The IFS tells us in their latest forecasts that we can look forward to more years of tax rises and spending cuts. They expect the UK economy to slow this year, and slow again next year. Ā They are out of touch with the mood to banish austerity and go for growth.
They are more pessimistic about the Eurozone than about the UK. They have lowered their 2017 growth forecast to 1.5% for the Euro area, whilst proposing 1.6% for the UK. They run one scenario which looks at what weak European banks and Brexit could do to their forecast – an unusual pairing with no explanation of why they are lumped togather or the relative contributions to their extra gloom on this basis.
They do confess that there are “increasing chances that the forecasts may be too pessimistic”. They accept that the UK consumer carried on spending post the referendum when most forecasters said they would not. They admit that business investment rose a little faster after the vote, instead of falling off the cliff as in many forecasts. They agree that trade which had performed disappointingly last year might add a bit to our economy in 2017.
They confess that “real levels of day to day public service spending have actually fallen very little overall in the last three years”. If they checked the Red Book figures they would see the cash growth in overall public spending actually rose faster than inflation over that time period.Ā They now think removing the deficit should be the priority, which leads them to conclude political parties have to offer some combination of higher taxes and lower spending.
Politically it is much more attractive to square the circle with more growth. More growth brings in more tax revenue without tax rate rises. It cuts the costs of benefits as people move from no pay to low pay, and from low pay to better pay. The issue before us should be what more can we do to promote growth.
I do not accept that growth will be as low as they say in 2017 or 2018. That still makes me keen to find more measures which can promote more growth. A tax rate cutting budget could help, especially if we cut those tax rates that are damaging the revenue collected. Spending enough on social care and health is a cross party priority, and we have to accept these services will continue to needĀ more cash in the future. Investing more when long term interestĀ rates Ā are still so low should make sense, though the state needs to show commonsense over projects chosen and where possible harness the private sector to ensure a proper profit test on the project.
February 10, 2017
Dear John–The detail in these various forecasts is spurious and wholly consequent on whether the forecaster is or is not optimistic overall about Brexit. Accordingly, all relative forecasts should have a prologue saying something like, ‘We are/are not positive about Brexit and in line with that our detailed forecast is as follows, viz’. Absent this, the impression given is that the detail has been arrived at objectively and scientifically which is far from the case.
February 10, 2017
Before making further predictions it would be useful if the IFS published information on the accuracy of their previous predictions, just factually with no added commentary so we can establish a range of uncertainty for their predictions. If economists want to demonstrate they are working in a science then they should adopt scientific practice, otherwise it is mere crystal ball gazing of no value.
February 10, 2017
JR, you still fail to say how much CIL and NHB councils have raised and how much of it was spent on infrastructure rather than the high salaries and ordinary spending by councils. The alleged cuts were replaced by this funding to force councils to build and assure there would be infrastructure. Now councils are proposing to demand add ons as extra spending i.e. Social and adult care. This is main stream budget spending not add ons. The Environment Agency costs us over Ā£1.5 billion, we are now receiving extra demands by councils for flood defence! How many times are we paying for the same thing?
I note Carswell trying to prevent the govt sneakily trying to keep us the patent act under control of the EU. I trust you and others will not allow this negative resolution procedure taking place.
February 10, 2017
Per capita isn’t increasing. It’s only because consumption is increased due to half a million immigrants annually coming here. Add in government borrowing and there’s no real growth.
It looks like sanity may prevail with Greece being ejected from the Euro. Another nail in the flawed project.
February 10, 2017
As you say, per capita and thus living standards are not increasing but the extra bodies require more infrastructure spending for which we are taxed.
Japan is often cited as a basket case economy but per capita income and productivity is rising because they invest in their people instead of importing cheap, expendable labour supported by the taxpayer.
February 10, 2017
Per capita is 35th in the world and less than Ireland.
Japan is still having growth despite the population falling by a million.
February 12, 2017
Yes, but still ahead of the UK. Please consider that a lot of top countries in the table are countries with very small populations (LUX, L, BVI, SGP, …).
Furthermore, a population decrease can translate into an increase of GDP and productivity if everything else remains constant. In that respect, the Japan case seems quite different from the UK one where GDP increases because of better? services, increase populations and increase consumption.
Given a recent trip to Japan, it is clear to me which train system is better.
To sum up, I find hard to compare the two countries given their different economic outlooks.
February 10, 2017
Yes more moronic “remoaners doom and gloom” from the BBC today programme today. First on the damage to the city of leaving. Then absurdly claiming it will take longer for new drugs to be permitted in the UK as they will go for European approvals first.
Complete and utter drive. The UK could choose to accept new drugs before the EU or they could accept anything as soon as it was approved for the EU or perhaps the USA, or they could have their own quick and nimble system for approvals considering the same evidence put to the other authorities. No reason at all why it should be slower indeed it should be faster if properly organised.
The EU is not fast at anything at all. They have not even sorted out the long running Greek (& others) EURO financial fiasco and the solution there is blindingly obvious to anyone sensible. Why oh why does the BBC and indeed “BBC think” Theresa Miliband have to be wrong on nearly every major issue they address?
February 10, 2017
Well said John.
It does not matter the figures HM Treasury key stroke into a computer keyboard when it spends. It gets 90% of it back and 10% of it is saved by the private sector and the rest of the world.
Now Brexit is here It is time to stop talking about government spending. That frames the political debate solely in numbers and is specifically designed to stop anybody talking about the most important part of the process.
What is there available for the government to buy?
Once you think about things from that angle it becomes crystal clear where the spending limit is and what the policy restrictions actually are.
February 10, 2017
They get 90% of it back? Well lets all dig holes then fill them in again all day paid by the government’s magic money tree!
They spend say Ā£300 billion on HS2, a daft lagoon, pointless windfarms, Hinkley C or other insanities and get a largely worthless assets back in many years time.
These project divert many workers from real & productive jobs into essentially non productive parasitic jobs. It causes he huge disruption and inconvenience for years to people’s homes and businesses. They have to tax the productive even more in order to pay for it, causing yet further damage to the economy. It diverts bank lending to daft project rather than sensible ones.
True they get some back in PAYE from the workers employed, but they would get this anyway as they would be working on something of real value instead elsewhere. So it is not a net gain.
Are you yet another “BBC think” magic money tree believer? Cutting taxes produces a return far, far better than any of these insane projects. Some better roads and airports are what is needed if anything. That and breaking up the dire NHS monopoly/manslaughter machine.
February 12, 2017
The Telegraph has HS2 at Ā£42.6bn, the Daily Mail has it rounded up to Ā£50bn.
Are the Ā£300bn for the total of your “largely worthless assets”?
Given that, apart from windfarms, it would take at least ten years to get all of those, that’s more like Ā£30bn a year. What about the gain in knowledge and experience for all the existing and future engineers involved in these projects?
If within Brexit, the UK is serious about improving the part of “manufacturing/utilities/infrastructure” in GDP, isn’t it something to consider instead of blindingly vituperating without thinking much further than the present conditions?
Obviously these projects might involve expert engineers, and as Mr Gove famously said the UK is fed up with experts.
February 10, 2017
The Zimbabwe School of Economics.
February 10, 2017
Indeed, but it rather seems to be T May and P Hammond’s tax, borrow, print and waste approach too. Given HS2, Hinkley C, the greencrap subsidies, “Welsh Lagoons”, the dysfunctional NHS, appallingly run foreign aid, farcical defence procurement ……..
10,000 more deaths from cancer in the UK every year than the “average” in Europe it seems and still BBC types say the NHS is “the envy of the World”.
February 10, 2017
540 spin doctors at the MOD! It is madness. You mit recall Cameron claiming he would reduce spin doctors, the fact is the numbers and cost rocketed under him and it continues today! Why is it difficult to make reasonable decisions based on the interests of our citizens! Why so much tripe about refugees when they could have stopped at numerous countries or crossed the border to neighbour rather than travel to France to get here? Economic migrants as May first claimed, not refugees.
I hope a test of sanity will prevail and Bercow offered the door as anyone would in normal life. Part of May’s fair society.
February 10, 2017
Sorry but you are wrong.
Your thinking is all gold standard thinking. Taxes have funded nothing since we left the gold standard.
All you have to do is study the accounting between HM Treasury and the BOE which I did for 6 years. Taxes control inflation and are destroyed in the overnight interbank market so the BOE can meet its overnight interest rate.
The accounting does not lie.
The accounting fact is and any first year economic student will tell you
The government deficit = the non govermental sector savings to the penny. The 10% that does not come back is savings pure and simple in our pensions and Isa’s, etc, etc. Foreign savings also which is held at the BOE.
The 90% that does comes back through tax is destroyed in the reserves. It is how they control inflation.
February 10, 2017
You have to understand Zimbabwe first Edward.
Zimbabwe did not have either the skills or the resources to absorb what they spent.
We do. Which is why Brexit will be fantastic for us. John hinted at this in his post. We need common sense on the projects we choose. We need to make sure we have the skills and resources available. Doctors and nurses don’t suddenly appear from the pavement. These things take time.
If more people understood this that taxing rich people does not work because their taxes fund nothing. Then this country could be superb and make giant leaps forward.
February 11, 2017
It was just a shorthand for your odd magic money tree theory.
February 10, 2017
‘It gets 90% of it back …………’
Yes it may well do but is it not true that QE has led to lazy government .
We just keep the printing presses running at a rate of Ā£10 billion or so per month .
Meanwhile the BOE Governor covers by dropping interest rates by 0.25% and authorising an extra Ā£175 billion to be added to what is now in circulation , soon after Brexit vote .
The government has no incentive to save money , reduce our overheads or repeal the climate change Act or DfiD expenditure , or cancel HS2 , Hinkley , Swansea Lagoon .
They just carry on spending 50% or so of our money .
No wonder the pound keeps falling.
We would spend our own money much more wisely – but that would give the ‘football hooligans ‘ as I was called in late June too much power .
February 10, 2017
Absolutely. Carney has not predicted anything correctly. Based on performance he should walk, asked on politicising his role he should walk. Yet he has the support of May! Osborne failed every target and gaol, he convinced Carney to follow his lead and both made the country look foolish. Is it not possible to get someone with basic numeric skills to be in charge of the BoE?
February 10, 2017
Exactly, just listen to the drivel he came out with on radio 4 PM today. Just what planet is this dope on. Time for him and his greeny wife to go away.
February 10, 2017
Good morning.
On this I tend to agree. The UK has, especially with the last Chancellor, spent more than we should, this must come to a stop. It is high time that the government review how we do things in this country with regards to large infrastructure projects. too many grand ideas, like the Bread and Circuses of the Olympics, the White Elephants’ of two of the 3 H’s the millstone of the Foreign Aid Budget.
Less is more !
February 10, 2017
Look at the interest (Ā£30 billion) we are paying for the debt racked up by Osborne. He was going to balance the books by 2015, then 2019 and now Hammond and May has kicked it into the long grass of never!
February 10, 2017
I hope that you and your colleagues in the HoC will take the opportunity offered by James Duddridge to remove John Bercow from his current role after his intemperate outburst against the democratically elected leader of the United States of America.
February 10, 2017
Let’s cut foriegn aid to .2% and give the rest to social care. It is a travesty that we are supporting the elderly in China, African spice girls and British people are in need!
February 10, 2017
No percentage or fixed sum but an absolute limit based on humanitarian need or absolute provable British interest.
February 10, 2017
I can’t remember when the IFS – or other economic forecasters got it right . Putting various scenarios into a box and trusting that the outcome calculation would be reliable is , in itself , a fallacy . Only day to day results count and , like the weather , there are surprises . Since July there have been a number of predictions made by economists and the BoE that have been proved wrong ; statements made by these people have been amended ; it has reached the point that forecasters are no longer trusted .
When I consider my modest portfolio of investments , I only decide to make changes based on performance over the last year . If a holding falls significantly below an average bench mark and there is nothing to indicate much change , I get rid of it and replace it with something that is making noted progress . I am pleased to say this historical analysis has not let me down and my portfolio has almost doubled !. The point I am making is I do not rely on economists to guide how I invest ; facts speak for themselves – as any historian will attest . Frankly , I would ban economic forecasts from the media .
February 10, 2017
As someone focused on the high tech industry in work / the economy, here’s some good news about HIGH TECH + BREXIT.
Apple ‘optimistic’ about post-Brexit UK (BBC)
UK needs to focus on high tech, creating Apples, Intels and IBMs of future – for long-term growth and stability of economy and great jobs. Government has role to play with soft investment helping both entrepreneurs to start up as well as start-ups to develop into global brands.
February 10, 2017
Unfortunately or perhaps fortunately consumer spending and growth is something which doesn’t rely on a few extra pounds here and there , although it does help. There are many other factors which induce people to spend, none less than advertising or improved products .These factors affect public mood .
I am glad you want to compete and prove the dismalists wrong , but I also feel that spending will continue per capita of people employed . The unemployed though, will help us very little.
I made a comment that the NHS has over a years waiting list for simple corn removal procedures and the patient would have to either wait, go to a podiatrist and pay or use over the counter products . The comment was how was she supposed to pay if she was unemployed .
February 10, 2017
More long term predictions, more long term Guestimates.
Am I the only one who gets fed up with theses so called expert ramblings which rarely if ever are accurate.
If you are running a sound business model/economy, then such long term crystal ball predictions are not required, because you should already have in place a management system which can operate in most trading conditions, and is flexible and swift enough to take account and make subtle changes to suit most circumstances..
Yes of course long and medium term aims are sensible, but should always include a sensible degree of flexibility.
February 10, 2017
On the subject of public spending,someone needs to take a hard look at our defence spending and the poor value for money we appear to get for it.
Two items juxtaposed in today’s Telegraph online:-
“May’s Brexit plans could open deeper military alliance with Japan says senior official”
“Britain’s entire fleet of attack submarines out of action”
It would be hilarious if it wasn’t serious.
February 10, 2017
It seems to me that a larger area of uncertainty rests on how effective Mr Trump will be in “making America great again”. If he is successful in that aim it will pose all kinds of painful issues for the rest of the world that has been living off US deficits.
February 10, 2017
I don’t know about the IFS offering more gloom, I had my fair share this morning when I read an email from my accountant. Apparently, some mad plan to force small businesses to use some accounting software or other and submit figures to HMRC every 3 months is going ahead! I heard this mentioned in a budget a year or two ago, there was an outcry and I thought it had been dropped. Ohhh, PLEEEAAAASSEEE don’t I have enough to do already – finding work, doing work, invoicing, chasing payments, doing VAT, running a payroll and a million and one other things. Why is a Conservative government doing this Mr. Redwood? I thought they were on the side of small business. I have to tell you, I give up. I plan to bring my retirement plans forward and that will be that.
February 10, 2017
How about even more regulation of small business to boost growth?
February 10, 2017
Yes Mike, completely ridiculous and self defeating. It’s just not worth trying to run a business and employ people.
We have found a way of making money out of HMRC though…send them more money that you owe, they pay a good rate of interest (until they pay it back) š
February 10, 2017
Mad indeed, just another way of distracting and putting of the productive, creating more parasitic jobs and to give the state another excuse for more late fines and ways to mug should they not comply.
Many will just give up or reduce their businesses and this will damage the economy hugely.
I though hammond wanted higher productivity?
February 10, 2017
How is it that clairvoyance has gained such respectability?
Once upon a time it was a circus side-show attraction, a bit of fun in the horoscopes section of he newspaper, or Caesar consulting the High Priests of the Auguries on matters of State considered in our modern eyes so ridiculous.
Now because the soothsayers wear lab coats or are called ‘experts’, it has acquired an almost unimpeachable respectability and credibility that moves Governments and the entire Western World to change policy with no due diligence, critical analysis or cost/benefit study, and spend hundreds of billions of Ā£, ā¬, $ and flirt with economic/social ruin.
And the most remarkable thing is this paradox: the more frequently, the more spectacularly these prognosticators are wrong, the more the political class and fawning media commentariat believe them.
Funny old world.
February 10, 2017
It’s interesting to see Barnier is looking for a formula to calculate our exit bill from the EU. He is looking at around 15% of the EU budget or about Ā£50 billion.
I would assume that being net contributors for the past 43 years, he should be told to take a running jump.
They have 2 years to bring down their spending to reflect reality so why should we be expected to finance 5 more years after exiting.
If we agree to this ridiculous ploy then you will be destroyed at the next election.
February 10, 2017
Just remember that these people (EUcrates) are not in the real world.
Any sensible company would adjust its plans based on its available budget – or go bust…spending other peoples money is just so easy :->
February 10, 2017
With 1400 illegal immigrant coming a week should help you get to where you want to go.
February 10, 2017
What will really happen about the money that the EU will demand for us leaving. My solution would be two fingers, but I would like to know more about it.
February 10, 2017
Pessimistic forecasts nearly always are proven to be an over reaction. Couple that with the lack of reliable information on how humans will behave and the unknown effect of the myriad of different pressures that bear on any process. Then as has often proven to be the case doomsayers are of little worth. Except of course when they command a position of considerable respect as the IFS does then they are worst than little worth they are dangerous. Their prognostications may be wrong but the fact that many do not believe so may cause them to alter behaviour so that they become correct.
February 10, 2017
“Project Fear” has undermined faith, mine anyway, in experts. I used to trust them, not blindly, but at least to the extent of believing they were doing their best. Now I’m suspicious that they are just advancing their cause, or that of their friends or paymasters, and that what they say is unreliably or biased or both.
I think this is one of several very negative outcomes of the remain campaign which did much to erode faith and trust in the government, the civil service and “experts”. Michael Gove’s comment about the public having had enough of experts is true of me and I believe many others.
February 10, 2017
Genuine independent experts are one thing.
Hired guns who push climate alarmism, the bloated state, the benefits of the EU, ERM, EURO, quack economics predictions, the benefits of the NHS or other lunacies on behalf of the government (or other organisations) are quite another matter.
February 10, 2017
L/L “Genuine independent experts are one thing.”
Yes, but these are the people that are ignored in favour of NGO’s, charities and people with vested interest.
If the government really listened to the experts this country would be a lot wealthier than it is now!
February 11, 2017
So ‘genuine experts’ are the ones that reinforce your existing beliefs and biases then?
February 10, 2017
I agree that things could be a lot brighter than some of these so-called experts predict, just so long as other factors don’t come into play.
Good, strong growth could be assured, and austerity might not be with us at all if we hadn’t doubled the national debt bailing out errant banks and the crooks who run them.
I have been revisiting Glass-Steagall (as introduced by FDR in 1933) and Bretton Woods recently, to see if we can learn something from them, and ensure that nothing hampers Britain’s future now that we’re on the road to self-fulfilment. Many feel the repeal of the Glass-Steagall act in 1999 led directly to the crash of 2008, and that the new regulations that are supposed to guard us from the excesses of the spivs and the speculators once again, go nowhere near far enough.
Another round of that QE and bailout nonsense, and we can kiss goodbye to growth and public services once and for all. We’ll all be penniless debt slaves, but maybe that’s what these fraudsters in respectable clothing actually want?
Tad Davison
Cambridge
February 10, 2017
Just to tack this on the end.
‘I do not accept that growth will be as low as they say in 2017 or 2018. That still makes me keen to find more measures which can promote more growth.’
Having mentioned the word ‘keen’, a certain professor of that name advocates that all personal debt should be cancelled, and as he described it, such an act would have its merits. It would certainly allow a lot more consumer spending, and the ones to be hit the hardest would be the ones who keep causing these financial catastrophes in the first place.
Tad
February 10, 2017
Well it would save me a fortune but might not help my bankers solvency very much.
February 10, 2017
You can look at it, if it was not for brexit companies would not got off they backsides and started looking around to see what was out there instead of staying in there gold fish blows if vote would been to stay in the eu. growth would be as good as it is now.
February 10, 2017
The Labour leadership in the House of Lords have tabled eight amendments to the Article 50 bill
The eight amendments from Labourās frontbench in the Lords are:
Guaranteeing the UK Parliament will vote on the final deal before the European Parliament (something the Government conceded in the Commons, but did not put into legislation),
Quarterly reports from the Government on the progress of negotiations,
Guaranteeing the rights of EU nationals living in the UK,
Prioritising trade arrangements and cooperation with the EU,
Assurances about the role of devolved governments,
The publication of impact assessments on the implications of future trade arrangements,
Separating out the process of leaving Euratom to leaving the EU,
And requiring the Government to have regard to the Good Friday Agreement.
Oh and Nick Clegg has been on Bloomberg today and the interviewer stated “He is still fighting against Brexit”
It seems crazy in 2017 that timewasters are permitted at the very top of our Government
February 10, 2017
Hi Redwoodians, just dropped in to say don’t take any notice of the IFS report, its basically nonsense. The IFS still does not understand the difference between the currency ISSUING government sector; and, the currency USING non-government sector.
The IFS still does not understand that the government’s currency ISSUING Treasury, does not have to borrow its own currency; from anybody, in-order to have some currency to spend on non-government sector produced goods and services.
If you have read the report you will see they have dragged in the Accountants (ICAEW). The latter have done a good job of misinterpreting the Whole of Government Accounts (WGA), government sector debt numbers, simply for effect.
They also fail to understand that a sovereign CURRENCY ISSUING government, never runs out of its own currency (which is simply its “UNITS of ACCOUNT”). Just like the scorer at a Cricket Scoreboard, never runs out of numbers to put up the runs achieved.
The serious bit which I have been investigating full time lately is post Brexit related; and, will need some equally serious Treasury attention. Namely, consumption of the UK’s productive fixed capital stock. Since the arrival of Osborne austerity in 2010, UK Gross Fixed Capital Formation (GFCF), has more than halved. GFCF is directly related to our national work force productivity. The UK scores low in the latter, even within the EU; and very low compared to the likes of China and Japan.
Have a read of https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/bulletins/capitalstocksconsumptionoffixedcapital/2016 (Particularly Section 7 & 8)
Private sector goods and services producers have no socio-economic compass. Government needs to tell them what goods and services it wants; and, how much government is prepared to pay for the social goods and services it requires. If the private sector does not comply; then government either taxes non-productive sectors to a standstill, or outright bans activity that has no socio-economic value.
Unfortunately, the UK population does not have the capacity to elect the required type of government, that could correct the established socio-economic deficiencies in the UK; particularly, post Brexit.
February 11, 2017
Thanks for a very interesting link.
February 10, 2017
What is undoubtedly true is that in the UK the current good GDP growth results from high spending. This is accompanied by increasing debt, both in the private sector and the public sector. Simultaneously, any pretence at controlling the money supply has gone totally out of the window. Mr Carney’s reduction of base rate to 0.25% and the extra Ā£170 billion of QE heaped more fuel on the fire and was the exact OPPOSITE of what was required.
Inflation is increasing rapidly. The blame is being heaped on Brexit (which hasn’t happened yet) and not on excess money, which the Bank of England has caused.
I wager you, Mr Redwood, that inflation will exceed 5% per annum before the end of 2018. This will require a rapid hike in interest rate and the misery of multiple repossessions, for which voters will blame the Conservatives. The earlier that Mr Carney is sacked and the sooner interest rise slowly, the less unpleasant things will be.
February 10, 2017
Gloom there may be, but on Trump’s climate policies there will be rejoicing for some. See The Hill news alert: Trump is going to adopt a “common sense” policy towards energy. JR apparently didn’t permit the last link to The Hill.com, so those who want to research further google “Trump brings big change to climate policies”, by Timothy Cama.
February 10, 2017
I note that diesel is now over 120p/l. Everyone’s prognostications could prove wrong, in a potentially dangerous and unstable world. To quote Macmillan,re what politicians fear most: ‘Events, dear boy, events’. It appears that we are ill-prepared on all fronts. Meanwhile, there’s a terrible drought in East Africa – also, until recently, in Zimbabwe, with many on the brink of starvation. And in Yemen, too – how tragic, to see little children wasting away! (Do they really hate each other so much?) I’m sure we all want Brexit to succeed, but where is the global vision of the past? I like the PMs rhetoric, but …..how shall we deliver, when so hampered by all this midget-minded internecine political conflict, which is so utterly contemptible.