-tier came in, fewer schools, more land to sell?).

However, there were problems with PFIs not the least of them being that it costs private companies much more, sometimes twice as much, to borrow money than government, meaning that these extra costs would need to be passed on to the taxpayer via annual premiums.

But also the companies involved are guaranteed a high rate of income for decades, meaning this is expensive hire purchase and the government agreed to take on a lot of the risks so that taxpayer, in effect, underwrites the schemes and in practice shoulders the risks as well.

So why does the UK have inflation? Because there is too much money chasing too few goods. And who put all that money into circulation, not least by excessive borrowing? Gordon, Tony and Alistair but are they going to repent or even own up to being a net contributor to inflation?

I think we know the answer to that question.

Turning to the council, look at their Statement of Accounts 2006-07 for Northumberland County Council.

This shows that over half of the expenditure went on their own employees.

Half of the rest was spent on running costs, which left a quarter of the income to be spent on public services.

Spend a £1 on council tax and get 25p back. The rest goes on keeping an expensive and inefficient bureaucracy in business.

The same accounts show that, over the last five years, the number of council officers earning over £50,000 per year has soared from 68 to 106 and those earning over £100,000 from nought to five. Things can only get better – for some!

Next time the council makes cuts in services ask them if they are also making cuts in provisions for their own bureaucrats.

Or paying way over the odds for some poor quality managers and making "retention payments" when it is obvious that half of the top management would be, perhaps only might be, jobless anyway in six months.

ALAN HENDERSON
Thun
Switzerland
(ex Blyth)