Eating into household savings

Slim Jim

Unfortunately, it would appear that all the experts and politicians see the answer to our problems is getting into more debt. As a complete amateur and armchair politician, it would seem to me that the answer is staring us in the face. We need to stimulate demand by cutting taxes (income tax and VAT for starters). It is also blatantly obvious that we won't be getting people back into work until we reduce the number of economic migrants (and their dependents) entering the country. Sadly, that will not go down well with those who think the panacea is even more state spending (as well as borrowing). What a terrible position to be in. We're damned if we do, and damned if we don't...actually, why don't we pretend that everything in the garden is rosy and pass the buck on to our grandchildren?

StrongholdBarricades

If the stall continues does that lend a lie to lowering taxes makes the poorer better off?

DavidDP

"This was the sharpest, deepest downturn in living memory; a similarly strong recovery is needed. "

How does this square with the study reported on in the Times which, having looked at recessions over the past two centuries, suggests that the fact that we have had such a deep recession caused by a banking and credit crisis means that we will have several years of slow growth as households necessarily pay down debt?

Such a conclusion suggests your requirement of " strong growth" is both unlikely to happen and in fact incorrectly needed.

Russell

I now have no mortgage, no car, but no debt. The only problem I have is the interest on the small savings I still have is next to nothing (compared to inflation).

I suspect many are now in my position and simply cutting back on everything, putting off big item expenditure.

My lounge furniture, beds, built in white goods can all last a few more years (they are all only 2 years old, so plenty of life in them still).

I have no intention of selling my house and buying another (and then needing carpets, curtains, white goods etc.).

No wonder growth is poor.

Chris lancashire

I think we do, in fact, face a very long, very slow recovery and most sensible individuals and businesses will be planning on that basis. And no bad thing if it begins to wean both consumers and governments off their addictions to debt.
Expect renewed Labour calls next week on the "too far, too fast" theme. Best ignored. Osborne has it about right.

RCE

The economy will not recover until people have more disposable income. This means tax cuts, with a commensurate drop in government spending.

Once upon a time, Conservative governments would understand this inalienable truth.

Publius

We are still being loaded with stifling regulation and green stealth taxes. Do something about the obstructions to enterprise.

Nicholas Whalley

I find it unrealistic to think that so many feel the British public and their ever tightening purse strings can possibly contribute to the improvement in the economy with greater spending.
Job losses, no return on savings, the likelihood of increasing mortgage rates, the list is endless.
The sole way is to maintain the hard line and allow more 'rubbish' businesses and poor management to be shaken out of the woodwork. The result will be, eventually, a better economy.

5 years from now? With a little luck..... but don't hold your breath.
I still say that we have seen nothing yet, and started saying that in 2007..........

Olaf

Gas and electric up ~20%
Petrol up 20%
Food up ~10%
Wages up 0% (the Brown increase)

And they're shocked we're not spending as much money on TVs and cars. Are they f^cking stupid?

James Plunkett

DavidDP - a good point. I should probably have said 'a strong recovery is important, but that doesn't mean one is likely'. I simply meant that because of the depth of the contraction only a fairly rapid recovery gets us back to pre-recession levels of output any time soon.

oldtimer

The government plan to get government debt down is to increase government spending and increases taxes on the rest of us by more than the spending increase. It should therefore be no surprise that consumer spending is weak and that the meagre savings ratio is being reduced still further.

All the talk of government spending cuts is a nonsense. Government cash spending is going up. That is the sort of spending the rest of us use to measure these things - not the inflation adjusted measure that the apologists for more state spending use. If Osborne wants to get the economy moving, the first thing he needs to do is reduce income tax rates, including the 50% top rate. That will help overall spending and it will probably increase his tax take as well as numerous historical examples demonstrate.

A pensioner

I have no debt, but my expenditure is going up through inflation-based price rises on essentials while my income is falling through there being next to no interest on my savings to top up my pension. How on earth can I possibly spend on fripperies to stimulate the economy when I have next to no disposible income? I'm sure I'm not alone in this.

Dimoto

People spending money they don't have on imported non-essentials, as a way to "grow us out of our debt crisis", is just Ballsonomics.

Tom Pride

Oldtimer.

Bang on the button. After the Brown explosion in state spending (with its BBC cheerleaders), the state was / is spending more than the country can afford. The harm is not just the continued need to increase public sector debt beyond an affordable level but the fact that state borrowings have gone far beyond the percentage of GDP at which harm is inflicted on the private sector ( crowding out, disincentive from high taxes, low growth etc).

There should have been real cuts – to reverse the irresponsible and unaffordable Brown / Balls increases – through a headcount reduction using a recruitment freeze and actual graded pay cuts . I.E. 15% for those over £100,000, 10% for those over £60,000, and so on down the scale.

As it is, the Government will not make the cuts, so the cuts appear elsewhere, but in the private sector as people cut back spending to fund the extra taxes and the inflation produced by the dishonest policies of the Government and Mervyn King (364) and his bunch of Happy Clippers.

The bloated Government machine carries on and the growth producing private sector is screwed down. Dump on top of that the lack of credit from a damaged financial sector and welcome to a period of low growth stagflation.

And to the pump primers – we have been here before, you’ve tried it before and it doesn’t work in the long term. At some point the can has to be picked up (the recession began in 2008 – that’s three years ago) – so I repeat for your benefit:

"We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step."

(James Callaghan 1976)

N.B. Callaghan described the Keynesian trick of increasing government spending and cutting taxes and thus increasing borrowing. This time it is even worse – increased spending, increased borrowing AND increased taxes.

FvH

Is this in fact the "awful truth" that all the parties really know - the UK is in fact going nowhere
Osborne (and to be honest Darling also) knows that we have to try to get the deficit under control to avoid Greek style worries but growth is another much more difficult ball game
We are not Germany - our manufacturing base is much lower and also lower added value
I think we should all get used to low / no growth as the lesser of 2 evils (I.e. at least we are not Ireland)

Mark M

Olaf nailed it. Gas and oil inflation is what's killing growth. With petrol over 130ppl, and food prices incorporating their transport costs, people simply cannot afford to splash out.

And yet we have that utter berk Huhne coming out with all manner of lovely plans to raise the price of these goods even higher, chasing green targets that are impossible to reach and ineffective even if we reached them.

My local Asda sells at 131.7ppl - 80.9p of that is tax. Want to know why we're limping along, there's a big f'in clue.

Tom Pride

As the pump primers (with their - borrowing today will produce the growth which will fund a reduction in the borrowings tomorrow) are a hard bunch to convince and the damage they cause is so painful , I would like to add to the Callaghan comment above, with an extract from Jeff Randall today:

http://www.telegraph.co.uk/finance/comment/jeffrandall/8658888/America-can-now-only-defer-its-debt-crisis.html

“A study by Harvard professor Kenneth Rogoff and Carmen Reinhart from the Peterson Institute shows that when public debt tops 90 per cent of GDP it acts as a brake on growth. Their study of 44 countries, going back 200 years, concludes that it would be foolish to interpret today’s low borrowing costs as a green light for further debt. “Politicians everywhere like to argue that their country will expand its way out of debt, [but] our research suggests growth alone is rarely enough to achieve that with the debt levels we have today.””

Eric Smith

We need to avoid being too pessimistic. Often GDP figures are revised upwards and we would be reacting differently if it was 0.7 as opposed to 0.2 which may turn out to be the case two years from now after revisions! A bit late if we have serious problems and I agree. My fear is that this administration seems to have such strong parallels with the first Thatcher administration which was disastrous for the economy, because facts will not cause change they are driven by beliefs. At the time those in power stuck stubbornly to a interest rate policy despite the wide spread damage. We have all the ingredients of a re-run. For those who were not around these parallels are public sector expenditure, anti trade union power, monetarism, anti red tape and a belief in the market. This coalition government is anti the public sector and wants to reduce it and the power of the unions in it, anti red tape and has a belief in the markets and that a tight fiscal policy as opposed to a monetary one can improve things with private sector percentage of GDP improving. It feels like the sequel and I did not like the first one!