UK returns to budget surplus

There is an argument that 20th century growth was so high (astonishingly so by historic standards) because of a series of groundbreaking events. The invention of the car, the plane, the computer, the robot, the internet and the corresponding automation and efficiency they all heralded. Likewise the entrance of women into the workforce, basically doubling the productive population. These are all one time events and, arguably, we've plucked all the low-hanging fruit and shouldn't necessarily expect any new innovations to dramatically boost growth figures quite in the same way.

The things you're talking about are legitimate investment though, which wasn't really the problem. You're putting money in today, but expecting benefits in the future, so that's not really my quibble. You can argue with the cost-effectiveness of some of those investments, but that's really an argument of implementation rather than principle.

The problem was the current deficit, where we are borrowing money to meet day-to-day spending. Things like welfare payments and civil-service salaries. There is no prospective payout down the line, this is money we were borrowing just to stop basic services running out of cash. Keynsians will tell you that running a current deficit can be helpful in a downturn, but running a persistent deficit in years of growth and plenty is just unforgivably poor economic management.

Likewise today, we're currently growing, but on average recessions happen every seven years. We may have eliminated the current account deficit, but the debt burden is still sky-high by historic standards. If we don't get debt under control we won't have that buffer when times get harder, as they always do eventually.

There is an argument that 20th century growth was so high (astonishingly so by historic standards) because of a series of groundbreaking events. The invention of the car, the plane, the computer, the robot, the internet and the corresponding automation and efficiency they all heralded. Likewise the entrance of women into the workforce, basically doubling the productive population. These are all one time events and, arguably, we've plucked all the low-hanging fruit and shouldn't necessarily expect any new innovations to dramatically boost growth figures quite in the same way.

I would try communism though if it was of the right type

Interesting points.

I guess re civil service salaries, the argument would be that the country needs its best and brightest in the civil service and it has to pay high salaries to tempt those who would otherwise chase the high corporate salaries.

As for what could be next to increase productivity, the most obvious candidate would surely be automation. That could potentially increase productivity exponentially which may again allow for a period of big spending and big growth.

Again, NO!

Your thinking is way too narrow, both need to be done and councils can be overruled on planning by the government which has been happening more and more. There are two big occasions for this in the last year in Birmingham alone where I live.

Councils have had their budgets cut from central government and given local revenue raising powers which don’t fill the gap, what planet are you living on? My local council has two billion of debt.

Where did I say Labour created the global financial crash? Nowhere.


But they made things very difficult for us, you struggle to follow arguments but try this without just retorting Momentum simple slogans.


- They ran a deficit at a time where we had uninterrupted growth for ages; we should have used that time to have a responsible budget with a surplus.


- When we borrow money, investors buy government bonds. Until we can buy them back we have to pay interest every year (effectively wasted taxation), and when investors lose confidence in us paying back like with Greece we can't borrow anything for schools or hospitals (or invading Iraq) at the time it's needed most.


- If New Labour had paid off more of the debt we would have more to spend on helping grow the economy again and investing in public services.

- Since you mention hospitals, the spending on PFI contracts adds tens of billions to our national debt unnessecarily. Tony Blair opened our borders unconditionally to 8 former communist countries putting far more pressure on public services

- They signed us up to EU integration so our financial services was regulated not in Westminster but by the EU/IMF. The main problem with banking was not deregulation, but changing from experienced banking where good decisions were made to box-ticking.

I did. I was a Marxist of some sort for 8 years 😂

I mean in a practical real way.

I am not going to knock everything Labour ever did, but to a large extent they were able to spend money to achieve their goals because Major left them with a strong budgetary position. The Conservatives were forced to adopt a policy of austerity because Brown had left them with a very weak budgetary position.

I am not blaming everything on Brown, but he demonstrably showed a lack of prudence in the decade he was in charge up of the treasury. Had he been more circumspect in his spending, the UK budget would have fared better in the stresses of the crisis. He was not responsible for the crisis, but he was responsible for the fact we were so unprepared.

Brown hiked spending beyond the government's income, and we were running a current account deficit from basically the moment he took over all the way up to the crisis. He told everyone this was fine because he had 'abolished boom and bust', but actually he was hubristic and irresponsible. And so, come the inevitable thunderclouds, we found ourselves in a much more precarious position than we should have done.

The thing is though that 60% isn't seen as the optimal target, it's what's seen as achievable. I think everyone recognises the UK's finances are in a worse position than they were before the crash, although they could have been even worse had action not been taken.

As for what's an acceptable level for debt/GDP, it's pretty dependent on the fundamentals. You have to remember we are paying interest on this debt, and currently those interest payments are greater than this new "surplus" so we're technically still in deficit. A lot of those interest payments are money leaving the UK economy, so high debt will inevitably subtract from GDP growth and put downward pressure on sterling. Some debt is absolutely fine, but you absolutely must have a good idea how your future tax base is going to pay it off, or growth will suffer.

For advanced economies 100% is around the sort of level people start to worry if you'll ever pay it off. As you point out, debt has increased by 50% since the crisis, so if that were repeated we'd be in trouble, even if we got it to 60% beforehand. That's not to say you definitely won't pay it off, but investors start to get itchy feet, reducing growth and making paying it off that much harder.

I'd be wary comparing to non-Western economies too much. China is still a developing economy, and though growth is slowing it's still massive compared to western economies. They can handle high levels of debt because the tax base is expected to be large enough to handle it, whereas we'd be happy with 2% growth. They're also not exactly the freest of economies, which gives their government more leeway. Japan is in seriously dire straights with its debt, which is the main reason they've barely grown for like two decades. We seriously do not want to emulate Japan.

And once again, you don't get an ROI on debt to cover current expenditure. If you borrow to build a bridge, fine, there are projected future benefits to weigh the outlay against. If you borrow to maintain welfare payments, OK you're avoiding social pain, but where's the return? The money is just consumed and we have to reclaim if from future taxes.

Brown hiked spending beyond the government's income

All businesses (especially financial businesses) prepare for the risk of a financial shock by holding excess capital

And if it were up to me we'd have let them go to the wall, to encourage the others.

And if it were up to me we'd have let them go to the wall, to encourage the others.

Taxpayers should by no means be expected to bail out the risk-taking of big businesses. If nothing else, it introduces a moral hazard where bankers have every reason to think "if I screw this up the government will probably help us out".

Ordinary banking customers' balances should have been guaranteed, but otherwise if they were insolvent they should have been liquidated.



No, it's just the operations of a proper free market, as opposed to the *******ised corporatist version we have today. Taxpayers should by no means be expected to bail out the risk-taking of big businesses. If nothing else, it introduces a moral hazard where bankers have every reason to think "if I screw this up the government will probably help us out".

There were banks which did not have sketchy business models and which did not need government money. They should have had the chance to take the place of their poorly-run competitors. Instead we have the likes of RBS still knocking around, making losses and generally performing poorly.

This may be a short-term situation until Brexit, for which we will be paying until 2064.