Growth amidst disappointing GDP figures

The Uk economy has performed quite well recently if you take into account the damage done by declining oil and gas production, by the impact of the financial crash on the lead financial sector, and the collapse of construction activity which is also the direct result of the boom and bust building and investment finance of the last decade.

As I have argued before, there is no “productivity puzzle” as the Bank suggests. UK productivity has fallen and employment risen in the last two years owing to large structural changes in the economy. It is good news that there are many more jobs, reflecting growth in numerous UK sectors.

A further decline in oil and gas output means the losss of highly productive and valuable output and some of the jobs with high wages traditional in the sector. In 2012 gas output from UK production fell by 14.1% and oil output fell by 14.3%, an unusually large fall. Quarter 4 2012 oil and gas production was 20% down on Quarter 4 2011. Most of this decline was unavoidable, reflecting the ageing reservoirs with much of the valuable material extracted in earlier years. A more favourable tax regime introduced recently may stimulate enough oil and gas exploration to stop the decline or reverse the decline in due course, but the previous government simply presided over decline.

The financial services and banking sector grew at twice the pace of the economy generally in the decade up to 2007, and generated large amounts of tax revenue to pay for welfare and public services. It was Labour’s favourite helper with the expansion of public spending, with Labour politicians especially keen on promoting RBS and Northern Rock from their northern bases. That went into sharp decline during the crash, and fell 10% by 2010. It is still unable to grow and produce profits and tax revenues in the way it did, with the largest bank still mainly owned by taxpayers and making losses.

Construction too has been struggling. Housebuilding collapsed along with the crash of the mortgage market and the distress of four major mortgage banks during the Credit Crunch. Labour cut public capital spending just before leaving office, cuts which the Coalition largely accepted. Private sector investment has also been constrained by a lack of confidence resutling from the Crash and by the fall in domestic demand the Credit Crunch created.

If you allow for these large falls in activity in three important areas, it shows that the rest overall is growing. We know the public sector has made a real contribution to economic growth, but so has much of the rest of the private sector. The task of recovery would be easier if tax changes kick in sufficiently to promote more oil and gas exploitation, and if more action is taken to allow profitable but this time sustainable financial sector activty to make a bigger contribution as in the Labour years before 2007.

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64 Comments

  1. alan jutson
    Posted April 4, 2013 at 6:19 am | Permalink

    John, what you say may have some truth in it.

    But it does not feel like that for millions out here who have less disposable income to spend and live on.

    Especially those of us on a fixed income.

    Saving interest rates at an all time low, Annuity rates at an all time low, taxes at an all time high, Utility bills at an all time high, fuel prices at an all time high, Council tax ever higher. Government spending ever higher, etc.

    Reply: Matters I have often commented on and would like to see changed

    • APL
      Posted April 4, 2013 at 7:28 pm | Permalink

      JR: “Matters I have often commented on and would like to see changed”

      But what about the government you support ?

  2. Gary
    Posted April 4, 2013 at 6:28 am | Permalink

    Yes, our dear leaders bet the farm 30 years ago on North Sea oil and gas, financial services and house construction. And now all three are a bust. It will take 2 generations at least to rebalance the economy away from this. Meanwhile , instead of getting on with it, they try to revive the dead with new govt house underwriting, carbon derivatives trading and uneconomic alternative power generation. They don’t have a clue. The country may never recover from these fools.

    • forthurst
      Posted April 4, 2013 at 9:36 am | Permalink

      On RT the other night, West German in the street were interviewed; they were all griping about theirs and their nighbourhoods’ poverty as a result of wealth transfers not only to the South but also, over twenty years after unification, to the East; there were only abandoned coal mines there, no green shoots. Of course, following the defeat of Western civilisation by the Bolsheviks, the latter appropriated East German production facilities, leaving only coalmines and a mutual serveillance industry. Even so, once lost, engineering industry, does not recover automatically purely because the fashion for Marxist agitation and wrecking of our industry has been replaced by Cultural Marxist agitation and multi-culturalist destruction of our country.

      • A different Simon
        Posted April 4, 2013 at 10:34 am | Permalink

        “Even so, once lost, engineering industry, does not recover automatically”

        When an engineering and manufacturing concern relocates , it’s suppliers may have to follow it if they want to continue doing business .

        Westminster probably need to be told that their expensive energy policies will help create such an avalanche .

        • Barbara1
          Posted April 4, 2013 at 2:31 pm | Permalink

          The Staffordshire Sentinel (based in the Potteries) has run just such a warning, in an editorial yesterday by Ann King entitled ‘Cost of power may force jobs overseas’.

          Davey has tried to reassure industry that DECC is ‘taking action’ to reduce the impact of government policy by using transitional measures.

          ‘However, the BCC [British Ceramics Council] said the ceramic industry is not likely to benefit, with, among other issues, no compensation able to be claimed for the indirect costs of the Emissions Trading System on electricity prices and fewer than 10 per cent of ceramics firms in the running for a partial carbon price floor rebate.’

          The article points out it is not only the ceramics industry which will be affected, but businesses in various industries ranging from textiles up to refineries, chemicals and plastics.

          Whether Mr Davey – who seems to me to be impervious to reason or logical argument – will take any notice or not is anybody’s guess.

  3. Andyvan
    Posted April 4, 2013 at 7:12 am | Permalink

    Exactly what contribution has the public sector made to growth?
    What kind of lunatic accounting can claim that money stolen from it’s rightful owners and redistributed with gross inefficiency by government has a positive effect on an economy? If it did the Soviet Union would still be a super power and it’s people the richest in the world.
    As for the new tax regime for the North Sea all the tax breaks in the world don’t create oil or gas under the sea – just hot air in Westminster.
    I’d love to know what politicians mean when they use the word “recovery”. Recovery to what? To an enormous property bubble fueled by cheap credit? To the phantom wealth created by government overspending? Or to us all earning just enough to pay taxes so that the state can continue to squander the nations wealth at the same, or faster, rate that it has for the last 20 years?

  4. margaret brandreth-j
    Posted April 4, 2013 at 7:19 am | Permalink

    Your focus again is fuel.I remember during geology lessons at school in the 1960’s my teacher informed the class that the oil fields had 40 more years left in them.She was right with exception of the finds in Scotland. Tony Blair was all in favour of nuclear energy ( I am still uncomfortable with this), but my discomfort won’t be an issue. We are also uncomfortable with N Korea at present. The truth is, if nuclear energy comes in the form of missiles or leakage from plants it causes devastation.

    You also reinforce your desire to break up the RBS into smaller portions run by private concerns. You can see that it would be less of a tax burden and that money saved may slightly reduce the deficit if wisely used. What you don’t seem to be able to see is the need for smaller types of energy production in all of its diverse forms rather than going an either / all direction. Shale gas of course and reproduction of a few seams which are left and hydroelectric power could assist in our present problems.

    • A different Simon
      Posted April 4, 2013 at 12:18 pm | Permalink

      margaret-brandreth-j ,

      One has to wonder when the next Chernobyl will be .

      As I understand it one can take iodine tablets to saturate the body with iodine so the body does not retain radioactive isotopes of iodine which are released in the early stages of a nuclear accident before they decay .

      Do you have any idea why iodine tablets are not a household item ?

      Is it just a bit of Russian politics i.e. availability of preventative medicine would be an admission of risk ?

      • margaret brandreth-j
        Posted April 6, 2013 at 8:28 am | Permalink

        So many would survive with thyroid problems ! So now this is preventative medicine ..OMG

  5. zorro
    Posted April 4, 2013 at 7:33 am | Permalink

    In effect, we are losing good quality industrial jobs and gaining what exactly?…….Looking around it seems to be mainly an increase in low paid service industry (coffee shop, nail bars)……where are all these jobs being created? Consumer confidence and spending is not there so it can’t be paying much. I have heard many times that all these jobs are being created, but not once a comment on the type of jobs being created……Obviously, a job is better than no job, but the low pay means that these jobs are still subsidised by the state through all these different benefits.

    And yet what do we get? More policies to pump up house prices, rents, and the housing benefit bill. It’s just so very disappointing. I think that I shall go for a private prosecution under the Trades Description Act……

    zorro

    • forthurst
      Posted April 4, 2013 at 12:00 pm | Permalink

      “I think that I shall go for a private prosecution under the Trades Description Act……”

      Well, you wont be successful; the LibLabCon party does exactly what it says on the tin, “the purchaser of this product is guaranteed another five years of Tax, Spend, Borrow and Waste”.

      • zorro
        Posted April 4, 2013 at 6:27 pm | Permalink

        I must have missed the small print :-)

        zorro

  6. Mike Stallard
    Posted April 4, 2013 at 7:34 am | Permalink

    “In 2012 gas output from UK production fell by 14.1% and oil output fell by 14.3%, an unusually large fall. Quarter 4 2012 oil and gas production was 20% down on Quarter 4 2011.”
    It is becoming increasingly apparent that the Greenpeace/Green Party/Climate Changers are yesterday’s men and women. But they seem to have a complete stranglehold on government policy and the media too.
    Why is the fracking industry not much higher profile? Is there any going on? We simply do not know because only rumours seem to get through. I can tell you all about the petrol pouring out of the taps when people try and run a bath or the force 8 earthquake that hit in – was it? – Liverpool. Also the way the brave people of Lancashire forbade any fracking or was it nuclear? – in their neck of the woods.

    Unless we make our electricity/energy cheap and constant, believe me, we can kiss any form of prosperity good bye!

    • A different Simon
      Posted April 4, 2013 at 11:13 am | Permalink

      Mike ,

      I am a shareholder of AJ Lucas which is the largest shareholder of Cuadrilla and also has a 25% direct interest in PEDL165 which has the impressive gas in place figures .

      Cuadrilla have announced that they are not going to resume frac’ing until 2014 at the earliest .

      The reason they have given is that they are going to carry out a more in depth environmental impact analysis . The inference being that this will eliminate delays further down the line .

      My take is that they are going to identify new sites for drilling pads by giving greater weight to social impact issues i.e. find sites nearer to major roads . This can also be interpreted as a change in emphasis of the plan from exploration to production .

      The Netherlands are due to make a decision on hydraulic fracturing around July time . Cuadrilla have great acreage over there too . Their large conventional fields (which supply us) are depleting and a series of earth tremors have alerted them to the pressure drop in their reservoirs and the need to find new resources .

      As a shareholder , being cynical , I’d like Cuadrilla to play the UK off against the Netherlands and sit on the license in the UK by doing only the minimal work required under license obligations in the UK until the situation becomes critical over here and the government decides to authentically cooperate .

      Igas are due to drill two more exploration wells in 2014 because they couldn’t get a major oil company to make a reasonable commitment for a percentage interest in their licenses .

      If you want to see how things are going keep an eye out for whether Dart get planning approval in 2013Q2 for 22 coal bed methane wells in Airth , Scotland .

      Also watch to see if the Govt publishes the BGS unconventional gas estimates . These were meant to be out in Autumn 2012 but delayed to before Easter 2013 now delayed indefinitely .

      The ball is in the governments court .

      Institutional investors in the UK are far too conservative to seize the initiative by investing in these companies at an early stage .

      Until the Govt show that they are serious about unconventional gas there isn’t going to be much drilling or frac’ing action .

      Reply The government has set up the Office for Unconventional Energy as the industry says it wants to be regulated, as it feels sensible regulation wil reassure people living near to shale gas supplies. The government does wish to exploit shale gas – if you know of some footdragging or unhelpful conduct by government then let me or your own MP know about it. It is difficutl to publish an estimate of reserves when so little drilling has so far been done.

      • A different Simon
        Posted April 4, 2013 at 11:19 am | Permalink

        PS ,

        If you want other tests to see whether the Govt is serious about cheap energy , see whether it repeals the Climate Change act or amends the 2012-2013 Energy Bill to allow new state of the art coal powered electricity generation .

      • Mike Stallard
        Posted April 4, 2013 at 2:47 pm | Permalink

        Thank you both for some very helpful and thorough comments!

  7. zorro
    Posted April 4, 2013 at 7:35 am | Permalink

    ‘Labour cut public capital spending just before leaving office, cuts which the Coalition largely accepted.’……..John, I thought that you agreed with this course of action in previous blogs?

    zorro

    Reply I recommended freezing current spending, and recommended distinguishing between potentially rewarding and productive state investments, and the other types I would have deferred or cancelled. It is still the case that cutting state cap ex will reduce construction output, all other things being equal. The beneficial effects of public spending cuts are often second round effects.

  8. lifelogic
    Posted April 4, 2013 at 7:37 am | Permalink

    Indeed, in the main, you are surely quite right.

    But how do you expect confidence to return with Cameron pushing artificially, government religion inspired high energy costs, nearly a 50% dis-functional and 50% over paid state sector, over regulation of everything, higher taxes in all directions and state sector waste everywhere you care to look? Worse still a government soon to be replaced by the representative of the state sector unions Ed Miliband.

    You say:- “we know the public sector has made a real contribution to economic growth”. Well as GDP growth is defined yes technically they do. But is it a real growth contribution in any true meaningful sense. The taxes extracted to pay for it cause a huge net reduction in growth, leaving the private sector short of cash, confidence and incentives. Many in the state sector do positive harm to the economy on balance. Some it is true make a positive and genuine contribution but many, perhaps even most, are a net negative.

    Does, for example, Hammersmith’s mugging of motorists with its cash cow, box junction cameras do anything positive? Clearly not, it is a huge net negative and inconvenience. Just as paying people to dig holes and fill them in again (while hitting the private sector workers over the head with the spade, as they pass) would be. Indeed it is virtually identical in its effect.

    Reply: I take it for granted that regular readers know that I strongly recommend a lower cost public sector, and often highlight policies and interventions by the state thatI think are unhelpful – e.g. EU energy policies.

    • lifelogic
      Posted April 4, 2013 at 10:25 am | Permalink

      It is not just Hammersmith’s motorist muggings that are entirely negative, there are countless examples where government expenditure is entirely negative in effect for everyone, other than the recipients of the state sector pay/pensions perhaps. Even they are distracted from doing a real productive job, which would surely be more uplifting for them.

      • stred
        Posted April 5, 2013 at 9:25 am | Permalink

        Brighton’s greens, lead by a young idealist, Jason Kitcat, have just spent a fortune installing the new 20mph limit signs around the whole central area up to the pier and up to the racecourse. Double signs on every road and large 20s painted on the road. This, unexpectedly, includes the wide double carriageways.

        So far, very few drivers take any notice. In the residential streets it is only possible to drive at 15-20 anyway. On the dual carriageways when someone starts to drive at 20, the traffic builds up, with everyone driving in 3rd or 2nd gear and trying to creep past each other. It is impossible to change lane to exit or turn right as the traffic is bunched. Fuel consumption is way up. The reason given is safety, but based on crashes at 20 compared to 30, which of course are better. Nothing said about actual driving conditions.

    • livelogic
      Posted April 4, 2013 at 12:32 pm | Permalink

      Starting this month, we have the new excessive PAYE regulations, yet another imposition, cost and deterrent of growth and new jobs for the private sector. Doubtless extra work for more state sector overheads too.

      • Bazman
        Posted April 4, 2013 at 6:29 pm | Permalink

        I see the Pakistani government are being told the rich should pay more or even in some cases any taxes to help their poor population. How absurd they are investing their money far more wisely on their populations poor than any tax and waste policy by their government.

  9. Acorn
    Posted April 4, 2013 at 7:51 am | Permalink

    Crikey JR! The whips don’t normally role you out to be chief turd polisher for the days bad news, what’s going on? As we are talking ONS data, I will risk a URL. http://www.ons.gov.uk/ons/dcp171766_305624.pdf .

    “In the final quarter of 2012, the economy was still 2.9% smaller than it was immediately prior to the 2008-09 recession.” After FIVE YEARS post recession that is ridiculous. You will find this period of UK economic incompetence, written up in future text books. The ONS have left out the bit that should say, the economy is at least 5% below where it should be now; £80 billion short on GDP.

    All Redwoodians should read and understand the above document. Particularly you should understand the sectoral balances in Fig 4. If the ONS did this as a stacked histogram it would make more sense. (see Neil Wilson at 3Spoken) These balances add to zero with a small residual which gets reduced with future updates. Fig 6 shows you that households are still over indebted; they are not going out spending old style for a good while yet.

    The government is currently running 6.5% of GDP budget deficit spending, which is financing the corporations saving of 1.6%; households 1.6% and the rest of the world saving 3.5% (because they flog us more stuff, our imports, that we flog them).

    If governments’ spending deficit is reduced, the other sectors start going into deficit to pay for the imports for instance. You can perm this identity a few ways, but it always adds to zero. With the current coalition FISCAL policies, they will add up to zero votes.

    Reply I do despair of some of you. I do not take dictation for this blog from whips. I seek to give independent analysis of the state of the economy based on reading the official figures. I am also quite willing to display links to official websites I know and use as I have repeatedly said. I am pleased to see for once the offical story and mine are in agreement. The figures show very clearly that oil and gas and construciton have done particular damage to the growth figures, and that much of the rest of the economy is growing satisfactorily.If that is what the figures show, that is what I will write. The link is not, of course, to Conservative whips or a party site, but to the independent ONS.

    • Acorn
      Posted April 4, 2013 at 5:15 pm | Permalink

      You despair, how do you think the 99% out here in the non-metropolitan elite are feeling? I despair at understanding the numbers, that tell me the that the gross national income of this nation is increasingly going into profits and not into wages. That is the despair of seeing increased productivity of labour via technology improvements, going to the 1% in profits and not the 99% in wages. Income inequality will kill this nation.

      Please tell me exactly who the Conservative Party thinks it is representing nowadays? And don’t give me the 50% income tax Punch and Judy argument, as we both know how those people will off-shore that money till the tax regime is changed and they can bring it home.

      Apologies JR, I have had a bad day which started by recking a £160 tire on my Jag in a f*****g broken kerb stone pot hole.

    • outsider
      Posted April 4, 2013 at 10:48 pm | Permalink

      Yes, Mr Redwood is nobody’s dummy. That is plain from history and any reading of his blog.
      I would, however, quibble with his suggestion that there was some kind of homebuilding boom before the banking crash. House price boom yes. Building boom no. It plunged from an already modest level.

  10. oldtimer
    Posted April 4, 2013 at 9:01 am | Permalink

    A report out today states that UK consumers have now paid off about half the mortgage debt (or c£145 bn) they accumulated during the boom years 1998 to 2008, and no less than £8.6 bn in the last quarter of 2012 alone. So long as both incomes remain squeezed, inflation is on the rise, and taxes stay high it is unlikely there will be much growth in the UK economy. Hatches remain battened down in much of the consumer and business sectors.

    Financial incontinence appears now to be the sole preserve of the political class and the state. Until they reform themselves, this country will stay in the economic doldrums. What is both absurd and disgraceful about this state of affairs that much of it is man-made and thus reversible by the adoption of the appropriate policies.

  11. Peter Stroud
    Posted April 4, 2013 at 9:06 am | Permalink

    Yes, the last government did preside over the decline of North Sea oil and gas. No doubt because they put their faith into renewables. Now, it seems that we have, at last, a government that is prepared to change course and invest in further exploration. But this is only half what is needed. Carbon taxes need to be abolished, shale products must be exploited. But the most essential move must be the repeal of the climate change act. Mr Cameron must give up his dream of leading the greenest government ever. If not, then further decline is inevitable.

    • lifelogic
      Posted April 4, 2013 at 9:21 am | Permalink

      Exactly right, but Cameron led the way in putting “modernising” the Tories with the absurd “renewable” religion, toy wind farms in Notting Hill and house bling. He also needlessly lumbered the party with the Libdems.

      How is he now going to change direction without looking rather stupid and incompetent? One assumes by saying one thing and doing the other. He does this rather a lot. This time one hopes he will (for a change) do it by doing the right think but still saying the wrong one just to save face.

      The opposite of his usual approach.

  12. Brian Tomkinson
    Posted April 4, 2013 at 9:15 am | Permalink

    Has the word gone out from your leaders to promote this story? I am becoming tired of seeing it. Most things would be good if you ignore the things that aren’t good! If only my football team had scored more goals than their opponents we would have won. My savings would be worth more if only inflation weren’t making them worth less. I have questioned before the usefulness of GDP figures which are always revised later when no one seems to care any more. This kind of sophistry does no good.

    Reply Who said it is good? I am trying to provide analysis and explanations of what is happening. Not all that is happening is bad. it is important to grasp that soem things are working, as well as highlghting the bad, as we often do on this site.

    • Brian Tomkinson
      Posted April 4, 2013 at 9:53 am | Permalink

      Reply to reply,
      I suppose reading “The Uk economy has performed quite well recently” gave me the impression that you were saying it was good.

      reply I said “disappointing” GDP and growth figures.

  13. outsider
    Posted April 4, 2013 at 9:45 am | Permalink

    It would be interesting to know what proportion of these new jobs require in-work benefits to sustain them.

    • A different Simon
      Posted April 4, 2013 at 11:25 am | Permalink

      Outsider ,

      Only 1 in 10 private sector jobs pay enough to both cover expenses during someones working life and save enough to get them through old age .

      Thus the correct answer is that 9 out of 10 private sector jobs require “in-work benefits to sustain them.”

      • Denis Cooper
        Posted April 4, 2013 at 3:41 pm | Permalink

        Doesn’t make sense: they wouldn’t be getting “in-work” benefits in their old age when they were no longer working.

  14. Draughtsman
    Posted April 4, 2013 at 10:48 am | Permalink

    With all of the hand wringing going on about lack of growth in the economy you would think wouldn’t you that everything possible would be done to promote such growth. Why then do we have such an unhinged policy around something as basic as the supply of energy? The ‘carbon’ tax, really an electicity tax, started on All Fools Day which will help push up the cost of energy and drive production abroad.

    Perfectly good coal power plants are being shut down and others converted to burning wood chips. Wood, and imported from America for pity’s sake! We are progressing backwards.

    Worried about declining gas production from the North Sea? The government is allegedly sitting on a report by the British Geological Survey that estimates that there is around 1500 trillion cubic feet of shale gas in the UK and probably a lot of oil as well. To get that in perspective our current annual gas consumption is around 3 trillion cubic feet. If only a conservative 20% of the total is extractable, that is still 100 years of supply. We do not realise how lucky we are, but what do we hear? Either nothing or or objections and negative comments and obstruction tactics from environmental groups. This country must have a death wish.

    • uanime5
      Posted April 4, 2013 at 8:04 pm | Permalink

      A conservative estimate of how much shale gas can be extracted is 5%, not 20%; mainly because an extraction rate of 25% is considered a high extraction rate. So the UK may be able to extract enough gas for 20 years but probably not enough for 100 years.

      http://www.publications.parliament.uk/pa/cm201213/cmselect/cmenergy/writev/isg/m17.htm

      • Edward2
        Posted April 5, 2013 at 9:02 am | Permalink

        This as you say Uni , is a conservative estimate.
        It is based on those areas of shale gas already found, but exploration is going on continually and more are being found.
        Just like oil reserves which environmentalists said a few decades ago were going to be running out about now.
        But due to new finds since then ,we still have decades of oil reserves left.

      • Mark
        Posted April 5, 2013 at 11:35 am | Permalink

        I don’t think I place much faith in the BGS at the moment: they produced the politically inspired estimate (based on work done in 2008) that was being used by DECC for most of last year to tell Parliament that shale gas was utterly insignificant. They are now rowing back from that untenable position.

  15. behindthefrogs
    Posted April 4, 2013 at 10:57 am | Permalink

    I don’t understand why an analysis with the title “Growth amidst disappointing GDP figures” concentrates almost entirely on why the GDP figures are disappointing. What this country needs is some positive analysis from our MPs. Please tell us why there was growth, what lessons are being learnt and how the growth can be expanded into other areas. The economics of the country are doomed to failure while analysts concentrate on the weaknesses that cannot be changed.
    Reply Refreshing to have a criticism from the other side of the argument! A flexible labour market,and a reasonable tax regime for new businesses have allowed some private sector led services expansion.

    • behindthe frogs
      Posted April 5, 2013 at 12:40 pm | Permalink

      While I welcome and agree with your response I feel that the government is not doing enough. I was disappointed that the £2000 employers’ NI relief was delayed for a year and strongly feel that this should have been expanded by raising the lower band limit in preference to further reductions in corporation tax.

      We need some positive action to increase “onshoring”. For example, perhaps some emphasis on the dangers of losing intellectual rights by manufacturing in places like China, would help reduce the competition from fakes.

      While this country had become very dependent on its service industry in recent years I also wonder how much of the private service industry improvement is false and actually just public service work being out sourced. This is a nice numbers game but often not cost effective.

  16. Simonro
    Posted April 4, 2013 at 11:18 am | Permalink

    So… if you ignore the parts of the economy in recession, it doesn’t look too bad?

    Congratulations, this has caused much amusement in the office this morning.

    Can you do the same with personal finance? Like, if I ignore the credit card statement and gas bill, my finances don’t look too bad? Can we extend it to other things? If we don’t take into account the terrible state of the economy, secret courts, and dodgy press regulation, the current lib-con government doesn’t look so bad? Do we see the inkling of an election strategy here?

    Reply NO, that is not what I am saying. I accept that the overall result is poor, and have proposed ways of dealing with the construction, banking and oil and gas problems! Why can’t you accept that some bits are working?

  17. Mark
    Posted April 4, 2013 at 12:36 pm | Permalink

    Unfortunately, Osborne’s initial tax raid on the North Sea bears a significant share of the responsibility for the decline in production: it led to the closure of some 28 fields in just a year compared with just 7 in the year prior, and the loss of valuable infrastructure that will leave some potential developments stranded because they would only have been economic if they could have used that infrastructure. The revised regime may stall some of the decline, but the original raid has done permanent damage: something I highlighted on this blog as soon as the original folly was announced.

    It has not helped that we have had a succession of Energy Secretaries who have been determined to pursue a green agenda at the expense of economic sense. There is no pleasure in noting that SSE’s £10.5m fine for mis-selling relates to activity that started in 2009 when Ed Miliband held the post, and continued in the regime of Mr Huhne. Mr Miliband’s 2010 Energy Act ensures that the fine is paid to the Treasury, rather than used in restitution to wronged customers, just as it ensured that OFGEM was required to turn a blind eye to policy that damaged consumer interests so long as it could be construed as “green”.

    It is hard to be optimistic about the prospects for the development of shale gas when the person appointed to head the new OFGUO (or is it Offugo?) quango is someone who has spent a career in Whitehall supporting the wind industry, recruited from a temporary private sector wind industry secondment. It sends a signal that obstructionism via regulation will be the order of the day. Likewise, the move of Mr Hayes out of DECC seems to have been acceding to the request of Mr Davey so that there was less danger of actually asking for further derogations under the LCPD, or fewer windmills.

    Reply I heard a spokesman for SSE say they intended to compensate losers amongst their customers as well as pay the fine. Mr Fallon will pursue the issues that John Hayes was raising.

    • Denis Cooper
      Posted April 4, 2013 at 3:39 pm | Permalink

      I’m glad you mentioned that idiocy on the part of Osborne, and wonder whether JR would agree that it was idiocy.

      • Leslie Singleton
        Posted April 4, 2013 at 4:43 pm | Permalink

        Denis–Totally agree–I remember my jaw dropping when I first heard about it–It would have been bad enough before, but a tax heist when seeking to arrest declining production really takes the biscuit. It was as bad as the pusillanimous half reduction of higher rate tax to 45%. At the time, early on, far too late now, they could have dropped back to where it was for most of Labour’s rule and easily enough faced down the howls by saying that Labour’s raising of the tax was wrong and politically timed, which it was–and never mind that 40% is our best guess at maximising the take. My cat would know better and I don’t even have a cat.

    • stred
      Posted April 5, 2013 at 10:28 am | Permalink

      The new OFFUGO head started with a degree in sociology before he took management courses and got wind in a big way. re Linkedin. The last person DECC would appoint would be an industry engineer. He might be biased.

      • Mark
        Posted April 5, 2013 at 11:43 am | Permalink

        The danger here is that someone without industry knowledge makes a mistake that then throws the whole industry into disrepute. DECC officials seem to be rather prone to that.

        While researching the carbon floor price recently, I discovered that DECC had originally proposed to set a price per tonne of coal, ignoring the fact that different quality coals produce different amounts of CO2 (and ash residue etc.) . They had also failed to consider the impact of CHP in raising the effective output from coal burning. These proposals got as far as published draft legislation – not merely an in-house memo from a new recruit. You have to wonder how such things get overlooked by officials.

        • uanime5
          Posted April 5, 2013 at 1:14 pm | Permalink

          Well when Parliament makes new laws after they have the second reading of a bill, then send it out to experts to have them comment on the feasibility of this bill. The modified bill is then voted on in the third reading. So it’s normal for draft legalisation (a bill) to be put before Parliament without asking experts for advice.

          Reply It is not. There are some Bills that are sent out prior to legislating for full professional scrutiny. Most others are prefaced by a White Paper which invites comments on whether and how to legislate.

  18. Darrell Wood
    Posted April 4, 2013 at 12:50 pm | Permalink

    JOHN REDWOOD FOR CHANCELLOR.

    INTELLECT, UNDERSTANDING, INSIGHT, PROVEN COMPETENCE, STATESMANSHIP, SAFE PAIR OF HANDS, AND NOT HEADLINE-OBSESSED!!

  19. Bert Young
    Posted April 4, 2013 at 12:53 pm | Permalink

    No matter which way the economy is dissected and examined the truth is putting it back into a reasonable shape is a long term issue . Problem ! – in two years time ( hopefully less ) there will be an election ; the new Government will spend some time getting their feet under the table ( period of relative stalemate ) followed by three years of implementing a degree of change ( maybe good , maybe bad ) , there will then be a run in period of “give – aways” prior to the next election . What is needed to correct and maintain a stable economy is a continuous state of management lasting , at least , seven years . Pray , if there is any sense in my logic , how can this be achieved under our present electoral regime ?

  20. Terry
    Posted April 4, 2013 at 3:35 pm | Permalink

    Aren’t the GDP figures just smoke and mirrors? Aren’t they more reliant on purchases within the UK, rather than the sales that generate profits? Isn’t this the reason that incapability Brown was able to demonstrate umpteen months of continuous growth in the UK economy, despite borrowing billions of money to do it? Hasn’t GDP become another statistic for Government to manipulate?

    I can never understand how a Government can borrow money, only, to say, give it away to benefit claimants AND show a growth in GDP. Similarly, hand a £1.4 Billions contract to a German train builder and have that recorded as a plus to OUR GDP.

    Besides, UK quarterly GDP has not been above 2% for 26 years. Neither has it been worse than -2% ever since 1979, except for quarter 4 2008. It is in a very tight band and a little shuffling can easily produce a positive result, when appropriate. Like now!

    Strikingly, it was at -2.3 in Q3 1979 and rose sharply to + 2.4 in Q3 1987 (ONS Figures).
    Now who was PM during that ‘boom’ time? And did the ‘proper’ Conservative Government, use any form of QE? I do not remember that being the case.
    Which begs the question, “What was so different in 2008 whereby the same positive solutions provided in 1979 could not have been utilised to rescue us”? Is it that in 1979, we had a proper leader and a sound man in the BoE?

    If my conclusions are inaccurate then I would appreciate their correction.

  21. nTropywins
    Posted April 4, 2013 at 3:40 pm | Permalink

    Some good comments on your blog John

    I think I must have been joined at the hip to lifelogic in earlier life as he can read my mind and speak my thoughts so no point me wearing out my fingers other than to repeat what many of your commenters are saying, this is all about energy policy.

    I wish you well honourable sir

  22. Leslie Singleton
    Posted April 4, 2013 at 4:33 pm | Permalink

    John, Especially with your clear analysis of the diverse factors that need to be accumulated in to overall “Growth”, all up down or sideways by relatively large amounts, it is very unclear to me (and I have banged on about this before) why on earth they should somehow net out to the smooth and of course continuously upward straight line that everything to-day seems to be based on. To me, we necessarily should start to plan on zero growth (and why even that much?) and if more comes use it to pay down debt.

  23. Denis Cooper
    Posted April 4, 2013 at 4:40 pm | Permalink

    The government may not be able to increase or even maintain GDP by taking more money in taxes so that people have less money left to spend themselves, but it can increase or at least maintain GDP by borrowing money and spending it into the economy, provided that it’s borrowing money which would not otherwise be spent into the economy.

    The £375 billion borrowed from the Bank of England should have had that effect, because that money didn’t exist before the Bank created it and passed it to the Treasury via the gilts market. Of course it only replaced money that the Treasury could no longer easily borrow from private investors, but at least it meant that government could avoid having to make drastic cuts to its spending.

    Borrowing money from overseas investors should also have that effect, at least insofar as without the government borrowing and spending that money it wouldn’t have found its way into the UK economy.

    Borrowing money from domestic savers and investors is another matter, because even if the government didn’t borrow and spend that money then it might find its way into the economy by other routes.

    Of course the problem with the government borrowing money to fuel the economy is that it may provide a short term respite but eventually it all has to be repaid with interest out of tax revenues, increasing the burden of taxation in future years.

    And that applies to the money borrowed from the Bank of England, although at least in that case the interest is recoverable as part of the Bank’s profits.

    Today Ambrose Evans-Pritchard suggests that QE may never be reversed:

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9970294/Helicopter-QE-will-never-be-reversed.html

    But as far as the UK is concerned either he has never known or he has forgotten that the Treasury has indemnified the Bank against losses on its asset purchases – Darling stated that in writing, in his letter to King dated January 29th 2009:

    http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/ck_letter_boe290109.pdf

    While that indemnity remains in place it would be pointless to get the Bank to agree to the cancellation of the gilts it owns, as the Treasury would then have to make a massive payment to the Bank to make up its losses.

    On the other hand if the Bank agreed to the withdrawal of that indemnity as a necessary step prior to cancellation of its £375 billion holdings of gilts then it would be agreeing to its own bankruptcy, and I’m pretty sure that apart from anything else it would be illegal for those running the Bank to agree to that.

    • Acorn
      Posted April 5, 2013 at 8:41 am | Permalink

      Denis, my fellow Redwoodian, no disrespect but please please, read the following. (I am risking an URL here JR) . http://neweconomicperspectives.org/2011/06/mmp-blog-2-basics-of-macro-accounting.html .

      The QE is unlikely ever to be repaid because there is no need to repay it. It is not debt as a household understands debt. No nation that issues its own currency and lets it float in the FX market, has ever paid back its debt; ever. No government debt, no private sector financial assets / savings.

      Osbourne still thinks the economy is on the gold standard and is using forty year old economic policies, that only work under that standard. The world came off the gold standard in 1971.

      • Denis Cooper
        Posted April 5, 2013 at 6:12 pm | Permalink

        Well, I’ve read that and I’m afraid I don’t see your point.

        The government, or more generally the public sector, only exists to provide certain important services to the population as a whole, and there is no reason why those services should include acting as a perpetual debtor to either the domestic private sector or the foreign sector.

        To do that means constantly transferring money from domestic taxpayers, many of whom have little accumulated capital, to those with much more accumulated capital, investors both domestic and foreign.

        Whether that is still to the benefit of the population as a whole depends entirely on how the government uses the borrowed money, and it is a widely held view that the government often makes poor use of money, irrespective of whether it has been raised by tax or borrowed.

        The government’s creditors in the domestic private sector and the foreign sector will demand repayment with interest, as is their legal right.

        And nor could the government’s largest single creditor by far, the Bank of England, afford to forego repayment on the gilts it owns, despite also being a part of the public sector.

        Imagine that rather than the Bank some other part of the public sector, say a local council, had put most of its reserves into gilts and was relying on the promised payments of interest and capital from the Treasury; would anyone then be casually suggesting that those gilts should just be cancelled so that the Treasury and the taxpayer would be freed from the burden of repayment?

  24. Iain Gill
    Posted April 4, 2013 at 7:43 pm | Permalink

    On an ongoing issue where I already gave you the nod…
    Word on the streets amongst those of us in the know is that the DWP Universal Credit IT and business change programme is a massive car crash uncontrollably heading for disaster, so many massive issues. I don’t know what the folk writing the status reports are telling ministers but this is now open knowledge.
    Suggest John you revise your position accordingly.
    Sorry to be the bearer of bad news but best if you know the truth.

  25. Martin
    Posted April 4, 2013 at 8:01 pm | Permalink

    Growth? I shudder to think what was growing – pay day loan companies if the advertisements on TV are anything to go by!

  26. uanime5
    Posted April 4, 2013 at 8:08 pm | Permalink

    It is good news that there are many more jobs, reflecting growth in numerous UK sectors.

    There may be more jobs but due to the increased population unemployment has remain relatively static. As a result welfare costs remain high.

    [The financial services and banking sector] is still unable to grow and produce profits and tax revenues in the way it did, with the largest bank still mainly owned by taxpayers and making losses.

    Given that all this fast growth resulted in a several banks needing a multi-billion pound bailout maybe this is for the best.

    Labour cut public capital spending just before leaving office, cuts which the Coalition largely accepted. Private sector investment has also been constrained by a lack of confidence resutling from the Crash and by the fall in domestic demand the Credit Crunch created.

    I guess cutting public sector spending doesn’t result in the private sector spending more. Pity the Chancellors economic policy was based around this concept.

    http://www.independent.co.uk/voices/comment/george-osborne-called-us-deficit-deniers-but-we-were-right-his-economic-era-is-over-8558380.html

  • 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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