Increased UK public spending makes main contribution to UK growth

The latest figures for GDP show the trend we have highlighted here of rising real public spending continues. The first quarter of 2012 compared with the same quarter a year before shows public spending up 3%, household expenditure down 0.9% and exports down 1%. Over the first quarter government consumption grew by 1.9% on the previous quarter, whilst household expenditure dropped by 0.1%.

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26 Comments

  1. Posted June 28, 2012 at 5:42 pm | Permalink

    That’s not growth, it’s public spending.

    Public spending – i.e. the government taking our money through taxes or inflation – is the real austerity. The more the state spends, the more austerity us in the private sector get.

    Lower public spending, lower taxes and deregulation would be the stimulus.

    Politicians and some famous (but misguided) economists keep thinking that spending produces prosperity and growth. It’s the other way around – prosperity produces spending.

    • Posted June 28, 2012 at 9:38 pm | Permalink

      It is not public spending it is waste by the state sector. The malignant tumour continues its growth at the expense of the productive.

      • Posted June 29, 2012 at 6:12 pm | Permalink

        So this increased state spending has contributed to a 0.4% drop in GDP in the last quarter according to the latest figures. The state is an inefficient spender of money for the most part. Give people their money back and they will spend it on good products in successful industries…..

        zorro

    • Posted June 29, 2012 at 3:24 pm | Permalink

      What happens if increased Government spending occurs because of increased borrowing? How does that effect the private sector?

      • Posted June 30, 2012 at 9:08 am | Permalink

        The private sector will have to repay it

  2. Posted June 28, 2012 at 8:59 pm | Permalink

    Excessive borrowing is very worrying, especially when it’s done by a supposedly responsible government. I’m not of the persuasion that one should borrow to spend, but when our government increases borrowing, reins-in spending (yeah, right) but then finds money to bail out EU countries, that is just plain crass!

    That just has to take the bloody biscuit!

    ITad Davison

    Cambridge

  3. Posted June 28, 2012 at 9:21 pm | Permalink

    The more the government tax, the less the employed workers have left to purchase anything from the private sector.

    Why am I not surprised by these figures.

    Will it improve, not whilst people have less money to spend.

    • Posted June 29, 2012 at 3:27 pm | Permalink

      You know what also reduces the amount workers have to purchase anything from the private sector; low salaries. Companies that pay their employees as little as possible shouldn’t be surprised that these employees spend very little in the real economy.

      • Posted June 30, 2012 at 9:11 am | Permalink

        Then let’s put the minimum wage up to £50,000 pa then?

    • Posted June 30, 2012 at 8:13 am | Permalink

      Depends also what they buy from the private sector. Low wage sectors tend to spend everything they earn on living and contribute the most to the economy. Buying an imported item like a stereo or car less so. The private sector in modern society will never be able to fill the gap, except in the minds of fantasists.

  4. Posted June 28, 2012 at 9:42 pm | Permalink

    In the ‘7os/’80s the Tory government went to war with the miners, ship builders, printers, poll tax demonstrators …

    As I recall then none of these people were rich.

    What are you going to do about the millionaire bankers who have brought us to the brink ?

    What is the Tory party going to do about it ?

    Thought not.

    Reply: The Chancellor has said he is looking to strengthen the law, as it appears that under Labour the traders actions on Libor were not criminal, and the Regulator once again missed what was going on.

    • Posted June 29, 2012 at 2:32 pm | Permalink

      There may be no technical infringement of the through-the-rear-view-mirror FSA rulebook, but many reasonable people suspect that there are a number of other areas of existing law that could be used to bring charges against some of the individuals involved. The FSA is also in a position to withdraw authorised status from individuals.

    • Posted June 29, 2012 at 6:21 pm | Permalink

      If one looks at it cynically, they might say that the BofE fiddles the interest ratefor its own reasons bearing in mind their lamentable attempts to try and fulfill their stated function of trying to restrict inflation to 2%….

      Savers might think that the government/BoE is engaged in theft with its QE programme by the way it attempts to influence the gilt rates to allow it to spend/borrow more at a lower long term rate whilst debauching the currency and giving the banks an excuse to pay minimal interest on saver accounts….

      Yes, the government may well be feeling insecure in their greenhouse even though the banks have been flagrantly breaching any trust which their customers could have reasonably expected that they were owed.

      Has a fraud been committed by the banks? Has a pecuniary advantage been obtained by deceptive means?….Over to you Scotland Yard

      Hopefully, this will influence the separation of casino/retail banking. It is the only way to stop this behaviour. Make them liable financially for their products.

      zorro

    • Posted June 30, 2012 at 8:23 am | Permalink

      The overseeing of the destruction of the economy and the ripping off of business and private individuals. The financial sector is rotten to the core and as Mervin King says we do not need an enquiry into what needs to be done. It’s interesting to see the amount of sympathy on this site for the banking sector and it’s methods. A communist like belief in it. Like any communist apologists it must be a mistake, even saying this in the Gulags. Sabotage by capitalists and not believing enough. Careers built on the rotten system with an elite at the top. Same old same old.

  5. Posted June 28, 2012 at 11:02 pm | Permalink

    Quite so, Sym.

  6. Posted June 28, 2012 at 11:57 pm | Permalink

    Under Balls/Brown we only got public sector and debt fuelled growth. The private economy shrank in real terms. Hence Balls screaming about growth. For him that is about boosting the public sector and indebting our children and grandchildren.

    Future generations will curse the name Gordon Brown, if it is ever explained what really happened.

    • Posted June 29, 2012 at 1:07 pm | Permalink

      REPay,

      There you have it! ‘If it is ever explained what really happened’.

      Right now, Labour are ahead in the polls, because people seem to be suffering from a form of collective amnesia. My complaint is, why isn’t this government shouting Labour’s failure from the rooftops, but then setting about putting right their mistakes by giving us a credible alternative?

      For a start, we’re borrowing way too much, and that just has to stop!

      People seem to be gullible, but the answer might be found in an unrelated story. Today marks the anniversary of the introduction of the 999 emergency telephone service. People have been talking on television, and on the radio, about members of the public calling in to say they’ve had a pizza delivered, but it’s got no mushrooms on it. Or to ask how long to cook a turkey?

      I used to help a friend of mine who has a constituency in Kent. I canvassed one woman in her thirties on the doorstep, who promptly told me, ‘I’m not voting Tory again, you’re not Euro-sceptic enough. I’m going to vote Lib Dem!’

      Now we have some measure of the problem! The government needs to campaign hard to convince such people that Labour are a waste of space, but at the same time, they have to provide policies that will effect a cure, that will satisfy those who are a little more savvy. That, of necessity, includes a much more Euro-sceptic stance, to reach the four out of five people that John mentioned elsewhere, but it just isn’t happening. Labour are subsequently winning the propaganda war.

      This frustrates the hell out of me, and I really do wish they’d take Jeremy Kyle’s advice and ‘grow a pair’! The Tory party just doesn’t seem to have the big hitters anymore who will come out fighting with bare fists clenched. And I just can’t ally myself with losers.

      Tad

  7. Posted June 29, 2012 at 12:39 am | Permalink

    What if we narrowed the considerable and widening trade gap with the EU?

    A referendum might not deliver us from the EU, so we must hope that the project collapses from within, to stand any realistic chance. To speed things along, perhaps we could and should refuse to buy any goods made in the EU, to put further pressure on their economies, and reduce our massive and growing budget deficit with the cursed place.

    They’re already buying much less of our exports, because they’ve run out of money, and that’s likely to get worse, not better, so no great loss there!

    The government might not endorse that, but the British people could do it by their own volition, and it would ultimately be for our own benefit.

    Tad

  8. Posted June 29, 2012 at 6:11 am | Permalink

    We need a strong manufacturing base and exports to all over he world to really get out of this mess – A second (clean) industrial revolution if you like.

    There should be a back Britain campaign to buy British and cut imports.

    Get out of the EU and spend the saved money where its needed – HERE. By all means trade with Europe, but we do not need their input on how to run the country.

    • Posted June 29, 2012 at 3:30 pm | Permalink

      Perhaps the pound should devalue to a competitive level to reduce our imports and make our exports cheaper. Given that many people on this blog claim that devaluation will fix all of Greece’s problems surely there aren’t any reasons why it wouldn’t also fix all the UK’s problems.

  9. Posted June 29, 2012 at 10:00 am | Permalink

    Government are not able to cause growth. It is an anomaly of the way in which GDP is presented.

    All government spending is a cost of production (in the private sector) and results in the private sector becoming progressively less competetive both domestically against foreign competition and internationally.

    But this will not come as a surprise to you, so why I wonder do you spin that it does result in growth?

  10. Posted June 29, 2012 at 10:41 am | Permalink

    David Cameron makes great play of the fact that the responsibility for skulduggery at Barclays bank must be borne to the CEO Bob Diamond. Perhaps the skulduggery took place before Mr Diamond became CEO.

    However, I am all in favour of the principle. So the failure to cut public expenditure since the 2010 General Election is the fault of the top man, the Prime Minister. Remember the sign on Harry Truman’s desk – the buck stops here.

    It’s not as if it’s difficult to cut public expenditure. Just end the index linking of public sector pay and all state benefits, and let all ministries without exception incur their share of the misery. It’s the perverse lopsidedness of the current ‘cuts’ that is creating all the resentment.

  11. Posted June 29, 2012 at 3:50 pm | Permalink

    It seems to be that things people generally do not want – uncontrolled immigration and public spending increases both fuel growth. But these things are good for the useless coalition as it enables it to save the face of our hapless chancellor. For now anway. It is a disgrace.

  12. Posted June 29, 2012 at 10:30 pm | Permalink

    The accumulation of extra flab, isn’t really growth at all is it? It’s obesity.

    You know what we need? A conservative government. Thatcher on steroids.

  13. Posted June 30, 2012 at 12:08 pm | Permalink

    I could achieve a growth figure of 100% pa for several years simply by doubling the amount I borrow and spend each year assuming I can borrow at reasonable rates.
    Year one I could start by borrowing and spending say £50K; next year if I borrowed a just over £100k and spent £100K I could pay the first years interest and still have £100K to spend. That’s equivalent to 100% GDP growth for year two and so on.
    As far is I can see rising debt doesn’t come into the equation for GDP growth http://en.wikipedia.org/wiki/Gross_domestic_product.

    If I am right how meaningful is GDP growth as a measure of performance as it does not incorporate the inherent debt liabilities. It’s rather like just looking as the sales book without looking at the costs.

  14. Posted June 30, 2012 at 12:56 pm | Permalink

    The postings on here show a staggering lack of understanding of of public spending. I try to explain below.

    £80M spent on a fighter aircraft for the RAF is public spending but the money goes to the company that makes the aeroplane and employs people to do that job. The fuel that runs the aircraft is public spending but is purchased from oil companies. Road construction and maintenance is public spending but goes to the company that does the work and employess people to do that. The same is true of aircraft carrier construction, tanks, rifles, bullets etc. Pharmaceuticals for the NHS, grass cutting by local authorities, the purchahse of books for libraries and so on are all public spending which goes to private companies. The list is huge. All these spends are public spending creating income and jobs in the private sector. I have a friend who works for a quantity surveying company – he considers himself to be in the private sector but 80% of their business is from local authorities who are spending public money. When I worked for a local authority I used to sign orders worth thousands of £££ per week for services and consumables we were purchasing from local companies.

    The two sectors are intrinsically linked. The economists call it a mixed economy. The wealth creation/private sector relies heavily on public spending. Cuts in public spending will lead to job losses in the private/wealth creation sector for the reasons I have outlined briefly above.

  • 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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