Quarter One 2012 – Government carries on growing, construction shrinks

 

The headline figure of minus 0.2% for economic growth in the first quarter of 2012 may be revised at a later date. It confirms that the economy is becalmed at best. It will doubtless lead to more demands from some to raise public spending and borrowing, to provide an additional fiscal stimulus. Readers should look more carefully at the underlying figures before rushing to such a false conclusion.

In the first quarter of 2012 government spending once again made a positive contribution to total output, contributing 0.2% real growth to the economy. Meanwhile construction, minining and quarrying fell sharply. It is interesting  to look at the last five years of numbers, to see that over this period the government sector has been used to provide a large boost, but this has not  offset the  whole decline in total production industries output.

Year Change in Production industries Change in government output
2007 plus 0.5% plus 1.0%
2008 minus 2.8% plus 0.4%
2009 minus 9.0% plus 2.3%
2010 plus 1.9% plus 0.7%
2011 minus 1.2% plus 1.5%
Totals 2007-11 minus 10.5% plus 6.0%

These figures are all in real terms, adjusted for inflation.

So over the last five years government has provided a large stimulus to total output, but the manuafacturing and mining sectors fell dramatically in the Credit Crunch of 2008-9 and have recovered very little since. The issue we need to address is how to create a faster private sector led recovery. The government has spent massively to offset the impact of the economic decline, which has entailed very large borrowings. Borrowing even more would be counter productive, as the private sector woudl have to pay the interest on the debt and ultimately repay the loans. The issue is how to get faster growth in the private sector, which is about all the issues on banking, taxation, regulation, transport and enegry that we often discuss here.

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145 Comments

  1. Lord Blagger
    Posted April 25, 2012 at 9:15 am | Permalink

    1. Cut regulation

    2. Stop spending money you don’t have.

    3. Cut taxes.

    4. Stop sucking up all the money available for loans.

    Er, we’re back to the debts you run up. All those massive off the books, fraudulent accounting debts that can’t be admitted to. You have to pay those debts, or come clean and default on them. Difficult to end a ponzi scam, isn’t it? Those left holding the baby at the end tend to end up in jail, or the victims of the mob.

  2. Andy Man
    Posted April 25, 2012 at 9:21 am | Permalink

    Can you please explain how government spending adds to growth?
    The government produces nothing, it has no money that it hasn’t either stolen from the productive sector or printed/borrowed undermining the value of the currency. It spews incessant regulation and interference to hinder private business and manipulates the free market. How does any of that add to growth except in the make believe world of political propaganda?

    Reply: It’s a common accounting convention in international economics that government does produce goods and services – and in reality. The UK chooses to deliver most health care and schooling in the state sector. It would be wrong ignore that output here, but to count it in countries where people have to pay at hospital or school door.

    • lifelogic
      Posted April 25, 2012 at 9:39 am | Permalink

      Indeed the government does produce some slight output. It is just that it is hugely less than the damage they do – in mad over regulation, over taxation, distortion of markets (the green energy nonsense) in general. So on balance it is clearly a large net negative.

    • Denis Cooper
      Posted April 25, 2012 at 12:30 pm | Permalink

      Listen, chum, I happen to have two daughters who are teachers in state schools. They work their bloody socks off, and on their behalf I take extreme exception to your implication that their work is unproductive. Either of them could, if they so chose, move to equivalent but more highly paid teaching jobs in private schools, when presumably you’d claim that their work had suddenly become productive as it was no longer funded by the state. However they have decided to stay in the state sector, where they think they can do most good for the children and for our society. Try telling them that they’re being supported by money “stolen from the productive sector” and you’d rightly be given short shrift.

      • D K MCgregor
        Posted April 25, 2012 at 1:24 pm | Permalink

        Mr and Mrs Eagle have two daughters too who are deserving of sainthood, I really don’t want to be your chum either.

      • Barry
        Posted April 25, 2012 at 1:42 pm | Permalink

        My wife is a retired teacher and my daughter teaches. Many will agree with your overall sentiment. However, there is an uncomfortable financial statistic with state funded education …Where is all the money going? Is it paying for all those in the Education that don’t teach?

        If you take the Education Budget and apportion the appropriate amount to the total pupil numbers you will find that state education costs are remarkably close to those of private sector education.

        Notwithstanding excellent work performed by state system teachers, state education does not offer best value for money for the taxpayer nor indeed the student. Reforms are needed to put more resources at the teaching end rather than the fat administrative tail.

        • uanime5
          Posted April 25, 2012 at 4:04 pm | Permalink

          Given that private schools charge £30,000 per pupil I doubt that each school gets £30,000 for every pupil they have.

        • Denis Cooper
          Posted April 25, 2012 at 4:31 pm | Permalink

          I have no problem at all with the idea that the state education system could be run more efficiently; I do have a problem with the unspeakably stupid idea that a teacher in a state school is by definition non-productive, while curiously enough the same teacher in a private school would be productive.

          • Adam5x5
            Posted April 26, 2012 at 6:21 am | Permalink

            No-one in their right mind is saying that a teacher is unproductive – however on the whole, across the entire state system, the state is negative.

            There are some definitely positive contributors to GDP from the state (teachers, doctors, nurses, etc), but these are far outweighed by the costs of H&S charlatans, tree officers, diversity officers, etc etc. All of the latter cost a lot and add nothing.

      • Johnny Norfolk
        Posted April 25, 2012 at 2:45 pm | Permalink

        Yes but they do not make wealth do they, no matter how good they are. They may help in the long term by teaching people but they cost money from the wealth created by others. No one appears to understand these basic any more.

        • Denis Cooper
          Posted April 25, 2012 at 4:30 pm | Permalink

          “They may help in the long term by teaching people”

          That’s very generous of you.

          I suppose we could try doing without teachers, whether in state or private schools, and see how we get on in terms of wealth creation with an uneducated workforce.

          We could try doing without doctors and nurses as well, at the same time, unless they can show how they make wealth.

        • fox in sox
          Posted April 25, 2012 at 7:01 pm | Permalink

          Equally private sector teachers are not wealth creators, by these basics of yours. Indeed one could make the same case of any service industry.

          • APL
            Posted April 26, 2012 at 8:20 am | Permalink

            fox in sox: “Equally private sector teachers are not wealth creators, ”

            But they do contribute to the tax base, rather that those in the public sector who are a cost to the exchequer.

            By the way, not many people except the usually sensible Denis Cooper are suggesting that teachers or doctors and nurses are less professional or conscientious because they work in the Public sector.

            One other way that private sector and I envisage independent schools, might benefit society is the removal of one tool to indoctrinate children. The government is already too powerful and already abuses its authority and monopoly in education, anything that reduces that ability back to the bare minimum, would be a good thing.

        • lifelogic
          Posted April 25, 2012 at 8:08 pm | Permalink

          Teaching certainly does not generate wealth in the short term it is a very long term return. Teaching the next generation of wealth generators the return may be twenty + years off. Still a better return than Huhne’s green house Bling I suppose.

          They also now teach a syllabus that is more about the global warming, recycling, political indoctrination, lefty right on use of language, the many irrational belief systems, quack economics, “renewables”( what ever that means – certainly nothing scientific), gender equality, human rights, and a pretence that we live in a democracy (in any meaningful sense). The even teach intelligent design in some schools at our expense!

          So they are not even being taught the truth in any real sense – does that produce any return at all I wonder?

        • A Different Simon
          Posted April 25, 2012 at 9:37 pm | Permalink

          Isn’t that the definition of investment Johnny Norfolk ?

      • A Different Simon
        Posted April 25, 2012 at 5:56 pm | Permalink

        Dennis ,

        Not all of us subscribe to this simplistic assertion that the private sector is the “productive sector” and the public sector is unproductive .

        I challenge anyone to come up with any sector which is as potentially productive as teaching ; in a 40 year career a teacher can profoundly influence as many as 5,000 young lives .

        The teachers cannot be blamed for the politicisation of teaching and many other areas which has happened over the last 25 years .

        As a solution to this division which seems to have developed , I’d like to see public sector workers basic salary increased to compensate them for joining a less generous pension scheme which would be open to everyone .

        The real pensions crisis , which dwarfs public sector pensions liabilities , is the 8 out of 10 (and rising) private sector workers who retire with a pensions pot of less than £30,000 .

        Good luck to your daughters .

        • A Different Simon
          Posted April 25, 2012 at 6:00 pm | Permalink

          PS I am not claiming the current 80ths accrual rate is generous . It is not , certainly not in comparison to for instance the police .

        • Adam5x5
          Posted April 26, 2012 at 6:25 am | Permalink

          “The teachers cannot be blamed for the politicisation of teaching and many other areas which has happened over the last 25 years .”

          Yes they can, they’re the ones in at the sharp end with the final say over what they say to the children.
          If they choose not to brainwash the kids with the claptrap, no-one can force them to. I am regularly asked at my job to do things and turn round to the client and say “No, that’s stupid/not your call/etc”
          Why do teachers not have the strength of character to do this?

        • lifelogic
          Posted April 26, 2012 at 7:36 am | Permalink

          As you say “The real pensions crisis , which dwarfs public sector pensions liabilities , is the 8 out of 10 (and rising) private sector workers who retire with a pensions pot of less than £30,000 .”

          Indeed because the state sector has over taxed them all and they have so little left to save after housing, food and transport to work.

          • Bazman
            Posted April 26, 2012 at 6:14 pm | Permalink

            What about private sector workers with small pensions caused by the private sector externalising costs onto the taxpayer?

        • lifelogic
          Posted April 28, 2012 at 7:08 am | Permalink

          A different Simon – “I’d like to see public sector workers basic salary increased to compensate them for joining a less generous pension scheme which would be open to everyone”.

          The state sector is already paid more that the private just in salary even without looking at pensions. Including pension they are paid perhaps 140% more I understand. They also work fewer hours and have more sick days. I agree a state pension scheme with contributions open to the state sector and the private sector on the same basis might help. Something like MPs one where you pay in 13K PA (less tax a net 7.8K) and get out £50K PA in value would be rather nice.

      • Bob
        Posted April 25, 2012 at 6:34 pm | Permalink

        @Dennis Cooper

        The output of our state schools is so good that a lot of employers seem to prefer to employ people that have not been educated in them. I also hear that the government are now fudging university admission criteria to get more kids from state schools in.

        I’m not saying it’s your children’s or any other state school teacher’s fault, far from it, but rather the system. Quite honestly, most employers are looking for literate, numerate, energetic people with a good work ethic, not someone who is well versed in the equality agenda with a keen sense of entitlement.

        It’s just the way things are.

      • lifelogic
        Posted April 25, 2012 at 8:39 pm | Permalink

        You daughters may well work hard and be almost saintly in their devotion to the job. Nevertheless, in terms of generating wealth, it is a very long term prospect. Also the huge overheads of management, experts and local authorities usually renders the system very inefficient overall.

      • Max Dunbar
        Posted April 25, 2012 at 11:14 pm | Permalink

        I have heard that if a teacher moves from the state sector to the private sector it is a one way ticket with no chance of going back. Is this true?

        • A Different Simon
          Posted April 26, 2012 at 8:07 am | Permalink

          I don’t know .

          My sisters friend’s husband used to be a maths master at an independent school .

          When their first child came along he went and worked as a maths teacher for a state school to get the childcare benefits .

          When the child grew older he went back to work in the independent sector .

          The boundaries between state sector and independent sector are not as clear as I used to think .

          I only found out recently that teachers in the independent sector are entitled to join the same public sector pensions scheme that is open to state sector teachers ?

          Talking to two teacher friends , one in the state sector the other independent , the main difference appears to be that independent sector teachers don’t have to put up with the amount of guff with regards to national curriculum , bureaucracy and political correctness .

      • lojolondon
        Posted April 27, 2012 at 9:25 am | Permalink

        Maybe this will help you to understand, it is never the front line – the UK frontline is underpaid and over worked probably more than anywhere in Europe. It is the backup.
        There was an article about a year ago that explained that the UK ‘maths’ education department employed 7,000 people, and we have among the worst maths standards in Europe. The Swedish maths department employs about 40 people and they have the best results in Europe.

        Just like the police and the NHS, do not look at the front line for lazy people overpaid. BUT when you look behind them, at the NHS trusts, the police areas, you find jobs for cronies, hundreds of people earning more than the PM, massive expenditure on IT and System Integrators, cronyism and backhanders and all the rest.

        It is a very Labour system, it has been completely untouched during the ‘cuts’ and it is CAUSING poor performance and money wastage and thick kids(education), loss of life(NHS) and incompetence(police) on a massive scale.

    • Barry
      Posted April 25, 2012 at 1:23 pm | Permalink

      “It’s a common accounting convention in international economics that government does produce goods and services “. No doubt but how is this measured other than by the usual public sector measures of spending. Certainly there is measurable growth in public sector spending but where is the evidence for measured OUTPUT growth?

      • lifelogic
        Posted April 25, 2012 at 8:44 pm | Permalink

        Indeed put the cost of passports up to say a £10,000 each. Then employ 100 times the staff to administer them and hey we have more output, jobs and growth.

        Isn’t that just great for everyone? Except of course for the huge number (perhaps 10 times the staff increase) who lose jobs in the private sector as a direct result.

    • waramess
      Posted April 25, 2012 at 1:34 pm | Permalink

      What is the difference between government services and privately provided services? Quite a lot actually.

      Every so called service provided by the government is supplied under duress and within a monopolistic environment. You have little choice in other words and to suggest “It would be wrong ignore that output here, but to count it in countries where people have to pay at hospital or school door. ” is to imply that every service, including tax collection and Overseas Aid supervision for example, are part of the productive economy.

      In fact, whether you directly benefit from government action or you do not, there is no logical basis for regarding the government as being other than a consumer of resources.

      Perhaps where the government to offer services in a competetive environment with a view to seeking a reward on the capital investment, then you might argue that its output is of a productive producer, but otherwise it is just to play with words

  3. Posted April 25, 2012 at 9:36 am | Permalink

    I note the Treasury’s excuse is that the EU is heading into recession and it accoun ts for 40% of our exports, holding us back. Failing to mention that the rest of the world is growing at about 6% *excluding the US at 7%) and thus pushing us forward. Of course this seems not entirely compatible with 2 generations of politicos telling us how beneficial it is to be in the EU.

    The fact is uindeniable and indeed undenied – that we could be out of recession and into fast growth within days if the political class wished it & that every numerate politician knows this.

    • uanime5
      Posted April 25, 2012 at 4:09 pm | Permalink

      1) 53% of our exports go to the EU, not 40%.

      2) The US is grew 1.7% in 2011, not 7%.

      3) The world is not growing at 6%. The BRICS may be growing that fast but most countries are not.

      4) Leaving the EU will not result in fast growth, it will result in a massive recession because the UK won’t be able to sell half their exports.

      Reply: You need to include service sector exports to get the more accurate lower figure for exports to the EU

      • Lindsay McDougall
        Posted April 26, 2012 at 9:38 am | Permalink

        The US hasn’t dealt with its fiscal deficit and its government debt to GDP ratio exceeds 90%. Obama is living on borrowed time and so is his country.

      • Posted April 26, 2012 at 10:17 am | Permalink

        100% false as ever Uni

        1 – As John points out

        2 – Read what I wrote – saying “the rest of the world excluding” the US is precisely opposite to saying “including the US & excluding the rest of the world”. The US economy is now growing at around 2.5%, because of the falling energy costs shale gas is producing.

        3 – The rest of the world, excluding the EU and US, IS growing at 7%. If you include the US that drops to around 6%. This is not just the CRIC countries but the entire HOUSE (Humanity Excluding the US & Europe) countries. Achieving an AVERAGE of 7% when your group includes Zimbabwe and North Korea indicates exactly how badly we must be doing and how easy it would be to do better if the political parasites would allow it. By definition some of these countries are growing faster than the average – eg China at 10% and Singapore at 14%.

        4 – If you actually read John’s previous posts you will see that he has repeatedly explained that it would be both insane and illegal for the EU to embargo trade with us if we quit the EU. There is no slightest question that the EU is, by far, the slowest growing region of the planet. You may, if you wish, say that is a club you wish to be in for ideological reasons. You could not, with any slightest trace of honesty, say that it a club, membership of which, is likely to enhance growth.

    • lifelogic
      Posted April 25, 2012 at 8:47 pm | Permalink

      Numerate politicians how many of those are there? Numerate and honest MP’s even fewer perhaps under 50?

  4. alan jutson
    Posted April 25, 2012 at 9:38 am | Permalink

    Given that many on here including yourself are accepting that the alternative economy is growing because of high tax rates, then all of this type of trading would not be recorded, perhaps another reason why official figures could be lower than expected.

    People are simply now cutting the Government out of the loop, as they refuse to pay extortionate taxes, which are then wasted.

    I and many others on this site have suggested for a long time, that with very high tax rates the alternative economy will grow, illegal I know, but people do what they have to do to survive.

    We will soon be trading like Southern and Eastern Europe as more and more of their labour/workers come here, and work to their established practices which they themselves learned back home.

    Government reliance on guestimates about future growth is all falling about their ears.

    Time and time again I have said Government needs to live within its known means, (last years tax take) not some pie in the sky guess on future growth, if all goes well, with a following wind.

    We need to cut what the State does, it as simple as that.

    • Timaction
      Posted April 25, 2012 at 1:45 pm | Permalink

      I totally agree Mr Jutson. People know they are overtaxed. They also are against being taxed to have it given away to foreign causes (EU, Foreign Aid, mass immigration and impact costs on public services). So they will avoid it where they can. I’m afraid the Tory leadership are proving useless and its time backbenchers started to give them some strong advice. Their priorities are all wrong.

  5. frank salmon
    Posted April 25, 2012 at 9:45 am | Permalink

    May I take this opportunity to congratulate myself on predicting the Brown bust, and that there would be a VW shaped recession.
    One simple solution would do the job: End all subsidies.
    Our subsidies to trains, tube, HS2 and crossrail are simply diabolical.
    Our subsidies go to Royal Mail, to Europe, to energy alternatives, to housing and of course the outrageous quangos and multifarious public sector bodies. Get rid of the lot. Only provide support for the basics. It will work. In fact, it is a necessary precondition for economic growth.

    • uanime5
      Posted April 25, 2012 at 4:11 pm | Permalink

      So you don’t consider the railway, postal service, housing, and the public sector a basic? All your proposals will do is make the situation much worse as vital infrastructure ceases to exist.

      • APL
        Posted April 26, 2012 at 8:34 am | Permalink

        uanime5: “All your proposals will do is make the situation much worse as vital infrastructure ceases to exist.”

        If we stopped subsidies to these operations, that could reasonably lead to a cost reduction in public expenditure.

        Perhaps we could reduce the obscene level of fuel excise duty and abolish VAT on fuel excise duty, which if you think about it is state fraud.

        If you thereby cut the cost of operating a business by twenty percent and cut the subsidies to those businesses by 100% there is a good chance that the energy intensive operations may be better off, the others might have to raise their prices.

        • uanime5
          Posted April 26, 2012 at 3:24 pm | Permalink

          Removing subsidies will result in the cost of stamps and train fares rising dramatically to make up for lost revenue.

          Reducing fuel excise duty and VAT will lead to lower tax revenues with no guarantee of growth; so it will make the problems worse, not better.

          • APL
            Posted April 27, 2012 at 10:52 am | Permalink

            uanime5: “Removing subsidies will result in the cost of stamps and train fares rising dramatically to make up for lost revenue.”

            So what? People that is people who use the services provided at a subsidized cost, can then make the decision that at the new price they maybe do or do not want to use the service.

            Given that when I used to buy stamps a first class stamp was about 12pence, there is clearly a lot of price elasticity in what people are prepared to pay for a postal service.

            uanime5: “Reducing fuel excise duty and VAT will lead to lower tax revenues with no guarantee of growth; ”

            I don’t think you are following the logic. Reducing excise and VAT will not tend to it will lower tax revenues. It will also require we make cuts to compensate elsewhere, that ‘elsewhere’ could be the myriad of subsidies and cross subsidies currently paid by the government.

            If you remove the subsidies you allow the market to function correctly. That is you or I to decide what we would buy given true price signals. Some things may be cheaper, others may be more expensive. The difference being, you and I through our every day purchasing decisions will decide which is more expensive and which is cheaper, not some government committee that wants to make a fortune for their various relitives out of … for example selling expensive wind generated electricity to the National grid.

            uanime5: “so it will make the problems worse, not better.”

            We will definitely have different problems. But I think things would be different, but not worse.

            If you are looking for the state through its actions, i.e. taxing people to subsidize this or that activity, to solve all your problems, then you are deluding yourself.

    • lifelogic
      Posted April 25, 2012 at 8:49 pm | Permalink

      Indeed the distortion of the private sector, with these absurd subsidies, is almost as damaging as the bloated state sector itself.

      • Bazman
        Posted April 26, 2012 at 6:17 pm | Permalink

        And the absurd subsidies to the private sector? Like the middle class social security system do not exist? Ram it.

  6. Atlas
    Posted April 25, 2012 at 9:45 am | Permalink

    We seem to be entering perfect storm territory again. Politically, we have the French and Dutch elections. Economically we have the EU wanting even more for its budget, while Osborne is trying to wriggle out of admitting we are propping up the Euro via the IMF. And now we have the voracity of Hunt and Cameron coming into question. Add to this voter antipathy to the Lib-Dems and Labour and one can wonder just what the future holds – growth seems a distant dream.

  7. lifelogic
    Posted April 25, 2012 at 9:48 am | Permalink

    Hardly surprising that construction is down given the fact that the banks are pulling back all the loans and new development funding is very hard to find on sensible terms or even at all.

    To get growth going in the private sector you just have to leave the sector alone and stop kicking and mugging it. Do not force them to employ people for ever, do not make them pay people who are sick on holiday, do not have gender neutral insurance rules, do not have over priced “green” energy, do not tax them into liquidation and get rid the the 50% of the parasitic state sector that pulls them all below the water line relative to competitors in more enlightened countries.

    It is not hard but Cameron and Osborne have simply not got the guts to do the job.

    • lifelogic
      Posted April 25, 2012 at 10:31 am | Permalink

      So Clegg seems to have been wheeled out to berate the banks into lending more to UK businesses I see. I would have thought that was unlikely to have any effect. They tend to look at numbers & risk/reward and current regulations. All the new regulations, the expensive energy, the no retirement, absurd employment rules, the ever more bloated state sector that the coalition has brought in, the Basel rules and the lack of a pro-growth direction will doubtless also discourage the sensible ones from UK lending.

      Action not words please. Of course the 10B lent to the IMF could clearly have made a huge positive difference, had it just been used to lend to UK businesses. In fact it will have a huge negative effect instead by increasing UK government debts. Perhaps he should berate Osborne instead.

      • Winston Smith
        Posted April 25, 2012 at 3:57 pm | Permalink

        Liberal Tory, Cameroon and a senior figure in the media/political elite, Ferdinand Mount, was wheeled out to write a banker bashing article in the Evening Standard (readership +1m), yesterday. The articles was all about inequality and the new modern elite. He did not once mention the political or media elite. Its all the fault of the private sector bankers.

    • lifelogic
      Posted April 25, 2012 at 10:59 am | Permalink

      If they want growth they should abolish IHT, and get top tax rates down to at least 40%, abandon the green expensive energy religion, halve the state sector, cap employment claims and get rid of nearly all the employment laws then set a real sense of pro growth direction. Only three years left what on earth is holding them back?

      I see that Adam Smith (a special advisor to Jeremy Hunt has resigned to protect the Minister I assume). I wonder how much he will receive as a pay off – it would most be interesting to know.

      • Adam5x5
        Posted April 26, 2012 at 6:29 am | Permalink

        “Only three years left what on earth is holding them back?”

        The Lib Dems and an irrational fear of being portrayed as the ‘nasty party’ by an incredibly biased BBC.

        • lifelogic
          Posted April 26, 2012 at 7:42 am | Permalink

          Well they appointed Lord Patten as a BBC trustee – so clearly they wanted more of the same lefty, green, pro EU from the BBC.

      • Bazman
        Posted April 26, 2012 at 6:20 pm | Permalink

        IHT is paid by less than 5% of the population and is a just tax. The rest of you sink or swim policies as said before would create social unrest. No? Lets get rid of all housing benefit and test that theory.

    • lifelogic
      Posted April 25, 2012 at 11:55 am | Permalink

      Growth will also not be helped by the government giving away (with others money needless to say) another bank holiday this year yet again. It will cost just me some £5,ooo this on top of last years. Still I can offset it against my taxes so it will cost them too.

      • Bazman
        Posted April 26, 2012 at 6:21 pm | Permalink

        You no doubt see you bank holiday as sacred as you do you weekends. We know this one well.

    • lifelogic
      Posted April 25, 2012 at 5:19 pm | Permalink

      Cameron today: “The solution to a debt crisis cannot be more debt”.

      So why is his government doing exactly that? £10B more of debts for the IMF, more debt to give to the PIGIS, more debts to fund the EU and an ever bigger state, more debts to fund the benefit increases, more debts for the mad HS2 scheme, more debts for the Olympic white elephant buildings, more debts for votes for Mayors, more debts due to the lack of growth his policies of over taxation, borrow, waste, expensive energy and the general anti business policies are causing.

      Does he ever listen to himself or put himself in the position of the listener when he says “he is pro business”, “on the side of the elderly”, a Euro-sceptic or as today says “the solution to a debt crisis cannot be more debt.” Does he not realise how patently absurd he sounds relative to his actions.

  8. Brian Tomkinson
    Posted April 25, 2012 at 9:51 am | Permalink

    With the current state of the economy, isn’t the government’s emphasis on growth mainly directed at the desire (and the absolute need given their failure to reduce spending) to achieve higher tax receipts? I fail to understand just how the government borrowing more money to spend and thereby manipulating the growth figures goes anyway to tackling the problems but rather exacerbates them. If it did solve the problems given recent performance of Labour and coalition governments how did we ever have a finacial crisis?

    • norman
      Posted April 25, 2012 at 1:27 pm | Permalink

      Governments aren’t there to tackle problems, they’re there to get to the next election, hopefully in a position to win it. Unfortunately for the Conservatives Osborne doesn’t look capable of crossing the road unaided, let alone mastermind an election victory.

      • Brian Tomkinson
        Posted April 25, 2012 at 3:43 pm | Permalink

        Norman,
        No doubt politicians do think that is what they are there for and also to win the next election. Part of the current problem is that Osborne – the Conservative Party’s Mandelson – spends too little time doing what he is paid for, which, in case he has forgotten, is Chancellor of the Exchequer and too much time trying to be the graet political strategist. He is useless at both jobs.

  9. Captain Crunch
    Posted April 25, 2012 at 9:53 am | Permalink

    OK, we know you are not a Keynesian!

    But, do you think you could persuade the Chancellor to adopt some old-fashioned supply-side measures?

    Cutting taxes to boost economic activity and, in turn, boost the Treasury coffers? Why does the Chancellor seem so averse to this route?

    • uanime5
      Posted April 25, 2012 at 4:25 pm | Permalink

      The problem is that there’s no guarantee that cutting taxes will boost the economy enough to make up for the loss of tax revenue.

      • Captain Crunch
        Posted April 26, 2012 at 2:38 pm | Permalink

        We don’t know that austerity will work either!

        Mr Redwood has frequently, on this site and elsewhere, expressed that view which has had the support of many other contributors.

        I don’t know why the Chancellor does not agree (he actually put VAT up!) and I wondered if Mr Redwood could shed any light!

        • Bazman
          Posted April 26, 2012 at 6:55 pm | Permalink

          Don’t seem to be working so far and austerity for who is the question? Obviously not you cushioned on your fantasy island.

  10. matthu
    Posted April 25, 2012 at 10:00 am | Permalink

    Where does EU expenditure come into the equation or is that added into government expenditure? Because planning for that to go up by nearly 7% could be revisited …

  11. Posted April 25, 2012 at 10:06 am | Permalink

    I can’t see any sustained recovery happening until wage growth exceeds price inflation. Constantly falling real pay is not a recipe for economic growth. There are two ways of achieving real pay rises: increase pay, or reduce inflation.

    If the Bank of England were actually doing its job we’d be in much better position.

  12. Alex
    Posted April 25, 2012 at 10:11 am | Permalink

    And by way of comparison …
    http://www.cnbc.com/id/47107582

  13. ian wragg
    Posted April 25, 2012 at 10:29 am | Permalink

    All goverment growth has been paid for by borrowing money.
    Just how long can government spending surpass revenues before the wheels fall off.
    Creative accounting will ultimately come back to bite you so lets have a bit more honesty.

    • Denis Cooper
      Posted April 25, 2012 at 1:36 pm | Permalink

      The wheels fell off early in 2009, but Brown and Darling got the Bank of England to do a temporary repair and fix them back on for the time being; that was one reason why the Labour party was not annihilated in May 2010 and the Tories did not get an overall Commons majority.

  14. javelin
    Posted April 25, 2012 at 10:30 am | Permalink

    I blame this double-dip on importing too much hummus and taramasalata from the Greeks.

    But seriously there are TWO big problems with this economy –

    1) Entrepeneurs ARE NOT ENCOURAGED – no growth.

    2) HOUSE PRICES are TOO HIGH – distorting risk taking, encouraging higher salaries, lowering investment, growth in productive wealth. Interest rates must go up and house prices MUST FALL.

    I’ve been saying for 5 years now – THE ONLY way this economy will improve is to raise interest rates to increase savings and lower house prices PLUS encourage entrepeneurism using lower taxes, lower wages and education.

    This Government needs a REAL strategy for GROWTH. NOT MORE DEBT.

    It’s simply caught between FOCUS GROUPS and the ALL POWERFUL TREASURY.

    • Posted April 25, 2012 at 1:56 pm | Permalink

      The high property prices is true of course: both domestic and commercial.

      Current prices act as a tax on all wealth creation. It’s not surprising Germans can outperform us when their workers can buy (or rent) twice the house for half the money.

      We need a serious property crash, eg back to 1997 levels, to give us a new base to work from. Some years of negative equity would be worth it in the long run.

      • Winston Smith
        Posted April 25, 2012 at 4:06 pm | Permalink

        I keep reading such predictions, but the facts do not support this. For most of the UK, there is already a housing market depression. There are many towns and cities with thousands of boarded up and demolished properties. Meanwhile, in London and its commuter towns, plus the nicer parts o the UK that have high employment, good schools and low imigration, the housing market is booming. The division is becoming wider and wider. Higher interest rates will do little to change this. The underlying factors are far too deep.

      • A Different Simon
        Posted April 25, 2012 at 6:11 pm | Permalink

        Absolutely .

        We are still paying the price for the “enclosure of the commons” which happened between the eighteen and early 20th centuries .

        The current concept of private ownership of the surface rights of land sucks .

        All it does is transfer money up the ladder to the landowners whilst income tax keeps the prols from getting above their station .

      • stred
        Posted April 25, 2012 at 8:35 pm | Permalink

        The Treasury would see a property crash as a big problem. Firstly they would miss out on the non indexed CGT, which they think will arrive as the retired are forced to sell. But the main problem is that the whole borrowing for the State takes into account private assets including the biggest of all- housing. The States are on the way to clear this problem. We have not started.

    • Alan Wheatley
      Posted April 25, 2012 at 5:30 pm | Permalink

      Can you tell me, Javelin, what is the impact of a rising population on house prices?

      • Winston Smith
        Posted April 26, 2012 at 8:56 am | Permalink

        “la,la,la” we’re not listening.

    • Bob
      Posted April 25, 2012 at 6:47 pm | Permalink

      “1) Entrepeneurs ARE NOT ENCOURAGED…”

      Now that’s what I call an understatement!

  15. Caterpillar
    Posted April 25, 2012 at 10:40 am | Permalink

    “the issues on banking, taxation, regulation, transport”

    But do you believe the changes are going to happen under the Coalition or the next Labour Govt?

    When will there be more competition in banking, counter cyclical reserve requirements etc?
    When will taxes be simplified / adjusted in form / reduced?
    When will regulation (particularly for SMEs) be simplified?
    When will planning/investment support monopoly breaking transport?

    I neither expect the monotony of ConLibLab to ever allow state coordination to shrink and more liberal markets to take over, nor do I expect the BoE to fulfill its remit.

    Whilst it is interesting to discuss “banking, taxation, regulation, transport”, if recovery comes it will be despite ConLibLab policies.

    • norman
      Posted April 25, 2012 at 1:32 pm | Permalink

      Most of those areas are now EU competencies, so the answer to your questions must be ‘never’.

      Whether that’s the real reason why the three parties blur into one or they really do believe scrapping over the centre-left is the way to win elections I can’t decide, sometimes I think one way, sometimes the other.

      The end result is the same in both cases so ho-hum, carry on spending.

  16. forthurst
    Posted April 25, 2012 at 10:57 am | Permalink

    “It’s a common accounting convention in international economics that government does produce goods and services”

    Almost exactly the same; the only very minor difference is that private sector growth is based on billings and public sector growth is based on costs, particularly salaries. Private sector performance is measured on output, public sector performance on input.

    We should be measuring outputs in the public sector as well then we would be able to calibrate the deterioration in cost performance of some public services such as education over the the decades such that it has become ‘necessary’ to handicap the privately educated in order to ensure a sufficiently vibrant and representative student body more like us whilst foreigners who take examinations more like ours of yesteryear are taking our important courses in medicine, science and engineering leaving us with the pointless timewasting drivel.

    • stred
      Posted April 25, 2012 at 8:46 pm | Permalink

      Should the private sector output also be adjusted for real worth? For example, would an increase in internet gambling be counted as again? With education, should a course in the Economics of Eclectism, or some such course, be counted the same as Geo Thermal Engineering?

      • stred
        Posted April 25, 2012 at 8:47 pm | Permalink

        Sorry. a gain.

      • forthurst
        Posted April 26, 2012 at 7:00 am | Permalink

        “Should the private sector output also be adjusted for real worth?”

        That’s done by the market. Caveat emptor.

        • lifelogic
          Posted April 26, 2012 at 7:51 am | Permalink

          It is a good question what about private sector drug dealing, gambling, 2000% interest pay day loans, duff insurance products. I suppose it is entertainment or something but is there really any positive output here or are they just desperate addicts.

          You could argue that is yet again it is a failure of the state sector to regulate/control these activities sensibly.

      • Bazman
        Posted April 26, 2012 at 6:58 pm | Permalink

        Could do. You still have to get a job in that field. A knowledge of geo thermal engineering does not necessarily get you a job and will stop you getting many jobs like supermarkets and shops.

  17. Sue
    Posted April 25, 2012 at 11:08 am | Permalink

    “demands from some to raise public spending and borrowing”… you have got to be joking.

    1. Save billions leaving the EU (I see they now want another £900 million for their budget) after building “The History of the EU (£15million)” and the “Parliamentarium (cost Britons £19million) ” and a £7m TV channel in 22 languages all completely delusional projects which seem to not only rewrite history but year zero is now 1946, so Christ has been replaced too.

    And you lot say nothing, you just moan about OUR public spending. If we ran our own country, we could get that down pretty damn quickly.

    2. Stop giving lucrative contracts to the EU without proper cost analyses (ie Bombadier, Sugar Industry).

    3. Kill all unnecessary regulations and tell the EU to shove their red tape.

    4. Making the smoking ban optional (let’s give the leisure industry a boost and save a few pensioners dying in misery and loneliness to boot). I haven’t been to one establishment that’s banned smoking since it’s inception and I’m not the only one. We are still losing 50 pubs a week and don’t kid yourselves it’s pricing, it’s not.

    5. Stop putting money into false charities (smoking again, alcohol and obesity). You are funding a government quango to lobby the government! Perhaps if people weren’t so miserable by the time Friday comes and they see how much has been stolen from their wage packets, they wouldn’t need to comfort themselves with alcohol and takeaway.
    Stop funding minority projects like prevent. If the ethnic community are responsible and working, they’ll fund these projects themselves ,just like we have to through sponsorships and charity events.

    For goodness sake, take some control. You lot whinge and whinge and then the only solution you can come up with is another tax! Since you’ve ceded so much of our power to the EU, you lot aren’t really needed anymore. That would save us millions too.

    You know what the problems are, face up to them. The EU has a socialist agenda but as Maggie said “Socialism works until you run out of other people’s money”.

    We have no money to spend by the time we’ve paid tax at source and everything else is taxed again. We’re skint, you’ve literally driven many of us into poverty and for most families that means a treat is MacDonalds, a soft drink or a beer. And what for? The EU.

    Shame on you all. The sooner our whole political system is brought down the better, it doesn’t function, it’s stopped working for the people that pay for it. But for a few people, the whole government and every single person involved in it is corrupt to the core. Since we were conned (and yes, I can prove those who signed yes, were conned) into joining the EEC things have rapidly gone downhill and you politicians are to blame. You’re incompetent, the lot of you.

    The “people” should be running their country and you lot should be carrying out our orders. We gave you a chance, you’ve failed dismally….. how much worse could we do? Nowhere near as bad, I’m convinced.

    • norman
      Posted April 25, 2012 at 1:36 pm | Permalink

      Hear hear, to paraphrase Buckley I’d rather have the first 650 names out of the London phone book than the present lot.

    • Lindsay McDougall
      Posted April 25, 2012 at 4:14 pm | Permalink

      You see, Mr Redwood, some quite reasonable people are now getting very angry indeed. In practical political terms, the Conservative Party has to break free of the LibDems once the 2013 Budget is safely delivered. Govern as a minority government after that.

    • uanime5
      Posted April 25, 2012 at 5:04 pm | Permalink

      The decline of pubs is mainly due to pricing; mainly because it’s much cheaper to drink at home. Allowing smoking in pubs won’t change this.

      Fast food should be considered a treat because it’s too unhealthy to eat as a regular meal.

      • Bazman
        Posted April 26, 2012 at 7:01 pm | Permalink

        Lowering the taxation of drinks in pubs and breaking up the pub chains might lead to more pubs with more civilised drinking. Raising the tax on supermarket drinks is a non starter.

  18. javelin
    Posted April 25, 2012 at 11:14 am | Permalink

    I have spent the morning trawling the EU internet trying to judge opinion and make some predictions.

    My conclusions is that a large majority of people want out the EZ. The incument politicians do not. I see a solid movement politically away from the main stream to the far right and far left to get their way.

    So the prediction is that internal devaluation, austerity and increased debt is going to continue and it is now a “pain game”. Countries leaders are trying to take the pain as long as possible to surivive in the EZ. All the time the people are moving to the far right and far left to stopthe austerity or debt.

    The EZ is following the paradoxical theory of change. That says:- the more you try to achieve something that was not meant to be then the more the underlying pressures build up until there is an explosion in the other direction.

    The EU is trying to create a federal state to avoid conflict – but it is achieving the opposite.

    • Denis Cooper
      Posted April 25, 2012 at 1:43 pm | Permalink

      Which people want out the EZ? Not us, obviously, as we’re not (yet) in it, and as I read most of the Irish and even the Greeks still want to stay in it.

      • Lindsay McDougall
        Posted April 25, 2012 at 4:16 pm | Permalink

        I’m told that 56% of Germans do, although I am a little sceptical.

      • Bob
        Posted April 25, 2012 at 7:31 pm | Permalink

        @Dennis Cooper

        “we’re not (yet) in it”

        No, but it’s into us, for another ten billion as of last week!

      • stred
        Posted April 25, 2012 at 8:52 pm | Permalink

        The Greeks and Irish have seen huge gains fromm the EEC in the past and want it back. They have no experience of the possible advantages of leaving.

    • A Different Simon
      Posted April 25, 2012 at 6:15 pm | Permalink

      Javelin ,

      Which party do you think will win the French elections ?

      Do you see it making any difference if Hollande’s French Socialist Party replaces Sarkozy ?

      Would they go along with the German agenda ?

  19. Dan
    Posted April 25, 2012 at 11:25 am | Permalink

    “The bureaucracy is expanding to meet the needs of the expanding bureaucracy.”

    I despair I really do. I feel like someone trapped in Soviet Russia baffled as to why no one can see the insanity of it all.

    Socialism does not work, big state tax and spend does not work. So why for heaven’s sake do we continue with it relentlessly? Why is a conservative government proving to be such a bunch of committed Socialists?

    Will anything other than bloody revolution ever turn around the growth of the state?

    • uanime5
      Posted April 25, 2012 at 5:05 pm | Permalink

      Big state and high taxes works in Sweden and socialism works in most of Europe.

      • Lindsay McDougall
        Posted April 26, 2012 at 9:35 am | Permalink

        Sweden has cut public expenditure from 71% of GDP to the lower fifties. “Socialism works in most of Europe”. What planet are you living on? In what sense does Europe work? The only big success story, Germany, has been reducing taxes.

        • uanime5
          Posted April 26, 2012 at 3:30 pm | Permalink

          You can have socialism and low taxes, just as you can have capitalism and high taxes; so raising or lowering taxes isn’t a measure of how socialist a country is.

          • Lindsay McDougall
            Posted April 27, 2012 at 1:05 am | Permalink

            But public expenditure as a % of GDP is such a measure.

    • Bob
      Posted April 25, 2012 at 7:32 pm | Permalink

      “Will anything other than bloody revolution ever turn around the growth of the state?”

      A UKIP victory would do it.

  20. A Different Simon
    Posted April 25, 2012 at 11:28 am | Permalink

    John ,

    Some bold steps are required and the Govt does have a part in this .

    1) House building program and renovation of derelict properties

    How about releasing public land for building of mainly social housing according to the original model where it was self-funding ?

    Stuff what it does to our zombie banks by lowering house prices , our young people need to feel included and our builders need work .

    I’d suggest proper regulation of the rental sector but believe provision of a surplus of housing would have more effect .

    Britain will never be able to compete whilst it’s industries and workers have to pay a tribute to the land owners or banks for the privilege of renting or buying these overpriced dwellings .

    2) Lower the cost of living by reducing the cost of accomodation , energy and food

    Sack Alistair Buchanan of Ofgem .

    Replace him with someone who is committed to creating a proper energy market rather than stiffing the population to maintain high prices to suit the existing suppliers and make renewables look attractive .

    A.B. is an example of regulatory capture . You must sack him to give UK shale developers a chance .

    3) Educate people about the benefits of buying British

    We need to substitute home grown for imports in order to ensure that money circulates in our own economy rather than just bleeds away abroad .

    Govt should buy British and should definitely not subsidise foreign wind turbine and solar panel manufacturers with British money or British jobs .

    • uanime5
      Posted April 25, 2012 at 5:08 pm | Permalink

      I’d advise against trying to get shale gas. While the UK has a drought it would be unwise to use large amount of water for fracking, especially since fracking has been shown to contaminate water supplies.

      To put it simply:

      Drought + Olympics + fracking = major water shortage.

      • A Different Simon
        Posted April 26, 2012 at 8:16 am | Permalink

        Fracing does not use large amounts of water .

        It’s just that people are frightened of large numbers even when the units themselves are small .

        Even if hydraulic fracturing was carried out simultaneously on a production (rather than exploration) scale in the Bowland basin all the way accross the Pennines to the Humber basin and in the Wealden basin it would increase the usage of water by less than 1% .

        These are official figures . It’s a non-issue .

        • uanime5
          Posted April 26, 2012 at 3:36 pm | Permalink

          Given that fracking will have to use water from local reservoirs it will reduce the amount of water available for drinking in these areas by much more than 1%.

          Also unnecessarily increasing water usage during a drought and while the UK holds the Olympics is a very bad idea.

      • Mactheknife
        Posted April 26, 2012 at 8:27 am | Permalink

        Complete nonsense from our socialist troll. The USA has seen massive benfits to its economy in terms of cheap energy and jobs from Shale Gas. The underlying agenda here from the left is the usual greenwash nonsense. If anyone mentions the film “Gasland” (about Shale Gas fracking) it has been shown to be a green propoganda piece which is factually incorrect.

        • uanime5
          Posted April 26, 2012 at 3:38 pm | Permalink

          Wrong. The methane contamination depicted in Gasland was proven correct, which is why the companies involved in nearby fracking had to pay compensation to all the people whose water supplies were contaminated.

          Shale gas extracting is far more dangerous than the USA will admit.

        • Bazman
          Posted April 26, 2012 at 7:03 pm | Permalink

          Another Enron say some shale gas insiders. A lot to answer for.

  21. Steven Whitfield
    Posted April 25, 2012 at 11:35 am | Permalink

    Well said Mr Redwood, when will the BBC and Labour claiming that ‘right wing cuts and austerity’ is responsible for us slipping back into recession.

    • lifelogic
      Posted April 25, 2012 at 8:58 pm | Permalink

      They have both claimed this all along “too much too quickly leading to double dip”.

  22. Jim
    Posted April 25, 2012 at 11:39 am | Permalink

    Simple – exempt businesses from all the regulations that they currently are subject to. Pay the bureaucrats to do nothing, as its less destructive than having them stopping people do business. Make it easy to employ people with zero paperwork. Sit back and let the private sector grow.

    • uanime5
      Posted April 25, 2012 at 5:10 pm | Permalink

      So your plan is to remove all rights from employees; including minimum wage, sick pay, holiday pay, and all laws that require workplaces to be safe. Expect moral to plummet and large numbers of people to go abroad to work in companies that value their employees.

      In conclusion don’t expect people to work if they don’t have any rights.

      • Lindsay McDougall
        Posted April 26, 2012 at 9:53 am | Permalink

        Over most of Asia people work whenever they can and have far fewer rights than we do. The reason is fairly simple; they would starve if they didn’t.

        • uanime5
          Posted April 26, 2012 at 3:41 pm | Permalink

          That only works in low skilled, labour intensive industries. Scientists, engineers, doctors, and nurses tend to leave Asia and move to countries where they will have better pay and working conditions.

        • Bazman
          Posted April 26, 2012 at 7:08 pm | Permalink

          This being the answer. Starve em’ or at least make them more desperate to help themselves, their employers and the economy? We’ll starve you first and see how it goes…

    • lifelogic
      Posted April 25, 2012 at 8:58 pm | Permalink

      Indeed.

  23. Mactheknife
    Posted April 25, 2012 at 12:44 pm | Permalink

    In my work I develop business strategies to enable us as a company to grow our market and increase revenues and profitability. When developing these strategies we model various scenarios and build in flexibility for us to adapt to chnaging conditions at any point. Lets keep it simple and say we have a Plan B.

    The governments austerity plan was based on OBR predictions in 2010 which for various reasons, including local and global market conditions, have not materialised. It has subsequently published revisions which present a more dire predicition.

    The government has not adapted its policies to this, and it seems has no Plan B at all. Having now gone back into recession its time for Osbourne to be more flexible and adapt to the here and now focusing on growth. We need some radical proposals to kick start the economy, particularly the local economy as we can do little to influence on a wider scale.

    People are feeling squeezed and are spending less, so that new kitchen or extension is on the back burner. Companies are keeping their cash in the bank and not investing in people, technology or overall market development. Increasing taxes has had a massive psychologogically negative effect on everyone.

    To use that well worn cliche it is time to “think out of the box”. I could make suggestions which would resonate with the public at large but I’m afraid would be unacceptable to this static, politically correct, over regulatory government.

  24. MajorFrustration
    Posted April 25, 2012 at 12:45 pm | Permalink

    Any chance that the Banks might increase lending at reasonable rates. No – thought not.
    From the latest numbers things are not going to get better without the drive of the private sector and they in turn will not be motivated without bank support. Frankly what was the point of bailing the banks out if they are going to sit on their hands.

    • Bert Young
      Posted April 25, 2012 at 1:30 pm | Permalink

      Banks are using the cheap money they have been able to borrow to bolster their balance sheets ; it is not filtering through to the private sector – particularly to the smaller businesses . The Bank of England must be given more control in the way its Q.Easing is put to use . I’ve just received my annual statement of Gross and Net interest received on my current account ( average balance £20,000 ) showing no interest paid at all !!

  25. oap
    Posted April 25, 2012 at 12:48 pm | Permalink

    please delete my post as it includes my email address. Finger trouble on my tablet!

    • oap
      Posted April 25, 2012 at 3:41 pm | Permalink

      Thank you! I shall try again though most of my points have already been made both in earlier comments and on other occasions.

      The government could do more than it is doing, for example:
      1 simplify taxes;
      2 reduce taxes on employing people;
      3 reduce taxes on savings and investment;
      4 reduce its spending on vanity projects (eg many foreign aid projects);
      5 repeal or suspend the Climate Change Act ad dump the Carbon Plan – saving billions for the economy.

      Unfortunately it is not doing these things, the economy is stagnant – except for the black economy – and nothing will improve until there is a decisive change in policies that encourage growth. If the coalition remains stuck in its rut, then it should move over or be removed.

  26. peter
    Posted April 25, 2012 at 1:06 pm | Permalink

    Agreed

    No1 – Ask Industry leaders what they need, is red tape an issue? is high fuel costs an issue?

    No2 – Remove red tape barriers to above even if it breaks EU Law and means drafting a new bill stating that UK laws take precedent.

    • uanime5
      Posted April 25, 2012 at 5:12 pm | Permalink

      Why are you assuming red tape is a problem before asking industry leaders?

    • A Different Simon
      Posted April 25, 2012 at 6:18 pm | Permalink

      Big industry wants more red tape .

      It’s what keeps the grass from growing underneath their feet .

      Time to rebalance in favour of the smaller players .

  27. Barry
    Posted April 25, 2012 at 1:14 pm | Permalink

    Change in Production industries is measurable as output. I am intrigued by the notion of the measures for Changes in Government OUTPUT….do you mean spending? What is measurable Government OUTPUT? The situation might be worse than portrayed if Government spending had increased with no measurable increase in Government OUTPUT (whatever that is!).

  28. James Reade
    Posted April 25, 2012 at 1:38 pm | Permalink

    Let’s skirt past the point regarding cyclical patterns in government spending, since that’s being discussed on your last post.

    I’d like to focus on your other claim here, that somehow there’s been “massive” stimulus, “overspending”, etc.

    Based on what? What’s your metric for “too much”? We could, perhaps, look at the last 30 years of economic data, back to say 1979 or so, hence incorporating all of the 18 years of the Conservative govt and then Labour’s 13 years, perhaps, and look at how much govt spending increased in those times when the economy tanked?

    Funny, isn’t it, that I did exactly that, and I’ve linked it here in the past: http://econ101b.blogspot.co.uk/2011/04/little-bit-of-looking-at-data.html

    If we are going to say “massive”, “huge”, etc., there needs to be some reference point, and I think the last 30 years of data is a good one really. If we do that, we find that the government deficit should have been much larger than it actually was! Do go read the details based on the data if you’re sceptical. I’m not hiding anything – not am I basing this on political ideology.

    The fact is we suffered a large downturn, and hence that will strain public finances as any downturn does. And the point is, if we’re to use the past as a metric, we find that actually the deficit wasn’t quite as “massive” and “huge” as we might have previously thought.

    Now of course this says nothing about how to get us out of this situation – it’s just plain old data. But one thing is for sure – you can’t conclude based on the last 3-4 years that a fiscal stimulus won’t work – we can’t rerun the last 2 years without austerity, and we can’t run the previous year without a fiscal stimulus package to see what would have happened.

    But I know – you’re a politician John, you don’t like these frustrating economists who never come to a clear conclusion – the one handed economist and all that…

  29. Patrick
    Posted April 25, 2012 at 2:17 pm | Permalink

    John is of course right that public spending is an element of GDP and growth in spending causes an increase in GDP.

    But…this may or may not be a good thing depending crucially on how it is funded. A government running a surplus that seeks to invest is probably fine. A government running a shocking deficit and borrowing to spend is not.

    May I suggest that we should stop focussing on GDP and focus instead on Debt Adjusted GDP – equal to growth in GDP less growth in government debt.

    If Gordon Brown has targeted DAG instead of GDP we’d not be in this sorry mess.

    But then again any policy mix that increases DAG is unlikely to be very compatible with left wing politics and the chances of a Brown or a Balls targetting DAG are pretty much zero. Nothing to stop a sensible chap like Osborne going for it though.

    Please George – give it a go!

    • fox in sox
      Posted April 25, 2012 at 7:16 pm | Permalink

      And could I suggest a further refinement? It should be debt adjusted GDP PER CAPITA.

      If GDP were growing at 1% per year, and the population growing at 2% per year, on average we will be getting individually poorer. Where is the sense in that?

      If the GDP were completely static and the population was also static then the average person would be better off than in my preceding scenario. I suspect this is why Japan has had stagnant GDP for a generation, but without the massive social unrest seen some parts of sudden southern Europe.

  30. Electro-Kevin
    Posted April 25, 2012 at 3:15 pm | Permalink

    The solution ? I don’t think there is one that doesn’t involve something akin to a political coup.

    The problem ?

    A socialist ruling elite combined with spiv capitalism – both of them deeply unpatriotic. One demands ever more resources while the other sells off the means to pay for them.

    It beggars belief that the socialist elite (now in power for over 40 years) would expect honorable capitalism to stick around. It seems that they didn’t care anyway.

    Back to growth ? Real, sustainable, growth ? One that isn’t another money-for-nothing housing ‘boom’ ?

    Not until the socialists have really run out of other people’s money, I’m afraid. Along with the real dip and all the tough changes that is going to bring.

  31. Steven Whitfield
    Posted April 25, 2012 at 3:18 pm | Permalink

    It look like that prior to the 2010 election , government growth was averaging 1 1/4% per year…almost exactly what it is under the coalition with a ‘tough deficit reduction program’ allegedly in place.

    Do these ‘output figures’ represent cash spending or measures of government spending such as school places etc?. If we assume the trend of declining efficiency in the public sector the situation is even worse.

    Reply: They are the real terms figures adjusted by usual National Income conventions.

  32. Mike Stallard
    Posted April 25, 2012 at 3:32 pm | Permalink

    My question is: why is this happening?
    Both parties in coalition agreed very sincerely to reduce both debt and deficit.
    Will someone please give me an answer?

  33. Lindsay McDougall
    Posted April 25, 2012 at 3:41 pm | Permalink

    Overall GDP growth over the 5 years 2007 to 2011 has been almost exactly zero, which is why growth in government output averaging 1.2% pa, although superficially prudent, is in fact a spendthrift disaster. Mr Redwood’s figures confirm that capital expenditure has been cut severely, while current expenditure is largely unmolested.

    Looking at Mr Redwood’s list, cutting taxes on employment, getting rid of most regulation and spending money on energy generation must be the priorities. They will generate growth in the long term. As for public sector payroll costs, we have to ensure that the 8% gap between public sector pay and private sector pay is steadily reduced by a public sector pay freeze for most jobs. It’s well worth incurring a public sector strike in order to get rid of automatic yearly increases that are embedded in trade union agreements. And why any state donation to people who are not working is index linked is beyond me.

    Whatever we do, though, there won’t be much growth in 2012. Roll on next year. If it’s any comfort, two years is a typical duration for a recession.

  34. uanime5
    Posted April 25, 2012 at 4:02 pm | Permalink

    I heard that the -0.2% growth won’t be revised by more than 0.2%, so any revision will be within a range of 0.0% to -0.4%.

    In order to reach this years predicted growth of 0.8% the last two quarters will need at least 0.4% growth each. Also 2% growth next year seems unlikely.

    • Lindsay McDougall
      Posted April 27, 2012 at 1:00 am | Permalink

      So what? Even if there is no growth at all, there is still a duty to get rid of the public sector red ink.

  35. Posted April 25, 2012 at 4:09 pm | Permalink

    The problem is not any inherent difficulty with the economy.

    The problem is the parasitic political parties we have, and the state media propagandists and the openly corrupt voting system that uphold it. No politician can honestly deny that we weould be oput of recession in days if they actually wanted it.

    No remotely honest politician can claim that the LabConDems are not actively trying to keep the recession going and that every claim made to the contrary simply represents the very highest standard of honesty to which such persons aspire to – that is to say lying.

  36. JimF
    Posted April 25, 2012 at 4:26 pm | Permalink

    Wasn’t this all too predictable?

    Wouldn’t a short sharp shock have been better than boiling this frog to death?
    At some stage it will become clear to those involved that giving an incentive to work, make money and pay a slice of tax makes sense in comparison to a life on welfare.

  37. Denis Cooper
    Posted April 25, 2012 at 5:03 pm | Permalink

    There’s a bar chart here:

    http://www.telegraph.co.uk/finance/financialcrisis/9225414/Britain-in-double-dip-recession-as-growth-falls-0.2pc.html

    showing quarterly changes in GDP over the last five years.

    So far this second dip is nothing like the first dip from Q2 2008 through to Q2 2009, when there were drops of 0.9%, 2.0% and 1.6% in three successive quarters.

    Q1 2009 was when the Bank of England started creating new money and buying up previously issued gilts from private investors, so that the Treasury could carry on borrowing existing money from private investors by selling them new gilts, and therefore the government could maintain its public spending in the year leading up to the general election.

    Without that cunning device the Labour government would have been forced to drastically cut its spending, the economy would have continued to contract through 2009, with rapidly rising business closures and unemployment and home repossessions, the Labour party would have faced almost certain annihilation at the election.

  38. Mactheknife
    Posted April 25, 2012 at 5:12 pm | Permalink

    Just reading the news on line and it seems that several financial institutions and their economists are questioning the ONS figures. Apparently they are significantly different from those they were anticipating based on other economic indicators already known. It then transpires that the ONS statistics have been in question for sometime.

    So how accurate is a “double dip” ?

    • uanime5
      Posted April 26, 2012 at 3:45 pm | Permalink

      The ONS figures are generally more accurate than anything that was ‘anticipated’ or ‘predicted’. Though these ONS figures may be revised as more information becomes available.

      • Posted April 27, 2012 at 10:20 am | Permalink

        Another assertion with no attem,pt at producing evidence. Since ALL your previous assertions, aimed at me above (& on numerous previous threads) have been proven false perhaps you might consider giving up when you have repeatedly been unable to get off the starting blocks.

  39. Alan Radfield
    Posted April 25, 2012 at 5:13 pm | Permalink

    Phew. At least something’s growing.

  40. David Langley
    Posted April 25, 2012 at 5:19 pm | Permalink

    Wow, good post John, now lets see, we all want to get back into growth but poor policies stifle that. The problem is John that we really do not need you, what we want is aggressive wealth creation and little government. The only thing we really need is protection from the usual predators and we can get on and create wealth and prosperity for all of the country, drones and workaholics alike. Stop being the arbiters of what needs to be done and let go the strings a little. We the British people want our country back and our lives and ambitions, we need to let go the government apron strings and become the adventurers and go getters that create wealth. This continual measuring of the inches between our navel and our bum fluff is getting us nowhere. Its totally frustrating to see the little boys of Eton without real life experience telling us that we are in recession or have to obey the Continental dictats of unelected people who have no idea of what we are all about. I am old now and not clever but have some elements of being wise. Does this make any sort of sense to you?

  41. outsider
    Posted April 25, 2012 at 5:57 pm | Permalink

    Dear Mr Redwood,
    You are right on general principles but there are many other ways that the Government could help to kickstart growth in the short run at modest, if any, tax cost. Here are a few.
    1) Charge every department of state with a duty to promote UK business. Cash results to be reported to the BIS each year.
    2) Do not source any public sector call centre outside the UK.
    3) Avoid or pre-announce any tax measures that hit identifiable UK industries and jobs. Eg VAT on static caravans. If Mr Osborne had announced that this would start from 2015-16 it would have boosted short-term output instead of cutting it.
    4) Structure all public procurement to favour local suppliers in an EU-compliant way (as pioneered in Wales), for instance by conditions on jobs, training or transport emissions.
    5) Extend the lower rate of VAT for 3 years to gaia-friendly home improvements such as conservatories, double glazing and other items currently restricted to those on benefits.
    6) Accelerate approval of the first of the new- generation atomic power stations instead of slowing it down.
    7) Give more loans/returnable grants to third sector home builders, to be sold or refinanced on completion.
    8) Bring forward large numbers of small road schemes such as village by-passes , with local employment stipulated, if necessary by delaying preliminary costs on grand schemes.
    9) Same for rail.
    10) Divert some of the aid budget into very large prizes in time-limited UK competitions to develop otherwise uneconomic drugs to treat tropical diseases.

  42. Bazman
    Posted April 25, 2012 at 6:38 pm | Permalink

    What does the government propose to do to help companies invest the billions they now sit on. More tax cuts and erosion of the workforces rights?

    • lifelogic
      Posted April 28, 2012 at 7:18 am | Permalink

      That would be a good start and benefit even the worker as they would have more jobs available.

  43. Acorn
    Posted April 25, 2012 at 7:24 pm | Permalink

    Like it or not JR, your government is going to have to maintain the deficit spending for the next five years at least. After that there is a risk of runaway inflation as the contracted supply side is used up. But that will be Labours problem then.

    Other than that, I think the research shows that cutting VAT and tax cuts aimed directly at stimulating aggregate demand rather than aggregate supply, such as very large investment tax credits are the only tools left in the box. The economy is a different animal at zero bound interest rates, your Treasury aparatchics need to get out more.

  44. Jan M
    Posted April 25, 2012 at 9:53 pm | Permalink

    Of subject perhaps Mr Redwood, ie taking back powers from the EU so why was this passed in the House, and by the way I didn’t notice your name on the Nays

    Government to opt in to new EU data sharing rules despite criticism from backbench MPs
    The Government last night won a vote in the Commons 267 to 24, a majority of 243, to opt in to revised EU data protection rules, which would for example place new requirements on police forces to disclose what data they hold on suspects. The new Directive would replace legislation covered by the UK’s ‘block opt-out’ of EU police and crime law, which allows it to pull out of up to 130 of these laws in 2014.
    George Eustice MP argued, “The Government’s own impact assessment raised serious concerns about the administration cost of this directive” and Dominic Raab MP said the new rules would add “to the costs of police forces on the front line.” Opting in will mean that the UK can no longer opt out of the existing version of EU data protection rules in Police and Judicial Cooperation.
    Hansard Open Europe research Mail

    This was a chance to take “perhaps” some power back from the EU, anyway 2014, we will totaly belong to the EU, shame on you Sir, and shame on my MP for voting for it.

    Reply: I abstained, as Labour was not available to vote against so there was no chance of winning.

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
    Published and promoted by Thomas Puddy for John Redwood, both of 30 Rose Street Wokingham RG40 1XU
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