Instead of constantly asking questions about the “cuts”, the question that needs to be asked about the UK economy is why hasn’t the huge public sector stimulus injected since 2008 succeeded in pushing the economy back into growth?
Since April 2008 there has been a surge in public spending and borrowing. In 2009-10 the state borrowed 11.1% of our National Income, in 2010-11 another 9.9% and in 2011-12 another 7.9%. Before my critics point out that borrowing was bound to be higher owing to the poor state of output, let me also give the cyclically adjusted figures which allow for this. On that basis the state borrowed 8.9%, 7.4% and 5.3% of National Income adjusted for the extra borrowing needed for the weak output levels.
This level of extra spending and borrowing is far higher than previous recessions. In the early 80s recession the cyclically adjusted borrowing was 4% of National Income. In the early 90s European Exchange Rate Mechanism induced recession it peaked at 5.5%.
Current public spending has been rising in cash and real terms. Public sector growth has added to the output of the total economy. So no-one can say that the public sector “cuts” account for the disappointing levels of output. The disappointing levels of output are despite the increased size of the state sector.
There are two main reasons why growth has been elusive.
The first is the private sector has been starved of new money to borrow. This has made it difficult to expand business activites and to invest. The broken or over regulated banks have been unable to finance a traditional private sector business recovery.
The second is the high tax rates and the big prices rises put through in the public sector have squeezed people’s incomes, cutting confidence and demand. High rail fares, high energy costs, higher VAT, National Insurance, and Income Tax for those pushed into the upper bands have all conspired to cut demand. Inflation has been a big problem, producing a large fall in real incomes for many.
Because the state needs so much tax revenue, other income and borrowings to feed it, it squeezes the rest of the economy. If the government decides on an extra pound of public spending paid for by a tax increase, that has no overall beneficial impact on the economy. The public sector grows by a pound, but the private sector shrinks by a pound. It is not a stimulus. If the state borrows an extra pound to spend, the private sector cannot spend the pound it lends to the government.
If the state spends another pound which it prints, that can increase total activity in the economy, as long as the extra money goes into more output and not into more inflation. So far the money printing has gone into both, with the price rises offsetting some of the public sector stimulus. The more prices rise, the bigger the cut in real incomes for the private sector, and the bigger the fall in output from the private sector.
The biggest ever fiscal stimulus, Keynsian stimulus, is being tried. It is not working. Instead of asking for a bigger one, more of the same, people should ask what can be done to promote a more buoyant and successful private sector. That, as readers will know, rests on mending the banks, setting competitive tax rates, reforming welfare and tackling costs like energy and transport.
January 26, 2013
Yes, an excellent and accurate analysis.
Osborne has concentrated on taxing the economy to death. Unsurprisingly, it is dying.
January 26, 2013
Not according to latest figures, as you well know the economy is doing better than Britains due to Obama’s economic stimulus.
January 26, 2013
I think that you will find that it is because they shook out their housing bubble quickly, have been quicker to sort out their banks, and have a sensible, cheap energy policy from which growing businesses can benefit….
zorro
January 27, 2013
Indeed and a bigger close market that is not crippled by the Euro farce.
January 26, 2013
Is this the same George Osborne who has cut corporation tax rates at least twice and has raised the personal allowance three times? He’s also scrapped several planned fuel duty rises and frozen council tax for two years in a row. He has also lowered the top rate from 50% to 45% and opposed any new taxes on property. Admittedly he has raised VAT to 20% and dragged more people into the 40% bracket, but you can hardly say he is taxing the country to death. Moreoever, for most international companies, many of the self-employed and especially the top 5% of private individuals paying tax is almost a matter of conscience rather than legal necessity. If we are such a tax hell, how come the London property boom continues. I know it is a crime to say this but sometimes government spends money more wisely than private citizens, unless you really do believe investment in new railways, airports and backing research and development in science and industry is wasting money!
January 26, 2013
We may be spending more, not on the right things.
We have made that many cuts, and put that many people out of work..The cash is in a large part paying for people to be unemployed.
The UK needs a stimulus..We need to cancel all defence cuts, which is affecting Rolls Royce and other defence companies,,yes we may have to borrow or print money to keep people in work, but the money nearly all goes back in income tax, VAT and the same where people spend,,At the same time these people in work, are not receiving benefits,,Building infrastructure such as a third runway at LHR would have the same affect..All moneys would find it;s way back to the exchequer, via the tax chain.
January 27, 2013
The UK is indeed a tax hell hole for all but nondoms and those using a few other rather complex tax schemes. It is the nondoms pushing up London prices the weak pound, the Arab spring and troubles in the EU area.
January 27, 2013
Not just taxing the economy to death – also the expensive quack religious energy, the over regulation of everything, the general destruction of confidence and the now virtual certainty of Labour in 2015.
How is his £1M IHT threshold promise coming on? That was quite popular as I recall?
January 26, 2013
In the end it all comes down to state-directed misallocation of capital on a Soviet scale. The government and the Bank of England (is there actually a difference in reality?) have decided who should be the losers (savers, pensioners, those on fixed incomes) and who should be the winners (banks and over-borrowed individuals). So prudence and caution, saving for a rainy day, are all punished, while feckless lenders and borrowers are rewarded. It’s no wonder that so few young people are bothering to save for a pension when they all they can see is negative real returns and endless government interference with their savings. The ZIRP policy keeps zombie companies, banks and individuals afloat, damaging the economy as capital is misdirected towards these zombies. QE has caused capital misallocation of unprecedented proportions, much of which as ended up one way or another fueling the overseas commodity boom. We pay a double price for this, as not only is the newly printed money failing to help the economy, its effects on the price of imported food and other commodities makes inflation much higher than it would otherwise be, reducing the real spending power of consumers and so further damaging the economy. State misdirection of capital eventually destroyed the old Soviet Union, and just as surely we will not see any recovery here until QE is unwound and ZIRP is abandoned in favour of market-led interest rates.
January 26, 2013
Oh yes, and I forgot to add that I am not alone in this view. Here’s an article describing the proceedings at Davos, and saying much the same thing:
http://www.telegraph.co.uk/finance/financetopics/davos/9822372/Money-printing-amounts-to-theft-from-our-children.html
January 26, 2013
Indeed – state-directed misallocation of capital on a Soviet scale by Cameron, the EU, Osborne and the fake green religion.
The economics of the magic government money tree – with everyone being paid from it to dig holes and fill them in again. This is the BBC (and it seems Cameron’s Oxford PPE new economics) in a nutshell.
January 26, 2013
Japan provides a good example of the failure of massive public spending and borrowing to stimulate an economy.
January 27, 2013
The problems in Japan are caused by people saving too much money, rather than spending it in the economy. There’s also the declining birth rate.
January 29, 2013
uanime5: “The problems in Japan are caused by people saving too much money, rather than spending it in the economy.”
Such economic ignorance is breathtaking.
January 26, 2013
“mending the banks, setting competitive tax rates, reforming welfare and tackling costs like energy and transport.”
Mr Cameron and his team are pretty experienced and decent politicians on the whole. So why have they not done these very obvious things?
And why is Mr Cameron so naive about Europe?
Two simple questions which need answering.
And, please, I really do not think it is all down to the LibDems or the last Labour government!
January 26, 2013
@Mike Stallard
“Mr Cameron and his team are pretty experienced and decent politicians on the whole.”
In the case of our host and a handful of others I agree with you, but
what experience do the likes of Cameron, Osborne and Hague have outside of politics? Spin and greasy poles?
January 26, 2013
Isn’t there also something about peoples real incomes and savings being stalled for the last 4 years? Our economy is now very low wage as a consequence of cheap labour from overseas. Some of our own people find it preferable to stay at home as the low paid jobs are less than the potential and actual accumulated benefits. The tax/benefits system is in dire need of radical reform to always make work pay. Having never had Labours tax credits I don’t fully understand them. However, how can it be efficient for the state to tax the low paid with children to give it back in working tax credits? Why not just raise their tax code accordingly and miss out all the state jobs/meddling bureacracy? Non working tax credits? Why is this not family allowance and increased pro-rata for the first two children ONLY? In the meantime I’m told the state takes 50% GDP to pay for its public service largesse paid for by all of us. As you regularly point out Mr Redwood no significant cuts have been made, however if EU and foreign aid and provision of public services to the indigenous population and other tax paying groups only would make a start.
The other consequence of the low wage economy is the tax payer subsidy for all public service provision not covered by the tax take from the low paid. There must be break even points in salaries with numbers of dependents to know at what point people become contributary. It would appear that some employers take advantage by having their employees subsidised by the taxpayer at large. The calculations cannot be that difficult. Once the working poor and others have a living wage then they in turn consume and drive the economy. Savers and investors also need a better deal as interest does not even cover inflation. We should not suffer as a consequence of Banks needing to improve capital ratio’s to conform with the Basle III? agreements.
January 26, 2013
Very pleased to see the inclusion of cyclically adjusted numbers!
The thing they show though is that spending has been decreasing, which would appear to kind of counter much of what you say. Yes, borrowing remains in order to spend, but if it’s being cut back then that is bound to have an effect on output.
However, you still say “So no-one can say that the public sector “cuts” account for the disappointing levels of output.”
Why can’t they? Because borrowing didn’t go straight to zero once Osborne set to action, therefore there were no cuts therefore those crazy lefties just haven’t got a leg to stand on?
Your numbers show spending was cut back, once the state of the economy is taken into account. That is enough in anyone’s language to indicate that there’s a high likelihood that this will negatively impact GDP growth. Which kind of argues against your statement that I quoted.
Reply The numbers show spending increased in real terms and borrowing adjusted for the cycle was higher than in previous recessions.
January 26, 2013
Which wasn’t the point I was making.
January 26, 2013
Oh, and defining the last 2.5 years as a “Keynesian stimulus”?
A Keynesian stimulus would be counter-cyclical spending to boost the economy, and would ensure that after adjusting for the cycle, spending wasn’t decreasing.
Reply Which is exactly what the governments have been doing. Look at the figures.
January 26, 2013
You gave me the figures that say that spending, when the cycle is taken into account, is falling – while the economy is still far from recovered.
That simply is not a Keynesian stimulus.
Reply Spending is rising in cash and real terms. The deficit was meant to fall on an adjusted basis, but not this year, as this year they are borrowing more than last year. The deficit is still way above the usual peak for getting out of a recession.
January 28, 2013
Mr Reade, where were all you Keynesians when Gordon Brown was running deficits in the middle of a boom, contrary to Keynes’s theory?
January 28, 2013
What boom?
January 26, 2013
John and James , you are both being disingenuous .
Taking a single prescription of Keyne’s in isolation from all the others and labeling it “Keynsian” amounts to infringing Mr Keyne’s moral rights , specifically the right of paternity .
Claiming deficit spending without mentioning the other side of counter cyclical policy , that of running a surplus to cool a boom and building up reserves , as being “Keynsian” is little short of defaming Mr Keyne’s who isn’t around to reply .
Even if counter cyclical policy had been followed from 1990 , it’s still a big assumption that Keyne’s would recommend deficit spending in 2013 .
January 26, 2013
The ridiculous HS2 is going to cost £30bn+, about the same as the treasury takes in fuel tax from motorists.
Imagine the extraordinary economic growth that would occur if petrol suddenly dropped to 50-60p a litre tomorrow.
January 26, 2013
Then consider the same effect if every tax were dropped by a similar percentage. Also the large boost to productive enterprise if all the rule loving bureaucracy were sacked and business were free to do business not conform to pointless red tape.
January 26, 2013
Indeed release the wealth creators and kill the countless, overpaid and pensioned, parasites that fees of it and kill it. All is very simple really.
January 26, 2013
Afraid not.
We all know where the red tape comes from don’t we.
January 26, 2013
All you plans will do is lead to businesses becoming unsafe to work in and making products unsafe for people. There’s a reason why quality control, and health and safety were introduced.
January 27, 2013
Quality control of course has a reason. Health and safety too to a degree but Health and Safety now is driven by money making organisations nothing much to do with real risks to health.
January 27, 2013
That only logically follows *if* every single piece of health and safety legislation is *totally and utterly* necessary to ensure that workplaces and products are safe. This is what Andyvan is getting at when he refers to “pointless red tape”, i.e. some regulations are pointless because they only add costs without really improving anything.
I think everyone has seen this sort of pointless H&S nonsense at work and elsewhere. I think it is this that Andyvan and other are referring to, i.e. streamlining H&S so that is effective and reasonable and not over-burdening. The situation can definitely be improved without any effect on safety.
January 28, 2013
The major problem with Keynsian-style stimulae is that it doesn’t actually work; the entire thing is based around a hypothesis which careful observation of how an economy climbs out of a recession has demonstrated not to be true.
The major driver for an economic recovery is small businesses being founded and growing. For this to happen, there have to be the tax and regulatory pre-conditions to permit this growth. As things stand, we have an overly-complex and confiscatory tax environment combined with a heavily over-regulated legal environment. Part of this was inherited from Labour, part from the EU. Both need to be scaled back dramatically.
This is how the EU is going to die; not with a bang but with a prolonged whimper. It is going to slowly regulate its internal economy into the ground, and kill its currency as a side-effect of this slow economic decline. Best we got out ahead of the rush, really.
January 26, 2013
The only problem with the HS2 is the delays. They ought to get on a build it asap and considering most of the right wingers who oppose it don’t give two figs about the environment until it affects the price of their homes, they ought to not bother with the tunnels, except where they are required for engineering reasons. Then we should get on with extending HS2 further north. It’s a great use for fuel duty and Air Passenger Duty.
January 26, 2013
HS2 is an economic, job destroying and environmental nonsense as anyone rational would conclude after any sensible analysis.
January 26, 2013
Very good points.
January 26, 2013
Indeed this is all obvious, but why does the BBC, Clegg, Labour, the state sector unions, some dodgy economists and even Osborne think otherwise?
January 26, 2013
Even the barmy Boris is pushing for this daft “stimulus”. Perhaps they think we should hold an Olympic games every year then we could have white elephant, under used stadia all over the country to match the pointless wind turbines.
Emily Maitlis’s interviewing of David Gauke was a total disgrace. I see on wiki that Emily Maitlis’s very first occupation was a trainee hairdresser. Perhaps she has missed her calling. David Gauke sounded a bit of a dope too alas.
January 26, 2013
I presume this was on the BBC? Most on that government channel say and do what they are told. The only channel worth watching these days is rt.com. It is much more slick and honest, if a little amateur sometimes, but is more like the BBC in the ’70s before they got into bed with the politicians.
January 26, 2013
It was Newsnight BBC2 on Friday, yesterday.
January 27, 2013
OK edit that. Bit strong, but abandonment of the state is a Russian attitude for many of them once they have escaped. The country going to dogs. ‘Is’ going to the dogs.
RT is a Russian propaganda channel, a mixture of the BBC and CNN and a perfect combination of public relations, lobbying corporation and honeypot to those fooled by veiled reports supported by Russian intelligentsia. RT is strangely silent about Russian corruption, suppression of rights, free speech and economic inefficiency isn’t it?
I stand by that.
January 26, 2013
Lol
January 26, 2013
“Indeed this is all obvious, but why ,……..”
Because they all live in their own little protected bubble, surrounded by others who live in the same bubble.
The one common factor, they all simply talk, or produce programmes that discuss.
None of them actually produce anything tangible that needs to be sold, and which has to be designed, marketed, priced, and produced in a competitive manner, and which in the end will have competition in an open market.
In other words they all get guaranteed income (tax revenue and funding) no matter how they perform, so they are completely unaware of FIRST HAND EXPERIENCE of the real world.
January 26, 2013
Amen to that! Our idea of rebalancing the economy doesn’t seem to coincide with theirs. The public sector is still far too big to be sustained. The same thing is replicated in the EU, yet they wonder why the whole project is going pear-shaped. Yet to hear the various ‘experts’ talk on the BBC, the Euro-crisis is over, when the truth is, it just isn’t given the weight by the broadcaster that it should be. Maybe if it was, everyone will ‘wake up, and smell the coffee’!
And the magician Obama is being hailed as the saviour of all western economies by people who should know better. Booting the can down the road is not a solution. When that chicken in the shape of US debt finally comes home to roost, it’ll soon be discovered that it’s not a chicken at all, but a bl**dy great shite-hawk!
Tad Davison
Cambridge
January 26, 2013
Tad, well said
January 26, 2013
“The same thing is replicated in the EU” and England & Wales and Scotland and the regions, councils and local authorities …………
January 26, 2013
I wish someone would actually present this on TV in its entirety so the public can see the whole story. All we get today are sound bites from vested interests.
January 26, 2013
@David Thompson
“I wish someone would actually present this on TV”
Here it is:
http://www.channel4.com/programmes/britains-trillion-pound-horror-story/4od
Channel 4 on demand
Google Britain’s Trillion Pound Horror Story
enjoy!
January 26, 2013
Is there anyone on this island who doesn’t have a vested interest in the UK economy?
January 26, 2013
Well a hermit who lives in a forest and lives off anything he can forage wouldn’t have an interest in the economy. However if he started selling fish bones to people then he would have in interest in the economy.
January 27, 2013
I have whatever you are are drinking Uni.
But perhaps with a little more tonic.
January 26, 2013
This analysis is spot on. The weakness of our banks has stopped the huge monetary stimulus filtering through to businesses and individuals. The Bank of England’s latest lending figures show Funding for Lending has helped homebuyers get mortgages but lending to business has dropped 25%. The weakness of or banks is about to be compounded as they face the expensive costs of ring fencing. The UK is just too reliant on its banks for debt finance, has too few lending banks and has done nothing to help establish other debt capital markets such as the US enjoys.
On tax, the PM and Chancellor are trying to stigmatise individual companies for legal ax avoidance rather than clampdown on the techniques which favour non UK tax domiciled business at the expense of UK tax domiciled businesses. The US & Germany, both bigger and more successful economies than ours being 3% of GDP ahead of pre crash levels whereas the UK is still 3% lower, restrict the amount of interest that businesses can claim for corporation tax deductibility and have an Alternative Minimum Tax to negate aggressive tax avoidance. The UK does not.
Above all, Gov spending is too high. This Gov will borrow more in 5 years than Labour did in 13 and even if the growth predicted by the ever optimistic OBR materialises between now & 2015, the deficit will still be above 6% by the next GE – it will not even have halved.
This Gov needs to it back spending drastically by cutting the budgets that ballooned under Labour, use the funds to cut taxes, and get credit moving into the economy either through our lending banks or bypassing them.
January 26, 2013
One thing the Chancellor could do, and soon, is scrap HS2. Or,if that is too big an ask, put it into limbo on a minimal cost care and maintenance basis. To continue spending loads of money on this folly is daft.
Even if HS2 does turn out to be as predicted by its supporters the benefit from this enormous capital project is many years away, and is restricted to a very narrow group of people. The only people to benefit from HS2 capital spend are the people involved in building it. It is hardly surprising they think this is a good use of public money.
If public money is available for capital projects, rather than investing in the past it would be far better to invest in the future, such as with a proper roll out of high-speed broadband across the WHOLE country. As capital is progressively spent the return would be immediate. Also, the whole country would get the benefit, and there is no adverse environmental impact.
January 26, 2013
If HS2 is such a bloody good idea, then why don’t we learn from the past and leave it to private initiative and investment. Let the private sector make loads of money – or loose their shirts?
If a private consortium came forth with a convincing case I am sure Parliament would pass a new railway bill. There is precedent a plenty.
January 26, 2013
We know why the private sector would not touch it with a barge pole – it is in the wrong place and therefore will NOT make any money and will be a shambles and a waste all paid for by US.
January 27, 2013
Exactly.
January 26, 2013
Alan
Agree with your comments.
I thought we had “privatised” the railways ?
But we seem have a “special sort of privatisation” which still seems very complicated and still needs taxpayer funding. !
Reply Network Rail is in effect a nationalised industry owned by taxpayers.
January 26, 2013
reply to reply
John
Indeed, so we did not privatise the railways, just the running of the carriages.
But hang on a minute, were not the government involved in placing an order for carriages just a few months ago, and took some stick for it !
Another great shambles.
If there is a complicated and expensive way of doing things, you can guarantee the government (past and present) will find a way of doing it.
January 26, 2013
I can think of a capital project Alan, that is far more important to the nation’s economy than HS2, and needs putting right now. It’s called the A14. It’s a main artery linking the country’s largest port with the ‘industrial midlands’, but is heavily congested, and as dangerous a road as can be found anywhere. The slightest accident, of which there are many, closes the thing for hours on end. And fatal accidents, again, of which there are many, cause longer closures.
I agree with the view that the private sector could and should be allowed to build a relief road, paid for by tolls, but we need to change the mindset of the decision-makers who, because of political indictrination, balk at any form of privatisation, however much it might help the nation long-term.
This is where I find our politicians, and the entire political process so frustrating. We need courage and dynamism, but we only seem to get ditherers who are so preoccupied with trying to please everybody, they remain impotent and end up pleasing nobody.
God please give us the strength to wake these people up! In wartime, such projects would be rushed through. Well if we look at the state of our economy, we are already in a war. A different kind of war. An economic war, where every other country is a competitor and an adversary.
Action this day has a lot of resonance with me.
Tad Davison
Cambridge
January 26, 2013
“I agree with the view that the private sector could and should be allowed to build a relief road, paid for by tolls, “
But doesn’t the road user already pay enormous amounts for the privilege of using the roads that they’ve already paid for many times over?
If they want to privatise the roads, then fine – we can stop paying VED and fuel duty etc.
You can’t have your cake and eat it.
January 27, 2013
Bob: “But doesn’t the road user already pay enormous amounts for the privilege of using the roads .. ”
What’s the betting the VED, fuel excise tax, VAT etc raise much more that is spent on the roads?
January 26, 2013
Why would anyone sensible what to build something worth £XBillion at a cost of perhaps 10 times XBillion. Unless of course they had billions to waste (like the government) and thought they might get their hands on some of the contracts or pointless jobs produced perhaps.
January 26, 2013
I don’t think you understand. This is not a government project. Integrated rail and all transport comes directly under the EU.
DG Move runs transport along with DG Tren under the command of Commissioner Siim Kallas who has been in the Supreme Soviet and also Prime Minister of Esthonia.
The European Railway Agency – promoting safe and compatible rail systems (ERA) had a budget in 2010 of twenty six million Euros and 165 employees. 23% of the staff are Belgian.
January 26, 2013
You forgot to mention increased spending on benefits John due to unemployment and more part time low paid jobs. A large cost to the state which as you say need reforming by getting peole into work not by benefit cuts. If the spending had been on increased infrastructure and other benefits to the economy instead of tax cuts for the rich and the cost of austerity, which does have a cost fantasists, although your religious beliefs do not allow this truth to exist, the increased public spending would have been less and for the better. This promised growth by Osbourne has not materialised and has now contracted for four of the past five quarters. The one where it did not was in part to do with the spending on the Olympics. He was told this would happen, but followed dogma instead.
High rail fares, high energy costs, higher VAT, National Insurance who’s fault is that then? Especially that regressive tax VAT. Income Tax for those pushed into the upper bands is interesting. How many have been forced to earn more as opposed to those forced to earn less? Our main concern being the more wealthy it seems? No job reduces tax rates and demand more than a pay rise. last time I checked. The banks need to be forced to lent to increase private business by being told that they are no longer private business and if they do not will find themselves even less private and we do not respond to threats. The gravy train rumbles on despite all that has happened and blaming the population for this will not wash.
January 26, 2013
You want the government to force the banks to lend? The very same government whose policies have discouraged them from lending and resulted in savers being unable to get a decent return on their money?
Better, I think, for people with the wherewithal to cut out the useless middlemen and either lend directly or via peer-to-peer lending companies. Such an approach, I have found, stands a better chance of achieving a real return and puts the power in the hands of individuals rather than the government. But, then, I prefer to act myself rather than call on others to do so.
January 26, 2013
I am seriously worried about the costing here.
Are you honestly suggesting that the amount paid to people on the dole would equal the amount “invested” in “infrastructure”?
Do you really believe that taxing the rich will allow for the Mattterhorn graph of public debt?
Forcing both these ideas into practice would end up with Soviet inefficiency, wouldn’t it?
January 26, 2013
Indeed Mike
If you follow the logic forward the idea of a state that spent say 80% of GDP and a private sector of just 20% could be viable as the state would give the private sector loads of work and “profitable” orders.
Its a left wing fantasy.
Where does the money come from in the first place?
January 27, 2013
Both the state and the private sector. It’s a right wing fantasy to believe the state makes no contribution.
January 27, 2013
Yes Baz,I believe that a mixed economy can work.
But not 50 /50.
You need to focus on where Governments get their money from.
The bit they are not borrowing I mean.
January 26, 2013
Given that the minimum wage has fallen so low that people need benefits and tax credits to be able to afford to work it’s no surprise that welfare costs remain high regardless of employment levels. Cutting taxes for the wealthy will not fix this, nor will cutting benefits in real terms.
January 27, 2013
Uni,
The minimum wage has never fallen it has only gone up at each review.
January 27, 2013
It has fallen in real terms for quite sometime. Anything at doesn’t increase at the rate of inflation is falling in real terms.
January 27, 2013
So I was right.
The minimum wage has never been ever been reduced by the State and your propaganda was incorrect.
Thanks for your reply
January 28, 2013
It’s been reduced by below inflation rises set by the state. Are you not able to understand this? Or you believe it still has the same purchasing power when first set? Another ‘kitchen supper’ discussion I suspect.
January 28, 2013
I am capable of understanding this simple point thanks for asking.
I think it is worth re-stating that Uni’s claim that the Government has been reducing the minimum wage is completely wrong.
And I am glad to see he agrees.
Good to get your facts right.
No Government, Labour , Conservative nor the Coalition have ever reduced the minimum wage.
Those of us in work have had pay rises and then also found increased taxes and increased prices of essentials has eroded that increase.
That is something that applies to us all and is a stupid argument to make and try to say its just those on min wage who this applies to.
January 28, 2013
PS Baz,
“kitchen suppers”
We never ever eat in the kitchen. You must know the old saying… never in front of the servants.
January 28, 2013
Maybe you could call it erosion if you want to be pedantic. Yes everyones wages are being eroded and the point of the minimum wage was to stop this from happening to the lowest paid as these are the ones facing largest pay cuts as they earn the least and their is a large pool of them making them more vulnerable to wage cuts. If the government of the day continues doing this then there will be no minimum wage. If this is what you think is right then come out with it and stop hiding. You probably have this conversation in front of the footmen in wigs as you say.
January 31, 2013
Im not hiding and I have no secret agenda.
I supported the introduction of the minimum wage and it is dreadful those who pay below the legal level are not proscecuted more often.
I notice in your post above, you continue the false claim that the Government has “cut” the minimun wage and again I tell you this is not correct.
February 1, 2013
Benefits and tax allowances are often cut or phased out by not made to keep up with inflation. You do not see this as a cut What is it then? An Reduction? An alignment? A correction? Smaller payments are preferred by the recipient? You need to be a Politician. Benefits are also being cut by making the recipient pay more things previously they did not like council tax and spare rooms. This is not a cut either is it? Less to spend is a cut whether you like it or not. See how far you argument gets you in Tesco when you are short by telling them that in fact you are actually paying the same it just seems less. Ram it.
February 2, 2013
It’s quite simple, there have been no reductions of the minimum wages since it was introduced.
Your rant about benefits and inflation is not relevant.
I’ve come realise that I can tell when your argument fails as you have to sign off with your usual childish rudeness.
February 2, 2013
The minimum wage has been reduced by not being increased by the rate of inflation. Why did they not increase it at the rate of inflation? To save money by reducing it. You cannot escape this argument. Explain to us all why this is not a reduction in the minimum wage by the government or do you believe the rate to be of the same worth as when it was introduced?
January 26, 2013
Tackling energy costs – yes, well, repealing the Climate Change Act would be a good start!
January 27, 2013
And abolish all the “Green Deal” drivel.
January 26, 2013
yes and the non financial things like the loss of our leading intellectual property which is leaking abroad both legally and illegally to undercut us, the best IP and the best people is the only thing which justifies our price in the world – when its all slipping away we can only compete on cost which is a non starter so we lose business and jobs etc. and our approach to immigration which shows the rest of the world we dont even rate the quality of our own people.
January 26, 2013
Why doesn’t this
huge Keynsian
fiscal stimulus, all
this extra public
spending and
borrowing, give us
growth?
because if it were that simple Zimbabwe would be the richest country in the world and economic problems would never exist. Recognize this for what it is, pure theft. The greatest theft in the history of the world.
January 26, 2013
Very succinctly put, this is so obvious I can’t understand why the BBC and media don’t seem to grasp it. If you tax more to pay for a bloated public sector you just push marginal businesses over the edge and damage private sector performance. There is both a direct tax burden on business and an indirect damping on demand via personal taxation, unlike governments most individuals don’t spend money they don’t have!
Furthermore if we could strip away some of the low value bureaucracy and unnecessary complexity forced on business by the government and the EU (and the civil servants that administer it) the country would be a much better and wealthier place.
January 26, 2013
Given that a large public sector hasn’t destroyed private companies in Scandinavia it seems that you can have a large public sector and a strong private sector.
January 26, 2013
We don’t have growth because we still have a government and politicians who think they can spend our money better than we can. Tax and spend is the mantra of all the three main parties. Osborne did the simple trick of increasing taxes in his first budget but has carried on increasing government spending. What happened to the idea of a smaller state sector? That was quickly binned and don’t blame it all on the wretched Lib Dems. By the way, in case anyone is even remotely interested, the national debt is now £1.119 trillion and rising.
January 26, 2013
An economic stimulus is surely a conscious policy, not something purely defined by increased borrowing and spending? No-one is arguing for increased spending on anything at all but on national infrastructure, housebuilding or green energy projects with blue-collar employment prospects and long-lasting value to society. If you can’t also point to what these projects are, you can’t argue it’s a conscious stimulus.
A chancellor with ambition would borrow for policies he believed in, whether that was tax breaks for enterprise, stimulus projects, transport investment etc. and these aren’t necessarily incompatible with public sector cuts or other savings projects (though to me they seem to be reducing standards of living without any long-term benefit).
Reply: Of course it has been a conscious policy to increase public spending and borrowing over the crisis by both governments. The aim has been to expand the spending power of those on the lowest incoems through benefit rises, and now to launch a large capital programme with Crossrail, HS2 and other items prominent.
January 26, 2013
Matthew ,
Offshore winds will always be expensive .
Why invest billions importing today’s solar panels and fitting them to buildings when in 15 years time they are likely to have higher efficiency and be cheaper ?
The money would be far better spent on a nationwide household insulation program .
I agree with you about housebuilding but let’s start manning our borders first and turning people away .
January 27, 2013
The mistake is not installing the solar panels but importing them. The government needs to ensure that the manufacturing needed for these high cost projects takes place within the UK. If this cannot be done the projects probably should not happen.
Most of the cost of any project,either directly or indirectly is labour. When that labour takes place in the UK then at least a third of the cost is recovered in tax. Thus effectively the cost of the project is reduced by a third.
January 27, 2013
Indeed wasting vast sums of money on Betamax PV panels that do not work in economic terms. Even in sunny fields in Spain. Still less in cloudy UK in expensive roof locations.
January 26, 2013
“The biggest ever fiscal stimulus, Keynsian stimulus, is being tried”.
Where? The biggest ever Monetary stimulus is being tried, by the Bank of England. Monetary stimulus is totally different animal to fiscal (i.e. taxes and the government’s Treasury spending). Osbo’ is reducing the the government’s Treasury budget deficit which will slow down the accumulation of the national (government Treasury) debt. That is fiscal consolidation (reduction); it is the total opposite of Keynesian fiscal stimulus. This is a private sector debt based recession, the BoE stuffing the commercial banks full of cash will not encourage the household sector to spend and hence increase aggregate demand in the economy. It has allowed the banks to speculate for profits, not lend.
No demand and my mates on our local industrial estate are not expanding any production until they see the customers running towards them. Then the banks will be a problem. It is more profitable for the banks to use QE to speculate on the diesel fuel price than it is to finance a company that makes the road tankers to deliver the stuff.
Since 2006, household spending has dropped by circa £58 a week (at 2011 prices); that is about £78 billion a year for whole country. Household disposable income has dropped £32 a week respectively, again RPI adjusted to 2011 prices. That’s about £44 billion a year.
Bottom Line. £350 billion monetary bailout for banks; OR, £78 billion fiscal stimulus to households for 4.5 years; telling them they have to spend it and definitely not to save it.
Reply: Look at the figures – there is the largest ever amount of state borrowing going on, and this year state borrowing is higher than last year.
January 26, 2013
Indeed tax borrow and waste had over fist by the state and a huge squeeze, on the productive, from very direction. With the results we see.
January 26, 2013
JR perhaps you should read Acorn again. QE was not stimulus. If it was where is the promised growth. The main effect of QE was to reduce yields so that the Government could borrow on the cheap. Arguably lower yields produces reduced borrowings costs but in actual fact the banks were pushing rates up. Admitted some benefit was achieved in lower mortage rates but this did not free up additional cumsumer spending given inflation and what amounts to wage freeze.
We do need a change of emphasis and if growth is to be rstored in a meaningful way then taxes have to be cut. But I cant see that Dave or George really have the bottle to change course now. Still whats the rush – lets give priority to gay marriage.
January 26, 2013
Keynsian stimulus works when & only when there is unused factory capacity, in a competitive industry. which can be stimulated by the spending.
The cause of our recession & I am disagreeing with John’s statement today, is that our entirer economy has been made uncompetitive by the state deliberately making energy many times more expensive than it should be & by the regulatory burden (in some industries like housing making the product 4 times more expensive than it should be) .
Let the market free, particularly in electricity production and get rid of the state parasites, including the EU, and we would cdertainly achieve at least the 6% world average growth rate.
January 26, 2013
The Carbon Plan, trumpeted by Cameron, Clegg and Huhne, included a wheeze to pay companies not to operate to save electricity! As I recall they called the saving Negawatts. If you want growth and efficient operations, they need to be running 24/7 – that is what the on-the-ball foreighn competition do. There is no hope with current energy policies.
January 26, 2013
If the figures you give are accurate and I have no reason to disbelieve you or them, then one answer could be that the borrowing pumped into the public sector went to pay bigger salaries to those who did not need them. They should have pushed through, productivity changes, to the system. If you follow that idea through, means, the people who received the money, just saved it Why because they had no need to spend it, when you have free cars and large a expense account it is we the tax payer, who pays your bill.
Look at what Cameron has done over the past two years, he created another layer of bureaucrats , all on public pay role, jobs like police commissioners , paid mayors, he has allowed councillors to run a mock with large rises in pay and expenses , while at the same time cutting essential services and putting up the council tax. We have had more enquiries set up than ever before, costing millions and putting problem on the back burner for months if not years.
He has not explained to us that if we stopped sending £50 millions per day to the E.U we could send it to pay off our national debt. He has not sorted out the house of lords reform and the reduction in the number of M.Ps all will cost us the tax payer millions of pounds. He has not sorted our the law relating to deportation which is still costing millions of pounds.
Your analysis is a worthwhile read, but surely a successful leader regardless of the coalition could have achieved more and could have been more honest with the public. Would I recommend a vote for the Tory party NO but thee is still time to do the right thing before 2015?
January 26, 2013
I realise that this will be dismissed by bureaucrats and opoliticians ads some form of special pleading by business, but I do really believe that additional regulation is preventing businesses from devloping or investing. Afte twenty years of accelerating new regulatory activity, the burden has become very significant.
It used to be possible for someone witrh experience in a particular business sector to start up or expand into new areas or greater violume using common sense, honesty and maybe a few checks with his accountant and a phone call to a trade association. Now that is very much not the case. Tax, employment law, guidelines for this and that, data protection, asbestos surveys, water quality, the list is seemingly endless.
In the financial services sector bigger businesses seem frightened of making any decision unless several months and reams of paper have been consumed, with repeated questions and checks by “compliance”. The impression is that a paper trail is needed to protect managers from the impact of any regulatory criticism at a later date.
Consider hxousing development: archaelogical surveys, environmental (bats), social housing, highways, green energy, water pollution and much more has to be paid for before any planning consents can be obtained. All these fees and the architect’s too add up to thousands of pounds per dwelling without any assurance the site may be develioped, still less that the homes can be sold at a profit. Businesses don’t mind the risk of commercial failure but the added up-front loading of bureaucratic costs is a real turn-off, especially when the surveys are bound to be clear in many cases.
Still, the government wants all these regulations, taxes, para-fiscal charges and central control so they better bear the blame for no growth.
January 26, 2013
QE is a grotesque downward spiral to Armageddon. The more money printing, the more Gilt purchased, the more their prices rise and the more their yields fall.
What happens when QE stops and/or private sector Gilt holders start to liquidate them? Prices will fall and yields will rise, inducing a hike in Interest rates from the BoE to compete with the new, high, Bond yields.
Money will leave equities in favour of the higher fixed interest rates with lower risks.
The Stock Markets collapse along with the price of those bonds that will be dumped en masse before they lose the bearers any more money.
This is a Big problem for UK Pension Funds, who hold £Billions of Gilts and rely on them to fund the monthly pension payments to their members. What will happen if they cannot fund them because they do not have sufficient money ,as the Yield return is less that the total payments due?
My own Occupational Pension Fund is in the red as is that of my wife. Hers is £500 millions short and climbing. The company can only provide around £15 Millions per year to support this fund so they are 30+ years away from solvency. Meanwhile the debt rises.
No, QE has done nothing but bailout the banks at the expense of the little people like ourselves. It’s not going to get any better, either.
January 26, 2013
Inside the door of the Institute of Economic Affairs (Westminster) there was/is a chart of inflation through the ages. It bumbles along the bottom until it reaches Keynes and then it just goes stratospheric!
That’s why I’m an Adam Smith fan.
January 26, 2013
You could add Mr Micawber’s economic philosophy as well. It should be engraved on the hearts of all MPs.
January 27, 2013
Dickensian economics. Why I am I not surprised? Welcome poverty!..Welcome misery, welcome houselessness, welcome hunger, rags, tempest, and beggary! Mutual confidence will sustain us to the end! No danger of the bankers ending up in debtors prison though is there Bernard? Ram it.
January 27, 2013
No its all about spending within your means.
The poverty you describe will eventually result if you do not hold to this very basic rule.
Its an inescapable fact of life.
January 28, 2013
Spending within who’s means?
January 26, 2013
The state needs to shrink and the wealth should be returned to the people. Then there is a chance of growth. Pity the government is only learning the hard way.
January 27, 2013
The problem is that the wealth would not return to the people in such a scenario it would further enrich an elite and impoverish the rest.
January 26, 2013
When Maynard Keynes was alive , the strength uf GB and the commonwealth was quite different , so I am not sure his fiscal principles can be translated into modern times , but there again I am not equipped really to understand this.
The private sector which I know you vigorously support, are subject , by their own hands, to petty competition . Negative competition makes it too hard to survive and all disappear up their own exhausts so to speak. I will give a very recent example of this. I have just worked solidly to upgrade my skills for a year , had highest marks in modules , have presented all the academic work , guided by the tutor , on what to include and what not to include. Even though I have completed all the work , the private concern has marked their own corrections down, have taken some money to allow me to continue and yet will not allow me to continue on the basis of their own failure. I have had a large grant to upgrade a private business on the basis of this qualification which could expand ,and would have proved to be lucrative, but this pedantry has now halted it. I still complete the work under another title , but am not allowed to make a private concern around it now.
January 26, 2013
I would like to make a quick point about marginal propensity to consume. Firstly, since consumers save part of their income which, in the short run, means a loss of spending in the economy, the concept that a pound increase in government spending just crowds out private spending is wrong. Government spend the pound, consumers spend only a proportion of the pound.
Secondly, poorer people spend a higher proportion of their income, so perhaps there would be more support for tax cuts if they were aimed at the less well off, since this would be more successful in stimulating higher output.
January 26, 2013
We need confidence.
Confidence that the leadership know what they are doing. Confidence that they know where they are going. Confidence that the hard decisions will be taken in our interests. Confidence that they are in it for the longer term. And confidence that the UK will retain its integrity as a stable, unified and independent nation for the forseeable future.
The rest will follow.
January 26, 2013
Keynesian theory can be summed up as “save for a rainy day” and Hayek and the Austrian economists theory can be summed up as “cut your coat according to your cloth” and “intervene and/or manipulate markets at your peril” . Perhaps an over simplification however seen in those terms it is possible to see why Keynesian economics is not working; everyone is applying the rainy day part of the theory but have neglected the save bit. Also Austrians economic theory has been neglected in it’s entirety or applied under the wrong circumstances and only in part. The left love Keynes, well the rainy day bit but hate Hayek. A rational person likes both in their entirety and know that had they been practised together we would not be in the mess we are today.
January 27, 2013
I feel the decision to go with Keynes or go with Hayek is down to “Left” or “Right”.
Keynes theories give the monetary power to the Government whereas Hayek’s gives the monetary power to the Private Sector, i.e. the citizens. So it’s all down to control freakery and it is no accident that the socialists bend over backwards to follow the Keynesian path.
January 26, 2013
We seemed to have a normal-ish recovery until mid 2010. Since then we have had stagnation.
What changed?
January 27, 2013
Nothing at all. Labour deferred any serious decisions by effectively printing the first tranche of QE, some £200 million. This allowed it to basically carry on as normal, leading up to the election in 2010. They never had any appetite for making cuts, so now you have the situation we have now, not good.
January 26, 2013
What about interest rates John . You do not mention them ? WHY ?
January 26, 2013
What is the evidence that public sector borrowing crowds out private sector financing and investment? It seems to be an act of faith to assert that crowding out is occurring.
What is more likely, is that if govt deficit spending stopped then GDP would fall off the cliff.
January 26, 2013
There was a lot of stuff in the papers this morning about calls from the IMF , Goldman Sachs and KPMG to try a “plan b” instead of “austerity” .
If any of these three organisations had said Osborne was doing the right thing I would have started to worry .
The UK has just been through a massive boom which was built entirely on spending everything and saving nothing and then credit .
Osborne sums up the situation perfectly ; the UK either confronts the issues or it ignores them .
The damage had already been done before the coalition came to power (not that they did anything whilst in opposition to stop it) .
If people think the UK should be in a significantly better position than it is then they are being impatient and unrealistic . The massive correction , not least in house prices , de-leveraging of household debt is going to take much longer than people think and it will cause pain .
Even then , living standards are not going to return to the levels they were when demand was funded by spending every penny including what previous generations would have put into a pension , saving nothing and borrowing yet more money to spend .
What the Govt needs to do is create a housing surplus so the next generation pay less for their accommodation and have a surplus to pay off our debts .
January 26, 2013
The UK needs to bottom out before things can start getting better .
January 26, 2013
Some good points here…..John’s plan seems sensible . Unfortunately, banks have very strict criteria on lending and Basle III regulations which would not allow a traditional private sector recovery to take off. The relative increase in public spending compared to other recessions, as others have already shown, cannot be compared to a typical Keynesian stimulus. The extra money created has been undertaken to keep public spending at current levels, and to help keep the banks afloat. It has not been inflationary because it has not been lent out by banks because it is not in their interest to do so…..
Zorro
January 27, 2013
Several actions could contribute to the creation of a housing surplus. Lowering the birth rate, reversing increases in immigration & assisting emigrating have some effect. Reducing the divorce rate & single occupancy, or using empty commercial premises for domestic accommodation could also provide more living space for those who need it. Every action has a consequence. Some actions solve one problem but risk creating others; sometimes worse.
Solutions with no disadvantages would be splendid, if anybody could identify them.
January 27, 2013
Wilko ,
Emigration from the UK is more worrying than immigration .
By turning the country into a sh**hole we are driving the people we need to keep away .
January 26, 2013
As a pensioner who has has it were always cut my cloth to suit it really winds me up that I got on my bike from the North East to come daan saath and kept working as did my wife. We have saved for our retirement but in reality we shouldn’t have bothered. Low interest rates, the worst OAPension in Europe and the possibility should we have to go into a home then our Bungalow will have to be sold to pay for it. If we hadn’t bothered we would be looked after by the State so where I ask is the incentive to save. This Country needs grabbing by the neck and some real decisions made as to who should be looked after. The savers or the feckless?
January 27, 2013
John Orchard ,
You are right .
To encourage saving actually requires the authorities deduct more money from us during our working life :-
– as an insurance premium for old aged care
– to provide a pension high enough to make means tested benefits redundant
It’s no accident that the CBI petitioned for vocational pension schemes to be closed down . They wanted their hands on that pension money and they weren’t prepared to wait until the policies matured .
I am punishing myself in order to put 25% of what I can earn away for old age and I just don’t see anyone else doing it (except those in the public sector whose employer and employee contributions far exceed 25%) .
For sure people are being encouraged to spend rather than save but since it is by the elected Govt I feel people should be looked after whether they are feckless or frugal , just that the frugal should be looked after better .
The feckless have still done much less damage to society than the financiers who enslave us .
January 27, 2013
Simon
Good for you that you are attempting to provide for yourself in old age, as that is what should be encouraged.
But
The Government constantly change the rules and move the goalposts, so I would suggest that it is always sensible to put your eggs (if you have enough of them) in more than one basket.
Many of us out here have practised what you are doing in years gone by, and are now finding ourselves screwed, with anniuty rates at an all time low, interst rates on savings at an all time low, and given the low level of savings threshold for any benefit entitlement, it means we have excluded ourselves from any State help should the need arise.
Those who haver blown the lot, get all the help !!!!!!!!!
January 26, 2013
It is not giving us growth because you need to increase full time employment to do that and the tax system presently in force deters employers from taking on people full time. They may not be listed as unemployed but part timers are not earning a living wage, and not paying National Insurance or income tax and are claiming benefits in one form or another. The tax system has to make employing people more attractive. Simple economics, stop holding back growth and let it happen.
January 26, 2013
Even people on the minimum wage in full time employment are getting more in benefits than they pay in taxes. So the problem is more to do with low wages than working part time.
January 27, 2013
And what causes the low wages, a cheap supply of labour, too much regulation & taxation a huge parasitic state sector and lack of investment in capital equipment.
January 27, 2013
If the government has engineered, deliberately or not, a situation where the cost of living is vastly higher than a minimum wage’s ability to fund this, then that’s thier problem, or rather, ours unfortunately. Lets face it, the minimum wage cannot go up for ever, the government must start to cut its cloth accordingly, why for example are those public sector beaurocrats still paid more than the pm, its a joke, I no longer have a problem with people spiteing the state by not paying tax , I don’t condone criminality, but this is now beyond a joke. The government gets the taxpayers it deserves quite frankly.
January 26, 2013
And on top, there is the EU.
Merkel let the cat out of the bag the other day. They would fight to prevent the UK from leaving because the UK would gain a competitive advantage.
Now that statement hides a dirty secret. If the UK gains a competitive advantage, those in the EU are being put at a disadvantage by EU policies.
ie. The EU is damaging countries.
January 26, 2013
What exactly is this competitive advantage? Being able to reduce working conditions and pay?
January 27, 2013
Why don’t you ask Angela Uni, I’m sure she would explain to a good European like you.
You keep telling us how well Germany is doing and if only we were obedient Europeans we would do as well as them.
January 27, 2013
@Edward
Making up false claims and failing to answer the question just shows that you don’t know what competitive advantage of the UK is. Assuming that it actually has such an advantage.
January 27, 2013
Rubbish as usual uni,
It is you who is failing to answer the question.
Merkel has said the UK would gain an unfair competitive advantage by leaving the EU and that is why she wants the UK to remain inside the EU
Simple as that.
January 28, 2013
uanime5: “What exactly is this competitive advantage?”
Why don’t you ask Merkel?
January 26, 2013
Google:
The death of the West? The bad news…
For every £1 which Labour added to the British economy between 2001 and 2009, we added £5.40 in debt (source below). I mention that because today’s GDP number of -0.3pc is bad news, not only for the economy itself, but because the wrong moral will be drawn.
Thomas Pascoe – Daily Telegraph
http://blogs.telegraph.co.uk/finance/thomaspascoe/100022487/the-death-of-the-west-the-bad-news/
January 26, 2013
John- the IMF estimates the fiscal multiplier is probably greater than 1: How do you respond?
Reply: There is no evidence in the UK – or the Japanese figures – that it is over 1! How can it be?
January 27, 2013
Not sure what you mean John- clearly there is evidence that the multiplier is greater than 1 otherwise the IMF wouldn’t say so?
http://delong.typepad.com/sdj/2012/10/not-the-treasury-view-what-explains-poor-growth-in-the-uk-the-imf-thinks-its-fiscal-policy.html
When you say- ‘how can it be?’- that’s almost as if you’re suggesting it is impossible that it can be over 1. It isn’t impossible at all.
January 26, 2013
Instead of throwing away over £1bn on costs associated with academies would could have been investing in education in ways which would actually make a difference.
It’s not how much you spend, it’s how you spend it.
January 26, 2013
John, your post speaks the truth since it is mathematics.
Yet, the BBC promotes the opposite view.
Since it is perfectly reasonable for busy people – in their millions – to believe the BBC line then I believe we are in big trouble as I fear our ministers cannot fight this propaganda.
January 26, 2013
Off topic:
Bias against public school pupils is ‘hatred that dare not speak its name’
http://www.telegraph.co.uk/education/educationnews/9827691/Bias-against-public-school-pupils-is-hatred-that-dare-not-speak-its-name.html
January 26, 2013
I’ve read most of the comments here, very interesting reading. However, what surprises me is we are fed information that we are broke, we’ve no money, presenters keep saying. We see discussions on Question Time, from politicians, the public, yet none ever mention foreign aid, health tourists, and Whitehall waste, going into billions. All MPs talk about the ‘moral’ duty of this country to feed the worlds poor, use our momey to intervene in foreign shores, at will. It all has to be paid for; by British taxpayers or borrowing more. Where is the moral duty from MPs elected to serve us the public. Well some MPs have made a pigs ear of running this country, and has we count the cost in our pockets and poverty, many feel it. I’m sick of hearing about the worlds poor, yes we can sympathise, but we are no longer a worlds benefactor, we have no ‘moral duty’ to know land or man. What taxes we pay should be spent on this countries needs first, before any other. We hear it all the time, ‘we have had to make serious and difficult choices’ may be, but when choices are for others and not our own, I question those choices and the people who make them. I don’t want to hear it, what I want is to hear money is reaped here and spent here. Until, MPs and PM’s get that message, no matter what they preach or say, it won’t work, their arguement is flawed. We have people begging for food in food banks, and spending on foreign shores while this goes on is disgraceful. These countries governments should be made to face up to their own responsiblities and failings, it is not for us to provide for their poor. This make me very angry indeed.
January 26, 2013
Health tourists here and foreign aid are indivisible. The cost is astronomical and the inconvenience caused by health tourists and therefore suffered by those who have paid in to the system is substantial. Health tourists also bring their children who become education tourists although the benefit to these children from our sub-standard education system is debatable.
January 26, 2013
“The disappointing levels of output are despite the increased size of the state sector.”
Actually would read better: The disappointing levels of output are BECAUSE of the increased size of the state sector.
January 26, 2013
The first is the private sector has been starved of new money to borrow.
Given that the combined amount of money private sector companies have saved is billions of pounds it’s possible that the problem isn’t lack of money but lack of something to invest in. The possibility that the UK may leave the EU in 2017 is also worrying businesses, as leaving is highly likely to result in major changes to the law and the UK’s ability to trade with the EU; both of which will have a major effect on how profitable a UK company will be.
The second is the high tax rates
If the Government didn’t keep lowering the 40% tax rate whenever they raised the personal allowance then the high tax problem would be much less. Cutting benefits in real terms is also unlikely to increase demand.
If the government decides on an extra pound of public spending paid for by a tax increase, that has no overall beneficial impact on the economy.
It is possible to create growth through taxation if the part of the private sector that is shrunk is less productive than the part the public sector that is helped to grow.
setting competitive tax rates, reforming welfare and tackling costs like energy and transport.
If by this you mean reducing tax rates (especially for the wealthy), cutting welfare (even for those who work), and continuing to do nothing about rising energy and transport cuts then you’re in luck as that’s what the Government is planning to do this year.
Also it seems that the pressure on the police to meet targets is resulting in some crimes not being recorded or investigated.
http://www.independent.co.uk/news/uk/crime/blowing-the-whistle-the-inside-story-of-how-targets-make-policing-worse-8467815.html
Reply: Usual nonsense – how can you argue our possible exit from the EU has put off b usiness, when Mr Cameron on ly made his speech last week? Do you think the EU will remain so unpopular that the electors will vote to leave? If so, why do you not support a vote on the topic to let the v oters make a decision?
January 27, 2013
The truth is that private business or at least big business has billions stashed away. Billions made during the high tax and spend years. Billions sent away to tax havens and hidden in other ways. They are simply sitting on piles of cash.
January 27, 2013
I’m saying that Cameron’s speech will worry businesses who may have been planning to set up a branch in the UK or expand existing operations in the UK because it creates additional uncertainty. So the UK is likely to have lower investment from foreign companies between now and 2015 as a result.
Reply You were seeking to blame the recent speech for the slow growth prior to it!
January 26, 2013
I’m still holding off ordering large items and employing people to help refurbish my house. The reason is that now is that there has been a major regulatory change to my industry so need the cash in the bank incase there is a break in employment. I won’t know that for about 12 months. I think it will occur again so I’ll need further time in the resulting new job to get security. However, with a busy regulator and as busy politicians and media that could all change and probably will going on history. I really would like to get on with my life and job, helping to secure the financial future of ordinary people. I see more stuff in the pipeline that politicians, regulators and media want to attack because it helps their profile but nobody else, rich or poor.
January 26, 2013
There – obviously, to even the dimmest student of economics – is no fiscal stimulus.
Fiscal stimulus be would the government spending (and yes, borrowing or printing*) enough to make up for the lack of private spending. The fact that GDP is still well below the 2008 level indicates that this is not, as has not, happened.
Government spending over the last 2 years is somewhere between 10 and 30 billion below the level of an actual Keynesian stimulus. Lets not forget that the majority of the increases in spending have been in social security; with the 1% growth cap, even that will stop.
More (yes, private sector) jobs should be this governments top priority. Reduce the deficit (hey, run a surplus) in the next boom, not in the aftermath of a financial crisis.
*printing to buy paper from weak banks doesn’t count as spending, it’s not fiscal.
Reply: The money printing is an additional monetary stimulus on top of the large fiscal stimulus. Remember the EU tells us our total deficit (not cyclically adjusted) should be n o more than 3%, so by any standards UK governments have made massive fiscal injections into the economy which do not work.
January 27, 2013
The fact that Cameron and Osborne are unable to articulate this logical view leads to the conclusion that they do not share it and at heart are out of the same economic box as Brown, Blair and Balls. This was apparent though, from the moment they promised to match Labour’s spending and refused to condemn the 50% tax rate and the ending of personal allowances above £100k.
January 27, 2013
Government debt is high and rising. Since around 1800 it has been found that high government debt is associated with low economic growth. High government debt reduces investment decision making because of the likelihood of rising taxation or further crises. High debt undermines future growth when used to finance current consumption rather than productive investment.
Diverting money from productive individuals and companies though borrowing and taxes allows a country to spend itself into poverty.
Government spending is rarely productive in producing economic growth.
January 27, 2013
If you had ever studied economics you’d know that the highest periods of growth where when the UK had the highest levels of Government debt.
January 27, 2013
I have studied economics and that statement is not correct.
January 27, 2013
The contrast with the US is interesting. Growth there is better than in the UK, though by no means great. As you have pointed out before Obama’s ‘stimulus’ isn’t doing anything that isnt happening in the UK automatically. The state / GDP % and tax / GDP % is c. 10% lower in the US than it is in the UK. There is a much more healthy attitude to ignoring environmental leftism (eg the development of shale gas) and the labour market (at least outside the public sector, which in any event in the US is smaller) is much more flexible than in the UK. That must account for the difference – the US is recovering despite having a left-leaning President. We need to do the same thing here: cut the size of the state, cut taxes, get shale gas development moving and free up the labour market, mainly to be achieved by getting out of socialistic EU-driven regulations.
January 27, 2013
Some of you are seriously telling me that keeping people on the dole and infrastructure is to expensive whilst spending billions on tax cuts for the rich and not tackling corporate welfare? A subject I am surprised to see Cameron coming out fighting about. Lets see I he can walk the walk. What we will end up with a country like Russia with the rich calling the shots and the rest of the population going to hell in a corrupt and undemocratic oppressive state ruled by oligarchs. That is being generous too. Even the oligarchs know they can either be rich or rule and run to London if they are smart. The RT propaganda that many like here is a smoke screen. Count on it.
Taxing the rich is a problem that any government need to grasp, putting the council tax bills of the worlds super rich above the needs of the population of thus country is not acceptable. or the right policy. This constant pandering to the rich is undemocratic and is in effect producing a new aristocracy that is being put there by politicians that actually believe this is the right thing to do. At least in countries like Russia the politicians need to be bribed! What we often see in many of the upper middle classes. The sort of people who have ‘kitchen suppers’, is acceptable pig ignorance allowing sweeping statements about the poor, that they have definitely heard about, and often in scientific subjects whilst requiring everyone else to provide absolute and solid evidence of any subject. Evidence that they then often ignore and carry on spouting their prejudiced opinions and claiming that anything other than that is “absurd” and not “sensible”. Boris Johnston, Gideon Osbourne and a large number of other Tories and their supporters are often the main culprits. Labour has a collection of do nothings. The highest being Tony Blair who simply accepts that knighthoods for every city spiv and tax avoider are just par for the course and nothing could be done anyway. No recession for them was there? Anyone who believes this nonsense can ram it.
January 27, 2013
Coming to get ya fantasists! And many old gits like myself who have small children. Have I ever told you to ram it?
January 27, 2013
“The public sector grows by a pound, but the private sector shrinks by a pound” Not really true nor nearly true to say that. The fact is that I need nobody else to spend my pound but the government does; it needs collectors, administrators and those who oversee the spending.
Splitting hairs? I don’t think so, when you consider the percentage of the population devote to these functions.
Not so far removed from Keynes idea that men should be employed to dig holes in the road and then fill them in and, if government spending is not neutral then it must contribute to a shrinking economy
January 27, 2013
I think Derek Emery is bang on, the more government interferes and regulates the business sector the more disastrous the effect. As for government spending who do they think they are, completely bonkers with their giving away our taxes to other countries. If they want to give let them do it with their salaries and inherited wealth. Leave us to manage our cash as we see fit thank you. For the countries sake stop borrowing and lets try just for once to have a balance of payments that means we are paying our way.
January 28, 2013
John, I thought you’d like this – Dan Hannan blows the whole Keynesian theory out of the water in just 90 seconds. It hasn’t worked, because it absolutely never, ever could work. “Government spending to stimulate the economy” is just as smart as “fighting for peace” or “copulating for virginity”.
January 28, 2013
Not too bad an analysis, but … if the private sector, particularly the small and medium companies (SMCs) have difficulties to get credit, it is not directly the Government’s fault, it is much more directly due to the fact that despite the huge and repetitive quantitative easing, the money given by the taxpayers to the banks is not finding its way to these SMCs.
So I would appreciate seeing you putting forward this type of argument or if I am wrong to let me know where and how I am wrong.
January 28, 2013
My questions are these: why did the coalition continue to borrow so heavily for 2010-2011 and 2011-2012? Why couldn’t they have borrowed amounts similar to before the credit crisis?
Have there been spending commitments due to the over-spend in 2010?
January 29, 2013
My guess is that they have had to borrow more to support rising costs in the NHS which they agreed to pre-election. Social spending is also high. Government spending and borrowing is increasing year on year so that public debt is likely to reach around 100% of GDP by 2015. See http://www.guardian.co.uk/news/datablog/2012/mar/21/budget-2012-spending-tax-visualised.
Cuts are small and in the future. I suspect this has to mean low economic growth due to the effects on private sector investment which is taxed more heavily to support government spending. The coalition as too soft to make the necessary structural changes as they re needed but only slowly and after the event leading to climbing debt and low GDP growth due to contraction in the private sector.
February 3, 2013
John – your clear explanations of subjects others almost invariably complicate are refreshing. Should you not be our Chancellor, or even, PM? Or, perhaps, you should join UKIP, a party that is becoming increasing relevant in todays, tentatively, United Kingdom.
May 2, 2014
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Why doesnt this huge Keynsian fiscal stimulus, all this extra public spending and borrowing, give us growth?