Loads of red ink brings more realistic forecasts

 

           The OBR as expected has revised its forecasts down considerably.  13 % growth has been reduced to 8.4% over the period 2010-2015, compared to my forecast of 7.5%. I fear they are still on the optimistic side for the last two years of the strategy, but the differences are not now so large.

            The OBR says that total borrowing 2010-2015 will now be £563 billion, compared to their forecast of £451 billion in June 2010 and £485 billion in March 2011. They are now a little higher than my forecast of up to £550 billion, with a central figure of £520 billion. I apologise for not being pessimistic enough.  It reminds us that they see a strong relationship between growth in output and growth in tax revenues.

           Spending remains on the same overall total. The extra deficit arises from a sharp downwards revision to their forecast of increased tax revenues. Readers will remember I always queried the likelihood of an extra £172 billion of tax revenue for Year 5 compared with the last Labour year.

           There is a small shift from current to capital spending within the same increases in total spending.  Over the five years capital spending will increase by a total of  £5.8 billion. Current spending will be £1.1 billion less than the old plans in 2014-15.  Total spending rises from £669.7bn in 2009-10 to £736.4 billion by 2014-15, an increase of 10% in cash terms.

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21 Comments

  1. botogol
    Posted November 29, 2011 at 4:16 pm | Permalink

    why do the Tories get themselves in the situation where they everyone perceives them as making savage unpopular costs, when in reality public expenditure is rising. This happened under thatcher as well, didn’t it?

    • Posted November 30, 2011 at 1:41 am | Permalink

      BBC

      • Posted November 30, 2011 at 9:24 am | Permalink

        I appreciate your view but a bit of honest cutting would be very welcome.

        The truth is the Conservatives think they can milk the tax payer and continue funding state sector favourites as if nothing had happened. They really think that by a bit of tweeking here and there and promoting businesses they or their friends think will be winners (usually based in nice clean new premises and with lots of flashing lights and photogenic brochures).

        They think they can achieve government inspired growth in the face of growing and already excessive regulation and taxes. They think it is OK to make personal attacks on businessmen who do not act they ways they would prefer. They want vanilla results all round, lots of thrusting entrepreneurs paying 4.5% for their risk capital from a bank- fantasy.

      • lifelogic
        Posted November 30, 2011 at 10:12 am | Permalink

        Indeed the BBC is very much of the problem – all issues approached from the direction that government know best and ever bigger and “greener” government and EU is always better. Often with the absurd and irritation voice of “would be celebrity” Robert Peston.

        So what does Cameron do? He appoints Lord Patten as “chair” of trustees to reinforce that absurd stance.

  2. oldtimer
    Posted November 29, 2011 at 4:20 pm | Permalink

    This looks like the good news. It assumes no catastrophe in the EZ.

    I do not understand why the coalition persists with nice to have spending programmes (eg the aid budget) and an energy policy that piles needless costs onto everyone. As it is, all we get is tinkering around the edges. The UK debt situation needs more than tinkering.

  3. lifelogic
    Posted November 29, 2011 at 4:25 pm | Permalink

    Finally he seems to be saying the right things perhaps he could do them now finally do them. Had he started May 2010 we might now have had some benefit. Good to see more state sector employees will be released to stop them being a burden.

    A shame he ruled out Heathrow again so the best solution left is one more runway, at least, at Gatwick and a fast train link to Heathrow.

    50% tax relief sounds very generous on the EIS but the rules are still very restrictive and complex. Will the bank, government backed, lending scheme actually work this time?

    Will it all be hot air as is usual Cameron style?

    • lifelogic
      Posted November 29, 2011 at 7:33 pm | Permalink

      I see that Osbourne in his speech compares Labour’s suggested solutions to the debt problem (of Brown’s creation) to “quack medicine” – it very clearly is. Nevertheless Osbourne seems still to have plenty of money to pay the NHS to administer pointless quack medicine to real patients with real conditions.

      He seems to think taxing people to waste it administering quack “non treatments” on patients is a good idea. Why exactly it should have been one of the first cuts?

      The only sensible suggestion from Labour is some mechanism to deal with huge over payment of directors – some effective remuneration control system to prevent shareholders being robbed by overpaid & often useless directors.

  4. Mike Stallard
    Posted November 29, 2011 at 4:43 pm | Permalink

    Oikonomia= Economy = household management.

    If I were in debt (again) what I should do was to cut back hard and try to live within my means.

    If I were running a business, I would perhaps borrow money to invest, but then I would not sleep at night for worry. My next door neighbour did that and went bankrupt. His marriage collapsed soon after that.

  5. Martin C
    Posted November 29, 2011 at 5:04 pm | Permalink

    So if spending is going up 10% in cash terms over the 5 years 2009/10 to 2014/15, then it all hinges on what inflation will do over the same period. RPI inflation has been around 5% p.a. 2010/2011. With QE set to continue and “Green” energy taxes expected to ramp sharply up, I really dont expect inflation to drop significantly. 5% inflation over 5 years is 25% in cash terms, so Osborne is planning a 15% cut in state spending in real terms.

  6. Javelin
    Posted November 29, 2011 at 6:26 pm | Permalink

    Sounds like we’re just treading water and surviving. The Government needs to make the UK a vibrant growing economy. Keep the population down and only let fiscally positive families into the country. Let more houses get built so that money is going into investments and not tied up in property. Distance ourselves from Brussels. Turn Labour heartlands into enterprise zones. Come to think of it everything Labour didn’t do.

  7. JimF
    Posted November 29, 2011 at 7:01 pm | Permalink

    I still don’t understand why most on this site were echoing you in calling an L shape downtown whilst the one were too optimistic . Who are the true professionals?

  8. Disaffected
    Posted November 29, 2011 at 7:07 pm | Permalink

    John, like me do you think Osborne has adopted the lunatic Blair,Brown and Balls model of economics? I think the gimmicks of free nursery places and the like is sheer stupidity. i thought we saw the last of these when Brown left office. Where is the less state, less intervention less tax so the public and business can create growth?

    The fight with the public sector pensions and salaries is unnecessary and very small when Cameron persists to throw billions to pounds away on overseas aid to nuclear powers, green energy plans for Africa and huge increases to the EU dictatorship.

    Budget – more taxation,spending and borrowing.

    EU- continues subservience to the EU with powers being taken away ie arrest warrant, look at budget book. Cameron flies in the face of democracy and pulled every trick in the book to prevent the public having a vote on the EU- Cameron must go.

    Immigration- mass immigration continues out of control being a larger burden on the taxpayer and hence the middle class.

    Defence- military being cut without much change to Whitehall or back room staff despite unnecessary middle east wars. More expense on said taxpayers.

    Crime and disorder- Soft on crime Clark continues with liberal/socialist policies of reducing punishment to any well meaning term. 65,000 offenders committing 15 or more offences without any real punishment. ISSP for young offenders an expensive joke on the taxpayer.

    Universities and schools- standards deteriorate with social engineering. The UK still providing FREE university education to EU students who are the UK’s competitors, while stinging the middle class to pay £9,000 per year just for tuition (8 hrs on average).

    WHS- Health service provided for free to all citizens of EU countries. No checks are ever made to entitlement. Waiting lists rise as others are provided a free service that they are NOT entitled to.

    Public services- reform required but can not be achieved because ministers are incompetent and do not under their brief or find out what is going inside their own department. No joined-up thinking whatsoever to overall goal of reducing costs to budget. Ministers need to learn that you can not spend more than you earn. Constantly putting up taxes is NOT the answer.

    20 months of lost opportunity. Tories continue with Labour’s policies with Lib Dems hanging on to the shirt tails. Time for change, vote UKIP.

  9. Martin
    Posted November 29, 2011 at 7:39 pm | Permalink

    I just watched some the highlights of the Chancellor’s statement. Disappointed but not surprised at the growth figures. When a private sector spade ready project at Heathrow gets banned what is to be expected? Instead we have a waste of money inquiry as to what to do about London airports. We have been there before. Indeed the government could save millions of tons of CO2 by not having these stupid thick reports every five years that nothing gets done about.

    Add to that the APD tax which is killing UK tourism continues. http://www.guardian.co.uk/theguardian/2011/nov/18/ryanair-michael-oleary?newsfeed=true

  10. outsider
    Posted November 29, 2011 at 7:50 pm | Permalink

    It is horribly depressing. And just to think, it could all be so different if:

    1) Sir Mervyn and his co-ideologues had conducted a sensible monetary policy, so that people’s real incomes did not plunge and
    2) The Treasury had from the start sponsored a really big housing programme, ideally up to 400,000 a year, to create jobs fast and resolve the most intractable problem for British families.

    As you have so often and correctly said, that is not hindsight.

  11. Gary
    Posted November 29, 2011 at 8:03 pm | Permalink

    FITCH: UK GOVT MAY BE MOST
    INDEBTED OF AAA SOVEREIGNS EX
    U.S . -BBG

    FITCH: NEW UK FISCAL VIEWS
    ‘SIGNIFICANT DETERIORATION’ VS
    MARCH – BBG

    And the punchline: “the capacity of
    UK public finances to absorb
    adverse economic and financial
    shocks that would result in yet
    higher public debt while retaining
    its ‘AAA’ status has largely been
    exhausted “

    • Mark
      Posted November 30, 2011 at 2:37 am | Permalink

      Dagong, the Chinese credit agency already downgraded the UK to A+ (previously AA-) in May, with negative outlook.

  12. zorro
    Posted November 29, 2011 at 8:11 pm | Permalink

    ‘Total spending rises from £669.7bn in 2009-10 to £736.4 billion by 2014-15, an increase of 10% in cash terms.’

    10% cash increase over 5 years in an inflationary environment of around 5-6% annually is better than it could have been I guess. If inflation had been contained cash increases could have been less. But in real terms, the spending is failing to keep pace with inflation. I still think that inflation is considerably underestimated.

    The extra 172 billion of tax revenue by year 5 was always a joke bearing in mind the policies currently being pursued. No economic growth = no more tax revenue. The Coalition committed itself to these extra tax rises which have also put the dampeners on growth, instead of reassessing priorities in public service and spending priorities, a singular failure by this government.

    ‘It reminds us that they see a strong relationship between growth in output and growth in tax revenues.’ – Such a shame that the government couldn’t take in this obvious correlation before assuming office……

    With the current threatening economic landscape, I think that the 7.5% compound growth is optimistic. By 2015 we will be lucky to be at 6 – 6.5% over 2010 and that is dependent on targeting by the bond markets.

    zorro

  13. lola
    Posted November 29, 2011 at 10:06 pm | Permalink

    Seven hundred and thirty six point four BILLION!. Gordon Bennett. Just what, pray what the Hell is that huge sum being spent on?

    It look like this:

    £736,400,000,ooo.

    That’s a huge amount of wonga and it’s half (yes half ) UK GDP. It’s no wonder we re internationally uncompetitive.

  14. forthurst
    Posted November 29, 2011 at 10:55 pm | Permalink

    The Climate Change Act Reconsidered
    Public meeting in Parliament Wed 30th Nov 2011,
    1pm – 4pm Committee Room 14
    – through Sammy Wilson MP – An opportunity to discuss the unfortunate consequences accruing from this Act.

    ● Prof Ian Plimer is Australia‘s best-known geologist and author of Heaven and Earth, Global warming: the missing science.
    ● Matt Ridley, author of The Rational Optimist (winner of the Hayek Prize), will speak on the potential for shale gas.
    ● Ruth Lea, currently Economic Adviser and Director of Arbuthnot Banking Group. She was a Governor of the London School of Economics. She will speak on the impact of the Climate Change Act (including the Renewables Directive) on energy prices, manufacturing and business.
    ● Donna Laframboise, journalist and author of The Delinquent Teenager who was mistaken for the world‘s top climate expert – an in depth investigation into the IPCC.
    ● Dr Philip Stott will act as chairman. Philip Stott is a professor emeritus of biogeography at the University of London.

    Enquiries Philip Foster 01480 399098

    http://www.weatheraction.com/displayarticle.asp?a=394&c=5

  15. John Wrexham
    Posted November 30, 2011 at 12:20 am | Permalink

    The Government has an uphill task. For a decade, many people thought they could just speculate in goods that are purposely kept in short supply ie houses and live off the profits, usually earned at the expense of those who are actually going out and earning a living by working in the real economy. Unless we plan to get out of the recession by selling all our houses to people and companies based abroad (London is leading they way here), then we need some real industrial strategic thinking to create the habitat in this country for entrepreneurs to deliver real economic growth. Is anyone holding their breath that this Government will be any better than its recent predecesors? Let’s check their CVs to see if they meet the job spec required!

  16. Brian Tomkinson
    Posted November 30, 2011 at 8:38 am | Permalink

    Just like all junkies this government still cannot quit its longing for its spending fix. Thinking that they can spend taxpayers’ money better than taxpayers can is clearly not confined to Labour – the coalition is just as addicted. Will it take an outside agency to provide the necessary treatment and therapy?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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