Classic historical cases where governments attempted to reduce burgeoning budget deficits by raising taxes and cutting back public spending led to the economy turning down were in America in 1937 and Japan in 1997.

“Scarcely any rich country has stable public finances. America’s public debt is expected to double as a fraction of GDP by 2018. Britain faces many years of budget deficits and a rising debt burden. There is no end in sight for deficits in the rest of Europe either.”
http://www.economist.com/opinion/displaystory.cfm?story_id=14419200

Cuts are desperately needed. We should cut identity cards, cut the national identity register, cut e-borders, cut the NHS database, cut CCTV, cut every database the state has. We should cut out stupid nasty colonial wars. Cut town clerks on several hundred thousand pound a year salaries. There’s plenty to be saved without going anywhere near anything that could possibly be described as a service.

Something tells me the TUC will never think the time is quite right…

I don’t remember your calls for restraint when Brown was running a large deficit during the boom.

Why can the party not just increase taxes. The top 1% of society has more wealth than the bottom 95%. Tax some of that top1%’s income.

The UK should ask why do countries such as France and Germany have some of the best public services in the world, yet have a high debt. They don’t worry about this because they know what they are doing is investing for the future.
The UK should have had top hospitals, a top railway system and say top care for the elderly years ago. The only thing this country does not do is invest for the long term.

In the end the UK is always playing catch up which ends up making us pay more. Lets copy France and Germany and invest now when we have the chance and not cut finances. If we don’t spend now we’ll be spending much more for a delapidated service in the future.

Hallelujah!

Some sense at last!

There are some easily identified, lumpy, projects which could be cut immediately – trident and ID cards.

After that, apart from the constant vigilance for efficiencies, public spending cuts are not worth the hassle.

cjcjc: When exactly did Gordon Brown run a large deficit during the boom? He actually ran a surplus (despite inheriting a deficit from the Tories) for a decent period of time. The public finances went back into deficit after the dotcom crash but I don’t think it could be described as “large”. The calamity of 2008 has, of course, changed all this.

How come we’ve thrown so much cash at public services yet productivity has deteriorated? It’s not about the absolute amount of public service cash, it’s about what added value it gives rise to.

Think you’ll find that 40% of that top 1%’s income is taxed anyway. What you seem to want to do is to introduce a punitive tax designed to force all the entrepreneurs out of the country. Why not have one big happy public sector with nobody actually producing anything.

However, if you take some useless parasite such as an “Outreach” worker on a salary of £25,000 (or what ever these leaches get). It costs Taxpayers around £50,000 to employ them ( including Salary, NI, cost of providing a desk, Gold Plated pensions etc. but less the Income Tax and NI they would have paid). It would cost us around £10,000 for them to be on Job-seekers Allowance and Housing Benefit etc, giving a net saving of £40,000 per leach. 10,000 of those saves £400 million!

I know these figures are broad guesstimates but I don’t reckon I’m far out.

At the height of the boom in 2006, Gordon was running a deficit of over 3% of GDP. If that isn’t idiocy, I don’t know what is.

As to your contention that Gilts are being ’snapped up’. Well they are being snapped up, mostly by the Bank of England. Good to see the TUC and the Labour Party have now converted to monetarism.

@prick

“How come we’ve thrown so much cash at public services yet productivity has deteriorated? It’s not about the absolute amount of public service cash, it’s about what added value it gives rise to.”

There are severe limitations with measuring public sector output (they don’t take account of many aspects of output, there’s time lags between spending and output e.g. primary school investment is, by definition, a waste of money until 5-11 years later when they improve GCSE performance etc).

ONS try to – and these show (given all the caveats that are attached to these figures) a 3% drop in productivity 1997-2007, versus an 8% rise in productivity across the whole economy.

Even taking the stats at face value, output in health for example (e.g. doctor appointments, improvement in health, drugs prescribed etc) has increased by 50%. The productivity stats do not show a waste of money, more that only 50% more volume of output is produced for 60% more volume of input. So a lot has been got for the money – it hasn’t been wasted. What’s happened is that we’re getting slightly less for each unit of input.

I don’t understand how all you right-wingers supposedly understand yet really struggle to interpret simple statistics about productivity.

And I’m still waiting for this data that surely exists (given all the whinging about how the private sector has got all these productivity gains and how rubbish the public sector is for not achieving them) showing massive productivity increases in private health and education – almost a like-for-like comparison. The large real increase in private school fees makes me doubt this – but I’ll start to believe if anyone can come up with credible stats.

Inasmuch as the economy was operating above potential up to 2008, Brown should indeed have been running a surplus, not just a smaller deficit. Instead the idiot really believed he had abolished boom and bust. Thank goodness Blair decided that they had to stick to the Tory plans for the early years, otherwise we really would be f*cked.

You know Keynes was quite keen on both sides of his argument…a surplus in the good times to call upon in the bad.

The fact that some other countries are in a worse position is not a strong argument for us to join them.

http://blogs.ft.com/maverecon/2009/06/fiscal-options-for-the-uk-sovereign-insolvency-inflation-or-serious-fiscal-pain/

http://blogs.ft.com/maverecon/2009/04/darling-is-doing-his-best-to-clean-up-browns-mess/

@12 – though you might judge trends in relative productivity by trends in relative exam results…!

@14 cjcjc

@12 – though you might judge trends in relative productivity by trends in relative exam results…!

And relative inputs aren’t important?

Bring it on – I’m quite confident that if you compared private education to state education using the same methodology as the ONS Productivity Data (which Mr Prick and other right-wingers love to use as a stick to beat the public sector with) you wouldn’t like the results (public sector more productive, productivity decreased faster in private sector would be my guess).

Why doesn’t the TPA do this? Are they scared of having a debate with real facts in?

Sacking public sector works reduces the burden on the state, because instead of paying their salary they are just paying benefits.

In case anyone is interested in unemployment, it should be noted that since the point of maximum private sector employment (2008 Q2), through to 2009 Q2 917,000 private sector jobs had been lost but public sector employment went up 283,000. Talk about using taxpayers money to hide away from the stats. Still, it’s only a few billion pounds. Well worth it if Gordon can keep unemployment below the Tories, eh?

Now cjcjc
Remember we tried your Milton Friedman economics and they caused more problems than they cured.
Don’t worry old boy.
Nasty old Brownie will be out soon.
Your boys in blue back.
They won’t deregulate the city
No more NHS, welfare scroungers, minimum wage and the return of the much derided workhouse

This blog, by Willem Buiter in April, was linked to above:

http://blogs.ft.com/maverecon/2009/04/darling-is-doing-his-best-to-clean-up-browns-mess/

It is the best summary of the UKs fiscal position I’ve read. It’s actually quite complimentary to Alistair Darling. Buiter is absolutely savage in respect of Gordon Brown.

And Brown deserves it.

“It is the best summary of the UKs fiscal position I’ve read. It’s actually quite complimentary to Alistair Darling.”

Except – of course – it pins the blame for the current fiscal position on “profligate pre-crisis spending” (in which – let us remember – the Government stuck with their Golden Rules, only increased government spending by a couple of % of GDP, and left debt lower as a % of GDP than in 1997) rather than irresponsible, inefficient and irrational (at least from the point of view of their organisations rather than pure self-interest) behaviour of those in investment banks.

If he cared to turn his attention to countries abroad he would find a similar impact on debt, similar fiscal problems to resolve over the next decade and higher debt as a % of GDP than the UK.

It’s a mighty elephant.

cjcjc – it would be good if you debated with facts instead of just rhetoric… no?

There’s plenty to be saved without going anywhere near anything that could possibly be described as a service.

Not denying that cutting several projects like Trident, identity cards etc would be a good idea. But the Tories are going a lot further.

#20

Not only the Tories. While they’re clearly the worst offenders, the Lib Dems have gone further than ID cards/Trident too, in calling for a public sector pay freeze.

That’s an easy thing to call for – public sector workers don’t exactly get a lot of sympathy at the best of times – but actually there are plenty of public sector workers who are on very low wages and not to raise their wages at least in line with shopping-basket inflation is wrong.

It also hasn’t been thought out particularly well as there are lots of councils still negotiating Local Pay Reviews to fulfil the obligation to move towards Single Status Pay & presumably a wage freeze would also stop councils from signing (or at least implementing) those deals. Again, it’s those on low-incomes that tend to benefit the most from those agreements.

22

A blanket pay freeze does seem to me to be a bit unfair. I would go for CPI linked pay rise upto say 25k. Half that upto say 35k. Freezes upto say 60k and cuts of increasing severity above that. Obviously I’m just jotting, but you get the general idea I’m sure.

#13: “Inasmuch as the economy was operating above potential up to 2008, Brown should indeed have been running a surplus, not just a smaller deficit.”

But the analysis goes on and becomes technical and more complicated. A fiscal surplus would have somewhat depressed aggregate demand and the Monetary Policy Committee of the Bank of England would therefore have had less need to raise interest rates to meet its inflation target at the time.

Other things equal, with lower interest rates, there would have been a greater market demand for mortgages and the house-price bubble would have been even greater in the absence of contra-cyclical measures to curb bank lending – as there were not.

There is no obvious and uncomplicated story line about admonishing the government for not tightening its fiscal stance in the early part of the present decade. The story needs to cover also the controversial issues of whether the Bank of England – and, for that matter, the US Federal Reserve Bank too – ought to have taken account of asset price bubbles in setting interest rates, not just consumer price indices.

“American house prices rose 124% between 1997 and 2006, while the Standard & Poor’s 500 index fell by 8%; half of US growth in 2005 was house-related. In the UK, house prices increased by 97% in the same period, while the FTSE 100 fell by 10%.”
Robert Skidelsky: Keynes – The Return of the Master (Allen Lane 2009) p.5.

I regard GB as partly to blame for where we are by allowing the house-price bubble to continue to inflate and the mountain of consumer debt (£1.4 trillion) to grow.

Those are sure indications that interest rates were held too low for too long as a result of GB changing the BoE’s inflation target in December 2003 – against the advice of the BoE – from 2½% at the old RPIX, which includes mortgage repayments for house purchase, to 2% by the CPI, which doesn’t include mortgage repayments or any element relating to house prices. The change in indices was made effective in February 2004.

Charles Goodhart was warning about the house-price bubble in Britain back in 2002:

“CHARLES GOODHART, a former member of the Bank of England’s monetary policy committee, warned yesterday that the Bank is failing to take sufficient account of the house price boom in setting interest rates.

“His warning comes amid growing fears among economists that house prices, fuelled by the lowest interest rates for 38 years, are getting out of control. Yesterday, new figures showed that homeowners are borrowing record amounts against the rising value of their homes. . . ”
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2002/04/06/cngood06.xml

The challenge for the government was, of course, that house-price bubbles are very popular with house-owners and in those times, the Conservatives kept chuntering on about the costs of business Red Tape and calling for more Deregulation.

This ONS chart shows how the CPI and RPIX indices have diverged in recent years:
http://www.statistics.gov.uk/CCI/nugget.asp?ID=19

For a brief guide to these price indicesand their differences, try this:
http://www.statistics.gov.uk/downloads/theme_economy/CPI-briefguide.pdf

The Conservative line is that Britain’s budget deficit is so large that the government will have problems selling bonds to fund the deficit: government bond prices will fall and the interest rates payable on the bonds will rise making it more costly to borrow.

It was curious then to read this line in Tuesday’s The Times:

“Mr King’s statements pushed the price of two-year British government bonds to their highest ever level.”
http://business.timesonline.co.uk/tol/business/economics/article6835005.ece

Sunny – the facts are in those Buiter pieces the links to which I posted @13.
And unpleasant facts they are.

Bob – well two year yields fell on the basis that King’s testimony implied that rates were staying low for some time – the base rate that is.
Of course the govt borrows across the whole yield curve and while I am sceptical of the specific Tory argument, if there is any kind of global recovery long rates will certainly rise everywhere so it is only a matter of time before the cost of borrowing does indeed go up.

Mr Tyke. We need to redistribute wealth. The top 1% have far more money than even 95% of the population combined so lets take the money of them not the poorest people. Since when was the queen an entrepreneur. Look at all these bloomin football players on insane wages. Tax these people. These are not any use to our economy, and they are not helping people either.

@28 Chris Dillow offers the leftist response to your suggestion

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2009/04/shrink-the-state-a-leftist-aim.html

(NB the top 1% are rather mobile you know!)

Apologies if this has already been mentioned, I don’t have time to read other comments, but:

What if the cuts were to include the following:

Scrapping Trident
Scrapping ID cards
Scrapping NHS Connecting for Health

What about those kinds of cuts? They would save many billions. And anyone whose job depends on ID cards deserves to lose it.

“And anyone whose job depends on ID cards deserves to lose it.”

But surely it is possible for ID cards to be an efficiency saving and service quality improvement in the medium-term?

Currently there is:
a) A lot of duplication of collecting and processing data
b) A lot of time spent attempting to share data between Government due to Data Protection laws
c) Difficulty to track people through the system, leading to absent parents disappearing and not paying maintenance, fraud etc
d) A lot of pain for citizens who get asked for the same information several time by Government

Provided the potential staff cuts (though more efficient data collection), fraud cuts, service improvements are made, then doesn’t that begin to make ID cards sound like they have good points?

There are of course the liberty, Data Protection, and IT Project Risk associated with the project on the flip side.

But if you are against ID cards, you are choking off a key potential area for more Government efficiency. A fair choice – but no whinging about public sector duplication if you make that choice. You would be preferring the inefficiency to the reduction in liberty.

31 – Yes, I would rather have inefficiency if the alternative was an excessive intrusion of liberty. And I’m not convinced by all your points that they would save money, but even if they did, I still wouldn’t want them.

“NB the top 1% are rather mobile you know!”

Not so mobile when they’re under house arrest in Dubai, though. It seemed like such a good idea, as well…

“31 – Yes, I would rather have inefficiency if the alternative was an excessive intrusion of liberty. And I’m not convinced by all your points that they would save money, but even if they did, I still wouldn’t want them”

And that’s fair enough, as I said.

Just don’t be moaning about public sector workers asking you for the same information 10 times and being highly inefficient by having to ask the same questions and process the same information and receive the same documentation 10 times.

I’m sure your liberty concerns mean that you don’t have a Clubcard, mobile phone, oyster card and credit card too.

At least I can choose whether to have a clubcard or not… unlike ID cards. Anyway. We might have to agree to differ on this one.

@ Answer

“We need to redistribute wealth”

No, that is exactly what we do not need to do. Society is based upon a person’s right to the product of their labours (or their ancestor’s labour) and thus the state has no right to take it away.Wealthy people create growth opportunities for society. Only those with a large amount of capital can start up or expand new businesses. If they didn’t exist the economy would not grow as fast and the jobs would not exist at the lower end of the scale.

If you say to the uber-wealthy that you will tax them in such a way as to “punish” them for earning too much money, they will simply go elsewhere to a country with a more enlightened tax structure. The country then loses access to their investment capital and the jobs this creates.

I happen to agree with you in the case of soccer players – grossly overpaid morons who produce nothing of any value whatsoever in my opinion. It has been pointed out to me, that they do “earn” what they are paid in the sense that by playing for a team, that team makes more money from the supporters who buy tickets, pay to watch them on TV or buy replica kit.

@ Sevillista

“But if you are against ID cards, you are choking off a key potential area for more Government efficiency.”

I am not against efficiency, except where it means more efficient meddling and fascist intrusions into a persons right to privacy. ID Cards is about control and centralisation of power. I can see the benefits (one piece of plastic to carry around etc.) but the dangers associated with them are too great.

And no, I do not have a club-card or credit card. My oyster cards (I have three) are all unregistered and I swap them around and my mobile phone has an old SIM that was never registered with my name and address.