The UK's deficit plan – third revision?


         I have been asking a few Ministers to tell me how much current public spending  has gone up by so far under this government. So far no-one has been able to tell me it has gone up by £56 billion or 9.3%, 2011-12 compared to 2009-10.  They have seemed rather suprised by the size of the increase.

       Then they have said it must be a real cut. It is difficult to see how a  9.3% increase  is an overall real cut, even at the current rate of inflation. We need to take into account the pay freeze, where pay is such  a large element in public sector costs, and the better buying initiatives which are said to be keeping cost increases down. It is of course true that there are some cuts in some budgets within the growing totals. It is also true that some departments favour sacking some staff at considerable cost, and then  hiring new people at further cost.

                 If you allow for the full 4.5% of stated CPI inflation (Ministers chosen measure), and then allow for some forecast drop in CPI inflation early next year as higher VAT falls out, you do not get to 9.3% inflation for the two years. RPI inflation is higher, but there ought to be a big offset in public sector costs for the pay freeze.

         The issue before us is by how much will the deficit increase as lower growth is put into the forecasts? We know that the Office of Budget Responsbility is going to have to cut its growth forecasts again.  These were last seen at 1.8% for 2011-12, 2.7% for 2012-13, and 2.9% for each of the following two years. That gives us 10.7% over the four remaining years of the plan.

         Let us suppose  growth this year is 1.0%, and then growth averaged 2.0% for the last three years. This is a moderate forecast by the standards of current forecaster gloom.  That gives us 7.2% instead of 10.7%, or 3.5% less. That would imply that the government would have to borrow an additional £5 billion this year, an additional £9 billion for 2012-13, an aditional £14 billion in 2013-14 and an  additional  £20 billion in the final year to make up for lost revenue. That makes a total of £48 billion more borrowing, on top of the £485 billion planned for the five years of this Parliament.

          It is also quite likely more spending would be needed, as there would be more people on benefits and other spending pressures from slower growth.  We might need to add in another £20 billion of spending slippage. This means we could be in for a another £68 billion of borrowing, an increase of 14% for the period as a whole. This comes on top of the £34 billion increase in total period borrowing announced in the March budget.

          The Treasury will say this is all allowed as the cyclical effects will be higher. It all, however, needs financing. It just goes to show how crucial growth is to getting down the deficit, if you want to do it mainly by increasing tax revenues rather than by cutting spending.

           My advice was to have a small spending  increase in Year 1, a 2% increase in year 2, then larger increases than the Coalition plans in Years 3-5, averaging 3% per annum instead of  their 1.9%.  This alternative would have cut borrowing back  from the £485 billion planned for the five years  thanks to lower spending in the first two years, whilst giving better spending increases in  the second half of the Parliament.

                   Now the government has difficult choices ahead. How much of the slippage will it seek to erase by spending cuts or tax rises? I assume none. How much extra slippage in the short term will it permit, in an effort to buy some more growth?  How many more EU one-offs will there be, like extra money for the IMF?


  1. JimF
    October 18, 2011

    Surely, when the BOE can print ¬£75 billion over a few minutes’ meeting, ¬£68 billion extra will be neither here nor there? Holders of Sterling will pay, but then so will holders of dollars, Euros, Swiss Francs and Yen. Some day shrewd folk will find and ask to be paid in a currency other than paper money, because it is, after all, just paper. It’s a shame the Queen’s name is being taken in vain with the way it’s being trashed by her Government and the Bank of England.

    1. dominic
      May 14, 2012

      The UK Govt has been rinsing the plastic for the last 4 decades i think HMG has run a surplus for only 5 of those years all in. Lets go back 40 years… But not to the UK to the US bare with me.
      In 1971 as a result of Lyndon Johnsons “Guns and Butter” programmes of the 1960’s ie: Social programs, the Vietnam war, Maintaining collossal divisions of the US military in Europe /Korea /Japan and lest not forget shooting rockets to the moon the US was in a mess economically.. Prior to 71 the Federal reserve had to back the dollar with Gold for every ounce the US had it printed $35 Dollars, It had to keep inflation under control as it was on a Gold Standard. It came off the Gold Standard in 71 and immediatly began running loose monetary policy understating inflation and loosing up the printing press. prior to 71 i could not do this.. As the reserve currency all global prices were in Dollars, so Que printing press Que massive Inflation throuought the 1970’s everywhere including the UK, This was brought to a dead stop by Paul Volker as Regan took office by Volker ramming up interest rates on the reserve currency “Dollar” to 20 “Twenty percent” inflation was nailed Que crash. Bill Clinton during the 90’s played fast and loose with the Dollar and generated the Technology bubble that bursed in 2001 only Bush did not ram up interest rates to clean the mess, there should have been a HUGE recession after but it did not happen as Bush lowered interest rates and slashed taxes and rammed spending through the roof, tons of cheap money flooded in and a Property bubble quickly ensued pretty much everywhere, Only this real estate /housing bubble was bigger than it’s immediate progenitor.. The property bubble burst in 2008 everywhere, Instead of raising interest rates to clean up the mess rates were slashed AGAIN, 0% in the States and 0.5 here… The end result is now we have an even bigger bubble “A Government debt /bond /Gilts bubble that again is even bigger than the two bubbles that preceeded it. They are in essence the Same bubble, Government policy since the tech bubble of the 90’s has been to continue to throw cheap money into the market and kick the can down the road.. Problem is the Soverign bubble is just so damn big that there is no more bailout when this goes bang… None. The solution is to purge the economy of all the mal-inverstments, this means pushing people who overborrowed and or made lousy buisness decisions into bankruptcy, sell the assets. Be it a house a car a truck a factory whatever at the new market rate and let the purchaser take over the assets. Throwing more money at the thick and stupid will not solve the problem and printing more funny money which is what has been happening since 1971 and maintaining negative interest will solve nothing. It is the equivalent of trying to put out a fire with petrol.. WE STIMULATED OUR WAY INTO THIS MESS WITH CHEAP MONEY FROM THE MID 1990’S WE WILL NOT STIMULATE OUR WAY OUT.

  2. Mike Stallard
    October 18, 2011

    We are in debt.
    That means that whenever special cases – pensioners, the vulnerable, wind farmers, the Libyans, High Speed Rail, the Army, the Union Reps, anti-nuclear protesters – demand special consideration, their money will come from borrowing.
    That means that everyone is just that little bit poorer.
    Meanwhile (see this excellent post) the government goes on shovelling our money – all borrowed – into the hands of the electorate, so that it can be re elected.
    We ned to get a grip – and fast.

  3. lifelogic
    October 18, 2011

    What a mess and what a shambols we have in charge. Inflation figures today too?

    1. Disaffected
      October 18, 2011

      Using John’s figures, the Coalition are starting to make Gordon Brown look good!! We read on this blog and other mediums on a daily basis alternative ways for cutting the deficit and reduce the country’s spending. I can only assume the civil service have convinced the current shambles to continue as the previous government.

    2. Tim
      October 18, 2011

      Mr Redwood apart from you I can’t see any of todays politicians, Treasury, or Government officials being up to this task. Like other posters I cannot believe it is beyond the wit of man to live within our means. I do it. If I don’t have the money I don’t buy it! Simple. Unfortunately, I’m one of the majority savers in this country paying the price for feckless Governments and individuals who don’t live within their means, through inflation, that eats at my prudence each month. There should be legislation to stop the future vanities and promises of our politicians to ensure that no spending is beyond what is raised in revenue. In the meantime we could save ¬£25 billion by stopping foreign aid (¬£11.5 billion) and leaving the EU with our massive contribution (¬£13.5 billions and rising).

      1. sjb
        October 19, 2011

        Tim wrote: “If I don‚Äôt have the money I don‚Äôt buy it!”

        You are a fortunate man never to have needed a mortgage, Tim.

  4. Mike Stallard
    October 18, 2011

    PS. I have just seen this on a picture of Oviedo, Spain, where I went on holiday:
    “Su botin, nuestra crisis.”
    It means:
    “Your booty is our crisis.”

  5. norman
    October 18, 2011

    As laudable as this post may be (and it is) this isn’t the sort of stuff politicians need to worry about. Why, only last week the wizards of smart at the BoE created ¬£75bn at the press of a button.

    More than enough to get us over any hurdles.

    Why get bogged down in arcane practices and outdated ideas like living within ones means when there are so much more important matters, like the inflation linked pension and keeping an eye on those unconscionable rotters at the expenses office who are making life so difficult for our hard pressed (by lobbyists no doubt) public servants.

    Seriously though, the party’s over, may as well race to the finish line as get there at a canter, it’ll all come to a grinding halt one way or another in the next decade or two.

  6. Greg
    October 18, 2011

    I completely fail to see how any increase in spending at all could be seen as a cut. It is just evading the issue. The deficit needs to be cut now, not in 2, 3 or 5 years. If we continue in this way there will come a time, not far in the future, when we will either suffer massive inflation or a total collapse in confidence and be unable to borrow any more. A deficit is a charge on future generations and simply shifts the pain from today to tomorrow, in fact it is simply a device to allow politicians to evade their responsibilities.

    1. Disaffected
      October 18, 2011

      The coalition are not making cuts to stop the deficit they are reducing the speed at which the deficit increases.

    2. Conrad Jones (Cheam)
      October 19, 2011

      I’ll take an unusual stance here in support of the Government Ministers’ claim that an increase in the numerical value of spending actually equates to a cut.

      The Shadow Government Statistics shows statisics for the CPI Figures for American Inflation calculated using todays basket of goods and todays calculation method compared to how it was calculated a few years ago.

      I believe the British methods of calculating inflation are very similar as they tend to substitute cheaper inferior goods as they are deemed to have replaced superior and more expensive items. This naturally tends to lower the inflation value. Housing Costs and other costs are removed from the CPI calculation which also reduce it’s value. Even though the price of a car goes up, this is factored down as it is said that we are now getting more for our money due to advances in technology.

      From the chart the August Value of CPI – using the current 2011 calculation method, shows CPI-U at approximately 3% (the red line graph).

      The blue line Graph – repsrenting SGS Alternate (using the 1980 calculation method ) shows inflation at around 11.5%.

      Based on Tuesdays inflation announcement of 5.2% (CPI), this would put inflation at around 13% if calculated using the 1980 methods.

      Therefore, the Government is actually cutting spending in real terms. So they are not lying.

      The use of linking benefits to CPI and State Pensions to RPI is a way of the Government saying that both are linked to inflation while favouring the elderly. An honourable form of dishonesty, but a deception of the inflation rate, never the less.

  7. NickW
    October 18, 2011

    Opposition and media, (especially BBC), hysteria about the non existent cuts has been the fig leaf which protects the Coalition’s modesty from the ratings agencies. The fig leaf is about to be blown away.

    Deficit reduction was the founding principle behind the Coalition and it is manifestly failing in that primary duty.

    Clegg’s insistence that we continue to chuck billions and billions of pounds down the black hole of the Eurozone, ( to protect his and Huhne’s future job prospects) hasn’t helped.

    1. Electro-Kevin
      October 18, 2011

      Should this go double-dip and we lose our AAA we’ll see cuts then.

      The truth is that a good proportion of the UK economy is baloney.

  8. Brian Tomkinson
    October 18, 2011

    Please inform Cameron, Osborne et al to take their own advice that you can’t solve a debt problem with more debt. This government is on track to become as despised as Labour – not for tackling the deficit and debt problem but failing to do it whilst pretending it was their top priority. I repeat again that it is a mystery to me why the markets haven’t seen through the sham. Have they never read Hans Christian Andersen’s story of the Emperor’s new clothes?

    1. zorro
      October 18, 2011

      There have been other riper pickings. That won’t be the case for ever. I expect that a diversionary assault to test our resolve will take place within the next 12 months….Counterintuitively, the only thing protecting us is our own currency and ability to print it. John has mentioned the subject of lower than projected growth on several occasions, and this is a key issue for the coalition because this will affect the timing of any currency attack on the UK.


  9. Robert K
    October 18, 2011

    A quick aside on inflation, an important part of which is energy costs. I was bemused by a TV news clip yesterday evening of the Prime Minister sagely telling consumers to cut their energy bills by topping up loft insulation and paying by direct debit. This from a government whose energy policy is designed to push prices up to reduce the threat of global warming. We’re sitting on 100+ years of cheap energy in the form of coal. Let’s dig it up so we can keep warm in what might be another record cold winter.

    1. Adam5x5
      October 18, 2011

      Never mind the coal.
      What about the 200 trillion cubic feet of shale gas in Blackpool?

    2. lifelogic
      October 18, 2011

      Not to mention Lancashire’s shale gas. How does Huhne’s buying energy at 10 times its value with feed in tariff’s help? It just makes people waste good money on doing economically and environmentally daft thinks that we all have to pay for with our jobs or out bills.

      1. lifelogic
        October 18, 2011

        Excellent article by Matt Ridley in the Spectator that I have just read – illustrating the full and total insanity of the Cameron/Huhne’s wind vision. Also it’s huge costs financial, jobs, and mainly to the environment as compared to shale gas and the other many far more sensible alternatives.

        1. A different Simon
          October 18, 2011

          When I read “financial,jobs” I thought you had made a typing error and just transposed the two words .

          The financial sector will be the only ones who gain from this new way of fleecing us to appease gullible Cameron’s conscience .

          It’s getting to the stage where it is not worth doing a real job in industry anymore .

        2. David Price
          October 18, 2011

          Though to be fair this seems to be an equal opportunity madness – Labour were responsible for the introduction of the climate levey, FITS etc – young chap by the name of Milliband I believe.

          1. RB
            October 19, 2011

            Yes, but although I am no labour supporter, lets not forget that all tories (apart from 2 or 3) voted for it.

            Osborne’s conference speech referred to the Labour Climate Change Act – the usual tacky political manouvering by a man who voted for it.

        3. uanime5
          October 18, 2011

          That article is full of false information.

          It claims that wind turbines kill birds and bats even though both are capable of detecting where the blades are. If they weren’t then the blades would be covered in dead animals.

          Neodymium can be mined in China, the United States, Brazil, India, Ceylon, and Australia; 7,000 tonnes of it are produced each year; and extracting the metal doesn’t create huge, toxic lakes.

          It claims that the ‘flaming taps in the film Gasland’ were nothing to do with shale gas drilling despite evidence showing that the actions of these companies had contaminated the water. Also the companies involved have been fined for this.

          The article also doesn’t mention the harm shale gas mining can do to the environment.

          1. Steven Whitfield
            October 20, 2011

            I agree with most of the article – however the position isn’t quite as rosey as it makes out. I suspect that the analysis calculating how many years the reserves will last are done assuming present rates of consumption.
            When you factor in growth in population and energy use,of say 5% a year , the reserves look far less impressive.

    3. A different Simon
      October 18, 2011

      Robert K ,

      Most of our coal is not particularly amenable to conventional mining but a good part can be exploited by UCG – underground coal gasification .

      The Govt issued exploration licenses for underground gasification of coal UCG (and shale gas) but stubbornly refuses to grant production licenses .

      In the long haul it may be best if we run out of gas this Winter and have some blackouts and rationing of gas to guarantee supply to the vulnerable .

      Nothing short of this will get through to the procrastinating Cameron and Huhne .

    4. zorro
      October 18, 2011

      He comes across as ridiculous preaching to people to reduce their debts whilst merrily throwing the stuff around like a drunken sailor.


      1. Sam Sailor
        October 18, 2011

        Sailor’s throw their own earned money about on a fun run ashore, unlike Huhne who is wasting our taxes on his pointless theories.

    5. uanime5
      October 18, 2011

      Coal mining is not only difficult but labour intensive (in 1984 there were 196,000 miners in Britain). Given that miners won’t work for minimum wage or less it will be very expensive to mine this coal, making the energy very expensive as well.

      1. A different Simon
        October 18, 2011

        You don’t always need to bring the coal to the surface to capture the majority of it’s energy .

        Only a small proportion of our coal reserves are , or have ever been , practically or economically mineable – most of our coal is “stranded” .

        If the Geology is suitable it can be possible to heat the coal up underground to gasify it by burning a small amount and capturing the “synthesis gas” at the surface . This is known as in-situ or underground coal gasification (UCG) as opposed to surface gasification which used to be used to create our “town gas” before we switched over to natural gas .

        The synthesis gas can then be used to power a gas turbine with the waste heat used to power a steam turbine leading to a higher thermal efficiency than a coal powered generating station .

        Such a rich source of carbon dioxide could be used to create methanol or synthetic diesel to power our cars thus cutting down on our oil imports .

        So since it makes so much economic sense to use coal why are we not doing it ?

        The only way in which new Nuclear powerstations can be financially viable is by handicapping gas and coal with demands that they should capture and sequester all the carbon dioxide they produce .

        Far from pushing investment into renewable technologies , the demands for “cleaning up coal” are a poorly disguised subsidy for nuclear .

      2. Bazman
        October 18, 2011

        Obviously a skill shortage here. There must be some way of getting the cheap labour and minimal health and safety? How much is an Indian or Chinese coal miner on? Less than minimum wage for sure. As British coal miners have priced themselves out of the market. There lies the answer.

        1. Electro-Kevin
          October 19, 2011

          Bazman – We’ve all (with a few exceptions) priced ourselves out of the market.

          If you want to get to the root of the West’s problems then that’s it. And it’s not just the working class who are guilty.

          1. Bazman
            October 19, 2011

            If you want to live a western lifestyle then you have to pay western prices, anywhere in the world.
            It is not even possible to live like a Russian rural peasant in this country.

          2. A different Simon
            October 20, 2011

            Gotta say I agree with Bazman .

            There is truth that the Western lifestyle is expensive but also truth that the cost of existence has been jacked up in this country .

            If the cost of accomodation was made more reasonable people would not need such high pay (which doesn’t cover it anyway) and would have surplus to put away for old age .

            This can be put right by replacing “rights of conquest” with “birth rights” .

            A land value tax should force people who are hoarding land to sell it .
            Combined with laws which prioritise British Citizens rights to buy housing and land over foreigners it would go a long way to making the U.K. functional .

            Once you get wrid of the shortage of available land for housing etc :-
            – the price of accomodation goes down
            – people can make a logical choice between renting and buying
            – tenancy laws become less important because it’s much easier for tenants to find an alternative dwelling
            – there is an incentive for landlords to treat tennants better .
            – businesses can become viable
            – would help shrink the financial services industry by reducing their loan income

            We need a really radical solution to get wrid of shortages of land even if it does hit the rich in their pocket .

    6. Mark
      October 18, 2011

      Equally worrying is the new fig leaf of tax relief for certain energy intensive industries. The point is that these taxes are needed to subsidise the high cost methods of production that Huhne wishes to commit us to for the next 20 years – so if these industries won’t be paying, who will? That’s right, you and me, with even higher bills.

      The only sensible energy policy is to invest in the most cost effective sources primarily (with some diversity of types of source), and to encourage domestic production of them. That should include shale gas and coal. Feed-in tariffs and wind should be abandoned post haste. I’m sure that the good citizens of Blackpool and Preston would be very happy to see a small tithing as an earthquake insurance fund that they could spend if earthquakes didn’t cause any damage. Despite this report:

      there appears to be no credible suggested mechanism for the observed tremors. If the argument is a straw breaking the camel’s back, then surely it was a tremor waiting to happen that would have been triggered by some other event soon enough.

      Meantime, US natural gas price at wholesale is about 23 p/therm while here in the UK it’s 64 p/therm. We can’t compete if we make our energy three times as expensive.

  10. javelin
    October 18, 2011

    Each post on this blog is looking a slow motion frame of a train crash.

  11. waramess
    October 18, 2011

    Politicians are no longer in control and have become no more than a token. The State grows notwithstanding the politicians and notwithstanding the absence of income and will continue to grow whilst leaving the politicians to worry how to fund it.

    This is no more than an uncontrolled Civil Service, with an inverted vision of itself, empire building, and Politicians who do their bidding.

    Probably better to leave it as it is because zero growth, which is what we have had for the past four quarters, and an expanding Civil Service will quickly collapse and frankly, notwithstanding the pain it will cause, the sooner it does the better it will be for the British people

  12. A.Sedgwick
    October 18, 2011

    At some point the gilt market will suffer if it has not already given QE. The picture has been clear since this Coalition was formed that the deficit will not be eliminated in this Parliament, if ever, and national debt is never repaid just recycled or devalued. There are so many Western economic basket cases that Cameron and Osborne are doing a good smoke and mirrors act for the moment, but interest rates will go up when the BOE acknowledges 2 is not 5 or 6 or 7 then maybe the cost of the EU, excessive overseas aid, Afghanistan, welfare abuse – examples of which we read about every week, public payroll costs and the poor value for tax money given by the State will be addressed.

  13. Richard1
    October 18, 2011

    Very worrying figures. No surprise ministers don’t know this is happening – many seem completely unable to explain govt policy. If nothing else these figures show what utter nonesense is the argument put forward by Ed Balls & supported by some normally sensible commentators & economists that the current low growth is because the deficit is being cut too hard and too fast.

  14. javelin
    October 18, 2011

    Nrealy two years ago I posted on this site that I calculated that growth would be 1.0% in 2011 and 1.5% in 2012. Today the BofE confirmed these numbers. I was very bullish about my figures. The BofE figures have drifed down.

    Having watched the BofE struggling to forcast I can only say that they cannot see the strategic view. They spend too long looking at the details and not long enough trying to understand the factoes that make up the strategic momentum. Prediction is my job and I take the view thats you need to find the obvious to believe it.

  15. English Pensioner
    October 18, 2011

    The first thing we did 30 years ago when we moved into this house was to improve the loft insulation and to have the cavity walls filled. We have double glazing and yet the government keeps going on about insulating homes to save energy. There is nothing more that we can do. Energy costs are high because the government, on orders from the EU, is subsidising the building of windmills, which no-one in their right minds would otherwise even consider. Windmills, which incidentally, are unlikely to produce electricity when needed as severe cold in the UK is often accompanied by spells with little wind.

    1. Bazman
      October 18, 2011

      Did the same ten years ago including energy saving bulbs and have invested in energy efficient appliances and constantly change suppliers. My bills have trebled anyway with the same amount of energy being used. Chris Huhne can ram it.

      1. Electro-Kevin
        October 19, 2011

        Ditto. Insulation, energy saving gear, U Switch.

        I’m struggling to think what we use gas for in the Summer except to heat the shower and taps – yet the gas bill is already extortionate.

      2. alan jutson
        October 19, 2011


        Agreed, but thats what you get when politicians think they know best and purchase the most expensive, with subsidy, feed in tarrifs and the pain of a carbon taxation plan, which simply exports jobs as well.

        A real double whammy.

      3. alan jutson
        October 19, 2011


        Yes not much more you can do.

        30 years ago I was Vice chairman of the National Loft Insulation Association, and sat on the Council of the Cavity Wall Insulation Association.

        Was also involved with a number of discussions with British Standards and the Britsh Board of Agreement on attempting to raise the insulation standards of homes in the country.
        At that time 30 years ago we could see that energy was going to become more and more expensive, and the simplist solution was basic, cost effective, efficient insulation, to roof, walls, floor, and draughtproofing, before commencing any hugely expensive solutions, (which usually provide small savings).
        Advancement in glazing technology has now meant that replacement (double glazed/triple glazed) windows with high performance glass should also be considered.
        It is always best to conserve a much as you can first, and to thus minimise waste.

        Its not rocket science, the government were constantly lobbied 30 years ago on this subject, but at the time insulation was not deemed a vanity industry which had any appeal. So for decades we have wasted large amounts of North Sea oil by having low insulation standards.

        Chickens come home to roost eventually !

    2. A different Simon
      October 18, 2011

      English Pensioner ,

      The biggest recipient of subsidies is the nuclear energy industry .

      I think you will find these rises in electricity prices are supposedly to fund new nuclear power stations .

      It’s amazing to watch the lengths the Govt has to go to with demands like carbon dioxide capture and storage to make gas and coal uncompetitive .

    3. stred
      October 18, 2011

      You could fit foilbacked plasterboard dry lining with 1.9k multi-foil 30mm insulation behind it. Fit good draught stripping to doors and windows. Internal secondary glazing will give triple glazing. Fit thicker pipe insulation and check that uninsulated pipes are not heating the ventilated voids under suspended floors. Excess ventilation can lose much more heat than conduction through walls and roof. If you don’t want to lose space in the loft use multifoil under rafters. Re circulating systems are expensive and not really cost effective.

      If you tell Building Control, they will delay and put the cost up by finding reasons to refuse everything. Also, the fee will wipe out savings for years. It is of course- illegal not to tell them, but on the other hand almost everything is illegal these days.

      Reply: this site recommends that you do comply with the law.

      1. Electro-Kevin
        October 19, 2011

        This site recommends that we comply with the law.

        I wonder what Building Control is up to in Southall at the moment. It’s being reported that hundreds of garden sheds are being converted into dwellings and rented out four to a room – all of it illegal.

        Will there be a crack-down on it ?

  16. alan jutson
    October 18, 2011

    Amazing that the government are still getting away with the cuts story, when in fact spending is increasing and the debt and deficit is getting bigger.

    The markets willeventually take their toll once they have delt with the worst cases (country’s) then the politicians will be playing catch up (and will be out of control), and the brown stuff will really hit the fan.

    We have been getting howls of anger now from the media over cuts, but that will be nothing compared to what will happen when he real cuts start to bite.

    The government is deluded to think that they can spin this cuts myth for much longer.

    The longer you procrastinate, the harder you have to bite the bullet in the end.

    What a shame that the opportunity to cut spending early, and by less, has now been wasted.

    I see from press reports that MP’s have agreed for their pensions to be reviewed, with more contributions required from 2015, all except Mr Burcow, who seems to think his special arrangement should not be modified.

    Aware that history put the Speaker in danger of having his life terminated by the Crown if bad news was forthcoming, but surely we have moved on from that fear.

    Reply: THe plan is to increase MP pension contributions again from April 2012 – they were increased by 1.9% of salary by the last government, and currently stand at 11.9% for the dearest option under the scheme. The whole scheme will be replaced by 2015 by a scheme judged by IPSA, the new independent body, to be affordable and appropriate.

    1. alan jutson
      October 19, 2011

      Reply to reply

      Thanks John, aware that the proposed new cheme is to be more affordable, but pray tell me why the Speakers package is also not under review, this seems that he is in a some what protected position, and above anyone else, even I belive, the Prime Minister.

      Reply: I am not aware of this point

  17. Nick
    October 18, 2011

    Forget the deficit.

    Publish the debt figures – all the debts. To do that you need to sack the Bernard Maddoff’s from the National Audit office.

    Then send every taxpayer a statement for their pro rata share.

    Split income tax into two. One part pays for services, the other pays for debts.

    People are in denial about the state of debt. Make it transparent and you will have change.

    Meanwhile also implement publication of all state spending down to the penny.

    Company names, addresses and company numbers

    People’s names and addresses.

    The lot.

    1. RB
      October 19, 2011

      Absolutely right Nick. It has always irked me that we never really get to see the books. Open them up. You can be assured that things are much worse than politicians tell us they are.

  18. oldtimer
    October 18, 2011

    This Coalition government is a squanderbug government, self indulgent about pet projects (such as foreign aid) and misguided policies (eg energy policy). The sooner it is ended and replaced by an administration that actually does something about the UK`s ballooning deficit, rather than just talk about it, the better off we shall all be.

    It must surely be a matter of doubt that this government can carry on to the end of a five year term on these forecasts?

    1. Fiona Maddock
      October 18, 2011

      Yes I agree. The spending choices of the moment, foreign aid, energy policy (except we must have a realistic power generating infrastructure as a matter of urgency), HS2, The Olympics and all the wars, are utter madness.

      Has anyone done an analysis of the financial and environmental damage done by our bomb-fests of Iraq, Afghanistan and Iraq? Get real folks, these are what have bankrupted us, on top of the self-indulgent partying by the bankers.

      We need a government that sets real, debt reducing policies, not a team that beats up the vulnerable and asset strips the prudent, simply to pursue their own mysterious agenda.

  19. frank salmon
    October 18, 2011

    I always felt the politicians would be too weak to sort this out. Now the Conservatives will be blamed for the mess Labour left us in. My thought was always that the new government should have called in the IMF as soon as they took power – then they could blame the IMF and Labour for what had to be done. ~Why do we pretend we have the funds to finance other countries and the IMF when we are clearly heading down the pan?
    Incidentally, on top of all these woes, the minimum wage is rising in proportion to wages when privates sector wages are falling. So too are public sector pay and pensions, even for the small proportion on a wage freeze. And of course benefits are also incrseasing in real terms. It is time we had a Wage Index instead of two obsolete price indexes. That way, at least some government expenditure would be coming down. It would also help if we cut some or all of the extra million public sector workers the Labour government took on.
    My view is that the Conservatives should say enough is enough – they should adopt JR’s site as a beacon of reason and go to the country Now, before it really is too late.

  20. stred
    October 18, 2011

    The public service pension guide was issued to university staff last week. This superannuation scheme applies to other staff such as civil servants. It appears that the threat to cut pensions to average rather than final salary has evaporated, to the relief of many long serving staff. The pension is now planned to be related to the average of the last 13 years or the highest revalued salary in the last 3 years, whichever is the highest.

    An employee with 30 years service and a final salary of £45,000 would receive a pension of £16,875 and a tax free cash payout of £50,625. Even a part timer over the last 10 years would receive £12,500 plus 3 times this in cash. Not bad when private pensions are typically under £5000 with cash payouts a quarter of value and a reduction in pension, having been eaten away in charges.

    Many people on private pensions are unable to afford to retire at 65. The public employee will still be allowed to retire at 55 or 50 if made redundant. Police and firemen have to retire earlier of course and cannot continue filling forms in and issuing reports or evidence documents.

    The cost to the public employee will rise to 7.5% but this is tax deductible.
    The cost to the taxpaying private employee will probably be a substantial proportion of his or her pension.

    In the case of the universities, the scheme is managed by trustees and there are no commission charges, dividends to pay, administration charges or exit fees. How do they do it ? And where did all the private pension money go?

    No surprise that borrowing cannot be cut. I am advising my offspring to work for the State.

  21. Samuel
    October 18, 2011

    I’ve never understood what the difference is between real terms spending and cash terms spending. I would be grateful if anyone could explain both to me in relatively simple terms

    Reply: cash spending is what you and I have to do. We add up the cost of everything we buy at the prices in the shops. Next year if prices have gone up we either buy less, or have to find some more money to pay for them. If inflaiton is 5% and you buy the same amount next year, your cash spending goes up 5%.
    Real terms spending seeks to cut out the inflation effect, so it provides different numbers seeking to show how many real goods or services you bought. Thus if services cost 5% more next year than this, and you spend 5% more cash on them, your spending is said to have stayed the same in real terms

  22. Slim Jim
    October 18, 2011

    More should be made of the amount of money we are pouring into the black holes of the EU, IMF, welfare and foreign military adventures. Also, the amount of interest we are paying on our existing debts needs to be trumpeted more. How much does it all add up to, and how does it compare to the deficit? It would seem that the solutions to our problems are staring us in the face, but for some reason, we would prefer to try and solve them with our hands tied behind our backs. Oh, and how on earth can the government even consider spending silly money on a replacement for Trident? We need a simple narrative John, and a politician of your calibre can make it. But will you be heard?

  23. Robert
    October 18, 2011

    I feel that I am in an economic madhouse where all commonsense and logic has just dissipated! Frankly I give up ! This has been on the cards for a while John, the hard decisions have not been made on the grounds the electorate would not take it, so lets take the sneaky inflation route out of our problems. Sadly, it will not work either and as many posters have articulated it is only going to get worse. You need to get your gloves off, because with no disrepect you are writing things that despite being sensible, are 6-9 months behind the curve and you understandibly don’t seem to want to rock the boat. If this cycle of destruction is to be broken it will need some bold ‘out of the box’ thinking and leadership which is not being currently offered by either the Chancellor or the BOE policy making committee. Having been in finacial markets for 26 years I have never seen such incompetence. Frankly it disgusts me.

  24. Oldrightie
    October 18, 2011

    Inflation proof protection for civil servants, pensioners and even private scheme pensioners will have to go. We can’t afford it. Living standards are falling and nothing is being done to arrest the plummet downwards. Distasteful medicine now to cure the sickness in the future is necessary. As part of this course of treatment we need to leave The EU, pull out of Afghanistan and savagely cut Government perks, limos and pomp. We can’t afford it. We are a small economy (despite the hype otherwise) and a small country. Behave as such. Incidentally mine shale gas!

  25. forthurst
    October 18, 2011

    When will the costs of our membership of the EUSSR and the free and easy access to taxpayers’ resources of those from other continents be properly quantified? There are the costs of benefit tourism, of benefits paid to displaced British workers, of health tourism, of policing, of the legal justice system, frequently concerning the ‘uman rights of the behaviourly subhuman, of imprisonment. Is there really any upward limit to these costs? Do these need to be quantified, nonetheless?

    Then we have a foreign policy which manifestly has been perverted by (politicians-ed) putting the interests of a foreign power before our own country. If we are to act as mercenaries, should it not be for the proper costs of our blood and treasure, not solely for (satisfaction of pro EU politicians-ed)?

    1. forthurst
      October 18, 2011

      There is of course the hugely expensive political asylum system, much abused by so-called economic migrants as well as specialist lawyers, weighing heavily on taxpayers’ largesse, but is there any upward limit to the numbers (who migth qualify-ed) etc etc

  26. Rebecca Hanson
    October 18, 2011

    Dad’s off to meet Norman Tebbitt & co. at the Freedom Association (tonight or tomorrow – not sure when) to discuss the crisis in the Euro. You might find it useful to connect up with these people. The have such a wealth of relevant experience. It’s a very rare trip out of retirement for dad. I got him to read the excellent book on the crash that you recommended and I suspect it’s helped to inspire him to believe there are intelligent people around. On a personal level, John, these men deeply understand the weight on your shoulders having both been through a similar issue and having always understood the roots of this issue and that it was coming.

  27. Michael Read
    October 18, 2011

    Did everyone spot the sleight of hand?

    “So far no-one has been able to tell me it has gone up by ¬£56 billion or 9.3%, 2011-12 compared to 2009-10.”

    Where did 2010-11 go? Was it an inconvenient year, whose inclusion would have made that 9.3% look a lot less frightening and therefore weakened the evidential case for the argument being made?

    Please, John. I’m not your average Wokingham resident. I read your stuff. Don’t take me for an idiot.

    Reply: it is clearly stated as a two year figure, because the government has now been presiding over the budgets for the time period I am quoting. There is no attempt to mislead, and the piece goes on to look at 2 year growth and inflation.

  28. Neil Craig
    October 18, 2011

    There is no world recession. Britain could get out of recession in days if the government wished it. It could also end the deficit by not hiring more government employees as they retire and frezing payments if it wanted to.

    QED Cameron and his cronies simply don’t care.

    1. Single Acts
      October 18, 2011

      Yes, exactly. I recall the scene in Blackadder 4 when the general asks Blackadder how long he will need to catch the German spy. Blackadder looks at his watch.

      Ditto unemployment. It could be fixed in about two days of legislation. It is obvious. And it won’t happen.

  29. Peter Richmond
    October 18, 2011

    “I have been asking a few Ministers to tell me how much current public spending has gone up by so far under this government. So far no-one has been able to tell me it has gone up by ¬£56 billion or 9.3%, 2011-12 compared to 2009-10. They have seemed rather suprised by the size of the increase.”
    All this confirms my belief that we need more numerate people in politics who are able to add up!

  30. uanime5
    October 18, 2011

    Yet more evidence that the Coalition’s strategy isn’t delivering growth. The Coalition choose to ignore the advise of senior economists to pursue a deficit reduction strategy based on wishful thinking that would be completed in time for the next election. Reality has shown that trying to cut the number of jobs in the public sector doesn’t lead to the private sector magically being able to create more jobs but produces poor growth in the private sector.

    I predict that growth will continue to be poor, and the Government will have to raise taxes or borrow more to pay for it.

    1. Yudansha
      October 19, 2011

      Except the ‘bonfire of the quangos’ (etc) we were promised has not happened.

      So what cuts exactly, Uanime5 ?

  31. Martyn
    October 18, 2011

    What is or should I say what was the UK? An island stood on 100+ years of coal that cannot now be used because of the mad green people and the EU who would rather see us reduced to penury through energy costs than be allowed to use it, an island surrounded by seas once plentifully supplied with fish and a fishing industry of the best in the world now stripped almost bare other EU countries and an island with world-beating steel, glass and ship building industries now sold off or closed. Thanks to a succession of politicians who seem unable to look beyond the golden future they all see in the EU, leaving us floundering in their wake paying for their stupidity, just about anything of value to the nation has either made unavailable, unaffordable or has simply vanished from sight.
    There is terrible inconsistency in the present government ‚Äď one one hand they encourage us all to save the economy by paying off personal debt and spending more in the shops, whilst simultaneously printing and borrowing more and more money to to try and buy their way out of debt. We are assured that the wicked energy providers will be brought to book, whilst the additional cost to consumers of the obvious madness of covering the sea and land with windmills that cost more to make and install than they will ever pay back when their lifetime cycle costs are taken into account, remains opaque or unsaid. Slightly OT, anyone else noted the number of windmills catching fire through gearbox failure because no one has yet made an oil capable of withstanding the loads produced? Not that we need to worry about that, I hear that the government is quietly paying out a lot of money to find a solution. That said, because each fire reduces the windmill to scrap there may be an unforeseen longer-term additional cost yet to be identified and that I doubt we shall ever hear about….

  32. Cary
    October 18, 2011

    That ministers don’t know that public sector spending is increasing is worrying. The next question to ask is which government departments are the worst offenders (and then we want to know why they’ve failed to control their spending).

  33. outsider
    October 18, 2011

    So a vast chunk of public spending will be rising by 5.2 per cent next year, the latest CPI inflation rate, costing a further £2 billion over budget. Unless there is a big change in the labour market over the coming year, that will not be matched by tax income. Presumably, NHS and aid spending will also rise faster in money terms. A further £1 billion spending was announced to please groups of voters at the Conservative Party conference.
    Business is not growing, with only public sector consumption keeping GDP up. And although the UK should keep its AAA rating, interest rates on gilt-edged seem certain to rise once QE ceases to mop up extra borrowing.

    The strategy is just not working is it?

    In the 1930s, Bank Rate was 2 per cent for 7 years (1932-39) and the economy grew thanks to lots of cheap new housing, mass production of cars and new electrical goods such as Hoovers and radios at falling prices and later by rearmament. I do not see how we are going to manage it this time. There are no signs of a cheap housing boom and today’s innovative consumer goods are made abroad. Even wind farms are imported. There may be rearmament after 2015 but we are cutting equipment budgets until then.

    Your own proposals for growth – essentially improving the climate for small business growth – are medium to long term in character. Real incomes are unlikely to rise for a couple of years. We need more concrete and dramatic measures to turn confidence. And, as Norman says, we might as well restructure the economy on a more sustainable basis now rather than continue doomed attempts to resurrect the old model , something that cannot happen on current monetary policies.

  34. Gary
    October 18, 2011

    This is going to end very badly. Once you go down this printing route you cannot get out without an even bigger collapse than you started out facing. So, not wanting that, they keep printing, and von Mises said, instead of a deflationary credit collapse, you end up with a full blown currency collapse.

    The seeds have been sown and there are no adults in charge.

    1. javelin
      October 18, 2011

      Hmm, sadly true.

  35. Peter van Leeuwen
    October 18, 2011

    ‚ÄúExtra money for the IMF?‚ÄĚ
    Mr Redwood, maybe you will soften your opinion on this when you realise that this is being proposed by the very man who bailed you out in 1976 (Johan Witteveen) and who has recently explained this to his successor Mrs Lagarde. Although it’s a pity that you wouldn’t understand his interview on Dutch TV last weekend, he was kind enough to write about it in the FT: “A bigger, bolder fund can stop the next crash” ( )
    You know that wisdom comes with age. Mr Witteveen is exactly 30 years your senior.

    Reply: He did not bail me out. I favoured action on public spending, not more borrowing, at the time of the IMF loan. I do not think the IMF should be bailing out states that no longer have their own currencies. It is a matter for Eurozone members, not others.

    1. Kevin Dabson
      October 18, 2011

      Some interesting information I was going to ask John on regarding the 70’s Sterling IMF crisis. I managed to dig this up however. Here’s the information from treasury/chancellor & IMF.

      I have not finished reading it. But in some papers the IMF advocates a 20% reduction in spending.

      Also David Owen said on Sky News awhile back that the IMF loan was a standby facility that was never used. (Or maybe this was a larger later IMF loan?) I watched him in the Lords the other day explaining that when inflation was 26%, govt dept’s had to decide spending/budgets with the treasury weekly!

      I plan to finish reading this at some point. Have to say I am getting very concerned this government is not reducing spending. There is no growth for as long as the eye can see (certainly not trend growth plus geared up banks), banks all over still have problems, so you may as well assume the deficit (psbr) is structural. Cyclical becomes structural after awhile.

      GDP should be ignored – it’s just a statistical measure. Some nobel economist wrote a book on how GDP is meaningless.


  36. Bernard Otway
    October 18, 2011

    The sheer naivety of some is mindbending,Uanime 5, in 1984 there were 196000 miners in Britain and you supposedly believe that it is very costly because of that to mine coal,HISTORY has to be studied and CHECKED,in 1974 when we had the miners strike Joe Gormley ,Arthur Scargill and all,there were 877000 miners,their exhorbitant demands given in to by Harold
    Wilson’s liebour Govt ,made the NATIONALISED mines go for EFFICIENCY ,the end result of which was 196000 miners mining the same as 877000 miners.Mining today is much more efficient than 1984 so probably it could be done by less miners VERY cost effectively,and hugely more cost effectively than WIND farms and other green stupidities to generate electricity,and as for the 200 TRILLION feet of Gas only under Lancashire,we could be a huge low cost electricity country with that and other sources,BUT NO from the INGRATES running the coalition govt,using these sources we could create hundreds of thousands of jobs,BRITISH of course HA HA HA HA.If you had come up against my debating society friends at school your poor brain would have been FRIED.

    1. uanime5
      October 19, 2011

      There were fewer miners because Thatcher had closed down some uneconomical mines. Also what is your source for the 877,000 miners in 1974?

      Also how many miners would be needed to mine coal nowadays and how do you know that it will be cost effective.

      If you had come against me in a debate I’d have shown you up for being all shouting and no knowledge.

  37. Iain Gill
    October 18, 2011

    why dont you ask them how many ICT visas have been issues this week?

    a few obvious questions would blow a hole in camerons speach on immigration surely?

  38. Peter van Leeuwen
    October 18, 2011

    Thank you for your clarification. An interesting observation by Mr. Witteveen was that Europe is reaching its ‚Äúfinancial-political‚ÄĚ limits and now a global solution is called for.
    Which could be interpreted as: when the eurozone is defeated by the debt crisis, the world will have to come to its rescue, even that part of the world that loathes the euro. The UK wouldn’t be immune from a major crisis in the eurozone.

  39. Martin
    October 18, 2011

    I’m amazed that anyone from overseas lends the British Government money. They pay about 2.5% interest but take 5% deduction for inflation! Maybe I’m missing something but it doesn’t look clever ….

    1. Kevin Dabson
      October 19, 2011

      Bonds are index linked to RPI inflation. Or at least some are. Look up the DMO website.

      Hi John,

      I was wondering what the difference between a Treasury Bill & Gilt (bond) is ? Both seem to be Govt issued debt.

      Can the govt reduce external(non UK) bond issuance by using T-Bills instead ?
      ie. to hide away debts and such like.

      Do you know if cross currency swaps (like Goldman used hiding the greek deficit/debt) have been used by the UK govt. Seem to recall the then Labour govt. paying Investment Banks money during the crisis. Was in a City blog some time ago. The figures might be worse than we are being told.

      Also makes me wonder why PSBR changed to PCNER ? or Deficit starts being used instead of PSBR. I wonder if the underlying accounting changed ?

      Just some thoughts !!!

      Reply: A TB is a short term loan, a gilt is usually a longer term one. The government presents various figures for its deficit and financing needs, explaining the basis for each of the figures.

      1. Mark
        October 19, 2011

        If you look at the prices of index linked bonds they exceed the indexed capital values, which means that you would get a real capital loss by holding them to redemption. In some cases redemption yields are negative – i.e. the capital loss exceeds the value of the coupons.

    2. Yudansha
      October 19, 2011

      I’d like to know why too, Martin.

    3. norman
      October 19, 2011

      That’s why the BoE is buying up all the debt using printed money i.e. our money. Around a quarter of our debt is inflation linked. Need we even ask if the debt the BoE is buying up in our names is inflation linked?

      It’s me and you that’s being shafted by this policy, forget talk about how we’re somehow conning the Chinese (or whoever) with this. That decidely is not happening.

      Nothing new in this just that the government is using a sleight of hand to acheive it rather than doing it directly through higher taxes.

      Although, to be fair to the government, they are raising taxes too.

      They really are proving themselves more incompetent than even I dared to believe, and my opinion started at rock bottom.

  40. Bernard Otway
    October 18, 2011

    Further to my post above I read that Rio Tinto is going to close an Aluminium smelter in the North East,losing 600 jobs IF electricity from Fractured gas was much cheaper then MAYBE this would mean that smelter was NOT CLOSED,I would have thought the ZEALOT Huhne
    would value 600 jobs and the people they support,and what they put back into the economy.
    In South Africa Billiton built a huge smelter in Richards Bay in Kwazulu Natal 12 years ago
    it emlpoyed 3000 and supported 8 people per employee ie 24000 people it has since been expanded by another 800 jobs with the same ratio of support,the ORE that is smelted to make Aluminium ingots comes from thousands of miles away by ship into Richards Bay port and the reason it was opened CHEAP ELECTRICITY based on South Africa’s huge COAL supplies . Iceland even built a smelter for Alcan now Rio Tinto based on CHEAP hydro electricity with ore coming from thousands of miles away in Guyana in south america. NEED I SAY ANY MORE.

  41. Steven Whitfield
    October 19, 2011

    Why is there such a gulf between the journalists and media people who inform public opinion and the reality of the ‘spending cuts’ ?.

    This from The Sun’s experienced political editor, Trevor Kavanagh

    “David Cameron is winning global applause for the biggest squeeze on state spending in living memory”

    How can spending be rising and be simultaneously squeezed ?.

    Or the Mirror’s Vincent Moss.

    “David Cameron’s savage spending cuts are driving women into the arms of Labour”

    Well the Mirror is a left wing paper but ‘savage’ ?

    Maybe the seasoned political journalist, Nick Robinson of the BBC has the nous to check a few figures and give a balanced analysis of the economic situation.

    Nick on the “Harsh reality of spending cuts”

    “Listen hard in Whitehall and you’ll hear the sound of ministerial squealing as ministers have to turn their rhetoric about tackling the deficit into the painful reality of spending cuts.

    Yes the poor dears… they really have been fighting tooth and nail to balance the books.

    Reply Whitehall says it needs a say 14% increase over two years instead of the 9% offered, so that is a “cut”

  42. stred
    October 19, 2011

    As pointed out above, much of goverment borrowing is linked to the higher inflation figure, RPI. This must come from wealthy individuals and institutions or countries with positive bank balances, such as China. In 12 years, at compounded current rates our debt will be almost double.

    If HMG is willing to borrow on these terms, it seems reasonable to expect that British savers should be offered the same. NI has been withdrawn.

  43. Steven Whitfield
    October 19, 2011

    Reply Whitehall says it needs a say 14% increase over two years instead of the 9% offered, so that is a ‚Äúcut‚ÄĚ

    Following the same logic, a worker on average earnings of ¬£25,000 could claim that “I need a 14% increase in my salary to ¬£28,500 over two years, otherwise I will be taking a pay cut. This is nonsense of course when inflation is around the 5% mark. Why does Whitehall think it is so diferent ?

    So were in the name of sanity does this figure of 14% come from ?. Increased welfare spending perhaps ?

    The claimant count, the number of people out of work and claiming benefits has been around the 1.5 – 1.6 million mark since the election in 2010 so this cannot be used to justify the spending increases. Whatever happened to the plans to reform the benefit system and make work pay ?

    This is the legacy of Gordon Brown who doubled public spending. But incredibly , the Conservative’s position,despite the rhetoric from George Osbourne, is that every penny of this spending binge was justified . Every penny is sacred and must not be cut. In 18 months they have shown no intention of making any real cuts.

    It’s time that this concrete headed belief in big state spending as being universally good was ditched.We need to freeze the budgets now.

  44. City Slicker
    October 19, 2011

    Finally the Adam Smith Institute writes on the theme that I highlighted a fair few months ago about the Coalition’s deficit/debt reduction plan. I stated that it relied too much on taxation and => growth rather than any real cost cutting! Heh ho I await the soon to come sterling crisis which I do relish in the slightest – what price 5% interest rates?

  45. Bazman
    October 19, 2011

    Could also look here at basic fantasy that the coalition government has long claimed that private sector jobs growth would ‚Äúmore than offset‚ÄĚ the number of public sector jobs being cut.
    Even if you agree their jobs should be cut what are they supposed to do with no job?

  46. Steven Whitfield
    October 21, 2011

    Reading the contributions on this forum and in the wider media there seems to be an extremely diverse range of opinion on the deficit reduction program.

    Mainstream Media position.

    The cuts are routinely described as being ‘tough’ ‘difficult’ or ‘savage’. Very limited coverage is given to any analysis that suggests the ‘cuts’ are very modest or non-existent. Some commentators go as far as to suggest that the cuts ‘don’t go far enough’.

    John Redwood’s position
    (Mr Redwood, please correct me if I have misrepresented your position)

    In the face of CPI inflation at 4.3%, spending is being increased by 9.3%, or 56 Billion pounds (2011-2012) . It is difficult to see this as a ‘real cut’ in spending – particilarly when a pay freeze is in place.

    City Slicker highlighted the view of,Eamonn Butler, writing for the Adam Smith institute.

    Spending in 2011 was compared with the same period in 2010 and found to be 1.3% higher after adjusting for inflation.

    “spending is still growing, and growing fast, in both cash terms and real terms.”
    “It turns out there haven’t been any ‘cuts’.”

    Jeremy Poynton highlighted the view from Tim Morgan, Global Head of research for a company Tullet-prebon,described as “one of the largest inter-dealer money brokers in the world”.

    Page 34 of his report “Thinking the unthinkable – might there be no way out for Britain”

    Tim morgan argues that real terms adjusted for inflation spending is set to decrease by 3% over the course of the parliament. When interest payments and inflation are taken into account, the amount of ‘real terms reduction’ in spending is around 7%.

    “Based on the government‚Äôs plans, the
    maths work like this. The Coalition
    plans to reduce real-terms public
    spending from £688bn in 2009-10
    to £668bn by 2014-15, a reduction
    of 3%. However, and resulting from
    past increases in public debt, interest
    expense is expected to rise by £24bn.
    This means that ex-interest spending
    is set to decline from £657bn to
    £612bn, a fall of 6.7%. Spending
    on health and on international
    development has been protected and,
    with these also omitted from the
    equation, all other spending is set to
    fall by 9.4%, from £527bn to £478bn.

    Mr Redwood – could government justify using mounting interest payments and inflation combined to justify rising real terms spending ? . Surely this would trap the economy into a sort of ‘economic vortex’ that will lead us down the road to bancruptcy ?
    Who is right in this debate – I’d appreciate your views.

    Reply: My view is that the 2 year increase of 9.3% should be a small overall real increase. This cannot be compared with a one year inflaiton figure. Under 3% of the 9.3% is debt interest increase. I myself would do more financing by asset sales, and have set out how to do this, so debt interest makes a smaller inroad into the cash growth.The debt intert programme is also now benefitting from lower interest rates than forecast, from expectations about the £75 bn money pritning exercise.
    The government itself agrees it needs to curb the deficit to avoid debt trap.

  47. Steven Whitfield
    October 21, 2011 (reference I posted to this article seems to have been moved)

    Thanks for your reply.

    Having considered the arguments, I do believe that the budget figures do represent a small overall real terms spending increase. However some departments might see a modest real terms cut in budgets because of the unfair way that International development, NHS budgets are being ring fenced. Arguably, welfare benefits should be tagged to average earnings not retail price inflation. But I don’t think this is the central issue…

    Departments,used to large increses WILL percieve that massive spending reductions are being made. We know that under the Brown years, public sector productivity declined by around 20%. The high spending years seem to have fostered a culture of ‘why bother to save money when the treasury will always pick up the tab…and award more money on top’.
    Waste and incompetenece became endemic.

    Put simply the uk budget seems to be like a bucket with holes in – unfortunately these holes have kept growing bigger and bigger so the inflow of water has to keep increasing just to maintain the same level.
    My view is without serious reform of public services, any atempt to tackle the deficit is doomed.

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