Yesterday there were new figures for the year to June 2011. They showed overall growth had slowed to just 0.1% in the last quarter of that year. They also showed that public spending had gone up by 1.3% in real terms over the twelve months.
When I first revealed the big cash increases in spending for 2010-11 and 2011-12 in the successive Red Books published by the Coalition, many ignored it, some argued that I needed to look at real terms and not cash, and some went on to assert there would be real terms cuts. I could not see how total current spending could be said to be falling in real terms, given the scale of the cash increases. Nor this year is it possible to see how the 3.8% cash increase should translate into a real reduction, as this year is meant to see a freeze on pay and better public sector buying. The official confirmation yesterday that real terms public spending has been growing is a welcome shaft of light which will doubtless be ignored by most commentators.
We need to examine carefully the government’s statistical way of calculating so called real terms spending changes. There seems to be a temptation to expect substantial inflation of public sector costs. This needs to be questioned at a time of self advertised pay restraint, and given the need to make rapid strides in productivity after a very disappointing decade for efficiency improvement. Having an intelligent economic discussion of how to fix the UK is not made easy by a refusal of most commentators and politicians to work from the actual figures.
I have been asked to comment on David Cameron’s speech. I thought it effectvely got over some messages. He is right to say this is a debt crisis, and you cannot get out of a debt crisis by borrowing too much. He wanted to inject some optimism, and did so by saying the UK can do it, can make it, can bring on a recovery. He spoke well on the topic of public sector pension reform, with passion on the need to end educational apartheid between the public and private sectors, and with sincerity about the important contributions some public sector employees have made.
I would have liked a clearer steer on how the UK will respond to the gathering Euro storm. I was also interested in his statements on public debt. He attacked Labour for spending £428 billion more than they had available in tax revenues. Some of that was recklessly borrowed in the good times. He did not remind us that the Coalition’s current plans are to borrow another £480 billion in five years. These figures are likely to be revised upwards in the autumn in the light of weaker growth.
It is important that in all the arguments about paying off the credit card the impression is not left that the government is now paying off the nation’s credit card. This particular piece of well used plastic is about to be flexed and flexed again. It is important people are told that. This is no slash and burn government when it comes to public spending. This is a government still borrowing large sums, knowing that it has to keep the markets on board with its deficit reduction trajectory and with the credit worthiness of the country. The economy is not slowing owing to a lack of fiscal stimulus.
October 6, 2011
Setting aside the jokes at Labour’s expense, the speech rather reminded me of late George HW Bush, i.e. content-free upbeat. No tax cuts, no help for industry struggling with hugely expensive energy, no vision, no real difference between Cam and the other interchangeable party leaders.
Indeed, if you really want to see what empty nonsense it was, delete the partisan jokes and just look at policy. How much could not have been said by Clegg or Milliband (and indeed do the same for their speeches), precious little. A nice metaphor for British politics at the moment. Pick your leader if you want, but there is no real substantive policy change on offer. Combine that with utter collective economic stupidity of the poltical class which is very unpopular. Add ignoring popular views on things like the EU and, at the danger of becoming a broken record, this won’t end well.
October 6, 2011
“You cannot get out of a debt crisis by borrowing too much” and certainly not if you spend it on green energy, HS2, the Olympic white elephant buildings, wars and overpaying the state sector to do very little of any use.
It was very good that he promised firmly to protect the countryside – thus indirectly assuring us that Huhne and his silly wind mills must go. We can all rejoice at that at least and the lower electric bill that will ensue.
When is this to happen I wonder?
He also, alas, rather carefully implied that he would use the IMF to give yet more of our money away to the EURO fiasco sticking plaster fund.
I am happy to pay for inoculations if the overseas country really cannot afford them themselves (they do not cost very much however) but not for most of the other overseas aid (that he hid behind his simplistic “inoculation” appeal to the emotion).
All in all 1 out of 10 I think.
October 6, 2011
I think his basic problem Cameron (and his wife) have is that they have never been short of money and this detaches them from the real world and an understanding of how most people and business gets by.
Rather like someone who has never had children telling you how to look after yours – after they have studied the subject at college. Or a health and safety expert telling you how to safely do a job – one that he has never done in his life.
They should all go and work in a cash small, cash strapped, business in say Wigan for a month or two they would learn a lot about all the pointless burdens the state heaps on them.
October 6, 2011
Lifelogic,
I would make it a law that you could not become an MP until you have worked in the private sector for 10 years. And that the company you work for should have less than 200 employees.
October 8, 2011
In the same vain you should only be allowed to drive a car after riding a motorbike for a certain time. The roads look very different and the amount in inattention seen by a very significant amount of car drivers is incredulous. Mobile phones etc. They say they do not see you, but I often drive a lorry and they cannot see that either which is not surprising if they are not looking. Ethnic looking pedestrians, or the f980tards as I call them, in London are relying on me looking. Getting hit by a lorry is in fact even worse than what you imagine if you look into it.
October 6, 2011
“This is a government still borrowing large sums”
And that is the problem. Continually increasing debt will never result in recovery. The public sector only exists by stealing money from the private sector and borrowing to spend simply steals it from the future private sector so things will get worse not better.
October 6, 2011
It’s far worse. There are huge debts Maddoff’ed off the books.
In spite of a promise by John Redwood on the blog prior to the election where he promised to publish the size of the off the book debts, now the Tories are in power, not a peep.
The state pension is nothing more than borrowing your pension, and spending it now.
So guess which will be defaulted on first?
Gilts, or the state pension?
Well, its already happened. State pension has had a partial default. Every year they raised the retirement age was 5% off the payout.
That payout by the way is only 25% of the sum you would have received if the money had gone into the FTSE.
Reply: The government has published the much enlarged figures for government liabilities, and they have often been published here. What’s your problem? This issue is not the governemnt trying to hide them – the issue is how we bring them under control.
October 6, 2011
We bring the deficit under control by firing civil servants and stop them doing all the pointless or even negative things like green energy, the green deal and HS2 and much of the poor NHS and the pointless loosing wars.
I see that the BBC is to reduce staff by 2000 sounds like a good start (but then I read it is over 6 years) so 330 PA. They could get rid of 2000 ever year for six years without any difficulty or any loss of service. Hopefully they will start with Mark Thompson and Chris Patten and all the priest of the green exaggerations.
Also we need a special state sector pension tax – at the moment someone in the state sector with a variable mortgage is benefiting hugely from the crash and not contributing at all.
Can someone also address the endless BBC bias too at some point -perhaps Cameron does not notice it for some reason.
October 6, 2011
If you can simply dismiss soldiers, sailors and airmen when they are on active service, if private companies can simply dismiss people when there is a downturn, why cannot the government simply dismiss a bevy of Civil Servants? Like lots and lots?
Bureaucracy is deadly. It saps energy when people have to fill in stupid forms instead of facing up to problems, it is notoriously inefficient, it is incredibly easy to cheat and swindle and it is terribly slow.
C Northcote Parkinson way back in the 60s showed how it grows. It is the main reason why we are in debt and getting into debt deeper and deeper every day. It must be rooted out. Now.
October 6, 2011
My better half works in the civil service…due to her growing frustration with creeping political correctness and institutional leftist bias, she decided to apply for a voluntary redundancy package (the terms are surprisingly generous, btw; 21 months pay as a lump sum, access to pension at 55!). All well and good… but they are not going to implement the deal until the end of April next year. As she said to me, why wait?
October 6, 2011
Alas it will be the good ones that go in the main.
October 6, 2011
confirmation yesterday that real terms public spending has been growing is a welcome shaft of light – this growth in spending is not a good thing, although awareness of it is at least a start. UK Government has been profligate for the best part of a decade and should be spending far less. We need fewer “services” provided by Government and better value for money, and the Conservative leadership should be exposing and reducing this vast waste.
The argument is still on Mr Browns terms – all Public spending is “investment”, “necessary” and “good”. Apparently every penny spent on the NHS goes on nurses, every penny spent on the Police goes on “valuable” front-line officers. Utter rot. Where do they think the money comes from? QE just dilutes the money supply in favour of the Government. It causes more harm (inflation) than good, especially if the “new” money is not used to pay down debt!
It is important that in all the arguments about paying off the credit card the impression is not left that the government is now paying off the nation’s credit card More’s the pity, because paying down the debt is exactly what a private sector recovery needs, and that’s the only way that genuine GDP growth can return. The Government has not explained that the deficit is the rate of growth in the debt, and that the debt is already huge. Reducing the deficit to zero only stops the debt growing – there needs to be a surplus to start eating into the debt. I doubt that enough of the Cabinet understand this – Mr Osborne managed to refer to “debt” as “deficit” in his speech to Conference, and this is the sort of sloppiness that needs to be addressed.
There is a virtuous circle: Paying off debt means that less money is spent on interest. This means that there is room for for tax reduction, leaving more money in the Private sector, allowing more jobs that actually generate wealth. This gives better tax yield to pay down more debt. I’d prefer to go round in this circle than the tax-and-waste one that we are locked into at the moment.
October 6, 2011
Investments generate a return. Either in cash terms, or in reductions in spending.
So we need the NHS to produce the goods when it comes to all the money that was invested. 5% per year of spending cuts resulting from efficiencies from all that investment.
Ah yes, it went on wages, didn’t it? And 5 a day organisers. Not on investment.
October 6, 2011
More ill-informed propaganda from the political class who created the economic mess in the first place. They’ve been given a brewery, and tasked to organise within it a celebratory social event. Before the doors open however, due to mis-management, the beer has run out and is being purchased through a series of insider middlemen who have promised to deliver ‘soon’. The price is ten times higher though, and there won’t be enough to go round. The crowd outside are getting restive.
October 6, 2011
How anyone could watch / listen to any run of the mill speech given by the current bunch at the top of any Party and place any credence in it is beyond me, let alone inspire optimism.
I know it must always have been thus but it really shows now that the prime objective of all politicians when giving a speech / interview is to get through it by saying nothing of substance and certainly nothing that can be construed by anyone, anywhere, as controversial.
Can anyone tell me one item of substance Cameron has spoken about over the last year that has either made it into policy or influenced policy, either in a negative or positive way? What would anyone say is his defining principles as displayed by his actions rather than vapid words – big government, small government, big society, big brother? Incoherent and directionless would sum up the first 18 months.
October 6, 2011
I agree the only positives the Enterprise Investment Scheme 30% rule, the M4 bus lane, a fee (how much?) for tribunals and a two year qualification, HIP packs in part gone and some moves on squatters. Most still not yet in place.
Just the agency worker and no retirement rules must be more negative than the above by about 50+ times!
October 8, 2011
So it’s OK to short change the agency workers?
October 6, 2011
John
Can you summarise the headline figures for us – as they do not appear to be readily available? I would like to be able to quote when making a point about so called ‘cuts’.
Thank you.
Reply:The headline figures for total current spending are:
Last Labour year, 2009-10 £600 billion.
2010-11 £632 billion
2011-12 £657 billion
We are n ow told that there was a real increase June 2010-June 2011, as you would expect from the cash figures.
October 6, 2011
When I listen to Cameron talking about paying down the debt when he is increasing it by 50%, and giving the impression that the “tough decisions” i.e. “cuts in public spending” are taking place, it makes my blood boil. The image I have of him as Chamberlain and John Redwood as Churchill in what Cable called this economic war becomes stronger by the day.
October 6, 2011
The speech
Well it was full of some passion, a nice change, it was full of historical achievements and pride, of which most of us were aware, he put across his points very well, but it was devoid of any real actionable content, and a truth in figures on how we get ourselves out of a hole.
Talk is cheap, actions speeak louder than words.
So far too little action to resolve our real problems, and that being we are (the Government)still spending more than we are earning, the situation is still getting worse, perhaps at less speed that it was under Labour, but is that really an acheivement.
We now have the prospect of more money printing, another devaluation (the second in three years) for how much longer can we keep on trashing the value of our money.
Once again it is those who have managed their finances, and have some savings who will pay the price.
With regard to loan guarantee schemes, whenever has the government ever managed these schemes sensibly, the track record is poor, the paperwork (to qualify) will be huge. It will be inefficient, and it will probably require even more civil servants (who have never run anything in their lives before) to administer it.
October 6, 2011
The reaction to Cameron’s speech from the BBC’s Stephanie Flanders was total acceptance of the ‘fact’ of spending cuts and the similarity beween private debt reduction.
This lie can be repeated because the government machine is restricting cuts to painful areas which are unpopular. I have heard from three friends, in separate scientific research institutes, that large scale redundancies are imminent. Meanwhile, I am unable to progress a simple building project because of unbelieveably obstructive bureacracy from the town hall, where apparently they are so understaffed that replies to letters take 6 weeks. No cuts are planned here.
October 6, 2011
Stred
They are probably not under staffed at all, because their overall work load cannot be as much now as it was in the boom times of a few years ago.
It is probably because they are inefficient, and do not even pick up the file until its target date is near to hand, its then a simple task to request more time by way of a request for more information, as a pretext to getting a new exended deadline date, before a decision has to be made.
I had a recent member of our family who wanted a minor alteration to their property (to modify an existing fixed Velux type window) in an existing loft room, to a feature gable, to a design similar to those gables which already existed on the first floor.
Since the development was below ridge level and added less than 2.0 cubic metres of volume to the house, would improve its appearance, would impove fire escape capabilities, it should have been a doddle, and a decision by delegated powers should have been the outcome.
The Council were approached by their architect (by letter, after telephone consultation) to see if planning would be needed, and more information was requested, a mock up virtual reality photograph was produced and shown as to how it would look, together with a photograph of existing elevation and internal view, and an extensive covering letter was also enclosed.
Reply, a full planning application would be required with full architectural drawings, so they could see what it looked like.
A comment made that they already had a photograph, proved a complete waste of time, and thus full archiectural drawings had to be submitted complete with a full planning application, to a full planning meeting.
Result: A 3 months delay, a cost of some £2,500 for architects and application fees, for a job which would have cost about £4,500 to complete.
I used to run my own design and build consruction company until I recently retired, and I can say that in recent years Planning has become a complete nightmare.
Many committees have people who sit in judgement who cannot even read an achitectural drawing.
How do I know, because having made hundreds of applications over the years, I have had to answer absolutely very basic questions, and explain the meaning of very clear detailed drawings to many committee members, indeed on one occassion I had to point out to a planning officer on a site visit, that they were holding the drawing upside down, and that is why it did not make sense to them. One would have thought the fact that the writing was upside down would have given them a clue, but I was polite, carefully turned the drawing the correct way around, and explained the proposal in a quiet voice to the official in question, not wishing to upset them, and give any reason for a refusal.
The client at the time, who witnessed everything, was absolutely dumb founded.
October 6, 2011
Alan.
Agreed. Now worse than ever.
I’m now out of it–prematurely ‘cos I could’ve gone on for another few years—because even the permitted development rules have been wrecked by the 2008 regulations and one can no longer reliably advise potential clients what they can do. DC officers, by the way, like the new rules on the whole because they confer more discretionary powers on the LPA’s, despite Caroline Flint claiming to Parliament and the voters that the changes she introduced would do the complete opposite and provide householders with a more liberal system.
By the way, DC officers will always tell people they need a full app’ whether they do or not. It was ever thus.
Re’ your example, (like yourself, I’ve done hundreds of these) try this one for size: in my village a proposal for a 6ft x 3ft greenhouse in a side garden needed a full app’ after the Flint amendments which it hadn’t needed before. Cost of greenhouse to buy: £250. Cost of planning app’: £2,500! And yes, the full app’ required a detailed ‘design and access statement’—for a ******y greenhouse!
And who led and devised the new rules for CLG? Three sets of private sector consultants (up to £1,400 per day, per consultant) over a period of SIX years. And CLG couldn’t give a toss about the mess they are responsible for: they’re in complete denial that they’ve created a monster which even the planning inspectorate flounder over.
How many domestic re-furb’/extension/improvement projects are held up by this nonsense? Or worse, simply abandoned? And we’re trying to grow the economy?
Oh, and if you thought there weren’t enough DC officers left to process the reduced volumes of planning app’s now, perhaps they could re-deploy some behind-the-scenes ‘policy’ officers the public never see. There’s a vast army of them. You know, the ones drafting the development plans by which all app’s must be judged….oh wait, hang on a minute, they must still be busy since 70% of LPA’s still don’t have adopted plans in place. Oh well, I guess these things do take time: after all, they’ve only had 20 years since the Tories introduced the ‘plan led’ system. But at least we can take comfort from the fact that the plans take so long to complete since we can be sure that they’ll be out of date by the time they are finished, thus ensuring continuity of work for the policy ‘division’. Nice work if you can get it.
Like I said: I’m out.
October 6, 2011
When I first saw Cameron running for the leadership and his history, my reaction was to call him a ‘Vicar of Bray’. Someone should update the song. The man is the ultimate PR machine. All mouth and markets. At least with Brown, most people could see that he was a useless.
October 6, 2011
If he is the ultimate PR machine, he is not a competent one, judging by the fiasco over the pre-release of his speech. I found that whole episode disturbing – his one claim to a proper job (so to speak) is PR at Carlton TV (or whatever they’re properly called) , yet he can’t even manage his own PR.
I fear he’s not even the heir to Blair. At least the old Bliar was a class act who could remember his lines and release the correct version of his speech beforehand.
October 6, 2011
It really is rather ridiculous Dave is always going on about ‘modernising’ and being ‘compassionate conservatives’ (I nearly vomited the first time I heard the phrase) because he thinks that moving to the left is the most likely way to get majority elected – an idea I don’t subscribe to, I believe the majority in this country believe in individual responsibility, individual liberties, individual choice and not socialised state interference – but if he is correct then in 2015 the party will simultaneously enter government and cease to be even close to the meaning of the word ‘conservative’. If we don’t see a rebellion against Cameron by some of the prominent members who are not bought by his centre-left ideas it will be a disaster for party and country.
October 8, 2011
Dave’s “Can do” Attitude. Whenever anyone mentions this I have a “Can’t do” attitude and “Do it yourself” attitude. I am in fact “off beam” and don’t care.
October 6, 2011
When approx 97% of the money supply has been created as interest bearing debt based on the customers legal loan agreement. Please explain how paying down the credit card will help the economy. If we all used our cash to pay down debt (mostly sensible given inflation,savings rates.loan rates) then the banks holding our savings would see a reduction in deposits(to pay down loans) this would reduce reserves and reduce lending capacity because the multiplier of the fractional reserve ratio works on the way down and as we know on the way up.
This is why positive money and MMT need to be considered. Why do governments need to borrow money with interest? Why are private banks rather than a central bank with a money supply target,allowed to create money? The government of the day can then choose how it is spent in or taxed out.
Why are we where we are?
Public Spending has gone up by 1.3% (this means private sector must have fallen).
Cutting essential & useful frontline services to pay for interest on banking bailouts is not going to work.
What real increases what would we find?
1) Higher interest charges (even with QE and general support for private banking).
2)Increased EU spending
3)Increase Overseas Spending
4) Increase in Automatic stabiliser spending.
Governments are not the same as households, they need to be efficient, representative,transparent and trustworthy, but they can and do create money debt free and spend it into existence. However fractional reserve banks (FRB) would have to shrink to zero in such a system so inflation (money growth) could be controlled directly. The private banks can intermediate and pick winners(profit) and (gosh take a loss) on losers.
If interest rates rise as you create/spend debt free money on (say infrastructure/import reducers) .The bad debt money will be squeezed out along with the worst of the mal-investments. The infrastructure project can always be sold on if required. (Bridges etc). The private sector will invest on the back of a good project.
If your aim is to support banks, current interests and FRB, then print or borrow with interest and bailout vested interests. The bad debt deflation that should occur wont and you will transfer money from the real economy to ‘negative wealth creators’ until this is impossible.
The private sector (that takes its losses) may just sit on its hands,too scared to make a wrong call. I would be worrying which bank is best as cash may not be that safe. (Taxes,inflation,bank margins,solvency risks)
October 6, 2011
The plan now seems to be to abandon the credit card and instead go into the counterfeit business of printing money. Then spending like confetti can continue.
October 6, 2011
Are growth figures adjusted for increases in public spending? Can the Govt increase borrowing to produce better reported growth? If there is no adjustment, have we in fact been in recession since 2008 and how would Labour’s much heralded growth success be affected?
Reply: Yes, growth includes activity paid for by borrowing. A lot of Labour’s boom was financed on public debt.
October 6, 2011
I am sure that “the impression …that the government is now paying off the nation’s credit card” was very much what Cameron did want to leave in the public consciousness.
October 6, 2011
Agree with 90% of your observations, but I have a reservation about public pensions. The Law of Contract is a fundamental pillar of a market society and we need a culture of keeping promises, not breaking them. I suspect, like many people, that the financial emergency is a game-changer, but to be consistent, the government needs to impose renegotiation on PFI contractors, defence equipment suppliers, IT providers and many other government contractors. We can’t have a situation of promise-breaking for some, but not others who happen to be friends and contributors to the governing party?
October 6, 2011
Face facts Mr Redwood, nothing is going to change in the short term and we will continue along with the same old tax & spend Labour econmic road but without any growth. You have the right idea, but as we can see you have little influence on economic policy (and shame on the Cabinet, but what can we do?).
Cameron could have gained an outright victory, had he been honest enough to outline a proper conservative economic message, but he fluffed it by trying to apease too many labour voters. That was the big chance to change things, as Labour were down and out, but somehow Cameron snatched defeat from the jaws of victory.
Next time should be different as the opportunity for the Tories will have been lost. If Cameron or one of his clique are still in charge, regardless what they promise, many more conservative voters will desert the Tory party and either not vote or head to UKIP/others.
Perhaps at the next election things will be so bad that some MP’s will club together to offer the electorate another option that will do as you say. It is certainly needed and I wish you’d head it up.
October 6, 2011
The Lib Dems will vanish as their vote, mostly the young, will splinter to the Greens and Labour. A Labour landslide will be the result. Wallice will have been replaced by then. 3.5 years to the next Labour Government.
October 6, 2011
“Having an intelligent economic discussion of how to fix the UK is not made easy by a refusal of most commentators and politicians to work from the actual figures.”
It’s also not made by interpreting the figures badly.
If commentators ignore this increase in public spending, it’s because it’s embarrassing for the Chancellor and hence bad news has been hid effectively.
The reason that spending is up, and the deficit not falling is that the economy has stopped growing, more people are unemployed and hence claiming benefits – government spending.
reply: b ut it’s not mainly an increase in benefits, and private sector employment is up. Interest charges have fallen short.
October 6, 2011
Is it clear where this money is going? I am worried about all the index linked pensions and the likelihood of inflation-linked pay settlements when the freeze lifts. If we are spending so much what is going to happen when we do cut. I don’t believe any government has the will or ability to tame Spendlove and Doolittle.
Have you had any leaked memos recently? They must be worried about the Euro if not the pound!
Reply: funny you should ask that. I have one from an EU source to Dame Lucy, probably for Saturday. It is a letter from Herr Bahler.
October 6, 2011
just a quick question on public sector pensions reform.
did the proposal to reform something like around 6.5million public sector workers pension include MPs ?
I’m all for the reform, but feel it would be nice to see a bit of leadership here – or are we talking of a special case?
I fear that the only apartheid that will exist will be between the ruled and the rulers.
I’m only concerned as one day I may want to come back…
reply: the MP’s scheme has already had higher contibutions imposed, and will be cut in other ways.It is a contributory scheme, unlike many public sector ones, and does I think have the highest contribution rate from members of any public sector scheme.
October 6, 2011
Civil servants do contribute to their pensions in the form of pay that they do not receive in their wages. I have seen the relevant benefit statements. MPs do contribute a good portion of their salary, but they have, by far, the most generous pension scheme as the pension accrues over a far shorter period of service.
zorro
October 6, 2011
Forgot to mention – enjoy the blog btw.
August 20, 2012
Useful write up, you definitely prepare the most useful stories and of course So public spending did go up is no different!