Rewriting the script on “Austerity” politics – and Labour cancels its VAT cut

 

                  Since 2008 the US Federal deficit has fallen rapidly, from 10% of GDP to around 4% this year, from a peak of $1413 billion to an estimated $607 billion for the year  to end September 2013.  That’s a big cut in cash terms, a big cut in real terms, and a big cut as a proportion of GDP.

                 At the same time the US economy has recovered well from the big recession in 2008-9, and is now producing more than at its pre recession peak. According to austerity theorists, this should not have happened. Whilst some of the deficit reduction comes from rising tax revenues as a result of growth, some also has come from actual cuts in overall public spending. This contrasts with the UK where public spending  has continued to rise overall.  This year US federal spending is down by 2.9% in cash terms, rather more in the much favoured real terms.

            UK total public spending is up by 7% this year (2013-14), (Red Book  2013 p 103) though  last year’s figures are a bit distorted. It is up 4% compared to 2011-12.  Borrowing is down on the peak levels of 2008-9 but still a higher proportion of GDP than in  the USA.

               Those who have argued that you can cut too far and too fast should study the US example. It shows that you can stimulate more private sector led growth if you cut spending and the state deficit fairly rapidly, whilst maintaining a loose monetary policy. The US private sector has performed extremely well, to offset the substantial  cuts in public spending.

                  In the UK where the  public spending growth rate has been brought down and the amount of extra borrowing cut, there has also been a recovery. It is picking up speed now, though during the frst two years of the Coalition when public spending was still growing more quickly there was little overall economic growth. The UK is showing  as with the USA  that starting to tackle the deficit, far from impeding recovery, assists it.

                It was interesting this week to see Rachel Reeves, one of  Labour’s Treasury team, given  the job of cancelling Labour’s policy of a VAT cut to give the economy an immediate boost. Apparently the UK economy is now growing fast enough for Labour to no longer think it needs a one off tax cut with extra borrowing.  Labour also needs to ask themselves why Mr Obama’s cuts strategy, cutting spending and borrowing more drastically than the UK, has delivered faster growth sooner. Some honesty on what the figures tell us would be a good starting point.

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63 Comments

  1. Brian Taylor
    Posted September 5, 2013 at 5:56 am | Permalink

    Cut early and cut hard and then we would still have the recovery and the deficit would be even lower!
    The other reason for the improvement in the US recovery is benefit of cheap energy (GAS) from Fracking which has improved employment and lowered CO2
    I hope the authorities have taken a close look at those Sussex protesters with regard to any benefits that are being claimed!!!

    • Mike Wilson
      Posted September 5, 2013 at 8:59 am | Permalink

      Our energy and housing costs are way too high for us to be competitive in the global economy.

    • Mike Wilson
      Posted September 5, 2013 at 9:01 am | Permalink

      Do you seriously – I mean, SERIOUSLY, think that fracking will give us cheap energy?

      Why do you think that? Because it is cheaper to get out of the ground than other energy forms?

      Do you remember all the cheap petrol we had when we were oil self sufficient courtesy of North Sea Oil? No? Neither do I. It was taxed so we paid the highest petrol prices in Europe.

      • A different Simon
        Posted September 5, 2013 at 10:35 am | Permalink

        Mike ,

        Price is not the main issue here .

        Domestic production of hydrocarbons offsets imports to improve our balance of payments . The petroleum taxes get paid in the UK .

        Unconventional hydrocarbon extraction is labour intensive so circulates money into the economy in the best way possible – wages .

        Looking at the number of direct and indirect jobs created in the US it’s not unreasonable to expect it to create more than 100,000 jobs here and that can completely transform the lives of 100,000 families and give them hope .

        We could expect it to save our steel industry as a lot of steel well casing will be required . We no longer have a tube mill capable of making the casing in the UK .

        Our ceramic’s industry could be producing high strength proppant for cases where sand would get crushed or embedded .

        The UK sedimentary sections of interest are extremely thick . The only formation in the US which is as thick as the Bowland Shale is the Wolfcamp/Wolfberry trend . Currently they do not drill multi-laterals in the Wolfcamp – each well has it’s own vertical . There is a real opportunity for UK universities and engineering firms to come up with bespoke solutions which can be adapted to other parts of the world .

        There is a world of actual and perceived (mostly perceived) challenges with regards to transferring the shale gas/tight oil technology from the US and scaling up onshore production and the UK can become the leader in the outside the US for the technology , monitoring , regulation and taxation .

        The Geopolitical issues of countries around the world producing their own hydrocarbons rather than buying them from Opec are massive . No wonder Germany doesn’t want it with their powerful neighbour to the East .

        Having improved domestic production gives us bargaining power with regards to the price we pay for what we import .

        Industry needs security of energy and chemical feedstock supply and at the moment it doesn’t have it . In the event of a long winter the only solution is to ration gas to industry in order to stop the population dieing of hypothermia .

        Local production of energy would be “in your face” which should encourage people to think more about their consumption and waste .

        There is a battle going on the UK where half the population want to live in a massive open air museum and the other half want industry and jobs .

        This could be the catalyst leading to the creation of a host of small and medium sized local services companies rather than just a few giants .

        Similarly the UK could become the leader in in-situ coal gasification (UCG : underground coal gasification) but it would require the UK’s emissions limit of 770g CO2/mWh which was designed specifically to exclude coal from new electricity generation to be removed .

        More than anything else , we need to import the entrepreneurial culture which has made shale such a success in America rather than just consign it to the “too difficult” bin .

        • uanime5
          Posted September 6, 2013 at 9:31 pm | Permalink

          Domestic production of hydrocarbons offsets imports to improve our balance of payments . The petroleum taxes get paid in the UK .

          If it costs more to make petrol in the UK than buy if from abroad then it won’t benefit the UK.

          Unconventional hydrocarbon extraction is labour intensive so circulates money into the economy in the best way possible – wages .

          In what way is fracking labour intensive? Even in the USA fracking only provides jobs for a small percentage of the total workforce.

          Looking at the number of direct and indirect jobs created in the US it’s not unreasonable to expect it to create more than 100,000 jobs here and that can completely transform the lives of 100,000 families and give them hope .

          Wishful thinking isn’t a good reason for fracking. Firstly it’s only possible to determine the direct number of jobs created by an industry, the indirect jobs are little more than a guess.

          Secondly there’s no reason to believe that it will create 100,00o job, especially since you were unable to explain what industries would be created if fracking was used in the UK. Remember than manufacturing isn’t labour intensive as it’s now mostly automated, so it won’t create many new jobs.

          We could expect it to save our steel industry as a lot of steel well casing will be required . We no longer have a tube mill capable of making the casing in the UK .

          Unless the UK can make steel cheaper than their competitors it won’t help the steal industry.

          Also the lack of facilities able to make casing means that the UK is unlikely to be able to compete against their competitors for some time.

          Our ceramic’s industry could be producing high strength proppant for cases where sand would get crushed or embedded .

          Care to explain why the US ceramic industry hasn’t seen a similar boon from fracking.

          The UK sedimentary sections of interest are extremely thick . The only formation in the US which is as thick as the Bowland Shale is the Wolfcamp/Wolfberry trend . Currently they do not drill multi-laterals in the Wolfcamp – each well has it’s own vertical . There is a real opportunity for UK universities and engineering firms to come up with bespoke solutions which can be adapted to other parts of the world .

          So you’re claiming that it’s a good thing that UK shale gas is more difficult and expensive to extract. Guess what it isn’t.

          Also unless there are any other countries that have shale gas in a similar location and also want to extract this gas the technology won’t be valuable in other parts of the world.

          The Geopolitical issues of countries around the world producing their own hydrocarbons rather than buying them from Opec are massive . No wonder Germany doesn’t want it with their powerful neighbour to the East .

          Unless the UK can produce several million barrels of oil per day we’ll still have to rely on OPEC.

          Also what country east of Germany are you referring to? It can’t be the UK because we’re west of Germany.

          Having improved domestic production gives us bargaining power with regards to the price we pay for what we import .

          No it doesn’t. We either pay market rates or the product gets sold to someone who will.

          In the event of a long winter the only solution is to ration gas to industry in order to stop the population dieing of hypothermia .

          Something that could also be resolved by requiring energy companies to hold more gas in reserve.

          More than anything else , we need to import the entrepreneurial culture which has made shale such a success in America rather than just consign it to the “too difficult” bin .

          The UK does have an entrepreneurial culture but due to the poor wages paid in the UK all the entrepreneurs go abroad where they can make more money.

          • A different Simon
            Posted September 10, 2013 at 6:04 pm | Permalink

            Uanime5 ,

            The extremely thick formation is a brilliant challenge to have .
            Firstly as a reservoir it has a greater volume and having intraformational seals more of the generated hydrocarbons have remained in place .

            This has resulted in gas-in-place densities of as much as 1 trillion cubic feet / square mile .

            I tried to explain that there is scope for improving on current practices in the Wolfberry trend by pioneering multi-laterals from the same vertical here in the UK . That sort of advance would be applicable to many places over the World .

            Sure our steel industry would need to tool up if it was to provide casings and drill strings but given that it is a big energy user it should have a symbiotic relationship with shale gas producers . It could farm in to licenses or provide offtake funding as energy intensive industries do elsewhere in the world .

            A tube-mill would enable the industry to bid for many other contracts . Look at Japan Steel , they have the only forge capable of making the core of a nuclear reactor so all the work goes there .

            I didn’t say fracking (whatever fracking with a “k” is) is labour intensive . Relative to hydrocarbon production from conventional traps , unconventional requires more wells thus more materials , logistical movements , and people including security guards and regulators .

            With regards to OPEC you are missing the point . The UK is already benefiting from US shale gas . If the US was importing it’s gas rather than producing it at home , the price we pay would be higher .

            The country to the East of Germany which I was aluding to is Russia a country which doesn’t want to move into a buyers market .

            Gas storage relys on seasonal differences in price . The differentials are currently to low to make storage projects attractive which is why some have been put on ice .

            I agree with you that the UK doesn’t offer younger people a fair deal . An extra industry like this can only help .

            Disagree that the UK is entrepreneurial . People are too willing to work for big companies rather than strike out on their own .

        • margaret brandreth-j
          Posted September 8, 2013 at 4:53 am | Permalink

          We are led to believe that boring in many smaller places and forcing water down the bore holes will leave the strata unstable , causing much more damage than perhaps areas which are vast in America and away from more urban areas. Surely these safety factors need to be taken into consideration.

    • uanime5
      Posted September 5, 2013 at 6:34 pm | Permalink

      Osborne did cut early and hard; resulting in 3 years of no growth and wages falling 5.5% in real terms. Hardly good for the economy.

      • Edward2
        Posted September 6, 2013 at 6:44 am | Permalink

        Uni
        By “cuts” you really mean a reduction in the planned rate of increase in public spending.

      • peter davies
        Posted September 6, 2013 at 5:20 pm | Permalink

        rubbish!

      • lifelogic
        Posted September 8, 2013 at 7:22 am | Permalink

        What cuts? It was tax, borrow and piss down the drain all over the place.

  2. lifelogic
    Posted September 5, 2013 at 5:58 am | Permalink

    Indeed tax borrow and waste in every direction, expensive religious energy (being pushed by the absurd BBC again this morning, no mention of the absurd costs of it all needless to say), over regulation of everything, daft employment laws, no competition in banking, daft enforced “equality” drivel, no vision and Labour in 2015.

    Energy prices in the UK are nearly half those in the US and this is due to absurd government policy.

    • nina Andreeva
      Posted September 5, 2013 at 7:17 am | Permalink

      LL have a look at the “Der Spiegel” English website. There is a new article in there that will get you all excited. Its about how “green energy” is contributing massively to energy poverty in Germany

      • lifelogic
        Posted September 5, 2013 at 9:05 am | Permalink

        Indeed well what else can expensive energy at 2-6 times the true value do but export jobs, make the elderly cold and others poor. The cost is simply never mentioned by the BBC and it is not even green in any real sense – even if you do still belief the CO2 calamity, huge exaggeration, religion.

        • lifelogic
          Posted September 5, 2013 at 9:16 am | Permalink

          The BBC is powering a radio 5 program with human bikes generators as part of their idiotic radio 5 live energy festival.

          Almost one of the least green, most expensive and most inefficient ways to generate power imaginable. Using steak, chips and wine for around the world, to power humans, to drive bikes, to charge batteries, then to discharge batteries ……….. perhaps 95% of the energy down the drain?

          The real costs of renewable energy are never even mentioned by the BBC do they even know what a kilowatt hour actually is. Worth 4p from gas (and on demant) and perhaps 40p+ from idiotic PV cells on semis.

          • Bazman
            Posted September 5, 2013 at 5:29 pm | Permalink

            This is like saying a car powered by salmon and caviare is expensive to run. As most people eat to many calories anyway bikes are a very efficient and healthy way to travel. Don’t tell us about your elf and safety nonsense. I suspect you are to fat to ride a bike and this is your personal excuse. The idea that a human on a bike emits more co2 than a car even when full is your right wing chuntering idiotic fantasy and you dare to write about BBC propaganda? What will be real cost of not having clean and sustainable energy. Clean and sustainable. Not green or idiotic. Understand that?

    • Hope
      Posted September 5, 2013 at 7:23 am | Permalink

      Forget Labour what have the Tories done during the past three years to make spending cuts and to ful the 80 percent spending cuts and 20 percent tax rises. Over 300 tax rises but no significant spending cut and5.2 percent pay rise for welfare when they already get more than what most people earn. Mass immigration continues , Border Agency stilling shambling state, every piece of land being built on for wind farms or housing for immigrants. You need to lobby Cameron to at least achieve something of a Tory policy before he is ousted from office in 2015 . Once more, this is a veiled blog to suggest it is a Cameron or Miliband choice. It is not. Both are useless and have the same policies with a slightly different approach.

      Reply The current opinion polls for a General Election show Labour in government with a majority over the Conservatives as the second largest party. I describe the world as it is. I naturally want a diffferent result, and there is time left for voters to change their minds.

      • Nina Andreeva
        Posted September 5, 2013 at 8:14 am | Permalink

        Mmmm uncontrolled mass immigration has not caused a squeeze on the availability of public services? Here is an interesting case of a local lad with a dodgy heart who the council expect of him and his mother to leg it across town to another school because a place at the nearest school needs to go to a more deserving child

        http://www.bbc.co.uk/news/uk-england-bristol-23959188

        Little Miss Andreeva had her first day at school yesterday (the catchment area was a radius of 200m). The school day lasted for 2 1/2 hours and she is not expected back in until Friday for another 2 1/2 hour session. How are standards improving? When I started primary school at the fag end of the ’60s it was on the basis that the school day was 9am to 3.330 pm, Monday to Friday.

        • Mike Wilson
          Posted September 5, 2013 at 9:04 am | Permalink

          I’d have to say the current opinion polls are rubbish. UKIP won 25% of the vote in the two most recent parliamentary by-elections and a similar percentage in the much more widespread council elections.

          Yet the polling companies results have barely moved. They clearly ask the same people the same questions over and over again. Which, given that most people vote tribally, means their results will not change much and are not likely to be accurate.

          I’m looking forwards to the pollsters being lined up the day after the 2015 General Election to be asked ‘why didn’t you know UKIP were going to get 25% of the vote?’

      • Leslie Singleton
        Posted September 5, 2013 at 9:18 am | Permalink

        Comment on Reply–First, there is also time left for a few Conservative natural UKIPers to decide to move over and really get the Out bandwagon rolling. Even now, for you to say there are no MP’s thinking of moving amounts to your saying you can prove a negative. Secondly, and as a disbeliever in anything to do with GDP, how come there is never any talk of the Black Economy–I genuinely have no idea, but does it get bigger or smaller as recovery arrives?

        Reply Sometimes it is sensible to accept the judgement of people who are betetr placed to know than you are. I do not expect a group of Conservative MPs to defect to UKIP in the way you predicted.
        Who knows if the black economy is getting bigger? You would expect it to get larger as a proportion at times of major new taxes or tax rises, as more people might wrongly then take the risk of dodging taxes.

        • Leslie Singleton
          Posted September 5, 2013 at 3:23 pm | Permalink

          Reply to Reply–Pardon you, but I very much did not “predict” anything whatsoever–I described what I would like to see but said ever so clearly (twice) that I didn’t think it likely to happen. A man can dream. As to GDP and the Black Economy, you will remember my main unhappiness was and is the flapping about that always accompanies tiny movements in GDP, which you appear to agree stand in danger of being swamped by movements in the Black Economy, this apart from what I continue to see as the very odd definitional (“conventional”) basis used, viz include everything even if useless.

  3. Nina Andreeva
    Posted September 5, 2013 at 6:17 am | Permalink

    Recovery in the US eh? No all you are seeing is the twitches on the legs of a dead frog that you achieve when you pass a few volts over them. This “recovery” has no traction because the jobs that are being created are mostly low skill/low pay ones that are unlikely to give the required increase in demand. If things were going well, as an investor, I would be seeing a better price for McDonald’s or Walmart shares as they are companies that operate at the lower end of the mass market. Instead all I am seeing is 1 in 6 Americans on Foodstamps (with a 2% increase in claims over the past year).

    The best confirmation of a recovery will be if the Fed decides to taper later on this month. I say they will not (or it will be such a trivial reduction down from say $85bln to $80bln per month). Because the Fed knows that as soon interest rates go up its “game over”, knowing how dependent the US economy is on leverage.

    • Acorn
      Posted September 5, 2013 at 10:35 am | Permalink

      US Federal and Local government reduced “austerity” cutting significantly in the second quarter. Real federal government consumption expenditures and gross investment decreased 1.6 percent in the second quarter, compared with a decrease of 8.4 percent in the first.

      National defense decreased 0.6 percent, compared with a decrease of 11.2 percent. Nondefense decreased 3.2 percent, compared with a decrease of 3.6 percent. Real state and local government consumption expenditures and gross investment decreased 0.5 percent, compared with a decrease of 1.3 percent.

      The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased. (BEA Gross Domestic Product, 2nd quarter 2013, second estimate)

      The acceleration in real GDP in the second quarter primarily reflected upturns in exports and in nonresidential fixed investment and a smaller decrease in federal government spending that were partly offset by an acceleration in imports and decelerations in private inventory investment and in PCE.

  4. JimF
    Posted September 5, 2013 at 6:28 am | Permalink

    Labour are an irrelevance whilst they aren’t in power – a bit like your ongoing point about UKIP.
    Meanwhile let’s hear from your side about why they think increasing public spending in a debt-ridden public sector is such a good thing. How do they think increasing taxes is such a good path to growth?
    Your own people have far more questions to answer than does an irrelevant Labour lackey.

    Reply Labour are far from irrelevant in this Parliament, as the vote of Syria has just shown.

    • Nick
      Posted September 5, 2013 at 9:27 pm | Permalink

      So are the Tories and the Lib dems.

      They’ll all waffle on about the deficit, but at the same time they’ll ignore the debts and deny pensions are even owed. You’ve paid in, and they have looted the cash. It’s a Ponzi.

      So the question is then, by how much is the debt increasing?

      120 bn a year for the borrowing. You can get that out of the state. Much harder to get the pension figures. However you can get an estimate. It’s another 734 bn a year.

      So debts are going up by 850 bn a year when you include the top two items. There are others.

      Taxes only raise 600 bn.

      No wonder they want to hide the debts. The public sector is not only debt ridden, its bankrupt.

      So they hide the figures in spite of campaign promises. After all, if they can fool people into paying in, they survive and get their cash out.

      Ever wonder why MPs don’t belong to the civil service pension (ponzi)? Why do they have their own gold plated pensions separate and invested in hard assets?

      Reply The “pension debts” do not increase at anything like the rate you describe. Pensions are pay as you go, as is the NHS etc.

  5. lifeligic
    Posted September 5, 2013 at 6:35 am | Permalink

    The UK clearly needs some real competitive advantages. Cameron give us high energy prices by government design, a bloated, wasteful and 50% over paid state sector, high & over complex taxes and over regulation everywhere, daft employment laws, absurd subsidies for nonsense like quack energy, HS2 and electric cars, useless banks, a daft “equality” agenda and no uplifting vision to boot.

    Meanwhile we have BBC pushing a festival of (mainly quack) energy, no mention of the absurd costs of “renewables” often 5 times the real value of the energy and jobs thus destroyed.

    The most depressing thing is how all the “right on” arty students interviewed have not the slighted idea of the real engineering or economics of quack energy. They too are in a dream world like the BBC.

    • Bazman
      Posted September 5, 2013 at 5:14 pm | Permalink

      Cut the state sector in half? How would private companies employ people. What would the millions on the dole do to pay their rent mortgage and food bills. The energy policy you propose is not clean or sustainable and could cost millions in lost revenue from countries desperate for this technology. Competition will solve the problem like in banking hundreds or dirty power stations pumping out cheap short term electricity? This is a quack energy policy. As for the BBC what do you think your nitwit RWC is?

  6. A.Sedgwick
    Posted September 5, 2013 at 7:02 am | Permalink

    “Labour also needs to ask themselves why Mr Obama’s cuts strategy, cutting spending and borrowing more drastically than the UK, has delivered faster growth sooner. Some honesty on what the figures tell us would be a good starting point.”

    Osborne too.

    • Brian Tomkinson
      Posted September 5, 2013 at 7:23 am | Permalink

      Agreed.

  7. frank salmon
    Posted September 5, 2013 at 7:15 am | Permalink

    Labour will soon have no policies at all, having abandoned all the half wit ideas they had. The only thing they have left is ‘the living wage’, which will bankrupt the country. That is why they will lose the next election.
    Cameron and Osbourne et al should take note of the US recovery. In a market economy it helps to play by the rules and live in economic reality. The US still has a long way to go and abandoning the Ritalin of economic growth – QE, will mean higher interest rates and a collapse in commodities – including house prices. The UK is in an even more parlous state with no real economic growth and an addiction to low interest rates. When we begin to live in the real world we stand an even chance of a run on the pound, a stock market collapse and higher interest rates than would otherwise be the case. And of course house prices will collapse in spectacular fashion…..

    • Bazman
      Posted September 6, 2013 at 5:55 am | Permalink

      The living wage will bankrupt the country? Not before subsidies in the form of benefits to companies to maintain minimum living standards for their employees as many large corporations are not made to pay tolls for infrastructure and education.
      You propose to have no minimum standards of living in this country? That is a half wit idea as how would we pay for that? Peasantry is not possible here. Ram it.

      • Edward2
        Posted September 6, 2013 at 12:05 pm | Permalink

        Baz
        Why not make the “living wage” £500 per week.
        With this excellent idea we could eliminate poverty and make everyone rich overnight.

        • Bazman
          Posted September 6, 2013 at 3:49 pm | Permalink

          Indeede! Why not abolish the minimum wage and all housing benefits introducing competition where it is needed?
          Read this bit again.
          Not before subsidies in the form of benefits to companies to maintain minimum living standards for their employees as many large corporations are not made to pay tolls for infrastructure and education.

          • Edward2
            Posted September 6, 2013 at 5:12 pm | Permalink

            Baz
            It would good to do some research done on your idea of removing the housing benefits system and the minimum wage and the tax credits system which you say currently subsidises low paying employers allowing prices and wages and taxation to then find a new level.
            Would wages rise or fall? Would prices rise or fall?
            What would happen to rents? Would people end up worse off?

            After all, money is only a store of value.
            Its not important whether you are paid £100 per week or £1000 per week but what standard of living that buys you in relation to the prices of goods and services you need.
            We should have a think and come back to ourselves.

          • Bazman
            Posted September 8, 2013 at 11:14 am | Permalink

            It would probably self balance to some degree, but there would be a strata of the population in absolute poverty and in country as small and densely populated as this is not acceptable and would result in civil unrest. Just because the pie is large does not mean everyone will get enough to eat and some will starve.

  8. Stewart Knight
    Posted September 5, 2013 at 7:22 am | Permalink

    Labour and honesty ion the same sentence? I think not, and Labour honesty is a true oxy-moron

  9. Brian Tomkinson
    Posted September 5, 2013 at 7:33 am | Permalink

    JR: “Borrowing is down on the peak levels of 2008-9 but still a higher proportion of GDP than in the USA.”
    Just what is the figure? Why does no politician ever give details about the deficit any more? After all this was the crisis we faced in 2010 and why many people voted for your party. For your information, the Tax Payers’ Alliance debt clock is now showing £1,214bn. and of course still increasing. How does your party intend explaining doubling the debt in 5 years and not eliminating the deficit? I suppose you won’t bother trying or say it was all Labour’s fault.

    Reply I usually do give the figures. They are on this site.

  10. Steve Cox
    Posted September 5, 2013 at 7:35 am | Permalink

    I see this as an acid test of George Osborne’s commitment to deficit reduction. As we all know here the original plan was to cut the deficit in the first few years of this Parliament by raising taxes, and then once economic recovery was clearly underway the main part of the deficit reduction programme would occur as serious cuts in public spending are made during the final years of this Parliament. That latter part of the plan has been shelved, supposedly because of the lack of any obvious sign of a recovery, but more than a few people suspect that it’s as much because the Chancellor has become hostage to the five-year electoral cycle. Now that it seems evident that a recovery, and possibly a very strong one, is happening the Chancellor has a chance to revert to Plan A and start cutting spending seriously. The big question is: will he? The US has cut its deficit more in one year than the UK has managed in five, and without harming its recovery. That fact alone should shame Mr Osborne into action, or is he just going to let another opportunity slip away from him?

    Reply The government is keeping to its original plans for current public spending, which show a progressively tighter squeeze on its growth rate over the 5 years.

    • Mike Wilson
      Posted September 5, 2013 at 8:57 am | Permalink

      Reply to reply. The government is keeping to its original plans for current public spending

      What does this MEAN? I can keep to my plans for spending if I KEEP BORROWING! Oh look, my income has gone down. But I’ll borrow more and keep spending – just as I told my wife I would!

      This really is the economics of the mad house.

      Reply It means your statement that they had changed their approach with an election coming was not true with respect to current spending. It’s all in the Red Books.

      • Mike Wilson
        Posted September 5, 2013 at 10:49 am | Permalink

        Reply to Reply ..It means your statement that they had changed their approach with an election coming was not true with respect to current spending.

        I made no such statement.

        I made the point that spending committments are nonsense. It is borrowing committments that are important but which are NEVER made.

        No, tell a lie, didn’t Gordon Brown have some ‘golden rules’. Alas the goldren rules had goalposts on wheels.

        • Bazman
          Posted September 6, 2013 at 3:59 pm | Permalink

          If you are already on the financial limits and a cut in benefits takes you over then what are you to do then? Many borrow and hope for the best as what is the alternative. Arguing that they are not on the limit whatever is not a sensible or realistic argument. There are limits. Oh look, my income has gone down. But I’ll borrow more and keep spending – just as I told my wife I would!

  11. Mike Wilson
    Posted September 5, 2013 at 8:53 am | Permalink

    America has allowed itself a house price crash – so housing costs have lowered so people have more money to spend on other things.

    America is energy independent and has CHEAP energy.

    We are nothing like America. We are in the EU. We have expensive housing and energy.

    To compare us with the USA is, frankly, daft.

    Reply I agree the US has made wiser policy choices on energy than the EU – maybe we should copy them. We also had a sharp fall in house prices outside central London.

    • lifelogic
      Posted September 5, 2013 at 9:23 am | Permalink

      How are we to copy them with Cameron, Huhne, Cable, and Davey types put in positions of responsibility, the climate change act and the endless nonsense of the EU?

      I predict lost more frozen OAPs this winter all allegedly so that our richer great, great, grandchildren will not have to suffer an extra 1 degree centigrade in 100 years.

    • Mike Wilson
      Posted September 5, 2013 at 10:56 am | Permalink

      Reply to reply: We also had a sharp fall in house prices outside central London.

      No, there has been a fall in house prices – not a sharp fall – in Northern towns with high unemployment – and in some parts of Wales.

      Elsewhere – a housing market with much lower transactions but prices, on the whole, have not moved.

      Please have a look at House prices in Berkshire since 2000 and identify the ‘sharp fall in house prices’. There has NOT been one.

      And, by way of casting the net wider …

      House prices in Lancashire since 2000

      House prices in Cumbria

      Not much sign of sharp falls. So your argument is fallacious.

      Reply The Nationwide house price survey shows a fall of almost 20% from the peak to trough 2007-9.

  12. Mike Wilson
    Posted September 5, 2013 at 8:55 am | Permalink

    Being told I am a spambot! Can I not post any more?

    • Bazman
      Posted September 7, 2013 at 5:45 am | Permalink

      Lifelogic gets past the spam software with his ‘absurd’ and ‘pointless’ robotic rants.

      • Edward2
        Posted September 7, 2013 at 7:56 am | Permalink

        Others do too.

  13. Mike Wilson
    Posted September 5, 2013 at 9:06 am | Permalink

    Anyone got the figures for total American government spending over the last, say, 5 years.

    I don’t believe there have been cuts. They were talking about a fiscal cliff a while ago because spending had NOT been cut.

    Reply There have been cuts – 2.9% in the last year as I quoted.

    • Mike Wilson
      Posted September 5, 2013 at 12:09 pm | Permalink

      Reply to reply: Where are you getting your numbers from?

      According to this web site US Government Spending figures total spending in billions was:

      2010: 5963
      2011: 6157.5
      2012: 6188.7
      2013: 6360.50

      That looks like year on year increases to me.

      Reply: Yes, quite right, but these are total public spending figures, where I cited Federal spending. I agree these total spending figures are also important. They show a tiny 0.5% increase last year, and a 2.7% increase this year – well below UK rates of spending growth and reductions in real terms. This year spending is likely to undershoot budgets.

      • Mike Wilson
        Posted September 6, 2013 at 8:43 am | Permalink

        Ahh, so you are comparing US Federal spending with total UK government expenditure.

        So, you are not comparing like with like.

        Total UK Government spending has gone up.
        Total US Government spending has gone up.

        They have cheap energy and have allowed a housing crash.
        We have expensive energy and have NOT allowed a housing crash.

        I posted figures that prove we have not had a ‘sharp’ house price correction. You cherry picked the Nationwide index for the years 2007 -2009.

        I have just used the Nationwide calculator for the UK. Here is what it produced:

        “A property located in UK which was valued at £150,000 in Q1 of 2007 would be worth approximately £142,943 in Q2 of 2013. This is equivalent to a change of -4.70%.”

        And for the ‘Outer South East’:

        “A property located in Outer South East which was valued at £300,000 in Q1 of 2007 would be worth approximately £296,713 in Q2 of 2013. This is equivalent to a change of -1.10%.”

        So, no ‘sharp’ house price falls and housing costs which are little changed from the peak in 2007.

        Reply My piece said there had been sharp falls in UK house prices, as there were during and immediately after the banking crash. House prices have been rising again in more recent times, as they now are in the USA. I did not cherry pick, but I do think a near 20% fall is a sharp fall or price correction.
        On any of the figures UK has boosted public spending by more than the US in recent years.

        • Mike Wilson
          Posted September 6, 2013 at 2:11 pm | Permalink

          My piece said there had been sharp falls in UK house prices, as there were during and immediately after the banking crash

          Not really. I argued that one of the reasons their economy was growing NOW was that they had allowed a house price crash and that they had cheap energy. As opposed to our economy, NOW, where house prices are basically the same as they were in 2007 and energy prices endlessly increase.

          I really can’t see the relevance of the Nationwide’s figures for 2007 to 2009. You weren’t in government then. Housing transactions fell off a cliff. Some properties in Northern cities like Manchester and Leeds – in particular new build 2 bed flats that were changing hands for 200k! did indeed collapse – but, no matter which way you cut it – it is not accurate to say we have had sharp house price falls.

          Reply We did, a near 20% fall, including falls in the south as well as the north.

    • uanime5
      Posted September 5, 2013 at 6:50 pm | Permalink

      Though there have been cuts there was a massive rise in the deficit between 2008 and 2009 (something John keeps omitting). Even with all these cuts the deficit is still higher as a percentage of GDP than it was in 2008.

      Below is the US deficit as a percentage of GDP over the past 5 years:
      2008: 3.21%
      2009: 10.11%
      2010: 10.73%
      2011: 8.4%
      2012: 5.28%

  14. peter davies
    Posted September 5, 2013 at 11:31 am | Permalink

    I’ll echo what others are saying – one of the key ingredients of the USA model is their much lower energy costs whilst we follow the barking mad EU model.

    I agree on the sentiment that you need to cut public expenditure but this will only work if it accompanied by some sort of stimulus on the supply side of the economy – which is precisely why so many EZ countries are struggling – they cut on one side but have no control of the supply side of their economies on the other – each EZ country is now little more than a glorified Welsh Assembly or county council that may be able to borrow and spend but not much else.

    The UK unlike the EZ has been able to do QE but we have been unable to produce cheaper energy. When you have a chip shop that spends 20% of its overheads on energy there must be something wrong.

    We are never going to get big factories to base themselves here with high energy costs not to mention all the other EU drivel they have to comply with when others are not following this model.

  15. Neil Craig
    Posted September 5, 2013 at 12:54 pm | Permalink

    The US recovery is entirely down to shale gas.
    The correlation between energy use and gdp is almost 1:1.
    90% of our electricity bills are government parasitism.
    We could be out of recession in weeks, possibly days, if our ruling class were not deliberately enforcing fuel poverty. Every party knows this but only UKIP doesn’t like it.

    • JimF
      Posted September 5, 2013 at 4:12 pm | Permalink

      All true, we would be embarrassingly successful by now if UKIP policies had been followed since 2010.

    • uanime5
      Posted September 5, 2013 at 6:54 pm | Permalink

      The correlation between energy use and gdp is almost 1:1.

      Correlation does not imply causation. You’ve also failed to explain why there are so many countries that do better then the UK without having a higher energy use.

    • Bazman
      Posted September 7, 2013 at 5:50 am | Permalink

      No corporate parasitism? Shale gas maybe viable in some areas, but you are living in a dream world if you think it is Father Christmas in this country.

      • Edward2
        Posted September 7, 2013 at 7:59 am | Permalink

        Last reports were of enough gas to last the UK over 50 years.
        Not too shabby.

  16. Mike Wilson
    Posted September 5, 2013 at 3:16 pm | Permalink

    This year US federal spending is down by 2.9% in cash terms, rather more in the much favoured real terms.

    Not according to this web site.

    US Government spending

    Reply I have checked my figures by looking at the the Congressional Budget Office site, which shows US federal spending down in cash terms this year from $3538 to $3456 bn, (minus 2.32%) and it seems spending is falling short of forecast, producing the 2.9% figure I also took from the web.

  17. uanime5
    Posted September 5, 2013 at 6:57 pm | Permalink

    Things John mentions because they support his ideology:

    – US is cutting their deficit.
    – US economy is growing.
    – UK spending is up in cash terms (notice how he mentioned the deficit as a percentage of GDP for the US but not the UK).

    Things John omits because they conflict with his ideology:

    – US massively increased their deficit in 2008 (from 3.21% in 2008 to 10.11% in 2009) after the financial crisis.
    – US still hasn’t reduced their deficit below the 2008 levels (it was 5.28% of GDP in 2012, up from 3.21% in 2008).
    – That the US saw their highest rate of growth when their deficit was highest.
    – That in the UK cutting the deficit as a percentage of GDP didn’t resulted in higher growth. It resulted in 3 years of little to no growth.

    In conclusion the US economy grew because they didn’t cut their deficit after the recession, unlike the UK which cut the deficit and prolonged the recession by 3 years.

    Labour also needs to ask themselves why Mr Obama’s cuts strategy, cutting spending and borrowing more drastically than the UK, has delivered faster growth sooner.

    This worked because Obama didn’t cut spending when he first took office, he massively increased it for several years which is why the US has a debt of over $1.5 trillion (98.72% of GDP). Only after the economy recovered did Obama start to reduce spending. Unlike Osborne who introduced austerity which turned an economy growing at 2% per year into one growing at 0.2% per year.

    Reply The Uk like the US also increased the deficit massively during the crisis – the only difference is the US has cut its deficit much more, and has grown faster.

    • uanime5
      Posted September 6, 2013 at 9:40 pm | Permalink

      The US increased their deficit as a percentage of GDP more than the UK so they were able to cut it more.

      Reply Not true

  18. Richard1
    Posted September 5, 2013 at 8:11 pm | Permalink

    It would be good if one or other of the Keynesian economists who occasionally blog here would explain why cuts in the US (despite a left-leaning administration) have delivered growth whereas deficit financed stimulus here has proven less successful. Mind you, I hope the Labour people such as Mr Balls who have been predicting triple dip recession and no growth will have the grace to recognize events have proved them wrong.

  19. Lindsay McDougall
    Posted September 6, 2013 at 5:01 pm | Permalink

    If you look at the stats on the website USpublicexpenditure.com, you will see that US Federal debt is 110% of GDP at the moment and that a slow decline to 102% of GDP by 2018 is planned. President Obama deserves credit for reducing American expenditure on wars; the remaining restraints on US public expenditure must be credited to the Republicans in the House of Representatives, originally in the teeth of the President’s wishes. State and local public sector debt adds another 30% of GDP.

    The US’s level of accumulated public sector debt is higher than that of the UK, which is forecast to peak at 86% of GDP. The US cannot afford not to have high growth.

    The Budget Red Book shows tax receipts at close to 38% of GDP and public expenditure around 44% to 45% of GDP up to 2015. In 2014/15, the last year before the general election, the annual deficit will still be £97 billion. We really should have done better than this. Reductions in public expenditure as a % of GDP and in the size of the deficit are expected in the two years following 2015 but these may depend on the election result. By then the back loaded repayment of student loans and the effects of the benefit cap should help.

  • 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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