Does high public spending make a place rich or poor?


It is still fashionable in leftward circles to think that the only answer to poverty is more public spending. They wish the UK state to offer more public sector jobs, and to offer more transfer payments to more people  so they too become dependents of the government.

The latest ONS figures throw some light on levels of spending  and income  in the 3 countries of Britain. If we take the three countries of Great Britain (Northern Ireland reinforces the case) we see the following pattern of gross disposable income per head:

England    £17066

Scotland   £16267

Wales       £14623

Scotland is 5% down on England, and Wales 14% lower.

If we now compare the proportion of public sector workers to the total in each country we find exactly the reverse order:

England     17.4%

Scotland    22.1%

Wales         24.0%

If we look at public spending  per head, England has the lowest at £8529, compared to £9709 for Wales and £10,952 for Scotland. This means England enjoys 16% less public spending than Scotland per head.

It is impossible to look at these figures and continue to argue that more public spending per head produces more prosperity, or to argue that a higher proportion of public sector jobs produces a better result.  What matters most is the success and vibrancy of the private sector economy, and its capacity to generate enough well paid jobs. All three parts of the UK need sufficient public spending per head to enjoy good health, education and other important public services. They also each need a successful enterprise economy to generate most of the jobs and create those better paid jobs that so many families need and want.





  1. Lifelogic
    August 21, 2014

    I remember an employee, whom I thought was not really up to the job, going off to be an NHS manager with a huge increase in salary/pension. I was certainly very pleased to see them go. But no doubt the NHS suffered.

    In these areas the state sector jobs are often very much better paid than the private sector and provide unfair competition for the brighter workers. The state sector overall is paid with pensions nearly 50% more than the private sector they largely live off.

    How can anyone think that taking money of individuals and companies that have made money (and are thus clearly likely to be good with money) and giving to people like Osborne. Clearly his type will piss it away on pointless/counter productive wars, HS2, absurd green subsidies, endless overpaid pen pushers (or perhaps now mouse pushers), motorist muggers, incompetent regulators, hugely complex tax laws, gender neutral insurance and pension laws, daft employment laws, propaganda, vote buying, overpaid consultancies for mates ……. is a good plan to make us richer?

    It clearly will do the exact opposite. It is like taking money of someone proven to use it well and giving it to a drunk or a drug addict. GAAR (or tax at random) is a hugely damaging outrage – rather like taxation under a corrupt dictator and his henchmen.

    I hear (on the BBC this AM) that this years GCSE results are likely to be “volatile”. How can a years results or grades be volatile? Are they expecting them to change and jump around a bit after being awarded or just evaporate off in some way? Perhaps it says more about the quality of BBC reporters than about the GCSE result themselves.

    1. Lifelogic
      August 21, 2014

      Now it is reported the EU wants to limit Vacuum cleaners to 1600 watts. Have these idiots nothing useful to do in this basket case Euro zone? Anyway in our house it is only on for about 10 mins a month. About 40p a year in electricity, but then we are perhaps not the cleanest of houses.

      Anyway surely a more powerful one can do the job more quickly. All that government interference for absolutely nothing gained, in fact a huge net loss. John Major’s “subsidiarity” at work again! You cannot even choose your own house cleaning equipment it seems.

      1. matthu
        August 21, 2014

        The EU actually wants to reduce the maximum power of a vacuum cleaner to just 900 watts from September 2017.

        I guess the average office will need to employ twice as many people to clean the floor as previously, leading to greater employment but 2 x 900 watts in use.

        What this law will do to asthma rates in the home can we can only wait to find out.

      2. Atlas
        August 21, 2014

        Agreed Lifelogic.

        The EU will have us back shivering in caves just to suit some green purists fantasy.

      3. Hope
        August 21, 2014

        State borrowing up again this year by £1.8 billion and Osborne will miss his borrowing target again. What else do you need to know about Cameron and Osborne’s public spending cuts they promised; despite tax receipts increases we are told. No wonder they want HMRC to steal from people’s bank accounts without proper legal process and want IHT to be paid in advance of your death.

        Four years in and they still do not get they need to make substantial spending cuts, try the bonfire of quango line they promised starting the Enviornment agency.

        Perhaps the governmentcould also provide security at home by controlling immigration, stop the equality babel that gives free reign to preaching terrorism instead of condemning it and introduce proper crime and disorder punishments for those intent on causing us harm. We need to promote our culture, values and beliefs instead of ceding them to lose our national identity to become a province of an EU superstate.

        Let us not forget it was politicians that has caused the insecurity in world especially in the Middle East and Ukraine. Vote for change from the LibLab con cartel.

        1. bigneil
          August 21, 2014

          You comment that borrowing is up £1.8bn – I would like to see how this compares with benefits/costs that foreigners have kindly brought to us.

        2. Narow shoulder
          August 21, 2014

          And so say most of us

    2. Lifelogic
      August 21, 2014

      In his speech to the Conservative Party conference in Manchester, Mr Cameron said the Tories “believe in lower taxes” and that people deserve to “keep more of their money”.

      Well Tories do alas Cameron and Osborne have made 299+ tax increases. To have low taxes we need lower expenditures as a start. Otherwise it is just deferred taxation anyway.

    3. Margaret Brandreth-J
      August 21, 2014

      Re the NHS. Unfortunately staff who have trained , kept abreast of the situation and can go anywhere at any time, having multiple skills are too useful to the private sector who can take half of their earnings and make a profit out of them. Thy can also control performance by putting in false complaints and have their buddies, who take cuts, to back them up.

      Don’t think the NHS and private sector are separate in any way .The management of both are money makers without the remotest idea of business ethics. They also love the ones who are singled out for mistakes ( mistakes which most of the time don’t exist or are trivial) but can give solicitors a good few hours work and of course protect themselves.

      Its just a dirty game.

    4. Bazman
      August 23, 2014

      He gave you a strike you understood.

  2. Mark B
    August 21, 2014

    Some Public Sector jobs are necessary, others not.

    Under the Socialist System, they give non-jobs to people (eg Diversity Officer) as a means of ensuring a firm voter base. People vote Labour, not because they are good in Government, or because they are Socialists themselves. They vote Labour, because that’s who keeps them in employment.

    Socialism is not about good Governance or even being for the working man. It is about getting into, and staying in, POWER.

    Which thanks to you ConservativeSDLP Leader, they may very well do.

    And if they do, they will change the means by which political parties can be funded and, break up England, so that you will never have power again.

    It was your party that sowed the seeds, now it will reap the whirlwind.

    1. Lifelogic
      August 21, 2014

      “Some Public Sector jobs are necessary, others not.”

      Indeed and very many public sector jobs do clear & positive harm and generate millions of pointless jobs in the private sector too.

  3. Lifelogic
    August 21, 2014

    In theory of course governments could plan sensibly, spend money very efficiently (with the benefit of scale) and do very much good with it. In practice this never happens due to corruption, incompetence, vote buying and the fact that it is just not their money. They simply do not really care how it is wasted, other than that they or their mates get their hands on some of it in the process.

    About 20% of GDP spent by government is about right, looking as sensibly run countries. Defence, law & order, an efficient legal system, rubbish collection and roads, not much else is actually needed. Yet in the UK they spend nearly 50% but still cannot provide even these basics.

    1. Lifelogic
      August 21, 2014

      Yet another huge deficit (just deferred taxation) for last month I see. Public spending (mainly waste) still completely out of control it seems.

      1. petermartin2001
        August 21, 2014

        When was the last time anyone paid any “deferred taxation” to repay a previous deficit?

        1. Narow shoulder
          August 21, 2014

          I would suggest that I am paying it right now Peter.

        2. Lifelogic
          August 22, 2014

          Well when ever they either actually pay it off, by paying the interest on it from taxes or by robbing savers through inflation and devaluation of the currency. They will get it one way or the other.

        3. petermartin2001
          August 22, 2014

          Well, to answer my own question, it has actually happened. The Lawson boom of the late 80’s generated a surplus. That didn’t turn out too well in the longer term. The following recession of the early 90’s produced very high deficits ( up to 9% of GDP) which more than wiped them out.

          The next time was around the turn of the century. Both the Blair and Clinton government ran surpluses. Big mistake. It was these surpluses which set up the situation for the 2008 crash.

          It has to be remembered that a government surplus drains money from the economy. That’s fine if there’s a surplus of export money to replenish it, but for net importers like the UK and USA there’s also money draining away to pay for imports.
          That can be temporarily compensated for by encouraging the private sector to borrow, but sooner or later, something has to give and we see boom turn to bust.

  4. alan jutson,
    August 21, 2014

    I have to say I find these figures staggering.

    For a life expectancy of 80 years, it gives a total spend of :

    £682,320 per person in England.
    £776,720 per person in Wales
    £876,160 per person in Scotland

    Thus to break even, each new born child will need to pay that amount in tax during their lifetime, in order to cover their own share of government expenditure to avoid further borrowing.

    Thus the simple conclusion must surely be the government is:
    Getting involved in our lives too deeply, by trying to control all aspects of it.
    Is spending money in a vastly inefficient manner.
    Is simply paying too many staff too much.
    Is simply wasting vast sums of money

    I am guessing the above figures you give John includes state pension liability payments paid out, or does it ?

    Reply, Yes pension payments are included in the figures

    1. Lifelogic
      August 21, 2014

      If people earn say £26,500 average pay (less in the private sector) for say 40 years their total pay is only £1060,000 in their lifetime. And that is only the ones who are actually working. From that they that they need to live, get to work, eat, heat, take holidays, cloth themselves, pay for dentists & prescriptions, provide for children, elderly relatives & partners, rent or buy a house and build up their own pensions! It looks tight to say least even without tax.

      How can they then pay £700,000 in tax too to fund the largely parasitic sector!

      1. Bazman
        August 23, 2014

        We don’t see you supporting any road tolls or tolls for things that you use on this basis. Why is this? It is only fair to pay for we use.

    2. JoeSoap
      August 21, 2014

      You need to fine tune a bit, as life expectancy is shorter in Scotland, albeit legion NHS money is spent to help and persuade them to live longer. Notwithstanding that, Scotland chopping itself off would for sure reduce rUk s future liabilities far more than its future assets, it seems.

      1. Bazman
        August 23, 2014

        Why do you think that inner city Glasgow men live shorter lives than Chelsea millionaires? Is it all because of their ‘choices’ and little else?

        1. Edward2
          August 24, 2014

          Its because they smoke more, eat more fatty foods and drink more and exercise less, thats why Baz.
          All choices which can be changed for the better regardless of your level of wealth.

          1. Bazman
            August 24, 2014

            This is true, but ave’ a fag you could be hit by a bus the next day! Maybe this explains why Russian men die on average in their fifties? They make the wrong choices is your argument with nothing to do with their economic circumstances or the political landscape?

    3. Chris S
      August 21, 2014

      Alan, the figures are probably not quite as bad as you suggest because you haven’t taken into account the difference in life expectancy in the three countries.

      The figures for life expectancy from birth for those born in the period 2006-2008 are :

      Men :
      England 77.7
      Wales 76.9
      Scotland 75

      Women : 81.9
      Wales 81.2
      Scotland 79.9

      I suspect the difference in life expectancy for those nearing retirement in 2014 will be quite a bit larger.

  5. JoeSoap
    August 21, 2014

    These figures understate the problem, because the very reason Scottish disposable per head is even that high is due to the highly paid public-sector non-jobs and pensions paid out there. It would be interesting to see how easily the Scottish private sector alone could support their public sector….

    1. Lifelogic
      August 21, 2014

      The Scottish private sector clearly could not support their bloated and over paid/pensioned state sector, especially as lots of the higher paying tax payers and businesses would leave.

  6. Chris H.
    August 21, 2014

    It is impossible to look at these figures and continue to argue that more public spending per head produces more prosperity, or to argue that a higher proportion of public sector jobs produces a better result.

    Which is why, unfortunately, certain political parties and state broadcasters don’t even attempt to argue that, they just treat it as accepted fact and either ignore or shout down anyone who dares to offer a rational argument that differs from their mindset.

  7. Anonymous
    August 21, 2014

    Meanwhile – back in the real world – a British citizen has just decapitated an American citizen and publcised the evil deed on video.

    Perhaps at last this might dispel the American myth that we are the land of Mary Poppins.

    There is not much point in talking about ANYTHING when we’ve lost control of our culture and our borders, John. There is no greater issue and it affects every single thing.

    1. Excalibur
      August 21, 2014

      Today’s ‘Mirror’ claims a London woman has volunteered to be the next executioner on behalf of IS. This after the James Foley murder. We are reaping the rewards of overt tolerance.

      1. Excalibur
        August 21, 2014

        Sorry for double post, John. This was occasioned by computer interference claiming I had already posted this comment.

      2. Anonymous
        August 21, 2014

        Excalibur – The sheer economic cost of our tolerance (towards all manner of things) manifests itself through our high public spending.

        Obviously this is the worst of it but my, apparently, unrelated comment does bear relevance to the original post.

        Instead this government makes enemies of blue rinsers, middle-aged men in blazers and married couples.

        Why ?

        Because they are soft targets.

        1. Anonymous
          August 21, 2014

          ‘married couples’ – those with one partner who is a stay-at-home parent.

          1. Narow shoulder
            August 21, 2014

            Tax ’em because they can

  8. Narrow Shoulders
    August 21, 2014

    What would be interesting to see would be the average disposable income per head for public sector workers and retired public sector workers in each of those countries. It is indisputable that those at the higher reaches of the public sector have their hands deeply entrenched in taxpayers’ pockets. Reign in executive pay and other procurement processes in the public sector and we will all be a lot richer.

    We deal with public sector procurement procedures endlessly and the lengthy process appears to involve chieftains justifing the expenditure but not actually trying to get the best deal.

  9. Lifelogic
    August 21, 2014

    I read in the spectator (Any Other Business today) that the FTSE 100 is only about where is was 15 years ago. Also FTSE CEO pay as risen from 47 times the average worker (in that company) to 143 times. So in many cases they run companies very badly indeed and yet directors get paid a fortune for doing so – robbing many shareholders in the process.

    Something needs to be done to get the control back to shareholders with simple mechanisms that actually work without damaging the company. A nuclear only option does not work. It gives shareholder about as much say as UK voters get. Voting just once every five years on a basket of issues, for the least bad option of perhaps just two party place men. Who will usually not even do what they said they would.

  10. Ian wragg
    August 21, 2014

    As Cameron is a big government big spend and waste socialist we expect no change. Where do the lefties think the cash will come from. Ask Hollande maybe he can advise.

    1. Lifelogic
      August 21, 2014

      Indeed Holland did however cut the retirement age to 60 and he was just a few days ago 60 – time for him to retire perhaps.

      Still the French were daft enough to vote for him. The dope is even worse than Miliband and Cameron.

      1. Bazman
        August 23, 2014

        What about the massive benefits bill from this absurd and parasitic idea? Who will pay their living costs? The magic money tree? Maybe they could save from their zero hour minimum wage work in instead of wasting it on rent and food?

    2. Anonymous
      August 21, 2014

      Ian Wragg – Where does the money come from ?

      The same tree that gives us credit, QE and bankers’ bonuses.

  11. Margaret Brandreth-J
    August 21, 2014

    You are having a laugh of course. Disposable income? That is total income.

    Reply I am using the official figures and their own description. It does say gross, which means you do not get all that to spend on things you want!

    1. David Price
      August 22, 2014

      And when you do get to spend it you are taxed even more – VAT, fuel duty, now optional rubbish collections which are charged extra, parking fines, insurance tax …

  12. Richard1
    August 21, 2014

    It is a sign of the extent to which the Labour govt sought to appease Scottish nationalism that spending per head in Scotland is higher than it is in wales though incomes are significantly higher in Scotland. Time for proper devolution with devolved govts responsible for raising their own revenue if they want high spending.

    It would be useful also to see state / GDP data and state dependency ratios for prosperous countries such as Switzerland and Singapore.

  13. agricola
    August 21, 2014

    The public spending you speak of is tax payers money going direct to dependant members of the population. Some very deserving ,the majority much less so. The more you give the more dependant they become, but from a socialist government point of view this is good news because turkeys do not vote for Xmas and it is only other peoples money. At present I see all three parties in the HOC as socialist to varying degree. It is like the foie gras process but with no useful result.

    If by public spending you meant repairing the appalling roads in the UK, new runways at Gatwick, Heathrow, or Boris Island, piping water from the North East to the South East, facilitating fracking, a new generation of atomic power stations, then yes to all of this as it is investment. Good health, education, Defence, and public order are a bit further from the coal face but essential building blocks of prosperity.

    Finally those who create this prosperity should not be taxed up to their eyeballs and have their retirement funds pillaged by the financial services industry and government, because they will find better places in the World to offer their expertise. Not much good for the prosperity of the UK. Just as Amazon can opt to be taxed offshore so can individuals.

    The greatest drag on prosperity is government, a self generated Ponzi scheme of none productive interference in peoples lives. Who will rid us of this incestuous perversion or at least cut it by 50%. You all, because you are part of it, think it is important. It is not. People are capable of making much better decisions about their lives free of the burden you impose.

    1. Lifelogic
      August 21, 2014

      People are capable of making much better decisions about their lives free of the burden you impose.

      Of course they are it is there money & they know their personal circumstances, aspirations and needs.

  14. The PrangWizard
    August 21, 2014

    I favour small government and low taxes. The Scottish government wastes a lot of English money. As I understand it the ‘Barnett formula’ means that for certain designated public spending in England, say on an essential road or rail scheme, Scotland gets a percentage of the total of the English spend (10%?) whether they have need for a road or rail scheme at the time. Thus England subsidises Scotland. Who speaks for the people of England on this, the English have no-one in authority, no Secretary of State, no Minister, and no parliament. The Unionist Establishment through the UK parliament are quite happy that this should continue even though it tends to impoverish the English public purse.

  15. Kenneth R Moore
    August 21, 2014

    Real poverty is almost exclusively caused by individuals making poor lifestyle choices – the legacy lib/lab/con machine doesn’t recognise this ‘judgemental’ view so will continue to hose jobs and money upon it’s ungrateful recipients. John Redwood is out of step with the Conservative Leadership yet again.

    It’s rather a pointless debate – The conservatives conceded years ago that it viewed higher government spending as a ‘good’ just as Brown did when it went completely mad and matched Labours spending plans.

    It would be interesting to also have the same set of figures for 2010 for comparision.

    Has Mr Redwood and the rest of ‘David Cameron’s Conservatives’ made the situation worse or better ?.

    Then we can judge the effects of Mr Osborne’s ‘austerity’ and Mr Cameron’s ‘bonfire of quango’s’ on spending and non-jobs.

    1. Bazman
      August 23, 2014

      Real poverty is almost exclusively caused by individuals making poor lifestyle choices? The rich presumably make better choices?
      Why do you think they make these ‘choices’? The rich presumably make better choices as they have more. They choose to become drug addicts like one would choose a career? If you are so stupid it’s best not to go there and you know you would not in plain view such as a pub, so what does that tell you. Magical thinking. thats what.

  16. acorn
    August 21, 2014

    Just imagine what life would be like in Wales and Scotland without that extra public spending. Particularly the levels of unemployment. BTW, with public sector statistics nowadays, it is becoming necessary to separate London from the rest of England using NUTS regional data. London is practically a separate “country” within Great Britain and is making the rest of England look better than it is.

    Number crunchers are pleased you have found a correlation between “gross disposable income per head” and “proportion of public sector workers” 😉 .

    The ONS article “Self-employed workers in the UK – 2014” is a good read and states two thirds of the 1.1 million new jobs since 2008 are self employed and no longer claiming JSA and get tax credits instead. History tells us that countries with high levels of self employment end up as basket cases; like Greece.

    The best line in the document “… household surveys generally underestimate income from self-employment as income generally comes from a wide variety of different sources and the estimate relies on respondent recall which can often be difficult”. No implied correlation, but worth noting; at the start of the crisis there was £41 billion in notes and coins in circulation, now there is £62 billion. I must check out the VAT returns sometime 😉 .

    1. Chris S
      August 21, 2014

      The “income” of the self employed will always be lower than the figure for someone doing the same work as an employed person, even if the rate of pay was the same.

      The self employed can claim expenses for use of home as an office, admin assistance from a non-working spouse, travel expenses etc. All of these will result in a reduction in their “profit” compared with a salary. This is entirely fair as the self employed cannot claim sickness benefit and take on risk that employed persons don’t.

      We also can’t ignore the fact that, in many sectors where the self employed are VAT registered and are quoting for work for an individual rather than other VAT registered business, the second question is almost inevitably always going to be ” can you do the job for cash.”

      This is not something we should be surprised about, it’s a direct consequence of the ludicrous rate of VAT we are now being asked to pay. When the rate was 8%, nobody was too bothered. Now there is £1,000 on a job costing just £5,000, it’s a significant cost everyone, if they are being truthful, would want to avoid.

      We also have the barter economy, particularly in sectors such as the building trade. A heating engineer wants a new kitchen and the kitchen fitter wants a new boiler. Are we really going to expect them to both invoice each other and each pay the chancellor 20% on both jobs ? No, it’s never going to happen.

      Finally, there will be a lot of early retirees who take on some work, maybe for their old employer on a casual or p[art time self employed basis. Naturally they are not going to earn a full time wage when they only want to work part time.

      All these things exaggerate the difference between self employed earnings and a full-time salary.

  17. formula57
    August 21, 2014

    It is impossible to look at these figures and continue to argue that preserving the Union with Scotland is something we should be aiming to do, despite the effects (that apparently somehow operate to make it the favoured option) of history, sentiment and politics.

    It may be, of course, that the higher spend in Scotland and elsewhere is a deliberate attempt by government to offset the weaker private sector, thereby revealing itself as a consequence of rather than a cause of relative poverty.

  18. oldtimer
    August 21, 2014

    Is that data about public sector employees in any way skewed by certain labour intensive activities being located in Wales or Scotland? I can think of some activities, such as the Mint and DVLR being relocated to South Wales; my tax returns used to go to Livingstone in Scotland though now they go to Bradford. Politicians in this country (as in the USA) are not above pork barrel driven decisions.

    In the 1950s and 60s it was evident in the redirection of certain industrial activities (car and truck manufacturing were notable examples), most of which eventually failed. I suspect that the location of large departmental activities has been similarly influenced. Do you have a view or any facts about this?

    1. Martin
      August 21, 2014

      My recollection is the DVLA was sent to Wales as it was cheaper to hire office workers there than in say the Home Counties.

    2. Feodor
      August 21, 2014

      There is a high concentration of governmental bodies in Newport, Wales, including the Passport Office and Office for National Statistics; less so in Cardiff and Swansea, esp. the latter. I suspect the reasons for this include some of the things you mention. Newport is a particularly run-down place, and relocating governmental bodies to places which are struggling economically strikes me as a reasonable way to pick up some of the slack created by an under-performing private sector. In turn, moreover, the increased public spending can help stimulate private sector growth, which will put the area on a better footing, with some government bodies thereafter relocated again to more deprived areas. Indeed, when all is said and done, rather than expose ‘pork barrel driven decisions’, this strikes me as a quite ingenious approach to national economic policy, spreading the wealth in a targeted and farsighted way.

  19. Martin
    August 21, 2014

    It is worth pointing out that the cost of providing public services in the Highland and Islands is sky high compared to everywhere else.

    This is not to say that things can’t be done cheaper.

    The BBC/OFCOM foisted Freeview on remote parts of the UK. The cost of satellite per viewer is the same across the UK.

    A classic example of where nobody thought of providing a public service as cheaply as possible taking into account geography.

    I note that you have not covered Northern Ireland in your figures.

  20. petermartin2001
    August 21, 2014

    A country can choose to have whatever size of government it democratically chooses. Whether that should be large or small is usually a matter of political opinion.

    The size of government is often conflated in argument with the size of the deficit. The argument for deficit reduction is based on the conservative argument against large government on a ‘we can’t afford it’ basis. That’s a mistake. They are really two separate issues. It’s possible to have any combination of small or large government and small or large surplus/deficit.

    Highly educated politicians and technocrats of all parties fail to understand that spending more, or taxing less, does not directly affect the government deficit on a 1:1 basis or anything even close to that. It’s really not that difficult. 30% of all new money spent on wages and salaries comes back straightaway in income tax and NI contributions. What is left is spent and respent in the economy. Each transaction attracts a wide range of government taxes. After three or four re-spendings, there is hardly anything left in the economy. It’s all gone back to government in taxes, and helped keep everyone off the dole queue every time it changed hands. So, how can it possibly add to the deficit? Similarly we can argue that reduced taxes don’t reduce government revenue. The money still makes it back to government. It just stays out in the economy slightly longer.

    Increased spending, and/or reduced taxation, can cause inflation if it’s overdone. That’s the only danger. But, inflation is not an issue at the moment and isn’t likely to be any time soon. Conversely reduced spending and/or increased taxation can cause recession if that’s overdone.

    It is an incontrovertible fact that all profits and all wages that are earned by the private sector has to come from money which is issued into the economy by government spending. Where else can it come from? So, from a leftward perspective we should argue that the economy can be revitalised by government spending more. From a rightward perspective, by Government taxing less. Reaganomics essentially! That wasn’t at all about deficit reduction and worked well enough in the USA.

    1. Lifelogic
      August 22, 2014

      But you can have profit and wages without any government at all in a barter economy or with gold or silver as a means of exchange or just some other record. What really matters is if the money is spent or invested wisely to produce returns and benefits or pissed down the drain on things like wind grants and HS2.

      1. petermartin2001
        August 22, 2014

        Yes, that’s true. We could have a barter economy using gold or silver, or even bars of chocolate, but I doubt if anyone really wants to pay for their groceries using lumps of bullion. Ebay would have a hard time taking on-line payments!
        So, for all its supposed faults, we are stuck with the present system of fiat money for the foreseeable future. To get the best from it, we do need to understand how it works so that we can avoid getting into the inflationary mess of the 70’s and avoid the deflationary shambles of the present day Eurozone.
        PS I would agree with you on wind power. If CO2 is the issue science claims, and there’s no reason to doubt the warnings, then the only possible solution is to replace coal power by nuclear power.

    2. David Price
      August 22, 2014

      ” It is an incontrovertible fact that all profits and all wages that are earned by the private sector has to come from money which is issued into the economy by government spending. … all profits and all wages that are earned by the private sector has to come from money which is issued into the economy by government spending.”

      No they aren’t.

      The currency is the medium of exchange and not what is actually earned. For example, exports I generated in my past careers were paid in to the company as foreign currency (US$) that were mainly kept as dollars since that made things easier for an internation company to trade.

      Are you saying that the value of these exports to the UK only came from cash created by the UK government?

      Individuals can also receive share options , dividends and interest in foreign currency so the UK government plays no part there except to tax them.

    3. Kenneth R Moore
      August 22, 2014

      Sorry Peter Martin but that is just the logic of ‘pulling yourself up by your own bootstraps’. A Ponzi scheme with IOU tokens.
      The left would love to believe but it just isn’t true.

      If that works why doesn’t everyone work for the government if creating jobs is that easy. Then we could abolish unemployment and mythical notions of relative ‘poverty’ in the Uk.
      All those silly Germans making cars and consumer good to export that people actually want to buy….they must be crazy!.
      Why not give everyone a pay rise..say a minimum wage of £30,000PA. Then everyone would have more money to spend and the government would get more back in tax ?. Win win.No!

      Inflation isn’t the only danger. It will all seem just fine until one day there is an almighty crash…
      If fewer people are doing what most reasonable people would describe as ‘useful work’, more goods and services need to be imported. Then more money leaves the country into foreign hands. We all get poorer..the economy becomes dominated by work that can loosely be described as ‘doing each others washing’.

      I congratulate you on the success of your ideas as they are widely followed and practiced by mainstream politicians as they glaze over a number of inconvenient truths. But I also think they are wrong and are paving the road to disaster.

    4. Kenneth R Moore
      August 22, 2014

      ‘It’s all gone back to government in taxes, and helped keep everyone off the dole queue every time it changed hands’

      I’m not sure that statement bears scrutiny.

      Say the boss of HT3 Limited is paid by the government £250,000 a year.

      £125,000 would go back to the government in tax.

      Say he buys a new BMW at £40,000 that’s £8,000 in vat.
      £32,000 then goes back to BMW in Germany less a small amount via commission for the dealership.

      He might spend £2000 on food which is tax free.

      Spends £10,000 on foreign holidays so the government might get some vat back. But most of the money again leaves the country but some will be in the bank of the tour operator who can then pay a fraction of it in tax.

      The rest might be paid into a mortgage or banked so is out of the taxman’s hands.
      Assets like cars, computers and hi fi’s, become out of date and worthless assets after a few years.
      So in short once the government spends taxpayers money on employing people it’s never going to get much more than half of it back – but it helps the exporter economies like German immensely. We really cannot afford a large government anymore as our budget deficit shows.

      1. Bazman
        August 23, 2014

        The deficit went sky high under Ragan with little benefit except to the rich.
        Food is not tax free unless it has no preparation in general. Remind us what food and drink is not subject to VAT? As for poverty comparing poverty in the third world with poverty here as you are doing is like comparing life today with life in the 25th century. You propose that people here should live like those in the third world relative to to some? Where would they live and what would they eat?

        1. Bazman
          August 24, 2014

          This needs a reply if you want to remain credible on this site..

        2. Ted Monbiot
          August 24, 2014

          Because poverty is a relative measure, based as it is on a defined set percentage below average earnings and because the population has increased over the years, it can be said that there is more poverty today than a hundreds of years ago.

          By this definition, if the population fell or average earning fell then poverty would fall.
          So now you know how to reduce poverty, as currently defined.

  21. Chris S
    August 21, 2014

    These figures are yet more proof that, whatever the outcome of the Scottish Referendum, Devolution and public spending across the Nations of the United Kingdom has to be equalised,

    The “Future of England Survey 2014” just published showed that there is overwhelming support amongst the English for equal devolution of powers for Scotland and England and the end of the obsolete Barnett Formula.

    This was a large survey of 3,695 English adults conducted by Cardiff and Edinburgh Universities and the opinions expressed are so strong that the results cannot be ignored by the political parties and if the results are widely reported in Scotland, they could well influence more of the Scots to vote Yes :

    62 per cent of English adults are in favour of Scottish MPs being prevented from voting on laws that apply only in England. Only 12 per cent were opposed.

    56% support cutting Scottish public spending to the UK average. Only 12% were opposed.

    53% were opposed to Scotland continuing to use the UK Pound. Only 23% were in favour.

    These views are completely at odds with the expressed intentions of the three parties who will, in some combination form the next government and inevitably they will be forced to change their views.

    They will ignore the views of 60,000,000 of us at their peril.

  22. Gary
    August 21, 2014

    apply reductio ad absurdum logic, and ask if full public control of everything, ie 100% govt spending ,or in other words communism, is prosperous ?

    The correct level for govt spending is somewhere near zero. imo

    1. Feodor
      August 21, 2014

      Gary: “apply reductio ad absurdum logic, and ask if full public control of everything, ie 100% govt spending ,or in other words communism, is prosperous ?”

      Define ‘prosperous’?

      If by that you mean economic growth, then the evidence suggests that significant growth is possible in a command economy.

      In fact, you’d have a much harder time finding historical examples which prove the opposite–that growth is possible in an economy where government spending ‘is somewhere near zero’.

      Can’t think of a single modern economy that would prove this. Don’t think any ancient ones would either. Indeed, perhaps the only validation of your thesis would be in primitive, communal economies, which had very limited capacities for growth.

  23. ian
    August 21, 2014

    You got big cut to come after the next election what are going to do if the tax take go”s down as well, have the parties made plans for that. Country still running deficit of over 120 billion a year with pfi with lots of spending to come on arms terrorist, i think we will find out. Maybe you will say japan run a debt of 250% of GDP so can we interest going out 150 billion a year

  24. ian
    August 21, 2014

    ukip on the march with no income tax for minimum wage, that” about 250 pounds a week and student fees uk border controls and english days only in parliament

  25. matthu
    August 21, 2014

    High public spending means that the country can afford lost of bureaucrats inspecting and certificating vacuum cleaners to ensure that you are not buying one too high-powered for your needs. Useless jobs for people who would otherwise be unemployed – or forced to search for gainful employment.

    Why limit this idea to vacuum cleaners once the principle has been established?

    How soon before total housefold carpet size is limited too? Seems logical to me.

    How soon before cars are limited to 1200cc?

    How soon before pupils limited in how much education they can receive (in order not to waste energy on teaching them stuff they will never gainfully use)?

    How soon before families are limited to a single child?

    This EU madness needs to be reined in – and yet you will be able to count the number of MPs in Westminster who will speak out on the fingers of one hand.

    1. Lifelogic
      August 22, 2014

      Exactly where is the resistance people alas just think it is a joke.

    2. Bazman
      August 23, 2014

      Like the cc of an engine you cannot beat capacity, but capacity and wattage of a motor does not always mean higher power outputs or increased suction.
      An EU at one point was trying to impose a power limit for motorbikes of 100 bhp, though it looks lie this is now not happening and the 100bhp in France is to be revoked in 2016. Many modern large capacity bikes have nearly 200bhp at the rear wheel, though in the late 1980’s had a voluntary crude 125bhp restrictor fitted. I know as I derestricted one increasing its top speed but overall making it slower. ie worse strangely enough.
      In 1999 the Japanese manufactures imposed a voluntary limit of 300km/h or 186mph on their flagship bikes. The 1999 Suzuki Hayabusa being the last to fingers to the legislators with no speed restrictor and a 220mph speedometer.
      The later ones have 186 mph speed restrictors and 180 mph speedometers The restriction can easily and legally be removed. How many car manufactures do this and why do the bike manufactures attempt to hide the true performance of their machines which is in reality restricted by the laws of physics to around 200 mph. Motorbikes should be restricted many deluded Telegraph readers will argue even with no evidence of more power equals more crashes and of course that Bugatti Veyron you all drool over with its dubious 250mph top speed claims should be not restricted?
      Be careful what you wish for as your hoover will be restricted next and you where warned about this by bikers many time for many years…

      1. Ted Monbiot
        August 24, 2014

        These matters are not ones the State should be interferring in.
        Get the basics right and leave the rest to citizens to decide on.
        Woudnt you agree Bazman?

  26. Brian Tomkinson
    August 21, 2014

    JR: “It is still fashionable in leftward circles to think that the only answer to poverty is more public spending.”
    That description would include your party. How is Osborne’s deficit reduction plan going? Remember? It’s the one he hasn’t stuck to but keeps pretending he has. He was going to eliminate it by 2015, then he changed it to 2018, if you believe him. Today, the Telegraph reports: “Chancellor set to miss deficit reduction target for 2014/2015 after borrowing rises in first three months of fiscal year…………….Last month’s borrowing increased the 2014/15 deficit to £36.1bn, up from £33.7bn at the same point a year ago. It also brought total public sector net debt to a record £1.305 trillion in June, equivalent to 77.3pc of GDP. ”
    What did Osborne and Cameron used to say about the irresponsibility of leaving massive debts for our children and grandchildren to pay? Worthless rhetoric just like most of what they spout.
    How does if feel being a key part of a “leftward circle”?

    1. Kenneth R Moore
      August 21, 2014

      The leftward circle has put the economy into a debt death spiral.
      Welfare, the nhs, pensions….something will have to be cut back we can’t go on like this for much longer.
      Thank you LabLibCon for giving away my democratic birthright to the EU commisioners and turning the Uk into a third world economic basket case.

  27. They Work for Us
    August 21, 2014

    Who is standing up for the UK against the EU nonsense?
    On vacuum cleaners we should make what we like for home consumption and non EU export. An EU model with smaller motor could offered for export to the EU.
    In the UK Consumer advisory groups could advise against the purchase of EU vacuum cleaners with the smaller motors because they were ineffective – job done!

    Of course we could always say, “no, what on earth has the size of our vacuum cleaner motor got to with you?”

    Who on earth is representing English interests? How can it be that Scotland can decide to have free prescriptions, free old age care and free? Cheap? University education?
    To say it is a devolved matter is no answer because we could have the same in England if we chose to. Why are we not choosing to? How can it be affordable in Scotland if we cannot afford it here? What is it we are getting in England, that the devolved assemblies are not getting, that is so important and so good that paying for prescriptions etc still makes it all worthwhile to the English?

    1. Chris S
      August 22, 2014

      It’s simple, the Scots can afford all these freebies because of the Barnett Formula.

      They have £1,423 more to spend for every single person in their country.

      That’s an uplift of 14.9% on the figure for England and we are subsidising it.

      The sooner the Scots vote for independence the better but if they don’t, MPs like our host need to sort this unfair system out by ensuring that the next government gives equal devolved powers to all four home nations and reduces, then equalises spending across the UK.

      At the very least the four Home Nations should only be able to spend NI and Income tax revenues raised in their own country.

  28. waramess
    August 21, 2014

    ‘…. need sufficient public spending per head….to enjoy good health, education and other important public services’

    No point in observing that food stores and airlines are equally important services but they are not run by government nor that a privatised health service and education might be preferable to a state run one because nobody would be listening.

    Better to emphasise that production and service providers efficiency will result in wealth generation and that efficiency comes only as a direct consequence of robust competitive pressures.

    This is the silver bullet that is missing from government provided ‘services’ and the reason why these services are provided inefficiently and at a high cost to the taxpayer.

    Governments should be ensuring robust competition exists in all sectors of the economy but they themselves are running monopolies.

    No wonder the more the government spends the poorer we all get.

  29. Kenneth R Moore
    August 21, 2014

    Borrowing rising to nudge up GDP and employment figures just before an election. Mr Osborne and the BOE are addicted to borrowing and QE in the same sense that an addict is addicted to heroin.

    More evidence that many non-jobs have been created that aren’t viable without massive government subsidy. Employment at record levels, GDP at pre-crisis levels but tax revenue stalled and spending through the roof. We have a sick economy on the life support machine of cheap credit.

    I wonder what the excuse will be this time. This state of affairs is irresponsible as we shall soon find out when the next financial crash happens.

  30. Lindsay McDougall
    August 21, 2014

    Scots have extra disposable income in kind rather than in cash – e.g. free University education – which must be taken into account. Especially as English people are paying for it!

    1. Chris S
      August 21, 2014

      Ditto Prescription costs !

  31. David Price
    August 22, 2014

    I don’t think you can use this data to represent relative prosperity unless you factor in the relative cost of living. From the figures above England shows a 4.9% higher GDI but if you look at table A33 from the Family Spending , 2013 Edition ONS data ( you will see that in terms of average household expenditure (which comes out of the DGI) the English average is 12% higher than Scotland.

    I don’t count myself prosperous if I earn more than someone but then have to pay much more to maintain the same standard of living, quite the reverse.

    The issue is where do the incomes come from, how much of it is welfare and public sector pay and at whose expense. I accept that a country has to operate as a transfer union to a degree but I think the Barnet formula is completely wrong as it simply distributes wealth rather than manage finances to meet needs.

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