The 5 year Coalition plan and the deficit

In 2009-10, Labour’s last year, the state spent £669bn and collected just £479 billion in taxes. The deficit (after allowing for other income) was more than £150 billion. That represents spending of £10,437 for every man, woman and child in the country, average borrowing per person of £2340 in a single year and average tax per person of £7472. These figures are averages including children.

In 2014-15, the Coalition’s last year, total spending reached £737.1bn, total taxes £602.4bn and borrowing was down to £87.3bn. That is £11,497 of spending per person, £9,391 of taxes per person, and £1362 of additional borrowing per person.

How does that compare with plan? The spending is exactly as forecast in 2010. The tax revenue is £54 billion less than forecast, so the borrowing is up on original forecast.

How does 2015 compare with 2010? Spending is up by £68 billion or £1060 per person, tax is up by £122.7bn, or £1914 per person, and the deficit is down by £63 billion or just under £1000 per person.

All who wish to debate the UK economy and austerity should start by examining these figures. The official statistics show us that real public expenditure rose a bit under the Coalition. Over the last five years public spending has made a small positive contribution to economic growth and output. It has not reduced or slowed our economy as some have argued.Welfare spending has risen, despite a fall in unemployment, mainly owing to upratings of benefits.

The main tax rise has come from the increased rate of VAT and from increased transactions in the economy boosting VAT receipts more. Income tax revenue is only slightly up, as natural gains from more output have been reduced by taking 2.5 million people out of tax altogether and by the 50% rate in place for part of the period.Over the five years more than an extra £500 billion or £7800 per person was borrowed. It is difficult to believe the state could have borrowed much more without triggering higher interest rates and a loss of confidence in financial management.

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83 Comments

  1. Posted April 24, 2015 at 5:43 am | Permalink

    What about capital account spending though?

    Given “It is difficult to believe the state could have borrowed much more without triggering higher interest rates..” would a vote for Labour now mean higher interest rates sooner and so a better deal for savers (as you have called for hitherto)?

    • Posted April 24, 2015 at 2:17 pm | Permalink

      Based on your figures I pay£2000 a year more in tax. Not the 80/20 percent promised. Nor the misleading we have no plans to raise VAT! And for what to throw away on overseas aid! Or to throw away at the EU every time it demands another billion or two!

      It appears Meacher was correct Darling reduced the deficit more in the last two years than Osborne in five years!

  2. Posted April 24, 2015 at 5:47 am | Permalink

    In other news, I see your St George’s day wish has been granted by Mr Cameron, but rather spoiled alas by him professing “we do not want an English parliament”.

    Reply I don’t want an expensive new building and lots more politicians either.

    • Posted April 24, 2015 at 7:32 am | Permalink

      @Reply – But you are happy to fund the expensive buildings and extra politicians in Scotland, Wales and Northern Ireland, so why not England? As it is you are doing things in piecemeal fashion with devolution to London and now Manchester.

      Over-commiting and under-delivering is not the best way to treat or win customers.

      • Posted April 24, 2015 at 2:21 pm | Permalink

        Reported how Junker had £220,000 refit of his office! Two EU parliaments rather than one not to upset the French! Remember Cameron was going to stop the £90 million being spent on Strasborg, but failed. Now he will not create an English Parliament, even though he could use the same building at Westminster. False words last October on the steps of Dowing Street, same old same old. You cannot believe a word Cameron says. Always putting foreign people before his own constituents and countrymen.

    • Posted April 24, 2015 at 7:45 am | Permalink

      I see. So where is the proposal to give Scotland equal treatment, running it with Westminster MPs via a H of C committee, abolishing MSPs and selling off its extravagant building?

      • Posted April 24, 2015 at 11:18 am | Permalink

        Exactly.

    • Posted April 24, 2015 at 2:20 pm | Permalink

      But there would then be a case for reducing the total number of politicians in the UK Parliament, both chambers, to reflect its reduced workload once politicians in the English Parliament were dealing with the devolved matters, and it would become possible to sell off most of the UK Parliament estate outside the actual Palace of Westminster, and perhaps also some of the UK government buildings in London, to fund the new buildings for the English Parliament and government which could be located in a cheaper area nearer to the centre of England.

    • Posted April 24, 2015 at 3:39 pm | Permalink

      JR wrote

      Reply I don’t want an expensive new building and lots more politicians either.

      Neither do we so replace the House of Lords with an English parliament and replace the appointed donors, celebs and failed retired politicians with elected ones.

      Job done. Really simple and its democracy too which is novel for this country

  3. Posted April 24, 2015 at 6:21 am | Permalink

    So why did the Tories borrow so much, only to waste so very much on green crap subsidies, hs2, over regulation of almost everything and endless other pointless government waste and misdirection. Even the absurd Swansea “lagoon” it seems.

    I see that Nick Clegg vows to end public sector pay cuts. Why? The state sector, with pensions included, are remunerated at about 150% of the private sector who fund them. I see little evidence that many of these people are worth 50% more. Many clearly do nothing but positive harm, why does he not vow to end the public sector private sector pay & pensions gap instead?

    They also take more sick days, retire earlier, get larger pay offs and work fewer hours.

    I know some are excellent and work very hard in very demanding jobs but on average they do not. HMRC cannot even answer the phone and even when they do rarely have got a clue.

    • Posted April 24, 2015 at 10:37 am | Permalink

      HMRC is doing much less now that businesses are filing online monthly, processes and technology must have reduced staff numbers, buildings and all associated costs so I wonder how much less the tax department costs compared to two years ago.

      This has all cost every business in this Country a considerable sum in training, new software etc. you’re correct when you say you can’t get through to speak to a human.

      When public sector compare wages this can only truly be done when they are in NEST the same as every other worker in the Country.

      • Posted April 24, 2015 at 10:38 am | Permalink

        Oh with the new cap that the Conservatives have implemented affected the highest earning also.

    • Posted May 3, 2015 at 12:03 pm | Permalink

      NHS workers such as nurses and porters as well a council workers are on 50% more? You repeat these lies again and again, many are on little more than the minimum wage with a large number of vacancies being unfilled due to low pay in the NHS.

  4. Posted April 24, 2015 at 6:59 am | Permalink

    On a different but ever so related point I wonder what proportion of the country have much or any idea how big a trillion is. It is of course shorter to say and write that’s true but that apart we do not do ourselves a favour by using it. Even knowing the definition doesn’t go very far. There is a big temptation to think, It’s only a couple of them–it’s not as if there were lots. A trillion seconds is longer than recorded history. At least we should not need quadrillion for a while.

    • Posted April 24, 2015 at 7:33 am | Permalink

      Indeed.
      If you had a machine that produced a one pound coin every second, how long would it take to make 1 trillion (meaning 1,000,000 million) ?

      5 years ?
      100 years ?
      1,000 years ?

      Actually – in round figures – 31,690 years !!

      • Posted April 24, 2015 at 12:44 pm | Permalink

        ” 31,690 years “

        Why would Mr Osborne want to mint so many trolly tokens? He can just print £50 notes, they much more useful for lighting cigars with. :/

    • Posted April 24, 2015 at 9:08 am | Permalink

      A trillion seconds is longer than recorded history.

      Yes , you’re right.

      But, if we add up the total national debts of all the world’s countries they total to nearly $61 trillion dollars.

      http://www.nationaldebtclocks.org/

      What does that mean? We owe the money to Mars? How does that relate to the number of seconds of recorded history?

      Reply It means governments owe the money to the many people who lent it to them.

      • Posted April 24, 2015 at 12:03 pm | Permalink

        UK Governments debts are part of the portfolio all our pension funds invest in.
        They are low interest, but solid forms of investment.
        We have confidence in them paying interest to us and eventually repaying us because of the way the UK Government conducts itself.
        We look at them just as lenders look at us as individuals, when we want a mortgage.
        And that is why we have confidence in the currency.
        Would you choose to invest in any other badly run, unstable nations instead

        • Posted April 24, 2015 at 5:21 pm | Permalink

          We have confidence in them paying interest to us and eventually repaying us because of the way the UK Government conducts itself.

          Reading some of the comments on this blog, about the way politicians and governments conduct themselves, I would say that’s highly unlikely.

          The simple fact is that the US and UK governments will never ‘repay’ all the money they have ‘borrowed’. They can only do that by taxing away all our financial assets which would of course mean that the economy would cease to function. The UK and US governments are not bankrupt as many seem to think. Even Japan which has a larger debt to GDP ratio than Greece, (which IS bankrupt BTW) is not bankrupt. Japan has its own currency. Greece does not. Anyone wishing to open a Yen account with the Japanese government knows they can never run out of Yen and that their investment is perfectly safe.

          • Posted April 25, 2015 at 7:32 am | Permalink

            They repay just like we do.
            By installments.
            Helpd by inflation and interest rate reduction.
            You may think they will never repay but many disagree with you as they continue to buy Government securities.

            Have the UK or USA ever defaulted?

          • Posted April 25, 2015 at 1:19 pm | Permalink

            Ted,

            You misunderstand.

            No, they (US and UK govts) have never defaulted.
            No, they never will default involuntarily.
            No, they will never repay everything they have “borrowed” for the simple reason they won’t be asked to.

          • Posted April 25, 2015 at 7:50 pm | Permalink

            Rubbish
            They are aways being asked to repay every month.

          • Posted April 25, 2015 at 9:21 pm | Permalink

            Yes, of course, they are always being asked to pay every month and they always do pay every month.

            But they don’t have to repay everything . Well managed govts like the UK and US don’t usually have any problem selling bonds. So there’s always money coming in every month too.

            The history of the ‘debts’ of both the USA and the UK govts is that they continuously increase. There have been short- lived exceptions when they have decreased but overall the trend is the other way.

            They are like big banks. There always seems to be more than enough new depositors to provide more than enough money to cover any requests for withdrawals. And no this isn’t a Ponzi scheme because if all else fails the Govt can just create new money and call it QE or whatever else they like to call it.

          • Posted April 26, 2015 at 10:59 am | Permalink

            Until the point is reached when investors decide they no longer wish to purchase Govt bonds.
            Even QE has its limits if the currency markets decide its gone too far and start selling dollars and pounds.

          • Posted April 26, 2015 at 1:34 pm | Permalink

            I don’t know about their being “investors”. The purchase of gilts is usually by those who want somewhere safe to park their money. The central banks of the big exporters for example.

            So, what would happen if demand for US treasuries and UK gilts fell? Or even stopped completely? The pound and dollar would fall. Consumers would be able to afford fewer imports. Imports would have to be paid for with exports instead of ‘borrowed money’. Trade would balance. Current accounts would balance.

            Govt Budgets, too, would balance as there’d be no need to net spend into the economy to replace money lost in the payments of net imports. The standard of living may fall but we’d all survive. Instead of buying in our shoes and clothes from China we’d have to start making our own again. Some would say that would be a good thing!

          • Posted April 26, 2015 at 7:09 pm | Permalink

            Good!
            Yet previously you have said success in deficit spending is crucial for growth to happen so Im getting a bit puzzled by your economic theory.

        • Posted April 27, 2015 at 1:12 pm | Permalink

          Edward2,

          I’m not sure if your puzzlement is genuine or if you’re deliberately trying to be difficult but “my economic theory”, as you put it, (even though I can’t claim any credit for the concept of sector financial balances) is that the following equation needs to be accepted.

          Govt Deficit = Net Saving of Private Domestic Sector + External Deficit

          which means, implicitly, that the Govt deficit isn’t just a matter of setting taxes and levels of spending. It means that we need to look at how much money is saved in the economy in any one year and how much leaves the economy to pay for net imports.

          So yes in an economy like the UK or the USA deficit spending is required. But for an economy like Denmark, Germany or Switzerland , which have export supluses, it isn’t.

      • Posted April 24, 2015 at 5:10 pm | Permalink

        Yes, part of the reason that Governments have large debts is that people have lent money to them. We all have lent in one way or another – maybe we have money in a National savings account. Or our pension funds have bought gilts. So the question is: has the Government sought out a loan in the same way as we might seek out a loan if we need money to buy a car, or has the loan been forced on them by our desire to save?

        Of course when we desire to save we don’t, usually, think of any reason why we shouldn’t. We don’t think that by not using that money to go away for a holiday, for instance, that we may be putting a hotel out of business and its workers on the dole. Or even that the VAT we would have paid on the trip won’t be paid and therefore the government might have a deficit problem.

        So the workings of our economy aren’t at all like a household from the government’s POV.

        • Posted April 25, 2015 at 7:33 am | Permalink

          Nonsense it is very similar.

          • Posted April 25, 2015 at 1:16 pm | Permalink

            Ted,

            I don’t know about you, but I don’t have a currency printing press in my garage, I don’t have any power to levy taxes on my neighbours, and I don’t have the passwords on my computer to credit bank accounts at will.

            Government budgets bear no relation to household budgets. You might like to Google that phrase for more discussion.

          • Posted April 25, 2015 at 7:49 pm | Permalink

            Well thats where you are wrong.
            I have several credit cards in my wallet.
            I can easily “print” an extra personal spending power of over £20,000.

          • Posted April 25, 2015 at 9:37 pm | Permalink

            But you’d have to repay that £20k if you did. All you can create are asset/liability pairs.

            Only the government can create ‘real money’ in the sense that they issue IOUs and use them as spending money. Repayment for a sovereign currency issuing government means swapping one kind of IOU ( a bond) for another kind of IOU (cash).

            Governments can’t repay in the normal sense even if they wanted to. All they can do is levy taxes. Theoretically they could tax everyone who held cash or govt securities at 100% to get their down to zero. But there are practical difficulties. Some of those securites are held by the Chinese central bank and they wouldn’t be too keen on receiving a tax demand from the UK govt.

          • Posted April 26, 2015 at 11:08 am | Permalink

            My point is you continue to refuse to see that the private sector both in business sector and individually has many methods of creating money.
            Commercially I could go to numerous banks or private investors (eg dragons) and get money and create wealth with my ideas.
            Of course the State creates money in a different way but even they have limits.
            You appear to feel there is no need for limits to this creation of new money and only extra wealth would be the result.
            I think economic history shows Governments that over create or over print debase their currency and impoverish their people.

          • Posted April 26, 2015 at 1:46 pm | Permalink

            …there is no need for limits to this creation of new money

            Yes there is. If Govt create and spend too much we end up with high inflation which is undesirable. So yes, that can happen. But on the other hand they can create and issue too little.

            Or, they can tax too much. This means the money they have created doesn’t stay out in the economy long enough. The number of transactions is too few to keep the economy running at full capacity.

    • Posted April 24, 2015 at 2:23 pm | Permalink

      I could name one intelligent and highly educated person who admits that she is not entirely sure what a billion is, let alone a trillion …

      • Posted April 24, 2015 at 5:45 pm | Permalink

        Denis,

        In which case the are arithmetically illiterate, so I’d question the phrase ‘highly educated”. They can’t have been educated in Chemistry for a start.

        There’s about a trillion trillion (10^24) molecules in about 30 g of water. That’s a couple of tablespoons full.

        • Posted April 25, 2015 at 11:31 am | Permalink

          A spectacularly wrong guess, Peter, as we actually met as chemistry students at Imperial College and we both have doctorates albeit in different fields of chemistry.

          In her case the problem is a persistent blind spot over the change from the good old British billion to the lightweight US billion.

          However she’s far from alone in being confused about it.

  5. Posted April 24, 2015 at 7:19 am | Permalink

    So despite importing 2.5 million foreigners tax receipts are down
    The only increase being in VAT. The North Sea Oil Industry is being crippled by taxation so that will ultimately have to be reduced to promote production.
    What a sanctimonious load of crap from Cameron saying Liebor will have open door immigration
    How many did you let in last year.
    How many boat people did he agree to take yesterday
    Is HMS Ocean being funded from the aid budget.

  6. Posted April 24, 2015 at 7:24 am | Permalink

    What a shame your Party’s very expensive PR people, and your expert PR leader cannot get these very simple set of figures across to the general public, that would help to kill the knocking by all other Party’s and the media.

    When in general conversation about politics, and I speak to people that spending has actually gone up under the Conservatives/LibDem Coalition, they look at me as if I am daft.
    The usual response is, but I thought they said they HAD cut expenditure.

    The other usual problem is the difference between deficit and the debt, which even your leader and many other members of Parliament seem to be confused about, let alone ordinary people.

    The Conservative campaign has been very , very poor.

    Too much slagging off of other Party’s, not enough promotion of the better parts of the last 5 years, and last minute give away’s which simply look like desperate bribes.

    Postal votes in shortly, and given the huge number of people using this method of voting now, I would suggest your rather too late to change anything now.

  7. Posted April 24, 2015 at 8:19 am | Permalink

    GDP per person is now 16% below its three-decade trend. Working age living standards have dropped; real terms fall in wages equivalent of circa 9%. UK output per hour is now about 30 per cent lower than in the US, Germany and France. Spending on public services cut by 9.7% in real terms 2010-11 to 2015-16. Austerity measures knocked 2 per cent off GDP in 2010-11 and 2011-12.

    Also, 40% public investment cuts over the first half of the Parliament appear to have been more damaging to potential GDP than first calculated. And, the “fastest growing nation claim”, we were actually second to the Poles in Q4 2014, that is, so far, the highest we have been (HT: John Weeks at Pieria).

    There are a lot of silly economic claims being spouted at the moment, don’t get fooled by very selective data. For instance; Osborne picked “real household disposable income per head was 2.2 per cent above its pre-economic downturn level”. But; real household spending per head remained 2.5 per cent below during the same period. “Disposable Income” does not include indirect taxes like VAT and Excise Duties.

    I think I heard Cameron say the country was “near bankrupt” when he took over, which is untrue. The UK was not even remotely close to such a state.

    Alas, the UK will get the government it deserves and not a penny more.

    Reply Some good false claims here. It is true Labour cut capital spending plans hard just before leaving office. The Coalition lived with some of these, but has been increased cap ex more recently.

    • Posted April 24, 2015 at 10:47 am | Permalink

      I wonder how much of this GDP is down to the Social Chapter, reducing hours each individual can work due to the WTD; increased pressure on businesses to provide flexible working and the encouragement of giving part-time work to people requesting it which creates more part time work for the other half of their shifts; more costs on business from Sick, Maternity Paternity and paid holiday rights accruing over this period, sick pay for over 65’s. More costs in training which doesn’t give an immediate return.

      “UK output per hour is now about 30 per cent lower than in the US, Germany and France” is this industry specific do we have any examples of which sectors are causing this, how do we measure our national health service or police service on output etc? Does our large public sector affect this?

      • Posted April 24, 2015 at 5:29 pm | Permalink

        Have a look at http://www.ons.gov.uk/ons/rel/productivity/labour-productivity/q4-2014/stbq414.html .

        Real wages have become increasingly disconnected from real productivity. Hence a larger share of national income is going to profits rather than wages. The term used by the IMF “structural reform”, in practice means reduced Unit Labour Costs (ULC). The UK has and continues to have, a large dose of the latter. This prices people back into jobs; but, as far as the Brits are concerned, not in a mood to give a 110%.

        • Posted April 25, 2015 at 5:18 pm | Permalink

          Thank you. I find that people working on over retirement age reduces productivity and there is more of this as people can’t afford to retire, higher paid staff due to length of service who now remain in place far longer and newer more productive staff aren’t there anymore so things aren’t averaging out the same. You have a lot more absence and Illness costs to deal with, time off at short notice for caring. In a small company finding replacement workers part-time with the right qualifications is nearly impossible. You have two lots of holidays to pay out for any maternity/paternity pay cover as both the original worker and the replacement accrue the same allowance often on reduced productivity.

          • Posted April 26, 2015 at 1:55 pm | Permalink

            Everyone who is capable of working is a valuable resource to our economy. If they aren’t working, that’s a waste of those valuable resources.

            That could be because they are unemployed. It could be because they have been compulsorily retired. Full retirement should of course be an option if that’s what is wanted especially for those workers who have had a lifetime of working in difficult jobs.

            But other workers may prefer a semi -retirement. There’s no economic reason for preventing that and every economic reason to encourage it.

          • Posted April 27, 2015 at 11:02 am | Permalink

            How many over 65’s do you employ Peter, I employ several. How do you know what economic problems it causes for my business? From what experience or statistical clarification are you making your claim.

            I can provide proof of my claim.

  8. Posted April 24, 2015 at 8:21 am | Permalink

    I doubt that many reading this would have wanted the government to borrow and spend more in the last five years, in fact quite the opposite. Many of us felt betrayed that, from day one, the Conservative led coalition abandoned your pledge to eliminate the deficit by 2015. You showed us in 2010 that increased taxation rather than overall reductions in spending was the chosen method of deficit reduction (what happened to all that talk of reduction being 80% cuts in spending and 20% increses in taxation?).
    Now we have the IFS telling us that your party’s numbers lack detail and clarity (those of Labour, LibDems and SNP being no better).
    I asked you before to explain how you can cut £25billion from departmental spending and welfare and that be just a reduction of £1 in every £100 spent, but received no answer. We are told this regularly by your party leaders (Hague did it again last night on Question Time). You have told us that total government spending has reached £737.1bn a 1% reduction in that is £7.371bn not £25bn. If £25bn is in fact a 1% reduction in spending then the government must be spending £2500bn, not £737.1bn. Whiich is it?
    Perhaps you would be so kind as to clarify this or is it too embarrassing?

  9. Posted April 24, 2015 at 8:22 am | Permalink

    I doubt that many reading this would have wanted the government to borrow and spend more in the last five years, in fact quite the opposite. Many of us felt betrayed that, from day one, the Conservative led coalition abandoned your pledge to eliminate the deficit by 2015. You showed us in 2010 that increased taxation rather than overall reductions in spending was the chosen method of deficit reduction (what happened to all that talk of reduction being 80% cuts in spending and 20% increses in taxation?).
    Now we have the IFS telling us that your party’s numbers lack detail and clarity (those of Labour, LibDems and SNP being no better).
    I asked you before to explain how you can cut £25billion from departmental spending and welfare and that be just a reduction of £1 in every £100 spent, but received no answer. We are told this regularly by your party leaders (Hague did it again last night on Question Time). You have told us that total government spending has reached £737.1bn a 1% reduction in that is £7.371bn not £25bn. If £25bn is in fact a 1% reduction in spending then the government must be spending £2500bn, not £737.1bn. Which is it?
    Perhaps you would be so kind as to clarify this; or is it too embarrassing?

    Reply I will set out Conservative spend and tax plans for the next five years tomorrow. Spending will go up.

    • Posted April 24, 2015 at 9:24 am | Permalink

      Reply to reply,
      Can you not answer my simple question about your party’s claim that just £1 in every £100 spent have to be saved?
      Is it because it is patently untrue?

      Reply It is not a claim I have ever made. I would need to see the context of the remark, as doubtless it is based on some official budgets.

      • Posted April 24, 2015 at 3:49 pm | Permalink

        Reply to reply,
        David Cameron makes that claim all the time as do other leading figures in your party – William Hague said it just last night on Question Time.

        • Posted April 26, 2015 at 2:13 pm | Permalink

          “the Conservative led coalition abandoned your pledge to eliminate the deficit by 2015”

          It was a silly pledge to have made in the first place. It is impossible to eliminate the govt deficit unless the deficit in trade and capital movements is eliminated too.

          The IFS are just as bad as the politicians. All those predictions of a return to budget surplus in the lifetime of the next Parliament will be just as wrong as the last lot of predictions, unless something is done to increase exports and reduce imports and achieve balanced trade or even a trade surplus.

          Any attempt to close the budget surplus without that happening won’t succeed. It will crash the economy though.

          If anyone thinks I’m wrong I’m open to a friendly bet on that!

  10. Posted April 24, 2015 at 8:26 am | Permalink

    There is one glaring problem with your analysis. For most of the politicians fighting this election you pose a real danger that the facts will get in the way of the spin.

  11. Posted April 24, 2015 at 8:41 am | Permalink

    JR,

    “The tax revenue is £54 billion less than forecast”

    That’s a big discrepancy. I can understand that the forecast could be slightly out, but £54 billion is a lot more than slightly out!

    Why do you think that has happened? I’ve been repeatedly making the point that a £1 billion in tax increases or £1 billion of spending cuts doesn’t means £1 billion will be removed from the deficit. You may disagree with my explanation of why that happens, but the empirical results, the real world results, show that it does.

    The official statistics show us that real public expenditure rose a bit under the Coalition. Over the last five years public spending has made a small positive contribution to economic growth and output.

    I’d say it was more than a small contribution. It’s not something you’ll want to admit, but it is obvious that there was a change of economic course in 2012. That’s fair enough. If a policy isn’t working then it needs to be changed. What’s not fair enough is to attribute the success that followed the change of course, to the previous course of austerity.

    But, that’s what many Conservative politicians are arguing!

    Reply The official forecasts were wrong because they thought higher income tax rates at the top end would increase revenue when they reduced revenue. They also forecast more growth than we had. Public spending rose the most in the first year, not after some mythical change of course.

    • Posted April 24, 2015 at 9:24 am | Permalink

      Reply-reply

      Your explanation is why I have argued for many years that expenditure should only ever be based/calculated on the last financial years known receipts.

      To base spending on assumed income and growth is simply asking for trouble and is indeed why we are, where we are. with a huge deficit. and debt.

      • Posted April 24, 2015 at 8:37 pm | Permalink

        Alan,

        So you’re suggesting that if last years’ tax receipts were £600 billion then government expenditure for this year should also be £600 billion?

        Ok Lets say we do that. Then, say the population save £50 billion of that and another £100 billion go off to pay our net import bill. Meaning we’ve lost £150 billion from our economy. So unless the population (including companies) dig into their savings to pay some extra tax the government will be £150 billion short in this years revenues. It will only collect £450 billion.

        So the following year the governments spends only £450 billion? Then even less the year afterwards?

        Don’t you see the problem here? There will just be a downward spiral in the economy leading to mass unemployment, mass business failures, and even starvation amongst the population. Just like, or even worse, than has happened in Greece.

        People wouldn’t stand for it. They would turn to the extremes of either the political left or the political right as they desperately looked for a solution. I don’t want that. Do you?

        • Posted April 25, 2015 at 7:39 am | Permalink

          Why should it spiral downwards?
          What if taxes which did not rise in year two or were even reduced, led to greatly increased activity as companies and individuals has more money left to spend.
          Your logic leads to a huge State huge borrowings and huge taxes.
          Actually Im beginning to think you are Ed Balls in disguise.

          • Posted April 25, 2015 at 1:42 pm | Permalink

            Edward2,

            Economies can spiral downwards when everyone who has earned money in that economy doesn’t spend it.

            Say the UK economy produces an amount of goods and services costing £1.5 trillion. That needs £1.5 trillion of spending for everything to clear. Everyone in the economy must have earned in wages, profits, capital gains etc £1.5 trillion for the the goods which are available for sale to be priced at that level.

            The balanced budget advocates would makes taxes and govt spending equal at , say, £600 billion. But what if £100 billion is net spent overseas to pay for imports, and another £50 billion is saved. There is a shortfall in spending of £150 billion. £150 billion worth of stuff doesn’t get sold. This leads to recession as companies scale back on future production.

            Tax cuts are another possibility to extra spending as you suggest, but either way the govt needs to run a deficit, by spending more than it receives in taxes, if the country is paying out for imports and saving some money too.

          • Posted April 25, 2015 at 7:54 pm | Permalink

            You are obsessed with everything balancing.
            With globalisation it is imposible for the UK to be in balance due to the movemet of money out of the UK invested overseas and the volumes of money imported into the UK from other nations.
            By individuals not Governments by the way.

          • Posted April 26, 2015 at 8:34 am | Permalink

            Edward2,

            I don’t know about obsessed but I do like everything to balance when I’m doing my accounts. Balance sheets, by definition, should balance. I bank accounts to reconcile. I like Quickbooks , which is an accountancy program I use for my business, to not throw up any error messages saying that my balance sheet doesn’t balance. Which it does even if it’s a penny out.

            I notice that the BoE produces a balance sheet where everything does balance, to the pound, even though there’s over £400 billion on each side of the ledger.

            It’s only relative recently that accounting principles have started to be used in Economic theory. Its very illuminating. The national accounts have to balance too. Every asset in the pound sterling system has to be counterbalanced by an equal liability. To the penny.

          • Posted April 26, 2015 at 11:11 am | Permalink

            I thought youve been telling us there needs to be perpetual deficit balance for there to be growth.

          • Posted April 26, 2015 at 12:49 pm | Permalink

            That would be true for the UK and US economies if there was a perpetual trade imbalance leading to a perpetual current account deficit.
            The UK and US govts would need to perpetually deficit spend into their economies to make up for the loss of revenue to their economies.
            But perpetuity is a long time! It could well be that at some time in the future the US and UK economies will reverse their trading situation and start to run current account surpluses.
            In which case, for the accounts to balance, as they must, the governments will have to run budget surpluses too.

            The other factor is the willingness of the domestic economies to save or de-save of course. The above comments assume that the amount of saving is equal to the amount of de-saving.

        • Posted April 25, 2015 at 9:52 am | Permalink

          pertermartin 2001

          Sorry far to clever for me, I do not really understand why if you calculate expenditure to your income, you go automatically go into a downhill spiral.

          Certainly agree if your income goes down then you need to cut your expenditure.

          It would seem your solution is to always calculate to spend more than you actually receive.
          Has that not got us where we are.?

          • Posted April 26, 2015 at 8:55 am | Permalink

            Imagine everything that was produced in the UK economy was sold via a huge department store. For everything to clear from that store everyone who’d earned any money making that stuff and sold it to the store would have to spend it. If they saved some of that money or spent some of it in the German department store, more than German shoppers spent in the UK store, then everything wouldn’t clear.

            The store owner wouldn’t buy quite as much stuff for his next sale and if that didn’t all sell he’d order even less next time. There would be a downward spiral.

            Or say we had a baby sitting circle which was organised on the basis that every time your own children were looked after you spent a token and every time you looked after someone else’s children you received a token.

            That works fine providing that no one saves too many tokens. If for any reason tokens are hoarded then there aren’t enough tokens in circulation to make the system work properly. We have babies which need to be sat, and adults willing to do the sitting but they can’t because there aren’t enough tokens in circulation to enable the transaction.

            So, in that case the ‘government’ of the baby sitting circle needs to deficit spend extra tokens into the system by borrowing them back from the savers.

            If they don’t the baby sitting economy just spirals down to nothing as tokens are removed from the economy.

          • Posted April 26, 2015 at 11:21 am | Permalink

            I thought youve been telling us there needs to be perpetual deficit balance for there to be growth.
            Now you say everything must balance.

            Your examples of the store and the baby sitting circle show a scenario of extremely low levels of money in circulation.
            It is a simple job of the the State via the Bank of England to issue sufficient money into the economy.
            This is a different element in total money supply.
            ie money in circulation.
            And even if the baby sitters could not summon up any money they would start swopping or bartering goods and services.
            You assume they would just give up and stop.

          • Posted April 26, 2015 at 1:02 pm | Permalink

            No I don’t think everyone just gives up and stops. The anecdotal evidence from places like Greece, at the moment, is that there is a thriving barter economy, especially in the rural areas, where it is possible to produce various agricultural products and barter them for other commodities.

            There are always ways that bars of chocolate and packets of cigarettes etc can be used as a de-facto currency.

            The question is why this should be necessary in the first instance. Why is the euro economy not working, or not working very well, in Greece, Spain, France, Italy, Spain etc but works reasonably well in Germany and Holland.

            So I would suggest it is because Germany and Holland always have a net inflow of euros from their export surplus. Whereas the weaker economies are sucked dry of euros which leads to the present situation of deep recession.

          • Posted April 26, 2015 at 7:12 pm | Permalink

            But not the overspending deficts of their Governments for many years.

    • Posted April 24, 2015 at 11:53 pm | Permalink

      Was it really a mythical change of course?

      When the coalition government took over in 2010 growth was around 0.6% per quarter. Within two years that had fallen to zero.

      By 2013 growth was back up again to what it was previously. So why did it fall and then rise again?

      Reply Growth slowed in 20112 because a) the inherited policy of squeezing the banks, especially RBS, was too austere and had to be changed b) the Euro crisis hit

  12. Posted April 24, 2015 at 12:15 pm | Permalink

    I’m puzzled by the terms “austerity” and “cuts” because in 2000 State spending was £344 billion whereas now its £746 billion.
    My memory may be playing tricks but I’m certain we had a welfare benefits system, a health service and an education service and defence spending back then.

    • Posted April 24, 2015 at 4:11 pm | Permalink

      Edward,
      The government debt was virtually the same number as spending at £345bn. It’s now £1500bn! The result of ten years of Labour’s and five years of Conservative’s tax,borrow,spend and waste.

      • Posted April 24, 2015 at 11:21 pm | Permalink

        Edward2 and Brian,

        Do you mean the governments’ revenue was the same as its spending? I’d just correct you slightly. The government was collecting about £40 billion more in revenue in 2000 than it spent. That was quite unusual. It hardly ever happens! At the same time the UK trade deficit was about £20 billion. So that was £60 billion leaving the economy in 2000. Meaning that in aggregate, although the government was running a surplus, the private sector was heavily in deficit. It was the same story in the USA. Their government was in surplus too.

        So why did it happen? It was all due to the over-borrowings of the private sector. In other words there had been a credit bubble. Bubbles don’t last. Within a couple of years the private sector was back in credit and the government was back in deficit. To avoid a recession interest rates were lowered and a new bubble in housing was created, on both sides of the Atlantic, which in turn went bust in 2008.

        And we all know what happened next, both in the UK, the USA and Europe.

        • Posted April 25, 2015 at 7:41 am | Permalink

          Oh I see.
          It was the private sectors fault.

          The fact remains.
          Since 2000 State spending has rocketed.

          • Posted April 25, 2015 at 2:03 pm | Permalink

            ‘Rocketed’ is putting it slightly too strongly.

            In 96-97 , the time of the election which brought in a Labour Government, public spending was 40% of GDP. That fell to 34% in 200-2001, which was a low point in recent UK history. It then rose back up to 41% of GDP in 2007-2008 just prior to the GFC.

            Spending then rose to 47% of GDP in 2009-10 at the end of Labour’s time in office. It has since fallen to 41% of GDP.

          • Posted April 25, 2015 at 7:58 pm | Permalink

            Easy to switch to quoting figures as a percentage of gdp.

            The fact is, spending by the State has rocketed since 2000.
            According to you we should all be wealthier as a result,yet strangely we are not.

          • Posted April 26, 2015 at 1:17 pm | Permalink

            Expressing state spending as a percentage of GDP is the only sensible approach. That’s the normal practice.

            You must be confusing me with someone else who might believe that the proportion of GDP needs to be substantially higher than it is at present. They may prefer 50% or even higher.

            It possible to have either a successful or failed economy for any reasonable ratio. 30%, 40%, 50% or whatever. Incidentally I’m happy with 40% but that’s just a matter of opinion. I can’t show that it’s any better than 30% or 50%.
            It is also possible for the State to run whatever deficit, or surplus, it needs to run in its budget at any of these levels too.

            So, the mistake is to try to reduce the deficit when really what you need to do is reduce this ratio if you prefer an economy with a lower State component. That’s likely to be counterproductive if all you succeed in doing is send the economy into recession. There will be a demand from the electorate for the government to “do something about it”. Politicians, having elections to win, are likely to do just that.

          • Posted April 26, 2015 at 7:15 pm | Permalink

            The fact remains that in real cash terms, State spending has risen since 2000 by over 100%
            So the slogans of cuts and austerity bening used are incorrect.

        • Posted April 28, 2015 at 3:04 am | Permalink

          I forgot to mention that you were guilty of cherry picking your data points by continually referencing everything back to the year 2000. That was after 3 years of Labour government. So why choose that date?
          Why not choose 1997? The last year of a Tory government?

          The answer of course is that there was a credit boom happening in 2000 which temporarily made the Govts figures look good.

          In the Labour period 1997-2008 before the crash the budget deficit was never larger than 3.3% of GDP. This compares to an average budget deficit of 4.6% of GDP during the Thatcher years.

          I wouldn’t argue that Mrs Thatcher’s government ran a deficit which was too high though. Like exchange rates, deficits should be allowed to float, to get the best possible balance between economic grwoth and low inflation.

          It suits the Conservative Party’s political narrative to suggest that Labour overspent. Its election time so why wouldn’t that be the claim? But, the actual figures say something different.

  13. Posted April 24, 2015 at 2:35 pm | Permalink

    The books are a right mess, government staff costs up 10 billion in three year with no pay rises and also cutting staff, the staff they do take on, they must be paying them hundreds of thousand a year.

    Government purchase and service up 10 billion in three year, look like real cut backs there. Public service pension up 6.5 billion in three years, that not the old age pension which is up big time. Network rail 32 billion a year, some privatization that was and when HS2 comes in it will go up. Government investment of 30.4 billion a year which includes 3 billion a year for HS2 3 billion a year for PFI and that money has to be borrowed every year for investment for roads and such like, the deficit would have been56.9 billion this year but because have to borrow for investment its 87.3 billion. government debt 1484 billion PFI 225 billion QE 325 billion with 50 in hand that 2034 billion of debt QE went up from 116 billion in 2011 to 325 billion in 2012 to save us from a double dip. The government receives 10.7 billion from the bank of England for the asset purchase facllity which if did not have coming in would have to put the deficit by that amount or taxes. Banks 2.2 trillion to bale them out, that down to 600 billion now, not on books. bank shares ?.

    Masstricht debt 1.599 billion deficit 102.4 billion debt to GDP 86.6.
    A blind man would like see these books.

    Reply Anyone can read the book as they are all published. I do not recognise all your figures – your bail out costs for the banks for example is far too high.

  14. Posted April 24, 2015 at 4:10 pm | Permalink

    These statistics confirm that the legitimate criticism of the coalition government is that it did’t cut the fiscal government fast enough. Total State debt is getting on for 80% of GDP (90% under the Maastricht Treaty definition). Even under Conservative spending plans, it will only be down to 72% by 2020.

    We are extremely vulnerable to a general rise in interest rates because the annual interest on State debt would start to rise. State debt interest is flushing taxpayers’ money down the toilet and it crowds out genuine public sector expenditure.

    If the Conservative Party wins a majority of MPs in the General Election, a revisionary budget in June should be considered, aimed at reducing the fiscal deficit further in 2015/16.

  15. Posted April 24, 2015 at 4:37 pm | Permalink

    Bank bail out. Public sector bank gross debt psb8 2008/9 2015.538 billion, 2014/15 622.719 billion. that the amount you guarantee them for. so if we went tits up tomorrow that just some of the money they would need. all my figures are out of the book, even if you clear the deficit we are not in good shape.

  16. Posted April 24, 2015 at 4:53 pm | Permalink

    Its all debt on top of debt to bail out the banks, household debt going up big time, government going up, bank debt going up, Housing association sell off, more all round for people and banks to earn the more interest for the banks, property prices going up to earn the bank more interest, credit card debt going up, student loan debt going up and most will be paid and becomes government debt. Next time go tits up your in for 4 trillion not 2 trillion.

    • Posted April 25, 2015 at 7:46 am | Permalink

      The economy is a continuum.
      You could not pay off your mortgage in one sum today, yet this does not mean you are insolvent.

  17. Posted April 24, 2015 at 5:15 pm | Permalink

    Small business paying over the top loan if they get them, big business paying 1 per cent and still report losing money, grants and subsidize for business, might as well tell them to keep the corporate tax and in exchange for grants and subsidize and saving some ink.

  18. Posted April 24, 2015 at 5:30 pm | Permalink

    The reason bank are doing at moment is because they are not interest on deposits and gambling people deposits on the markets. that how have off 1.400 billion in five years.

  19. Posted April 24, 2015 at 7:05 pm | Permalink

    How have we got to 742 billion a year spending, childcare credits, in work tax credit, rent subsidies, rate subsidies, bigger pensions, business subsidies and grants, 8 million extra people, quangos, big pay rises in the public sector new equipment for the police, compute programs for government, inflation and a lot more mostly waste and most of it go to big business so they could cut wages because they can never manager.

  • 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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