ONS confirms public spending has continued to rise in real terms

In 2010 I pointed out that public spending was going up every year of this Parliament in cash terms. I also forecast that this government would control the costs of public spending better than the previous government, so real current public spending would also rise. Most commentators, politicians and journalists thought this wrong and talked about the real terms cuts to come.

The OBR now confirms that real public consumption rose 2010-2013 inclusive at a rate of 1% per annum. They state ” Real government consumption continues to contribute positively to GDP growth despite ongoing restraint in nominal spending. “(restraint here means modest increases). (pp 79-80 of the OBR book)

The OBR also says that in the next Parliament the plans in yesterday’s statement should mean continued control over the costs of public services, which limits the impact of the future restraint on cash public spending on its real level. Indeed they expect the costs of provision to fall, as they assume productivity and technology gains in delivery of services. What is odd is that we did enjoy such gains in the previous decade.

It is curious that no-one else seems to read this section or use it in the debates on what has happened and what might happen to public spending, presumably because it stands in the way of the austerity and cuts stories. Whilst it is obviously true that some budgets have been reduced and some may be reduced in the next Parliament, the overall position is now confirmed that both cash and real public consumption has risen. Capital spending, which was cut sharply by the outgoing Labour government, remained cut at the beginning of this government but has now benefitted from substantial increases from the new lower base.

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69 Comments

  1. Lifelogic
    Posted December 4, 2014 at 9:45 am | Permalink

    The government is (in other words) still pissing money down the drain like Labour (and pushing up energy prices and destroying businesses in the process). HS2, daft green grants, electric car grants, tunnels past stone henge, HS3, trips to Mars, payment to augment the feckless, over paid bureaucrat doing nothing (often just damage), the dysfunctional basket case NHS, payments of billions to the EU, soft loans to the EURO disaster countries ……

    When will they finally get a grip?

    • Lifelogic
      Posted December 4, 2014 at 12:26 pm | Permalink

      The Tory spokesman just now, we need to continue to borrow to invest to improve productivity. Well borrowing for wind farms, HS trains, trips to Mars and the rest of the drivel I often list will decrease productivity. Certainly it will not improve UK productivity. How will taking money of businesses and individuals, then wasting it all and pushing up their energy costs increase their productivity?

      • Hope
        Posted December 4, 2014 at 3:58 pm | Permalink

        Your first post was spot on the money. After failing to deliver any substantial cuts to balance the books over five years why would any sane person believe Cameron and Osborne for the next five years? This was their rationale for coalition with the Lib Dumbs.

        The public rejected regionalisation and city mayors. So Osborne is now imposing them on England to regionalise it in accord with the EU plan so it will not be strong enough or coordinated enough to live outside the EU. How will this affect the economy? Social structure? The way we live? More layers of government is Osborne’s answer to cut the deficit and reduce public spending! He really ought to do a full days work in the Treasury to realise the dire position our country is in and that it is HIS job to so something about it. Come on JR, your party is dead with this pair of wasters in charge.

    • Qubus
      Posted December 4, 2014 at 1:46 pm | Permalink

      Didn’t the trip to Mars set-off about eight years ago…….??????????????!!!!!!!!!

      • Lifelogic
        Posted December 4, 2014 at 4:24 pm | Permalink

        £48 million EXOTIC Mars plus the euro space stuff.

        • Lifelogic
          Posted December 5, 2014 at 10:54 am | Permalink

          ExoMars!

    • Lifelogic
      Posted December 4, 2014 at 2:27 pm | Permalink

      I even see we had the totally dishonest claim that we would be “Back in the Black” by 2018. As in “I have a X Billion pounds of debt but as I have finally stopped increasing this debt so I am now back in the Black!

      Lies, lies and more lies, but still not quite as bad as Labour just very nearly.

      Reply I can be in the black, with more income than outgo, but still have a mortgage.

      • JoeSoap
        Posted December 4, 2014 at 3:32 pm | Permalink

        Come on!
        You know that a mortgage is backed by realisable assets and that government debt is backed only by piss at the bottom of LL s drain!

      • DaveM
        Posted December 4, 2014 at 3:47 pm | Permalink

        As always, a good analogy John, but a mortgage is usually based on the fact that you have a forecast-able and steady income, and if your income reduces you can always down-scale.

        You certainly wouldn’t see your wages slashed then buy a bigger house and a new car and give loads of money to the neighbours!

      • Hope
        Posted December 4, 2014 at 4:05 pm | Permalink

        He made these claims before the last election and ridiculed Darling for only pledging to halve the deficit. It turns out Osbonre could not even deliver what Darling pledged!

        As JR points out, spending has increased. Osborne knew this years ago, while having a trip in the U.S. president’s plane rather than concentrate on the budget, and still carried on the same woeful spending course and could not match the plans of those he ridiculed.

      • Lifelogic
        Posted December 4, 2014 at 4:32 pm | Permalink

        Well not really, in the black means in credit. Not my huge debt is finally declining very slightly. It is clear dishonesty. The colours red and black have never had anything to do with the direction a debt is going.

        Rather like “a treaty is not a treaty once ratified” and we a repaying the debt it is dishonest.

        • Lifelogic
          Posted December 5, 2014 at 10:59 am | Permalink

          Next they will be using the second or third differential of the debt by time and saying the debt is no longer “accelerating away” or the rate of acceleration is no longer increasing and claiming that as victory.

      • stred
        Posted December 4, 2014 at 4:37 pm | Permalink

        What does the UK have as security for its mortgage? Our houses?

        • stred
          Posted December 5, 2014 at 10:55 am | Permalink

          It was confirmed in the HoC yesterday that our semi nationalised bank has in fact taken many homes and other property onto its balance sheet, after mugging various SMEs. In addition to this HMG has done everything it can to inflate the value of housing, for which young buyers are paying a fortune. While on the other side of the equation older savers are seeing the value of their savings eaten away by QE and negative real interest rates. The value of all these bank assets is added to the nation’s balance sheet in turn and helps keep the interest rate on government debt down, but still higher than other countries at present. Let’s hope the gnomes don’t notice.

        • Lifelogic
          Posted December 5, 2014 at 11:00 am | Permalink

          They are already mortgaged in the main.

      • Bob
        Posted December 4, 2014 at 4:57 pm | Permalink

        Reply to reply:
        The mortgage will be secured upon your house, but the government debt is secured upon the future earnings of our children.

        I’ve told my kids to consider looking for a less socialist place to live when they get older. The UK has been subverted with mass brainwashing by the Frankfurt School graduates in the education system and the BBC, hence the “bash the rich” dog whistle politics, making the UK a hostile environment for achievers. As the Japanese say “the nail that sticks out will be hammered down”.

      • matthu
        Posted December 4, 2014 at 9:07 pm | Permalink

        Reply to John: Your mortgage would usually be secured against your property, the value of your property could usually be counted on to pay off your creditors so your assets would exceed your liabilities.

        This is not so obviously true in the case of the UK.

      • Leslie Singleton
        Posted December 5, 2014 at 2:36 am | Permalink

        But the UK’s debt is colossal (word of the day or yesterday) and still (unbelievably) rising, whereas a (loan secured by a) mortgage is intrinsically limited and can and eventually will be repaid by sale of the house. Selling the UK’s family silver is apparently not allowed (not sure why), and just wait till interest rates go up.

    • Mitchel
      Posted December 5, 2014 at 1:49 pm | Permalink

      The government has no intention of cutting public spending significantly(that would hit too close to home) and no intention of repaying debt.Sound money is dead;we have gone past the point of no return in my opinion when it comes to very concept.

      What we have become is a neo-banana republic,borrowing and printing to keep a bloated elite and client state in the style they believe they deserve.Unlike those original Latin American banana republics,western governments have,for the time being,the ability to manipulate financial markets through the cosy relationship between the global investment banks and the cabal of (x investment banker ed) alumni running the central banks to stop the roof falling in .It can’t last forever and is being challenged by the likes of Russia and China.

      Whilst success for UKIP presents the possibility of some creative destruction of the system in the UK and is therefore worth a try,I am increasingly coming to the view that the chances of the ballot box changing the orientation of the establishment is slim.As Lenin said,without the threat of a firing squad,”it is just talk and a bowl of mush”….and that’s the first time I’ve felt compelled to quote that source.

  2. Matt
    Posted December 4, 2014 at 9:45 am | Permalink

    Speaking as a public sector worker in a job which most would consider useful, but not front line critical and therefore prunable; I’m still strongly of the view that public sector spending it too high and should be cut. There are many, particularly amongst those who post here who are of the same view.
    Then comes the vexed question of what to cut. I’m talking about specifics here, the cutting of which would make a noticeable difference to the deficit.

    Switching from state healthcare cover to private insurance for example. That’s a popular one. Probably leaving a state run system in place to cover those who genuinely can’t afford the insurance premiums, and I would think also to make sure that children are always covered. Sounds reasonable, but heavy regulation of the insurance regime is necessary to make them behave themselves, as the US have discovered. The continent seem to manage this reasonably well. Still, how much money would it actually save? If the middle class is paying several thousand pounds per year for healthcare insurance, they can afford less tax.
    All in all, good reason to hope for a better system, but not a huge amount of money saved.

    Now welfare. That’s a good one. I’ve known plenty of people who would probably work harder if the state wasn’t topping up their income, or funding them entirely. Examples of people who have a PS4 and a new >£500 TV bought essentially with tax payers money are not hard to find. Still, whatever your intentions, you’re going to end up denying money to a bucket load of people who really were trying their hardest and struggle to provide properly for their children even on current welfare payments.
    Could we randomly audit welfare recipients and see whether they’re treating the tax payers money they receive with the respect it deserves? After all, if you’ve got £1000 you don’t need for food and clothes, how about buying a £100 TV, managing with your PS3 and getting £900 worth of training for a better job. Still we’d have to hire a bunch of people to do the auditing so are we actually saving anything?

    Our host has far more experience and wisdom on these subjects than me, as I’m sure do others. I just get frustrated when people from one side say there’s no room for cuts, which there clearly is; and when people from the other side say that it’s easy to slash public spending. Clearly neither is true.

    • DaveM
      Posted December 4, 2014 at 3:53 pm | Permalink

      “I’m still strongly of the view that public sector spending is too high and should be cut”.

      I posted a comment the other day (although JR chose not to publish it) that it is not necessarily a per-se cut to public spending that is required, but a reduction in the criminal levels of waste in the public sector that is needed. I too work in the public sector (Defence) and we have managed pretty savage cuts just recently. These cuts, though, have made people focus massively on waste, recycling, shared assets, and clever spending – after all, the same output is required. And in retrospect, our people are realising that the amount that could have been saved during the Labour “spend spend spend” years is mindblowing.

      • Matt
        Posted December 5, 2014 at 9:27 am | Permalink

        Oh gods yes the waste!
        It’s ridiculous. The number of people surrounding me who just get in the way. The endless rules, which I constantly have to find ways around just to get anything done. The massive schemes constructed in the name of efficiency or the environment, which burn money without regard for the fact that somebody had to work for them to get it.
        Can we really do anything about that? The environmentalism (which is in my view often just an excuse), is not permitted to be questioned. Apparently only a monster would question the great and almighty consensus which has righteous dominion over our thoughts and deeds.
        Management seem to deem everything essential. Even when we managed without it for the previous century. Things which we obviously need, and have always needed, and are not expensive are rationed for spurious reasons. It’s a complete farce.
        Really, I could write an entire book on the nonsense spending which goes on around here. Everybody seems to either accept or encourage it. How did we get into this situation in the first place?

  3. Brian Tomkinson
    Posted December 4, 2014 at 9:46 am | Permalink

    JR: “It is curious that no-one else seems to read this section or use it in the debates on what has happened and what might happen to public spending, presumably because it stands in the way of the austerity and cuts stories. ”

    Exactly; as I have pointed out many times before, it suits your party, the coalition and Labour to misrepresent the facts to suit their own political posturing.
    Back in 2010 you exposed what the true intentions of the Conservative led coalition were by presenting the facts of their budget plans and forecasts. You convinced me then that your party was just a fake – no better than Labour. Since then I have become even more convinced that your party is unworthy of support.
    Yesterday’s announcement was no exception. I regard your leader and his Chancellor as mendacious and untrustworthy. They represent the worst kind of political opportunism.
    Just how you can continue to support and attempt to provide a cloak of respectability to a party led by such charlatans is a mystery to me.

    Reply Not a fake. I got the information from the government’s clearly published plans! The Coalition has spent and borrowed less than Labour would have done.

    • Brian Tomkinson
      Posted December 4, 2014 at 10:24 am | Permalink

      Reply to reply,
      I meant it was a ‘fake’ by pretending that to ‘eliminate’ the deficit they were planning to cut expenditure when in fact, as you showed, they planned to do it by increased taxation. Remember Osborne’s other claim to reduce the deficit 80% by spending cuts and 20% by taxation? We have seen that they are tax, borrow and spend, just like Labour.
      I’m not interested in what Labour may or may not have done over the past five years as that is pure speculation, although I seem to remember your party rubbishing Darling’s suggestion that the deficit be cut by only 50% in 2010!

    • ian wragg
      Posted December 4, 2014 at 10:28 am | Permalink

      Darling said he would halve the deficit in one Parliament. Osborne has only managed to reduce it by one third so how do you justify what liebour would have spent and borrowed.
      Its always jam tomorrow, he never said what he would cut to reduce the deficit and the idea that taxes will soar is absolute nonsense when you keep importing half a million low paid immigrants and working benefits keep rising.

    • acorn
      Posted December 4, 2014 at 11:54 am | Permalink

      Let’s say the government spent a £1 cash (nominal) last year for a £1 unit of consumption. This year the government spends 99 p for the same good or service, which due to an austerity induced lack of sales, is now priced at 98 p per unit. Whoopee, that is a “Real government consumption” increase of 1.01%!

      The OBR desperately tries to be honest, even if most of its staff are ex Treasury (same mind set). There are two charts they have slipped in that tell you everything. Chart 3.31 “Household gross debt to income”, and Chart 3.41 “Sectoral net lending”.

      The first one tells you that this is going to be a household debt fuelled government deficit reduction. At 1.83 times income compared to 1.7 times just before the 2008 crash. The second Chart confirms it. You will see the red line (deficit) goes positive in 2019. Everything on this chart sums to zero. For every sector that is borrowing, there has to be a sector that is lending. If the private sector and the rest of the world want to save, the public (government) sector has to run a deficit.

      You will see that as the government deficit reduces, the household debt level has to increase. This so that the corporate sector can keep making profits and households can keep importing those 60 inch plasma TVs from the Rest of the World; but not as many.

      PS. Look at the 2008 to 2010 period on Chart 3.41. See that Mr Darling was forced to run up to 11% deficit (red line). Households were saving like mad; corporates were stashing the cash. The rest of the world’s saving rate was dropping cos we had stopped buying them plasmas. This would have happened just the same if it was a conservative administration. It wasn’t a “disaster” because the government has a bottomless pit of fiat currency and it is NOT debt as you understand it.

      • Posted December 5, 2014 at 2:19 am | Permalink

        ” ….bottomless pit of fiat currency and it is NOT debt as you understand it.”

        I think we need to be careful with these kind of comments. Yes, governments can issue money without limit but there should be limits.

        There is certainly not a bottomless pit of resources in the economy and the duty of government is to ensure that these resources aren’t wasted. These resources would include the talents of all those who are unemployed or underemployed and are, therefore, indeed being wasted.

        So the limits on spending are, on the one side, to ensure that we don’t have too much inflation in the economy. On the other it is to ensure that we don’t have too many resources going to waste.

        That’s about it really. If we want to reduce our deficits, then paradoxically we shouldn’t dwell on them too much. That’s the big mistake made by the EZ countries. Deficits will take care of themselves once the economy is zipping along in Goldilocks fashion. Not too hot and not too cold!

        • stred
          Posted December 5, 2014 at 11:12 am | Permalink

          During lunch yesterday, BBC Politics Today chose to interview another Scottish MP, who was also on the committee about the subject. He seemed to think that, as Oz had announced that he had just paid off the debt from WW1, we should be looking to pay off the present debt in another 100 years instead of cancelling HS2, the Stonehenge tunnel, green crap and foreign aid to countries with more advanced technology than our own. All in order to save the NHS and pay for all the managers and their redundancies of course. I had to take a Setler.

          Is this Rob Roy’s idea cold enough?

        • libertarian
          Posted December 5, 2014 at 11:07 pm | Permalink

          Petermartin

          If as you say govt can issue money without limit. How come

          1) They are BORROWING vast amounts

          2) we have a near £100 bn deficit?

          You really do need to read that weblink I gave you

  4. David Murfin
    Posted December 4, 2014 at 9:55 am | Permalink

    So we are spending the money we have borrowed? Oh good.

  5. oldtimer
    Posted December 4, 2014 at 10:06 am | Permalink

    Thank you for drawing our attention to the actual facts behind the Autumn Statement re projected tax revenues and government spending. It looks to me like the usual political fantasy decked out with smoke and mirrors. It will not work as advertised.

  6. alan jutson
    Posted December 4, 2014 at 10:07 am | Permalink

    Thank you John for keeping us all informed of the facts/figures

    The media as usual seem to just want to tell half of the story.

    • alan jutson
      Posted December 4, 2014 at 10:20 am | Permalink

      I see Mr Cable is proving a good member of the team again by briefing in public against most of the future policies announced yesterday.

      Looked like he was chewing a wasp during The Chancellors speech.

      Perhaps he should return to his Labour roots.
      He seems to be suggesting that future cuts are too deep and too fast again, just like the old Balls mantra of a couple of years ago.

      Meanwhile Balls has moved on from saying borrowing should be the way forward, because now he has to criticise the Government for reducing increasing spending more slowly than promised, because that is political opportunism, and he has nothing else intelligent to say.
      God help us if this man ever gets control of any public finances.
      Personally I would not put him in charge of the tea and biscuits fund.

      • fedupsouthener
        Posted December 4, 2014 at 11:27 am | Permalink

        To some extent he is already in charge of some of the public finances. One of the biggest and the biggest case of fraud and a waste of money!!!! Renewable energy and wind farms in particular which receive enormous subsidies from the bill payers for sometimes doing absolutely nothing. They have yet to see the damage they are doing not only to the economy but to the safety and security of our energy system which was once the envy of the world. Clegg/Davey get hold of it and wipe out decades of success overnight.

        • Hope
          Posted December 4, 2014 at 4:12 pm | Permalink

          To be fair it is not just Davey/ Clegg it is Osborne and Cameron as well. They all gold plated Miliband’s ideas. There is no difference between any of them. Only UKIP offer a different choice.

      • Lifelogic
        Posted December 4, 2014 at 12:29 pm | Permalink

        Balls probably will get his hands on the treasury thank to “broken compass” Cameron and Cable with probably help them if he can.

  7. Posted December 4, 2014 at 10:10 am | Permalink

    There is always “talk , talk , talk” and little or no action . What is the point of response when there is lack of evidence that it is heeded and attended to . So many of us who are very anti EU make utterances every day in the hope our words get across ; the sheer volume of this response ought to be enough for it to be recognised as substantial .
    Mark Mardell today has observed what a slippery thing it is to have a Prime Minister who lacks a strategy – resulting in the way he tracks from one unresolved condition to another . Is it any wonder that “promises – no ifs or buts ” are laughed away as political hogwash .
    So , when you question “why is it that no-one seems to read this section etc etc ” , you have to put it down to the “slipperyness of politics and politicians”.
    The management of our economy lacks a long term strategy . It will never be achieved with short term 5 year political interruptions . Above all , we -and not others , have to manage and be accountable for our own affairs . The EU is a mess and seems determined to milk us dry ; get out of it ; put our own feet on the ground and head in a direction with a clear strategy in mind .

  8. Steven Dowds
    Posted December 4, 2014 at 11:39 am | Permalink

    The gap between Osborne’s rhetoric and his actions defies belief. The government is spending money with both the discretion and abandon of a drunken sailor. Why has there been no bonfire of the quangos? Why do we need over 20,000 civil servants engaged in MOD procurement when the Israeli government manages with fewer than 1,0000? Would anyone even notice if, for example, Public Health England, with its helpful advice about sitting in the shade when it is sunny and remembering to breath in and out, disappeared?

    I am fed up with this Continuity Brown government. If I had wanted a Labour administration complete with wealth taxes, I would have voted for one. As things are, every time Mr Cameron or Mr Osborne makes an announcement my response is to count the spoons. They have forfeited my trust.

    • DaveM
      Posted December 4, 2014 at 3:56 pm | Permalink

      “Why do we need over 20,000 civil servants engaged in MOD procurement when the Israeli government manages with fewer than 1,0000?”

      Have you never been to Abbey Wood? For each one working in his office, it’s mandatory to have 4 in the Costas and Starbucks!!!

  9. behindthefrogs
    Posted December 4, 2014 at 12:00 pm | Permalink

    Once again the chancellor has got it wrong.

    The stamp duty changes did not need to cost so much. They could have been implemented with slightly lower bands at zero cost.

    The extra £100 on the starting point for income tax could have been used to raise the lower band for employees’ NICs. This would have benefitted the lower paid workers and increased the incentive to work.

    He failed to make cost saving changes. For example the winter fuel allowance could have been moved into the old age pension for the winter months. This would have reduced the cost and also have the benefit of it being taxed income for those who do not really need it.

  10. behindthefrogs
    Posted December 4, 2014 at 12:24 pm | Permalink

    Why has the chancellor removed the airport tax for children when in the current economic climate the money could have been better spent reducing the cost of holidaying in the UK? Surely tax changes should be much better targeted

  11. Richard1
    Posted December 4, 2014 at 12:35 pm | Permalink

    Now there is focus on the projection that govt spending will fall to c. 35% of GDP by 2019. Apparently the BBC has described this as reminiscent of Orwell’s the Road to Wigan Pier. BBC interviewers are challenging Conservative spokesmen to name other countries where spending is this low. Unfortunately many Conservatives are not well informed enough to answer. So let’s help them, here a few countries where state spending / GDP is at or below 35%: the US (pre Obama), Australia, Switzerland, Singapore, Hong Kong. And here are a few where its much higher: France, Greece, Portugal, Zimbabwe. It ought to be possible by reference to other countries to get the message over that spending at 35% of GDP might rather be a good thing.

    I note also that Mr Balls says 1) he will balance the current (not capital) budget and 2) he will have debt falling by the end of the next parliament. Unfortunately he was being interviewed by the Labour supporting James Naughtie so he was not challenged on the obvious absurd contradiction (unless the whole budget is in surplus debt will rise).

    • Denis Cooper
      Posted December 5, 2014 at 10:28 am | Permalink

      Well, it’s a bit like the:

      “… this has been the hottest/wettest/windiest year since year X/since records began (ignoring the weather records available from before our chosen starting point) …” half-truths or untruths dished out by the mass media.

      There’s a chart at the end of the article here:

      http://blogs.spectator.co.uk/coffeehouse/2014/12/grumpy-osborne-complains-about-hyperbolic-bbcquestions-about-cuts/

      showing that actual government spending fell below 36% of actual GDP both in the late 1950’s under a Tory government and in the late 1990’s under a Labour government, and it is only an unreliable projection that it will fall even lower than that in 2019.

      If in actuality it doesn’t fall quite that low even by a few tenths of a per cent, which of course is perfectly possible, then if it had any conscience the BBC would have to think about abandoning its:

      “… the lowest since the 1930’s depression when callous rich Tories gorged themselves on fine food and wine while the workers starved …”

      theme, as instead it might rightly be:

      “… the lowest since the superb Labour Chancellor Gordon Brown was urging the virtues of prudence”.

      • Richard1
        Posted December 6, 2014 at 4:15 pm | Permalink

        Yes although it only fell to those levels under Brown briefly before he abandoned Conservative spending plans, which would have taken the UK to surplus. Instead Brown had state spending / GDP rise by > 3% of GDP even before the crash – ie during the bubble-boom years when, if ever, the economy should have been going faster than the state. Therefore we went into the crisis with a structural deficit of c. 5% of GDP. This is one of the main reasons why the Labour Govt absolutely can and should be blamed for the financial crisis and the great recession.

  12. Mike Wilson
    Posted December 4, 2014 at 12:42 pm | Permalink

    I am puzzled. Government spending has gone up in real terms – yet we hear the Prime Minister the other day saying that police spending had gone down by 20% and crime had fallen too. (Interesting to take that to its logical conclusion!)

    Cameron also mentioned various public sector cuts – with more to come etc.

    So, if public spending is rising … why are there ANY cuts?

    Can you explain please Mr. Redwood?

    Reply Overall spending has gone up. NHS, education, overseas etc have all gone up in real terms as a matter of policy, so some other programmes have been reduced.

    And any sort of answer to the question I posed the other day – why were 272,000 NON EU immigrants allowed into the country in year ending June 2014?

  13. Kenneth R Moore
    Posted December 4, 2014 at 12:57 pm | Permalink

    Uncle Redwood,

    I’m left concerned by the question over, how much of the contribution to the increase in GDP comes from higher government spending ?.
    This feeds back to my earlier comments about how the way the British economy is run, having much in common with a Ponzi scheme.£1 of borrowed money buying £1 of growth etc.
    How long can we keep playing this trick on ourselves ?

    Reply A small proportion of the growth – the OBR document has the figures

    • JoeSoap
      Posted December 4, 2014 at 3:36 pm | Permalink

      This is actually important, as any government can borrow to the hilt and then spend it all to provide “growth”, while racking up more debt and debt interest for the future. This is exactly what is being done in our name.

    • Kenneth R Moore
      Posted December 4, 2014 at 4:11 pm | Permalink

      Thanks Mr Redwood,

      On that point Mr Osborne will have added £670bn to national debt over five years. That’s equivalent to an annual average stimulus of just over 8% of GDP.
      This year, for instance, the economy is likely to grow by around £80bn, but government alone will borrow more than that. I don’t see how you can describe the borrowed sums as a ‘small’ proportion of growth ?.

      Aren’t we just borrowing money, spending it then kidding ourselves that our income has risen – personal I think we are being taken for fools by your chancellor. he was rather tetchy when in his interview on Radio 4 this morning when Mr Humphrys alluded to his record of failure to control spending.

    • Posted December 6, 2014 at 4:01 am | Permalink

      All GDP comes from somebody spending something.

      So to make it increase there are three possibilities:

      The private sector has to spend more. That means you and I. As we’re all overtaxed and underpaid that’s not likely unless we borrow more. Even if the banks wanted to lend to us many of us have more than enough debt as it is.
      The overseas sector has to spend more. That means exporting more, which in turn means devaluing the pound.
      Or the government has to spend more. Which it can do if it wishes, but there’s an inflation risk if it overdoes it.

      Are there any other possibilities?

  14. Atlas
    Posted December 4, 2014 at 1:16 pm | Permalink

    John,

    Perhaps you can help answer this simple question:

    What would be the tax-take increase for a rise in the VAT rate by 1%, ie from 20% to 21%?

    Reply As increased rates of VAT do collect more revenue I guess it would be around an additional £5.5bn

    • Hope
      Posted December 4, 2014 at 4:16 pm | Permalink

      More VAT more EU contribution.

  15. Kenneth R Moore
    Posted December 4, 2014 at 1:55 pm | Permalink

    Uncle Redwood,

    Does your analysis take into account interest on the accumulating debt ?. It seems that although there will be some marginal ‘belt tightening’ this will be taken up by rising debt repayments.

    Reply Yes, as does the government’s figures

  16. Terry
    Posted December 4, 2014 at 2:26 pm | Permalink

    How can the GDP figure be taken seriously when Government consumption contributes to it? The more Government spends, the higher the GDP growth it creates. Doesn’t sound right, does it?
    No wonder Mr Brown thought he had ended the days of Boom and Bust! All he had to do was tax, borrow and spend and all would be well! But..another fine mess that got us into, Gordie.

    More amazing then, with a change of Government, it continues down the same rocky path to disaster. Where and when will this fiasco end?

    • Kenneth R Moore
      Posted December 4, 2014 at 6:52 pm | Permalink

      Agreed it is the logic of ‘pulling yourself up by your own bootstraps’ acted out on a grand scale. Brown also switched from CPI to the RPI price index which ignores inflationary pressures from housing costs. RPI is still being used to measure inflation so it’s much higher than acknowledged.
      Osborne is up to the same old tricks just buying himself time on his little ego trip before the next crash.
      It’s just a matter of time before the masses realise the emperor has no clothes.

  17. ian
    Posted December 4, 2014 at 3:33 pm | Permalink

    As I said before, this will go on for years and tears to come. Like politician say no need to waste a good crisis. Shares and house price up on borrowed money while cuts to living standards for the workers and poor will carry on. The cuts will not that big.they will do the same, borrow money, while they are telling storyour heads will be spinning round and round

  18. Denis Cooper
    Posted December 4, 2014 at 3:36 pm | Permalink

    So government spending has gone up not only in cash terms but in real terms?

    And this is what is being called “austerity”?

    • Mitchel
      Posted December 5, 2014 at 2:07 pm | Permalink

      It’s called fauxsterity!….All you have to do is talk endlessly about it and the masses will believe it’s been done,not so very different from Dr Goebbels really.Unfortunately,when the actual strategy of “let’s do nothing and hope something turns up” fails to deliver,you have to start again but with your credibilty shot to ribbons,precisely where we are with this Autumn statement.

  19. Denis Cooper
    Posted December 4, 2014 at 4:53 pm | Permalink

    JR, in your view, who will benefit most from the cuts in stamp duty?

    If I was offering my house for sale at this time I would have been on the phone today asking the estate agent how much he thought we could add to the currently advertised price, given that whoever bought it would now be paying less to the government and so could afford to pay me a bit more for the house.

    • alan jutson
      Posted December 5, 2014 at 9:23 am | Permalink

      Dennis

      “if i were….”

      Perhaps only if you had agreed a slightly lower value just to get your property under a valuation slab limit.

      A property is only what someone else is prepared to pay, not what the owner wants.

      Remember unless we are giving up home ownership altogether then we are all future sellers and purchasers, so no benefit.

      • Denis Cooper
        Posted December 5, 2014 at 7:22 pm | Permalink

        Alan, the English language constantly evolves, the subjunctive has largely fallen into disuse, and we must move with the times or risk being accused of being out of touch and feeling “left behind” and nostalgic for the fifties and resentful of modern society, which would apparently explain why we might vote for UKIP.

  20. REPay
    Posted December 4, 2014 at 5:44 pm | Permalink

    “Indeed they expect the costs of provision to fall, as they assume productivity and technology gains in delivery of services. What is odd is that we did enjoy such gains in the previous decade.”

    Is there a NOT missing in the last sentence?

  21. Iain Gill
    Posted December 4, 2014 at 6:57 pm | Permalink

    So I live in a country where house prices are inflated by whatever means is available, where people get prosecuted for driving through a red light to let an ambulance on blue lights through, where people get prosecuted for doing 62 on an empty motorway at 4 in the morning in perfect conditions with no road works by a variable speed limit system set like the other overhead signs very badly and warning of long past incidents way over 75 % of the time so that most rational drivers treat them with a pinch of salt, where the government keeps borrowing and printing money to give to richer countries than us, where we force people to live in estates with terrible schools far away from a modern jobs market while at the same time importing large foreign workforces, where our best intellectual property is allowed to escape abroad to be used to undercut us, and where our senior leaders have zero real world experience.
    None of the parties are prepared to cut as much as I would, and their priorities regarding what should get public money first are completely different to mine or anyone with common sense.
    Things that are inevitable:
    • House price crash
    • Devaluation of the currency
    • Loss of earning power due to loss of intellectual property
    • Break down of community due to overwhelming immigration
    • Financial markets faith in our credit worthiness collapsing
    • More state plundering of the wealth of those with cash in the bank rather than invested in housing
    It’s not looking good is it?

  22. Posted December 4, 2014 at 7:29 pm | Permalink

    big sigh..so much for progress

  23. bluedog
    Posted December 4, 2014 at 8:39 pm | Permalink

    It’s probably time to produce a handy table giving tax as a % of GDP and government expenditure as a % of GDP in each decade subsequent to 1946 and the implementation of the Beveridge Report

  24. John Robertson
    Posted December 4, 2014 at 10:10 pm | Permalink

    The communication was bad. I remember on your blog that they need to pin down what they mean by public sector wage freeze. As it turns out it mean 1% each year and every 3rd year a 3% increase approx plus bonus. Yet the message out there is they have had a freeze despite earning more that equivalent jobs in the private sector and those ONS stats exclude the Defined benefit pension. If you say cuts them make cuts, they are on strike but getting pay and benefit increases!

    That is a bad communication and planning error sadly.

  25. Posted December 4, 2014 at 11:52 pm | Permalink

    The argument seems to be that government spending has increased in real terms and so the government cannot be accused of pursuing ‘austerity economics’. Does this increase in real terms take into account the population increase? Is it still a real increase in per capital terms?

    The other question to consider is the general level of taxation. I’d agree with Laffer that increases in taxation rates don’t necessarily produce overall increases in taxation revenue. So if taxes are too high we can still have ‘austerity economics’ at the same time as relatively high levels of spending. Indeed, those higher levels of spending are necessitated by those high levels of taxation which are acting as a drag on the economy. If the economy was working better there would be less unemployment, less underemployment, less very low paid employment and therefore less need to pay out welfare benefits.

    • Denis Cooper
      Posted December 5, 2014 at 9:57 am | Permalink

      A fair point, Peter, really the statistics should also be offered on a per capita basis to adjust for the rapid increase in population caused by the continuing policy of allowing and encouraging mass immigration. For government spending that would bring down the increases in both cash and real terms, and maybe both would become negative. For government spending as a proportion of GDP, as taking into account population growth would bring down both figures the ratio might not be changed much by putting them on a per capita basis.

  26. Tim
    Posted December 5, 2014 at 12:45 am | Permalink

    You support them John.
    Nothing has happened on the debt. Deficit still continues.
    So what exactly are you Tories doing? Seems to me, nothing. Balls and Labour are about the same. UKIP is the only party that would sort this mess out. I mean – you Tories even support the 0.7percent of GDP to foreign aid even though we are broke. Hello ? Anyone in,in the common sense part of the government? I guess not. Sorry – epic fail.

  27. Gumpy Goat
    Posted December 5, 2014 at 6:24 pm | Permalink

    This what happens you ring fence spending other things suffer. Shall we invite Mr Putin to invade NATO territory I thought the Tories looked after our defence needs? http://www.bbc.co.uk/news/uk-30338659

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. 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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