[marcusfox]

(Original post by dominicjohnson)
May 2012, £18bn borrowing up from £15bn in May 2011

Let's start by saying I'm relatively left wing. I don't think this "cut cut cut" (or should i say "u-turn u-turn u-turn") strategy is the best way to solve our financial situation.

I know a lot of right wing people disagree with me, but how can you say that this government's strategy is working? We're back in recession, borrowing is up on last year..tax incomes down by almost the same amount as payments out are up (clearly linked to unemployment/pay cuts).

How can anybody take this government seriously at all? It's all a shambles.

Discuss.

Despite all the claims to the contrary, the coalition’s deficit reduction plan is, just about, still on plan A.

Reducing government deficit is like turning around a container ship, the instruments to make it happen are adjusted but the response is never immediate.

It always was planned that borrowing would have to increase in the short term.

Lest you haven’t noticed, our economy is on its knees and all taxation does in that situation is act like a great big kick in the *******s.

The coalition had very little room for manoeuvre but has quite rightly cut those taxes that are worst for stopping business growth.

Corporate taxes have always been bonkers and high rate tax was cut because it wasn’t working - end of story.

The argument against higher rate taxes is one that’s generally accepted most of the world over nowadays and cutting them has always raised more revenue than it costs.

Indeed, that probably goes for most taxes and, deficit willing, with the Tories now back in office, maybe one day we can return to those far off golden (pre- Brown) days when we could look forward to, year on year, yet another round of tax cuts for all and the increased prosperity for all that always seems to go with it.

The coalition’s plans to pay down the deficit included a period where overall debt would still rise.

This is because of the time lag involved in making the spending cutbacks.

The debt is still going up, and will do for a while yet, but importantly the deficit, the gap between what we earn and what we spend, has come down significantly.

The coalition inherited a public sector that still had to be paid for, even if it was of a size that was unsustainable and that they would have preferred to be far smaller.

This is because Labour, rather than facing up to economic reality, chose instead to put their own narrow selfish interests first, by post dating all the bad news until after the election.

Brown had three years to address the deficit but did nothing and we all know why.

His own party, friends, colleagues, our very democracy even our economy being reduced to a basket case, all was expendable in the name of achieving his divine right to rule.

[Mbob]

(Original post by marcusfox)
Despite all the claims to the contrary, the coalition’s deficit reduction plan is, just about, still on plan A.

Reducing government deficit is like turning around a container ship, the instruments to make it happen are adjusted but the response is never immediate.

It always was planned that borrowing would have to increase in the short term.

Lest you haven’t noticed, our economy is on its knees and all taxation does in that situation is act like a great big kick in the *******s.

The coalition had very little room for manoeuvre but has quite rightly cut those taxes that are worst for stopping business growth.

Corporate taxes have always been bonkers and high rate tax was cut because it wasn’t working - end of story.

The argument against higher rate taxes is one that’s generally accepted most of the world over nowadays and cutting them has always raised more revenue than it costs.

Indeed, that probably goes for most taxes and, deficit willing, with the Tories now back in office, maybe one day we can return to those far off golden (pre- Brown) days when we could look forward to, year on year, yet another round of tax cuts for all and the increased prosperity for all that always seems to go with it.

The coalition’s plans to pay down the deficit included a period where overall debt would still rise.

This is because of the time lag involved in making the spending cutbacks.

The debt is still going up, and will do for a while yet, but importantly the deficit, the gap between what we earn and what we spend, has come down significantly.

The coalition inherited a public sector that still had to be paid for, even if it was of a size that was unsustainable and that they would have preferred to be far smaller.

This is because Labour, rather than facing up to economic reality, chose instead to put their own narrow selfish interests first, by post dating all the bad news until after the election.

Brown had three years to address the deficit but did nothing and we all know why.

His own party, friends, colleagues, our very democracy even our economy being reduced to a basket case, all was expendable in the name of achieving his divine right to rule.

While much of that is true, the UK's growth has been considerably lower than that predicted by the government, and since the deficit reduction plan had economic growth as a key contributor, it looks as though he will miss his targets unless he introduces additional tax rises or spending cuts beyond those which were initially pencilled in.

The government plans to eliminate the structural deficit, and leave the cyclical deficit to sort itself out as we return to growth. However, if it turns out that more of the output lost during the recession is permanent, and that the lost ground in growth is never made up, that means that the structural deficit is larger than was thought and so more cuts will be required.

I guess it comes down to how much of the pre-2008 growth wasn't real growth at all. Ironically, both Labour and Coalition policy rely on the fact that it was real growth.

[marcusfox]

(Original post by Mbob)
While much of that is true, the UK's growth has been considerably lower than that predicted by the government, and since the deficit reduction plan had economic growth as a key contributor, it looks as though he will miss his targets unless he introduces additional tax rises or spending cuts beyond those which were initially pencilled in.

The government plans to eliminate the structural deficit, and leave the cyclical deficit to sort itself out as we return to growth. However, if it turns out that more of the output lost during the recession is permanent, and that the lost ground in growth is never made up, that means that the structural deficit is larger than was thought and so more cuts will be required.

I guess it comes down to how much of the pre-2008 growth wasn't real growth at all. Ironically, both Labour and Coalition policy rely on the fact that it was real growth.

That's why I used the qualifier 'just about'.

While no one is saying that everything the Coalition are doing is perfect, it's a damn sight better than what we had under the previous government, and tough decisions had to be made as a result of that.

[Heeck]

Is it even responsible or sustainable to inject money (mainly borrowed money) into the economy when we already hold huge debts? That’s my only concern with the government borrowing money, obviously I'm all for reducing unemployment, inflation and wanting the economy to grow but it just seems like superficial growth if it's mainly based on loans.

I'm all open to an explanation why borrowing more money is a good idea when the UK has such a huge foreign debt.

[dominicjohnson]

(Original post by fudgesundae)
Simple. Our budget deficit was around 13% of GDP in 2010. In 2012/2013 it will be around 6%.

How can you make that kind of assumption? If the economy continues to shrink, who's to say we won't have a repeat of 2010 and see our deficit as a proportion of GDP rise again?

[fudgesundae]

(Original post by dominicjohnson)
How can you make that kind of assumption? If the economy continues to shrink, who's to say we won't have a repeat of 2010 and see our deficit as a proportion of GDP rise again?

It's possible, but how can you predict that? All we can go on are the predictions made by the government on what the deficit will be next year and if they fail to meet their predictions then ultimately they will have to answer for that at the election.

But writing off a government just halfway through their term and less than a year after they announced their new budget is simply preposterous. It will take another year or two before we can properly judge the full effects of their budget. You can't expect immediate results, especially with the hole that Labour left them in.

[internetguru]

(Original post by fudgesundae)
You know so little about economics it is hilarious. Debt is not a problem for a country. A large economic power like the UK will never be debt free. The deficit is the problem. The deficit is how much more we are spending to pay our interest, and on services etc, than the amount we are making. If you eliminate the deficit to the point where the government is making money, then the level of debt is not something to worry about.

The deficit is how much we are adding to the debt annually. Like you said debt is not a problem therefore adding to the debt with a deficit would logically not be a problem also.

[fudgesundae]

(Original post by internetguru)
The deficit is how much we are adding to the debt annually. Like you said debt is not a problem therefore adding to the debt with a deficit would logically not be a problem also.

Yes but without reducing the deficit, you cannot aim to reduce the debt in the long run. Obviously in a perfect world we have no debt, but that simply is not realistic. Think of our economy as a company. Companies have plenty of debt, as long as the payments are manageable then this isn't a problem. In our case, the payments are not manageable, as shown by the budget deficit. What does a company do if they are losing money? Reduce costs, lay off workers. Same with our government, they needed to cut costs to start making a profit.

With a deficit we can't spare money to spend on improving services, we need to get to the point where we have excess cash (after paying interest on loans) which we can use to improve services.

[cl_steele]

im curious how you can blame the government for rising unemployment? theres rather little they can do about that they cant just snap their fingers and make the private sector hire people least of all with the global economy teetering as it is...

[MostUncivilised]

(Original post by dominicjohnson)
We're back in recession.

You don't see a link between the sudden increase in the PSBR and our douple dip?

In 2011 government spending was 48% of GDP, an enormous figure next to comparable democracies like Canada and Australia (35%).

To meet the government target of a decline to 40% by 2017, you are sacrificing 8 percentage points of growth. If Europe is falling apart, the US barely recovering, China's growth rate slowly trending down, 1% growth would be more than acceptable.

When you slice off the withdrawal of funds from the public sector, there goes your one percent. When people express surprise about low / negative growth in one breath, and run around with their hair on fire in the next emphasising the size of the cuts in the next, do they not stop to think about whether there is a link?

Keeping growth on the positive side of the ledger until 2015 will be a razor-sharp balancing act, and Treasury will get it wrong some quarters. They're not taking any chances that we will have a contraction again this quarter.

Maybe you're right; they should put any question of fiscal sustainability out of their mind, push aside nagging doubts about cost control in the public sector, and simply spend, spend, spend whatever they have to in order to get back in 2015.

[MostUncivilised]

(Original post by cl_steele)
im curious how you can blame the government for rising unemployment? theres rather little they can do about that they cant just snap their fingers and make the private sector hire people least of all with the global economy teetering as it is...

I'm surprised that any business gets done in this sclerotic economy. Double the VAT rate of Australia, considerably higher income-tax (£10,000 tax-free threshold as opposed to £20,000/$30,000), a one third increase in raw numbers of public sector employeers (4 million to 6 million) while comparable countries took the cost savings and efficiencies of the IT revolution and reduced (2.4 million to 1.6 million in the same period for Australia) the public sector payroll and let the savings flow back to business.

The government came within a hair's breadth of being a majority of economic activity and national product; that the companies are co-existing with a government that has almost suffocated them and crowded them out of the market is a testament to their persistence.

I think the real question is not about how borrowing is up £3 billion this month, down £3 billion the next, or indeed employment. The real question is why the UK government, despite levying very high rates of tax, is still unable to manage its money?

Why does it have problems managing its spending levels from month to month? And finally, why is it that the UK pays considerably more proportionally than comparable democracies for public services that are often inferior in the scope of service provision or size of benefit payments?

When Labour starts talking about these basic concerns about public sector employment, cost control, a credible plan to eliminate the structural deficit. I think that last time they were in the Treasury they must have f***ed it, it's broken, it doesn't seem to work anymore.#

(Original post by fudgesundae)
But writing off a government just halfway through their term and less than a year after they announced their new budget is simply preposterous. It will take another year or two before we can properly judge the full effects of their budget. You can't expect immediate results, especially with the hole that Labour left them in.

Haha, it wasn't long after I arrived in Feb 2011 that the Labour Party, unions and the Guardian went feral and started having fantasies about early elections or some kind of revolution. I questioned their strategy, asked my lefty friends if they'd ever heard the turns of phrase "Keep your powder dry" and "Don't fire until you can see the whites of their eyes". Apparently not, and it didn't occur to them that turning the outrage knob to 11 will mean the people you have to convince (rather than the people who will always vote for you anyway) might be sick of it by 2014. If they've had four years of carping, negativity and small-target tactics from Labour, and the economy has improved, I predict the Tories will romp home.

[LookIt'sPete]

There are some really stupid people on this website

[Elipsis]

We can look at Southern Europe to see what a lack of deficit reduction leads to, and we can look at Northern Europe to see what being fiscally responsible leads to. We are somewhere in the middle, and our results are somewhere in the middle. The conservatives have only been in power 2 years and they've been hindered at every possible opportunity by the Lib Dems.

[cl_steele]

(Original post by LookIt'sPete)
There are some really stupid people on this website

May i ask why you say that?

[marcusfox]

(Original post by cl_steele)
May i ask why you say that?

Believes that anyone who can support the Coalition after all the "economic pain" of the cuts must be stupid, obviously

[DynamicSyngery]

(Original post by dominicjohnson)
Let's start by saying I'm relatively left wing. I don't think this "cut cut cut" (or should i say "u-turn u-turn u-turn") strategy is the best way to solve our financial situation.

I know a lot of right wing people disagree with me, but how can you say that this government's strategy is working? We're back in recession, borrowing is up on last year..tax incomes down by almost the same amount as payments out are up (clearly linked to unemployment/pay cuts).

Rather than the state borrowing lots of money to pay to others in order to take some of it back as tax, it could just borrow a smaller amount and spend all of that on meeting the state's obligations.

Which is what it has done.

[LookIt'sPete]

(Original post by marcusfox)
Believes that anyone who can support the Coalition after all the "economic pain" of the cuts must be stupid, obviously

Goes to uni to study chemistry; fails at life and retrains five years later to become a secondary school teacher. Thanks friend, but I really don't think I'll be taking any advice from you any time soon.




Ironically enough, if I've correctly understood the underlying message of what you just wrote (sarcasm can be hard to judge through text), than I'd say that we are actually of a similar opinion on this topic.

[Lit teacher]

Some of the recent posts have made bizarre claims which simply aren't supported by evidence or experience. Firstly, however you look at it, the coalition plans have failed. They have failed according to their own standards. Osborne has variously blamed this on the weather, the Royal wedding, the Eurozone (despite there being more growth in the Eurozone, and our EU exports increasing) and the world economy (most of which is not in recession).
He has failed to see the obvious point that any industry which relies on UK consumers cannot grow if people have no money to spend.

There is no evidence that cutting business tax will boost the economy, especially when so many businesses avoid paying tax at anywhere near the official rates. Ireland went down this route in the 1990's, and it failed. The Scandanavian countries have high taxes but no recession. They also have much greater parity of wealth across the population and according to one Danish interviewee, most people there see paying taxes as a responsibility of every citizen.


In the coming months millions of people will see their pension contributions increase (teachers will lose over £1000 a year) while wages remain frozen. Expect to see a further decline in spending, leading to another fall in tax revenue, another rise in unemployment, another increase in benefit payments and another quarter in recession.

[DynamicSyngery]

(Original post by Lit teacher)
Some of the recent posts have made bizarre claims which simply aren't supported by evidence or experience. Firstly, however you look at it, the coalition plans have failed. They have failed according to their own standards. Osborne has variously blamed this on the weather, the Royal wedding, the Eurozone (despite there being more growth in the Eurozone, and our EU exports increasing) and the world economy (most of which is not in recession).
He has failed to see the obvious point that any industry which relies on UK consumers cannot grow if people have no money to spend.

There is no evidence that cutting business tax will boost the economy, especially when so many businesses avoid paying tax at anywhere near the official rates. Ireland went down this route in the 1990's, and it failed. The Scandanavian countries have high taxes but no recession. They also have much greater parity of wealth across the population and according to one Danish interviewee, most people there see paying taxes as a responsibility of every citizen.


In the coming months millions of people will see their pension contributions increase (teachers will lose over £1000 a year) while wages remain frozen. Expect to see a further decline in spending, leading to another fall in tax revenue, another rise in unemployment, another increase in benefit payments and another quarter in recession.

The choice is fairly simple:

1. Spend money we don't have now. Like the office worker on a credit card binge, we will feel wealthy. However we will have to pay back even more in the future. Half of the current deficit is being spent on making interest payments on previously accrued debt, for instance. Moreover, the money will not be spent on the most prudent and useful things, but on expanding the non-productive state sector.

2. Stop subsidising less useful parts of the economy, and pay down debt now so that it doesn't have to be paid later. In the short term people who have to switch jobs will feel poorer, but in the long term they will have to pay less. When re-allocation of labour is complete, more people will be in productive jobs rather than sinecure positions that dominate the Greek economy.

[MostUncivilised]

(Original post by LookIt'sPete)
Goes to uni to study chemistry; fails at life and retrains five years later to become a secondary school teacher. Thanks friend, but I really don't think I'll be taking any advice from you any time soon.

I'm pretty sure that if what you say is true, he nevertheless succeeded in learning some basic lessons about common courtesy and decency, not being ungallant about such things, generally not being a dick and so on.

If you make a short comment like that without any context and without bothering to make a contribution to the conversation, then you're liable to be misinterpreted. I wasn't sure if your comment was directed against my comments, or the ones about the deficit, any interpretation would have been a coin toss.

Btw, PMing someone to apologise is often a nice touch. *shrugs*