Fatal inexperience
Mark Bathgate 2:43pm
The Government debt mountain grew by a further £11.4billion in October. The UK now has one of the most expensive governments in the European Union – now materially above the Eurozone average and within touching distance of France and Sweden in spending above 50% of GDP. Blaming large Government per se for economic problems is overly simplistic – larger Government spending countries like Sweden and Finland have managed to build export market shares and provided stock market returns over the past couple of decades that put the UK to shame. Spain now has thousands of miles of high speed railways and over 50% of their energy needs come from renewables. Smart and productive investment by the Government in high quality education, healthcare and infrastructure are widely recognised by global investors as a major enhancement to the global competitiveness and living standards of a country. Making sure the numbers add up, and that spending is useful and productive, counts for far more than simply the size of government.
Government spending has now soared to almost £200billion above income – virtually the sum of the entire health, education and defence budgets. The basic rate of tax would have to rise by 40p to over 60% to pay for the spending mismatch. As the above chart shows, spending has increased by 125% since 1997, while income has only increased by only 73%. The huge rise in spending was predicated on two core assumptions: ever growing bank bonus pools representing a “New North Sea Oil” to provide permanently growing tax revenues; while the end of the last few centuries of economic cycles and downturns meant that the remainder of the spending increases could be funded on the never-never. Sadly, the growth of the recent decade turned out to be just another boom/bust cycle of the kind the UK has grown so familiar to over the past couple of centuries. The growth of the banks to the world’s biggest and most risky – so proudly cheered on from No 11 – has turned into a taxpayer hangover to give the World Wars a run for their money. As the bubble tax revenues have dried up, the gap between government spending and income has soared – in much the fashion many leading economists predicted and have been seen all too often before.
The attempt of the Labour Party to present huge spending increases as “something for nothing” is a key reason why there is so little to show for this spending bonanza. While the UK now moves close to topping the European league table of expensive Government, we don’t seem to have the great French trains, the Spanish renewable energy generation or the world beating Finnish schools to show for it. A more honest approach – making clear more government services would need to be paid for ultimately in higher taxes but represented a worthwhile investment – may well have left us with much more to show for this huge debt we now are stuck with.
The scale of the UK’s plight is made clear by a comparison of our deficit problem compared to the 6 EU countries who have larger Government shares of their economy. The UK has by some way the largest financial hole, having failed to follow the example of most other big Government countries in Europe in running a balanced budget or a surplus in the boom times. It is in this obvious lack of understanding, that there’s no free lunch in running an economy – the numbers do have to add up in the end, that the inexperience of this Labour Government in economic management is so painfully obvious.
Previous
Yam Yam
November 19th, 2009 2:59pm Report this commentInexperience? Or quite deliberate recklessness?
Rainer Unsinn
November 19th, 2009 3:07pm Report this commentWhat heppened in 2000 that sent Govt expenditure rocketing like that?
In 1997, Britain seemed to have been in a really good position, which suddenly went to pot in 2000 and has continued since.
Prodicus
November 19th, 2009 3:07pm Report this comment@ Yam Yam
First the former then the latter.
The same pattern as with every single Labour government Britain has ever had. Every single one. Will we never learn? (c) Burning Our Money dot com
DangerDave
November 19th, 2009 3:10pm Report this commentGreat analysis. Chickens coming home to roost - if only your average tabloid reader could understand this, Labour would never again be re-elected.
Chlorophyll Nugget
November 19th, 2009 3:19pm Report this commentGordon Brown 2007
'I can report the British economy is today growing faster than all the other G7 economies and that after 10 years of sustained growth, Britain's growth will continue into its 60th and 61st quarter and beyond. We expect that next year, in 2008, alongside North America, our growth will again be the highest in the G7 - between 2½ and 3 per cent - with the same rate of growth also in 2009 .Debt is 44 per cent of national income in the USA, 50 per cent in the euro area, and 92 per cent in Japan, but in Britain we expect debt from 2007-08 to 2012 to be 38.2, 38.5, 38.8, 38.8 and 38.6 per cent - at all times meeting our second fiscal rule. This contrasts with a debt level of 44 per cent when we came to power. Britain's net borrowing, which in the early 1990s went as high as 8 per cent of our national income is this year just 2.7 per cent. In the future years to 2011-12 it will be 2.4, falling to 2.0, and then falling to 1.8, 1.6 and 1.4 per cent.
Just over a decade ago, when unemployment and debt were high, as much as three quarters of all new public spending went to pay for debt and social security costs, leaving only one quarter of new spending for health, education, transport, defence and policing. Because of our success in cutting debt interest by a quarter and claimant count unemployment by a half, these front line services will, in the coming spending round, receive not 25 per cent but 75 per cent of all new spending.'
Where did it all go wrong? Gordon
Dominic Allkins
November 19th, 2009 3:23pm Report this comment@Rainer Unsinn - 2000 was the year that Gordon Brown as Chancellor dropped the election promise of 1997 to stick to Tory spending plans.
Not sure so it's inexperience - just naivety. This Government seemed to think that just throwing money at public services and trying to micro-manage from the centre would deliver better services. FAIL.
Billericay Dave
November 19th, 2009 3:24pm Report this commentThe problem is getting this across to the electorate ! these graphs should be on every front page and news channel, but no chance on the BBC.
Rainer Unsinn
November 19th, 2009 3:36pm Report this commentDominic Allkins,
Thanks, that's what I thought it was. Makes for some pretty dire reading.
Moraymint
November 19th, 2009 3:53pm Report this commentOh, c'mon, Mark; this was planned and premeditated Marxism in action.
Gordon Brown and the Labour Party have been in their element this past 12 years engineering this utter socio-economic nightmare.
It is impossible to believe that the Marxist mafia at the heart of government - the likes of Brown, Balls, Mandelson et al - were not fully aware of just what they were doing. The bourgeoisie have been smashed (http://tinyurl.com/yhp4blt), the ruling elite's (Tory Party's) 200-year grip on power has been emasculated and battle has now been good and truly joined in the great class struggle. The middle classes are on the run and our society is divided and ruled.
Finally, democracy has been eroded and largely supplanted by a European bureaucratic elite; all carefully planned and implemented by stealth.
We should be congratulating the Labour Party on their ability to deliver a strategy, not haranguing them for ruining the country.
Fade to applause.
richardj
November 19th, 2009 4:08pm Report this commentThat's what you get with student poiticians from Fife. Not a clue -
on another note how does what goes round come round - vote for Lisbon and get cheated in Paris - There will be more of that.
Liz Brown
November 19th, 2009 4:10pm Report this commentGordo' "the iron chancellor" "Brilliant" "staggering intelligence" blah blah blah wrote his "masters" (over God alone how many years) in the History of the Labour Party or some such tosh - what that has to do with economics and how it was supposed to qualify him for Chancellor was beyond me then and is beyond me now. didn't stop the slavish meeja and Beeb from gushing the above sentiments - fools all of them
Number7
November 19th, 2009 4:31pm Report this commentTo use my dead father's (Fleet Air Arm 1942 - 1944) favourite word.
PILLOCK
Gawain
November 19th, 2009 4:33pm Report this commentInexperienced ? What, pray, have they been doing for the last 12 years ?
Mark, these posts get better and better. I would recommend that you put together a layman's guide to the wrecking of the British economy. Not enough people are aware of this.
Andrew
November 19th, 2009 4:49pm Report this commentExcellent article, but what will change? The election will be run on improving things whilst helping us, as they all are, then eventually the whole system will collapse, and ouit of the ashes will emerge potental leaders. Which one will we choose? The one who promises us something for nothing of course...
michael
November 19th, 2009 5:04pm Report this comment2000 nulab ditches prudence, starts buying votes....which have become ever more expensive.
chris as usual
November 19th, 2009 5:33pm Report this commentThe blame for this rests entirely on the political classes and the out-of-control public services with their lack of productivity and accountability. There will be greed from the financial people whatever happens or has happened.
Yes, most other countries do spend taxpayers' money effectively and efficiently. Why can't we? O.K., we can (and should) blame Brown & Co but do the Tories have a clue either? Perhaps we should ask Major and Clarke. It looks as though they ran a well-managed economy (up to a point) whilst the troublemakers in the party ensured that they got chucked out for at least 12 years.
If it is going to be worth any sort of candle to be given the job of sorting this out, people need to understand right away what is going to be asked of them. This means lower living standards until we can survive without spending both private and 'public' money we don't have.
Cameron needs to show guts and leadership on this, as nothing will be forthcoming from the puke-inducing performances of Brown, Goebbleson and the rest of these idiots. I watched Balls yesterday - the straitjacket can't be far off for him.
Chuck Unsworth
November 19th, 2009 5:48pm Report this comment"Smart and productive investment by the Government in high quality education, healthcare and infrastructure are widely recognised...."
Yes, but in order of priority it should be Infrastructure, Health and then Education.
We already have an over-educated population. We really don't need more graduates - witness the number of over-qualified burger-flippers, many of whom will remain in relatively menial occupations for years to come. Why have we raised their expectations and aspirations - only to fail to provide appropriate employment? Far better to provide apprenticeships, engineering and manufacturing skills - much of which is currently imported, hence the rise of the Polish plumber etc.
The government's calculations and projections of the required skills-base has been disastrous. When Blair pontificated about Education x 3 he was, as usual, looking for a political result. Nothing to do with the good of the country at all.
As to 'Smart', well I haven't seen anything 'Smart' emanating from NuLab, ever.
local local
November 19th, 2009 5:55pm Report this commentPerhaps we could restrict welfare payments based on contributions made?
So, if you have made two full years National Insurance payments, then you can get four years of welfare, but if you have paid nothing in, then once you have had six months, that's it. No more.
That might move some of the indigenous indolent off welfare and some of the benefit shopping immigrants off somewhere else.
Verity
November 19th, 2009 6:32pm Report this commentRichard J and Liz Brown, read Moraymint, above. None of this happened by accident or incompetence. It was a destructive plan well-executed.
Minnie Ovens
November 19th, 2009 8:26pm Report this commentMr Bathgate, on a nitty, gritty point, if you are going to mention first class education, attempt to remember how to use prepositions.
Apart from that gripe, this is a most instructive piece of writing. I am no economist and for once someone has put it in clear language.
Thank you.
The real issue is whether a malevolently political Government can actually try to do something for the country and not just for itself.
If not then let us hope there is a person with guts in Parliament who can take the leadership role to get us out of the terrible financial, ethical and moral mess into which we are landed.
Otherwise this country will become a continuous Circle line with all the workers, thinkers and entrepreneurs getting off and the world's dregs getting on.
Mr Brown, welcome to at least 70% of the blame!
General Zod
November 19th, 2009 8:40pm Report this commentOh rubbish, Verity. Yes there was [plenty of mischief and malice involved, but the overwhelming factors were utter incompetence (hardly surprising given Brown's background, education and beliefs) and an arrogance that brooked no questioning of the plan of the economic genius.
General Zod
November 19th, 2009 8:44pm Report this commentThe marxist background was shown not so much in the incompetent handling of the economy as in the viciously dirigiste legislative programme to curtail our freedoms, cow the middle classes, reduce all to the lowest common denominator in educational achievement, tax, tax and tax some more and finally to own us through that tax system, ID cards, surveillance, the proposed network of informers, a politicised, non-crime-fighting police service (not force) etc etc etc
Dorothy Wilson
November 19th, 2009 9:17pm Report this commentRainer Unsinn: For the first two years of the Labour administration they followed Ken Clark's plan for managing the economy. It was when they stopped doing so that things began to go hay-wire.
And I agree with local local, benefits should depend on contributions. It used to be like that. And if the EU do not like it they can take a running jump.
Boudicca
November 19th, 2009 9:52pm Report this commentSpain has so many miles of high speed trains because we are paying for it.... at the same time as paying for our own 20th century track to be replaced.
Keep this up for long enough and the UK will become the poor man of the EU and deserve funding from the other member states. Thanks for giving away our rebate for nothing, Tony!
JohnPage
November 19th, 2009 10:10pm Report this commentThe official narrative is that the perpetual Brown boom was stopped by the freak bank event from America. Did he really believe this? We'll never know.
A plea of inexperience doesn't cut it. Balls reportedly was the early driving force and he knew economics. Balls & Brown knew better than the Treasury officials.
Brown is a hubristic bully with a pre-set agenda, not a bewildered seeker after truth.
biggestaspidistra
November 20th, 2009 2:52am Report this commentMoraymint: "We should be congratulating the Labour Party on their ability to deliver a strategy, not haranguing them for ruining the country."
I smell a Spectator/Threadneedle Parliamentarian Award nomination.
TomTom
November 20th, 2009 6:49am Report this commentBritain is a Socialist Republic. Why that has not permeated the political consciousness eludes me. It is a land of Political Commissars with a loyal band of service providers who live on State contracts for "training" or "advice".
Britain is not a free market economy or society, it was infiltrated and subsumed from the 1950s onwards into a State run for the benefit of a very defined Nomenklatura
Amadeus Plonquer
November 20th, 2009 6:52am Report this commentI assume this is the result of Ed Balls' and Gordon Brown's Post-Neoclassical Endogenous Growth Theory? More like Post-Neoclassical Endogenous Growth Ballocks.
Tiberius
November 20th, 2009 9:48am Report this comment"Britain is at growing risk of a "public debt spiral" unless the Government takes "drastic" action to cut the deficit, according to the OECD, world's leading economic institution. The Organisation for Economic Co-operation and Development said that even if Britain reduces its deficit in line with other leading nations, it will still have the rich world's biggest deficit from now until 2017 and potentially beyond, casting serious doubt on its economic credibility, the Telegraph reports.
Meanwhile, the CBI has backed Conservative plans to cut the budget deficit swiftly and sharply, rejecting Gordon Brown’s eight-year timetable to reduce the national debt as a “limp” approach that will prolong economic pain. Richard Lambert, director-general of the employers’ group, endorsed Tory fiscal policy and welcomed the non-confrontational stance on Europe taken by party leader David Cameron. Mr Lambert stressed the CBI’s apolitical nature but his comments mark a significant shift by the business community, the FT reports".
Commentary today from one of the sources I use for my work.
If the Tories don't win the election (drifters to UKIP note) it could well be all over.
This is the real world - sticking two fingers up to everything you don't like doesn't usually get you very far.
denis cooper
November 20th, 2009 11:15am Report this commentYes, Tiberius, but please note that Cameron has stuck two fingers up to those drifters to UKIP.
Now most people who incline to UKIP are, as we know, "swivel eyed nutters", while Cameron is a highly intelligent, "sensible" political leader; so while we might expect the former to be tempted to foolishly and irresponsibly waste their votes and help to get Labour re-elected, allowing Brown to complete the destruction of the country, etc, etc, we might expect the latter to recognise that possibility and adjust his policy to minimise that risk.
But he hasn't - he's simply calculated that he can do without their votes, and given in to the europhile wing - one might say, the disproportionately powerful europhile rump - of his party.
If Cameron wants to appeal to the patriotism of potential UKIP voters, getting them to hold their noses and vote Tory at the next election in order to save the country, then he must first some patriotism himself.
If the next election ends up with a hung Parliament and/or Brown returned to government, then the blame for that will lie squarely with Cameron and the Tories, not with those who refused to be blackmailed into voting for the Tories.
greenslime3
November 20th, 2009 1:46pm Report this commentIt is not inexperience. It is hubris. It is the belief that one can just spend and spend other peoples money with no audit. The "rich" will pay! Whoever the rich are.
It is a belief that if one person has more than the next, no matter how hard they work for that, is wrong. It follows therefore - in their minds at least - that it is perfectly ok to just pop along and take whatever they need. And with it, to fund someone to sit on a paid for by the state sofa watching a paid for by the state television in a rent paid by the government dwelling.
And this has been made worse because the left's political classes have, largely, never worked (in a proper job). Their heads are full of theoretical redistributive economics which have been proven not to work time and again. They believe that a bit of legislation here and a splosh of dosh there will solve the world's ills.
The thought that individuals should be required to hold some individual and collective responsibility for their actions and inactions, is foreign to them.
So we end up with the attitude, 'they worked hard and have got it, but I don't want to work that hard, and I want it. The result is Moron and his clan's theft and philanthropy method of government. All liberally dashed with lies and spin.
To misquote Shakespeare, "will no-one rid us of this turbulent priest's son?"
Wily Trout
November 20th, 2009 2:09pm Report this commentIt seems Labour behave like naughty children, confident that at some point an adult i.e. the Conservative Party will come along and apply nasty medicine and make everything all right so they can misbehave again. But are there any real adults left anywhere in the political class? There certainly aren't any in the public services. I am talking about the sort of adults who have a concept of things like responsibility and probity, and understand that actions have consequences which have to be dealt with.
michael
November 20th, 2009 4:13pm Report this commentGB well and truly hoist by his own petard!!
At a time when corporation tax receipts ought to be stabilising, the 'screw business' tax changes: tax claw backs for losses cant be recovered until they can be offset against tax payable on a firms next profits, will wipe out any net tax income from the just recovering.
...another 'you've screwed up gob-full'.
...water off a ducks back no doubt.
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