Total UK state spending up by £75bn – is this a cut?

 

         In 2009-10 total UK government spending was £669.3bn. The latest forecast of spending for 2015-16 is £744.7bn.

         Over a six year period that is a rise of £75.4bn or 12.65% in the amount of cash spent by the state.

          Most commentators and many politicians claim that this represents a severe squeeze, a  major cut. If challenged about how overall it can be called a cut when there has been such a big rise in cash spent, they resort to claiming it has been a real terms cut. They suggest the cash rise has not been enough to compensate for inflation.

         Alternatively, they highlight those budgets and areas within the total that have been cut, to allow faster growth in the government’s priority areas of welfare, pensions, health and education which have gone up.

            I have never denied that some budgets have been cut in both cash and real terms. Defence, for example, has clearly been cut. So too has the government overhead, which is a good idea. I just think that we need to start from the overall figures, and recognise these have been rising.

             The 12.75% increase in total public spending over the six years is around the same as the inflation rate as measured by the GDP deflator (using official forecasts for the future years). It appears that the first half of the Coalition government period in office saw small real increases in public spending as I highlighted at the time.These are  to be followed by small real declines in the second half, perhaps reaching 0.4% real decline per annum. If the government and the Bank do a better job on controlling inflation, then we could experience further small real increases in spending on these numbers. The recent declines in world commodity prices and the relative stability of sterling will help keep inflation down. Past inflation owed a lot to weak sterling and rising commodity prices.

              These so called real declines could be offset by proper control of public sector costs. With the cash increases available, it should be possible to increase the total amount of public service. Government priorities for above average increases in some areas  will still mean cuts in some others of course.

          The use of the language of cuts is a major obstacle to a proper debate on how much we can afford to spend and how much we get for our spending. If the government does more for less, as the private sector regularly does, there are those who would see the lower cost as a “cut”.

            However, some elements of public spending are treated differently. If MPs had a cash increase in their pay, this would be seen generally as an increase or rise. If MPs pointed out the increase was less than inflation  and was therefore a cut, few would see it like that.  They would correctly argue that MPs had had a rise. Before your blood pressure explodes, fear not. You will be relieved to know that  MP  pay last year after pension deductions was lower in cash terms than in 2009-10. 

          As most public sector spending is either the pay of public sector staff or the benefit and pension pay of people not in work, is it right to use very different language for describing public spending changes from the commonsense language we use about pay, where a cash increase is a rise? The truth is we are still spending a huge amount on government account. We need the government to do more for less in the priority areas, and to slim the overall size of government.

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65 Comments

  1. margaret brandreth-j
    Posted June 28, 2013 at 6:06 am | Permalink

    I am sorry , but I hold little respect for the way pensions and work have been manoeuvred since 1995 , the glad tidings don’t take away the reality of the situation .
    Firstly many have had their wages frozen, so we can also regard that as a cut? Secondly for someone like myself who has worked for NHS patients for 40 years and will only be receiving a few years pension , due to private salting leaves me cold.
    If I had the accurate figures( in a list and not researching all over the place) where money is spent ; I could make cuts everywhere , yet George Osborne in comparison would appear angelic.

  2. Andyvan
    Posted June 28, 2013 at 6:33 am | Permalink

    Whilst I am overjoyed that MP’s, in their cushy well paid jobs where the only risk is being found doing something embarrassing by a newspaper reporter, have had a pay rise I would like to point out that a great number of us have jobs or businesses where it is impossible to vote ourselves any increase at all. We do not have millions of tax cattle to milk relentlessly and so have suffered a drop in income over several years and most particularly this year when this phony recovery that politicians talk about is more accurately seen in the real world as a depression. In the protected and rose tinted world of Westminster our noble leaders continue to throw other peoples money around with an utter lack of responsibility and intelligence that is almost staggering. Even my 9 year old son has a better grasp of economics. He knows that once he spends his pocket money on whatever ridiculous toy he’s seen this week he can’t spend more until he either cons some more cash from me or earns it. Apparently this is an unknown process in the gilded halls of the capital. There you can carry on spending relentlessly borrowing and printing forever, or at least until you ruin the country and all the people therein.
    This recent Spending Review was more like a shallow and facile justification for flagrant irresponsibility than a serious look at finances.

  3. lifelogic
    Posted June 28, 2013 at 6:40 am | Permalink

    We need the government to get out of many areas, where is clearly does far more harm than good and concentrate only on the few areas where government can provide services best.

    They should state by cutting remuneration packages to private sector levels. At 3% inflation (and pay increases in the private sector to match inflation) and no pay increases in the state sector this would take nearly 14 years. As pay including pension in the state sector is about 50% above those in the private sector.

    They should get rid of the climate change act and all the subsidised, quack energy nonsense and cancel the daft train project and the green deal. They should get rid of all the propaganda units of government which is a very large activity. We do not pay taxes just to be mislead by propaganda from government departments and the BBC and they should get out of the counterproductive wars.

    But all we get from this government is new ways to increase taxes and make new charges for things that we have already paid for, thus killing the golden goose that pays the taxes.

    • lifelogic
      Posted June 28, 2013 at 7:04 am | Permalink

      An average worker might earn only £800,000 in a lifetime, yet we have the Governor of the bank of England leaves with a pension pot alone, of a reported £6.3million from his non-contributory pension scheme, for just 22 years at the Bank.

      Rather a high reward for what was largely a period of abject failure at the bank, from high inflation to the shadowing of the DM, the ERM fiasco, to the banking crash. Not to mention the silly letter to the times signed by lots of economists against Howe’s budget. Similar huge over payment at the BBC and thoughout the state sector.

      • Bazman
        Posted June 29, 2013 at 9:00 am | Permalink

        Still waiting. Do you not know?

    • Bazman
      Posted June 28, 2013 at 5:33 pm | Permalink

      Explain how zero hour contracts are not easy hire and fire.

      • lifelogic
        Posted June 29, 2013 at 4:09 pm | Permalink

        Well few are on zero hour contracts are they so it is not easy fire is it?

        • Bazman
          Posted June 29, 2013 at 10:03 pm | Permalink

          280k and rising in private sector and the NHS. Is this a good thing? Ram it. Needs a reply.

          • Edward2
            Posted June 30, 2013 at 9:42 am | Permalink

            So Baz less than 1% of the working population on these employment arrangements.
            The way you’ve been banging on I assumed it was more than half.
            And for many in temporary work situations it may suit both parties.

          • Bazman
            Posted July 1, 2013 at 5:07 am | Permalink

            Tell us of a specific situation where a zero hours contract would suit the employee? Hmm? You cant…The 1% on this arrangement will all be self employed accountants too I suppose and not cleaners and the like. What does that tell you?

          • Edward2
            Posted July 1, 2013 at 7:13 pm | Permalink

            Yes actually Baz, I can tell you of several companies I know who use these type of contracts
            One a warehouse company that employs over 150 staff as permanents but use zero hours staff to cope with sudden rushes in trade which can be seasonal.
            Many of these staff want a temporary job (Christmas time or summer school holidays).
            Its cheaper than using an employment agency.
            It suits both parties.
            This company and others I know often use these contracts to view staff and then take them on permanently.
            I realise you have ” a bee in your bonnet” about this and I know not all employers are decent, but it is a natural reaction to the hugely complex legal and administrative minefield which employers face when selecting new staff.

          • Bazman
            Posted July 2, 2013 at 5:35 pm | Permalink

            So its for casual work. As as you point out permanent workers on zero hour contracts? Would it pass the ‘Control Test’ focusing on the degree to which the so-called self employed person is able to decide when they work? If the person is continuously employed they are by default an employee. Sounds like a scam to stop the paying of overtime rates or higher rates to compensate for lack of overtime rates, and how can a worker be temporary when they have worked in the same placed next to permanent workers doing the same work for three years? Not legally, but in reality? Apologist nonsense of circumventing pay and conditions for the lowest paid workers in order to maximise profits. Ram it.

  4. Ben Kelly
    Posted June 28, 2013 at 7:12 am | Permalink

    Last night’s “outrage” on ITN about tax avoidance in NHS trusts? Why can government departments not claim bacl all VAT? Why should the tax payer provide funds to pay VAT that is merely recycled into the Tax system. This leads to higher administrative costs and incurs huge fees for consultants. The NHS budget could no doubt be greatly reduced by allowing it to reclaim VAT on Vatable expenses.

    I recall that the Olympics cost was similalrly uplifed by VAT which is an end user sales tax, government should not be paying this to itself

    • lifelogic
      Posted June 28, 2013 at 9:35 am | Permalink

      Vat is the most absurdly inefficient and time consuming tax, mind you the rest of the UK tax systems is almost equally absurd. Diverting countless clever people from productive activity.

      • Bazman
        Posted June 29, 2013 at 10:05 pm | Permalink

        VAT is absurd? Indirect taxation or direct taxation? Which?

    • lifelogic
      Posted June 28, 2013 at 10:02 am | Permalink

      Indeed paying people in the NHS from taxes just to find ways to avoid VAT and tax is mad. But then so much of the tax system and state sector do (or force the private sector to do) is totally mad and counter productive.

      • Bazman
        Posted June 30, 2013 at 8:00 am | Permalink

        Not to the profits and taxation of large companies it seems.

  5. Roy Grainger
    Posted June 28, 2013 at 7:17 am | Permalink

    John – I can only assume that as you persist in talking about MPs pay being cut “after pension deductions” that it has in fact risen “before pension deductions”. I could pay more into my personal pension and claim I had had a big pay cut “before pension deductions” but that would make no sense.

    Reply: The Pension offer remains the same, but the cost of it was increased. This was a way of cutting MPs pay – and one I support.

    • lifelogic
      Posted June 28, 2013 at 10:06 am | Permalink

      But putting up the MPs pay (before tax deduction) means a very large increase in the value of the pension finally received as it is in proportion to this salary.

      1/40 of salary per year worked on the best option so, including pension, it is actually a rather large increase in MPs’ total remuneration.

    • Roy Grainger
      Posted June 28, 2013 at 10:25 am | Permalink

      The pension “offer” includes index-linking ? So although the amount you contribute to it has gone up, the pension “value” (measured by what you would need to pay for it on the open market) has gone up too. Anyway, no-one quotes their salary after pension contributions are taken off so for MPs to do so smacks a little of obfuscation.

  6. Brian Tomkinson
    Posted June 28, 2013 at 7:25 am | Permalink

    Tax,borrow,spend and waste – the shared manifesto of the three main parties in parliament. We have a virtual one party system where the economy is concerned.

  7. lifelogic
    Posted June 28, 2013 at 7:52 am | Permalink

    Meanwhile the Telegraph reports that more than five million middle-class workers could face stealth tax rises of £600 each after the next election to fill a £25 billion black hole in the Government’s finances through fiscal drag. When will they learn that you cannot keep bleeding the cash cow without killing it, it is already half dead.

    • Denis Cooper
      Posted June 28, 2013 at 10:36 am | Permalink

      Well, that’s the solution proposed by the IFS:

      “Paul Johnson, the director of the IFS … suggested that the “easiest” way to raise the money would be to make higher-rate taxpayers pay more through a process known as fiscal drag. It has already been favoured by the Coalition and the last Labour government.”

      But no doubt Fraser Nelson and others would argue that tax revenues would actually be higher if steps were taken in the opposite direction.

      After all the government may be able to make high earners pay more tax, but it can’t make people earn more so they become liable for more tax.

  8. wab
    Posted June 28, 2013 at 7:58 am | Permalink

    “In 2009-10 total UK government spending was £669.3bn. The latest forecast of spending for 2015-16 is £744.7bn.”

    “The 12.75% increase in total public spending over the six years…”

    This is 11.3% not 12.8%. (If it should be 754.7 instead of 744.7 then it does come out to 12.8%. But Mr Redwood explicitly says the increase is 75.4 which would make 744.7 the correct number.)

    Mr Redwood does not mention debt interest payments. According to some other website which I am not allowed to link to, debt interest payments were 30 billion in 2009-2010 and will be an estimated 57 billion in 2015-2016.

    Assuming those numbers are correct (and no doubt Mr Redwood could find some official numbers) then this means the actual spending budget in 2009-2010 in terms of government provided services (like pensions, education, etc.) was more like 639.3 and in 2015-2016 will be more like 687.7. This gives an increase of 7.6%, i.e. a pretty significant cut in real terms.

    Of course the UK has to make the debt interest payments. That is not the question. The question is whether it is reasonable to talk about “cuts”.

    repkly Interest payments are part of public spending

    • lifelogic
      Posted June 28, 2013 at 9:37 am | Permalink

      “Interest payments are part of public spending” – indeed and on the rise.

      • Bazman
        Posted June 30, 2013 at 8:40 am | Permalink

        Obviously these interest payments will be put to good use by the recipients and spent far more wisely than the government, so it’s like giving tax back is it not?

        • lifelogic
          Posted July 1, 2013 at 1:41 pm | Permalink

          Yes but mainly to overseas lenders.

          • Bazman
            Posted July 1, 2013 at 7:26 pm | Permalink

            Money going abroad and not benefiting Britain? Where will it end?!

  9. Denis Cooper
    Posted June 28, 2013 at 8:03 am | Permalink

    It seems that the plan is for overall public spending to rise roughly in line with general inflation – a few percentage points either way is really neither here nor there.

    However if there is some economic growth overall public spending will be drifting down as a percentage of GDP, so it will become slightly more affordable.

    But none of this is happening fast enough; at the present rate of progress we still won’t have recovered from the last recession when the next one hits, and the government will still be running a dangerously high budget deficit going into that next recession.

    Cameron’s chum Osborne has proved to be the weakest link over the past four years, insofar as I wouldn’t have expected Labour politicians to be straight with the public and lay it on the line what an appalling mess they had made of the government’s finances, but I would have expected any Shadow Chancellor worth his salt to do that.

    Because Osborne signally failed to perform his assigned task during 2009 the people went into the 2010 general election still largely in a state of ignorance about the severity of the problems, let alone understanding the cunning QE device that Darling had introduced to tide himself over; so the Labour party escaped the electoral annihilation they deserved, and we ended up with a weak Chancellor in a coalition government, and a population unprepared for the pain that Labour had deferred until after the election.

    I don’t think that the role of Her Majesty’s Opposition is to oppose for the sake of opposing, which is what Labour is now doing most of the time; but I do wonder what is the point of a Shadow Chancellor who effectively colludes with the Chancellor in concealing economic and financial reality from the electorate, and moreover by doing that makes his own job much more difficult when he himself becomes Chancellor.

    • Hope
      Posted June 28, 2013 at 3:38 pm | Permalink

      In fairness, according to reports he does not spend much time in the Treasury.

  10. Acorn
    Posted June 28, 2013 at 8:36 am | Permalink

    My spreadsheets based on Treasury data says, using 2011/12 values, which data miners are currently using for comparisons, till the next PESA data gets released, is:-

    2009/10 £704 b (669 b in cash of the day)
    2010/11 £707 b (692)
    2011/12 £696 b (696) (datum year)
    2012/13 £ 665 b (683)
    2013/14 £684 b (720)
    2014/15 £680 b (734)
    2015/16 £672 b (744)
    2016/17 £667 b (756 cash of the day)

    In “real” terms, based on the purchasing power of a pound in fiscal year 2011/12; yes, it is a cut.

    Reply Not so on my analysis – and the Tresury itself has now published figures showing public sector expansion 2010-12

    • Acorn
      Posted June 28, 2013 at 11:37 am | Permalink

      OK we spotted the trick. GDP deflator has magically dropped to 1.8% from 2.4%. Anyone would think that you were planning for a recession.

    • Lindsay McDougall
      Posted June 28, 2013 at 2:16 pm | Permalink

      Let’s not argue about how many angels there were on the head of a pin. The point is that in 2001 public expenditure was 36% of GDP, whereas in 2012 it was in the upper 40s. Virtually every category of expenditure has risen by more than GDP, with health and pensions in the lead. So let’s have no nonsense about further cuts being impossible. In 2001, the only category of public expenditure that the electorate thought was too low was on the NHS. In cash terms, GDP has risen by 50% and health expenditure by about 125%.

  11. Denis Cooper
    Posted June 28, 2013 at 8:44 am | Permalink

    “Past inflation owed a lot to weak sterling and rising commodity prices.”

    Rising commodity prices, yes; weak sterling, no, not for the past few years, because since the substantial drops in late 2007 and through 2008 the trade weighted sterling index has been fairly stable, moving around the 80 level, for over four years now:

    http://www.bankofengland.co.uk/boeapps/iadb/fromshowcolumns.asp?Travel=NIxIRxSUx&FromSeries=1&ToSeries=50&DAT=RNG&FD=1&FM=Jan&FY=1963&TD=28&TM=Jun&TY=2013&VFD=Y&CSVF=TT&C=IIN&Filter=N&html.x=22&html.y=17

    However as I recall the Bank of England estimated that the first £200 billion of QE had added over 1% to the CPI rate of inflation; the stated objective had been to make sure that the 2% target would not be undershot, especially to avoid any risk of a deflationary spiral, instead the target has been repeatedly overshot; but that fact didn’t stop the Chancellor authorising further tranches of QE, and furthermore without ever asking MPs for their consent through a vote to approve a draft of his next letter to the Governor.

    • lifelogic
      Posted June 28, 2013 at 9:45 am | Permalink

      Indeed dropped from 105 to about 80 during Labour’s banking and “rescue” fiasco in 2007-8 but has not recovered at all and still lost grown to the sensibly run countries.

      • lifelogic
        Posted June 28, 2013 at 10:58 pm | Permalink

        sorry I meant “lost ground relative to sensibly run countries.”

      • Denis Cooper
        Posted June 29, 2013 at 7:01 am | Permalink

        It was over-valued at 105, so it’s not really a concern that it hasn’t got back to those levels. When it hit 106.8 on January 23rd 2007 that was an all-time high, at least going back to 1990, while the value of 73.8 on December 30th 2008 was an all-time low. It recovered from that low to stabilise at around the 80 level, with minor shorter term fluctuations, and it has stayed there for over four years now. The inflationary effects of the 2007-8 drops will have passed through long ago, and excess inflation over the past couple of years at least can’t be attributed to the devaluation of sterling because there hasn’t been any. Of course we don’t know what may happen in the future, those are just the historical facts.

  12. Martin
    Posted June 28, 2013 at 9:36 am | Permalink

    Your remark about MPs’ wages after pensions deductions doesn’t convince most private sector workers who have to pay for for public sector workers’ pensions than they can afford for their own.

    The old Soviet Pravda would be proud of the way private sector workers are ripped off to pay for the state!

    • lifelogic
      Posted June 28, 2013 at 11:01 pm | Permalink

      “The old Soviet Pravda would be proud of the way private sector workers are ripped off to pay for the state!”

      Indeed average state sector pension value is nearly 10 times those of the people who have to fund it all working in the private sector and for longer hours and fewer sick days too.

  13. ianh wragg
    Posted June 28, 2013 at 9:41 am | Permalink

    and while we fiddle with public spending and the green quackery, Ofgem tells us we will have power cuts in 2015. We continue to close viable power stations whilst Germany builds lignite burning stations.
    Didcot A stands idle (2000Mw) whilst Davey pays £150 per Mw for offshore wind when it blows. Didcot costs about £40 Mw and is totally reliable and near the load centre of the South East.
    I do hope all you politicians will be held to account when the proverbial hits the fan and people are dying through your sheer stupidity.

  14. Max Dunbar
    Posted June 28, 2013 at 9:43 am | Permalink

    Most people can see the evidence for ‘cuts’ at council level. ‘Cuts’ seem to mean more traffic lights, roundabouts, traffic calming schemes, expensive and unnecessary grass verge cutting machines blocking the road, diversity and equality initiatives, shiny new police cars emblazoned with facile self-promoting slogans and anti-racism posters in schools and posted on advertising hoardings along main roads, etc.
    This is what we see in Scotland. Is England any different? If not then put the squeeze on local councils by cutting their grants and capping council tax and business rates. Force them to lay off staff as per the creative sector.
    Scotland is run as one huge council zone with two council HQs in Edinburgh; one that deals with the city and the other that deals with the rest of the Scottish area. Be hard on Scotland. Reduce the grant drastically. Demand accountability for the money spent here. Exert some authority if that is possible and send Cameron up here to give the Scots a clear message that we are neither forgotten nor to be allowed to squander tax-payers cash on the break-up of the nation.

  15. English Pensioner
    Posted June 28, 2013 at 10:10 am | Permalink

    I can see no reason for “ring-fencing” any expenditure, it just makes for inefficiency.
    The NHS administration is excessive and could be easily cut. Unlike mergers in industry, where they cut the staff overheads due to synergies, in the NHS, mergers of hospitals actually increase management staff, who, of course, get higher salaries for “increased responsibilities”. A merger of two local hospitals, where each had a “Chief Finance Officer” didn’t lead to one of them losing his job, but to the appointment of an “Executive Chief Finance Officer”. I assume that the same happened with other administrative posts.

    Similarly with foreign aid; a figure is plucked out of thin air and we are told that all developed countries should give this sum in aid. Why? Perhaps we should reclassify the cost of our troops in Afghanistan as foreign aid; it is, after all, aid to a third world country to defend itself from rebels. Similarly any aid to Syria, whether humanitarian or arms (I oppose the latter), should be classified as foreign aid.

  16. Neil Craig
    Posted June 28, 2013 at 10:41 am | Permalink

    By “most commentators” who call it a cut you clearly mean the commentators the BBC select to allow on air.

    The BBC is demonstrably a dishonest propagandist for ever more government spending (despite legally being required to be “balanced”, a Charter duty which is not enforced). In practice the BBC is the propaganda arm of the state bureaucracy. This makes it a, perhaps the, major threat to our still somewhat free society.

    • lifelogic
      Posted June 28, 2013 at 11:05 pm | Permalink

      Indeed it does huge damage to the way people think on the EU, the ever bigger state and the quack energy nonsense.

  17. TIM HUTCHENCE
    Posted June 28, 2013 at 10:47 am | Permalink

    Good piece John, enjoyed it. Like most on here, I’m getting ever more frustrated with the media frenzy about cuts e.g. yesterday’s Metro in an article of “news”, not a leader comment, said that our George had declared “war on the welfare state”. The BBC is more subtle but in reality worse.
    But is this a silver lining I see?; the announced cap on Welfare at c£100bn is potentially a game changer when it comes to your 2015 election prospects in my humble opinion.

  18. REPay
    Posted June 28, 2013 at 10:55 am | Permalink

    It is little wonder that political debate is of such a low standard when the basic facts are distorted by politicians and media alike. What I can’t understand is why the Coalition talks as though it is tough on spending, when it has barely used the brakes. When I listen to the BBC or read the New Statesman, it is as though the public sector was being laid waste to. Our journalists are mostly innumerate arts graduates or the few that can add up seem to be Keynsians of the “all govt. expenditure good variety.” If only the Tory party had decided to educate the public before the crash when many people (regulators excluded) knew the bubble was going to burst, they might have won the election. When they lose in 2015 it will be because they talked tough, acted weak and people will have swallowed the idea that the “cuts” were too much too fast.

    Understanding the crash is also critical to public debate. It was not just the bankers as the political establishment, the BBC/Guardian claims. It was the Clinton administration threatening to sue banks if they did not lend to people who were not creditworthy to own houses.

    My solution would be a tax on all unfunded (or partially funded) public sector pensions…MPs are few in number and their pensions modest compared to some of the eye watering amounts paid to middle-ranking and senior public servants.

    I read once that 35% of all NHS money goes on people who used to work for the NHS.

    • uanime5
      Posted June 29, 2013 at 12:26 pm | Permalink

      Care to explain why the Clinton administration is to blame for the banks giving mortgages to people with poor credit ratings, combining these mortgages with mortgages from people with good credit ratings, and selling them them as mortgage packages as being composed entirely of people with great credit ratings? This crash was due to the bank’s greed not Clinton’s desire to help people.

      At present public sector pensions have a surplus which goes to the treasury and the only unfunded pensions is the state pension. So your plan is unlikely to work.

      • REPay
        Posted July 2, 2013 at 8:02 pm | Permalink

        That is plain wrong, public sector pensions are largely funded out of general taxation. There is no fund to have a surplus in! My pension is capped at 45k – if I can save the 1.25m myself (unlikely) – so when the wealth tax strikes public sector pensions should be treated as assets.

        The Clinton administration created the sub-prime market, banks would never have lent to the uncreditworthy had they not been bullied.

  19. Terry
    Posted June 28, 2013 at 1:00 pm | Permalink

    Why can no Government treat their country as we householders have to treat our own homes? When disposable income is drying up we have to make numerous sacrifices to retain our homes.

    It appears that this Government, along with its numerous predecessors, choses to ignore the ways of real prudence and go their own way. Borrowing to increase spending, to further increase debt, never works in our homes nor in the factories around us.
    Why do they think “this occasion is different” when, clearly, it is not? Us plebs, outside of Whitehall, have to cut our expenditures to meet our incomes for we know from bitter experience that adding to our debt always ends in tears. Having seen the devastation wreaked by 13 years of Labour messing why do they insist on maintaining the over-spending, especially when their incomes are falling? It makes no sense unless it is because they are trying to win the next election, whatever the cost to us dumb plebs.

  20. Leslie Singleton
    Posted June 28, 2013 at 2:00 pm | Permalink

    Don’t worry everyone, for at least there wasn’t a double dip. Can one imagine anything more fatuous? GDP is itself a very poor basis for making decisions. The recent acquisition of the entirely arbitrary American definition of recession is nothing to be proud of. GDP we are told moved by a megaminimal 0.1% in some quarter or other some time back – small deal on any basis – and in any event a double dip is by no means all bad–nice to get one’s head above water half way through is another way of looking at it. And now we don’t know, or certainly have no consensus on, what a cut is or is not. It’s a gr8 life if you don’t weaken. Maybe we would be better off if we stopped publishing such gibberish.

    • margaret brandreth-j
      Posted June 28, 2013 at 8:36 pm | Permalink

      I suppose the problem is the simplest of all economic theories , the ‘ invisible hand’. We can’t predict, everything is relative to scarcity and the interpretation of scarcity and Maynard Keynes ‘ hand is very visible.

    • Denis Cooper
      Posted June 29, 2013 at 9:11 am | Permalink

      It’s really about headlines, isn’t it?

      There is a double dip, there was no double dip … a fraction of a per cent one way or another justifies one headline or the other, and it doesn’t matter that even if there was a second dip it was only a faint echo of the first dip.

  21. uanime5
    Posted June 28, 2013 at 3:53 pm | Permalink

    The problem with doing more with less (or the same amount with less) is that it tends to lead to a reduction in the quality of services. For example the cost of healthcare can be reduced by delaying operations as long as possible but I doubt many people would approve of such a policy.

    Another problem the Government may face is that some of their policies will eventually result in a large increases in their budget. For example raising the age of mandatory education from 16 to 18 will result in more children remain in school; thus requiring these schools to hire more teachers for the extra pupils. Though I suspect that some saving will be made because there will be fewer unemployed 16-18 year olds.

  22. Andy Baxter
    Posted June 28, 2013 at 4:41 pm | Permalink

    John Palmer is perhaps one the most famous or should that be infamous characters in our national history…

    Who?

    Well we all know him by his more common name Richard or Dick Turpin……he used John Palmer (Palmer being his mother’s maiden name) as an alias to avoid detection by the forces of law and order of the time.

    The name Dick Turpin has become synonymous with highway robbery because according to history this notorious highwayman’s exploits led him to becoming one of the most wanted men in England.

    Such were his alleged exploits that one could almost believe he was the only man robbing people at the time.

    The truth is somewhat different alas, he was one of many of such ilk, but nevertheless the reality of the highwayman who takes your hard earned wealth from your pocket is still alive and well today in the form of taxation by government.
    What has struck me though is the general ‘consensus’ of total lack of critical attitude to government taxation; very few commentators, there are exceptions, if any at all are up in arms at the gargantuan level, imagination and scope of modern day taxation.

    We just accept it as a fait accompli and shrug our shoulders and grumble with our friends over our pint or bottle of wine.

    Why is this?

    I know I’m not alone in feeling angry at the levels of direct and indirect taxation but to me, what fills me with rage is the mentality or state of mind of both taxpayers (who obediently acquiesce) and the mind set of ‘divine right’ entitlement from Government who take it from our pockets.

    The burden of taxation continues to rise not fall…… The percentage of our income and capital taken is shockingly huge….The TPA calculates something called ‘tax freedom day’ which is the day on which we stop working for the State and start working for ourselves.

    In 2012 this was 29th May, this year some estimates put it at: the best at 1st June the worst at 7th June!

    In other words we work for almost six months for the State before we even get to keep what we sweat and toil for ourselves!

    Put another way, before we spend a single pound of our income on ourselves somewhere between 45% to 55% is directly stripped from us, with menaces I would add and without so much as a ‘please’ and ‘thank you’ and this trend is ever upwards.

    Then we have other forms of direct taxation such as Council Tax imposed on us to supposedly fund local services as well as the TV licence fee which is another form of mandatory taxation. Of what remains, on the majority of purchases (excluding energy, food, books, etc) 20% VAT (an EU invention by the way of which they take a slice) is tacked on, that’s one fifth of the price that is added to the true cost of the goods and services we choose to buy!

    But even on energy we pay hidden government imposed levies (thanks to the religion of global warming) and this will get worse under this governments misguided energy policy where the lights will go out (if we don’t follow the Germans and start building more coal fired power stations) so in essence we’ll be getting less while having to pay more for it!

    Then on essential items for many who work, like petrol and diesel, around 65% of the cost of every drop we buy is duty and there is VAT at 20% that goes straight to the government. A classic by the way, as they tax us on the tax they have already added! You couldn’t make it up!

    One cannot even turn to drink now as the duty on this now is so extortionate you’d need a week’s wages just to go out on a Friday night with friends.

    Then factor in the petty jobsworths enforcing trivial parking and driving regulations with a zeal an East German Stasi apparatchik would even fear to show and the extraction of money from basically law abiding people has become a national sport for The Powers That Be.

    And don’t forget to factor in the hidden cost of the huge waste of money to fund the bureaucracy the ever expanding machinery of government needs to administer this financial three-ringed circus. These are just the very basic examples; there are countless others readers no doubt I could add.

    The basic principle of taxation is not flawed in itself I would argue were it to provide basic public necessities; people generally accept fair taxation in return for say, transport infrastructure, good local governance, the defence of the Realm, defence of the Queens peace though law and order, the provision for the truly desperate and the needy, whether temporary or permanent.

    But the moral decay in public and private life of the last 20 plus years has left us bankrupt both morally and financially combined with a prevailing mind set amongst the ‘political class’ that government can solve any problem and just needs more and more of our money in order to do so, consequently we have seen the state balloon in size and its appetite for our cash is gargantuan, voraciously so and yet it still wants more!

    This is the clearest demonstration of wasteful, lazy and overbearing governance. Of authoritarian, paternalist, control freakery that sees our money taken under menaces then used to bribe the lazy and indolent, the gullible and feckless so most self-serving elitists at every level can enjoy the trappings and baubles of office that go with the power they wield over us.

    Where is the outrage? Where is the deeper thought that leads people to question why we have allowed government-by-consent to be transformed into electoral dictatorship? Where are the people who are standing up and demanding that government only takes what is needed to fund the essentials and nothing more? The failure to do this has allowed government after government to absorb our money and fritter it away on wheezes and trivialities.

    It is utter insanity that the government gives money to groups to fund their ability to campaign for the government to spend our money on their special interests. It is disgraceful that we indirectly fund fake charities and associations that we may personally choose not to support, through government grants and hand-outs.

    Just think how much better off we would be if we kept more of our own money and decided for ourselves how and where to spend it. Think how much better the goods and services we could buy would be if driven by competition amongst the companies and sole traders whom we decide to spend our money with. Think how many more jobs would be created to service the needs of a wealthier population, in turn reducing the need for state help and therefore the need to tax us so much. Consider, given as a nation our natural selfless generosity, how much more money genuine worthy charities would collect if we could better afford to contribute. Consider how much more free we would be with a smaller and less intrusive money grabbing state, and consider how much happier we could be if we were able to make more decisions on how to spend our money for ourselves and families.

    Having thought about that, now ask yourself, why do we tolerate the status quo? Why do we not take back power and decision making for ourselves, rather than leave it in the hands of incompetent and elitist self-serving politicians? Politicians who, despite having hundreds of billions and billions of pounds of our money in recent years, and billions more in the coming years, have and will manage to spend it all with little to show for it?

    And don’t forget the billions more that has been borrowed in our names without asking on top of all the taxation they have collected, and that too has also been squandered, and all by people who have contrived to leave this country deep in debt, now necessitating the picking of our pockets to harvest yet more of our meager incomes to as they claim repair the damage done by the previous set of same old same old.

    What grates me the most however is that there is no sense of gratitude nor regret or even apology from the privileged elite who govern us for taking so much year after year after year.

    Quite the opposite in fact…..

    Such behaviour is ludicrously described as ‘progressive’ and ‘fair’. It is nothing of the sort.

    It is highway robbery……

    But at least with Dick Turpin you knew what you were in for…………Because, he at least had the decency to wear a mask.

    • Cheshire girl
      Posted June 29, 2013 at 7:22 am | Permalink

      Very well put , in my opinion. This is what most people are thinking. Taxation is far too high, especially VAT. Frankly I resent having to pay 20 per cent tax just to have my roof fixed, book a hotel room, etc. I think VAT should be reduced again to no more than 15 per cent. I think I heard at the time that the rise in VAT was to be a temporary measure, but I may be wrong about that.

      • Andy Baxter
        Posted June 29, 2013 at 10:36 am | Permalink

        no you are not wrong VAT was ‘sold’ to us as a temporary measure but it is in fact an EU tax directive where the EU collects a small percentage of revenue from each country…..

        sooner we are out the better

    • uanime5
      Posted June 29, 2013 at 12:35 pm | Permalink

      Your right wing fantasy that lower taxes will magically fix everything is at best naive and at worst destructive. Unless you plan to force people to pay for their own healthcare, education, and force them to live on the street due to a lack of welfare it’s not possible to have any significant tax cuts.

      • Edward2
        Posted June 30, 2013 at 9:46 am | Permalink

        Not if lower rates increase revenues like the recent top rate reduction has Uni

  23. Denis Cooper
    Posted June 28, 2013 at 6:06 pm | Permalink

    JR, please do you have any explanation why 61p is been widely quoted as the Lloyds share price at which the government, ie the taxpayer, would break even, when the government paid an average of 74p for the shares?

    • Denis Cooper
      Posted June 29, 2013 at 8:04 am | Permalink

      I find for myself that Lloyds had (at least) two rights issues and the government acquired more shares at much lower prices, bringing down the average acquisition cost of each Lloyds share that it now holds.

  24. John Eustace
    Posted June 28, 2013 at 6:53 pm | Permalink

    Seeing the speed with which Michael Fallon’s Newsnight claims about energy supply had to be corrected leaves me wondering what role Ministers actually play in running things or even know what is happening in their own departments?
    I realise he has only been Energy Minister for a few months but I know more than him about the situation based on a half day visit to National Grid two years ago!
    Seriously – are Ministers like him eliberately kept in the dark (pun intended) by their Civil Servants/Masters? Do they actually run their departments and take decisions any more – or was it ever thus?

  25. Winston Smith
    Posted June 28, 2013 at 8:56 pm | Permalink

    Now factor in the 4% increase in population, in that period. If you breakdown the figures to the essential services and then divide them by population, you will see the residents of England are having a large cut in their services. You will also see the same people are paying more in tax. Funding for Scotland, Wales and NI, plus International Aid are all increasing. Any net taxpayer in England who votes LibLabCon is nuts.

  26. behindthefrogs
    Posted June 28, 2013 at 10:56 pm | Permalink

    We need the government to recognise that if they simply reduced the amount they spent on imports this would have a major effect on reducing the deficit. For example the NHS could still have no budget reduction but spend more of that budget at home instead of on imports. This could be effected through minor purchases like stationery as well as major equipment purchases.

    To understand the effect one has to understand that the major proprtion of the cost of manufacturing anything is the cost of the labour involved either directly or through components services etc. purchased as part of that manufacture.

    If we now look at where those labour costs go it becomes obvious that nearly half is retrieved by the government through income tax, national insurance both employer and employee, corporation tax etc. Even more is retrieved through reduction in benefits and VAT on purchases made by the employees.

    It thus costs the government half as much to purchase an item made in the UK than to purchase the same item made abroad with seemingly the same or a slightly lower list price.

    Thus we need a government spending strategy that focuses on import replacement for everything that it buys.

    • Denis Cooper
      Posted June 29, 2013 at 7:02 am | Permalink

      I think the EU Commission may have something to say about that.

      • behindthefrogs
        Posted June 29, 2013 at 10:18 am | Permalink

        You will find that many EU countries actually allow some of the tax retrieval that I am talking about to be included in tenders for contracts thus increasing the chances of contracts being awarded at home. Unfortunately the UK has not yet caught up with Germany etc. on this front.

  • 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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