There are no “colossal” or “massive” cuts

 

Let us suppose  that someone’s spending over recent years was as follows:

Date   of spend                          Total          Total day to day spending

2009-10    (last Labour year)            £6693                      £6009

2010-11                                                  £6944                     £ 6328

2011-12                                                   £6936                    £6438

2012-13                                                  £6737                     £6572

2013-14                                                  £7200                    £6679

2014-15                                                  £7371                     £6717

I don’t think anyone would say that person had experienced “colossal cuts” . Some would write in and say this person had done better than they had, as their day to day  spending had gone up each year. Others would point out that inflation meant not much of a real increase, though in practice it is a small real increase in day to day to spending.  A fair commentator would conclude that the person had done all right considering the overall background, where others  had suffered actual falls in income and spending. It had been tight but was  not a case of a massive cuts.

If you multiply that person’s spending by 100 million you have the government figures for its total spending (including capital) and its total current spending. So why when we have the big figures for the government do some go on about massive cuts?

Some say in real terms it was a cut. The OBR now tell us not even that is true. Now they say it is a cut as a percentage of GDP. Yes, that’s true, because GDP is going up faster than public spending. However, that does not make it an actual overall cut. Today the government is delivering more school places, more doctors appointments, more operations in hospitals, more subsidised rail services and more success in controlling crime than five years ago.

If we are to have a sensible debate about public spending we first need to start with an honest factual base of what has been spent and what planned spending looks like. Over the next five years on current plans public spending rises by a further £42bn a year. That’s tight, but it only becomes a real cut if public sector costs escalate and if the public sector is unable to deliver say 2% per annum productivity and efficiency gains which are the bare minimum in much of the private sector.

The biggest lie of all is the one which says we are going back to 1930s levels of spending by 2010. This country is many times richer now than in the 1930s, so we will be spending many times the real level of the 1930s by 2010.

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76 Comments

  1. Margaret Brandreth-J
    Posted December 6, 2014 at 7:09 am | Permalink

    Looking at the figures one would say that this is hardly austerity , however the management of finances is another thing. Unfair distribution of monies causes more heartaches than other aspects of budgeting.

    I personally want my grandchildren to attend schools where the teaching is of a high standard relying on reason and intellect as a basis for good education. I don’t want society to have more surgery.I prefer the Nurses to get appreciation for their hard work in primary care to prevent those numbers of operations .Prevention is better than cure.I personally want well trained police who work with humanity to prevent crime and not the hangers on who call themselves police and enjoy the new authority in their lives.

    I simply do not want an old set of values to return which puts more money into the pockets of those who have gained their money through a false perception of their worth , whilst others take the responsibility and have the real knowledge of how things actually do work.

    When 2 voices are heard together and not quite synchronised ,when the same thing happens twice or three times to us ,we are all aware that we are being whipped and an attempt to control is being manufactured . There is a social put down going on here and the root of the unrest will be the distribution of money.

    • bigneil
      Posted December 6, 2014 at 8:31 am | Permalink

      Perfectly put. A round of applause for you. You would never make a politician – far too sensible and honest.

    • Hope
      Posted December 6, 2014 at 8:39 am | Permalink

      Frazier Nelson’s article is closer to the mark, Osborne is a debt addict. He wants our children and grandchildren to pay his debts. Once more, he shows that it does not pay to work. The benefit system is still a lavish alternative to working unless you come from Eastern Europe. Even then the British taxpayer is expected to subsidise big business by working tax credits. Low interest rates should help older people and pensioners make up their mind who to vote for. This is the real reason why he wants people to work until they die. He has messed up the economy or nay chance of saving it in the foreseeable future.

  2. Leslie Singleton
    Posted December 6, 2014 at 8:00 am | Permalink

    Dear John, Well said, and I would have thought unarguable. Do you ever receive serious comment from people (the BBC, the IFS – whatever that is – Balls and Clegg – nobody cares what Miliband thinks) explaining why and how they disagree? If not, how do they live with themselves? Why does the UK and the UK alone have so much of what the Americans call the do-gooders and the bleeding hearts brigade (the so-called need to be in the EU is related)? If you do receive replies, you never seem to share them with us. Norman Smith’s absolute nonsense was particularly egregious and he should be held to account–for a start there was no Welfare State in the 1930’s. THE problem has been of course that the UK wasn’t brought back to living within its means about four and a half years, and another colossal mountain of deficits and debt, ago.

    Reply No, they try to ignore the figures and the truth. I did, however, win the argument about the trend of public spending in the early years of this government, with the OPBR having to accept that it has gone up in real terms, when they forecast falls at the outset.

    • acorn
      Posted December 6, 2014 at 5:23 pm | Permalink

      Central government Total expenditure in the first year of this government (10/11) was £693 billion. This year (14/15), it will be circa £737 billion. If you apply a general deflator (circa 2.6% average over the period), the £737 billion should be nearer £767 billion for a “real terms” equal spend to 2010/11.

      Reply Your figures are wrong. The OBR confirms 1% per annum real growth in current spending. Labour cut cap ex.

  3. Leslie Singleton
    Posted December 6, 2014 at 8:23 am | Permalink

    Postscript–I wrote my few words above before reading Simon Heffer, which I agree totally with, today

  4. Ian wragg
    Posted December 6, 2014 at 8:25 am | Permalink

    How can we possibly balance the budget when your pals have just voted to borrow 13 billion pounds annually to spray at foreign regimes.
    Together with a £1 billion increase in EU contribution. Spectacular waste will characterise this and the last government with debts handed to our children and grandchildren. Have you seen what’s happening in Sweden? Be warned the natives are angry.

  5. Mike Stallard
    Posted December 6, 2014 at 8:28 am | Permalink

    “If we are to have a sensible debate about public spending ”
    We are not going to have this debate.

    Where it needs to be had is in Parliament, but that is showing every single sign of serious decay. I won’t go into the EU bit, but the London Metrosexual Bubble seems to be fairly dominant in every party, and even the buildings are falling to bits. Serious announcements are now made for the TV in various places other than were they should be debated. That, of course, means there is no real discussion – just what the leaders like best. What debate there is, is done by journalists and bloggers. Meanwhile the juggernaut rolls on and Mr Farage, who represents ordinary people, divides the conservative vote.

    I suspect that the Labour Party is probably pretty right – hasn’t the Coalition cut back hard on Public Servants? I thought I read somewhere that lots of people had been dismissed from their desks. (I like that: lots of people do not like it at all and call it austerity). The Labour Party, supported largely by the very Unions that represent these people, has made the loudest noise.

  6. Bryan
    Posted December 6, 2014 at 8:53 am | Permalink

    Tell that to the BBC

  7. nick
    Posted December 6, 2014 at 8:57 am | Permalink

    The state should have no borrowing or tax raising powers.Taxation is the tool of tyranny.It is organised crime.The national debt should simply be written off and then borrowing will be impossible as no bank in its right mind would lend to such a delinquent and fiscally incontinent state.You would not give a stranger control of your credit card so why would you give it to a bunch of parasitic wastrels in Westminster with a very dodgy 19th century collectivist ideology?!

    • Denis Cooper
      Posted December 6, 2014 at 1:58 pm | Permalink

      As the predominant income stream to pay private pensions comes from interest on the national debt I doubt that many pensioners would support your proposal that it should simply be written off.

    • Denis Cooper
      Posted December 6, 2014 at 5:29 pm | Permalink

      Basically you’re saying the state should not exist, there should be anarchy.

      • APL
        Posted December 6, 2014 at 8:21 pm | Permalink

        Denis Cooper: “there should be anarchy.”

        ‘Anarchy’ has got a bad press as it was associated with revolutionaries. People who wish to upset the normal self organising nature of human societies.

        People who prefer an anarchical organised society, simply do not agree that there need be a huge administration nor a self selecting political class ( AKA an aristocracy ) living off the ‘fat of the land’. We don’t need them, in actual fact, they need us.

        As we now see, the ability of the political class to destroy the value of money in a clandestine manner is being curtailed – simply because the more they do it, the less effective, indeed more counterproductive it becomes.

        Sooner or later, they will cause the very revolution they claim they are trying to avoid.

        • Denis Cooper
          Posted December 7, 2014 at 3:40 pm | Permalink

          If there is a country it needs to have a government.

          • APL
            Posted December 7, 2014 at 4:50 pm | Permalink

            Denis Cooper: “If there is a country it needs to have a government.”

            Then all we disagree on is the size and reach of the government.

          • Denis Cooper
            Posted December 8, 2014 at 3:05 pm | Permalink

            Well, some disagree that there should be a government at all, unless it is entirely funded by voluntary donations.

  8. oldtimer
    Posted December 6, 2014 at 9:09 am | Permalink

    There will not be the sensible debate you call for in the run up to an election or indeed any other time where climbing to the top of the greasy political pole is aim. In past comments others have rightly said that if this was the spending pattern of a private business with similar levels of debt the chances are it would not survive. It all rests on funny money, QE, and Osbrown economics. There will be a day of reckoning – the unknown is when that day will come.

  9. alan jutson
    Posted December 6, 2014 at 9:22 am | Permalink

    Thanks for the figures John.

    You seem to have confirmed my thoughts on the constant comparison of people using expenditure against GDP.
    Just like a company using costs against turnover.

    So GDP has Risen, but expenditure has not gone up by as much as it has simply shrunk in percentage terms.

    There have been no what we could call real cuts.

    But ask yourself who is to blame, given your government has used the word cuts on so many occasions in the past 4 years, is it surprising the media and people believe it to be true.

    The simple answer is there have been few cuts and the evidence is there because we are still running a day-day, year – year deficit.

  10. David Murfin
    Posted December 6, 2014 at 9:27 am | Permalink

    It is waste that needs to be cut, not expenditure per se.
    That means placing the decisions on what should be spent at a far more local level, where it is much clearer what it is really necessary to spend, and what can be done with less expense but little or no loss of benefit. If I had spent my money over the last 50 years following the national average pattern, I should be much worse off now.

    • Edward2
      Posted December 6, 2014 at 3:09 pm | Permalink

      I’m not so keen on local “democracy”, David.
      In many inner city areas it is shops, offices, restaurants and many other local businesses that pay large amounts in business rates but have no vote or say in what happens.
      In the area my company was situated the majority of voters (those that could be bothered to vote were less than 30%) didn’t pay council tax themselves as they were on benefits of one sort or another and so had little care for the Councils political policies other than a continuation of goodies for them.
      We had a perpetual Labour Council who a taxed borrowed and spent wastefully.

      I agree with you on waste which could easily be cut especially at local level.
      Emission free zones, nuclear free zones, building projects way over budget, IT projects way over budget, huge bad debts collecting council house rents, fat cat redundancy pay offs,consultants, junkets to far away places by Councillors and their partners, printing of their own “pravda” type newspaper at a huge loss, Council execs on half a million a year, etc etc

  11. Francis Lankester
    Posted December 6, 2014 at 10:11 am | Permalink

    A positive sign is that on many websites people have posted rebuttals of the “savage cuts” and “back to the 30’s” meme-with figures published in the Guardian.

  12. Leslie Singleton
    Posted December 6, 2014 at 10:26 am | Permalink

    If I understand correctly, Balls’s answer to the colossal (correct usage) borrowings is to borrow yet more in hopes that the Economy will grow further so that we can pay down the borrowings. How anyone, let alone some-one who wants to be Chancellor, can say that with a straight face I have no idea. It’s enough to put one off the idea of wanting growth at all.

  13. Denis Cooper
    Posted December 6, 2014 at 10:40 am | Permalink

    I don’t think you could lay it out much more clearly than you have done here, JR, but I don’t suppose it would make a blind bit of difference to journalists of the “cruel Tories making swingeing cuts to public spending” school even if they read it.

    And those commentators are not just at the BBC, you can hear the same thing on Sky and read it in many of the newspapers.

  14. Lifelogic
    Posted December 6, 2014 at 10:57 am | Permalink

    What the country really needed was huge state sector austerity and a release of the private sector from endless over taxation, over complex taxation, over regulation, uncompetitive banking, restrictive planning and general government mugging and inconveniencing.

    We got the complete opposite. The government rescued the bankers but allowed the bankers to continue to rip off and maltreat their customer appallingly. The government owned RBS being perhaps the worst offender.

    The biggest problem with the state sector is how little they deliver with the vast sums they spend and the sorts of stupid things they deliver. Trips to Mars, Augmenting the feckless, Stone Henge Tunnels, road blocking islands and traffic light, vanity operations, poorly run overseas aid, daft railway subsidies, HS2, idiotic green grants and loans, soft loans to the PIGIS, the huge EU bill, the BBC & other propaganda, the global warming exaggeration industry, electric car grants, very poor schools and lots of duff universities, lots of bureaucrats doing nothing much but plotting to mug motorists and fine people for any other reason they can find. Plus the counter productive wars on top. Now using MRCA/Tornado planes (that I used to work on some 30+ years ago). It seems most are mainly not even in full working order. Not to mention the “air” carriers with no aircraft.

    Lost of money spend avoiding liability in the NHS or rationing and delaying patients with tricks. Endless bureaucrat and over paid lawyers and few people doing anything useful at all. GPs you cannot get to see for over a week and then only for 5 mins and one medical issue!

    The reports on the 101 non urgent police number are entirely typical. 1 million people doing their duty trying to report things then just hung up by the state after over an hour – not even an answer phone saying something like: “sod off! The police don’t give a stuff about your crime report, the wait (of over an hour) will hopefully discourage you from ringing next time – piss of and good bye, ps bet your pension is not as good as ours is”
    The last think we want is extra crimes reported or something we have to act on mate.

    http://www.bbc.co.uk/news/uk-30294094

    • acorn
      Posted December 7, 2014 at 5:29 pm | Permalink

      OK JR, I think even the thick-as-a-plank Rednecks that comment on this site, have realised that “Lifelogic” is actually yourself. Doing the alter ego thing; Dr Jekyll and Mr Hyde; know what I mean.

      OK, you are an unabashed neo-conservative. I can understand your yearning for the conservative totalitarian state. The elimination of democratic institutions, like the electoral, parliamentary, and multiparty systems, that frustrate the goal of national greatness and the pursuit of super normal profits screwed out of the 99%. The 1% elite must survive at all costs, you see no alternative. Hence Lifelogic, your alter ego ( probably located offshore for tax reasons).

      I also have a dilemma. I have a wager on a conservative overall majority for next May. OK, this may seem foolish now, but it is not out of the question. The dilemma is having studied macroeconomics for the last five years, I know without a doubt, that another conservative government is the last thing the UK needs economically.

      Reply Of course Lifelogic is nothing to do with me.I am a believer in democracy and political as well as economic choice.

      • libertarian
        Posted December 7, 2014 at 9:53 pm | Permalink

        Acorn

        don’t (you ed)know that YOU are one of the 1%

        Oh no wonder you are so unintelligent you’ve been STUDYING macro economics, don’t make me laugh. Try ACTUALLY doing something rather than just thinking about it, then come back and call people names.

        Theory is absolutely useless in the face of reality. Some of us have ACTUALLY built businesses, actually operate in the real world of trade and really do have some hands on knowledge of “economics”.

        Your complete failure to understand the way that markets work and your juvenile socialist silliness banging on about 1% as if they really existed in a meaningful way etc ed

        • acorn
          Posted December 9, 2014 at 8:43 am | Permalink

          This from ONS. It doesn’t break down the top 1%, but there is data from the US that shows the vast majority of the net worth of the top 1%, is owned by just 24,000 families world wide.

      • acorn
        Posted December 8, 2014 at 7:45 am | Permalink

        Caution: the following paragraph contains flash photography!

        Acorn would like it to be known that no offence was implied to Lifelogic and that Acorn apologises unreservedly, if any such offence was, in fact caused. He also appreciates absolutely and transparently the enormous contribution Lifelogic’s spirited (if just a tad repetitive) comments add to the broad enjoyment of this website.

        No animals were harmed in the writing of the above paragraph.

        Lighten up guys its Christmas; goodwill to all politicians! 😉

  15. Bill
    Posted December 6, 2014 at 10:58 am | Permalink

    My concern is that public debate, especially that hosted by the BBC, always includes delusional spokespeople (usually from the Left) who somehow assume that macroeconomics is completely different from personal economics (there was an example of this on the Today program this morning). But borrowing is borrowing and has to be paid for, and that is the same at the macro level and the personal level. And borrowing is a cost. So all that is happening when we borrow is that we anticipate repaying from tomorrow’s income. If you keep doing this and you find you cannot afford repayments, you play tricks with the value of your currency by allowing inflation or printing money – which was what happened in the Weimar republic. And we know where that led after the 1933 election of a certain A Hitler.

    • Lifelogic
      Posted December 6, 2014 at 8:45 pm | Permalink

      Indeed the BBC/barmy left do think like that and have an endless stream of dodgy economists to support their line.

      Clearly macro economics is slightly different (in that you can have periods when you have a lot of surplus assets and people that should be put to work but only doing sensible thing.

      The way to do this is mainly to release the private sector and not do as governments usually do borrow money and piss it down the drain on pointless and often damaging drivel.

  16. Bert Young
    Posted December 6, 2014 at 11:11 am | Permalink

    One responder recently said that ” there were too many government departments ” , another observed ” the interference of government in the running of businesses – large and small , was a hindrance “, my local lock-keeper who was cutting a large hedge with a simple pair of hand clippers told me ” he could not use his electric cutters unless he had special training “. These statements were topped by the vicar in Sonning who was up a ladder a couple of years ago removing candles from the chandeliers – ” because the candle fat might drip on the congregation !”; Health and Safety had warned him a few days before. The chandeliers had never soiled anyone in all the years they had been there and no-one had complained .

    I am sure there are hundreds of further examples of idiotic interferences of one sort or another that responders are able to give ; add to this the over-riding bureaucracy of Brussels and we have a picture of expenditure levels that can be got rid of . The point I wish to make is, if there is a government department or an edict from Brussels ,someone somewhere ,is being paid in some condition of overhead costs making sure they are trying to justify their existence .

    We do not need to be saddled by extra government and a rigid attack should be enforced to rid ourselves of all its forms . One source has indicated a saving of £1.4 bn ; I suggest this figure is too small . Think of the benefits were we to be rid of them .

    • Lifelogic
      Posted December 6, 2014 at 7:47 pm | Permalink

      Surely the vicar removing the wax danger, was then caught by the working at heights directive or the failure to have ladder training or similar.

    • David L
      Posted December 6, 2014 at 9:11 pm | Permalink

      Bert, your posting reminded me of one day a couple of years back when I was ordered off a step ladder at work while cleaning out a blocked gutter. Told that I wasn’t trained for such a dangerous task, I found myself on a ladder course a few weeks later (shortly before I retired!).At the outset the trainer proclaimed that “there is no such thing as an accident. There is always someone at fault who can be sued.” So there, quite graphically, is the mentality and litigation hungry attitude that besets so much of our industry and services.
      This did make me wonder who could be sued if a driver has a heart attack, loses consciousness and his vehicle ploughs into a bus queue.

      • Excalibur
        Posted December 7, 2014 at 7:37 am | Permalink

        Your comments are interesting Bert and David L. They put me in mind of the times I put myself in personal danger without expecting additional remuneration or “counselling” or any other consideration for that matter. They included the disarming of a mentally disturbed field assistant in the Malayan jungle; defusing unexploded grenades on the training range; the de-icing of FM antennae at the top of an 800 foot mast and an overnight drive to the Nyika Plateau (see ‘Journey to the Interior’ by Laurens van der Post) to apprise the then Governor, Sir Glyn Jones of the death of President Kennedy. One had a job to do and just got on with it ….

      • alan jutson
        Posted December 7, 2014 at 8:47 pm | Permalink

        David L

        According to health and Safety, to work on a ladder safely the ladder should be tethered securely to the wall with some sort of suitable eye bolt.

        Problem is you need to use a ladder to fix it in the right position.

        They have since said that an alternative is to secure it to the floor tethered with a suitable bolt, but this does not work on grass or soil, and many customers are not happy when you want to drill a hole in their new patio

        Thus the last recommendation I heard (when I ran my own Construction company before retirement), was that a ladder should never be used unless there is absolutely no alternative. !!!

        Thus scaffold towers (still to be secured) or full scaffolding to be erected.

        I am all for safety, but clearly this is absolute nonesense.

  17. acorn
    Posted December 6, 2014 at 11:24 am | Permalink

    The ONS does a Statistical Bulletin called “Public Sector Finances”. Table PSA1 gives a summary of debt and deficit under the new rules, both with and without the public sector banks. You can see a significant difference between the two. The rest of the PSA Tables go into the details. Note that Lloyds Bank, is now back in the private sector after the government sold some of its shares. http://www.ons.gov.uk/ons/dcp171778_386141.pdf There is also the “Economic Review” http://www.ons.gov.uk/ons/dcp171766_387913.pdf . Should be compulsory reading in sixth form economics.

  18. ian
    Posted December 6, 2014 at 11:46 am | Permalink

    Yes but all that money is not going to the people is it, most of it going companies, the people are getting the cuts while companies and EU , IMF, oversea aid and the rest are getting the peoples money also people coming in to the country. The only people getting cuts in money and housing are the English people that were born here.

  19. Denis Cooper
    Posted December 6, 2014 at 11:56 am | Permalink

    However, to pick up on a fair point made by Peter Martin a couple of days ago, perhaps you need to go further and refine your data by adjusting for the population growth mainly brought about by the government’s policy of allowing and encouraging mass immigration, as well as for inflation of course.

    I don’t think you could reasonably be expected to go even further by analysing how the need for increased public spending has been affected by the increase in certain segments of the population, but a crude adjustment for the increase in the total population should not be too difficult, as follows:

    The population growth rate has risen from about 0.2% pa in 2002 to nearly 0.6% pa over the past five years, so just to maintain the same per capita spend the amounts would have to increase by about 3%, which is about a third of the actual 10% increase in total spending and a quarter of the 12% increase in day to day spending.

    Of course it still remains the case that there have been no “colossal” or “massive” cuts in overall public spending whether on a total cash basis or a total real basis or a per capita basis, outside the fevered imaginations of left wing commentators in the mass media, and especially in the broadcast mass media.

    Indeed it would only take the OBR to have underestimated 2019 public spending as a proportion of GDP by 0.8% for that to be the lowest since Gordon Brown was extolling the virtues of prudence in 1999-00, when that statistic turned out as 35.9%, rather than the lowest since George Orwell was writing “The Road to Wigan Pier”, see the chart at the end of the article here:

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

    Oddly enough, this very point was actually touched upon in the OBR press release, with that chart, but has been widely ignored by journalists:

    http://budgetresponsibility.org.uk/wordpress/docs/141203-Dec14-EFO-PN-web521.pdf

    “Total public spending is projected to fall to 35.2 per cent of GDP in 2019-20, taking it below the previous post-war lows reached in 1957-58 and 1999-00 to what would probably be its lowest level in 80 years.”

    1957, when Macmillan was quite correctly saying “most of our people have never had it so good”, or 1999 when Brown was boasting about the economic success of the Labour government and saying “I will never let the deficit get out of control” – were those such terrible times, then, with public spending below 36% of GDP?

    • petermartin2001
      Posted December 6, 2014 at 8:55 pm | Permalink

      We’d all be happy with different levels of public spending providing the economy was working well. Unemployment was less than 2% when Macmillan make his famous remark. It it is quite legitimate to argue for various levels of State involvement in the economy according to political preference. But, that’s not what is happening right now.

      The problem, at present, is that it is just about impossible to decouple those arguments from the issue of the government’s deficit spend. When Gordon Brown made his remark he’d actually produced a surplus. It was the same story in the USA where Bill Clinton’s government had produced a surplus too. Politicians on both sides of the Atlantic boasted about their economic prowess.

      The last time a Conservative chancellor produced a surplus was in the late 80’s when Nigel Lawson managed it. It’s not necessarily a good sign. Unless the economy is running a large trade surplus, bringing money into the economy, it is an indication that over-borrowing is occurring in the private sector. New money is being created by that borrowing, which is spent and respent boosting government revenues, but leaving the debts behind. If money is also draining out of the economy to pay for imports, then sooner or later it all comes crashing to a halt and bust follows boom as indeed it did in the early 90’s.

      The Clinton and Brown surpluses caused similar problems, but as the boom of the late 90’s was largely on dotcom shares it was a simple matter to keep the economy moving by encouraging the private sector to once again overborrow on housing to take up the slack. It just delayed the inevitable as the crash of 2008 showed.

      From an accounting POV, government deficits are necessary to ‘balance the books’. If the UK wishes to run a trade deficit of 4% and if savings in the private sector are 2% then the deficit needs to be 6%. Any attempt at a forced reduction won’t reduce the size of government’s share of the economy but it will reduce the size of the economy as whole as we’ve seen happen many times, particularly and most recently, in the Eurozone.

      Is that what any of us, regardless of political inclination, really want?

      Reply YOur fascination with the simple point that sector balances have to sum to zero leads you to propose that the government sector should always be the one which is in deficit to allow the surpluses in the others. There is no reason why this should always be so or why it is a good idea. Like all sectors, the government has to avoid overdoing the borrowing as it too can get into difficulties paying the interest. You might also benefit from splitting the private sector into business and individuals as people usually do.

      • acorn
        Posted December 7, 2014 at 8:55 am | Permalink

        Give it up Peter, you are flogging a dead horse on this site. Neo-liberal Conservatives, have no understanding of sectoral balances and the fact that they MUST always sum to zero in a FLOATING FIAT CURRENCY economy. Conservative party economics is still based on a fixed exchange rate Gold standard.

        They also have no concept of a currency ISSUER and a currency USER in a sovereign floating fiat currency economy. Or the fact that the Treasury and its Central Bank, as the currency issuer can never run out of Pounds. Just like a scoreboard at a cricket match, never runs out numbers to put the score up.

        The government never has to borrow its own money, but it chooses to do so by issuing interest bearing Gilts. Why would the Treasury with an unlimited bag of Pounds to issue as it wishes, borrow back Pounds it had previously issued (spent into existence), and pay interest on it???

        As you say Peter. If the private sector – households; corporations financial and non-financial and the rest of the worlds exporters; want to SAVE financial assets in POUNDS Stirling, THEN THE GOVERNMENT HAS TO RUN A DEFICIT POUND FOR POUND.

        Peter, there are guys at the ONS and Treasury saying Osborne is redefining economic madness EU style. This, while having his own currency to spend to use up unemployment / output gap, while holding 3 – 4 % inflation.

        • Denis Cooper
          Posted December 7, 2014 at 3:59 pm | Permalink

          And some people still have no concept of the “independent” Bank of England being the issuer of the currency, not the Treasury which does not have “unlimited bag of Pounds to issue as it wishes”, and thank goodness for that or all of the pounds that had already been issued and were owned by everybody else would be recklessly devalued. In fact, on a CPI basis they have already been devalued by about 8%, over and above the devaluation implied by the 2% inflation target, by the Bank issuing £375 billion of new money and lending it to the government to fund its deficit. And you may recall that it was not the neo-liberal Tories but the socialist Gordon Brown who was so keen to implement that separation, legal and practical, between the Bank and the Treasury, even though it was the Tories who agreed to the Maastricht Treaty which requires it. But these discussions have now become as tiresome as other earlier discussions about who “really” owns the Bank.

          • APL
            Posted December 7, 2014 at 4:52 pm | Permalink

            Denis Cooper: “.. thank goodness for that or all of the pounds that had already been issued and were owned by everybody else would be recklessly devalued.”

            How would you describe the devaluation of the pound sterling since 1914?

          • acorn
            Posted December 7, 2014 at 6:14 pm | Permalink

            Denis, The Treasury and the Bank of England are one and the same. Operationally the Treasury does not have a balance sheet but the BoE does. This fact has been recognised under the new ESA10 rules. The Treasury has a gross interest debt of £48.1 billion this fiscal. £12.2 billion of that is the Treasury paying interest to itself via the APF / BoE caused by QE.

            Hence, the actual interest is £35.9 billion. This means that the government has removed £12.2 billion in spending power from the private sector pension funds and insurance funds. This is supposed to make those funds go out and invest in the next potential Google or Facebook. It hasn’t worked. It won’t work in the EU either when the ECB tries €1,000 billion QE.

            All the best Acorn.

          • petermartin2001
            Posted December 8, 2014 at 1:14 am | Permalink

            Dennis,

            The idea that the Central Bank should be independent is largely German in origin. In Britain the idea was that the BoE should be accountable to a democratic government. Is one more socialist that the other? You decide.

            No-one thought to challenge the Germans on the point. They seem to have made it so often they’d almost convinced themselves of its veracity. It’s all nonsense. For years the Bundesbank manipulated the exchange rate of the DM downwards to keep German products internationally competitive and enable Germany to maintain an export surplus.

            And it did that all on its own, totally independently, and with no references to the wishes of its own Government?

          • Denis Cooper
            Posted December 8, 2014 at 3:07 pm | Permalink

            I would describe the devaluation of the pound sterling since 1914 as appalling but probably largely unavoidable.

          • Denis Cooper
            Posted December 8, 2014 at 3:09 pm | Permalink

            Clearly the Treasury and the Bank of England are NOT one and the same, that is your first mistake.

          • Denis Cooper
            Posted December 8, 2014 at 3:22 pm | Permalink

            Peter, it is indeed the post-war German model, and one can well understand why their experiences with hyperinflation before the war drove them towards designing a model to prevent the German government simply printing as much money as it wanted to spend.

            Whether we should have copied them is another matter, but I note at this point that in the UK democratic accountability has not extended to a single Commons vote to explicitly authorise the creation of any of the tranches of new money under the QE programme, basically MPs left it to two successive Chancellors to make all the decisions and just inform them afterwards.

            And as I have mentioned on a number of occasions we may not have an exact copy of the German system, because UK law does provide for both Houses of Parliament to agree to the suspension of the independence of the Bank of England with respect to monetary policy; however those reserve powers were never invoked.

        • libertarian
          Posted December 7, 2014 at 10:00 pm | Permalink

          Nice one Acorn

          Fail. Fiat means exactly the opposite of zero sum and as I’ve told Peter and now you a number of time we DO NOT have a zero sum economy .

          If you were in any way right about the role of the Treasury and BoE then printing their way out of the problem would have worked. It doesn’t it won’t precisely because we DO NOT HAVE a zero sum economy

        • petermartin2001
          Posted December 7, 2014 at 11:57 pm | Permalink

          I largely agree -except to say that the reason the Government issues bonds rather than just print more money is to reduce the level of bank reserves and help the BoE hit its interest rate target.

          The concept of sectoral balances is simple, as JR points out, but it is powerful too. It explains why the EZ economies are in such a mess. They are attempting the impossible. It explains why, no matter how hard Governments try, reducing their deficits never quite works out as planned. The last few postings from Dr Redwood show that clearly enough.

          I wouldn’t disagree with all that JR wrote in his reply. He questioned the idea that the Government should be the one always in deficit. In the importing countries like the USA and the UK that is the case, and has to be the case. But in the exporting countries it needn’t be. The governments of Singapore and Germany can be in surplus by making the Rest of the World be in deficit to them.

          The other alternative is to make the private sector run the deficit. That can happen for a short time, when the PS borrow, or over borrow but it isn’t a solution for more than a few years. After that the debts accumulate and the borrowing has to stop.

          So the sensible thing is to tailor our economy to be more like Germany or Singapore if we don’t want the government to be in deficit. That’s going to take a time – probably over a couple of decades and will require bipartisan support to make it happen.

      • Denis Cooper
        Posted December 7, 2014 at 3:44 pm | Permalink

        The fact remains that but for less than 1% the OBR projection would take us back only to the halcyon days of Gordon Brown, with public spending at merely 35.9% of GDP, not to the bad old days of the 1930’s.

  20. Ray Veysey
    Posted December 6, 2014 at 12:01 pm | Permalink

    Very soon you will all be called upon to go through the divisions over foreign aid, some conservatives maybe yourself will vote against it, as they should, it is a massive misappropriation of funds we have to borrow to pay out. Once again they will be proved to be powerless, and then they will meekly return to the conservative benches their protest over. Wouldn’t it make a far stronger point if they went and sat with Messrs Carswell and Reckless, wouldn’t it prove that there is a way out of this criminal determination to install the regions of western Europe that we have seen on various sites in the last few days, and that Kenneth Clarke has called for. Or is the illusion of a referendum still being sucked as your political dummy until you sleep through the horror

    Reply Only 6 MPs voted against. Mr Carswell did not vote against. I guess he also realised there was an overwhelming majority for this proposal in the present Commons.

    • alan jutson
      Posted December 6, 2014 at 2:09 pm | Permalink

      John

      You have mentioned on a number of occasions in the past that MPs (including yourself) do not vote against some debates, because they know the argument has already been lost.

      I simply do not understand this reasoning, if you do not agree, why do members still not vote on their thoughts to underline their principles.

      Aware the vote may not make a difference, but at least we would get a truer picture of members thoughts and feelings.

      Surely there is not a limit on the number of times MP’s can vote against something for fear that their negative votes or abstentions will run out, or is there.

      Reply No there is no theoretical limit on how many things you can vote against. Noris there a limit of the number of times you can defy the whip. However,if you are elected for a particular party it is not what your voters wanted if you vote against the party whip all the time.

      • alan jutson
        Posted December 6, 2014 at 8:30 pm | Permalink

        I understand that there would be no point in being in the Party if you defied the Whips on every occasion, But perhaps our system has too much control by the whips for its own good if the votes of Mp;s are not a true reflection of their thoughts and opinions

        I guess from your comments MP’s tend to pick their battles and save their ammunition.

  21. Denis Cooper
    Posted December 6, 2014 at 12:03 pm | Permalink

    Off-topic, this is especially for the delectation of lifelogic:

    http://euobserver.com/institutional/126808

    “Women in EU institutions get own ‘caucus'”

    Just another small burden on UK taxpayers.

    • Leslie Singleton
      Posted December 6, 2014 at 2:46 pm | Permalink

      Denis–Given, as I have said thousands of times (that’s when John gives his imprimatur), that women are now no longer just equal but, by diktat, identical to men–take note that they are now to be allowed to fight on the front line (there’s progress for you)–I don’t think a women’s caucus should be allowed, But bit like Women’s Hour I suppose.

      • Lifelogic
        Posted December 6, 2014 at 8:06 pm | Permalink

        Indeed but the BBC’s Women’s Hour is always very, very unintentionally funny. With endless neurotic’s and political loons wittering on about glass ceilings and often obsessed with their outfits, body image & personal appearance. The men they get on to give supposedly a man’s opinion are usually a scream too – where do they find such odd people. Very funny when they get politicians on too.

        They are never quite sure if men and women are identical or if woman are just much better – at multitasking, communication, languages, empathy, showing emotions, going to the doctors ………….

        All then topped of with a nice recipe. Usually “explained” to the listeners as if they were all slightly backward six year old’s – who had never cooked anything.

    • Lifelogic
      Posted December 6, 2014 at 3:26 pm | Permalink

      Indeed yet another burden.

      I am, of course, fully in favour or having more women in top positions so long as they are appointed on merit. Since however fewer woman choose to apply for these jobs, or are prepared to make the lifestyle sacrifices needed, or have the relevant experience, it clearly follows that you can only have equal numbers by having very severe and active discrimination against capable men.

      I note that in Further Maths, Maths, Physics, Computing, Economics at A levels on average roughly 70% of the candidates are male (so there are about 2.3 as many as males as females). This is clearly just due to personal choice and preference. How can women then expect to be equally represented in related areas at higher levels later in their careers?

      • Leslie Singleton
        Posted December 6, 2014 at 7:22 pm | Permalink

        Lifelogic–And of course as regards the Military, and a fortiori the Front Line, it is without doubt the case that women are weaker so cannot carry or lift as much as men (for example a wounded comrade) , cannot march as fast because of smaller strides, have the monthly cycle including hormonal changes to contend with and have even very recently started to complain that their hands are not big enough to grasp a standard handgun. Also, like it or lump it, they are going to get pregnant as has happened a lot in Afghanistan. This is absolutely not to denigrate women, rather the opposite in that they should be being protected.

  22. Max Dunbar
    Posted December 6, 2014 at 12:36 pm | Permalink

    The BBC is doing its best to stoke up the false grievance of CUTS and no doubt the (activists ed) of street protest, the PCS and Unison will be out in force.
    This will be a theme continued all the way to election day and you can expect the ‘Scottish government’ to support the ultra-leftists against the Tory enemy in England. It would be surprising if these militant unions do not demonstrate in Glasgow as well as London even though the financial arrangements for the state sector differ markedly here. We already have a permanent Communist Party street presence in Glasgow. Every Saturday there is a small marquee and stall in Buchanan Street complete with a number of large hammer and sickle flags which fly ostentatiously from it.
    Meantime, we hear not a word from the Conservative Party in Scotland. Does it, in fact, have any spokesmen? Nor do we hear from UKIP who have one MEP. Have these parties been too intimidated to speak out? Or do the media deliberately ignore them?

    • Lifelogic
      Posted December 6, 2014 at 8:08 pm | Permalink

      Indeed the last thing we need is Miliband and the state sector unions in power yet again. Perhaps it will remind them of the problem and make then vote against it.

  23. Jagman84
    Posted December 6, 2014 at 1:38 pm | Permalink

    Agreed. If my neighbour has a wage rise and I do not, I can hardly say that my wage has been cut. That is essentially what media commentators have been saying.

    • Lifelogic
      Posted December 6, 2014 at 3:35 pm | Permalink

      Well they will clearly twist it any way they can. Just as the Tories use dishonest expressions like we are “Paying down the Debt” and will be “in the Black” by 2018.

      The difference from the 1930s to now is the government is doing countless things it should not be doing at all many that are actually pointless or even damaging. Also the state sector is hugely over paid and pensioned relative to the private sector. This is made even worse by the increases longevity of the recipients of these defined benefit, index linked, over generous state sector pensions.

  24. lojolondon
    Posted December 6, 2014 at 1:50 pm | Permalink

    John, you are looking in the wrong place. The reason for the media response to the Conservatives is not in the facts, it is in the facts that the Biased BBC drives the agenda, and they see themselves as the official opposition to the Conservative Party. I cannot believe that Cameron has taken no action against the BBC during the last 4 years, he has certainly lost his chance until after the next election. Unfortunately, by waiting until too late and trying once again to deceive the public on immigration and most importantly the soverignty of parliament, he may have lost his last chance. I console myself with the thought that in another 5 years time, UKIP will be far stronger if there is a Labour government than a Conservative government, so perhaps there is still time to save our beloved nation.

    • Leslie Singleton
      Posted December 6, 2014 at 2:50 pm | Permalink

      Dear lojo–Sorry, but you can unfortunately only mean what’s left of our beloved nation. Remember when people used to say, “But this is England!”?

    • Lifelogic
      Posted December 6, 2014 at 3:49 pm | Permalink

      Indeed the Biased BBC do drive the agenda as the official opposition to the sensible wind of the Conservative Party (and even more to UKIP).

      They do however love the John Major, Cameron and Ken Clarke wing of the Tories and the wrong on everything Shirley Williams.

      In short they are pro EU, pro green crap, pro ever bigger government, pro ever more taxation and pro ever more uncontrolled immigration.

      The BBC have an endless stream of people like Jo Brand, Russell Brand, Jeanette Winterson, Billie Bragg, Baldrick, Toynbee and other lefty comedians, actors, Gardian journalists and pop stars. None of whom have anything much that is remotely coherent, rational, numerate or sensible to say.

      I see Nigel Farage on Question Time next week will have to put up with Russell Brand. Why?

      • Leslie Singleton
        Posted December 7, 2014 at 6:27 am | Permalink

        Answer is they want a spectacle not a debate

    • BobE
      Posted December 6, 2014 at 4:47 pm | Permalink

      “I console myself with the thought that in another 5 years time, UKIP will be far stronger

      I agree, also in another 5 years the truth will be clearer. I just hope its not to late. Small possibility that this time UKIP can form a coalition with a Cameronless conservative party. (Ukip stand to win more seats than the LD)

  25. David Tomlinson
    Posted December 6, 2014 at 1:52 pm | Permalink

    The key comparator is GDP per capita. Roughly speaking that increase in recent years has been no more than the increase in population, mainly immigration. So nobody (on average) is any better off.

    This tells you two things: the UK’s appalling productivity, worsened by cheap foreign labour that does not pay for its long term costs (schools, hospitals, transport etc), and that the percentage State spending per capita is decreasing more than the headline figure – which I think is a good thing.

    JR has been a voice in the wilderness in his repeated attempts to slay the dragon “cuts”. Could he now write to the BBC demanding they never use the word again?

  26. Duyfken
    Posted December 6, 2014 at 2:25 pm | Permalink

    Two points – perhaps just questions:

    1. Does this not show clearly how badly Osborne has performed? At the time of the last GE, our economic situation looked so bad, the result of Brown’s profligacy, the country was ready to bite the bullet and endure cuts to government spending. Despite a following wind, Osborne needlessly tacked each way to avoid what was clearly necessary.

    2. Would it be more transparent were the figures to be exhibited per capita? That may give a more meaningful comparison of the variations over the years, and show the effects (if any) from immigration. Indeed (Lifelogic’s favourite word), it would be useful to project what the figures would have been had net immigration been nil.

  27. Edward2
    Posted December 6, 2014 at 3:16 pm | Permalink

    A pet hate of mine is the cheek of calling next years budget a “cut” when you have more money than last year but it hasn’t gone up as much as you originally asked for.

    Locally politicians have been moaning about 20%+ cuts.
    But if you look at the actual budget figures you see they are getting more money than last year.

  28. petermartin2001
    Posted December 6, 2014 at 3:19 pm | Permalink

    The public not only feel the effect of spending by national government, they also feel the effect of spending by local government. Unless they are have some expertise in how government works, they won’t be aware which is which, or if the cuts, which they know full well have occurred, are a result of what has happened at local or national level.

    Their disquiet may well be the result of cuts at local level. Whereas national government is not revenue constrained in its spending, local government certainly is. Quantitative Easing and other extraordinary financial measures are not applicable to them.

    Underlying all this is the state of the economy. When it is doing well the electorate will be happy and there will be no need for politicians to produce detailed figures. If the economy is doing badly, then no amount of justification will persuade the electorate that it is not, somehow, government’s fault.

    It is indeed doing badly as the following graph from the Office of National Statistics shows. The public have started to show they have had just about enough of Labour blaming the Tories, and vice versa, and they are looking around for other alternatives. That’s the SNP in Scotland and its leading to the rise of UKIP in the UK.

    So the real question is: What is the government doing to fix the problem? All major parties are advocating ‘austerity economics’ of varying degrees of severity. We’ve seen enough to know, both in the UK and the Eurozone, the result of that kind of thinking which is a return to the thinking of the 1930’s. It look a major war and 60 million deaths to get the world out of that rut. Hopefully we’ll be a bit smarter about things this time!

    http://www.ons.gov.uk/ons/resources/2013q1m2quarterlygdphistory_tcm77-311863.png

  29. waramess
    Posted December 6, 2014 at 4:28 pm | Permalink

    Debt is spiralling out of control the current account is getting larger and still the Conservatives want to refute the comment that they are reducing government spending.

    You are right but why is it seen as being a good thing? Osborne was quick to insist he would match Browns spending plans. Was this a good thing?

    I think it is about time that the parties stopped jostling for partisan gain and started implementing policies that are good for the country.

    Government spending is always at the expense of the productive sector and is always wasteful. Demand side economics has very clearly failed and instead it has fuelled bubbles and sucked in imports.

    Try embracing what the socialist press are accusing you of and present the people with a sound explanation. Osborne’s last Autumn statement is a complete nonsense delivered to keep the right wing quiet. He will not shrink the state and it will need someone else to do so either sooner and voluntarily or later under duress

  30. Iain Gill
    Posted December 6, 2014 at 5:08 pm | Permalink

    by 2010? we all going in a time machine backwards?

  31. David Edwards
    Posted December 7, 2014 at 2:51 pm | Permalink

    I wanted to make a point but Dennis above has already made it that it is per capita spending as a proportion of GDP that seems be a more significant guide. If it is true that there has been the best part of 1 million people who have moved to the UK in the last five years and that overall spending has increased less commensurately then I see it as a good thing, provided it is a reflection of improved efficiency and that spending is focused on those that really need it.

  32. Lindsay McDougall
    Posted December 8, 2014 at 4:19 pm | Permalink

    Since the overall objective is to reduce the fiscal deficit to more reasonable proportions, I should point out the two elephants waiting in the wings.

    The first is that nobody has proposed bearing down on the amount of money to be spent on the retired elderly. Indeed, nobody has even proposed bearing down on the amount per capita to be spent on the retired elderly, in spite of the fact that the number of over 65s is set to increase until at least 2026, and probably beyond. The Conservative Party especially is in denial.

    The second is that income tax is not yielding enough money for a reason that was both predictable and predicted. If you increase the threshold at which income tax is paid, you undermine your revenue unless the standard income tax rate is raised. The lower threshold has been raised from £7000 to a projected £12500. In order to ensure that a person on £40000 per annum pays the same total amount of income tax, the standard rate would have to go up from 20% to 20% x (40000-7000) / (40000 -12500), that is to say to 24%.

    The practical point is that unless public expenditure continues to be restrained, ordinary people will have to pay more tax. There aren’t enough rich people around to rely solely on them.

    So what would the yield be to HM Government if the standard rate of income tax were to be raised from 20% to 24%, given a tax threshold of £12500. Say there are about 15,000,000 workers in the middle income category earning an average of £25000 each. Then the extra income tax raised would be 15,000,000 x (25000 – 12500) x 4% = £7.5 billion, definitely worth having if you are Chancellor.

  33. Stevie
    Posted December 8, 2014 at 10:59 pm | Permalink

    BBC-Labour have upped their campaign of lies; it will only escalate until election day. If by some miracle the Tories get a majority, the first thing you must do is privatise the BBC. Otherwise they will lie and lie until anyone right of centre is seen as beyond the pale and banned from adopting children, or running a public sector organisation, or running a major charity, or working in a supra-national body or….. hang on……

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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