Cutting the deficit

 

Last week the Chancellor made an important speech. In it he charted the progress in cutting the deficit so far, and set out why more needs to be done to complete the task .

He proposed that an additional £25 billion a year be taken from  the projected growth in cash public spending in the first two years of the next Parliament, establishing a lower base in 2016-17 for future growth in spending than current plans.

In 2012-13 total spending was £679.3bn. In 2014-15 this will be £730.5bn. Previous plans saw this rising to ££756.3bn in 2016-17. The revised plans will see it effectively frozen for 2 years , at £731.3bn in 2016-17, before going up by £9.3bn the following year.

As tax revenues are forecast to rise from £556bn in 2012-13 to £699.6bn by 2017-18, this will bring the deficit in that year down to £40.9bn.  The Treasury using previous plans scores this as 80% of the work being done by spending measures. The deficit comes down because spending goes up more slowly than revenue.

In his speech on the EU yesterday the Chancellor reminded the rest of the EU that The European economies are falling behind the Asian ones. He drew attention to the high unemployment in many parts of the continent, the lack of competitiveness and the need for more jobs friendly policies. He also made clear that the UK as a non Euro member with no intention  of joining the single currency needs a new relationship so that we do not get dragged into accepting liabilities and instructions appropriate for a single currency zone but not for us.

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158 Comments

  1. Mark B
    Posted January 16, 2014 at 6:18 am | Permalink

    Appalling figures ! And until we get our own house in order, we should not be lecturing others.

    • Brian Tomkinson
      Posted January 16, 2014 at 9:54 am | Permalink

      Mark,
      Agreed. I shall never forget, as much as he and his party would like us to, that before the last election Osborne promised to have eliminated the structural budget deficit by 2015.

      • lifelogic
        Posted January 16, 2014 at 2:09 pm | Permalink

        He promised to do it while at the same time increasing IHT thresholds to £1Million each too.

        He could have done it had he just cut out all the government waste and endless payments to augment the feckless on benefit(s ed).

        But no they wanted HS2, green crap subsidies, expensive energy, soft loan for the EURO PIGIS, daft employment laws, 299 tax increases, more EU and payments to the EU, no real cuts in the 150% over paid state sector (many of whom do nothing or any use or worse mererly inconvenience the productive) and yet more daft regulations everywhere.

        Might as well have Miliband. At least Ed has half decent A levels in Maths, Further Maths and Physics and so, hopefully, he can at least add up and do compound interest.

        • uanime5
          Posted January 16, 2014 at 9:28 pm | Permalink

          He could have done it had he just cut out all the government waste and endless payments to augment the feckless on benefit(s ed).

          Most benefit payments are to pensioners and those in work (housing benefit and tax credits). Are you saying that Osborne should cut their benefits?

          • Edward2
            Posted January 17, 2014 at 5:27 pm | Permalink

            Uni
            The Dept for Work and Pensions has a budget of 167 billion and spent 74 billion on pensions so pensions are not most benefit payments as you incorrectly claim.
            Tax credits and housing benefits are paid from the HMRC budget and are 13 billion and 16 billion.

          • Hope
            Posted January 17, 2014 at 5:53 pm | Permalink

            No, start with those who do not want to work,those households where no one since the age of sixteen has ever worked. You know the 370,000 households. Perhaps the 600,000 immgramts on welfare, nothing in nothing out. Stop the non contributory system. Then perhaps move on to winter fuel allowance for only those in need.

            Uni wake up, cuts need to be made starting with those who do not or have not contributed.

          • Bob
            Posted January 17, 2014 at 11:29 pm | Permalink

            @uanime5

            For sure the political establishment have cleverly obfuscated the welfare system such that people will give equivalence between pensioners who worked hard all their their lives and paid their taxes an indolent layabout who has never paid tax and never lifted a finger to provide for themselves or their family.

            I hope that a new political movement will bring back the necessary distinction between the two.

          • lifelogic
            Posted January 18, 2014 at 8:44 am | Permalink

            We clearly need more incentives to work and more disincentives not to. Unlike the current framework.

            Cut the regulations, taxes and energy costs for business so it can compete & then pay more and cut all the countless parasitic activities of governments and all the usual government hangers on.

          • Bazman
            Posted January 18, 2014 at 3:20 pm | Permalink

            .
            What are the disincentives to work. Are these weasel words to mean the benefits system? You will have to explain how desperation creates work.

        • Posted January 17, 2014 at 9:01 pm | Permalink

          Lifelogic,

          You’re making the very naïve assumption that government accounts are similar to a firm’s accounts, i.e. that cutting spending cuts the firm’s deficit or “loss”. As Ann Pettifor and Victoria Chick explain in the book “The Economic Consequences of Mr Osborne” cutting government spending can actually INCREASE the deficit.

          That point will be way beyond the comprehension of those who have not studied economics: that’s 99% of the population (MPs included).

          • Edward2
            Posted January 18, 2014 at 1:07 pm | Permalink

            Or you can carry on with the State endlessly borrowing more and more to spend, with the idea that cutting back will lead to no growth and end up like Greece or Zimbabwe.

          • Denis Cooper
            Posted January 18, 2014 at 1:58 pm | Permalink

            It’s always been perfectly obvious even to somebody like myself who is not a trained economist that if a large part of the economy, say 40%, has become dependent on spending by one economic actor, the government, then it could be counter-productive to make sudden and drastic cuts to that spending. Indeed I argued just that in comments here, in the face of some derision, but it has since proved to be case for some of the distressed eurozone countries. However that is no argument against reducing government spending, and the total level of involvement of the government in the economy, over a period which is long enough to allow the private sector to take up the slack. In any case contrary to the myth so far total UK public spending has continued to rise in nominal terms and has barely fallen at all in real terms, as JR has repeatedly pointed out.

        • Bazman
          Posted January 18, 2014 at 3:16 pm | Permalink

          More daft employment laws? Which? You cannot say can you? Just part of your right wing fantasy world that when challenged for any facts crumbles to dust. Brainless.

          • Edward2
            Posted January 18, 2014 at 7:00 pm | Permalink

            The only fantasist here is people like you Baz who have never ever employed anyone else.
            Look into the legal minefield which is the recruitment process.
            Just placing an advert for a vacancy and interviewing candidates has to be planned carefully to avoid possible tribunal court cases.
            Then you have to correctly administer maternity pay and statutory sick pay.
            Try calculating PAYE and NI because if you get it wrong fines await.
            Promote one person and find others disappointed taking you to tribunals.
            Orders drop off and you need less staff and you enter another legal minefield.

            I could give you many many more examples.
            You have no idea what problems employers face due to all the laws, rules and regulations that have to be followed and in the last decade they have grown hugely.

          • Bazman
            Posted January 22, 2014 at 6:19 pm | Permalink

            You have had employment agencies, self employed, short term contracts cited at you a number of times. Most of which exist to circumvent or dilute employment laws in some way. Which regulations specifically do you wish to change?

      • Hope
        Posted January 16, 2014 at 2:30 pm | Permalink

        80/20 split between tax rises and spending cuts. What is the current percentage JR?

        Debt increases £3,000 per second, Overseas aid on a perecentage basis so the likes of Pakistan can continue with its nuclear aims, EU on a take as much as you like basis, HS2 spend unknown and still rising, wind farm lack of energy, SPads paid a record amount, corruption at House of Commons continues unabated while they abstain from voting, quangos increased not caught fire. Continuity Brown economics continues. the amount he offered to cut was derisory and pathetic. If he spent a full working week at the Treasury he might understand the financial mess and his lack of achievements father nearly four years.

        Also this is from a party who calls others fruitcakes and the like. Is it not about time Cameron and Osborne answered questions about their past?

        • Hope
          Posted January 16, 2014 at 2:31 pm | Permalink

          This from a man who had no plans to raise VAT or Cameron who claimed he was a low tax conservative- jokers both of them. How about cutting the 300 tax rises and stop spending.

        • Lifelogic
          Posted January 16, 2014 at 4:30 pm | Permalink

          Indeed might as well have Milliband. Then at least we will not not have to watch the Socialist Dave Cameron ratting on his supporters again.

        • lojolondon
          Posted January 16, 2014 at 10:23 pm | Permalink

          Giving aid to Pakistan is bad enough – but what is this about STILL giving aid to Argentina?? – Outrageous!!

        • zorro
          Posted January 17, 2014 at 1:32 am | Permalink

          Maybe they can’t remember it too well?

          zorro

        • lifelogic
          Posted January 17, 2014 at 7:47 pm | Permalink

          Personally I rather like a piece of fruit cake with a glass of port and a small piece of proper English cheese.

          What is wrong with fruit cakes?

          • Bazman
            Posted January 18, 2014 at 3:47 pm | Permalink

            Colonel Blimp at his best.

          • Denis Cooper
            Posted January 19, 2014 at 10:19 am | Permalink

            If you’ve ever seen the film you’ll know that Colonel Blimp’s best was actually pretty good.

  2. Steve Cox
    Posted January 16, 2014 at 7:21 am | Permalink

    Is this supposed to be good news from Osbrown? So in 2017/2018, quite possibly at the top of the economic cycle, we will still be running a deficit of over £40 billion a year. That level of deficit used to be regarded as high even in a recession, and we’re supposed to applaud the Chancellor when it’s basically as good as it’s likely to get? Douglas Carswell is spot on in his blog this morning:

    blogs.telegraph.co.uk/news/douglascarswellmp/100254161/after-osbrown-the-coalition-has-picked-up-where-gordon-brown-left-off/

    This excerpt from the blog sums the situation up well IMHO:

    …I suggest that we can already see clear signs that this is yet another credit-induced boom. We’re more dependent on consumer spending than before. The UK current account deficit – a good indication of excessive demand – is widening. House prices rose by over 8 per cent last year.

    When it comes to monetary policy, the Coalition has picked up where Gordon Brown left off. QE has been expanded. The promise of record low interest rates extended. Programmes devised by the Treasury under the last administration to subsidise credit have been rolled out.

    Far from solving our underlying economic problems, I fear monetary policy today is sowing the seeds of yet another downturn.

    • Denis Cooper
      Posted January 16, 2014 at 9:28 am | Permalink

      “QE has been expanded”

      It has, but he has never responded when I’ve suggested to him that MPs should wake up to their responsibilities and insist that the Chancellor must always get their prior approval through a vote before he authorises the Bank of England to undertake another tranche of QE.

      Indeed I’d like MPs to demand to know the precise legal basis on which two successive Chancellors have sent their letters of authorisation to the Governor, given that the creation of new money is quintessentially a matter of monetary policy and under the Bank of England Act 1998 as passed by Parliament the Bank is supposed to have independence with respect to monetary policy.

      • Hope
        Posted January 16, 2014 at 2:33 pm | Permalink

        I am sure you already know this was about slight of hand to con the public.

      • Posted January 18, 2014 at 1:38 am | Permalink

        “QE has been expanded”

        John Redwood can correct me if I’m wrong but the UK QE program ended in July 2013.

        Mind you, QE is probably the most misunderstood of policies. As Prof Fama (Nobel Lauetate) has pointed out its just an asset swap. Its the banks volunatrily moving their money from bonds, a savings account at the BoE, to their reserve account , a current account at the BoE.

        Its the economic equivalent of homeopathy. The little pills don’t do you any harm but if you somehow convince yourself they are having some effect they might just help a bit.

        • Denis Cooper
          Posted January 18, 2014 at 2:03 pm | Permalink

          Since perpetuating your nonsense about ownership of gilts being a form of savings account at the Bank of England, despite it having been pointed out to you that when I had a modest investment in gilts I was registered as an owner of those gilts by the Treasury, not by the Bank, and even had a certificate as proof of my ownership.

        • Posted January 19, 2014 at 2:16 am | Permalink

          Denis,

          Firstly it doesn’t make any difference which arm of Government , or the State if you prefer, the bonds are held by. The BoE is only independent in the sense they are told by Government to be independent! Its like me telling my kids to be independent. They can be if they want to be but they know I’ll do whatever it takes to rescue them if they get into trouble.

          Secondly, the Wiki site says: Gilt-edged securities are bonds issued by certain national governments. The term is of British origin, and originally referred to the debt securities issued by the Bank of England, which had a gilt (or gilded) edge

          Thirdly, you keep telling me where I’ve gone wrong but what about Prof Fama? Has he got it wrong too?

          • Denis Cooper
            Posted January 19, 2014 at 10:40 am | Permalink

            Firstly, it is Parliament, not the government, which has told the Bank of England to be independent of the government with respect to monetary policy, unless Parliament agrees to the activation of reserve powers. If you persist in carelessly confusing different arms of the state then of course you will be confused about all kinds of matters.

            Secondly, whatever have been the position three hundred years ago gilts have long been bonds issued by the UK government, not by the Bank of England, as indeed is stated further down in your wiki reference; you could check that for yourself just by looking at the front page of the website of the Debt Management Office:

            http://www.dmo.gov.uk/

            “Gilts are marketable sterling government bonds issued by the DMO on behalf of the UK Government as part of its debt management responsibilities.”

            Thirdly, I have noticed that your irresponsible spendthrift faction often prefers to make appeals to authority – “as X, a Nobel Laureate, said …” rather than producing any hard evidence based on even elementary research to confirm that “X, a Nobel Laureate” was actually right; and in this case your Professor Fama is clearly wrong, or else you have misunderstood or misreported what he said.

          • Posted January 19, 2014 at 9:27 pm | Permalink

            Yes, I’ve always agreed that bonds are issued by the Treasury.
            Can you have a bond account at the Bank Of England? Up to 2005, yes you could. They were the registrars up until then. Its now been outsourced to an on-line company.
            Does this change their fundamental nature? No
            Is the demarcation line between the Treasury and the BoE fundamental or administrative? It has to be administrative. The line is arbitrary. From time to time the Treasury issue currency too. See the Bradbury Pound. The BoE is actually nominally ‘owned’ by the Treasury Solicitor.
            Could they be merged and rationalised? I don’t see why not. A combined organisation would save a lot of duplication and be much more efficient.
            Why are those of a certain political disposition so keen to emphasise the differences between the two? They know they are both arms of government, the State, (whatever term you prefer) but they like to pretend otherwise.

          • Denis Cooper
            Posted January 20, 2014 at 2:58 pm | Permalink

            We go over the same ground again and again, and it doesn’t help if you don’t actually read what I write and won’t accept that the various ideas you’ve picked up from elsewhere may not be correct despite being said by Nobel Laureates …

            When the Treasury issued the Bradbury pound the Bank of England was still a private bank. Since its nationalisation in 1946 there has been no point in the Treasury issuing its own new currency if it can induce the Bank of England to create more of the usual currency, the one that the Bank issues and that is in general circulation, the one that we are all used to, and somehow pass it to the Treasury. That would achieve nothing but confusion, with people who are owed money by the government no more wanting to be paid in an unfamiliar new currency issued by the Treasury than they would want to be paid in gilts.

            On the other hand in 1998 Parliament decided that the Bank of England would be independent and explicitly forbade the Treasury from giving the Bank any directions with respect to monetary policy, unless Parliament agreed to the activation of reserve powers under Section 19 of the Act:

            http://www.legislation.gov.uk/ukpga/1998/11/contents

            That’s why I’d like the Chancellor to explain the legal basis on which he and his predecessor sent letters to the Governor to authorise the creation of vast sums of new money.

            I’m glad that we finally agree that gilts are bonds issued by the Treasury, not by the Bank of England; now you only need to accept that for their holders they are marketable assets, not a form of savings account at the Bank.

          • Posted January 20, 2014 at 7:58 pm | Permalink

            I think you must have misunderstood what I was saying about bonds which was always that they were indeed Treasury bonds. Up until 2005 the BoE were the registrar for those bonds. So a ‘bond account at the BoE’ would have simply been a statement from them on the number held, their progress to maturity etc. The US Fed still has this function, I believe. But that’s not the issue.
            QE is the process of the BoE buying bonds from financial organisations. The BoE ends up with Treasury bonds in exchange for cash. The financial organisation ends up with cash in exchange for bonds. That’s why Prof Fama calls it an “asset swap” and “no big deal” and you don’t have to be a Nobel Laureate to figure that out for yourself.
            Regardless of the merits of QE you’d have to say that a truly independent BoE should decide the on the swap itself. That was obviously not the case!
            You’re being rather naive in thinking that a Central bank is ever going to function as other than an arm of government. The level of base interest rates used to be quite openly decided at Cabinet level until someone noticed that the Bundesbank , which was supposedly “independent” did that for Germany all by itself. The German economy was doing well so the thought was that the BoE should be as similar to the Bundesbank as possible and all would be equally well in the UK!
            Its a nice theory but as the Europeans have recently discovered with the Euro, which is essentially a continuation of the DM, what works well in Germany doesn’t necessarily work outside.
            Fiscal and monetary policy, or the budget deficit and the level of interest rates, are the two control levers of the economy. Money is created not just by governments’ deficit spending but in the commercial banking sector too whenever new loans are issued. If there were one pilot at the controls, which I tend to prefer when I’m flying, it’s doubtful if he’d have one lever right up against the stops and accept that he could only move the other one in a single direction.

          • Posted January 22, 2014 at 4:51 am | Permalink

            #Denis,
            PS to my above comment. I just came across this tweet from Prof Stephanie Kelton on the subject of Central Bank “independence”.

            “#Bernanke “We are the agent of the Treasury, and it’s our job to do whatever they tell us to do.”

            Bob Bernanke is of course the chairman of the US Federal Reserve. It’s not going to be any different in the UK. You can question “the legal basis” of QE all you like. It won’t get you anywhere. When the Treasury says jump the BoE will ask “how high?”

          • Posted January 22, 2014 at 4:52 am | Permalink

            I mean Ben Bernanke.

    • lifelogic
      Posted January 16, 2014 at 2:12 pm | Permalink

      The UK (London mainly) has also been lucky in the flood of wealthy from France the PIGIS, the Arab countries, Russia and the likes. Without them it would have been even more dire than it is.

      Fleeing to Osbornes non dom £30K later £50K PA Tax Haven.

  3. Mike Stallard
    Posted January 16, 2014 at 7:34 am | Permalink

    Allow me to remind you that the debt – not the deficit – is getting very serious. We are approaching 1.5 trillion pounds. You do not have to be a mathematician to realise that, at even 1% of this is an enormous sum to be repaid in interest on bonds when compared to the government’s yearly income of about 0.007 trillion.

    I read an article yesterday given me by the mother of a hedge fund manager living abroad (naturally) which pointed this out. All we need is a bond market rise and – bingo – Greece!

    Think of all the people who depend (like me an OAP) on government income. Think of the poor old banks who handle the debt being bashed by our Guardians in Brussels. Teachers, Police, Social Workers, Universities, Doctors and Nurses…

    • Bob
      Posted January 16, 2014 at 9:59 am | Permalink

      @Mike Stallard
      No wonder Mr Osborn has agreed to underwrite Scotland’s share of the national debt in the case that they vote for independence, otherwise interest rates on “Gilts” would have risen so much that Mr Osborn would be considering Wonga dot com as a viable alternative.

      @Mr Redwood
      I notice that our financial problems didn’t prevent you from splashing out a quarter of a million pounds on portraits of MP’s:
      http://www.telegraph.co.uk/news/politics/10568722/MPs-portraits-cost-taxpayer-250000.html

      When you’re laying off soldiers fresh back from Kabul, and taxing people on their spare bedrooms, shouldn’t you be cutting back on this kind of extravagance?

      etc

      • lifelogic
        Posted January 16, 2014 at 2:20 pm | Permalink

        Politician are often, by nature, rather vain power seeming, self publicists, happiers still if they can get the tax payer to fund this vanity.

        This is what renders so many of them totally unsuitable to hold any power.

        Still the odd portrait is a far cheaper way to indulge/distract them than thousands of pointless wind turbines, HS2, the Olympics, the EU, PV panels on roofs or counter productive wars with perhaps 500,000 pointless deaths.

        • zorro
          Posted January 17, 2014 at 1:45 am | Permalink

          Show business for ugly people…..

          zorro

    • zorro
      Posted January 17, 2014 at 1:50 am | Permalink

      Mike, when talking about yearly income, what are you referring to? Government expenditure is a bit over £0.7 trillion or £700 billion but income for the government from various taxation/revenue streams is under 600 billion hence the need to borrow/QE on an annual basis (and thus adding to overall debt). Sorry, not time to go into more depth as on holiday!

      zorro

    • petermartin2001
      Posted January 17, 2014 at 3:18 am | Permalink

      Mike,

      Government debt is just over £1.16 trillion (2013 figures) according to a quick Google search.
      Government taxation revenue is about £600 billion which is £0.6 trillion. It looks like your decimal point has slipped a couple of places to the left.
      I hope you have the good grace to not complain about falling standards of mathematical literacy in schools after your slip up!

      Government debt is also about 90% of GDP which is about the same as Germany, the USA and a number of other European countries. Its tempting to ‘blame’ it all on your political opponents which I would suspect are the Labour Party. And its true they are pretty hopeless at understanding what goes on in the economy just like anyone else.

      Firstly you need to look at what the ND actually is and ask yourself if its really such a bad thing. It was much higher in the 19th century and for most of the 20th century. Just take the trouble to look at what it actually is. Its not at all the same as a car or a house loan which has to be paid off in installments.

      • John Armour
        Posted January 17, 2014 at 9:49 am | Permalink

        Frank N Newman, former Deputy Secretary of the US Treasury Dept would endorse your remarks about the ND, Peter.

        “People often have misconceptions about Treasury securities (“national debt”) because they think of them as similar to personal debt. When people borrow money, they incur real debt, an obligation that must be repaid in full with money earned from another source. Borrowers owe money to their lenders. But “national debt” is not the same as personal debt for countries like America, with their own currencies”

        What most don’t realise (or perhaps don’t want to realise) is that the ND never gets paid off because the endless issuing of gilts to cover the deficit is, among other things, an asset in the hands of the private sector. A risk free asset that pays nice dividends, and will continue to do so until hell freezes over. The bond vigilantes understand this perfectly.

        What’s funny is that most of the hand-wringing over “the debt” comes from City types, from a class that would squeal like stuck pigs if the gravy train dried up.

        But what’s sad is that folk like Mike (above) on the OAP believe this nonsense about the ND and worry needlessly.

        • alan jutson
          Posted January 17, 2014 at 10:36 am | Permalink

          John

          “No Need to worry”

          Are you saying it is impossible for a Country to default, and this has never happened !

          • John Armour
            Posted January 17, 2014 at 8:49 pm | Permalink

            Are you saying it is impossible for a Country to default, and this has never happened !

            Not at all, Alan.

            In the past, countries have certainly defaulted, but the circumstances at the time were very different from those that obtain today in the UK, and indeed all other countries that “own” their currency.

            Provided the so-called “national debt” is in the sovereign currency it is impossible for that country to default or face insolvency because creation of the currency is the monopoly right of the sovereign government.

            The UK is not like Greece, whose debts are effectively denominated in a foreign currency, the euro.

            This has been the case since 1971 when the US abandoned the gold standard and walked away from the Bretton Woods agreement, and most others followed.

            To a lot of folk the fiscal freedom these events created remains very threatening to their 19th century way of seeing things, so the myths persist as can be seen being endlessly rehearsed by quite a lot of the commentary here.

            It’s a sort of fiscal agoraphobia.

        • Denis Cooper
          Posted January 17, 2014 at 12:59 pm | Permalink

          In most countries the National Debt never gets paid off because the politicians in the government always want to spend more than the revenues that the government is getting in, more often than not to bribe the electorate. There is no intrinsic reason why governments should not be expected to normally live within their means, it’s not as if the money they borrow is usually invested wisely for the future. Oh, apart from being invested in their personal political futures. The fact that if necessary a government can arrange for more money to be created in order to fund its expenditure does not mean that it should get into the habit of doing so; as Osborne once correctly stated it is the last resort of desperate governments, and it should always be seen as such and definitely not treated as something which is normal as some would like. We’ve already seen massive borrowing by the government normalised, we don’t want massive money printing by the government to also be normalised.

          • John Armour
            Posted January 17, 2014 at 9:22 pm | Permalink

            There is no intrinsic reason why governments should not be expected to normally live within their means

            That’s a strawman argument Denis, and a statement that is void of any useful economic insights.

            In the more enlightened economic literature you’ll find the expression “living within our means”used as an example of confused thinking.

            Your problem is that you see the deficit as representing something that it’s not. The reality is that deficits are largely determined endogenously, and are an indication that we are not “living beyond our means” but well short.

          • Denis Cooper
            Posted January 18, 2014 at 2:14 pm | Permalink

            I’ve no idea where you think any strawman comes into it; false arguments have been put forward that governments must run budget deficits, and my reply is that there is no intrinsic reason why they must run budget deficits and why they should not be expected to normally live within their means; and please note that it is “their” means, not “our” means, as if the government has an automatic right to lay claim to everything produced in the country.

          • Posted January 19, 2014 at 10:11 pm | Permalink

            ” false arguments have been put forward that governments must run budget deficits”

            Yes it’s impossible for them not to run a deficit at times. I’m sure the Government would love to run a surplus if they could but they just can’t. Ask Mr Redwood.

            Its not a false argument at all. All governments have to issue currency by spending it into the economy which puts them into debt right from the start. If that debt were ever paid off no -one would have any money left in their wallets. Its not difficult to understand.

      • Posted January 17, 2014 at 9:23 pm | Permalink

        Alan,

        No, of course it’s not impossible for a country to default. If it wants to, it’s very easy. For example, the USA could have defaulted recently had their Congress not decided to raise the debt ceiling. There’s no reason to have a debt ceiling that I can see. So there’s no externally imposed reason on the USA for it ever to default. As the sole issuer of US$ it can always pay its debts denominated in that currency.

        Of course, the USA can suffer from high inflation if it doesn’t manage its currency properly. Even though its debts are high there is no evidence of that happening at present. If there were there would be a good case for deficit reduction.
        If the USA chose to run up large debts in gold, or oil, or some currency over which it had no control then it could face the possibility of involuntary default of course.

        Some would say the USA can only do this because the US$ is the world’s reserve currency. That doesn’t change things fundamentally. True, many countries wish to hold US Treasury bonds. That actually forces the US into debt. Countries like China sell lots of stuff to the USA and don’t buy much back in return. They prefer to keep their money in an American bank. Technically the US are in debt to the Chinese but I’d say its probably the Chinese who have most worry on that one.

        The above argument is true for the UK with respect to the £. If its debts are in £ in can never involuntarily default. That would all change if the UK adopted the Euro. That would not be a good thing. IMO.

  4. lifelogic
    Posted January 16, 2014 at 7:44 am | Permalink

    Well elections are getting close so he is again making a few sensible noises, just as he did last time. But it is too late, action was needed in 201o. No real cutting in the hugely bloated and inefficient state sector has happened, no change in the EU, taxes have gone up 299+ times, we have absurdly expensive energy and still have daft regulations & employment laws. Why would anyone think he will actually deliver next time.

    He simply has no credibility, he threw it all away, just after he threw the last election away. This with his EU & IHT ratting, his green crap, his pigis loans and EU submissions and the equal TV billing for Clegg.

    He as not even managed to get a fair voting system and still has a huge deficit and living standards have declined for 5 years.

    • Hope
      Posted January 16, 2014 at 2:38 pm | Permalink

      Well said.

    • Bazman
      Posted January 18, 2014 at 3:52 pm | Permalink

      Daft regulations & employment laws? More mindless repeating. How about the possible rise in NMW or should the state continue to pay out more money to subsidise low pay? How daft is that? If you propose to cut benefits and minimum wage then what are the low paid to live on? No reply as you have no idea.

  5. Jennifer A
    Posted January 16, 2014 at 7:51 am | Permalink

    If we remain in the EU we will join the Euro.

    There are no half measures with this organisation.

    • Denis Cooper
      Posted January 16, 2014 at 9:40 am | Permalink

      I believe that if we remain in the EU under the present treaties then the pressure to adopt its currency will constantly increase as the eurozone expands, as it is legally required to do, and for all that the present government says that there is no intention for the UK to join it we will eventually have a government which argues that our “isolated” position is no longer sustainable and bounces us into the euro, and without holding a referendum if that seems too risky.

      • Brian Tomkinson
        Posted January 16, 2014 at 9:58 am | Permalink

        Agreed. I wonder what our host thinks.

      • Chris
        Posted January 16, 2014 at 10:33 am | Permalink

        The current treaties are soon to be replaced, and preparations are well advanced for the necessary Convention apparently. I realise, Denis, that you are well aware of the Spinelli group proposals for a draft treaty. R North gives details of the likely time scale of this operation which also reveal that there is actually no possibility of a referendum in 2017 as “promised” by David Cameron. (R North eureferendum blog “EU politics: a convention in the offing?”). I understand that the likelihood is that we will be offered in 2018, at the earliest, the choice of full membership or Associate Membership, the latter being unfavourable indeed compared with what we have at the moment.

        My grave concern is that Ass. Membership will be spun by the pro Europeans to be something much better than it is (D Cameron will not be there to do the spinning, I suspect, so it will probably be up to Miliband and the Lib Dems). Hopefully the internet will continue to be the huge asset that it is in enabling scrutiny of proposals and rebutting spin. It will be a huge battle, and the Cons MPs who believe that we can salvage something out of our current membership which does not entail continued subservience to Brussels and loss of sovereignty, are, I believe, misguided. For those interested in reading the Spinelli MEPs proposals (which incidentally have Barroso’s tacit approval apparently) the link is:
        http://www.universitapereuropa.eu/site/wp-content/uploads/2013/10/Fundamental-Law_final-EN.pdf

    • bigneil
      Posted January 16, 2014 at 12:59 pm | Permalink

      we will “join” the Euro ? – or have it forced on us?

    • Mark B
      Posted January 16, 2014 at 2:59 pm | Permalink

      I have said before, that when Red Ed wins in 2015, he will be forced to remove our so called ‘opt-out in the new treaty. The final decision falling to a new Government to implement in 2020.

      They just do not care.

      And yes, once in the Eurozone, there are going to be an awful lot of people who read blogs such as EURerferendum rather than watching Strictly.

      • Mark B
        Posted January 16, 2014 at 3:01 pm | Permalink

        Dear Admin.

        Sorry. Can you please replace my last sentence with:

        And yes, once in the Eurozone, there are going to be an awful lot of people who wished they read blogs such as EURerferendum, rather than watching Strictly.

        Thanks

    • Posted January 16, 2014 at 3:51 pm | Permalink

      “If we remain in the EU we will join the Euro.”

      Yes ultimately I think its right to say that. I’d go further. It wouldn’t make any economic sense not to use the Euro if UK were to decide to continue to be a full and active EU member. It would be like Alaska wanting to be part of the USA for example but not wanting to use the US$.

      If the Euro were a resounding success then there would be a good economic case for joining in. But its a disaster! So why would any sensible government want to get involved? It was recently pointed out to me that Latvia had done just that (on the Ist Jan this year) so maybe they could answer this question!

      I suppose its possible to argue that Britain should join the Euro so that it can better help fix up the mess. Its also possible to argue that the UK should stay as far out of it as possible and leaving the EU must look like an increasingly sensible option. A few concessions, here or there, from the EU aren’t going to change the fundamentals of the situation.

  6. Nickl
    Posted January 16, 2014 at 8:22 am | Permalink

    “We’re paying down Britain’s debts.”
    David Cameron, 24 January 2013

    Nothing like making statements that your boss is a liar.

    • Lifelogic
      Posted January 16, 2014 at 11:32 am | Permalink

      indeed, did he not say something about keeping his promises too?

      How can he expect any trust in 2015? Not quite as useless as Miliband and a proven ratter/dissembler is not a very good selling slogan for the next election.

    • Posted January 16, 2014 at 9:32 pm | Permalink

      ‘Britain’s debts’ aren’t the same as the National debt, so while it is fair to say David Cameron wasn’t being sufficiently clear in his meaning, it is unfair to accuse him of lying.

      The big problem which led to the 2008 crash, and before that, the 200o ‘tech wreck’ crash was the extent of the private sector debt. Not just in the UK but in the US and other countries too. That private sector debt has since turned into a surplus. However it can only turn into a surplus if the public sector runs a deficit. If the Government spends £100 but only receives back in taxes £90 that extra £10 stays in the economy and be used to reduce any private sector debt.
      Of course it can be argued that issuing more money can lead to inflation in the economy. Yes it can but issuing too little causes problems too and the right balance needs to be struck.

  7. oldtimer
    Posted January 16, 2014 at 8:55 am | Permalink

    Better late than never, I suppose, assuming it actually happens. It would have been much better if the government had frozen cash spending at the outset of this coalition – as I believe you have recommended in the past. But because this is supposed to happen in the next Parliament it seems to me it has more to do with political positioning ahead of the election than anything else. Mr Osborne has form with these ploys; it is intended as a way to frame the argument rather than be a policy that is actually implemented.

    • alan jutson
      Posted January 16, 2014 at 9:35 am | Permalink

      Oldtimer

      Agree absolutely.

      Too little, too late, our debt still rises yet the Chancellor thinks he has done well.

      All he will have done in 5 years is slow the GROWTH of spending.

      All he expects to do in the following 5 years is slow the GROWTH of spending a TINY BIT MORE.

      The Chancellor and all of the media call this GROWTH a cut !

      Unfortunately most of the people think its a cut, without realising that actual debt is increasing.

      Its like telling an alcoholic to just cut down on drink a little each year, and in 5 years time he will only be drinking two bottles of spirits a day instead of three.
      Then calling such a cure.

      What a great opportunity this government had at the outset (4 years ago) to get our Country’s finances straight and on track.
      The goodwill of most of the people was with them, but the Government chose to spin it, rather than work it.

      All we are doing is to continue to live above our means for another 6 years, by which time he hopes (if he is still in control) growth of the tax income will have covered his tracks.
      Assuming of course that growth in GDP happens, if it does not then he will need more tax rises or allow even greater debt.

      • John Armour
        Posted January 17, 2014 at 10:13 am | Permalink

        All we are doing is to continue to live above our means for another 6 years, by which time he hopes (if he is still in control) growth of the tax income will have covered his tracks.

        You’re actually living well short of your means Alan. Your economy is sick and running on half throttle. You have massive under-utilised capacity. The private sector is sitting on its hands waiting for some Messiah-like event.

        You’re also running a current account deficit.

        That makes trying to cut the deficit like standing on a rake or punching yourself in the side of your head.

        What a great opportunity this government had at the outset (4 years ago) to get our Country’s finances straight and on track.
        The goodwill of most of the people was with them, but the Government chose to spin it, rather than work it.

        Maybe even the government knew it was staring into a 1930′s abyss.

        Be grateful they chose “spin” over “action” or things would be a helluva lot worse.

        • alan jutson
          Posted January 17, 2014 at 4:37 pm | Permalink

          John Armour

          “,,,,Living well short of your means Alan…”

          Absolutely correct, I am living within my means because I cannot print money, in addition because I have now retired I cannot easily replace savings.
          I have no borrowings because paying interest would reduce my disposable income in the future, its called money management.

          I ran my business exactly the same way, Zero borrowings, that gave me complete control, and I could stick two fingers up to the Banks, who often offered me money.

          I do not see Private business sitting on their hands waiting for business or running at half throttle.
          Yes certainly it could be more busy to a degree, but many businesses would require further investment in order to double capacity , if that demand were present.

          Given we are in a personal credit boom at the moment, I do not see the much pent up demand for the future that you do.

          With regard to a 1930 style abyss, I do not see it that way, the Government simply had to hold spending with no increases at all, and as staff left through retirement or finding other jobs simply not replace them, unless of course they were absolutley key staff (few of them).
          Simply get fewer people to work more efficiently, and promote from within if staff are able, as they have in so many private companies.

          Very , very few public organisations work efficiently as we all know.

          • John Armour
            Posted January 18, 2014 at 11:15 pm | Permalink

            Alan,

            You tend to look at things at the individual level (understandable) but expect them to be mirrored at the level of the national economy.

            This is the so-called “fallacy of composition” and when applied to the macro-economy leads to disaster, like, “when households are doing it tough, the government should also tighten its belt”.

            This kind of thinking has it exactly backwards.

            Your solution of “get fewer people to work more efficiently” is a core goal of business but applied at the macro level is self-defeating because “one person’s spending is another’s income”. Less workers, less wages, less demand.

            It’s similar to Keyne’s “paradox of thrift”: good at the individual level but disaster at the macro.

            Labour productivity is closely linked with capital. If the boss won’t give the workers the tools, it’s hard to lift productivity. Even so, labour productivity is rising.

            Very , very few public organisations work efficiently as we all know.

            Tell that to the Skandies.

  8. Denis Cooper
    Posted January 16, 2014 at 9:12 am | Permalink

    During 2009 the Labour government was having to borrow about a quarter of all the money it was spending, and it resorted to indirectly borrowing £198 billion created by the Bank of England, turning the Bank into a captive gilts investor so that it quickly became the government’s largest single creditor by far.

    Three years later in 2012 – 13 spending was £679.3 billion and revenues were £556 billion, on which basis there was a deficit of £123.3 billion or 18.2% of spending, so the coalition government was still having to borrow nearly a fifth of all the money it was spending.

    While for 2017 – 18 spending is now forecast at £740.6 billion with revenues forecast at £699.6 billion, forecast deficit £41.o billion, which would be 5.5% of spending, and so at last after eight years there might the prospect that eventually the government could start to pay off some of its accumulated debt.

    Which after five more years of deficits, albeit diminishing deficits, might then be about £400 billion higher than now? That would make it about £1800 billion, is that correct?

    JR, do you have forecasts for when the debt would peak and at what level?

    Of course this is assuming that all goes well, and we are not hit by the next recession before we have recovered from the last.

    I know very well who was mainly responsible for this dire state of affairs, he who swore that he truly loved Prudence and was desperate to marry her, and then turned her into a drudge slaving over a hot printing press; and I know very well that some of his worst mistakes stemmed from following EU models for regulation of banks and for the measurement of inflation; but somehow he and his Labour colleagues seem to have escaped most of the blame and they even have the brass neck to blame the coalition government, and the destructive involvement of the EU has also been covered up.

    • Posted January 16, 2014 at 10:38 am | Permalink

      Quite right Mr Cooper. I think the Chancellor has done a pretty good job at getting some control over Govt. spending in the face of a wall of cries that he was leading us back into recession with his ‘austerity’ measures. I could have wished that he hadn’t raised welfare benefits in line with inflation but otherwise the deficit reduction exercise has been carried out both deftly and courageously.
      I also welcome his comments about the EU and take delight in the wails of anguish from various EU Commissioners. The more they protest the more I believe he has got it right.

      • JoeSoap
        Posted January 16, 2014 at 2:24 pm | Permalink

        Wow, you have been seduced.
        The deficit reduction such that it is has resulted from a staggering increase in taxes-the sort that G Brown himself would have been proud. Reduction in pension lifetime allowances, keeping VAT rates and income tax rates HIGHER than 13 years under Labour, no indexation in income tax allowances above the lowest rates… and it was supposed to be done 80% by spending cuts. Even with the government paying incredibly low interest rates due to money printing, borrowing is still increasing…
        Brave is not the word I’d use to describe it

      • Hope
        Posted January 16, 2014 at 2:47 pm | Permalink

        A pretty good job? Are you joking. He has failed by all measures he asked us to judge him on. From the outset we all knew he was only cutting the rate of spending by a minuscule 0.3 percentage and Darling would have done the same had he remained in situ. He had all the political pain and no gain from his part time chancellor stance. Deftly and courageously, my goodness you must have low standards if you actually believe your statement.

    • Posted January 16, 2014 at 10:53 pm | Permalink

      Denis,

      If you were making claims like “During 2009 the Labour government was having to borrow about a quarter of all the money it was spending,” in a university essay without providing any references you would be marked down and told to go away and add some.

      According to my reference this is a severe exaggeration. The true figure being 11.2%

      What’s the problem? Doesn’t 11.2% sound high enough for you?

      • Denis Cooper
        Posted January 17, 2014 at 12:11 pm | Permalink

        I’ve no idea where you’ve got that from.

        According to this:

        http://www.ukpublicspending.co.uk/year_budget_2009UKbn_13bc1n#usgs302

        for 2009 – 10 public spending was £634 billion, and according to this:

        http://blogs.telegraph.co.uk/finance/edmundconway/100005840/britain-no-longer-has-the-worst-deficit-in-europe/

        the budget deficit finally turned out be £145 billion, not £71 billion as would have been the case if the deficit was only 11.2% of spending, and 22.8% is close enough to a quarter.

        I can only suppose that you’ve picked up a number for the budget deficit as a percentage of GDP; but you might have looked at the figures for more recent years quoted in the article and realised your error, because as a percentage of total spending the deficit has not gone up since 2009, it has gone down, albeit not by a huge amount, and for example it is now running at about 18.2% as calculated in my comment.

        • Posted January 17, 2014 at 10:09 pm | Permalink

          Denis,

          My source: the second graph down 0n this page:

          http://www.economicshelp.org/blog/334/uk-economy/uk-national-debt/

          Yes I see that you are quoting the deficit as a percentage of total government spending rather than as a percentage of GDP which is the normal measure.

          You obviously want to use this figure as a stick with which to beat the Labour government because of ideological reasons. Its always difficult to have a sensible conversation about economics when the main driver is politics. For what its worth, my opinion is the the Labour Party are just as hopeless as the Conservative Party on economic questions. But, fortunately there are good people in both the Treasury and the BoE who do know how to keep economically illiterate politicians from doing too much damage!

          If you can, I’d just ask you to suspend judgement on whether the figure in question was too high, or too low, by doing some research on what other similar sized countries were forced to do in 2009. I think you’ll find a similar story there too.

          • Denis Cooper
            Posted January 18, 2014 at 2:25 pm | Permalink

            “Yes I see that you are quoting the deficit as a percentage of total government spending rather than as a percentage of GDP which is the normal measure.”

            I suppose you might have seen that before from my first sentence, which you quoted and criticised but apparently without having bothered to actually read it.

            “You obviously want to use this figure as a stick with which to beat the Labour government because of ideological reasons.”

            No, I want to use that figure to make it clear that the Labour government was having to borrow a quarter of all the money it was spending, a position which you may treat as being of no importance but which more responsible commenters will see as being what it was, absolutely appalling.

          • John Armour
            Posted January 20, 2014 at 6:27 am | Permalink

            Peter,

            Out of curiosity I clicked on your link to economicshelp.org to see what you and Denis were talking about, and scrolled down to:

            Potential Problems of National Debt

            There I found listed the following 6 issues of concern:

            Interest payments, higher taxes, “crowding out”, the demographic time-bomb, exchange rate impacts, and “the market” demanding higher premiums on bonds to offset default risks.

            All of these “concerns” are dismissed by Frank Newman in his “Six myths that hold back America” as nonsensical.

            I realise Denis dismisses so-called “arguments from authority” (and reasonably so) but how about Chico Marx’ “who you gonna believe, me or your lyin’ eyes”.

            Not only do we have the UK experience but the experience of several other countries with high debt/GDP ratios, most notably Japan proving these fears totally unfounded.

            If one has a grasp of the post-Bretton Woods monetary system, this is hardly surprising.

            Sadly, these myths are presented as legitimate concerns on a website that purports to “help simplify economics”.

            Denis, I share your concerns about appeals to authority but please check out Frank N Newman’s Wiki entry. I don’t think you’ll dismiss him as some kind of spendthrift lefty.

          • Posted January 20, 2014 at 8:45 pm | Permalink

            John,

            Deficit spending, ie Govts issuing new money, puts more money into the economy which ends up in the commercial banks.
            The more money they have, the more they wish to issue new loans and the more customers they need to attract. So isn’t it obvious that they’ll attract more with lower interest rates than higher ones?
            The empirical evidence would be to confirm that too. Low interest rates at a time of high deficits.

            So why does nearly everyone think its the other way around? Am I missing something here?

            Reply The danger is a high deficit forces rates up as savers demand a higher return to lend to the government

          • Posted January 21, 2014 at 5:57 pm | Permalink

            “danger is a high deficit forces rates up as savers demand a higher return to lend to the government”

            Yes, that is the conventional wisdom. It’s what sometimes erroneously taught on economics courses. Its a throwback to the days when currency wasn’t fiat.

            But the reality, at present, is that savers are rightly demanding a higher return on their savings but, even though deficits are high, they aren’t getting it. That’s because governments set interest rates, as they choose, by setting the overnight rate, What used to be known as Bank Rate or MLR. As sole issuers of the currency, the Government don’t need to borrow directly from savers. Once they’ve put their money in the bank it will probably be converted into a Govt bond by the bank at an interest rate of the Govt’s choosing. Interest rates aren’t set by a process of supply and demand as many mistakenly believe.

            Reply The rate on 10 year gilts has doubled from the low in a little over a year and is forecast to rise further by the OBR.

  9. Brian Tomkinson
    Posted January 16, 2014 at 9:37 am | Permalink

    ” JR: The revised plans will see it effectively frozen for 2 years , at £731.3bn in 2016-17, before going up to £9.3bn the following year.”
    I think you must have made an error here. Just what is the correct forecast for spending in 2017-18? I presume you meant £739.3bn but would welcome confirmation. Thanks.

    • Brian Tomkinson
      Posted January 16, 2014 at 9:43 am | Permalink

      Looking at your figures again I think you meant to say going up by £9.3bn the following year thereby making the total £740.6bn.

    • Denis Cooper
      Posted January 16, 2014 at 9:46 am | Permalink

      Oh, I assumed that it should have been “up” by £9.3 billion, but it doesn’t make much odds whether it’s supposed to be up by £9.3 billion to £740.6 billion or it’s supposed to be £739.3 billion.

      Reply Yes, up by.

  10. stred
    Posted January 16, 2014 at 9:39 am | Permalink

    It is fortunate that the country owns RBS and not the other way around. They could have put the skids under by raising charges and flogged us off cheap. Judging from the latest demand for pay hikes, they may be under the impression that they do own us.

  11. ian wragg
    Posted January 16, 2014 at 9:55 am | Permalink

    And still we give away £15 billion for foreign despots to fund their lifestyles. That alone will be enough to lose the next election, never mind 1 trillion of debt or immigration still running at 500,000 p.a.
    Osborne lectures the EU when we are little better than Greece.
    Grow up.

  12. Gary
    Posted January 16, 2014 at 10:13 am | Permalink

    Cutting the deficit, as govt spending balloons.

    An exercise in smoke and mirrors. And we have the temerity, the bald faced cheek to point at the EU? The arrogance is unbelievable.

    We are the most indebted country(total external debt owed) in Europe, by miles.

    http://en.m.wikipedia.org/wiki/List_of_countries_by_external_debt

    • Posted January 17, 2014 at 10:33 pm | Permalink

      The total debts of the UK are comparable to other similar sized European countries. Slightly higher than Germany. Quite a lot lower than Italy.

      Your figures are for external debt. What they show is that the UK is very good at selling Treasury bonds to foreigners. When the Treasury sell off their Gilts some of them will end up with the Chinese who wish to hold £ sterling. They can’t hold French Francs of German DM any more because those currencies no longer exist. They can hold Euros of course but its not clear how that holding would show up in the figures shown.

      I would think that a willingness of foreigners to hold £ sterling securities was a good thing. Most economists would. If they changed their mind the value of the £ would fall. Incidentally, that may not be such a bad thing either but I don’t think it is what you meant, and that’s another topic for discussion.

  13. Neil Craig
    Posted January 16, 2014 at 11:21 am | Permalink

    Osborne does often at least seem to understand the importance of economic freedom, unlike his PM. On shale gas, CAGW and world growth he talks something close to the talk even if he doesn’t walk the walk.

    On the other hand I would say “falling behind the Asian economies” is far understating the fact that the non-EU world average growth rate is 6% a year and we may be reaching for 2%.

  14. Max Dunbar
    Posted January 16, 2014 at 11:49 am | Permalink

    I don’t believe any of these projections, and the figures quoted could mean anything. You have had four years to sort all this out.
    Labour are already revving up for victory at the general election, shamelessly peddling the ‘positive discrimination’ plans that they have for the police and no doubt many other pieces of deranged extremism that will be in the pipeline, all of which will add to the costs of running the country and thereby increasing our debt.
    It’s too late now. Your Party, in office, has proved to be no real alternative to Labour and, as Thatcher said, the ratchet of socialism has not been disengaged and wound back. If anything, it has been tightened further with the PM supporting left-wing causes such as ‘marriage’ between homosexuals.

  15. Horatio McSherry
    Posted January 16, 2014 at 12:24 pm | Permalink

    I know I may sound a bit of a simpleton but I’m at a loss as to why spending must increase by any amount. Surely, at the very least, the mentality should be: “Right, we know we don’t have more money next year than we do this, so we’ll spend the same as this year, and, we’ll look for savings where we can.”

    I also see £100m of the budget cuts have been made totally pointless by increasing aid to Syria. Terrible as it is, we’re skint.

    • JoeSoap
      Posted January 16, 2014 at 2:15 pm | Permalink

      Inflation-linked pensions increases for public sector retirees.
      Welfare increases linked to inflation.
      But of course somebody should be making the choice between giving this and cutting other spending, or scrapping public sector pensions. LibLabCon will however never do this. The best you can hope for is a gradual withering of welfare and public sector claimants so that there are enough folk feeling the chill wind of looking after their own pensions to elect a different type of party into government. At this time UKIP fits that bill pretty closely in my view.

    • Mark B
      Posted January 16, 2014 at 3:23 pm | Permalink

      They behave the way they do because, its NOT their money – its ours. Its also our debt. That £1.x Trillion is the amount of money ‘we’ have to pay back. Taking all that into consideration, you would think that they would give us a say on the things we wanted to spend on ‘our’ money, or how much we wish to borrow.

      Its like giving next doors teenager your credit card and full access to your bank account.

      Madness.

      • John Armour
        Posted January 17, 2014 at 10:19 am | Permalink

        That £1.x Trillion is the amount of money ‘we’ have to pay back.

        No you don’t Mark. It’s a myth, a bed-time story to frighten children.

        Get over it.

        • Mark B
          Posted January 17, 2014 at 8:37 pm | Permalink

          Tell that to the Cypriot’s.

        • Posted January 20, 2014 at 9:04 pm | Permalink

          The £1 trillion , is money issued by the Government into the economy. It ends up as the assets of the non Government sector. It can’t be repaid because the non-Government sector wouldn’t have any £ assets left and they’d have to use Euros instead!

          No-one thinks that’s a good idea!

      • Denis Cooper
        Posted January 17, 2014 at 5:33 pm | Permalink

        What he really means, Mark B, is that actually the government will have to repay it all, but that’s OK because the government can just get the Bank of England to print it; and indeed print more, much more, possibly as much as any profligate future government may ever want to spend, at least until it has debased sterling to the point where nobody wants to touch it …

        And the main reason that this dangerous notion is now being advanced so often is that when Chancellor Alistair Darling got the Bank of England to print £200 billion during 2009 the Shadow Chancellor George Osborne chose to remain silent about it, apart from one (premature) outburst in the Commons in the January, and then when he became Chancellor he did the same thing and got the Bank of England to print another £175 billion, and there was such strong-party support for money printing that hardly any MPs raised questions about it, in fact it was barely debated let alone made subject to proper democratic control.

  16. Iain Gill
    Posted January 16, 2014 at 12:56 pm | Permalink

    Personally I think politicians should be banned from talking about “the deficit” they should be forced to discuss “the national debt” and how much it is going up. A modest reduction in the deficit is nothing to be proud of when the national debt is still increasing so much every day.

    I took great offence especially at the deputy PM telling us that the liberals are best placed to help the country “finish paying off the deficit”… er no when the deficit gets to zero then guess what we need to go even further and start paying off the national debt! and paying off the national debt is a massive undertaking.

    We cannot continue to live in this cloud cuckoo land

    • JoeSoap
      Posted January 16, 2014 at 2:10 pm | Permalink

      Clegg doesn’t understand figures.

    • John Armour
      Posted January 17, 2014 at 10:23 am | Permalink

      We cannot continue to live in this cloud cuckoo land

      It’s a “cloud cuckoo land” that’s your own making Iain.

      We stopped paying off so-called national debts when we walked away from Bretton Woods.

      • Denis Cooper
        Posted January 17, 2014 at 5:17 pm | Permalink

        Gosh, so the Treasury hasn’t paid a bean to holders of gilts for the past 32 years, and back in December 2006 when Ed Balls thought that we were paying off the last instalments of the WW2 loans from the US and Canada:

        http://metro.co.uk/2006/12/27/britain-set-to-finally-pay-off-wwii-loans-to-us-3433494/

        he was totally mistaken, because we’d stopped paying them off long before; but then he was only the Economic Secretary to the Treasury, so maybe he didn’t really understand that.

        • Posted January 21, 2014 at 10:01 pm | Permalink

          Denis,
          Putting your money into Gilts is just the same as putting it into National Savings. It pays some interest but not much – maybe just enough to cover inflation. On the plus side: They are are a risk free safe investment.
          We shouldn’t begrudge what interest is paid. Especially as the interest is usually paid from the proceeds of new Gilt issues!
          I can hear you thinking “Ponzi Scheme” and some would agree with you but that is the way it all works.
          You’ve got to remember that as the Government is the sole issuer of £ it doesn’t need to borrow any of them back. It only does so by choice. By replacing one type of IOU for another.

          Reply A gilt is not risk free. Its price goes up and down in the market, and you only guarantee getting all your money back if a) you buy it below par and b) hold it to redemption. That assumes, as I do, that no UK government will renege on its debts. The same has not been true of the Greek government bond which was far from risk free.

  17. acorn
    Posted January 16, 2014 at 1:36 pm | Permalink

    I can understand a Conservative government getting hysterical about the deficit and the debt of the public sector, it always happens at the start of every Conservative government. The Thatcher and Major deficit hysteria recessions at the start of their governments were corrected by wiser heads within two to three years. Unfortunately, nobody has put the brakes on deficit reducing Osborne, hence he is leading us to the cliff edge of economic viability.

    Osborne is taking a massive amount of spending power out of the economy and far to fast. He is starving the patient to death. Remember this: “We have to move away from an economic model that was based on unsustainable private and public debt. And we have to move to a new model of economic growth that is rooted in more investment, more savings and higher exports.” (Osborne 2010 election)

    Four years on, higher exports, no. Higher savings, no. Higher investment, no in the public sector and no in the private sector. In fact the private sector non-financial businesses are paying back debt faster than they are borrowing for new investment!

    There has been no mention of private sector debt and what he was going to do about it since the election. He is obviously expecting private sector spending to replace his deficit spending reduction, pound for pound if not more. Unfortunately, the Household sector debt has dropped little and is still around 95% of GDP. Non- financial businesses are at 90% having dropped 14% from peak and still paying back. Banksters and City Spivs still owe 230% of GDP, having dropped about 20% from there bailout peak.

    I am intrigued to know where the domestic private sector is going to get all this money to replace Osbornes austerity drive. Will we have to sell the whole of London to Johny Foreigner and build a wall around it to keep out the 99%. Remember that the public sector deficit is the private sector’s savings. The national debt is savings certificates that pay benefits (interest) to corporations (and my pension funds), just like the DWP pays benefits to individuals.

    • Posted January 16, 2014 at 10:18 pm | Permalink

      I am intrigued to know where the domestic private sector is going to get all this money to replace Osbornes austerity drive.

      It comes out of the deficit spending. The only other possibility would be for Britain to run a trading surplus with the rest of the world , like Norway or Germany. Then the export money could be used to replace government money. As Britain’s trade balance is in deficit, the government has to finance that too by deficit spending! Calls for a balanced government budget are impractical. Any politician would be foolish to promise any such thing!

      The mistake that George Osborne and others are making , IMO, is not so much what they are doing but what they are saying. Britain is making a reasonable recovery and is in much better shape, economically, than France or Italy for example. Britain is also in much better shape than it would be if it had adopted the Euro and was forced by the ECB into greater austerity.

      Austerity isn’t the right policy right now. No-one can repay debts if they don’t have a well paying job. That’s the simple reality of the situation, even though the great and the good of European and World economics, the Troika, who insist otherwise and prescribe horrendous medicine to Greece and Spain, don’t seem to understand. The British people would understand, I believe, if the government explained what it was doing . Instead it comes over as saying one thing but doing another.

    • zorro
      Posted January 17, 2014 at 2:02 am | Permalink

      The lack of reply speaks volumes…..

      zorro

      • zorro
        Posted January 17, 2014 at 2:05 am | Permalink

        I also think that there will be some international debt jubilee/QE cancellation….It will lead to higher inflation but will get actual debt owed to others down to a more reasonable percentage….

        zorro

    • Denis Cooper
      Posted January 17, 2014 at 5:00 pm | Permalink

      “Remember that the public sector deficit is the private sector’s savings.”

      Clearly that identity cannot hold if the government is borrowing money from abroad to finance its budget deficit, and at present over a quarter of all the gilts in issue are classified as being “overseas holdings” here:

      http://www.dmo.gov.uk/documentview.aspx?docname=publications/quarterly/gilt-holdings-data-historical.xls&page=publications/quarterly

      In Q3 2013, £394 billion out of £1368 billion.

      And unlike the £375 billion that it has borrowed effectively interest-free from the Bank of England, the government has to pay interest to those foreign holders of gilts as well as paying the principal sums when they mature.

      There had been a £600 billion increase in government liabilities since Q3 2009, with an increase in overseas holdings of £177 billion, nearly 30%.

      • John Armour
        Posted January 19, 2014 at 9:30 pm | Permalink

        Clearly that identity cannot hold if the government is borrowing money from abroad to finance its budget deficit, and at present over a quarter of all the gilts in issue are classified as being “overseas holdings” here:

        That you don’t understand the difference between “overseas holdings” and “borrowing from abroad” doesn’t surprise me Denis.

        • Denis Cooper
          Posted January 20, 2014 at 3:17 pm | Permalink

          I suggest you look at the table to which I provided the link, and scroll across to the right where the “overseas holdings” of gilts are broken down into “foreign central banks” and “other”. Every gilt held by one of the foreign central banks says that the UK Treasury owes it money, and the same for those held by “other”, which could for example include the Norwegian sovereign wealth fund. They may have bought them directly from the Treasury or indirectly through the secondary market, but either way the net effect is that by 2013 Q3 the UK government had borrowed £394 billion from abroad, and of course those foreign creditors will expect the UK Treasury to pay them as promised.

          • John Armour
            Posted January 20, 2014 at 10:08 pm | Permalink

            You seem determined to prove my point Denis.

            Those overseas investors who bought UK government securities first had to buy Pounds, then buy the securities.

            The Bank of England then credits the “Securities” account of the investor’s bank in the UK with the value of the securities purchased.

            It matters not a tot who owns the gilts.

            The fact that foreigners want to buy UK government securities is a vote of confidence in the stability of the currency.

            You’re getting your knickers in a knot because 30% of your so-called debt is owned by foreigners. Australia, which fared well in the wash-up of the GFC because the government hit the deficit panic button, has 70% of its debt owned by foreigners, a huge vote of confidence, yet the financial press wrings its hands and generates anxiety in its readership.

            Things however would be entirely different if the UK government was borrowing foreign sovereign bonds because it would have no control over the dividend and redemption process.

            Then you’d be in a similar position to Greece.

      • Posted January 21, 2014 at 10:22 pm | Permalink

        “Remember that the public sector deficit is the private sector’s savings.”

        Denis is actually raising a valid point by questioning this statement. It should be the non-governments sector’s savings. That means the total of all the money saved by private individuals and companies in National Savings accounts, cash, money in bank reserves etc (but not including bank IOUs) , and the money held in Treasury bonds and Reserve accounts at the BoE including individuals, companies, and all overseas account holders too.

        As the UK usually imports more than it exports that does mean that the overseas holding of Gilts etc has built up to a significant level. Is that a problem? Some economists would argue that imports are good and exports are bad! I wouldn’t fully go along with that. It’s important for any country to be self reliant up to a certain point. But, neither is the trade imbalance the big problem it’s often claimed to be.

        Reply You do need to consider the overseas accounts as well as a simple public/private UK split in assessign surpluses and deficits.

    • John Armour
      Posted January 18, 2014 at 1:47 am | Permalink

      Remember that the public sector deficit is the private sector’s savings.

      If only people would understand that, acorn.

      Indeed, the only way the private sector can get the money to pay off it’s mountain of debt is via the deficit, or through net export income.

      An excellent comment.

  18. JoeSoap
    Posted January 16, 2014 at 1:54 pm | Permalink

    A staggering increase in taxation.
    Your party has morphed over the years into a high tax high spend outfit with no real difference to what would have happened under Labour. We need a real new start. No more LibLabCon lies and deceit, over the EU or cutting spending. You have had 4 years to sort both out, and nothing has changed. The best that can be said is that the Country hasn t collapsed.

  19. Posted January 16, 2014 at 2:25 pm | Permalink

    Correct me if I’m wrong but there are no credible forecasts of inflation being a problem for the foreseeable future in the UK.

    So, as inflation control is the single reason for wishing to cut the government budget deficit, I would be interested to know why it has such a high political priority? As the economy improves , the budget deficit will naturally close. It has to – as more people pay taxes and as the increase in taxation revenue outpaces any increase in spending.

    If I’m wrong in saying there are other reasons besides, inflation control, I’d be interested in knowing what they were. A budget deficit doesn’t raise interest rates for example. If they did rates wouldn’t be close to zero right now. A budget deficit doesn’t have to be financed by borrowing from China either. Neither is it financed by borrowing from future generations. They won’t have to pay it back on our behalf – just like later generations didn’t have to pay back the deficits accumulated in the war years. Later generations consumed all the goods and services they produced themselves. They couldn’t send any of it back in time.

    So what’s the problem?

    • Denis Cooper
      Posted January 17, 2014 at 12:41 pm | Permalink

      “A budget deficit doesn’t raise interest rates for example. If they did rates wouldn’t be close to zero right now.”

      Of course if does help to keep market interest rates low if a government can get a central bank to create vast sums of new money and use it for the wholesale rigging the market in its bonds, which the UK government could do, to the tune of £375 billion, but the Greek government could not do because Greece had surrendered control of the currency it was using.

      “They won’t have to pay it back on our behalf – just like later generations didn’t have to pay back the deficits accumulated in the war years.”

      Of course they did, they paid interest and finally repaid the capital sums not only for all the normal gilts issued but also for loans from the US and Canadian governments, and in fact the latter was only completed in December 2006:

      http://metro.co.uk/2006/12/27/britain-set-to-finally-pay-off-wwii-loans-to-us-3433494/

      Once again your attitude on this is so casual that I wonder whether you would really like to see us eventually reduced to the state of Greece.

    • Posted January 18, 2014 at 12:14 am | Permalink

      Denis,

      The loans you mentioned were taken out in a foreign currency. And , of course, as the UK is a user of the US$ or the C$ then any loans taken out by the UK are exactly the same as loans taken out by you and I when we buy are car or a house. The money has to be repaid. That’s not in dispute.

      However, most of the deficits from WW2 were just as they are now. Governments spending more than they received in taxation. They issued the money into the economy as needed to maximise the war effort. Wartime rationing, strict currency controls kept inflation from being a serious problem, although it was a problem. The Trade Unions too entered into the war effort and accepted much lower pay on behalf of their members. The argument was that there wasn’t much to spend it on anyway! So that economic model was very much a special case and can’t be used except in times of national emergency.

      The source of most of the economic confusion is thinking about a currency solely from a users point of view. A user has to have a balanced budget or face bankruptcy. An issuer can never become bankrupt in its own currency . It can debase that currency through inflation though and so sensible management is required. Enough currency needs to be issued to prevent wastage of available resources. Like having people on the dole. But not too much that inflation becomes a problem.

      • Denis Cooper
        Posted January 18, 2014 at 2:31 pm | Permalink

        The gilts and any other instruments denominated in sterling that were issued during the war had to be repaid to creditors as well as the loans from the US and Canada in foreign currencies, and it is stupid to try to pretend that later generations somehow got off repaying those debts.

      • Posted January 18, 2014 at 8:59 pm | Permalink

        The costs of WW2 were in the lives lost, the physical resources which were consumed in the war effort, the physical damage done to the country at the time and the later repayment of foreign currency loans. There was no cost in running a budget deficit.
        Suppose the Government at the time said they weren’t going to use the war as an excuse for an unbalanced budget and were going to borrow whatever they needed from the Americans.
        To avoid bankruptcy, later generations would have indeed needed to repay all those loans. It would have meant that all the UK production of cars, washing machines, refrigerators etc (which Britain still made in the post war period!) would have had to be sold in America to raise US$ for the repayment instead of being consumed in the home market as they indeed were. So later generations did get to consume all they produced. Just like all generation have before and will in the future. Maybe a bit more besides if UK run its usual trade deficit.
        Money that is created by the Government isn’t owed to anyone. It is just created. Like points on the scoreboard at a rugby match. The Rugby Union can never run out of points! The It’s not backed by gold or silver or any foreign currency. It’s free money from the Government’s POV. It’s just an IOU. There’s no point in using phrases like “printing money” with disdain. All money is either printed or created by keystroke in a computer.
        The trick is to create just enough new money as required to keep the economy working at full capacity but not too much which will generate too much inflation. Budget deficits, or surpluses, are neither here nor there. The creation of government IOUs, or sometimes the tearing up of excess IOUs, is just a parameter to be varied to to keep the economy in good working order.

        • Denis Cooper
          Posted January 19, 2014 at 7:00 pm | Permalink

          And at the end of all that meandering, it remains true that all the debts incurred by the UK government during the war had to be repaid after the war, and it is stupid to try to pretend otherwise; just as all the debts now being incurred by the UK government will have to be repaid; and some of the repayments will be to domestic creditors but some will be to foreign creditors, the latter comprising about 30% for the gilts currently in issue.

        • Posted January 21, 2014 at 8:08 am | Permalink

          You still can’t get out of the rut of thinking like a currency user . It takes a little imagination , because probably none of us have any direct experience, but to understand money you also have to be able to think like a currency issuer . An issuer issues currency to pay his bills and hasn’t borrowed it from anyone so doesn’t have to repay anything. Lucky issuer!

          The currency held by foreign creditors has been stored up because of the UK’s trade balance deficit. People wish to buy lots of stuff from China. The Chinese are paid in £ which they have chosen to save rather than spend. So they end up with £ govt securities. The UK essentially has Chinese money in their bank. Some day the Chinese may wish spend some of it on jet engines or Scotch whisky or whatever. If they do that, it will be hailed as good thing. Politicians will claim credit for the new jobs created, and the ‘loans’ will be ‘repaid’ in the process.

  20. Leslie Singleton
    Posted January 16, 2014 at 3:15 pm | Permalink

    No mention of the exchange rate for a while. Best I can gather, this is either irrelevant or crucial dependent on your point of view, but reading the Torygraph Business section today it would seem, perhaps no surprise, that some want it to stay low and others want it higher. All I know is that if one sees something tasty and apparently very cheap on ebay, the chances are it is from America, evidence of course that at least vis-a-vis the dollar the pound is strong. In any event hopes of a purchase rapidly turn to dust given the phenomenally high American postage rates.

    • uanime5
      Posted January 16, 2014 at 9:43 pm | Permalink

      In any event hopes of a purchase rapidly turn to dust given the phenomenally high American postage rates.

      I wouldn’t say US postal rates are high, unlike the amount of tax the UK government charges on anything worth more than £15.

  21. Atlas
    Posted January 16, 2014 at 4:38 pm | Permalink

    John, ’twas all very commendable for George to sound forth in the manner he did – however, for me, it is a matter of sovereignty. The Scots MPs were bought off with some English gold in the 1700s and their people have hated us south of the border ever since. So I suggest that Cameron should not think a few-on-the-margin changes to the EU will suffice.

  22. Posted January 16, 2014 at 4:56 pm | Permalink

    Surely, it’s not the deficit that matters but our total debt.
    By 2017/18, the deficit will be in excess of 40 billion, so the total debt and interest payments by then will be astronomical, and there’s no clue whatsoever when the country is likely to pay off the borrowings.
    Or is this the modern thinking, borrow up to the hilt, and as long as you can service the debt, all is well? The problem with that approach is what happens if there is a real emergency and you can’t borrow any more?
    Afterthought: does the £40.9 billion include servicing the debt?

    Reply Yes

    • John Armour
      Posted January 17, 2014 at 10:36 am | Permalink

      English Pensioner,

      The bottom line is that the government doesn’t even have to borrow because it can create the stuff out of thin air.

      It goes through the farce of borrowing to (1) satiate the appetites of the bond market for government securities and (2) to mop up excess reserves in the banking system so the central bank can maintain control of the interest rate.

      It looks like borrowing but it’s not.

      It looks like debt, but it’s not.

      Relax.

      • Denis Cooper
        Posted January 17, 2014 at 4:04 pm | Permalink

        Were you by any chance an adviser to the Greek government?

        If it looks like borrowing that’s because it is borrowing, and if it looks like debt that’s because it is debt; and no, we should “relax” about it.

        • Denis Cooper
          Posted January 17, 2014 at 4:05 pm | Permalink

          Missing word “not” in there!

        • John Armour
          Posted January 18, 2014 at 8:32 pm | Permalink

          Denis,

          If you don’t understand the differences between the Greek monetary system and the UK’s by now, I must assume you don’t want to.

          However, here’s another quote from the writings of Frank Newman, former Deputy Secretary of the US Treasury that might help enlighten you:

          “Misunderstanding of the modern nature of money and Treasuries (or their equivalents in other countries) needlessly confines thinking about economic approaches to reducing unemployment and growing GDP.”

          “The reasons often alleged for fear of “national debt” are not valid for the US and other nations with similar structures of financial systems.”

          “There is a very different situation for the eurozone nations and other countries that raise funds in currencies that are not their own. Greece, Portugal, Ireland, and other nations that do not have their own currencies and financial systems do have obligations that should be considered national debt.”

          There are dozens of academic economists who agree with Newman, but I’ve chosen to quote him because he was an “insider” at Treasurer (2 IC) and should know what he’s talking about.

          • Denis Cooper
            Posted January 19, 2014 at 11:13 am | Permalink

            Oddly enough I do understand that, but I also understand that the flexibility we enjoy through still having our own currency is extremely valuable but we should not allow it to be routinely abused by the government in the way that you would like, and moreover without any proper democratic control as has been the case so far. Of course for those on the left of politics it is a seductive idea that once in power they could spend as much money as they liked simply by getting the Bank of England to print it, indeed as far as they are concerned it’s as if QE has finally made their dream come true, and that is the politics which lies behind the façade of the economic theory.

            I well recall that back in 1997 there was a phrase often on the lips of Labour MPs, that “the money’s there” and so they should spend it on whatever had taken their fancy, and that same irresponsible attitude is what drives the new idea that if the money isn’t there then it should be printed.

      • Posted January 18, 2014 at 9:37 pm | Permalink

        I wouldn’t put it quite like that. I’d say any IOU written is a debt. That would include government money too. All governments who issue money are in debt. If they aren’t it is because they haven’t issued anything.
        If I, personally, were the government, I’d have the responsibility of writing out all the IOUs needed to create the currency in the first place and finance any deficit spending afterwards. So, technically, I could be described as the poorest person in the country! The more IOUs I wrote the poorer I would become.
        However, everyone else would count up all their IOUs and if they had enough of them they would describe themselves as millionaires. I’d have the last laugh though. I’d hit them with a big tax bill just to show them that wealth/ poverty weren’t necessarily directly in proportion to available power !

  23. Dennis
    Posted January 16, 2014 at 5:17 pm | Permalink

    Osborne said:

    “Over the next 15 years Europe’s share of the global economy will halve..”

    Is he mad? Should Europe’s economy be greater than the rest of the world? With the upsurge in the economies of India, China etc. Europe’s should be bigger than half?

    Of course he will never mention where the resources are going to come from and the total cost of extracting them and what this can mean.

    Why should Europe have an economy bigger than the rest? As I have said many times in this forum this is greedy, selfish thinking. I don’t think that the politicians know they are being ruthless – they just haven’t thought of it – someone please tell them – I have many times – needs more but I doubt if the contributors here will do so.

    Reply He is saying according to you the share will halve, not that the EU has 50% of world output!

  24. They Work for Us?
    Posted January 16, 2014 at 6:54 pm | Permalink

    If faced with being forced into the Euro then perhaps we should demand a referendum to apply to become the (n+1th) state of the USA. Think of the advantages – lower tax, gun ownership, proper sentences passed on criminals, free enterprise etc etc. Obama will have gone by then …….need I say more!
    On tax and spending, Enoch Powell in his book “freedom and Reality” ascribed inflation as the % difference between what the govt took in and what it spent.

  25. uanime5
    Posted January 16, 2014 at 9:47 pm | Permalink

    Last week the Chancellor made an important speech. In it he charted the progress in cutting the deficit so far, and set out why more needs to be done to complete the task .

    How much has the deficit been cut in cash and real terms over the past few years? I’m fairly sure it hasn’t been reduced in cash terms.

    He proposed that an additional £25 billion a year be taken from the projected growth in cash public spending in the first two years of the next Parliament, establishing a lower base in 2016-17 for future growth in spending than current plans.

    So £25 billion of public sector cuts even though his austerity plan resulted in no growth. How exactly is more stagnation going to help the economy?

    As tax revenues are forecast to rise from £556bn in 2012-13 to £699.6bn by 2017-18, this will bring the deficit in that year down to £40.9bn.

    Given that the previous predictions regarding increases in tax revenues due to austerity were wrong it’s likely that this predictions won’t be correct either.

    He drew attention to the high unemployment in many parts of the continent, the lack of competitiveness and the need for more jobs friendly policies.

    Given how similar the UK’s unemployment levels are to the EU’s average unemployment levels it’s clear that the UK isn’t doing much better than most EU countries.

    Is Osborne going to tackle the “lack of competitiveness” by breaking up some of the large companies, such as the banks and power companies, in order to create more competition? Is he going to close tax loopholes that only benefit large companies?

    I take it by “need for more jobs friendly policies” Osborne wants to remove health and safety, and employee rights so that companies can make more profit by mistreating their staff.

    He also made clear that the UK as a non Euro member with no intention of joining the single currency needs a new relationship so that we do not get dragged into accepting liabilities and instructions appropriate for a single currency zone but not for us.

    How is this going to work? As long as the UK’s largest trade partner is the EU we’ll have to join in any euro bailouts because if the euro fails it will take the UK’s economy with it.

    • Edward 2
      Posted January 17, 2014 at 9:00 pm | Permalink

      Uni
      How can you possibly claim unemployment is similar to the UK when in the EU it is over 12% and rising whereas in the UK it is 7% and falling.
      You need to check your facts before posting such nonsense.

  26. Wokingham Mums
    Posted January 16, 2014 at 9:47 pm | Permalink

    Off subject
    Just watched Benefits Street!
    Shocked, amazed. If this world exists and it seems to,
    Welcome your comment because this is what unfortunately the next elect might be about

    • alan jutson
      Posted January 17, 2014 at 10:50 am | Permalink

      Wokingham Mums

      “Shocked”

      Were you really, not aware that people live and behave like this ?.

      Perhaps you should also have viewed “the truth behind immigration” a programme also shown last week.

      At last we seem to have started to expose what is really going on in the UK with regard to Benefits and Immigration.

      No it is certainly not by the majority, but certainly by enough people who are working the system to their advantage.

      Blame the system that allows it.
      Blame the system that does not Police it.
      Blame the Politicians who introduced it.

      The System needs to change, and it needs to change fast so that it returns to being a safety net, as originally introduced, and not a trampoline were people can bounce up and down for ever with little effort, and take a ride at someone else’s expense.

      • Edward2
        Posted January 18, 2014 at 1:17 pm | Permalink

        Excellent article by Fraser Nelson in todays Telegraph Alan, where he says those seen in this programme are behaving economically as one would expect them to and should not be called scroungers.
        He shows how one of the people featured would lose £70 of benefits if she took a £90 part time job she had been recently offered and that if she managed to get a full time job paying £23,000 per year she would face an effective tax rate of 90% compared to the total benefits she currently gets
        Would any of us work faced with these disincentives placed in the way by the State?

        • alan jutson
          Posted January 20, 2014 at 3:16 pm | Permalink

          Edward2

          That is exactly why I said it is the system that is wrong, which allows it.

          Only politicians can change the system !

  27. Jon
    Posted January 16, 2014 at 10:13 pm | Permalink

    One of the achievements of parliamentarians is to effectively nationalise non regulated advice. Its another £200m plus all the extras that the government think it can afford to spend rather than have it in the private sector delivering that in tax revenues.

    When parliamentarians in the 80′s decided regulation was the answer they not only delegated responsibility they changed direction from cross subsidy from the well off to the less well off. Regulators have gone for clarity of charges rather than the traditional role of society (parliamentarians) of providing for all in society. They have introduced their own cross subsidy with the tax payer and IFA funded Money Advice Service ah non regulated. Wouldn’t it be better in the private sector where the taxes could be generated rather than adding to the tax take?

  28. Posted January 16, 2014 at 10:18 pm | Permalink

    Oh dear, more neo-classical, neo-liberal economic clap trap. Why would or should a government which holds sovereignty over its own currency surrender it? It makes no sense whatsoever!
    Deficit is not debt! A short-fall in government revenue via taxes means a surplus in the private sector which equal savings and therefore helps boost the economy – a surplus in government revenue means the private sector is in debt and the economy shrinks.
    These are basic economic principles whether you apply supply side economics or Keynesian economics. As we live in a consumer driven capitalist society, it’s only common sense for the government to run deficits for the benefit of all.

    • Posted January 17, 2014 at 11:16 am | Permalink

      I’d slightly disagree. Government deficit is government debt. The National Debt is the sum of all the accumulated deficits since money was first raised by bond issue at the end of the 18th century. It soon increased to over 200% to finance the Napoleonic Wars. The end result of which does call into question the often repeated maxim that Governments can’t borrow their way of of trouble.

      The National Debt was first created at the request of city merchants who wished to buy government debt. That’s what makes government debt a little bit different to debt incurred by you and I. No-one seems particularly interested in buying my debt! Not so governments. The City seems to love buying government securities. They would be extremely upset if it were ever the case that there was no more to buy and governments ran balanced budgets or, even worse, surpluses!

      • Denis Cooper
        Posted January 17, 2014 at 4:19 pm | Permalink

        “No-one seems particularly interested in buying my debt!”

        If you were a company with apparently good prospects then they would be interested in both buying and selling your debt; it happens every working day in the secondary market for corporate bonds, and here are some online market prices:

        http://www.londonstockexchange.com/exchange/prices-and-markets/retail-bonds/corporate-search.html

        If your prospects took a turn for the worse and bondholders began to fear that they might not be paid in full then the market price would drop; of course we know that the UK government has a lot of scope to arrange for the creation of more money to ensure repayment, but not infinite scope.

      • John Armour
        Posted January 17, 2014 at 8:23 pm | Permalink

        They would be extremely upset if it were ever the case that there was no more to buy and governments ran balanced budgets or, even worse, surpluses!

        Funny you should say that.

        When a conservative government ran budget surpluses in Australia in the early 2000′s, the flow of securities naturally dried up.

        The parasites who make a living out of shuffling government paper “squealed like stuck pigs” (to quote myself) until the government resumed issuing debt even though the budgets were in surplus.

        Some economists questioned the sham process but they were drowned out by those who could only see personal gain.

        • Posted January 19, 2014 at 2:47 am | Permalink

          The Australians created a $90 billion ‘sovereign wealth fund’ to soak up the surpluses so the government could still sell its ‘debt’ to the market which was what was demanded. It would have made more sense to use these surpluses to reduce the National debt which would have been the equivalent of tearing up your own IOUs when they are received back.

          The SWF is essentially the Australian government saving up its own IOUs which doesn’t make any sense at all when you think about it. Except that the new chairman of that ‘wealth fund’ in none other than Mr Peter Costello who was the finance minister at the time of its creation. etc ed

          • Denis Cooper
            Posted January 19, 2014 at 12:18 pm | Permalink

            “The SWF is essentially the Australian government saving up its own IOUs which doesn’t make any sense at all when you think about it.”

            It would certainly make no sense for any entity to build up a reserve fund composed of its own IOUs, and that would be true whether it was BP having a reserve fund made up of corporate bonds issued by BP or the Australian government having a reserve fund made up of bonds issued by the Australian government or an individual having a personal reserve fund made up of IOUs which he has written out to himself.

            It would make more sense to have a reserve fund made up of money, for example the Australian government having a reserve fund made up Australian dollars, IOUs issued by the Reserve Bank of Australia.

            However I don’t know whether that’s what the Australian sovereign wealth fund is doing, and it’s certainly not what the Norwegian fund is doing because it has used most of the cash to purchase a diversified portfolio of assets including equities and fixed income securities, presumably including bonds issued by other governments around the world rather than the Norwegian government itself, and property.

            Page 15 here:
            http://www.regjeringen.no/pages/38359835/PDFS/STM201220130027000EN_PDFS.pdf

            “The long-term investment strategy of the GPFG stipulates a fixed equity portion of 60 percent. The fixed income portion was 40 percent until 2010. The mandate was changed in 2010. Over time, Norges Bank will invest up to 5 percent of the fund capital in a separate real estate portfolio.”

            There is potentially a problem of political interference with a state body which becomes a large investor in private sector assets, even if it is supposedly managed at arms length from the government, and some might argue that it would be better if the government did not use budget surpluses for that purpose but instead left the money with the citizens so they could invest it for themselves, but on other hand some of the citizens either couldn’t or wouldn’t do that and then they could end up turning to the government for support.

  29. Lindsay McDougall
    Posted January 17, 2014 at 1:51 am | Permalink

    Bringing the deficit down to £40.9 billion isn’t enough. The Chancellor has declared his intention of reducing the State’s total debt. So when does that process start?

  30. Posted January 17, 2014 at 12:32 pm | Permalink

    Paul Samuelson, sometimes said to be the “father of modern economics” and a Nobel Prize winner, suggested the reason for perpetuating the mythology of the necessity for a government balanced budget in a 1995 interview:

    “I think there is an element of truth in the view that the superstition that the budget must be balanced at all times is necessary. Once it is debunked that takes away one of the bulwarks that every society must have against expenditure veering out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires.

    Paul Samuelson may well have been an eminent thinker in the field of economics but I would have to disagree with the concept of scaring people. And politicians do just that. Old people sometimes leave their estates to be offset against the National Debt in the mistaken belief that it is a much bigger problem than it actually is.

    Rather than “scare people”, why not educate them instead?

    • Denis Cooper
      Posted January 17, 2014 at 4:09 pm | Permalink

      “I think there is an element of truth in the view that the superstition that the budget must be balanced at all times is necessary. Once it is debunked that takes away one of the bulwarks that every society must have against expenditure veering out of control.”

      And once the next “superstition” is “debunked”, and we accept it as normal that the government can simply arrange for the creation of as much money as it may want to spend, that would be another “bulwark” removed; and what do you think should be put in its place?

      • John Armour
        Posted January 19, 2014 at 2:41 am | Permalink

        And once the next “superstition” is “debunked”, and we accept it as normal that the government can simply arrange for the creation of as much money as it may want to spend, that would be another “bulwark” removed; and what do you think should be put in its place?

        But Denis, that’s exactly what having a sovereign fiat currency means: the government having the ability to create (out of nothing) as much money as it wants. That’s the system we actually have!

        So there’s no need to put something in its place. A very successful attempt has been made however to bury that reality under layers and layers if institutional complexity, left over from the pre-Bretton Woods era to keep governments manacled to 19th century remedies, like blood-letting.

        The reality obviously terrifies you. Fiscal agoraphobia. Samuelson might’ve had you in mind when he wrote those words.

        A little reading however would assuage your anxieties. To quote the former Deputy Secretary of the US Treasury again:

        “Deficits, which are recorded in the National Income Accounts as dis-saving by the government, always mean an equivalent increase in private sector Saving – in the form of Treasuries”

        Bang goes your debt and borrowing theories. Macro economics is full of paradoxes.

        • Denis Cooper
          Posted January 19, 2014 at 12:24 pm | Permalink

          “But Denis, that’s exactly what having a sovereign fiat currency means: the government having the ability to create (out of nothing) as much money as it wants.”

          No doubt you would like it to mean the government being able to create as much money “as it wants”, but that is precisely what must be prevented.

          • John Armour
            Posted January 19, 2014 at 10:24 pm | Permalink

            No doubt you would like it to mean the government being able to create as much money “as it wants”, but that is precisely what must be prevented.

            Denis, it’s not about what I would like it to mean, it’s the reality.

            The government can, right now, create as much money as it wants.

            And whether it chooses to issue gilts to cover spending in excess over revenue depends largely on whether it also chooses to pay interest on excess reserves.

            Your problem (I now realise) is that you see this issue of monetary mechanics through a political prism. So long as you continue to see this as a Left/Right issue you’re never going to get it.

          • Denis Cooper
            Posted January 20, 2014 at 3:37 pm | Permalink

            I see it from both the political and economic perspectives, and unlike yourself I do not try to pretend that they are not connected and it is all matter of monetary theory with no political implications.

            On the politics, I adhere to the traditional British belief in limited government, allied with the more modern belief that it should be democratic. Money is power, and both limited government and democratic government will go straight out of the window if the government is ever allowed to create as much money “as it wants”. I have previously quoted from Gladstone, that “The finance of the country is ultimately associated with the liberties of the country” and of course I do not want the government to have unlimited power that it will assuredly abuse.

            On the economics, the additional and in theory unlimited power that the government could acquire through the creation of as much money “as it wants” would inevitably come at the expense of all other users of the currency, in particular the people of the country, whether those effects were obvious or were more akin to a stealth tax.

        • Posted January 22, 2014 at 10:13 am | Permalink

          Denis,

          “…… if the government is ever allowed to create as much money “as it wants”.

          It isn’t a question of “if”. It already can and already does. If you look at any graph of money supply , of any measure, M0, M1,M2, M3, M4 you’ll see there has been a steady rise under Governments of different political complexions.

          So the questions are: At what rate it should rise? What should be the trade-offs between inflation control and resource wastage minimisation? The answers to these has to be determined by both political and economic considerations. I strongly believe that the best answers to these questions can only come from a correct public understanding of the workings of the economy and not the ‘myths’ and ‘superstitions’ that those of like mind to Paul Samuelson would prefer.

    • John Armour
      Posted January 18, 2014 at 3:24 am | Permalink

      Rather than “scare people”, why not educate them instead?

      Because scaring people pays handsome dividends, politically

      The recent Federal Election in Australia turned on a widespread fear of “Labor’s Deficit”.

      And Labor’s mindless pursuit of a surplus to look “fiscally responsible” unwittingly confirmed that the deficit must’ve been a problem, thus handing their opponents a loaded gun.

  31. Mike Wilson
    Posted January 17, 2014 at 3:43 pm | Permalink

    It is funny how politicians always talk about growth in public spending. As if were inevitable – like the sun rising each day. Given that the state is too big and takes far too much of our income, why not actual, real CUTS in public spending?

    I am happy to provide a list of public services most people would be happy to do without. Diversity Coordinators for a start. Two thirds of the House of Lords. Half of the House of Commons. Box tickers and target setters in the NHS.

    • zorro
      Posted January 18, 2014 at 5:43 am | Permalink

      I always remember when Gordon Brown earnestly announced a 0% increase in publi spending in the Commons….LOL

      zorro

  32. John Armour
    Posted January 18, 2014 at 10:24 pm | Permalink

    Denis Cooper (Jan 18, 1:58 PM),

    However that is no argument against reducing government spending, and the total level of involvement of the government in the economy, over a period which is long enough to allow the private sector to take up the slack.

    Absolutely, Denis, or you’ll finish up like one of those busted-arse Nordic economies.

  33. John Armour
    Posted January 20, 2014 at 10:48 pm | Permalink

    Denis at 2:58 PM

    That’s why I’d like the Chancellor to explain the legal basis on which he and his predecessor sent letters to the Governor to authorise the creation of vast sums of new money.

    With “vast sums of new money” we should be seeing rampant inflation but we’re not.

    I wonder why ?

    If Fama actually did describe QE as an “asset swap” it would be one of the rare occasions he actually said something sensible.

    Reply As I have explained several times before the Chancellor spoke with the full authority of the Commons who did not wish to oppose or vote on the decision.

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  • About John Redwood

    John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College, and has a DPhil from All Souls, Oxford. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.
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