What is the government spending the extra money on?

Yesterday I asked in Treasury Questions what the extra £64.6 billion current spending this year is being spent on, compared to 2009-10. The Chancellor did not have time to itemise the main increases, so I thought it would be of interest to set out what they are spending the extra on. I appreciate these are all cash sums, so where pay and prices have risen some of the money is needed to pay for such increases.

The biggest increases are on benefits. This year benefits are scheduled to cost £7.1 billion more than last year, and £19 billion more than 2009-10. Gross Interest charges are forecast to fall by £2.6 billion this year compared to last, but are up by £13.9 billion compared to 2009-10. Tax credits rise by £500 million next year, and are up by £3.1 billion since 2009-10. Net Public service pension payments will cost an extra £3.2 billion this year compared with last, and are up by £6.9 billion compared to 2009-10. Local Council current spending will rise by £600 million this year against last, and by £1.7 billion compared to 2009-10. Overseas Aid, Health and educational spending also rises, within the Departmental spending totals. Payments to the EU are said to fall by £400 million this year, but are up by £900 million compared to 2009-10.

2011-12 total borrowing came in on the target £126 billion extra in the figures announced yesterday. There were some signs of year end additional spending, as is the usual public sector pattern.

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  1. norman
    Posted April 25, 2012 at 6:40 am | Permalink

    I’ve never read so much nonsense in all my life. Those figures can’t be right. Don’t you read the newspapers or watch the news?

    The heartless Tories are slashing tax credits, stealing the pensions of public sector workers, causing local authorities to close libraries / day care / pensioner help, and reducing government to a nub of it’s former size.

    As for the EU, it’s all well and fine to point out we’re paying not far off £1bn a year more but that should be balanced against all the time saved having to make up laws in the UK, as well as the fact 98.7% of all our trade is accounted for by the Costa del Sol, the other 1.3% by a combination or Ireland, Portugal and Greece. So where would we be without the EU?

    As for the loan payments, if George and Eddie weren’t printing money like it’s going out of fashion think where we’d be, paying billions more, so that’s another success story. Thanks to the policy of this government we can carry on borrowing at unprecedented levels.

    At least for the moment.

    Reply: There’s no point in getting angry about the truth. All the figures come from the official Budget Red Book. Are you suggesting that is a pack of lies?

    • ian wragg
      Posted April 25, 2012 at 10:33 am | Permalink

      I think he’s being sarcastic John.

    • Scott Speight
      Posted April 25, 2012 at 11:58 am | Permalink

      I think you missed the sarcasm of the post John (easy to do on the internet unless someone writes “*sarc”). A rather amusing post really! 🙂

    • Electro-Kevin
      Posted April 25, 2012 at 2:42 pm | Permalink

      Now you know how I feel about your April Fool’s jape, JR !

  2. Caterpillar
    Posted April 25, 2012 at 6:42 am | Permalink

    1) So does that mean that the majority of rises are essentially what are euphemistically called ‘automatic stabilsers’*?
    2) If this is the case have previous Govts’ commitments become so large that ‘auto-stabilers’ lead to doom not boom? (If doom will the DWP’s work and hopefully sometime in the future reductions in regulations, tax&NI simplification etc stop this?)

    [* presumably James Reade’s point on a few occasions of -paraphrasing – its all endogenous – sorry James if I misrepresent you.]

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

      I’m honoured Caterpillar! You don’t misrepresent me at all, and in (2) you do raise the important point here – has the system changed so much since the 1990s that it’s behind the stagnation we have now relative to the recovery from 1992? I think John woud probably suggest that but I’m not convinced things changed that much – happy to be convinced though if evidence can be presented…

      • Caterpillar
        Posted April 26, 2012 at 4:05 am | Permalink


        I think I would actually systemically sit between your view and the assumed view of JR1 (but I agree data and argument would be good); I wonder how much of the system complexity has been unpacked.

        My guess (and it is a guess) is both indirectly through inflation and directly, that QE-ZIRP has negatively affected consumption and business investment (I guess that the world view tested by the MPC is incorrect). Presumably though the Chancellor has not questioned the BoE/MPC due to fear that without low rates UK debt might become unserviceable without cutting the benefits part (so I don’t think it is a necessity to cut them now, but they may have cognitively trapped the Coalition).

        Anyway, it is far too complex for me, and so I guess (as is it seems is my mood) that the Coalition should have very early on speeded up actions for well functioning markets and entrepreneurship at the SME scale, the actions of larger firms being completely distorted by the loose monetary policy above i.e. get some free markets working somewhere to evolve a solution – none of us are smart enough to centrally coordinate ourselves out of this.

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


          That’s a lot of ideas in one fairly short post!

          I suspect that QE hasn’t actually contributed much to the inflation we’re seeing currently – but this is only a suspicion. I’d love to have the time to do a proper analysis of inflation to work out exactly what is going on since although world commodity and food prices are high, I’m not sure other countries are experiencing quite so high inflation – which does suggest that other forces could be at work.

          Of course, the other factor is the deficits being run by the govt – that pushes money into the economy. However, the economy currently has a lot of excess capacity which suggests that pushing money into it shouldn’t be inflationary – or at least not as inflationary as if we were growing at 2-3%.

          My suspicion is actually that we’d be in a much worse situation if we didn’t have the easy monetary policy we currently have. In my opinion, the finest mind in economics (David Hendry) probably has the criticism spot on about the Bank – they reacted way too late in 2007-08, still having rates high into 2008 as they were concerned about inflation (which was present then too it’s worth noting).

          • Caterpillar
            Posted April 26, 2012 at 9:55 pm | Permalink

            James Reade, sorry about squeezing ideas into few words, I did not wish to put JR1 through unnecessary reading (really sorry JR1 I will now have to go for the long version and hope JR2 gets back to read it). Of course all my fears are as hopefully unfounded as my guesses but here goes:-
            My inflation (price level change) worry is not that QE is causing the current inflation (though that may be debatable) but that the previous rounds contributed to QE and forced a ‘stagnation’ loop. The (simplistic) feedback loop I fear is
            real wages down => quantity demanded down => labour demand down => real wages down
            Price level acts external to this loop forcing it at real wages. All the discussion emanating from the BoE/MPC has been chuffed with low wage inflation, the effect of inflation hurting people (as JR1 has pointed out) does not appear to be anywhere in BoE/MPC mental models.
            W.r.t. QE adding to inflation via the mechanism of a weaker currency, Sir MK has already admitted this was a greater effect than he expected. I was shocked by this. This probably sounds trivial but it often appears that the BoE/MPC only have the economists’ mental model of a market, and don’t appreciate that business has a different view (e.g. compare segmented opportunity to buyer-seller framework, compare seeking imperfection with seeking competitive market). Also the BoE/MPC seemed to entirely miss that existing businesses, prior to the downturn, had looked better than they were due to a low inflation environment. Moreover the BoE/MPC appeared to have no appreciation that with external uncertainty (including QE enhanced speculation) and credit line uncertainty that businesses would switch to a cash objective not one of profit (or revenue or growth-rate). Alongside this, one (though not the MPC members) would expect firms to change product mixes to shift towards margin not volume models.
            I think much of the above has happened, and needn’t have, there were opportunities to slightly tighten when growth was positive. I fear that the BoE/MPC do not recognise anything like the above and so may print again.
            The other concern I have is that some of the QE money has maintained higher share prices than otherwise would have been the case in a downturn (- admitted by the BoE and Sir MK in their pension defence). I worry that this has slowed down / prevented some M&A behaviour that would usually have taken place in a downturn as one means of improving overall efficiency – another reason for those firms with cash on the balance sheet to sit and wait.
            Anyway that’s enough of the BoE/MPC distortions, but given that I guess the above is going on (and I presumed allowed to continue due to the UK’s requirements to service its debt) then that is why I think the SME sector (or any firm outside the above distortions) needs to be freed up. I do think differences between early 90’s and now need to be identified. Flexibility is one; as many contributors to JR1’s diary have alluded to from the late 90’s onwards there has been a raft of new regulations, often in response to the EU and potentially limiting flexibility including labour market flexibility (odd given the UK’s old EMU/euro entry tests). I believe the Coalition has failed to identify which regulations are clear constraints and can be acted upon (even if EU renegotiation is required). I also think labour market flexibility has been hit through mobility both via ZIRP, and slowness with transport and planning changes. ZIRP may have kept some people out of negative equity by preventing a residential property price fall comparable to the early 90s, but I don’t see how this has added to mobility – the property market is not clearing, rents have gone up and, due to weak GBP, London prices have gone up with international buying. The recent first time buyer focus on places like Slough and Milton Keynes may indicate an attempt for the labour market to ‘find a way’, but I suspect allowing the greater fall as in the early 90s would have been quicker. I think transport policy has also failed here. Obviously my leaning is for a market solution, but in the few cases where Govt failure may be less than market failure – which in transport based monopoly breaking I suspect is the case – then I favour Govt getting on with it. As I have stated before I am pro a rapid construction of HS2 not delay, and pro easing planning regulations whether to the east of Birmingham or anywhere else. At this time I would even wonder whether fuel duties could be reduced and whether it is possible for more fast trains to run from the Romford-Gillingham area into St Pancras (I know this is market interference against my natural leanings).
            My final comment is with respect to welfare (ignoring benefit spending). Basically health / social work has been a (the) part of growing UK employment over the past 30 years and so reality needs to dawn on us the electorate. Should this be centrally (mis)coordinated and the state sector be greater than 50% of GDP or should more private coordination be brought in. As with benefits this is a medium to long term issue but action now is probably required. I tend to support the essence of IDS in the DWP, and of Mr Lansley in health, but it is probably tough to enact policies whilst trying to recover and balance.
            {I should say I also blame us as the electorate for not returning a Michael Howard government, as some changes and spending patterns would have modified earlier. As a whole we the electorate failed the country but don’t really like to take the blame.}

          • Caterpillar
            Posted April 26, 2012 at 11:30 pm | Permalink

            whoops, couple of typos on my 9:55 pm

            “previous rounds contributed to QE and forced a ‘stagnation’ loop” should read “previous rounds contributed to INFLATION and forced a ‘stagnation’ loop”


            “Romford-Gillingham area” should read “ROCHESTER-Gillingham”

  3. lifelogic
    Posted April 25, 2012 at 6:57 am | Permalink

    So most of the government spending was used to encourage and pay people to do nothing (or nothing useful) as usual. Increases in benefits, tax credits and state sector pensions are clearly entirely negative in terms of generating growth. Plus the extra £10Billion for the PIGIS black hole.

    Tax credits mean people are unwilling to do extra hours (as they get virtually no benefit from the extra pay after tax/NI and reductions in tax credits). Employers thus have little they can do to encourage the extra hours (or even increase pay levels) apart from pleading & asking nicely. Still no real growth, due to the bloated state and Cameron’s idiotic anti business, government policies. Now we have the EU commission is demanding a further 6%+ increase doubtless Osborne will meekly go along as usual.

    We would probably be in a better position with Labour in power now, but with a sensible Tory party set to win in 1015. As it is we have Cameron, whose promises and words are now clearly totally worthless. A socialist, anti business, coalition in power and a falling tax base with no growth and Labour due to take over again very soon indeed.

    This coalition government has been a complete disaster for the country. How can a team who failed to win outright, against the sitting duck Gordon (some bigoted woman) Brown, be expected to win next time. Especially after such an appalling record and with no recovery in sight. Due entirely to their policies of tax, borrow, regulate and tip down the drain.

    • Bazman
      Posted April 25, 2012 at 5:49 pm | Permalink

      Tax credits have been cut and most cannot get extra hours. You like employers seem to be under the impression that tax credits are part of pay instead of in addition to it.

      • lifelogic
        Posted April 26, 2012 at 11:39 am | Permalink

        No – but if I give someone say an extra £200 overtime and they lose 90% of it in loss of tax credits, NI, tax and extra travel costs they probably won’t be very interested very will they just for £20.

  4. Johnny Norfolk
    Posted April 25, 2012 at 7:15 am | Permalink

    The government has still not got a grip of spending never mind saving. We need far less spending, smaller government and less tax. It will hurt in the short term but is the only permanent solution. They will have to do it in the end.

    • Mick Anderson
      Posted April 25, 2012 at 8:46 am | Permalink

      You’re not wrong about what we need, but as the people who will feel these necessary cuts are in the Government, they are not likely to volunteer.

      I can take any amount of Governmental pain, as long as they don’t insist on passing it down to the tax payer (as now).

      Imagine if Mr Cameron took the opportunity of this little spat involving Mr Hunt to close down the entirely unnecessary Dept of Fun. That would be a start….

      • lifelogic
        Posted April 26, 2012 at 11:49 am | Permalink

        Indeed close the Dept. of Fun, the endless diversity nonsense, the green deal, hs2, endless potential savings wherever you look at the state sector. With no loss to the public whatsoever.

    • alan jutson
      Posted April 25, 2012 at 9:44 am | Permalink

      Johnny Norfolk.

      You sum it up in a nutshell………as usual.

  5. Martin Cole
    Posted April 25, 2012 at 7:41 am | Permalink

    Why is the prime area for savage cuts not itemised I wonder. The following is what you have written:

    “Overseas Aid, Health and educational spending also rises, within the Departmental spending totals.”

    It seems all other expenditures have been detailed, can you please winkle out the clearly deliberately concealed details and list them on your blog…. Please!

  6. Kevin Ronald Lohse
    Posted April 25, 2012 at 7:44 am | Permalink
  7. David Walpole
    Posted April 25, 2012 at 7:52 am | Permalink

    It the light of EU asking for extra £900m it would be interesting to investigate further how we allegedly paid £400m less this past year. Possibly an accounting adjustment?

    • Sue
      Posted April 25, 2012 at 8:35 am | Permalink

      We never pay less, our millionaire politicians love giving our money away!

  8. Paul Danon
    Posted April 25, 2012 at 7:54 am | Permalink

    This is craziness. Shouldn’t Mr Alexander’s 5% cuts be implemented immediately, or at least a freeze? Here we are with a grotesquely inflated money-pool, some £7tr of public liability and our Euro-neighbours on the brink of currency-collapse – and we actually spend more! Forget Leveson/Hunt, pasties, grannies and Abu Qatada; the government doesn’t seem to have started to make the case for real cuts, let alone implemented them. If the last election meant anything, it was a rejection of Labour.

    • Mick Anderson
      Posted April 25, 2012 at 8:49 am | Permalink

      If the last election meant anything, it was a rejection of Labour

      With no overall majority, I consider it to be a rejection of all of them. They still seem to be there doing damage, though.

  9. Brian Tomkinson
    Posted April 25, 2012 at 8:04 am | Permalink

    I saw your question asked on TV and in my opinion the chancellor made no attempt to answer it. In fact this failure to answer questions is the modus operandi of government ministers, the Home Secretary and Prime Minister being the other most glaring recent culprits. According to my reckoning your list above leaves unaccounted £19.1 billion. Are we to assume that went to overseas aid, health and education spending?
    Your final sentence: “There were some signs of year end additional spending, as is the usual public sector pattern” shows beyond doubt that no real attempt has or will be taken to control spending let alone reduce it!

    • Robert Taggart
      Posted April 26, 2012 at 2:05 pm | Permalink

      Year-end spending by profligate councils be nothing new – new solutions to this annual splurge are needed – soon.

      That said, our local council (Stockport) has just ‘splurged’ on a much needed new surface for a local roadway – so it be not all bad !

  10. Sue
    Posted April 25, 2012 at 8:34 am | Permalink

    Public spending on benefits has a funny way of rising when the whole of the EU is in a bad way. It’s natural for people to travel to countries that offer some security, especially when housing, education and a health services are provided free of charge to all and sundry. Some immigration is good for the country but to suddenly let millions of people enter without having prepared an efficient infrastructure to accommodate these people is bound to be expensive. So extra housing benefit/other benefits, extra school places and extra NHS, all for people that have never paid into the system. Most of our country’s problems lie with the fact that we are trying to accommodate too many people, rent rises, DROUGHT? on a really wet island, energy prices and if you are a firm believer in climate change, surely 3 million people extra has not helped?

    The worst of it now is, there are not enough jobs to go around. It sounds harsh but priority must be given to British families who have bills, mortgages and debts to pay. We are not responsible for the whole of Europe’s needy.

    Indeed, I would be interested to find out whether we have actually lost money by irresponsible immigration rather than gained from it.

    We are particularly good at ensuring “alleged/suspected” terrorists have a nice warm expensive house and generous benefits from the public purse. On 30 June 2009, there were 11,350 foreign nationals in UK prisons. That was 3 years ago now, that figure has most definitely risen. Whey are we keeping them? Shouldn’t they be serving in their own countries and be a burden on their taxpayers instead?

    We’re even stupid enough to pay £64 million in child benefits to children that aren’t even resident in the UK. Then there’s the £60 million that the NHS is owed from foreigners who just haven’t paid up for their treatment.

    Germany has changed it’s criteria for benefit recipients. No doubt they’ll all be queuing at Stupid Britain!

    • StevenL
      Posted April 25, 2012 at 2:39 pm | Permalink

      priority must be given to British families who have bills, mortgages and debts to pay

      Why? Just because I don’t have many bills, a mortgage or any other debts to pay, why should I be discriminated againts in favour of someone who’s had more kids than they can afford to keep or racked up a load of storecards?

  11. Brian Tomkinson
    Posted April 25, 2012 at 9:01 am | Permalink

    The total figure for current spending in the year 2009/10 was £600.9 billion. You tell us they are spending this year £64.6 billion more than that. Therefore this government, despite all its talk about “cuts” has deliberately increased spending by 10.75% over that period. The government debt has now passed the £1ooo billion mark and their plan is to reach £1350 billion by the end of their term of office which will be an increase of 80% in just 5 years. I predict that they will overshoot that amount because much of it is dependent upon achieving pie in the sky levels of growth. Do you seriously expect us to continue to support such a party which has not carried out its pledge to restore the country’s finances? Apart from not wanting to give up your job, I don’t know why you support them either.

    • Scott Speight
      Posted April 25, 2012 at 12:08 pm | Permalink

      I think John’s answer is the same as Lord Tebbit’s (sensible too) which is they refuse to be kicked out of their party due to some hi-jacking by socialites!

  12. James Reade
    Posted April 25, 2012 at 9:16 am | Permalink

    Stone the crows!

    Thanks John for finally pointing out what makes up the majority of the increase in government – benefits, cyclical factors. As I’ve been saying all along.

    Given we’re still in recession/depression, it’s not surprising they are still going up. Yet they are not the reason we’re still in recession/depression – we’ve grown plenty of times in the past with a benefits system in place.

    Reply: The economy is operating above the level at the worst of the Credit Crunch, so cyclical spending should be falling, not rising! Benefit spending has mainly gone up owing to benefit rate increases

    • lifelogic
      Posted April 25, 2012 at 10:08 am | Permalink

      Why are they increasing benefit rates? Do they want even more claimants and more people doing nothing useful? Surely they have quite enough already in the state sector and the unemployed.

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

        It’s not that benefit rates are increasing, it’s just that as the economy keeps on struggling, people don’t find work or lose jobs and hence become liable for benefits – and at the same time stop paying taxes on their earnings, hence a double whammy for the govt.

        So long as you think we should have a system in place to provide benefits to people unemployed, and a tax system based on earnings (and profits), then govt receipts will always be cyclical.

      • StevenL
        Posted April 25, 2012 at 2:44 pm | Permalink

        Perhaps they’d don’t understand how the system works down here on Planet Earth?

        Everytime I see Mr Osborne boast about how he is increasing child tax credits at the rate of inflation for people with 5 kids and no job ever I wonder why too. Why, I ask, when everyone else is getting pay freezes and cuts are people that never work (and often never have any intention of working) getting a 5% pay rise?

        I reckon it’s more to do with advice from spinners and fear of the ‘child poverty’ lobby more than anything

      • Bazman
        Posted April 25, 2012 at 5:53 pm | Permalink

        Are you saying that benefit rates should be cut by inflation as an incentive to find work?

    • ian wragg
      Posted April 25, 2012 at 10:39 am | Permalink

      And the number of foreigners claiming.

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

        Erm, some data to support that prejudiced comment?

        It’s the immigrants that are the ones working hard, it’s the Brits that are the ones lazing around moaning, not prepared to do the jobs immigrants willingly do. They are net contributors almost certainly – something you won’t hear the Daily Mail telling you…

        • Bazman
          Posted April 25, 2012 at 5:55 pm | Permalink

          Which immigrants will that be and of what age group? Young East Europeans or people fleeing Greece? Funny that you do not see many Greeks. Wonder why?

        • zorro
          Posted April 25, 2012 at 6:36 pm | Permalink

          The House of Lords study several years ago said that, overall, the effect of immigration was negligible on GDP, and certainly GDP per capita.

          So, I hardly think that immigrants working in low paid jobs are going to be a substantial advantage to the economy, or will help boost GDP per capita. They will certainly be a net cost on benefits/tax credits/public infrastructure in the medium/long term.

          Immigration is only ever beneficial at the higher end of the scale in reality in a western, welfare state style model….


          • James Reade
            Posted April 26, 2012 at 8:25 am | Permalink

            I’m not inclined to believe a House of Lords study to be honest – at least not without seeing which economists were behind it and the methods they used.

            GDP and GDP per capita are probably not even the best things to use since the impact of immigration is to move people between jobs, into jobs they are better suited to (or unemployment which many people are well suited to until they learn how to hold down a job!). GDP doesn’t reflect the better service you get from someone keen to do their job rather that some stroppy unmotivated British teenager.

            Furthermore, if you just look at GDP, you lack the counter-factual – how would things have looked without immigration at the levels it’s been at? We don’t have numbers on that and never will, leaving us at the whim of speculation mostly. The only hope is that it’s educated speculation and again for me to believe it I have to see who is making the speculation…

          • zorro
            Posted April 26, 2012 at 10:45 pm | Permalink

            Have a read of it…..http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeconaf/82/82.pdf

            The report was from April 2008…..A nice generalisation of Bristish youth as well by your good self. Surprisingly enough, British youths in employment are polite too. I remember seeing some rather surly looking Eastern Europeans in the past too!. A lot are also polite and efficient, but this negative comparison with regards to British youth is rather tiresome. You don’t seem too keen on British youths….Try not to be judgemental. I was a British youth once….


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

      Which benefit rate increases? I don’t recall any since the trough in 2009, but again happy to be proved wrong.

      I’m amazed you can suggest that we’re now somehow at a point in the cycle where benefits should be falling and income tax receipts rising given the economy hasn’t grown (cumulatively) since 2010!!! We haven’t yet hit the upturn that would lead to benefit payments falling and receipts rising – but we disagree on why that’s the case.

      Furthermore, in a long downturn, it’s more than likely the cyclical situation keeps getting worse since people become longer term unemployed with all the associated side effects of that – having to call upon other benefits (in kind and otherwise) such as housing, health, etc.

      Reply: The economy is well above the recession bottom so the cyclical adjustment is less, not more.

      • James Reade
        Posted April 26, 2012 at 8:21 am | Permalink

        Unemployment is higher now than it was in the trough.

  13. Acorn
    Posted April 25, 2012 at 9:42 am | Permalink

    Unfortunately, Calamity Cam will have another catastrophe next week when he will have to admit that austerity isn’t working. That’s the problem when you get into government but are still using economic policies which are two or three decades old.

    Only the government can increase the net financial assets of the private sector economy and they can only do that by deficit spending. Remember; the Treasury spends base money into existence, the central bank lends base money into existence. QE at £350 billion must have done something but I am not sure what. Still the BoE makes a nice turn on it, getting 3.5% interest on the Gilts and paying 0.5% on the banks’ reserve balances.

    • Denis Cooper
      Posted April 25, 2012 at 1:21 pm | Permalink

      Yes, but as the Bank is publicly owned its “nice turn” eventually finds its way back to the Treasury, its sole shareholder.

      • Acorn
        Posted April 25, 2012 at 5:22 pm | Permalink

        Exactly Denis. If the BoE purchased the whole of the governments outstanding debt, it would save the Treasury about £40 billion a year in interest payments. That’s over a quarter of the Treasury (government) budget deficit.

        Nobody is ever going to pay off the governments debt pile and it doesn’t matter if they don’t; as long as the government can pay the interest on that debt. The government can always create money to pay that interest. A sovereign fiat currency government can never be insolvent. My pension fund is full of government debt which pays interest. If the government decides to buy out with cash those Guilts, my pension fund ends up with base money (i.e. cash) that yields bugger all interest.

        A currency issuer is a different animal from a currency user. A currency user has to save before it spends. A currency issuer (a sovereign government) spends before it taxes or borrows. Taxing and borrowing are self imposed restrictions which are a legacy of when we were on the Gold standard; they are used by the BoE, to remove excess reserve base money from the banking system, they do not fund government spending but they do influence interbank lending interest rates. They are not an operational requirement under a sovereign fiat currency monetary system.

  14. Matthew
    Posted April 25, 2012 at 9:57 am | Permalink

    What will determine progress on the deficit reduction is if the projected rates of economic growth are achieved in the coming years.
    As Mr R often says the private sector is required to lead the recovery and yet bank lending to UK business is still difficult to come by.
    (Bank lending to British businesses fell at the fastest pace in almost two years in February, according to the Bank of England – Daily Telegraph)
    To an observer, the government after kicking off so much reform at the start, appears to have lost its way.
    The government should be making headlines about how to revive business
    Competitive banking (take up JR’s suggestion)

    Introduce flexible labour markets, to assist job making

    Policies for lower cost energy

    Signal steps to abolish employers NI

    Instead of this all we get are headlines of the Leveson Inquiry, gay marriage, House of Lords reform, Olympics, Jubilee
    Not that these topics are not important, or that headlines can be determined by government, but they are making all the running, because the government seems to be avoiding the very policies that would assist a recovery.

    • uanime5
      Posted April 25, 2012 at 3:52 pm | Permalink

      Given that the UK has the third most flexible labour markets of the OECD countries making them more flexible is unlikely to create jobs; especially when Germany has a much more inflexible job market yet their unemployment is falling.

  15. nicol sinclair
    Posted April 25, 2012 at 12:54 pm | Permalink

    I would love to comment but words fail me. Accordingly, I’m off to enjoy some Falling Down Water and then lie down in a dark room with a cold flannel on my forehead…

    • Alan Wheatley
      Posted April 25, 2012 at 5:58 pm | Permalink

      Is purchase of some Falling Down Water your contribution to UK growth?!!!!

  16. matt
    Posted April 25, 2012 at 12:56 pm | Permalink

    For the sweet love of god – STOP SPENDING OUR MONEY.

    Cut spending massively. Cut taxes massively. Give us our money back and allow us to fix the economic mess by making our own spending and investment decisions.

    Give us our back our freedoms (speech, assembly etc) and restore democracy by letting the people have a vote on EU membership.

    £19 billion increase in benefits since 2009-10 – INSANITY.

    Are you all deliberately making a mess of things? I’m starting to feel like a ‘tinfoil hatter’ because only a conspiracy theory can explain the absolute utter incompetence of those in charge and the plain stupidity on display.

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

      The key is not to stop spending our money but to stop spending money borrowed from private international gilts investors, and preferably without substituting new money indirectly lent to the government by the Bank of England.

    • Johnny Norfolk
      Posted April 25, 2012 at 2:52 pm | Permalink

      Totaly agree. You must come from Norfolk.

  17. lojolondon
    Posted April 25, 2012 at 1:17 pm | Permalink

    John, I thought you would be happy to see this news –



  18. Steven Whitfield
    Posted April 25, 2012 at 3:04 pm | Permalink

    “This year benefits are scheduled to cost £7.1 billion more than last year, and £19 billion more than 2009-10″….so much for David Cameron’s boast that he is ‘on the side of families that pay taxes and do the right thing’

    • Bazman
      Posted April 25, 2012 at 5:56 pm | Permalink

      Maybe he is?

  19. Lindsay McDougall
    Posted April 25, 2012 at 3:47 pm | Permalink

    Redarding that frantic and unnecessary binge in FY end public expenditure, perhaps it is about time that the senior civil servants who authorised it should suffer a setback in their careers.

  20. uanime5
    Posted April 25, 2012 at 3:55 pm | Permalink

    I suspect the cost of benefits has increase due to high levels of unemployment and rising house prices, while tax credits have increased because wages have fallen in real terms. Unless the number of jobs increases or salaries increase above the rate of inflation these costs will continue to increase.

  21. Iain Gill
    Posted April 25, 2012 at 5:33 pm | Permalink

    dont forget all that extra spending on nhs care for the families of ICT work visa holders

    or the spending on their childrens school places

    all while they are taxed significantly less than Brits who they displace onto benefits

    the government are a laughing stock

  22. Robert Taggart
    Posted April 26, 2012 at 2:00 pm | Permalink

    As a scrounger / benefits recipient – the seven pounds a fortnight increase one has just received be most welcome !

    But, seriously (!), would it not be cheaper still for the hard pressed taxpayers to make all those ‘civil’ servants undertaking ‘non-jobs’ redundant ? and pay them benefits instead ??!!

  23. Steven Whitfield
    Posted April 26, 2012 at 11:41 pm | Permalink

    I’m no expert on body language but I will observe that Chris Grayling on tonight’s BBC Question Time looked extremely uncomfortable discussing the dip into recession. And a very good thing it was too that a government minister should be made to face up to the truth. Hat Tip to John Redwood, his efforts are having an effect on moving on the debate to something resembling sanity.

    If Nigel Farage had been paying attention to this blog he could have made the killer point that government spending is now £65 billion higher than in the last year of Gordon Brown. But he got close enough to letting the cat out of the bag by mentioning rather vaguely ‘the government is still borrowing billions’, for Mr Greyling to wish that the ground would open up and swallow him.

    Dan Hannon made the point that the precious few anti EU federalists are far too disunited and fragmented to provide a construction opposition -what a shame that the only two politicians in the UK prepared to be honest about spending cuts are members of opposing political party’s . It’s time to settle old scores and for the sceptics to unite in the same way that they’re opponents do.

  • About John Redwood

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

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