Real public spending increases lead growth in 3rd quarter UK economy.

 

           Once again the GDP figures show that continued real increases in public spending lie behind the changes in GDP.

          Once again the media present a very distorted picture of what is happening. They say that Olympic tickets account for some of the faster growth – around 20% of it. They fail to tell us that increases in real  public spending accounts for twice as much as the Olympic tickets, or 40% of it.

            The 0.1% increase from manufacturing and 0.1% increase from water was offset by the 0.2% fall from construction. Services account for the 1% gains overall. These split 0.4% from the public sector, and 0.6% from various parts of the private sector, including  hospitality related to the Olympics.

            Why do most of the commentators persist in distorting what is happening.? Why don’t they point out that increases in real public spending  have made a positive contribution to GDP as officially calculated all this year, and this quarter the gains are large. Some of the private sector service and manufacturing gains are the result of catch up from the previous quarter which enjoyed  the extra bank holiday.

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52 Comments

  1. Andrew Campbell
    Posted October 25, 2012 at 3:22 pm | Permalink

    If GDP were reported separately as public sector GDP and private sector GDP, it would immediately become apparent just how much the state keeps growing. It would also help demonstrate whether public spending increases that so many left-wing politicians demand boost the real economy, or just increase state spending.

  2. scottspeig
    Posted October 25, 2012 at 3:35 pm | Permalink

    Does this figure take into account inflation? As if not, then surely we’re actually still in recession??

    • HJ
      Posted October 26, 2012 at 8:41 am | Permalink

      Figures take inflation into account, i.e. GDP growth in money terms is discounted by the amount of inflation across the period being measured.

      The figures are, of course, preliminary and subject to revision. Even the final figures aren’t completely accurate – there may be considerable ‘error bars’ especially as the inflation figure used is also subject to errors.

  3. BigJohn
    Posted October 25, 2012 at 3:47 pm | Permalink

    So it is just borrowed money !!!

    I know you said we have to have public spending in the GDP numbers, because of the services they provide (Schools, Health care etc).

    But can’t we subtract any borrowing from this, to give a better picture ?

    • zorro
      Posted October 25, 2012 at 11:11 pm | Permalink

      The picture is quite simple, there is no recovery – flatlining is the phrase

  4. Brian Tomkinson
    Posted October 25, 2012 at 3:58 pm | Permalink

    Can you please explain why GDP increases are so important if they only reflect increased public spending? The government spends too much, is running a deficit and accumulating debt inexorably; just why should anyone be pleased that this results in better growth figures?

    Reply The figures matter, as they show which parts of the economy are doing well and which badly.

    • Vanessa
      Posted October 25, 2012 at 4:57 pm | Permalink

      Doing well on borrowed money ! Isn’t that how labour got us into this mess? Why doesn’t the govt keep borrowing then – at low interest rates – and send us all into a Greek black hole. Surely the banks have to admit what toxic debt they hold and sort it out? The only way this country will REALLY grow is through businesses and exports. Do the problems of Iceland and how they got out of their mess teach those idiots in govt nothing ????

      • Jerry
        Posted October 25, 2012 at 7:28 pm | Permalink

        @Vanessa: “Isn’t that how labour got us into this mess?

        I seem to recall the banks having a few local and not so local problems too…

    • Brian Tomkinson
      Posted October 25, 2012 at 4:57 pm | Permalink

      Reply to reply,
      You are correct the figures show which parts of the economy are “doing well”. We now have it confirmed that the public sector is growing or “doing well”. We knew that but unfortunately the government told us they were going to reduce their spending and eliminate the deficit. I therefore still see no cause for celebration from these growth figures, in fact, thanks to your analysis, quite the opposite.

  5. Sean O'Hare
    Posted October 25, 2012 at 4:05 pm | Permalink

    Dash it John! In one foul swoop you seem to have punctured Cameron’s balloon.

  6. Denis Cooper
    Posted October 25, 2012 at 4:15 pm | Permalink

    So apparently the private sector is more or less standing still while the public sector is growing, with the latter relying on new money created by the Bank of England to fund about a fifth (?) of its spending.

    • Nina Andreeva
      Posted October 25, 2012 at 7:49 pm | Permalink

      Yes one would have thought Georgie would be listening to Papa. In that its only the bankers who are propped up by QE that are buying wallpaper these days. Other than that lot trade is really desperate

      http://www.guardian.co.uk/business/2011/dec/22/george-osborne-family-business-losses

      • zorro
        Posted October 25, 2012 at 11:13 pm | Permalink

        Stagflation rules!

        zorro

      • Denis Cooper
        Posted October 26, 2012 at 7:21 am | Permalink

        Well, millions of state pensioners are being propped up by QE – without the use of QE to rig the gilts market in its favour the government could have been forced into cutting the state pension – but of course few of them will patronise Osborne & Little.

        • zorro
          Posted October 26, 2012 at 12:07 pm | Permalink

          This is true. It needs to be realised that the government would have had to force through huge cuts if we had been in the Euro with regular visits from Frau Merkel for encouragement…..

          zorro

  7. oldtimer
    Posted October 25, 2012 at 4:16 pm | Permalink

    “Why do most of the commentators persist in distorting what is happening.?” you ask.
    Answer: because most of them are too lazy to di[o]g into the data (assuming they understand it) and are all too content to reprint the spin they are fed by the government propaganda machine.

    • lifelogic
      Posted October 25, 2012 at 6:06 pm | Permalink

      That is it, why bother to do any work, or questioning, when you can simply read out the press release. Any way few journalists are numerate.

      • Jerry
        Posted October 26, 2012 at 7:21 am | Permalink

        Why should they, they are in business to sell their products (it’s called the Free Market), they ‘publish’ what their customers want to hear or read. The real question is, why (with a few notable exceptions) are politicains of all parties so intent on only telling half the story?

        Don’t get me wrong, I would love for the media to investigate, print the unbiased truth all the time but I suspect that many on here [1] might be a little concerned if they did – just think what the outcome of the miners strike might have been had the press told the truth about the plan to all but close down the UK coal industry,( makes allegations about police conduct in various situaitons-ed)incompetence etc. Those who want the media to print “the truth” often only want a free, fair and unbiased press when it suits their own political purpose.

        [1] and yes the same would apply to any other political blog of any flavour or colour

        Reply: The government had no wish to close down the coal industry. The nationalised industry heads wished to close collieries they thought were no longer economic owing to thin seams or poor reserves.

        • Jerry
          Posted October 26, 2012 at 9:16 am | Permalink

          @Reply: Yes the heads of the nationalised industry made such decision but who appointed the head of industry.

          Oh and why the need to edit out on the record public domain information that has been subject to parliamentary debates no less? Far more contentious comment is allowed through unedited…

        • zorro
          Posted October 26, 2012 at 12:11 pm | Permalink

          Reply to reply – Yes, I remember all the Tory MPs on the picket line asking the bosses to reconsider as coal mines would be useful to maintain an independent energy supply in the future……oh wait…..

          zorro

        • Pleb
          Posted October 26, 2012 at 3:30 pm | Permalink

          I was always told that we have over 400 years of coal supply. Presumably people will start to burn coal if other fuels keep on rising.
          Pleb

  8. John Ward
    Posted October 25, 2012 at 4:25 pm | Permalink

    It is impossible to argue with any of this. Mr Redwood’s independence shines through again.
    The idea that Olympic ticket sales + no Royal holiday preface a recovery is beyond parody.
    http://hat4uk.wordpress.com/2012/10/25/smoke-signals-7/

    • Nina Andreeva
      Posted October 25, 2012 at 7:53 pm | Permalink

      Yes so with that line of reasoning a little bit of rough weather between now and spring means you can almost guarantee the economy reentering recession at the end of Q1 2013

  9. lifelogic
    Posted October 25, 2012 at 4:25 pm | Permalink

    Tax borrow and waste continues but the private sector is surviving, just, despite the best efforts of Osborne, Cameron, the anti business secretary and the government. Only a couple of month until Cameron’s absurd, gender neutral, insurance laws cause more waste too.

    • uanime5
      Posted October 25, 2012 at 7:07 pm | Permalink

      Look on the bright side; the UK now has easy hire and fire, which Ford used to fire 1,400 employees. Remind me again how easy hire and fire is good for the UK economy.

      • Bazman
        Posted October 25, 2012 at 9:03 pm | Permalink

        They have all been set free to do more useful and productive work and Ford have sent their work to Turkey which is a non EU country with significantly lower production costs.

      • Richard
        Posted October 25, 2012 at 9:44 pm | Permalink

        It is a real shame for the Ford staff in Southampton who have lost their jobs, but it was a relatively small and ageing plant and the trend in the worldwide automotive industry is to focus on much larger plants which are modern and efficient.
        Its a very competitive industry and I’m sure you uanime5, would choose the best and cheapest vehicle available when you make your own purchasing decisions.
        The real problem is, would any multi-national company set up here in the first place, if it were impossible one day, to close a plant which was losing money?
        Or would you advocate subsidising up these poorly performing busineses for evermor, using taxpayers money?
        I think we should be told.

        Reply: More Ford workers lost their jobs in Belgium, a country which is an example of the full EU approach.

        • Bazman
          Posted October 27, 2012 at 2:04 pm | Permalink

          You assume that factories closed are uneconomic and inefficient which often is not the case a car parts factory that I worked for was the most efficient and profitable of the group, but this did not stop it from being closed and the operations absorbed into other less efficient plants. All this working to keep your job stuff was just that. I’ll have to go with lifelogic in that I was ‘set free’ though. How he thinks the workforce of Ford will go on to be greater taxpayers and citizens is his own fantasy.

      • Lindsay McDougall
        Posted October 26, 2012 at 12:27 am | Permalink

        Ford is ending the production of its transit vans, for which there is reduced demand in the Euro zone (surprise!!), while increasing the production of in demand engines. Don’t take my word for it; talk to Vince Cable.

      • lifelogic
        Posted October 26, 2012 at 8:21 am | Permalink

        They were not fired, they were made redundant with generous redundancy pay. It is clearly a sad day but I am sure many will forge a new career or set up solid businesses with it. Hopefully in areas where the UK still has a real competitive advantage, not many areas left alas due to very poor and over large government, red tape and daft employment laws.

        • Richard
          Posted October 26, 2012 at 1:12 pm | Permalink

          Spot on as usual, lifelogic,
          Like many in the Midlands I have worked in businesses that have merged, or been sold, or even have closed down.
          It is all very worrying at the time, but it is part of the nature of business that some companies fail.
          In the long run it leads to stronger successful businesses who produce goods and services their customers want, like the smaller but stronger engineering sector in the UK today.

          My annoyance is still strong with “save the world Gordon” and the hundreds of billions we wasted on nationalising the lame duck banks.
          If only we had allowed them to fail, it would have resulted in those bad banks either closing for good or more probably being bought up by stronger rivals in the industry after they had gone into liquidation.
          Depositors could have been protected for a much smaller sum of money, but the great Gordons natural inclination to nationalise got the better of him and he fell for the “too big to fail” nonsense.

        • Bazman
          Posted October 27, 2012 at 8:11 am | Permalink

          Specifically which employments laws? Ford had little trouble making over a thousand redundant it seems. Your idea of a legal black economy is not going to happen.

  10. James Sutherland
    Posted October 25, 2012 at 5:31 pm | Permalink

    The problem is that reporting the truth would utterly destroy the “too far too fast” lie Labour have been pushing for years now, which the BBC and Guardian in particular could never cope with. Understandable to some extent: asking a vast state broadcaster to do anything incompatible with further growth of their own sector really is asking turkeys to vote for an extra Christmas.

    A great shame the more independent media outlets lack the integrity or understanding to explain this, though. Could the coalition not assist this by releasing and drawing attention to monthly spending growth figures?

    • uanime5
      Posted October 26, 2012 at 9:18 pm | Permalink

      Reporting the truth would also destroy the Government’s claim that they’ve reduced the deficit.

  11. Jon
    Posted October 25, 2012 at 5:45 pm | Permalink

    Things in general could have been a whole lot better if the media stuck to saying what was happening. They quite often skew what the facts say because they think that will make it more interesting and wrongly in my view. I read a few did apologise for sleeping on the job the last decade and a half but are they doing the same today.

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  13. uanime5
    Posted October 25, 2012 at 7:04 pm | Permalink

    I’m surprised that most commentators don’t point out that over the past 9 months GDP fell by 1.2%, so even with the 1% growth this quarter GDP is 0.2% lower than it was a year ago.

    http://www.independent.co.uk/voices/comment/gdp-figures-show-britain-is-out-of-recession–but-there-are-both-positives-and-negatives-in-the-data-8226377.html

    • Richard
      Posted October 26, 2012 at 3:53 pm | Permalink

      There has been more than a 3% reduction in GDP since the start of the recession so the current figures just show us heading slowly in a better direction, but with a long way to go to just get back to where we once were.
      Thanks Gordon…

      • uanime5
        Posted October 26, 2012 at 9:20 pm | Permalink

        Before the 2010 election the economy was growing at 2%, now the UK is lucky if annual growth is positive. So not all of the current problems are due to Gordon Brown.

  14. Jerry
    Posted October 25, 2012 at 7:16 pm | Permalink

    Why do most of the commentators persist in distorting what is happening.?

    Perhaps it’s because of the way the figures are announced by the government and ONS, the media tried to press the ONS on a breakdown of the figures but the ONS refused, then we had Cameron talking up this “Blip” in GDP. Thus most of the media reported this how the ONS and/or Government wanted, don’t blame the messengers…

    Reply The ONS publishes the breakdown as well as the total.

    • Jerry
      Posted October 26, 2012 at 7:39 am | Permalink

      @Reply: Funny then that they flat refused to expand on such figures at their press briefing (that was being carried live by the networks), it was very clear what message they wanted to get out.

      I might just add that I, like many, do not believe for one moment that the ONS is as independant of government as is claimed.

  15. Kenneth R Moore
    Posted October 25, 2012 at 9:20 pm | Permalink

    When you look at the amount of political capital Flashman will wring out of pulling this 1% growth figure out of the hat from his scorched earth economic policy , the slide in the deficit reduction target needed to pay for it seems like a small price to pay. It’s a cynical piece of political posturing that Mr Slippery will no doubt be extremely proud of.

    The whole machine of government is programmed to spend more and more unaffordable money – the question seems to be will the system crash or will the likes of JR be listened to and the neccessary action taken before it’s too late.

  16. Lindsay McDougall
    Posted October 26, 2012 at 12:24 am | Permalink

    The more I look at your information, Mr Redwood, the more I wonder what “GDP as officially calculated” actually is and what statistics go into measuring it.

    I know enough to know that some sort of financial transaction is necessary in order to get an output recorded as being part of GDP. If a subsistence farmer grows just enough to feed his family and nobody else, his output is not recorded. In contrast, if someone is appointed as a “counsellor” and gets a salary for doing nothing more than talk sympathetically to people, then his/her “output” does contribute to GDP. Or have I got this wrong?

    Reply: You are right that activity has to be recorded and this usually means money has to change hands. It is an approximation of the truth which captures most things. The change in it is revealing.

    • stred
      Posted October 26, 2012 at 8:41 am | Permalink

      Presumably the new charges for Health and Safety inspections, at extortionate rates, will also be added into the GDP figures.Add in increased costs for licensing private housing rentals and inspections of roof renewals, scaffolding, lorries, and front doors. At this rate the UK will become the most productive country in the world before long.

  17. Steve Cox
    Posted October 26, 2012 at 8:09 am | Permalink

    “Why don’t they point out that increases in real public spending have made a positive contribution to GDP as officially calculated all this year…”

    Perhaps we should be grateful that this is not being shouted from the rooftops. If it were, then surely it would simply bolster the arguments of those irresponsible spendthrifts (like Ed Balls, David Blanchflower, Paul Krugman and the BBC) who want to see spending cuts put on hold and extra public spending used as a stimulatory tool, regardless of its effect on the deficit.

    • uanime5
      Posted October 26, 2012 at 9:23 pm | Permalink

      Given that the Government is currently increasing the deficit while claiming that they’re cutting it perhaps this is why they don’t what people to know about the effects of public spending.

      • Ludwig
        Posted October 27, 2012 at 2:52 pm | Permalink

        @uanime5 Could you provide us with a source to support your claim (made a number of times) that the government is increasing the deficit please?

        • Lindsay McDougall
          Posted October 29, 2012 at 3:39 pm | Permalink

          For the first 4 months of FYR 2012/13, government borrowing did increase relative to the borrowing for the same 4 months of FYR 2011/12. This was due to two factors (1) A reduction in tax revenue and (2) An increase in public expenditure. The former was partly due to reduced income tax receipts. The latter included redundancy payments and increased unemployment benefit costs. In both cases, a slightly different implementation of policy would have produced a better outcome.

          If we get positive GDP growth in the final three quarters of FYR 2012/13, there is every chance that tax revenues will improve. It is possible that over the full 12 months, government borrowing for 2012/13 may just be less than for 2011/12. And we are counting the Post Office pension fund assets as revenue, which will mean a further reduction in 2012/13 borrowing.

  18. Neil Craig
    Posted October 26, 2012 at 10:13 am | Permalink

    Thank you John. That is an infinitely more informative summary than came from our, mainly state owned, broadcasters.

    The enthusiasm over one quarters growth following 2 of recession does not obscure the fact that we are still bobbing along the bottom (by its nature bobbing means some will be up & some down) while the non-EU world economy grows at 6% annually.

  19. Terry
    Posted October 26, 2012 at 6:01 pm | Permalink

    GDP is just another lie and an ambiguous statistic. Bring back the good old Balance of Payments to tell us just how well we are doing out there in the big world.

    It is preposterous that the Government can borrow £Billions then just spend that borrowed money AND see a rise in GDP. And that is excatly what liar Blair and moron Brown got away with. ‘Umpteen quarters of continuous growth’ he boasted, whilst driving this country into catastrophic debt.

    Now, at last, we have an MP who tells us the truth. An ‘Honest John’ so sadly lacking in Century 21 MPs. Especially in 21st Century Governments.
    UK plc should have a Balance Sheet like all private enterprises. These show a record of the finances of a company at a specific point in time based around their assets, sales and liabilities and would provide a more accurate assessment of the country’s finances than this hogwash called GDP.

    I suspect that the lack of available “sales and liability” figures for the EU are one reason why that behemoth has not passed an audit in 16 or more years. If the UK and the EU were industrial Conglomerates, the Fraud Squad would be all over them. However, it seeems that political groups and Governments are exempt such deep scruity.

    Until this country has more “Honest Johns” both in Government and in Parliament, the electorate will still consider them all, untrustworthy.

    Potential governments trust the electorate to vote for them but in return, never appear, once in power, to reciprocate that trust. If that stance does not change there is no hope for the future of our children and their offspring in this country and that is very, very depressing, a thought.

  20. Gary Gimson
    Posted November 2, 2012 at 6:21 pm | Permalink

    We did not enjoy an extra holiday, we were forced to give staff an additional day off on full pay – and for the second year running.
    Where’s the business logic in that?
    Why can’t these royal events take place on a Saturday with no loss of production?
    And we wonder why the GDP figures were down in Q2.

  • 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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