How is deficit reduction getting on?

 

             The April figures for public borrowing were a new high for April. The government borrowed an extra £10 billion. They explained that this was more than April 2010 because in that month the government received the one off £3.5 billion tax on the banks. This has been replaced by a regular tax which does not come in in one lump.

                 What the detailed numbers show is that the main reason for the extra borrowing in April was extra spending. Public spending rose by £2.6 billion or 5% compared to the same month a year ago. Revenues were  £42.9 billion in April 2011, compared to £43.2 billion in April 2010. In other words £3.2 billion of the £3.5 billion one off bank tax was replaced by other tax increases imposed since. Extra public spending is a far  bigger cause of higher borrowing than revenue decline in these figures.

                   There was some good news . 2010-11 borrowing came in a little lower than forecast. The net cash requirement, which had hit an unbelievable  £199 billion in 2009-10, fell to £140 billion in 2010-11.  It needs to fall a lot further this year and next, to avoid interest charges taking up too much of the rising spending.

                    The overall balance sheet shows total UK state debt at £2252.9 billion, or around 150% of GDP. This excludes public sector pension liabilities, which would add more than an extra £1 trillion. £1.2 trillion of the debt is the consoldiation of the state’s share of its banks balance sheets. Early privatisation would make a big difference to the figures.

                      The UK state needs to cut the risks on its balance sheet by asset sales. It needs to reduce the amount of bond borrowing it requires, by better control over spending and by asset sales which bring in cash. It is difficult to understand the OECD’s point about slowing the spending cuts, when every year of the five year plan spending rises in cash terms. It would also rise in real terms if the authorities  control inflation.

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21 Comments

  1. Tim Jinkerson
    Posted May 26, 2011 at 7:01 am | Permalink

    It is alarming that you only mention cuts as a solution to an equation that clearly has two parts. Yes, we have a problem, and yes, decisive action is required. But the reason that our debt stands at 150% of GDP is because, as a result of the global recession, our GDP has fallen year on year since 2007. In 2007 our economy was worth 2.8T$. What I am not seeing is any real planning on behalf of the government to grow our economy back to that sort of level.

    Our borrowing against GDT figures are a problem, we all know that. But we must focus on both sides of the equation to resolve the problem.

    Reply: I have often written of the ened for a growth strategy, with proposals to raise the growth rate. That has to start by tackling the problem of the banks.

    • lifelogic
      Posted May 26, 2011 at 7:57 am | Permalink

      ” GDP has fallen year on year since 2007″ not because of “the recession” but because government policies of over tax and waste, over regulate, expensive energy and big government have pushed it and investments abroad.

      Cameron has take no real action to address this despite his fine words – indeed his actions have nearly all been in totally the wrong direction (other than HIP packs). Business will not react to his dishonest and worthless words they need actual actions – cheaper energy, banks that lend, less regulation and lower taxes and fewer workers in the, circa 44% over paid, largely parasitic sector.

      • Tim Jinkerson
        Posted May 26, 2011 at 9:28 am | Permalink

        Can I ask how the above explanation accounts for the 10% reduction in GDP in the German economy between 2008 and 2009? I am not a deficit deny, and I agree that there must be cuts and targeted reductions in regulations, but please, can we at least agree that there was a global recession? What matters now is how we respond, now that global markets are growing again.

        • lifelogic
          Posted May 26, 2011 at 11:20 am | Permalink

          World GDP growth at P.P.Parity according to World Economic Outlook:
          2006 5.1%
          2007 5.2%
          2008 3.0%
          2009 -1.1%
          2010 3.9%
          Yes there was a tiny bump in the road but it was Brown, Cameron, the EU and the US and European governments in general who decided to smash the engine, break both the axles and hide all the repair tools.

          • lifelogic
            Posted May 26, 2011 at 12:43 pm | Permalink

            This vandalism continues under Cameron with non retirement laws, paternity rules, the carbon agenda, restrictive employment laws, non functioning banks, diversion of funds to the PIGS and the EU and endless other pointless government waste. This all renders industry in the UK and much of the EU unable to compete. So they and many of the workers sensibly go elsewhere thus exacerbating the imbalance problems and deficit further.

          • alan jutson
            Posted May 27, 2011 at 10:07 am | Permalink

            Lifelogic

            Meanwhile we allow European immigration to still flood into this country to very often work for lower and lower wages, which reduces the disposable income of those who have to compete with such.

        • Nick
          Posted May 27, 2011 at 11:51 pm | Permalink

          While there was a global recession caused by a problem with banking which cascaded into vulnerable economies, the fact remains that other nations survived theirs far more effectively than Britain did.

          Britain suffered because of a massive public sector, incredibly high taxes and punitive legislation. The policies of the Left have ruined the country.

  2. Matthew S. Dent
    Posted May 26, 2011 at 7:04 am | Permalink

    Rather than a kneejerk move towards privatisation, perhaps the first step would be to restore the economy to growth? Deficit reduction with a shrinking or stagnant economy is pointless, as demonstrated by the newly-announced, increased borrowing figures.

    It’s telling that the economy was growing until the Tory-led government instigated a deficit-reduction plan consisting of deeper and more painful cuts than anywhere else in the world. The cuts have stifled the recovery, and have shunted the country into a dangerous zone where the cuts are hurting, but they aren’t working.

    Reply: You are talking about a fantasy world – total public spending rose by more than 5% in the Coalition’s first year, so it wasn’t a shortage of public spending that caused the output dip in Q4 2010.

    • lifelogic
      Posted May 26, 2011 at 8:05 am | Permalink

      You will not get growth by over taxing the productive sector (starving the productive of money) then using the proceeds to pay people, usually to do nothing useful, or worse actually inconvenience the private sector further as is so often the case.

      By what mechanism would this give better growth than letting the productive sector keep the money and use the money to grow?

    • Brian Tomkinson
      Posted May 26, 2011 at 8:44 am | Permalink

      John,
      This is what we have warned against. Matthew has swallowed the misleading propaganda about “cuts” and seems unaware that, rather than cutting, the government has increased spending and this is planned to continue in cash terms. Meanwhile taxes and inflation have increased which has had a deleterious effect on growth. Why on earth has the government persisted with this falsehood?

      • Winston Smith
        Posted May 27, 2011 at 9:29 am | Permalink

        Matthew has not swallowed the propganda, he is part of the machinery propogating ruinous socialist economics. He, and Tim above, are Labour Party activists.

      • alan jutson
        Posted May 27, 2011 at 10:09 am | Permalink

        Brian

        “Swallowed the propaganda ……..”

        Exactly as have millions of others, indeed the vast majority of the population.

  3. lifelogic
    Posted May 26, 2011 at 7:11 am | Permalink

    An absurd level of borrowing being spent mainly on pointless or damaging nonsense. The public sector pension liability need addressing with a state private sector re-balancing tax following Browns private pension mugging.

    I listened yesterday to Obama’s well crafted, but usual list of politicians meaningless phrases, superficial emotional appeals and platitudes – together with his obligatory reference to “carbon pollution”. I remain very unimpressed, beyond the superfisial organisation and general professional spectacle of it.

    I assume they use “carbon polution” as carbon is dirty and black rather than a the harmless clear CO2 gas (or diamond pollution perhaps) needed for plants, trees and seaweeds to grow.

    As I see Blair, Brown, Major, Cameron and Clegg are all on one bench. I think of their pointless and loosing wars, their clear huge dishonesty to the electorate and 20 plus years of big tax big state economic incompetence. Then the giving away, without consent, and under the cloak of endless lies of the people’s sovereignty.

    I am unable to suppress an uncharitable thought about one of the large oak beams from that fine hammerbeam roof.

  4. Mike Stallard
    Posted May 26, 2011 at 7:23 am | Permalink

    I do not think the government is trying to cut back at all.
    Last night the BBC had their reporter Nick Thinggy talking about “the cuts” I am afraid that I had to go and feed the dog at that point, I was so cross!
    It must be really tempting if you have got to the very top of the greasy pole to play Lady Bontiful with our money.
    And then, of course, to go on and talk about “the Big Society” and giving to Charity. “He doth ravish the poor when he getteth him into his net.”

    • norman
      Posted May 26, 2011 at 8:22 am | Permalink

      I heard on BBC radio last night, at some length, reporters stressing the difference between President Obama and Cameron when it comes to deficit reduction. They were saying how Obama and Cameron differ on the need to cut spending, with Cameron being a ruthless slash n’ burner and Obama steering a steady course and keeping high levels of spending.

      What they omitted to mention is that Obama plans to cut spending by 3.5% next year – cutting more in one year than the coalition plan, optimistically, to cut in five.

      The government really have lost control of the narrative, whether through uselessness or an in-built bias in the BBC I really don’t know, probably a little of both.

  5. alan jutson
    Posted May 26, 2011 at 8:40 am | Permalink

    Low growth is the result of Higher personal taxes, loaded onto shrinking earnings as people spend less.

    The more you tax, the less money people have available to spend themselves.

    The lower the demand for goods and services, the lower the wages paid as businesses seek to become ever more competitive as their overheads increase (energy costs,commercial rates, increasing regulation, higher insurance, more complicated employment regulation).

    Those who are retired and have savings are paid little in investment income (also taxed) because the Banks are restructuring with not only the peoples personal money, but their taxes as well.

    Meanwhile the Public sector just seem to carry on as normal, with increasing spending paid for by the taxpayer, as the tick box culture grows and control over our lives seems to ever increase.

    We almost have in place the policy for the perfect storm of recession.

    If the government wants growth, it needs to fuel the fire of reward for effort and release the millstone of high taxes off our backs as an absolute minimum.

    Additionally Dump.
    High cost energy policies, membership of the EU, reduce uwarrented regulation and Health and Safety policies, revise Employment legislation, the Human Rights act and th Benefits System, Curb immigration properly, and get back to basics at school with meaningful examinations and some discipline.

  6. Sam Hodgson
    Posted May 26, 2011 at 12:25 pm | Permalink

    What always seems to be missing from commentary on the “cuts” and their consequences is any reflection on which alternative strategies exist, and how effective they might be in reducing the deficit.

    The BBC frequently cites the depth of the “cuts”, and the “pain” that they cause. If the existing measures are proving ineffective, then why not assess where our finances might be if the strategy offered by Labour at the last election was in place? How much would we be borrowing then? Would the economy be growing much more? At what figure would the total deficit stand?

    I don’t have answers to those questions, but any criticism of the coalition’s approach seems incomplete unless it considers the alternatives.

    Reply: Labour’s proposed deficit reduction was not very different from the Coalition’s. The BBC should read the figures, and accept that overall in cash terms there are no cuts. There are cuts in individual programmes, and there will be real cuts if the public sector does not contain its costs, but overall cash spending goes remorselessly upwards.

    • BobE
      Posted May 26, 2011 at 1:55 pm | Permalink

      “and accept that overall in cash terms there are no cuts”

      If your a paratrooper your pay just got cut by £2000 a year. Thats a cut!
      Reply I said there have been individual cuts but overall No.

  7. REPay
    Posted May 26, 2011 at 2:47 pm | Permalink

    I am afraid the Coalition continues to talk as though the cuts were a necessary evil ad that normal service (i.e. increased state spending) is a desirable state. Until people realize hiow in debt the country is and why it will be difficult to make reforms. Even most of the well-educated people I know think the parlous state of public finances is a result of the bankers, not of government and private overspending/borrowing.

    Our economy is now so skewed to the public sector I really fear it will never break free – with all that implies for our prosperity. I fully expect the money I have saved for my retirement will be raided to pay for the unfunded public pensions at some point in the future. I read in the Economist a few years back that 30% of any extra funding in the health service goes to pay pensions of retired NHS employees…

  8. Scottspeig
    Posted May 26, 2011 at 4:55 pm | Permalink

    John,

    The current situation is only a bad thing for the Coalition – “Lefties” howl at the (non-existent) cuts being made and so criticise the coalition while the “right” look at the evidence and see increase spending so criticise the coalition.

    All in all, Cameron’s promises are pretty much null and void –

    Lisbon treaty referendum (agreed, its not really a broken promise but still refuses EU referendum)
    Bonfire of Quangoes (yeah, that went well didn’t it!?)

    Not to mention his annihilation of any power hungry manufacturing in this country with the crazy, stupid, utterly senile carbon tax baffoonery!!

    All in all, a bad showing, offset by one or two good things (education & welfare) and 30 MPs who actually care about the country (ok, I’ll up it to 46 for I’m sure we’ve had that many Tory rebels before)

  9. Matt
    Posted May 26, 2011 at 9:05 pm | Permalink

    The public sector pension liability only stands at at that level if all the public sector is shut down and no one continues to contribute to it.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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