In the US the Stock market has been falling because many investors no longer believe printing more money and running up a collosal public deficit is the way to sustained recovery. Mr Obaama continues with more of the same in the hopeless belief this will save him in the mid term elections this autumn.
Labour in the UK belong to this outdated school. If a huge deficit and large amounts of money printing haven’t yet fixed it, why not try some more they ask? They live in denial of what happened to Greece, Ireland, Portugal, Spain, Iceland, the Baltic states and others who overdid the borrowing, only to be forced into worse spending cuts and higher interest rates.
Meanwhile, some in the Uk say our recovery cannot last either, because the government is cutting spending and raising taxes to cut the deficit. Sometimes the rhetoric is more believed than the reality. For as readers will know, overall public current spending carries on rising in cash terms over this Parliament. It is silly to spook people for cuts that are not going to happen. The public sector should explain their true budgets, not make up fictions about the depth of the overall “cuts”.
Talk of cuts of 25% or 40% in public spending is alarming people who depend on public money needlessly. Public spending on current services according to the budget will rise by £90 billion over the course of the next five years, taking it up from £600 billion to £ 690 billion.
Labour spending on current services was £10,000 for every man, woman and child in the UK last year. This government plans to increase that to £11,500 by 2015. Spending on health is going to go up by more than price inflation every year. I expect schools spending to increase every year as well. State pensions are going to go up by prices or wages, whichever goes up by more. Labour was only raising £7500 from every person in the country on average in taxes, and borrowing the other £2500 each.
The questions we should all be asking are these. Are we each getting £10,000 of value from the public service spend today? Will the extra £1500 each be well spent on the right things? Why are some parts of the public sector saying they will have to make clumsy and unpopular cutbacks, when overall spending will go on up in cash terms?
Those of us on good incomes know we have to pay much more than £7500 in tax. Many of us do not expect to get our £10,000 of public spending. If like me your children have left school you receive no education spending. If you are earning a good living you do not need or receive benefits. If you are healthy you do not need to go to the hospital. Those three services alone account for more than half the average £10,000 per person spent.
Many of us are happy to pay extra tax so the sick can receive proper care and the disabled can receive benefits. We are happy to pay for the neighbours children to be educated. It is part of good neighbourliness to pay more in tax so any neighbours who are disadvantaged can enjoy the rising prosperity of our age as well. We are less happy to pay more tax if we think the money is wasted, building bloated bureaucracies or indulging grand political projects that will not make our lives better. By far and away the biggest item in my annual budget is the cost of government. Tax takes far more than my housing or food or travel which I buy for myself directly.
That’s why it is a good idea that central and local government takes a hard look at all that is being spent to drive better value for money, and to get rid of the irritating or wasteful items. What we do not want is another parade of the bleeding stumps, as public sector managers trot out unacceptable cuts to try to avoid making sensible economies in the way they are doing things. If the main public services end up cutting important services when the money available to them goes up it is a sign of bad management, not of insufficient money.
August 20, 2010
Excellent piece. The most articulate advocate of the tax-borrow-spend policy in the UK is Ed Balls – in fact the only one of the 5 Labour leadership candidates who has any coherent message at all. Mr Balls speaks continually of the 'cuts' under Mrs Thatcher in the 1980s. As has been explained on this site, there never were such cuts. What there was was free-market policies which generated growth. He likens current policy and the 1980s to Ramsay MacDonald's early 1930s policy – but ignores the fact that it was protectionism and the collapse of global trade which casued the 1930s recession. Mr Balls is supported by some economists, especially by such BBC favourites is Messrs Blanchflower and Steiglitz. The nonsensical logic of their ideas is exposed very ably above.
August 20, 2010
Mr Balls knows that Mrs Thatchers saviour was de-nationalisation but is unwilling for facts to spoil a good argument
August 20, 2010
We see the waste all around us every day, everyone knows there is scope for reductions. For example in my area, Northamptonshire County Council spent £0.5m erecting road signs telling motorists that they were entering a Rural Road Safety Zone. No apparent changes in road design or traffic calming measures just road signs. I also wonder what happens when I drive out of the zone, am I entering a Rural Road Danger Zone.
August 20, 2010
Labour in the UK belong to this outdated school. If a huge deficit and large amounts of money printing haven’t yet fixed it, why not try some more they ask? They live in denial of what happened to Greece, Ireland, Portugal, Spain, Iceland, the Baltic states and others who overdid the borrowing, only to be forced into worse spending cuts and higher interest rates.
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And the reason they will continue to do this is that you haven't put all the debts on the books.
Civil service pensions – off the books
State pension – off the books
Bank bail out – off the books (and a state secret too)
State second pension – off the books
Nuclear decommissioning – off the books
NHS for people not paying NI – off the books.
Labour can only get away with it when people don't realise the cost.
Put it on the books, and put in place a debt tax. Ideally give the tax a nice name. Brown tax, or even better labour tax (its a tax on your labour).
Reply: I did give figures for those, and the official figures now include most of what you want to see
August 20, 2010
Many of us are happy to pay extra tax so the sick can receive proper care and the disabled can receive benefits. We are happy to pay for the neighbours children to be educated. It is part of good neighbourliness to pay more in tax so any neighbours who are disadvantaged can enjoy the rising prosperity of our age as well.
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No. You have it wrong.
People are relatively happy to pay if they THEY get something back.
Whey you spin it that people are happy to pay if SOMEONE else gets the cash, you're just softening up people for what is going to come.
Namely that the middle class pay all the tax and get nothing back unless they pay extra.
ie. Education for their kids, child benefit, …
All the tax, none of thet services
August 20, 2010
I don't have any children of my own but reckon it will be cheaper for me IN THE LONG RUN to invest in the next generation by contributing to other peoples children's educations .
What I do object to is helping their parents , particularly through the preferential tax treatment they are given at my expense .
People are not providing any great service to society by having children . Of course they will continue to be paid to do it because all these "hard working families" have votes .
August 20, 2010
worse than that a working class brit works every day of his working life and cannot get his kids into a decent school which is full of kids of folk here on work visas (we wouldnt get free schooling for our kids in their countries), needs hospital treatment and finds the wife of a work visa holder filling up the hospital bed he needs, and gets laid off at work because the non european work visa holder undercuts him and gets tax dispensations to help him do it
paying such large amounts of public money out for services to folk who are here on work visas is not what the public want, except for folk from countries where reciprocal arrangements are in place
August 20, 2010
I'm guessing the US markets are wanting more QE, another Greenspan/Bernanke put. The markets will push it so they are bailed out whilst the man on the street is crippled to pay for it.
As for the cuts, the politicians need to get their hands dirty and decide what the cuts are. Turkeys dont vote for Christmas and the public sector will not sacrifice their massive benefits easily.
In the end we will inflate away the debt and realign the economy. This is the easiest way as people do not know the difference between nominal and real prices.
August 20, 2010
I was somewhat alarmed to discover that Mr. Osborne has written to Mervyn King about the possibility of further use of QE to "finance" government spending. I hope he rapidly disavows any such intentions.
Our economy as measured by the statisticians is still mainly reacting to the policies pursued by the previous government. Those policies included pumping up an artificial mini-boom with measures designed to boost demand by bringing it forward to provide an election backdrop of "good news" and to be able to "blame the Tories" when its effects expire. It should come as no surprise if there is a fallback from this artificial boom (incidentally, an excellent reason for NOT having fixed term parliaments).
The main problem we now face is how to generate economic activity that will replace the employment given to unneeded public sector jobs and reduce the levels of unemployment more generally. As we have discussed before, they key here is reducing the regulatory and tax and uncompetitive energy cost burdens on business, and by reducing the silly sums we pay to house ourselves that force up wages and taxes. Where there are jobs to go to, the problems of cutting public sector employment are far fewer, mainly centring on retraining and relocation. Regaining proper control over immigration is an important plank in ensuring that available jobs are not simply filled by new immigrants as happened very largely under Labour, and that the effort is made to skill up and employ our existing population.
We have just had the annual ritual of A level results that show a further round of grade inflation that has been going on since 1980. I mention this because we have now reached the point at which there has been a massive loss in productivity of the education system. It takes at least an extra couple of years to inculcate the same body of knowledge into today's students as it did in the 1970s – requiring additional classrooms and lecture halls and teachers. If we could restore the former level of productivity, then resources could be released to re-skill and train those who face job changes, or who could be doing jobs that otherwise go to new immigrants.
These factors act as constraints on the degree to which government spending can be cut without adding unacceptably to the numbers who are unemployed. However, the longer term aim should be for a much smaller state sector.
August 20, 2010
Agree completely with your excellent and realistic points.
August 20, 2010
There's no doubt in my mind this government will print more money. Nothing they have done has persuaded me they want to reduce the size of government and we can't simply can't go on squeezing the middle classes more and more (although, by God, they'll give it a good go).
I'm hoping this will be a re-run of the 70's – this pathetic shower will go down the tubes in 5 years time, replaced by a 'things weren't so bad under Labour' government, followed by a resurgence of conservatism.
August 20, 2010
"A mans right to work as he will, to spend what he earns, to own property, to have the state as servant and not master. They're the essence of a free economy and on that freedom all our other freedoms depend." Those words were spoken by Mrs Thatcher and they remain as true today as they were in the past.
We can't get a fair society unless every pound taken by the state is spent wisely and in a manner that the person whose hard work earned that pound would approve of. If their money is wasted they won't bother. But there is another side to the contract with the state and that is a living wage. If a person can't put a roof over their head or feed themselves properly or keep warm in winter then the state has no right to take any wealth away from them and it is beholden on our rulers to regulate business such that we can all thrive. I think our capitalism is a bit broken as well as democracy and there needs to be more competition and huge incentives for local startups. I have sugested no tax for all locally produced or manufactured products sold to local individuals say, within a ten mile radius as a start.This would be fair all round.
I would beg to differ slightly on your assertion that healthy people don't use health spending. In my experience very few people don't need an operation at some point in their lives and most of us have had our lives saved many times by the simple use of antibiotics or say, asthma drugs and so I would say that health care is universal at some point and that's why it should be considered part of the living wage requirement along with education but although this needs to be affordable for all the creater of this wealth has to have a prior right to it otherwise there is no reward for their effort.
I'm worried that we have got to the point where we all feel that we have a right to state funding because the state has taken away so much of our wealth in taxation. The policies which rob savers and remove accrued pensions retrospectively, however necessary for the common good, are very much of the state as master and us the slaves!
August 20, 2010
it would be nice if the state spent less on nonsense like "ilovechips" and "walk in centres" staffed only by nurses (which generally only tell you that you need to go find a doctor anyways), school places for kids of folk here on work visas, health care for family of folk here on work visas, and instead spent a little more (and much higher quality) policing of the immigration rules as abused regularly by some of the outsourcing outfits
and dont just measure the world in money, measure it in IP, how much IP has the UK created this year? how much has gone abroad ? and so on
note intra company transfer visas still being printed like confetti despite promises to "cut workers from outside of europe" from the govt
August 20, 2010
This government are more about spin than substance. Like Balls they think that if they tell a good story the deficit will go away. Increasing taxes was never a sensible alternative and welfare cuts are almost certain to be a failed policy unless the Government can get The Sun to agree them first.
We saw under the Major Government how easy it was to be deceived by a Prime Minister who had absolutely no idea what his aims were other than to become Prime Minister and here we are again.
They, or someone will be obliged to undo the universal handouts of the Brown regime and there will be tears. Someone will be obliged to cut the headcount in the Civil Service and there will be more tears. The Sun will not like it.
For the sake of our sanity the best option is probably to settle down and accept what is happening and not be too suprised. After all, Cameron will only listen to his back benchers as a last resort and it would be quite shameless to seek a front bench position given the circumstances
August 20, 2010
The USA is an economy that ought to worry the world.
One party favours higher expenditure but won't put up taxes.
The other part favours lower taxes but won't cut expenditure.
Both parties fund their policies by borrowing more.
Neither party will get government borrowing down by trimming expenditure or raising taxes.
Mind you can't expect too much from a country founded by folk who refused to pay their taxes to the Crown!
August 20, 2010
£10,000 spent on services now will, assuming 4%,3%,2%,2% inflation, over the next years mean that its equivalent spending power in 2015 will be £11,145. So, if the Coalition is spending £11,500 per person by 2015, they will have increased spending by just £355 p.a. in 5 years. If waste has been reduced and we are getting similar quality services or better then this will be a good achievement in the circumstances left by the previous government. If however, the services are perceived to be worse then the Coalition will pay a heavy price at the next election.
August 20, 2010
Interest payments are the fly in the ointment. We've no desire to stop borrowing money, let alone start paying any back.
August 20, 2010
Simple mathematics
Average life expectancy 85 years
Not accounting for inflation:
85 x £10,000 = £850,000 per person spent on sevices on average.
£1,700,000 per couple
This is bonkers.
August 20, 2010
This is an excellent way of putting it. For those of us used to thinking this way, it is our personal profit/loss account from the public sector.
For those of us paying more than we benefit, HMRC should be treating us with TLC, not trying to squeeze every last bit of juice.
And for those with more benefits than taxes, at least they will realise that they are getting a return and then some. Maybe some gratitude too.
Or is this all wishful thinking on a Friday evening after a glass of wine?
August 21, 2010
Can it seriously be considered an act of good-neighbourliness to pay your taxes? To be a good neighbour is to act voluntarily. Taxes are compulsory. Taxes are paid for prudential reasons.
August 21, 2010
The latest workforce survey based on what I do in thew public sector found 25% of them are 60 or over. During the course of this parliament they will all retire and most will not be replaced.
It would be nice if the EU could get rid of a load of their silly regulation to make up for the fewer staff numbers, then everything would be hunky-dory apart from me having to make up their pensions deficit.
August 21, 2010
There is a gray area at the boundary between waste and public services. Recently, I received a letter from my local leisure centre saying that I would no longer be eligible for free swimming. No complaints there; why should males between the ages of 60 and 65 receive any freebies at all?
In all probability, such benefits first arose because women over the age of 60 received them. Then some politically correct fool in the EC or in the UK civil service decided this was discriminatory and 'unfair to men'.
When are people in politics going to accept (i.e. return to accepting) that, for very good reasons to do with the survival of children, the average husband tends to be older than the average wife. They should then govern accordingly on the basis of – wait for it – COMMON SENSE.
PS Remember Conquest's Law? People are most 'reactionary' on those subjects that they know most about.
August 21, 2010
Don't rail against public sector managers proposing deliberately unacceptable spending cuts.
Their action serves to identify those managers who should be fired.
These are the people who have their own agenda and good value service to the public is not their top priority. Just the people we don't need to employ.
August 21, 2010
The projected increase in government spending is based on a projection of revenues. If these are much lower than the projections then the government's spending will need to be curtailed as a total. At the moment government revenues are about £450 billion a year. If this figure falls to to £350 billion is a double or triple dip recession, which is not impossible, presumably the aspired to £690 billion spending figure will need major surgery.
Or coupled with all the off books liability, we will be a basketcase economy, with interest rates heading higher every week. The figures for revenues are presented as some kind of certainty, which they certainly are not. Revenues in 208 were over £600 billion. It could be ten or more years before they see that level again.
August 24, 2010
Not sure all the comments you have made are true John. Many people do mind paying more tax I personally already pay a lot of money in tax and when I here of the waste in this country it makes me very angry. I dont mind paying money if it is well spent but I know in many cases it isnt,.