This is the debate on Tory cuts we should be having


1:05 pm - July 11th 2010

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contribution by Alex Meikle

Now that the Con-Lib Coalition has begun making cuts in public spending, reaction on the left has been steadfast in opposition to any notion of reducing the public sector.

But is this position valid or sustainable? And is there no legitimate scope for paring back state spending?

I would say blind opposition to the cuts misses the point of why the state has expanded so much.

UK public expenditure has been consistently increasing for years prior to the 2008 recession. Total government debt deficit is now approximately £156 billion and the number of public sector employees is greater than ever. In Scotland, the size of the public sector is even higher with 613,000 employees (a quarter of the workforce) out of a population of five million.

All of the former nationalised industries and state owned utilities have been sold to the private sector and entire swathes of government departments privatised. And yet, public spending goes on rising remorselessly. Why?

There are two main reasons for this.

Firstly, there has been a huge expansion in the number of laws, regulations and directives, particularly in the areas of employment law, health and safety and equalities and diversities. These laws, regulations and directives require both an enforcement machinery and infrastructure to implement them.

Altogether, some 3,600 new laws were put onto the statute book in the eleven year period from 1997 to 2008.

Secondly, privatisation and deregulation has led to the opposite of what was intended: Rather than greater freedom, dilution and decentralisation of government control it has produced an elaborate inspection and supervisory mechanism involving the creation of a whole series of agencies to oversee activities and operations that were formerly part of government ministries.

Just take a cursory glance at the alphabet soup of agencies overseeing any area of activity in the UK from social policy to the railways, or education or housing to get a grasp of the magnitude of this. (The one ominous exception to this inflation of regulation and oversight has been in the area of finance.)

Cumulatively, this has led to a sustained and massive expansion in the scope of the state’s activities and intervention into daily social and personal life. Crucially though, whereas over the past 30 years the state has divested itself of direct control over the economy, it has significantly increased its capacity for regulation and compliance.

The bulk of the expansion in the public sector has gone in management and compliance/regulatory posts or interventions in lifestyles, attitudes and behaviours.

The new Coalition government will face serious constraints if it really wants to tackle public spending. This is because a great deal of it is buttressed by legislation and accompanying compliance.

What has been sorely missing from politics in the UK, on both left and right, is a debate on the rise of this huge regulatory and legislative apparatus, including such cherished areas as employment laws, equalities and discrimination and health and safety.

The real debate on the left should not be about trying to maintain that all public spending is sacrosanct, but rather on its main role: Is that to be on outputs on real services to meet need?

Or is it to be on regulation and compliance, where it has shifted to over the past thirty years? These are the issues which the debate on the size of the public sector should focus on.

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What has been sorely missing from politics in the UK, on both left and right, is a debate on the rise of this huge regulatory and legislative apparatus, including such cherished areas as employment laws, equalities and discrimination and health and safety.

Oh I don’t think it’s been missing on the “right”, has it?

Though whenever it has been raised, the left has gone apoplectic.

On how much to blame Gordon Brown, try this independent assessment by Martin Wolf in the FT:

“Can we not at least blame Mr Brown for the bloated public spending and grotesque fiscal deficits? Yes, but also only up to a point. Between 1999-2000 and 2007-08, the ratio of total managed spending to GDP did rise from 36.3 per cent to 41.1 per cent. But the latter was still modest, by the standards of the previous four decades. The jump to a ratio of 48.1 per cent, forecast for this year in the 2010 Budget, is due to the recession. Nominal spending is currently forecast at 3.5 per cent higher in 2010-11 than forecast in the 2008 Budget. But nominal GDP will be 10.3 per cent lower and tax revenues 16.4 per cent lower. Critics of his fiscal policies were right, but the error was far larger than anybody imagined. It is true, however, that Mr Brown must take a share of the blame for Labour’s failure to ensure the extra spending would be well managed.”
http://www.ft.com/cms/s/0/3074d7ba-5ec0-11df-af86-00144feab49a.html

For a historical survey for the period since WW2, try this from the IFS:

A Survey of Public Spending in the UK (September 2009):
http://www.ifs.org.uk/bns/bn43.pdf

3. Flowerpower

Total government debt is now approximately £156 billion

Rubbish. Total debt is either somewhere around £700 bn or around £830 bn depending on whether or not you include certain debts relating to the banks bailout or not.

The ignorance about these matters on the left is astonishing.

These graphs plotted by the Office of National Statistics relate to:

UK Governemt Debt and Deficit
http://www.statistics.gov.uk/cci/nugget.asp?id=277

Public Sector deficit
http://www.statistics.gov.uk/cci/nugget.asp?id=206

Much Government debt is not an external liability because it is owned by UK institutions.

It is argued that the official national debt figures significantly understate government liabilities because of: (a) government contractual liaibilities to pay public sector pensions which are not funded but financed on the basis of pay-as-go – meaning that current public sector pensions are met from current payments by public sector workers still working; (b) continuing public sector liabilities relating to continuing contractual obligations in respect of capital projects funded through the Private Finance Initiative (PFI).

See this on the PFI:
http://en.wikipedia.org/wiki/Private_finance_initiative

This is the kind of focus we need from the Left. To accept that there is a need and scope for cuts in the public sector, while still working to protect frontline services.

Labour did campaign on the need for delayed cuts, but the Left seem to have become quickly entrenched in an ideological argument and vehement defence of all public spending, when what we need is a progressive debate on how best to reform the sector and the economy at large.

The cuts are going to happen sooner rather than later and I don’t think many people have complete trust in the Tories to direct them appropriately, nor should anyone assume decreased budgets will be applied internally with the best possible outcomes for frontline services. The focus needs to be on where the cuts can be made as well as on the extent to which services are affected.

Paul Sagar couldve done with this chap at the libcon conference

According to the ONS Net Debt was £903.0 billion at the end of May 2010 compared with £774.0 billion a year earlier.

http://www.statistics.gov.uk/cci/nugget.asp?id=206

A comparison between Alistair Darling’s and George Osborne’s respective prescriptions for paying down the budgetary deficit are set out fairly clearly in this presentation on the BBC website:
http://news.bbc.co.uk/1/hi/business/10390823.stm

Darling’s prescription would have entailed the government borrowing more and for longer because the pace of cutting public spending would have been somewhat slower. In his emergency budget on 22 June, George Osborne set out measures for removing the structural fiscal deficit within the lifetime of the present Parliament. With Darling’s proposals, it would have taken longer

Whatever else about the incidence of Osborne’s spending cuts on poorer v well-off households or the regional impact of his budget, the potential risk of the steeper, early public spending cuts is that the economy will sink back into recession or stagnate if private sector spending and net exports don’t increase to make up for the cuts.

“Britain’s trade deficit in May reached its widest level since before the collapse of Lehman Brothers in September 2008, underlining fears that the UK will not be able to export its way back to economic health.”
http://www.ft.com/cms/s/0/9c096f3e-8b36-11df-a4b4-00144feab49a.html?ftcamp=rss

Since March, the cost of a Euro has fallen from 91 pence to 82 or 83 pence now. The effect is to make exports to the Eurozone less profitable for UK producers or more expensive in Euro terms.

This is the comparison in The Economist of the austerity planned by Alistair Darling and what George Osborne proposed in his emergency budget:
http://www.economist.com/node/16439052?story_id=16439052

Before the election, Conservatives and Labour were both opaque on the detail of measures each would propose to turn the fiscal position to a sustainable situation and the time scale of the transition period.

A worthwhile article, even if the major mistake has been noted – the DEFICIT stands at around £156 bn a year, the UK’s total national debt is between £771bn and £903bn, depending on whether you include the bailout of banks. Factor in liabilities for PFI and pensions and it rises to £1,340 bn or so.

Let’s take the smallest agreed figure (exclude the bank bailouts and PFI liabilities). National debt at about £771 billion is still about 55% GDP. The Labour government prior to the crisis considered 40% GDP to be sustainable, and it did well to get national debt under 30% in 2002.

However you look at it, we should be concerned at some point in the next couple of years at reducing the size of our national debt – increasing it, and increasing it by such massive amounts, should not be considered a good in itself.

It’s no good being a fairweather Keynesian – to offset the business cycle, government should reduce its spending in the boom times not just splurge when recession hits. This didn’t happen, given the need for reinvestment, but that means that over time we need – perhaps not just smaller deficits – but even budget surpluses if the economy cannot be grown fast enough. The ratio of debt to GDP will only change for the better if the economy grows massively, or if we begin to reduce the principal debt (rather than just service the interest).

This isn’t about wanting to restrict the public sector ideologically – it’s about not wanting the interest on debt financing to grow to £40bn a year or more. The larger the debt, the more of our annual budget will be wasted paying back those who lend to government, rather than being spent where it is actually needed. We need to decide what is worth keeping, and what is not.

I don’t agree with all of the article, but this is the question the Left should answer – not when/whether to cut public services, but which public services are actually worth keeping in perpetuity, and which we would like to have but cannot afford.

In this news report from 2001 in the Guardian, the IFS was warning about the fiscal implications of the government’s spending plans:

“Labour’s pledges to tackle poverty and drag Britain’s underfunded NHS up to European levels have opened up a £17bn black hole in the government’s finances that will have to be plugged by higher taxes, the UK’s leading financial experts said last night.

“The Institute for Fiscal Studies (IFS), an independent thinktank, said it would cost the equivalent of 6p on the basic rate of income tax for Labour to match the average European Union health spending, introduce new tax breaks for the working poor and repair the damage to the public finances caused by economic slowdown.”
http://www.guardian.co.uk/politics/2001/nov/29/uk.budget2002

I think there is mileage in distinguishing between the regulatory & compliance side of the public sector and the key service delivery parts. Any necessary cuts should fall more heavily upon the former. As the author of the OP notes, this will sometimes be hard since these regulatory functions are enshrined in regulation.

Perhaps worth considering a test case: The Equalities Commission does a good job promoting racial and gender equality. But we could live without it in a way we cannot live without a hospital etc. We could also imagine the charitable/voluntary taking on some of the EC’s work. However, some of its roles are prescribed in law.

Should we repeal that legislation, scrap the Equalities Commission (passing some pump priming money to the voluntary sector) and spend the savings on really essential services?

If the government does this, should the left support it?

12. Matt Munro

“and the number of public sector employees is greater than ever.”

Er, no it isn’t. The public sector peaked in around 1978 and was then on a pretty consistent downward trajectory until 1998. Since which it has gone up.

13. Matt Munro

………………….but is still no where near the high of the late 1970s.

The number of civil servants has been relatively stable in recent years:
http://www.civilservice.gov.uk/about/facts/statistics/index.aspx#

The large increase in public sector workers is attributable to teachers (for smaller class sizes) and for additional healthservice workers with the policy shift to bring public spending on NHS healthcare up to the west European average:
http://puck.sourceoecd.org/vl=3625314/cl=13/nw=1/rpsv/factbook2009/10/02/01/index.htm

The NHS now reportedly employs c. 1.4 million whereas it used to be 1.2 million about 10 years ago.

“Andrew Lansley to cut thousands of jobs in purge of NHS ‘bureaucracy’ Minister’s effort to cut back quangos may not bring promised £1bn a year savings, critics warn.”
http://www.guardian.co.uk/politics/2010/jul/11/andrew-lansley-jobs-purge-nhs

And, of course, there’s the staffing for all those new Quangos – including the Olympic Games Delivery Authority.

15. Alex Meikle

Interesting comments on the piece and, yes, the £156 billion deficit (which has already been revised down several times since March) refers to a yearly public sector; as has been pointed the total debt is many times greater.

It would be good to hear people’s comments about the need to refocus public spending on services rather than regulation and compliance. In my own sphere of social care I have seen regulation and compliance and the number of QUANGOs increase exponentially with no real difference made either to the quality of front-line services or the lives of service users. I would contend that the vast majority of this could be shelved without any major repurcussions for services; indeed the savings made might even allow you to increase spending on services which could well be threatened over the next few years. I am sure this could be repeated in other areas as well

Interestingly, this sustained increase in regulation did not start with Labour, but really got underway in the early 90s under the Major government; Labour certainly increased the momentum with a vengeance, but only to a process which had already begun.

There are two further issues: Firstly, a large part of the regulation is backed up by legislation and will require de-legislation or serious amending if the size of the regulatory machine is to be pruned.

Secondly, this will inevitably lead into areas such as health and safety, employment law and equalities and discrimination, the legislation, rules, regulations, protocols and compliance mechanism on which is now huge. These issues over the past 20 years have virtually become no-go areas for discussion at least within the front-benches of the major parties lest they are branded as reactionaries, racists or worse. The result has been a huge corpus of law and regulation with virtually no debate.

What is required is not to eliminate or throw aside all regulation but to audit it carefully for it’s outcomes. The tendency of the last thirty years has been to react to adverse events by making new laws and setting up bodies to enforce them thus setting in motion what has been described as a “regulatory spiral”.

It is questionable whether this is really necessary. What we do need is to discuss these issues. The real danger is we do serious damage to our front-line services in the desperation to cut the deficit while leaving a massive and probably superfluous regulatory machine largely intact.

This report about Quangos in the Guardian dates from last year:

“Did you know there are nearly 1,200 unelected bodies with power over our lives? This is the full list, complete with number of staff and how much they cost.”
http://www.guardian.co.uk/news/datablog/2009/jul/07/public-finance-regulators

“This is the debate on Tory cuts we should be having”

No it isn’t.

The political will for deliverability of this kind of full resource-utilisation-in-a-fiat-currency-state political economy http://fb.me/CHVG4q45 instead of Tory cuts is the debate we should be having:

‘Fact: Federal government spending is in no case operationally constrained by revenues, meaning that there is no “solvency risk.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.’

In the meantime, and pending Galbraithian insights and economics getting a proper hearing, we should be resisting Tory cuts on the basis of the economic damage they will wreak, not fiddling around the edges with what’s a good or a bad cut. See the renewed Duncan Weldon blog for the damage: http://duncanseconomicblog.wordpress.com/2010/07/10/time-for-some-forecasting/

‘Fact: Federal government spending is in no case operationally constrained by revenues, meaning that there is no “solvency risk.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.’

“This, however, does NOT mean that the government can spend all it wants without consequence. Over-spending can drive up prices and fuel inflation.”

@18: And that’s the debate worth having.

This is not the debate the left should be having, simply because many of the fundamental assumptions involved are wrong.

Whatever the ‘huge regulatory and legislative apparatus’ that may have developed over the past few years, in the areas highlighted here – employment laws, equalities and discrimination and health and safety – this has not led to any equivalent growth of public sector jobs or, indeed, enforcement.

Let’s look at some facts.

Employment law is largely enforced by individuals – people and corporations. Only the minimum wage has an enforcement agency; HM Revenue and Customs. Growth in the volume of complainants using employment law has produced a vast increase in no-win no-fee lawyers perhaps but no equivalent increase in staffing at the Employment Tribunal Service. The notion of doing more for less was well established as a driver of organisational change and IT investment here and elsewhere across the public sector well before Osborne’s recent austerity budget.

Equalities and discrimination legislation has not produced ballooning bureaucracies involved in either promotion or enforcement. Indeed, longstanding bodies such as the EOC and CRE dating from the 1970s were streamlined to set up the EHRC – involving not an increase in costs or employment but cuts and redundancies.

All organisations may find health and safety legislation burdensome at times but that’s not because of the costs of regulation and enforcement. The odds of ever coming across an HSE Inspector whilst at work have, for most employees, reduced significantly in recent years.

Wherever the private sector is involved Tory and Labour governments alike have marched to the tune of de-regulation and poor enforcement; that’s why in so many instances whistle blowing has gained common currency.

Not only in finance and banking but in many of the privatised industries those bodies set up to protect the public from the abuse of monopoly have been subject to regulatory capture – think here of Thames Waters’ leaky supply infrastructure and the exploitation of consumer inertia by energy suppliers.

And let’s not forget how far the costs of so-called compliance are voluntary for private and public organisations alike. Investors in People and quality standards like BS5750 and its newer European and environmental equivalents are badges that are sought after not government imposed.

There is a debate to be had; no one wants to see the standard of essential services drop whilst money is spent elsewhere for little purpose – and this does happen.
Framing the debate in Alex Meikle’s terms, however, is simplistic and ill- informed.

21. Alex Meikle

lespetroleuse you’ve missed the point. I work for an organisation that has up to 16 funders and 6 direct regulatory bodies to answer to. A major part of their monitoring requirements is around health and safety, employment practice and, particularly, equalities and anti-discriimination.
Organisations in the public, private and voluntary sectors now have to provide reams of inofrmation on these. I have in front of me a document which runs to 72 pages which has to be returned to a statutory body and asks in minute detail for active policies on every conceivable area of health and safety. The equivalent document 12 years ago ran to two pages!

Ditto for similar documents and applications on employment practice (including greivances, unfair dismissals and indistrial tribunals) and monitoring of equalities
and anti-discimination practice. This regulatory burden is colossal, subject to endless duplication and is constantly being updated. The result leads to a risk averse, tick box culture.

The point is not that equalities and discrimination legislation have led to “ballooning bureaucracies” directly. The legislation’s effects are felt in how the myriad of regulatory bodies, QUANGOs and task groups which have been established over the last thirty years monitor and oversee it in their various ways.

It is this area which has provided the growth in equalities, monitoring and compliance posts throughout the public sector in addition to large bureaucracies to staff regulatory bodies and the expansion of management posts to meet targets and other compliance needs.

Interesting analysis here of possible future scenarios for the economy by Prof Roger Farmer, of which one is stagflation because producers don’t (or can’t) respond to increasing monetary demand by increasing output and by employing more people from the dole queues. Instead, prices increase:
http://blogs.ft.com/economistsforum/2009/04/bah-humbug-stagflation-is-around-the-corner/

Quote: “Of one thing I am certain: a sustainable recovery will not occur unless the stock market and the housing market recover first.”

.” In other words, the federal government can always make any and all payments in its own currency, no matter how large the deficit is, or how few taxes it collects.’

Err, what? I don’t buy this at all – what you’re talking about is hyper-inflation if the government starts doing that for everything.

Spending will always be constrained by revenue, and I don’t see why the left should be about reckless spending.

We should be about helping people at the bottom and the state providing a range of services but reckless over-spending? No thanks.

Alex, I’ve understood your point precisely.

The burden you speak of is little if anything to do with legislation or its enforcement but that is what you claim above.

I’ll bet that the 6 regulatory bodies you refer to weren’t established as part of health and safety or employment legislation.

My guess is they monitor because your organisation receives public funding for whatever its role is not because legislation requires them to and I accept it is duplicative to provide 16 funders with the same info, no doubt customized to their particular requirements. My answer to this is reduced duplication not repeal of legislation.

I also accept it may be burdensome to have policies on every conceivable area of health and safety. Is it unreasonable to identify hazards at work, eliminate them where possible, and if not, reduce them or protect workers from them?

If this wouldn’t happen in a systematic way without external oversight then you’ve made the case for monitoring.

Incidentally, it’s not risk averse in a bad way to avoid people being hurt at work or not wanting to find your organization on the wrong end of an easily avoidable damages claim.

I’ve been opposed to the growth of the unaccountable quango state since the late 1980s – when it became widely used by the Tories to turn local government into an arm of Whitehall. Labour picked up the baton.

It’s a big jump however from seeking to avoid duplicative monitoring by funders to repealing legislation that continues to protect people, provide more equal opportunities and give them rights at work.

Sunny – there’s an extreme “keynesian policy” notion (advocated by some) that more (and more) quantitative easing is the appropriate way to kick-start a stagnant economy, where consumers and producers have a limitless preference for piling up cash balances rather than spending, because of flagging confidence, and where the finance markets are increasingly reluctant to absorb more government bonds issued to fund public spending.

The question is whether the economy is capable of responding to additional monetary demand however financed – perhaps because some capacity to produce has been lost during the recession. In that case, additional monetary demand from boosting public spending is likely to stoke inflation – regardless of whether the additional public spending is financed by (increasingly difficult) bond sales or by quantitative easing.

The issue of whether the economy is stifled through over-regulation relates to earlier debates about the benefits of market flexibility – including the option for employers to hire and fire with minimal financial penalties. IMO we are all partly to blame for pressures on government to apply increasingly stringent health and safety regulations to protect each of us from inconsiderate, negligent or criminal behaviour on the part of others.

Sunny @23: With respect, you don’t ‘buy’ it because you’ve not read it. The fact that governments issue their own currency is a starting point. It’s simply a different starting point from saying spending must be constrained by what comes in in taxes, which is not true in such states.

Yes, inflation is an issue if governments ‘spend recklessly’, but that’s not what is being suggested. What is being suggested is deficit spending is used to the point where it no longer needed to maximise resource use. That is, the political objective of the way the monetary system is managed is different.

It’s called Modern Monetary Theory. This guy, who’s not one of such a theorist, at least gets it, and says of the key anti-inflation step that such a political economy would require:

‘I have been thinking a lot about the actual ability of government to withdraw demand from the economy by increasing taxes – a key assumption in Modern Monetary Theory (MMT) with which that I have an issue and critical to containing eventual inflation.’
(http://seekingalpha.com/article/205586-modern-monetary-theory-market-discipline-for-fiscal-imprudence-term-structure-of-interest-rates)

Fair enough – there’s questions to be answered in there, but as I said it’s worth the debate.

For a paper from someone who does call himself such a theorist, setting out why the hyperinflation fear is not valid, see http://bilbo.economicoutlook.net/blog/?p=3773 especially around page 4/5.

I reiterate – there are questions to be asked about MMT (and its relationship to the left – it’s not a leftist economic stance in itself), but it’s a (post-Keynesian) debate worth having as the left searches for a vision of a distinctive political economy.

IMO the outstanding issues can be set out more transparently:

We’ve not got to a situation where the UK economy is evidently stagnant – in fact, the economy is (probably) growing even though unemployment is rising:
http://www.statistics.gov.uk/cci/nugget.asp?id=192

This is not to say that the economy can’t and won’t stagnate downstream – as it could if demand from the private sector and from net exports doesn’t rise enough to take the place of the intended downstream cuts in public spending, which won’t start to bite until next spring onwards.

The policy issue is how should the government – and the Bank of England – respond if it starts to look as though the economy will stagnate (cease to grow). Even then, policy makers will need to assess how producers would respond to a government or BoE stimulus to monetary demand, whether by increasing producer output and creating jobs or by raising output prices instead.

For the present, it is not self-evident (a) whether the economy will stagnate – the OBR reportedly concludes that the economy won’t stagnate; (b) how the economy, if it stagnates, would respond to a stimulus to monetary demand by the government or the Bank of England.

There are additional issues about the regional impact of the planned spending cuts and tax increases and about the incidence of the spending cuts and tax increases on the poor versus the more affluent.

Fiscal policy decisions can be assessed in terms of their effect on the equity of income distribution, on the stability of the economy, and on the efficiency of resource allocation.

Note this item in the news on Sunday night:

“Japanese bonds may fall after the party of Prime Minister Naoto Kan lost control of Japan’s parliament’s upper house, undermining his efforts to reduce the nation’s dependency on debt.”
http://www.bloomberg.com/news/2010-07-11/japan-bonds-may-fall-as-kan-s-election-loss-might-curb-effort-to-cut-debt.html

Has this piece been written for the Daily Mail and posted here by accident I wonder?

I’ve read so many pieces over the last few months along the theme of ‘reckless overspending by a Labour government has got the country into terrible debt’.

One wonders where the author of this piece has been for the last few years. Indeen most of the rightwing commentariat.

If they had been paying attention, they might have noticed that a huge slice of our current national debt, is due to the last Labour government having to bail out the banks and put their bad debts onto the public balance sheet. If they had not done this, then the entire economy would have collapsed.

And why might we ask did the banks get into so much trouble? Because they were deregulated in the 1980s by Margaret Thatcher. And New Labour shamefully slavishly followed her agenda.

But amazingly, the Tories and their media friends have managed to twist what was a spectacular failiure of their own ideology (deregulation, free markets etc) and somehow managed to paint it as a failiure of the Labour government and the state in general. Necessitating another round of Thatcherism (which got us into this mess in the first place)

And what’s even more amazing, is that so many people have bought it!!!

Perhaps if we want a popular way to reduce public spending, then perhaps we should take a look at the bloated PFI deals, which are a hugely expensive way of funding public services. And enriches corporations at the taxpayers expense in return for mediocre public services, buildings etc.

And perhaps they should take a look at the railways, which since privatisation now cost the taxpayer more than three times the amount of subsidy they did under British Rail. because of all the private companies taking cuts as profit from public susidy. Which could easilly be eliminated if they were taken back into public ownership.

Sorry for my rant but I’ve read this kind of thing so many times, and it makes my blood boil.

“UK public expenditure has been consistently increasing for years prior to the 2008 recession.”

From the IMF, p5 fig 2.1 (http://www.ifs.org.uk/bns/bn93.pdf), spending had indeed risen steadily between 2000 and 2008, but this is after a decline from 1997-2000. All in all, spending rose by between 1-2% of GDP under Labour. Revenues rose by the same amount until 2008 when the latter began to fall and spending rose rapidly by about 7% of GDP. Even if you do think there’s some trimming to be done of public services, it’s basically irrelevant compared to the damage accrued post-crisis.

“Quote: “Of one thing I am certain: a sustainable recovery will not occur unless the stock market and the housing market recover first.”

Excellent, since the stock market has recovered from 3700 to 5100, albeit down a little from the 5500 high of a couple of months ago, and the housing market is up 5%-ish year on year, though pretty flat over the past quarter.

Graham

If they had been paying attention, they might have noticed that a huge slice of our current national debt, is due to the last Labour government having to bail out the banks and put their bad debts onto the public balance sheet.

Unfortunately this is not true. The net debt figures generally used (which put the debt at > £700 billion, exclude the bank bailout. The government has been running a deficit every year since 2002. The reason this is sometimes called ‘reckless spending’ is that tax receipts were rising between 2002-2008, so any good Keynsian would have been either balancing the budget or even paying off past debt, certainly not borrowing more.

@ Graham

Try the quote from Martin Wolf in the FT @2 above, which gives a non-partisan assessment of the basis for the current annual fiscal deficit running at c. £157 billion. The link below that to: A Survey of Public Spending in the UK (September 2009) by the IFS shows what has been happening to UK public spending since WW2.

The financial crisis 2007-09 afflicted many countries so that can’t all be attributed to the deregulation of finance markets in Britain by Mrs Thatcher. Besides, deregulation of the London finance markets led to the City of London becoming a world leader in financial services which – until the crisis – generated lots of buoyant tax revenues that the New Labour government applied to bankroll public services in Britain beyond the south east:

“As in previous years, the analysis shows that it is only the wider South East (Greater London, the South East and the Eastern Region) that made a positive net contribution to the UK public finances in 2006-07, with the Northern regions, the Midlands and the South West joining Northern Ireland, Wales and Scotland as a net drain on the Exchequer.”
http://www.oef.com/Free/pdfs/ukmpubfinfeat(jul).pdf

Without deregulation of financial services, there wouldn’t have been the tax revenues to finance the New Labour splurge on spending to boost public services. But most commentators agree that regulation of financial services must be tightened to reduce the likelihood of another crisis downstream.

With that all said, we still need to consider the issues Alex Meikle raises about the costs of overregulation.

Just take a cursory glance at the alphabet soup of agencies overseeing any area of activity in the UK from social policy to the railways, or education or housing to get a grasp of the magnitude of this. (The one ominous exception to this inflation of regulation and oversight has been in the area of finance.)

Banking (and finance generally) is about the most tightly regulated private sector industry in the UK. Come back to me when you’ve read FSMA (to save you time, here is a brief 156 page summary

http://www.slaughterandmay.com/media/39269/a_guide_to_the_fsma_2000.pdf )

the Companies Act (the longest ever piece of UK legislation), the Banking Act 2009 and so on and so bloody on.

To make it even better, the reason for the poor regulatory oversight was not that there were insufficient agencies – there were too many. The tri-partite regulatory system introduced by Gordon Brown dramatically reduced the efficacy of the regulatory regime.

Bob B

“The financial crisis 2007-09 afflicted many countries so that can’t all be attributed to the deregulation of finance markets in Britain by Mrs Thatcher. Besides, deregulation of the London finance markets led to the City of London becoming a world leader in financial services which – until the crisis – generated lots of buoyant tax revenues that the New Labour government applied to bankroll public services in Britain beyond the south east:”

Yes perhaps so but the root cause of the banking crisis was the reckless lending of ‘sub prime’ loans in America, and the bundling of these bad loans into ”Collateralized debt obligations’ which were spread through the global financial system and proved to be worthless.

The American financial system underwent a similar Thatcher style deregulation in the 1980s under Reagan, and continued under Clinton in the 90s. And without that the crisis could not have occured. So my principle stands.

The fact that we allowed our economy over the last few decades to become woefully over reliant on the city, and neglected manufacturing and any other type of industry. Is perhaps our greatest national folly of recent times. Sadly both Labour and Conservative share the blame for this.

37. Flowerpower

Graham

But we didn’t neglect manufacturing, it was doing quite well until Gordon Brown began his depredations.

As Tim Worstall has pointed out:

Manufacturing output is higher than it was in 1990, higher than 1980, twice what it was in 1960 and three times what it was in the 40s.

Bang goes another Leftie myth.

The point I was making here is that much of the national debt we have gained. Was racked up ‘after’ the financial crisis of 2008, as the Labour government tried to stimulate the economy in keynesian fashion through public spending, thus probably preventing a bad recession turning into the Great Depression II.

But it was ultimately the Thatcherite/neo-liberal dogma of deregulation, beloved of the Tories and shamefully bought into by New Labour, which got us into this mess.

But curiously right wing commentators seem to be rather quiet about this aspect of the current crisis. I wonder why?

Either way you look at it the picture presented by the Tories and the right wing press doesn’t add up. What I wonder do they suppose would have happened if Gordon Brown’s government hadn’t been borrowing and stimulating the economy over the last few years. Well we just need to look at America circa 1933 to see the answer to that.

@Graham: “But curiously right wing commentators seem to be rather quiet about this aspect of the current crisis. I wonder why?”

However quiet or not those commentators may be, the financial press has supported a continuing lively discussion on proposals for regulatory reform of financial markets and institutions intended to reduce the likelihood of a repeat financial crisis downstream.

The academic authors of this book are not altogether encouraging about success given the long history of previous financial crises: Kenneth Rogoff and Carmen Reinhart: This Time Is Different – 8oo years of financial crises (Princeton UP, 2009):
http://www.economics.harvard.edu/files/faculty/51_This_Time_Is_Different.pdf

Worth watching a great interview in the FT of Carmen Reinhart:
http://video.ft.com/v/82349517001/May-3-800-years-of-financial-crises

Btw Kenneth Rogoff, now a prof at Harvard, was chief economist at the IMF. He is also coauthor of a leading academic text: Obstfeld and Rogoff: Foundations of International Macroeoconomics (MIT Press, 1996). He is also a chess grand master.

In Britain, Lord Turner, chairman of the FSA, published his reflections on regulatory reform in March last year:
http://www.fsa.gov.uk/pubs/other/turner_review.pdf

In America, the Obama administration has been pushing legislation through Congress – try Robert Peston on Obama gets his big Bank reform:
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/05/obama_gets_his_big_bank_reform.html

The important aspect is that those folk are solid mainstream people who can hardly be painted as way-out leftist radicals illuminating the endemic failings of capitalist markets.

@ Graham:

You may like to see the reflections in the Sunday Indy of Nobel Laureate Joe Stiglitz on Osborne’s first budget here:
http://www.independent.co.uk/news/uk/politics/osbornes-first-budget-its-wrong-wrong-wrong-2011501.html

Stiglitz is the author of many books, including: Whither Socialism? (MIT Press, 1994), but it’s not for the faint hearted.

Try this interview of Stiglitz on the BBC on the need for “fundamental reform”:
http://news.bbc.co.uk/1/hi/business/7670421.stm

Stiglitz was awarded a Nobel Prize for his academic writings on financial market failures – such as this:
http://www.econ.ucdavis.edu/faculty/jorda/class/235b/notes/Topic%203%20-The%20Credit%20Channel/Stiglitz%20and%20Weiss.pdf

He is also the author of a mainstream textbook: Economics of the Public Sector (WW Norton)

“Stiglitz Says Crisis Exposed ‘Major Flaws’ in Economics Ideas”
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a69Q211j7yV8

Hi Alex
so now that your candidacy for the Liberal Democrats has been rejected, when do you expect to stand for New Labour?
Cheers


Reactions: Twitter, blogs
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    This is the debate on Tory cuts we should be having http://bit.ly/de2vOg

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