In 1973-4, the last year of a Conservative government, public spending was £33.4bn or 42.1% of GDP.
The Labour government that followed put it up to 48.9% of GDP, only to be forced into cuts by the IMF. By the time they left office annual spending was ££79.7bn, or 44.1% of GDP.
Mrs Thatcher’s government left office in 1990. Total spending was then £216.8bn or 37.5% of GDP.
Mr Major left office in 1997, with spending at £324 bn or 38.2% of GDP.
Mr Blair and Mr Brown boosted spending to £686.5bn, or 45.7% of GDP by 2009-10.
The Coalition increased spending to £ 735.5bn, or 40.7% of GDP.
So taking percentage of GDP as many people’s preferred measure of public spending, one Labour government boosted it by 2% and one by 7.5%. The Conservative government of 1979-97 reduced it by 5.9% (Mrs Thatcher actually reduced it by 6.6%)and the Coalition cut it by 5% of GDP.
The fact that the high levels of public spending as a proportion of GDP led directly to an IMF crisis and forced cuts in the 1970s, and was part of a wider banking crash in the late 2000s should be a warning to all those who think the easy answer to economic success is to boost public spending. These periods of very high spending coincided with poor economic performance- part cause and part effect. Each Conservative period in office has had to include getting public spending and borrowing back under control to avoid further interest rate and banking problems.
No Conservative government has cut cash spending. Over all the years of alleged cuts public spending has risen substantially in cash terms and has usually gone up in real terms as well.
September 6, 2015
Indeed it is rare for UK governments to be able to raise more than about 40% in taxation and that anyway is far, far too high for optimum good for the voters.
You say: “No Conservative government has cut cash spending. Over all the years of alleged cuts public spending has risen substantially in cash terms and has usually gone up in real terms as well.”
Why on earth not? It is desperately needed and on balance everyone but government parasites, some lawyers and tax advisers would be far better off.
It is unfortunate that due to the delay in the process Labour often get the credit, especially in their first terms of office, for improvements that were actually made by the last government.
Major with his ERM disaster, his love of the EU, his failure to admit his idiotic mistakes and apologise and his general incompetence and foolishness not only buried the Tory party but then left Blair a fairly sound economy. This helped Bliar keep power for three terms.
Governments in general spend money hugely inefficiently, much of what they do does not even need doing at all and much of what they do has a negative not even positive effect. Taking all this into account one perhaps get a spending/investment efficiency from government of say 25% as compared to the private sector. Other than law and order, protection of private property, defence and a few other areas they do net harm.
Who is most likely to spend money well? Is it the high earners, hard workers and successful investors that the government grabs the taxes off or people like Cable, Brown, Major or even Corbyn? Politicians and bureaucrat do not even want to invest the money well. They care not what they pay nor what value they get (other than perhaps vote buying and political propaganda). This as it is not their money, nor in general is it they who get the value of the spend.
Osborne has clearly failed totally to grasp this and should be replaced.
September 6, 2015
The next election will be won by having a sound economy. If Osborne wants that in 44 months time he need to start firing the large proportion of the overpaid, misdirected, poorly run and often inept state sector that does so little good. Also to cut and simply taxes hugely and to keep his £1M IHT per person promise rather than comprehensively rat on it as he clearly is doing. Also to reduce his redistribution from the hard working to the feckless.
Release state sector workers to get a real job or set up a business with their pay offs and pensions. Many would be far happier doing that anyway.
Also cancel HS2 and kill all the insane green crap grants and other market distortions. Stop funding pointless degrees too, at least 50% of them surely are. Lots a academics thus released too. Perhaps some of them could start a business and perhaps get more in touch with reality with their pay offs.
September 6, 2015
Outsourcing (“tax farming”: collection of tax in Roman and later times: putting out to tender the work, then awarding the contract to the highest bidder and allowing him to keep the difference between the revenues he was obliged to hand over to the state and the amount he actually collected).
Private companies, since John Major then Tony Blair, built and managed most prisons in England and Wales, and most of the probation service. NHS England already uses some privately owned hospitals and contracts with private firms to conduct a wide and increasing range of clinical procedures. Private companies assess the medical conditions of benefits claimants, maintain the UK’s stock of nuclear weapons, are more and more responsible for the residential care homes for children, and for the delivery of adult social care.
All that without a proper independent and comprehensive review of the experience of outsourcing, so that Atos, Capita, G4S and Serco (the most visible, and usually in a quasi-monopolistic position) can practically set the conditions under which they provide services.
When there have been problems, it is a posteriori that the Public Accounts Committee produces with the Comptroller and the Auditor General a report explains how (rarely why) the tax-payer was robbed.
And here on this blog, we hear again and again the vociferous ones cry for less state and more private service delivery …. but never for more monitoring of what is already privatised.
September 6, 2015
Hefner
Perhaps much of what you say is true, but think about it a little deeper.
The Private Companies can do absolutely nothing in any of the areas you suggest (other than perhaps build and run private nursing homes) unless the Government proposes and agrees to it.
Just remember it is the Government who put out the contracts to tender.
It is the Government who set the terms and conditions of the contract.
It is the Government who set out the requirements for supervision/inspection It is the Government who set out the performance terms and penalties that go with it.
The Government knows in advance what all of these services cost to run, because they (rather the taxpayer) have paid for such services for decades.
So they put out a request to tender, and private companies bid in line with all of the term and conditions outlined.
If a private company can do the job as requested, and do it at less cost to the taxpayer, and still make a profit, what does that tell you ?
It should tell you the Government run organisations are inefficient and more expensive to run !
Surely if any of the services they contract to run are not up to speed, then the Government should take them to account under the terms and conditions agreed under that contract.
What we often seem to find is that Contracts are unclear, performance targets and penalties have not been included in the first place.
Thus do not blame the Companies who simply bid for the work, instead blame those who set out and oversee the contracts.
Just for the record I have never worked for any of the organisations you outline or indeed worked under a government contract.
September 6, 2015
I remember being highly amused when I first heard the economic disaster Gordon Brown saying “no return to boom and bust”.
Almost as funny as when he sited Adam Smith as his hero. Clearly Gordon had either not read him or totally failed to understand him.
September 6, 2015
Could it be that Gordon preferred the Smith of “The Theory of Moral Sentiments” to the one of “The Weath of Nations”?
Even so, even TWoN is not so clear cut in supporting post-1980 UK economics. You might try to read it again and see.
September 6, 2015
Hefner
You are right post 1980 economics is as far removed from free market economics of Adam Smith as you can be. Its corpratism and government “investment” tied in a symbiotic embrace to fleece the rest of us
September 6, 2015
The fact that the high levels of public spending as a proportion of GDP led directly to an IMF crisis and forced cuts in the 1970s, and was part of a wider banking crash in the late 2000s
Fact (s)? Is this really the case?
Lets take the points one at a time.
1) The IMF were indeed called in by the Labour government in 1976. The thinking of Jim Callaghan, the PM at the time, and his colleagues, was largely conditioned by the Breton Woods fixed exchange rate regime which had survived until just few years previously. They started to panic when the exchange rate of the £ fell to below US$2.00.
Why? That was their big mistake, They should have let it fall. There was no need to ask for a foreign currency loan to prop up the pound. If any government wants to make speculators rich they just need to intervene heavily in the foreign exchange markets. They are easy prey to the like sof George Soros, as the Conservative government of the early 90’s found out to its cost.
Mrs Thatcher’s government in the early 80’s took a different view. The speculators forced down the pound to almost parity with the dollar at one point. She just let them. Credit where credit is due. That was a very smart move on her part. It was the speculators who lost money then. Not the British government.
2) Part of a wider banking crisis in the late 200o’s ??
I note you’ve had the decency not to use the term GFC, or claim that it was caused by high government spending in the UK, the USA, Ireland, Iceland, Spain, Greece, Portugal, France etc etc but have all suffered greatly from the “banking crisis” in the years since!
Is that because you are fully aware that the crisis was a crisis in private lending rather than public lending?
Reply The 2007-9 crisis was a combined crisis of overspending and borrowing in the public sector, and catastrophic regulation of the banking sector, lurching from too easy to too tight.PFI/gilt issue/ off balance sheet state borrowing were part of the overborrowing crisis.
September 7, 2015
JR,
I suspect that this is going to be a case where political considerations trump economic ones. Would it ever be possible for a Conservative MP to say, even if he understood differently, that the 2008 GFC was not caused by high Govt spending? Am I being too idealistic in thinking that we can analyse economic issues and come to a scientific and non-political conclusion? If we can’t then there’s no hope of ever making economic progress.
We agree that bank lending was far too lax in the run up to 2008. But, everything else ie growth , inflation, unemployment
levels etc looked good. So if the Labour govt had done what it should have and restricted lending , by a combination of higher interest rates and/or a better regulation of bank loans, we would have had less growth. So, how could that growth have been maintained? By a tighter fiscal policy, as you suggest? I genuinely fail to see how that can have done anything other than to slow growth even further.
We also agree that “lurching from too easy to too tight” is a good description of private bank lending afterwards. So if private lending is too tight, doesn’t that mean that public lending, or fiscal policy has to be eased to compensate? It certain was after 2008. That was why the government deficit increased sharply and why QE was undertaken by Govts of both political parties and on both sides of the Atlantic.
I suspect that we both might agree that private bank lending levels are of prime importance in macroeconomic control. Yet we expect the government to control the economy even though it doesn’t have any direct control over it. It’s like trying to fly a plane when the co-pilot has control of the ailerons and the pilot has control of the throttle. If the co-pilot takes it upon himself to slam on on the air brakes all the pilot can do is open the throttle to compensate. It’s no wonder we have economic crashes from time to time.
Reply I say it as I see it. This sometimes means disagreeing with my party – perhaps you have not noticed!
September 6, 2015
Ongoing devaluation of the currency is favoured by everyone in the political elite, making it hard for ordinary people to spot what is going on.
September 6, 2015
Once again, figures presented in a simple and uncomplicated way, tell the story about the growth in public sector spending.
Also aware that inflation has not been taken into account, as during some of these periods that was also unacceptably high.
If only the media would pick up on some of these facts, rather than trying to make and influence the news and Government policies themselves .
September 6, 2015
The media (and the BBC in particular and most lefty politicians) are simply not interested in facts, logic or reason. They prefer to work mainly with emotion.
One photograph of a drowned child or similar is worth far more than any reason or logic to the media. One appeal to irrational envy just the same.
A polar bear on a bit of ice is worth far more than the last 18 years of temperature readings. Who cares about temperature readings and the real quantity of ice in the Arctic when polar bears floating on ice are so photogenic?
September 6, 2015
There seems to be a consensus among politicians that to a lesser or greater extent, government should continue down the same road in terms of involvement in the lives of it’s citizens. I believe a re-think is long overdue.
In the real world the paying customer decides what he or she will spend their money on. Successful products thrive, poor ones disappear. In the government’s world the customer is in a take it or leave it situation, but payment is taken irrespective of customer choice. It is called tax in every pernicious form.
Most of the really successful countries in the World have tax takes of 0% to 15% of personal income. The UK government cannot provide it’s services for less than 45%. plus a tax every time you make a spending choice. If the service was fantastic it might be acceptable but in fact it is mediocre across the board.
The conclusion should be obvious and possibly is to all but politicians and civil servants who feel the need to involve themselves in the minutia of peoples lives however incompetently. let’s have a government that understands motivation and encourages people to get on with their own lives, while not forgetting the truly disadvantaged. Put another way government should back right off.
September 6, 2015
“If the service was fantastic it might be acceptable but in fact it is mediocre across the board.”
It is rather worse than mediocre. I see that we apparently have 11,000 extra deaths PA in the NHS – just because they are even worse at weekends than during the week. Yes we are still restricting even very good candidates from getting places at medical school despite the shortage of doctors. This due to the place rationing that seems to go on.
Defence procurement is dreadful, the police do not bother to investigate burglaries, half the courses at university and virtually worthless, we have energy prices driven by a green religion, an absurd tax system that distracts wealth creators, a poor education system, dysfunctional & severely rationed NHS, absurdly congested roads (often intentionally blocked), very expensive & unreliable trains, counter productive wars entered into on a lie, endless motorist muggins …….. If only it were merely mediocre!
http://www.telegraph.co.uk/news/health/11845465/The-weekend-effect-means-11000-extra-NHS-deaths-a-year.html
September 6, 2015
You are dead right!
The percentage at the moment is falling fast – almost down to 41%.
September 6, 2015
Excellent statistics. Of course one needs to take into account the cycle – eg spending / GDP would have gone up in the period 1990-92 whoever was PM due to the 91 recession. But the direction of travel is clear. It was an appalling error of the Blair-Brown Labour govt that they squandered so much public money. The continued denials of this by leftists is absurd, as is the contortions of academic economist apologists (who seem to have learnt nothing since the famous 364 economists of March 1981 were proved so fabulously wrong in their prognosis).
Look around the world. All the most prosperous & high growth economies either have low spending/GDP ratios or are attempting to reduce them. Scandinavia is no exception before some ‘keynesian’ claims it. Sweden’s recovery in the 90s and 2000s was due to radical free market reforms.
Commentators in the UK need to raise their eyes and ask how it is that Switzerland has no deficit, 30% spending to GDP – but higher living standards and better public services than the UK. There are numerous other examples. Amongst developing countries there is a clear dividing line over the last 50 years. Those that have pursued free market capitalism and democracy have achieved prosperity (and not required aid). Those which have been socialist or facist dictatorships have seen stagnation and poverty (and been given aid which perpetuates it).
We can look forward to more of this fundamental debate when the absurd Marxist Mr Corbyn is chosen as leader of the Union-Welfare Party.
September 7, 2015
“Commentators in the UK need to raise their eyes and ask how it is that “Switzerland has no deficit, 30% spending to GDP – but higher living standards and better public services than the UK.”
Well they do run a trade surplus of 14%. That explains their lack of a budget deficit. They don’t have any nuclear weapons to support and have little by way of an army or an air force.
September 7, 2015
No wonder it’s a competitive economy with a trade surplus when tax and govt spending is a relatively low %age of GDP.
Lower defence spending accounts for c 1% of Switzerland’s 10%+ lower state/GDP ratio.
September 6, 2015
We are being criticized in the UK for our attitude to taking large numbers of refugees from Syria and other areas in the Middle East.
I would contend that this is because of Labour Party policy during their last period of office and the open door policy of the EU. These policies of government have swamped the country, and it’s systems to the tune of 630,000 in 2014 alone. It is this that has coloured our attitude to further influxes, and thanks to government we are diminished by it.
September 6, 2015
In my view all those percentages of GDP are too high, even the lowest of 37.5%. I can’t say with any precision where it should be, on average, but I think we should aim to get it down to around 30%, gradually, over a period of some decades. It isn’t something which could be rushed, there would need to be enough time for the economy to adjust. Likewise we should aim to get the government’s primary deficit down to zero, on average over the economic cycle, and gradually pay off most of the accumulated debt not add more and more to it.
September 8, 2015
The government cannot get its “primary deficit down to zero” at the same time as it runs trade deficit of 5.5% of GDP. Its just not possible. No country does anything like that.
Neither can it “gradually pay off most of the accumulated debt”. All it can do is levy taxes on the population to reduce their financial assets to zero.
In addition it would need to tax the Swiss, the Germans the Chinese, etc who all own substantial numbers of UK gilts. What’s the government going to do if they don’t pay? Declare war?
September 6, 2015
Over your time period from 1973 the UK population has increased by 12.5% from 56 million to 63 million, most of that increase being recent.
Looking at total spend on the NHS or on schools for example without taking the total population into account is meaningless.
September 7, 2015
Running with this simplistic view if the costs of coping with the population have gone up by more than the increase in GDP resultant from that increase then there is no economic benefit to mass immigration.
September 6, 2015
The pattern is familiar. Labour, egged on by the BBC, spend all our money. They are painted by the media as the good guys.
The Conservatives come in and reign back the spending. The BBC paints them as the bad guys.
Most ordinary people understand normal market activity. They sell products or sell their labour and skills to an open market. They can then earn money to pay the bills and can even prosper under such a benevolent system. However, when the market is stifled or corrupted under a Labour regime, the people who prosper are those who can ‘work the system’ or have friends who can do them favours.
Whether they are people fiddling their benefits or large corporations benefiting from over-regulation, the rich get richer and the poor get poorer under Labour and the BBC goes on pushing for yet more spending and higher taxes making the gap wider still.
September 6, 2015
Left is not Right obviously . Decisions to spend without thinking of the consequences is a mistake many Governments – Left and Right make . HS2 is a typical example of mistaken expenditure ; responders will , inevitably , cite many more examples .
Planning for the future does mean the implementation of a strategy covering the life span of , more often than not , several Parliaments . The mood obviously changes when the swing is in an opposite direction and , when this happens , there is considerable wastage . There ought to be some system of Government management to overcome these swings of opinion and the consequent wastage ; perhaps the American approach by only voting for a percentage of places at any one time ?
From the figures posted today the suggestion is the economy was in better shape when the %age GDP expenditure was below 40% or , in other words , Left wing Governments are a mistake . Driving initiative out of the country is a major error and taxation the guilty element ; equally any Government that ignores the plight of the genuine needy is misplacing the mood of the voter . Wherein lies the solution ?
September 6, 2015
public spending is counted towards GDP, the more the govt spends the more GDP goes up(so they say, although I believe it’s a lie) , so make of the ratios what you wish. You can’t make it up. And now drugs (maybe the fourth biggest industry in the world) and prostitution(certainly the oldest) are now contributing to GDP. Make of this hocus pocus what you like, but you certainly can’t make it up. That’s the job of govts.
September 6, 2015
Briefly off-topic, again, JR, but I wonder whether during the next week you could ask the government for clarification on whether the “at least 10,000 Syrian refugees” which the UK will accept, according to Sky News, actually refers to the total number of men, women and children or to the number of families, including those families which are at present divided but will be reunited once the head has managed to get his feet under our table.
Are we really talking about “at least 10,000”, or “at least some multiple of 10,000, where the multiple could be two, three, four, five, six or higher”? Will it be another con like the government’s target for net immigration, which most people took to mean a few tens of thousands, but is now said to mean anything less than 100,000?
September 6, 2015
It is cash spending that is the important figure.
No business would create a purchasing budget based on a percentage of sales revenue.
They would aim to spend less than the budget and be rewarded for doing so whilst still meeting their objectives for the period.
It seems the Government works in the opposite way.
September 6, 2015
So where are the austerity measures that the left keep banging on about?
Compared with Mrs Thatcher’s days, when the government did all that was necessary and we had decent armed forces, spending has gone through the roof, even if it being cut back a little this year.
Is the money going to the EU? What percentage of our GDP is going there, and what was was it back in Margaret Thatcher’s time?
September 6, 2015
I don’t support a big rise in public spending relative to GDP, but I can’t see any inherent economic problems in that rise: there’s been a very large increase in public spending relative to GDP over the last century or two with no obvious problems in consequence.
September 6, 2015
The government should pay attention to the Survation poll reported in the Mail today:
http://www.dailymail.co.uk/news/article-3223674/Britain-wants-quit-Europe-Shock-new-poll-shows-EU-no-camp-ahead-time-Cameron-prepares-face-Tory-rebels.html
How many Syrian refugees should the UK accept?
None 29%
200 7%
1,000 9%
3,000 12%
10,000 15%
30,000 4%
100,000 3%
300,000 1%
Don’t know 20%
Anything beyond 1,000 families and that will already be into the realms of minority support, and rapidly diminishing minority support.
September 6, 2015
Unless you include the counterparts to your figures, they mean little, but will fool the voters. Private sector debt / saving and BoP current account are needed to show the fiscal balance in the economy at any period of time.
Anyway, if you want a demonstration of how the far “northern powerhouse” is working, you should read the story about the “Borders Railway” that the Queen will open this week. Closed by Beeching in 1969, it has taken 23 years to re-open it as a mickey mouse single track railway with Diesel Multiple Units designed 26 years back.
“The Waverley Railway (Scotland) Act 2006 received Royal Assent on 24 June 2006 and sanctioned the construction of around 30 miles (48 km) of new railway as far as Tweedbank with seven new stations. In total, the Act had taken three full Parliamentary years to be passed, with 29 committee meetings, 108 witnesses and a quantity of paper 4 feet (1.2 m) in height.” https://en.wikipedia.org/wiki/Borders_Railway
The UK is no longer any sort of “powerhouse.”
September 6, 2015
Acorn
The UK is no longer any sort of “powerhouse.”
Drivel as normal
I suggest you do a bit of research on the global leadership that some areas of UK industry enjoys and is GROWING. Rather than cutting and pasting economics waffle.
September 6, 2015
Excellent piece ,thank you .
Sadly the BBC and left wing media assume all public expenditure is good .
When did we last hear a BBC news report asking if we are getting value for money or if there is a better way of doing things ?
I am thinking primarily of the NHS but also the EU ,the climate change industry and welfare .
September 6, 2015
The Rt Hon Mr Osborne MP appearing on the Marr Show today did not give away by his general demeanour a Chancellor who was expecting a boom. Quite the reverse. His body-language is right. His words are comforting.
GDP is calculated in many ways and few politicians mention it unless its method of calculation and result at any particular time matches their own optimistic assessment of the economy. Debt can be a causal factor in a high GDP. Increasing debt can be part of a boom. The economy of South Africa is a case in point.
A massive debt and massive spending by a young couple who have not a clue whether they, either or both, will be employed in even a decade’s time is applauded by the Conservative government. Their ongoing sometimes frivolous spending on “the home”, on next year’s throw-out bric-a-brac, fickle decoration and re-decoration. again is applauded by the Tory Party. Actually the Conservative Party’s economic ethos it seems is fundamentally based on the model of home ownership. How romantic.
The “black economy” cannot by definition be included in any figures relating to GDP though I believe attempts have been made by the Dutch or French to include in their GDP prostitution. But the black economy covers more than House of Lord’s bed and breakfasting. It covers buy-to-let devices which enable a relatively quick turnover of residents some of whom may of course be engaged in other lordly activities. But can also be employed in any number of the “small businesses” about which which all political parties are so enthusiastic.
The thing about small businesses of course is the most obvious, their smallness. The ability of small businesses to get under the economic radar. To have cash transactions and services unreported to the Inland Revenue is legend. The TV series “Minder” was funny but actually not a joke. I’ve met them time and again and I do not mean the actors.
Pre-election, political parties trumpet they are going to give this, going to give that, cutting the tax to “small businesses.” I guess Al Capone would have welcomed such tax breaks and gifts to his empire of speakeasies. His British and not so British counterparts in the UK are equally grateful to be sure. More grateful, as they do not have to give a politician a bribe to get it., Like the mortgages (debt ) given to witless youth, tax breaks to “small businesses” ( not debt ) are romantic.
The Tory Party with its low interest rates has stolen the savings of all and particularly nasty: the life-savings of pensioners. Created a bubble of easy money and yes yet again to “small businesses” ( and…oft forgotten… and hardly mentioned…the small business owners..they that get the profits, they that in extremely small numbers of course …though the numbers by definition cannot be known, keep the profits. Why should they re-invest those profits when they can just as easily get another government hand-out in the form of a cheap loan? ). These are Welfare Benefits by another name. They should be cut.
The Boom and Bust has continued under the Tory Party. It is merely in a different phase of that cycle. The Bust will begin when the B0E starts to raise interest rates..as it has promised month by month for the past two years. The Bust will start when the BoE’s forecast of rising inflation which it has said, every month, for 2 years will be “soon or “in the next quarter for sure”. The Bust has started to happen in China. Started with the EU QE. Started with the Fed ending of QE.
The government has not got a clue about the number of people in this country, who they are, where they are, what if anything they are doing, where they are living, what they earn if anything, whether people are paying appropriate national taxes and rents and council taxes. The government has unknown numbers of utterly unproductive people tramping in an unending sprawl literally clear across Europe and to the UK.
Prior to the Tory Election to power., the Labour Party in one of their most terrible lies said many times; “A Tory Government will lead to mass unemployment the like of which as not been witnessed since the Great Depression. ” A terrible lie but counter-intuitively, absolutely correct.
September 6, 2015
The Rt Hon Mr Osborne MP appearing on the Marr Show today did not give away by his general demeanour a Chancellor who was expecting a boom. Quite the reverse. His body-language is right. His words are comforting.
GDP is calculated in many ways and few politicians mention it unless its method of calculation and result at any particular time matches their own optimistic assessment of the economy. Debt can be a causal factor in a high GDP. Increasing debt can be part of a boom. The economy of South Africa is a case in point..
A massive debt and massive spending by a young couple who have not a clue whether they, either or both, will be employed in even a decade’s time is applauded by the Conservative government. Their ongoing sometimes frivolous spending on “the home”, on next year’s throw-out bric-a-brac, fickle decoration and re-decoration. again is applauded by the Tory Party. Actually the Conservative Party’s economic ethos it seems is fundamentally based on the model of home ownership. How romantic.
The “black economy” cannot by definition be included in any figures relating to GDP though I believe attempts have been made by the Dutch or French to include in their GDP prostitution. But the black economy covers more than House of Lord’s bed and breakfasting. It covers buy-to-let devices which enable a relatively quick turnover of residents some of whom may of course be engaged in other lordly activities. But can also be employed in any number of the “small businesses” about which which all political parties are so enthusiastic.
The thing about small businesses of course is the most obvious, their smallness. The ability of small businesses to get under the economic radar. To have cash transactions and services unreported to the Inland Revenue is legend. The TV series “Minder” was funny but actually not a joke. I’ve met them time and again and I do not mean the actors.
Pre-election, political parties trumpet they are going to give this, going to give that, cutting the tax to “small businesses.” I guess Al Capone would have welcomed such tax breaks and gifts to his empire of speakeasies. His British and not so British counterparts in the UK are equally grateful to be sure. More grateful, as they do not have to give a politician a bribe to get it., Like the mortgages (debt ) given to witless youth, tax breaks to “small businesses” ( not debt ) are romantic.
The Tory Party with its low interest rates has stolen the savings of all and particularly nasty: the life-savings of pensioners. Created a bubble of easy money and yes yet again to “small businesses” ( and…oft forgotten… and hardly mentioned…the small business owners..they that get the profits, they that in extremely small numbers of course …though the numbers by definition cannot be known, keep the profits. Why should they re-invest those profits when they can just as easily get another government hand-out in the form of a cheap loan? ). These are Welfare Benefits by another name. They should be cut.
The Boom and Bust has continued under the Tory Party. It is merely in a different phase of that cycle. The Bust will begin when the B0E starts to raise interest rates..as it has promised month by month for the past two years. The Bust will start when the BoE’s forecast of rising inflation which it has said, every month, for 2 years will be “soon or “in the next quarter for sure”. The Bust has started to happen in China. Started with the EU QE. Started with the Fed ending of QE.
The government has not got a clue about the number of people in this country, who they are, where they are, what if anything they are doing, where they are living, what they earn if anything, whether people are paying appropriate national taxes and rents and council taxes. The government has unknown numbers of utterly unproductive people tramping in an unending sprawl literally clear across Europe and to the UK.
Prior to the Tory Election to power., the Labour Party in one of their most terrible lies said many times; “A Tory Government will lead to mass unemployment the like of which as not been witnessed since the Great Depression. ” A terrible lie but counter-intuitively, absolutely correct.
September 6, 2015
We can all have our opinions on the relative size of government. I’m happy with 40%. There’s no particular reason for 40%. Anyone who might suggest 30% or 50% would have an equally valid case.
There needs to be a better understanding, though, no matter what particular figure has alighted upon, that the size of government and the size of the government’s budget deficit are quite separate matters. Germany has a small deficit , or even a surplus, whereas the size of their government is large. The USA has a large deficit but a smaller government.
The explanation of why is not difficult. It’s all explained by the sectoral balances. Germany is a net exporting country. The USA isn’t. Neither is the UK. So, if we reduced the size of government we could, if we wanted to, have an economy like the USA’s. We’d need to reduce tax levels too. But we couldn’t have an economy , complete with surpluses, unless we too ran a trade surplus like Germany.
The other factor to consider is the savings of the population. Germans are prodigious savers. That takes the heat out of German inflation. Otherwise German taxes would have to be even higher and their budget surplus even higher than it is.
All these options are possible to the UK, depending on the democratic mandate of government. But cutting spending without cutting taxes is not going to achieve a smaller government. It will just push the economy into recession and create a popular demand for larger government to solve the problem of high levels of unemployment.
September 6, 2015
PeterMartin, Thanks for that, and a bit more informative than JR’s “Thought of the Day”.
September 6, 2015
Are you forgetting that over 80% of trade is internal in the UK Peter?
And the Govt of the USA is not smaller than Germany
And the whole point of a smaller Govt is to have lower taxes.
In other words to reduce the amount of money Govts take away from their citizens, allowing them to decide how best to spend their hard earned money.
September 6, 2015
Edwards2,
Sorry, I omitted to mention that I was referring to the size of govt as a percentage of GDP. Sweden is another example of a large government (as a % of GDP spending) but a small deficit or even a surplus in Govt spending. So there’s no direct link between a small govt and a budget surplus. Although that is possible – as in the case of Singapore.
No I’m not forgetting about internal trade. That’s all taxable. Payments to overseas suppliers aren’t taxable. That is money lost to the economy.
Yes I agree with you. The whole point of smaller govt is to have lower taxes. So, for example, if the NHS was abolished then everyone, not just the wealthy, would need to have to have enough of a tax reduction to be able to afford private insurance.
September 7, 2015
I don’t agree with you re exports.
We used to sell abroad in our manufacturing business.
It was accounted for as a normal sale and we the payments went into our bank account.
At the end of the year tax was paid on profits made.
If we purchased goods from overseas suppliers wepaid for them by swopping pounds via our bank into whatever their currency was.
I cant see that the money is lost to our economy.
Dont they use it to then buy things from us?
Its called trading.
September 7, 2015
When I say small or smaller State I mean a state that isn’t in deficit every single year.
And has at least a reducing overall debt rather than a rapidly increasing one.
Even at record low rates of borrowing.
I agree a very small state can still spend too much.
September 8, 2015
Edward,
What you say is true – but only if trade is balanced. Consider the hypothetical case of two islands who trade with each but no-one else. Island A’s and Island B’s currencies will automatically adapt, in the absence of any interference in the currency market, to what ever relative value is necessary to ensure that trade is balanced.
But say Island B takes it upon itself to run an export surplus. It needs to make its currency cheaper relative to Island A. That way its exports are more attractively priced and and its imports from A are more expensive. So there is a net flow of extra goods and services to island A and a net flow of money to island B.
However the net flow of money is in the currency of Island A. The exporters of island B need their own currency to pay their workers etc. So the central bank of island B has to issue currency (out of thin air) to satisfy the needs of their exporting companies and also suppress the value of their currency.
They then buy up bonds issued by Island A and pay for them in A’s currency. The govt of island A then completes the money-go-round by deficit spending the proceeds of those bonds back into their own economy.
September 6, 2015
The so-named “Booming economy ” of the German economy very recently came to the fore.Mrs Merkel assured her doubting regions…note they needed to be assured ( Germans are not stupid even in the regions…as in the UK ) that there would be pots of money. Money enough, with ease, to take in 800,000 migrants on top of the rest. One year for each to be housed ( the houses do not exist..she didn’t mention that ) rent and rates free, given language instruction ( they have insufficient teachers ) help with assimilation ( they do not have anywhere enough social workers..they are at break-neck full stretch already ). “They can in the first year get a job if they want one” ( There are very few if any job openings for non-German speaking pigeon-English speaking people at best untrained and vitally missing German RECOGNISED qualifications and skills .That is, they have not passed even the German Health and Safety basic requirements to make a sandcastle on an empty beach. )
The German Health Service suffered a doctors strike recently. Their non-existent,… now,…”free” Health Service has been on its back foot for years contrary to all UK and most World press reports. Mrs Merkel says Germany can afford what is before them with their kindly intake of unidentified migrants because their budget is in surplus. Hmm, so it does not matter as far as her budget is concerned that even the car manufacture of VWs in the Czech Republic has put lower paid workers there on short-time intermittently for the past two years. That there is a shortfall in anticipated and actual German car production expansion and importantly sales in China, India, and South America?
The point is, are the UK’s economic performance indicators, its Budget, its economic plans based as are Germany’s on the most contemptible falsehoods? What geo-political Genie lies behind the neutering of logical truthful thought and expression in Europe?
September 6, 2015
A brief reminder from John of why many people vote for the Conservatives. It is not that they approve of government spending at the levels of previous Tory administrations. It’s that the alternatives were even worse.
Personally, I would like to see state spending return to the levels it was before 1914, that is closer to 10 per cent than 40. But it seems that modern bureaucratic democracies which, because of universal suffrage, are beholden to large interest groups in the electorate, make this extraordinarily difficult.
Nevertheless, Singapore does have government spending levels which is below thirty per cent and it has reaped the economic rewards. Is this a model which the present government feels like emulating?
September 6, 2015
It is true that Singapore has relatively low levels of Government spending. That’s not to say that the Singaporean government isn’t highly interventionist though. There’s not much that their government doesn’t have a direct interest in.
Then there’s countries like the Phillipines, Bangladesh, the Central African Republic, Turkmenistan and Guatemala which all have even lower levels, as a % of GDP, of Government spending than Singapore.
So what can we say about these economies? Have they reaped the rewards?
September 7, 2015
Of course Peter, there are many countries in the world which suffer from political instability, religious strife and a rather cavalier attitude to the rule of law. Governments in these countries often have difficulty in exerting much influence over their populations at all. But would I say that a typical worker in a Bangladeshi factory reaps the benefits because the government rakes in 20 per cent of his wages rather than 40 per cent? Yes, I think I would.
But what of countries in the developed world? There have been many studies now which have correlated their government spending and economic development. It’s no secret that those countries where the government takes less seem to grow faster. Is the reason so difficult to work out? Firms tend make investment decisions based upon market criteria. Governments make investment decisions based on political criteria, criteria which are often the opposite of economic. Thus, we see governments expend resources on things like the Humber Bridge, Concorde, wind farms and HS2, all projects which would never have got off the ground if the market had decided. It’s this massive misallocation of capital which eventually impacts on growth rates in an economy.
September 8, 2015
Stephen,
I’m not in agreement with your figure of 10% but I do agree that Concorde was a waste of resources. Some of your other examples too. There’s no justifiable case for building a supersonic aircraft at taxpayers’ expense and then subsidising the airlines to fly their first class passengers in it.
If there’s a case for saying that 30% or 20% government spending is better than 40% then it should be made. There are nearly 200 countries in the world. Which of them do we want to be like?
There are 200 education systems, 200 health systems, 200 defence
systems etc. 200 transport systems etc If we want to change what we do why not look around, pick the one we like best and copy that?
September 6, 2015
Off topic, I see that 51% of voters want out of the EU and only 49% want to stay. I hope the number of people wanting to get out goes up. Wait for the BBC and the government to start scaremongering on a big scale now. All I can say is I can’t wait for the day we do get out.
September 6, 2015
The government should look at everything that the state does and ask “do we need to do this”. We could start by looking at, say, the need for a Sports Minister.
September 7, 2015
And climate, women, disabled, culture, art, overseas aid and regions.
To name just a few more.
September 6, 2015
Don’t you simply set up a “no fly zone” area in these countries, protected by the UN, In it create a safe haven for refugees. Tent city supplied by the UN until the fighting stops. Then all refugees can be directed to these safe areas until things change.
September 8, 2015
You are right. The legitimate criticism of the Coalition and Conservatives is that the fiscal deficit has not been cut enough. For us, the deficit must be cut mainly by making public expenditure cuts in real terms.
I would have a bit more respect for Labour and Mr Corbyn if they told us what taxes paid by ordinary people would have to go up to pay for their Big State.
Mr Corbyn’s People’s QE seems to be a recipe for re-creating the 25% pa inflation of the 1970s. “Late, very late, O may he rule us.”