The British mess (I)

Our public spending cuts, in the pipeline since July, have been announced. Here’s some background on the structure of public finance in the UK. Salient points:

Public spending is divided into two: current spending on running costs of government, such as salaries and equipment; and capital spending on new roads, railways, bridges and schools. In the 2010-11 financial year, current spending is expected to be £637bn and capital spending £60bn.

…so, not much scope to cut infrastructure spending; it’s a drop in the ocean; and who would want to anyway, at this point in the economic cycle. Then we have:

The £637bn bill for current spending is split into two parts: the £343bn that the Treasury allocates to individual ministries such as the Home Office and the Ministry of Defence and the £295bn that goes on annually managed expenditure (AME), which is spent on servicing the national debt and welfare payments including state pensions. There is some discretion for Osborne to cut welfare payments – hence the means testing of child benefit – but not all that much, and debt interest payments have risen rapidly as borrowing has increased over the past three years.

AME gets cut by $10Bn, mostly benefit cuts; quite a hit for the poorer sections of society. But that’s all Osborne can take there; he has coalition partners.

That has meant Osborne has had his sights set on Whitehall departments. Here, though, the picture has been complicated by the decision to ringfence NHS spending, which accounts for one-third of all departmental spending.

So that’s £343Bn * 2/3 ~ £230Bn of spending that’s eligible for cuts delivering the rest of the promised £80Bn.

One component is an 8% cut in defence spending (the defence review crept out a day early). Two eyecatching features: the loss of 42,000 jobs, to save just £3Bn; and another (terminal?) contribution to Britain’s august tradition of aircraft carrier procurement horrors, which goes back to the 30s. Here we are now; for an idea of how just far we have come in the last 50 years try the 1960s. Quite why these latest near-supercarriers got the green light in the era of the UAV is anyone’s guess (mine would be: pork, in the American sense), but anyway, via cancellation clauses, this little trip down memory lane, along with the whole defence policy, has turned into a nightmare.

Last time we did anything like this, we got a currency crisis and a naval mutiny out of it. This time it may be the land forces that act up, if anyone does; they are plenty stretched by our overseas entanglement, and not very chipper. Perhaps our exit from Afghanistan will be hastier than we mean it to be.

Not mentioned in the above public spending analysis is the UK’s impressive “unfunded public sector pension liability”, which was nudging £1Trillion the last time I looked, nor the public-private partnerships that are the accounting mechanism for much public spending these days, and are usually hard to cancel – a factor in the messiness of the defence cuts and probably a factor in the ‘decision’ to ringfence the NHS, too.

Here are the guts of the cuts, £81Billion in all, via the FT:

Local government will suffer cuts of nearly 30 per cent by the end of the parliament, while the home office, justice department and foreign office will see cuts of 24 per cent. Additionally, the police force will see cuts of 16 per cent.

The department for business, innovation and skills will face cuts of 7.1 per cent a year, or nearly 30 per cent over 4 years. But the science budget will be protected at £4.6bn a year. Overseas development spending will reach 0.7 per cent of GDP by 2013, honouring the government’s commitment in the Budget.

The department for energy will see cuts of 20 per cent, but will have money for nuclear decommissioning. Defra [RS: that’s our farming/rural agency] will also face cuts of nearly 30 per cent.

The department for culture will see its administration costs cut by 41 per cent. There will be a 15 per cent reduction in spending on museums, arts and sport.

The government will introduce additional savings of £1.8bn by £2014-15 from the cost of public sector pensions, in addition to the outstanding plans, acheived by raising contributions.

There are a few specks of sugar on the pill:

But infrastructure spending will be £2bn higher, reversing cuts announced in the June emergency Budget, overseas development will rise in real terms, and social care will see extra funds.

Mr Osborne insisted that the government’s levy on banks balance sheets would raise more each year than the bankers’ bonus tax, introduced by Labour, raised last year – £3.5bn in gross terms, or about £2bn net of other lost national insurance and other revenues.

…Social housing will see new tenants pay rents at 80 per cent of market rates, up from 50 per cent previously, and the chancellor promised another 150,000 affordable homes over the next four years.

But social care will receive a boost of £1bn by 2014/15 and a further £1bn through funding via the NHS.

The effects?

Mr Osborne confirmed that about 490,000 jobs will be lost in the public sector by 2014/15. But he said that the job losses were “unavoidable when the government runs out of money.”

The effects already include some arterial stress for MMT-ers, then.

I think those job losses (very roughly the same economic impact as 2.5 million job losses on the US) arise just from the primary effects of the cuts. Once you add in some feedback effects on our rather fragile recovery, you might have to double Cameron’s spuriously precise number. Divergent though our budgetary policies might be, it’s pretty hard to see how we won’t join the US in the next leg of a double dip. Let’s see how the debt/GDP ratio looks this time next year.

Short version: all these bets will have been settled by close of business today; the results of this bigger bet will take longer to come in. I am sure both deficit hawks and stimulus types will be interested in the outcome.

So much for the overview. When I get time I’ll do a slightly deeper dig, with an attempt at some actual politics and economics. In the mean time I would like you to remember that the really visible deterioration in our public sector finances came after we propped up the banks and warded off a US-style recession.

Print Friendly, PDF & Email


  1. Hugh

    Hello depression.

    I don’t know the British economy very well. Some quick googling indicated a workforce of 30 million and an unemployment rate of around 8 percent. So if private sector job losses match public sector losses, then we are talking around 11% unemployment with reduced benefits.

    A lot of this looks weighted on to the poor and possibly middle class. My question is what is wealth inequality in Britain like and what contribution are the wealthy making to this. And how likely is this to sit with the British public?

    1. Foppe

      It’s hard to accurately capture the british economy. While the gini coefficient is somewhere around .35 (which is reasonable compared to the US), there is a large segment of urban poor who are effectively disenfranchised because of the district voting system, while british costs of living are fairly high (so they do worse than in countries with comparable gini coeff).
      Therefore, it seems to me that the benefit cuts (both direct and indirect) are going to pack quite a punch. As for your second question: it sounds to me as though all they’re doing is cutting spending. While there (iirc) has been a modest tax increase on the rich last year, the big issue in the UK is the fact that a lot of the big financials pay next to no tax, even though their presence in Britain has had large consequences for the competitiveness of most industries (due to strengthening demand and therefore increasing the value of GBP). So there is a double price paid there, as they also make it much harder for non-financials to operate in the UK.
      Similarly, at least in 2007-08, bankers paid somewhere between 5-10% in income taxes.
      The british public, on the other hand, has become pretty stoic, and seems to have decided that, after Thatcher, strikes are just not done anymore, so it might take quite a prod for them to become politically active.

  2. Kevin de Bruxelles

    In order to analyse this (and be forwarned I am obviously not an economist) is to look at the big picture. First of all, what is Britain’s percentage of public spending per GDP?

    From the chart linked to above it seems the British government spends between 50-55% of GDP. This is on the high end of Europe (only France, Finland and Sweden are in the higher category). To put this in US terms (which spends typically around 35% although it has shot up recently to 43%), Britain spends, and has been for some time, at levels only seen very briefly during WW2 in the US.

    Surely there are upper limits to what percentage a government wants to spend. Too high and you start looking like a communist country, too little and you start looking like the US.

    So at least in theory the fact the British government wants to click back a percentage point or two is not necessarily a problem.

    Timing, and fairness may however be more of an issue. It seems obvious that the time to have made these cuts would have been during the boom of 97-07. I lived there then and London was full of available jobs and everywhere there were Europeans (and Americans like me) moving there to work. This would have seemed to be the best time to tach down the percentage of government spending a bit so as to leave a margin to get through the rough times. One can argue this is what the Americans have done, but despite pumping up spending by 8% of GDP in the last three years there is not so much to show for it in the US since most of this money is going to banks. So the timing does seem bad but on the other hand is it better to wait until the next boom which may be a long time off? I think many people in Britain remember the boom after the Thatcher cuts and are hoping for a replay of that script. The problem is the global situation is so much different than back then.

    On the fairness issue, Britain does have a decent Gini score of 34 or so (US 47 by comparison which is an entry level Latin American score) but by European standards it’s not great. So I think this is the area that would be open to the most criticism. You see across the channel, the French unions out in the streets to ensure that any cuts are fair. The British unions have been really quiet about this. And I remember the petrol strikes in the early 2000’s, the British workers are not as passive as everyone thinks.

    My guess is that we are in a long term crisis here. You will see austerity for a year or two and when it fails to restart the various economies we will see a reaction against it and more investment (especially in post-oil transportation networks) will begin. The only way these cuts will ever be fairly distributed is if the British people get out on the streets and demand it to be so. I think the unions in Britain are waiting and when the iron is hot in a year or two, when things don’t start to improve, they will then make their move. But the fact is that the British people voted for this with their eyes wide open. But this government is shaky and can be brought down any time if things don’t start improving in a year or two.

    I think under those conditions some MMT theory might catch some traction. This austerity phase will burn itself out and people will start looking for alternatives.

    On the global level we have America on the one hand totally rejecting austerity and mainlining cash directly into their banker’s veins, while Japan has rejected austerity for 20 years and is still mired in the mud. China is going full speed ahead with stimulating their economy despite some slight interest rate rises. Europe has taken a very different track than the rest of the world and is now trying rather limited austerity. We will see how all this ends in a couple years.

    1. Cian

      As best I can work out from that wiki image, its rather misleading. UK public spending shot up after the crisis as the government bailed the banks out, and implemented various stimulus packages, while (obviously) tax revenues plummeted. I don’t have the figures to hand, but I think the UK was closer to 45% prior to that (don’t forget that nearly a third of government spending goes on healthcare – so comparisons to the US are tricky there). Another similarity to the US, is that taxes on the wealthy, together with corporation tax, are pretty low by historical standards. This “budget” didn’t really change that.

      1. Kevin de Bruxelles

        I thought about that afterwards, and so I think you are right about the British bump up in percentage of GDP spending, it was probably quite similar to the recent US rise.

        On health care interestingly enough I think the UK only spends a little more despite being universal. In the US about 30% of the population is on government health care but at a rate per GDP that is 2.4 times higher than what the UK pays for 100%. In other words, at present public costs, the US could cover the equivalent of 75% of its population if it spent in UK rates of per capita expenditures on health.

  3. russell12000

    Carriers are very expensive: no doubt about that.

    But nothing has come along to replace them for moderate levels of air interdiction against foes who either none or limited anti-ship capabilities: a category in which most countries belong. Their additional Over the Horizon air search and (at times limited) strike capabilities make them a very flexible vessel.

    The British would have been embarrassed at the Falklands without there little jump jet carriers. And one of them they had sold to India, but not delivered yet.

    The problem is that they are so expensive that the force needed to defend them takes away a lot of the flexibility that they gave you in the first place.

    Until less expensive (UAV possibly) alternative are developed there is always going to be an attraction.

    1. Foppe

      Do you realise they’re in fact so expensive that the UK cannot afford to buy the planes that have to be stationed on those carriers? And that those planes are going to cost another fortune?

      1. jon livesey

        If he doesn’t realise it, that is probably because it isn’t true. . The UK is a risk sharing partner in the development of the plane in question, which is part-built in the UK, as is its engine. When the plane actually comes into service in 2020, it would be astonishing if the UK could not afford to buy it. That would imply no recovery for the economy in eight years time. That could conceivably happen, and the sky could fall, but to conclude today that the UK can’t afford the planes is just silly.

  4. Brick

    Raise the retirement age in France to 62 and the country comes to a stop, while raising the retirement age to 66 in the UK and nothing happens. Quite a contrast and perhaps cynically targeted at women who may need to work an extra 6 years and are unlikely to complain. The assumption being that we are all going to live longer due to medical improvements. This is despite the fact that life expectancy for your average man living in a major UK city is coming down and for some cities is down to around 65. A number of factors come into play here aside from medical advances, like the speed of change, stress levels and the age of retirement. These are jobs that the up coming generation will be deprived off and just maybe they should have looked at increase funding rather than reduced entitlement. I cannot help thinking 10 years down the line this will be reversed.
    No one doubts that the deficit needs to be tackled and that there are aspects to welfare that need reform. Capping welfare at the average working persons wage seems right, yet not having council housing for life seems like an incentive to not look after your house and for private landlords to make a killing and push up house prices. This could be a rather cynical attempt to jump start the housing market which will backfire as things get out of control.
    Cuts to policing and prisons would seem like a good idea if there was investment in technology which reduced the procedural overheads of paper work, court appearances or if habitual abuse of community punishments was clamped down on. Instead of a better policing with more front line services at a lower cost we continue the policy of giving criminals more and more chances to turn around. By the time the system decides enough is enough the benefits of criminal activity have become too engrained.
    While a lot of workers at the lower levels are likely to lose their jobs, just how much are the top bosses in the civil service going to have their wages cut. Not much I suspect and the cut backs in funding to local councils who are mostly deep in the red will most likely result in increased council taxes or bailouts. Either way the low income workers will be hit.
    Meanwhile retired millionaires still get there free bus pass, winter fuel allowance, free television licence which if you asked any of them would almost certainly see it as a bit of an affront that they get these.
    Child tax credits for the middle classes get cut, which is a shame because quite often this did benefit the children. In contrast there is a small element of society who see child benefits as a way of getting more money for themselves and tend to have large numbers of children as a result. There are a whole load of perverse incentives that they really shied away from. Benefits for owning a dog would also be a candidate for cuts, but perversely I actually think this would have a been a bad decision from a social point of view, but not many outside of the UK would probably agree.
    The NHS has escaped, which I think was a missed opportunity to address some of the funding issues within health trusts. It seems to me some health trusts are paying over the odds for rent and trying to claw back money through things like excessive parking charges. The root of the problem being over leveraged loans by the companies owning the new hospitals which could have been renegotiated with government help, thus reducing costs.
    In education it looks like a hiring freeze will take place instead of addressing some of the major issues. Taxis taking kids to school for parents who cannot be bothered to take their children to school are not obviously targeted. The resources required to handle kids which repeatedly assault school staff and the slowness with referring these issues are not addressed. There is a reason why the education system in Scandinavian countries is better than the UK and it has a lot more to do with attitudes by some parents to learning and misbehaviour than it does with teaching standards in my opinion and dealing with this costs the education system a lot.
    We cannot discuss everything involved but maybe this will give a flavour of UK austerity and some of the issues. In all it looks a policy formulated by the civil service to protect the upper echelons and cut front line services. This makes the government look bad and deters further attempts to cut. What I suspect the electorate would have asked for is to cut bureaucracy, red tape and to take strategic forward thinking decisions which would have improved efficiency and costs rather than jobs. No wonder Gordon Brown seemed to want to micro manage everything with a civil service which has its own interests.From an economic point of view you have to ask what have the done to increase the chances of GDP growth.Maybe that will come, but it looks more like hack and slash than a forward strategy at the moment.

    1. Foppe

      One of the most disturbing things Tony’s government did was to fund the building of a lot of hospitals and schools by borrowing lump sums that are going to yield the investors enormous amounts of money through rent, which will be in place for the next 20+ years. And although you might’ve expected them to at least ask pension funds and other semi-public to fund these projects, the reality is that they’ve all been given to private companies and hedge funds, thus shafting the british public doubly. I forget what these things are called, but it is one of the ways in which a lot of costs of building stuff under labor’s watch was shifted to the future.

    2. emca

      A good overview of spending cuts coming to Britain.

      One point though, my understanding is the child credit cuts for the middle class are to be based on an income ceiling, those earning more than 70,000 (dollars? pounds?) would no longer be eligible for the benefit. They are not across the board reductions.

      1. ginnie nyc

        The child benefit cuts ceiling is as follows: If one parent earns more than 45,000 pounds (~68,000-$72,000 p.a. in US dollars) the child benefit is eliminated. However,if both parents work, and each earn 40,000 quid, the benefit is not cut. This is why the change is inherently unfair.

    3. jon livesey

      According to the Office of National Statistics, the average life span for males in the UK is 77.7 years.

      So the claim “life expectancy for your average man living in a major UK city is coming down and for some cities is down to around 65” needs some context, otherwise it’s pretty misleading. How many cities? One, two? What proportion of males? 10%? 20%?

      And if this is an outlier case, how is that relevant to the general case? And how does it contradict the claim that lifespans are rising in the UK, which is self-evidently the fact.

  5. dearieme

    This is all the cost of Tony and Gordon; David, Nick and George are only the messengers. They’ll probably get shot all the same (metaphorically, I hope).

    1. ceebs

      No it’s down to Margret and John before Tony and Gordon, They basically stopped nearly all school and hospital repairs for ten years, and passed that “Saving” on as a tax cut. Tony and Gordon were put in the position where they had to spend extra, or see Schools and hospitals fall down

  6. Kujiranoai

    There is a great irony here. For many years the UK Conservative party opposed joining the Euro because the UK would lose sovereignty over its currency. With hindsight this was a good decision, in that has left the UK much better off than, say Ireland or Greece, as the UK could devalue its currency to benefit its exporters or reflate in ways that countries constrained by the Euro can’t.

    But then the very same Conservatives who put the UK in this advantageous position and gave the country the choice to devalye or reflate chose to then throw it away by choosing the austerity that the fringe Euro members have not choice but to follow. The result of these cuts will be first greatly increased unemployment and massive loss of confidence by employees in the public sector that will cut back their spending, private sector employers that service the public sector will then have to cut back, leading to increased unemployment, loss of confidence and deflation as Britain enters a second recession.

    Given most of Britain’s graduates have been studying finance or law, rather than engineering or anything useful for the country’s manufacturing base, it is a joke to think that the UK private sector, outside of rent seeking financial institutions (who create nothing of value), will do anything to help the country grow economically.

    What this proves is that really the UK Conservatives are driven by ideology and not by economics when making these cuts. The US can learn a lesson by watching the UK descend into recession, unemployment and riots over the next five years or so.

  7. Paul Tioxon

    It looks like N Ireland will finally join the rest of the counties to the South in a final act of political integration. When all British security forces are brought home through decommissioning or recalled to put down the 420,000 newly rioting unemployed and other disaffected British subjects trying to burn down The Palace. Jolly Good Show, somebody finally has the nerve to preside over the liquidation of the empire. Were that we all should be so lucky!

  8. Ishmael

    The UK has approximately 60 million people. Taking their budget and putting it on an apples to apples basis for population, the UK spends approximately $5 trillion compared to the bloated $4 trillion budget the US is running.

    Now since the UK is not acting as the policemen to the world even though it has deployed in both Iraq and Afghanistan, there is a large amount of money being spent in places where the US is not spending money.

    1. ceebs

      well roughly 1/3 of government spending goes into a medical costs and pensions, plus it is about the fourth highest spender on Military costs. Without medical coverage for everyone (Which seems uncivilised to a European) then yes, maybe the US government is bloated.

  9. Donhu

    Wouldn’t it be valid for the British, just like the US, to blame the job losses on the emerging economies, particularly China for grabbing British jobs with their manipulated currency?

    1. Ishmael

      Donhu, even in the 70’s the UK was a major manufacturing center for everything from cars to textiles. Unfortunately, even though British cars were beautiful they sucked mechanically. I had a friend with TR6 which would never start when it rained (you would think a car made for the UK market would be good in the rain). Union labor did them in with what was called the “British Disease” back then.

      Japan destroyed a large part of the manufacturing base and what remained is probably being finished off by the Chinese.

      With that said, they still make great but expensive testiles. My Barbour has now gone through 10 winters and has only gotten better with age and still looks stylish.

      The UK in the last few years has relied upon finance and North Sea oii as well as tourism, but with the US in the dumper I bet that has severly impacted the tourism business. Oh well, I guess there is always the Russians.

  10. emca

    A study in Conservative ideology between two countries.

    In the U.S. you get the cuts in government spending, to the idea that outside some basic manly programs (i.e. Defense, Spying and Police), government can and will do nothing well but give your hard earned tax paying dollars to worthless, profligate rabble.

    In the U.K. the Conservatives cut defense, policing and incarceration expenses, increase taxes on the wealthy and in general, feel obligated to portray their austerity programs as burdens shared by those who can most afford to bare them.

    Outside political caricature, I sense the British have a greater comprehension of the reality of the situation; the U.S., well, we have Disneyland.

  11. ECON

    Austerity by national and local government alongside the fact of low confidence in the future economy esp the low and middle classes who are striving not to spend and payoff debt asap does not make for recovery in the near future. The export of the financial crisis by USA has also exported along with it the inability to resolve a way to manage politically a way out of persistent recession.

  12. leroguetradeur

    The basic situation in the UK, from my visits, seems to be generally accepted as roughly this. They are spending a bomb on the war. They are also spending a bomb on various welfare programs. And finally, they are spending a bomb on the actual employment of huge numbers of civil servants and their unfunded pension liabilities. And this has led to huge structural deficits.

    They also have a one-off deficit caused by having bailed out the banks, subsequent to the bursting of a government sponsored credit bubble, but that they could manage. Its the structural deficit that most people seem to feel is killing them.

    You have to see some examples that people cite in order to get a good feel for this. For instance, hereditary rights to social housing, regardless of whether either the current owner or the one inheriting it now qualifies on the basis of need. This is a commonly cited one. Why are we doing this, people ask. Why are we reducing the stock of social housing in order to give it to people who do not need it, and so they can pass it on to their children?

    Take Winter Fuel. Why, my friends say, are their parents, quite well off and not in the slightest need of it, being given several hundred pounds every winter to help them pay for fuel? Why for that matter are my friends, earning double the average wage, being paid by the state for having children? It is a completely crazy system, seen through the eyes of the people living in it. You have poor retired people being taxed to pay rich people to have children, and then those poor retired people recoup some of their taxes by getting various other complicated allowances…. Which they find out about by going to Citizens Advice, which is a charity staffed mostly by volunteers… and funded by the same government that is setting up the convoluted system in the first place.

    Then, take the number of civil servants. My friends uniformly feel that the number of staff in local government could be halved, and services would actually improve, because they are all falling over each other and making work for each other and the public. Why do you have in these tiny areas a County Council, a District Council, and then a Parish or Town Council? All elected of course. Its simply nuts.

    What needs to be done in the UK, in the opinion of the people I talk to, is get control of the public sector. They see it as this out of control monster, overstaffed, over budgeted, over ambitious in what its trying to do. And they see it spurring the growth of a huge welfare class, acting basically like the machine politics of the old Mayor Daley, creating and maintaining a dependent class in order to keep the votes.

    We will see. They are mostly rather sober, fairly optimistic, and hopeful that the state sector is going to be got under control again. I hear them, but I’m more sKeptical. But we will see.

    1. Paul Tioxon

      Who Owns Britain? By Kevin Cahill

      In fact, as Cahill trenchantly makes clear, the most unchanging feature of rural Britain is the near-monopolisation of land ownership. This is still very much the same as it was nearly 1,000 years ago, held tight in the hands and deeds of a tiny hereditary aristocracy. While only about 7.5 per cent of land in England and Wales is under residential occupation, with a population of 47.8 million living on a mere 3.4 million acres, the other 26.9 million acres are owned by as few as 135,000 people. These property interests have in recent years cleverly recruited both ecological and heritage arguments to support their case for holding on.

      Cahill sees this not only as a grievous historical injustice (the land was almost certainly gained by force or favour), but as a powerful brake on economic and social modernisation. He attributes the success of the Irish Republic, where “Irish acres are now one third more valuable than English acres, and Irish economic growth four times higher than economic growth in England”, to more egalitarian trends in landholding and renewed self-confidence.

      This lengthy book is packed with the facts and figures of landownership in Britain, county by county, title by title and family by family. But it would have been helpful to have heard a little more about property rights in other countries, such as the Allemansrøtt in Sweden or France’s Napoleonic Code, which seem to produce vastly different attitudes towards the countryside than the deference still found here.

      The last attempt to gather all the information about landownership in Britain came with The Return of Owners of Land, compiled in 1872. Not only is there now less information, according to Cahill, but between 30 and 50 per cent of the acreage in England and Wales remains unregistered. Meanwhile, billions of pounds of public subsidy flow annually from urban pockets into those of the landed gentry. The only small victory for democracy recorded here came in the eviction of the majority of the hereditary peers from the House of Lords in 1999.

  13. Ed

    The empty aircraft carriers seem to have come about because the previous government agreed to a contract where it would be more expensive to cancel the carriers than to just go ahead and build them.

    Governments like to point to the mistakes of their predecessors, but the new British government actually has good reason to do so. As most of the other posters have pointed out, the Blair and Brown governments really put the UK in a horrible fiscal mess and there are no good options in getting out of it. The Opposition is going to have a problem in trying to criticize what are essentially efforts to deal with problems they created, though they made a good start in getting rid of their leaders most closely associated with Blair.

    1. Cian

      No they didn’t. The bail out, recession and stimulus put the UK in a not particularly great, but hardly terrifying, position.

    2. Chris Rogers

      Ed Sir,
      I must take issue with your comment.
      As a Brit living in Hong Kong with in-depth knowledge of current affairs in both the US & UK, I can assure your that your claim that Chancellor Brown left the UK in a horrid fiscal situation does not quite agree with the facts, regardless of so called evidence from your associates.

      May I assure you, the UK deficit today is not horrific by any historical standard, particularly when compared to the post 1918 figures and post 1945 figures, they were horrific.

      Government revenues currently run at about £500 billion, and current expenditure is approx. £650 billion per annum, a short fall, deficit of £150 billion before these cuts.
      The overall national debt is fast approaching £1 trillion.

      Now, lets look at actual public expenditure figures, from the figures, you will note that when compared with the Conservatives, Labours actually stand up well, and that public expenditure in 2009, was equal to that in 1982 under no less a person than Margaret Thatcher – much of this being spent on more than 10% unemployed, defence costs were also higher – they are now 2.5%,
      Here are the figures:
      1981 45.29 Tory
      1982 45.56 Tory
      1983 43.2 Tory
      1984 42.59 Tory
      1985 41.71 Tory
      1986 40.76 Tory
      1987 38.4 Tory
      1988 36.28 Tory
      1989 34.25 Tory
      1990 35.23 Tory
      1991 36.45 Tory
      1992 37.97 Tory
      1993 39.84 Tory
      1994 39.9 Tory
      1995 40.76 Tory
      1996 39.58 Tory
      1997 38.35 Labour
      1998 36.96 Labour
      1999 35.33 Labour
      2000 34.75 Labour
      2001 35.41 Labour
      2002 35.82 Labour
      2003 36.43 Labour
      2004 37.53 Labour
      2005 38.94 Labour
      2006 37.91 Labour
      2007 38.89 Labour
      2008 39.75 Labour
      2009 45.23 Labour
      Just for your benefit, when Labour came to power in 1997 with a huge Parliamentary majority they promised to abide by the previous Conservative Governments spending plans for two years – May 1997-May 1999, only after 2000 did Labour actually start raising public expenditure to invest in urgently required infrastructure projects – Schools, Roads, Hospitals and the like.

      Looking closely at the figures, you will notice they jump massively between 2007/9 – obviously, the banking crisis slaughtered Brown’s spending plans and ability to service the national debt – interest rates began rising in the UK in 2007 and we did not enter a emergency near zero rate interest policy until final quarter 2008 if memory serves correct.
      The figures are now getting interesting, in 2008 the government had to spend a total of 28% of GDP bailing out the banks, 5% higher than the USA I believe.
      Also, GDP itself declined by a massive 6% straight after the crisis and unemployment rose to around 7% from less than 5% – hence government income was drastically affected and the large shortfall between actual revenues and actual spending.
      In fairness to Brown, calculations for government expenditure and investment was based on a projected growth rate of 2.5% and continued period of interest rates below 5% – the long term average.
      Our overall debt and expenditure when compared with our EU peers is actually quite good.
      Basically, the banking crisis blew Browns calculations out of the water.
      However, reference should also be made to the fact that public expenditure on infrastructure projects was severely curtailed as of 1976 follow the IMF intervention to stabalise Sterling, the loan being paid back before Thatcher ever getting near office.
      Under Thatcher with unemployment above 10% for a long period, most North Sea oil revenue was paid out in welfare and not invested in either infrastructure or a sovereign wealth fund – the Norwegians funnily enough did not squander their oil revenues on social welfare and they now have a large sovereign fund.
      In a nutshell, for 25 years, the UK suffered a decline in its national infrastructure, Brown attempted to reverse this and money was spent accordingly to those areas most in need, NHS funding rising to about 10% from 8%, much lower than Europe and much lower than the US figure of well over 15% if memory serves right.
      Basically, the Tories have spread one hell of a myth on the deficit and spending, like the Tea Party, they espouse a lot of fear, indeed by even talking the economy down, and have used the banking crisis as a cover for the ideological reason of reducing the size of the state, espousing the mantra that the private sector knows best – a bit of an oxymoron in the UK, the private sector changes at the end of the day proving higher than if left in the public domain.
      Basically, the Tories wish to privatise what is left of the UK to privatise, its major utility assets already being sold – I forgot to mention Thatcher was also in receipt of large asset privitisation sales – so Labours period in office stands up well compared to Thatcher – obviously, much of the UK’s post 2000 growth was credit fuelled and it has huge levels of private debt – debt deliquency rates though are much lower than the USA.
      In sum, by with drawing £80 billion out of the economy, this on top of £6 billion announced in June, and this on top of nearly £70 billion announced by Chancellor Darling in his last budget, the UK is taking a massive hit – the banks by the way will be tax no more than £2.5 billion, having contributed to the crisis and cost the country dearly, probably £1.5 trillion at the end of the day, that’s bailout money, direct 6% GDP hit in 1Q 2009 and the continuing recession.
      This is all by memory, so don’t take it as gospel, but no where as bad as the neo-liberal right will have us believe.

  14. leroguetradeur

    “Even after these spending cuts, total public spending (Total Managed Expenditure) in 2014-15 will be higher in real terms than in 2008-09. At 41 per cent of GDP, this will be around the same level of public spending as in 2006-07. Spending on public services in 2014-15 will be higher than 2006-07 levels in real terms.” [UK Treasury]

    You see the problem. On my last visit, the UK media was full of reports about cuts. The BBC was broadcasting how all these cuts were going to affect all these people. Some were in favour of the cuts, some against, but they were all persuaded these were the deepest cuts in public expenditure for 30 years, since WWII, maybe in living memory.

    What cuts?

  15. Nathanael

    Won’t cuts to “local government” spending just mean increases in council tax (property taxes)?

    Anyway, the military spending cuts are a GOOD thing. If we could get some of that in the US I’d be happy. If there’s one way to just plain set money on fire, it’s spending money on a giant military designed to fight no perceivable threat.

    I have to agree with the commenter above. In the UK they’re all angry over mild cuts to some agencies. In the US people are instead angry that that the government is spending anything on anything *except* blowing stuff up. :-P The US is insane.

Comments are closed.