deficit « Labour Uncut

Posts Tagged ‘deficit’

The unravelling of the deficit strategy

22/06/2011, 10:12:16 AM

Labour had a strategy for cutting the deficit – it was called GROWTH. The government’s strategy was to cut spending. The consequence of those cuts is undermining growth, and that now risks blowing apart the deficit reduction.

In last week’s figures, retail sales for the month of May slumped to their lowest level in 16 months. There is a risk that growth is about to stall.

The OBR provided a pre-June Budget prediction of the 2011 budget deficit under Alistair Darling’s budget. So, with our libraries still open, with EMA, with future jobs fund, no VAT rise etc, the borrowing in 2011 would have been 8.3%.

OBR June 2010 predictions based on Labour’s deficit reduction plan

	2010	2011	2012	2013	2014
Growth	1.3	2.6	2.8	2.8	2.6
Borrowing	10.5	8.3	6.6	5	3.9
Unemployment	8.1%	7.9%	7.4%	6.8%	6.3%

Since the June emergency budget, the OBR has consistently downgraded 2011 growth, and increased its prediction of government borrowing. The graph shows the changes.

The current predictions for growth of 1.4% will result in borrowing of 8.1% of GDP, just below that predicted for Alistair Darling’s budget. But, if growth falls to 1.1%, then the government’s cuts will not only all have been in vain, the cuts could plunge the economy into a Japanese-style high deficit deflation.

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The final figures are in for the government’s borrowing: a total of £141.1bn.

21/04/2011, 06:50:41 PM

We made a back of an envelope prediction last month about what we expected the outturn to be and plumped for £135bn on the basis of the arguments we have persistently been making about the dividend from the previous government’s stabilisation of the economy and the growth it enabled.

The OBR also had its chance in the March 2011 budget – with all those models and only eight days left of spending before the end of the financial year – to make their prediction. They went for £144bn. Well, we’ll have to split the difference. The outturn for 2011 was (again) lower, thanks (again) to Labour’s growth dividend.

So the previous Labour government’s strategy of growth-supportive deficit reduction reduced the deficit from a prediction in March 2010 £163bn to today’s outturn of £141bn; a reduction of £22bn.

The new government’s strategy of cutting growth to crowd in private sector investment has meant that the OBR has added a further £35bn that this government will borrow over the lifetime of this parliament. And given that the OBR record is to be wrong, about 10% or so out, this could be a lot higher.

It’s distasteful that the benefit cuts of £7bn were justified by the OBR’s prediction of a £149bn deficit. That June prediction was wrong by £7.9bn – enough to pay for those benefit cuts. We wonder if they will sleep well tonight in the north Oxford beds.

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Budget 2011: David Cameron is Ricky Hatton’s Mum

23/03/2011, 07:00:02 AM

by Jonathan Todd

The current Spectator cover story claims that Conservatives are as struck by panic as they were in the autumn of 2007 when Gordon Brown seemed set to crush them by calling an election. George Osborne saved their bacon then and they look to him to revive them now. Everyone else is looking at Libya. Hence, the impact of the budget will be dimmed. But Osborne will try to pull a big enough rabbit out of his hat to wrest attention away from the middle east.

Osborne doesn’t begrudge Libya coverage, obviously; particularly not if it leads to his boss being seen as a competent and brave war leader. If – and clearly this is a massive if – a stable post-Gaddafi Libya emerges, then the earlier shambles will be largely forgotten and David Cameron will gain kudos, which will make him harder to dislodge from Downing Street. The resignation of Lord Carrington did little to dent the boost that the Falklands war gave Margaret Thatcher at the 1983 general election.

Osborne’s rabbit isn’t intended to divert eyes from Libya or the spotlight from Cameron. It will seek to disorientate Labour and have our leaders confuse tactics with strategy. Fiscal constraints limit the cards in play, but the cards available are all held by Osborne. He knows that he can use them to establish dividing lines that will set the terms of debate. He was as keen a student of Gordon Brown as either Ed Balls or Ed Miliband. (more…)

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Today’s growth figures vindicate Labour’s economic stimulus

22/03/2011, 07:00:53 PM

Borrowing figures published today: £123.5bn borrowed April to February 2010-11 versus £136.6bn April to February 2009-10.

As we head into tomorrow’s budget, there is clear evidence of the effect of growth on reducing borrowing. Last year, predictions were ratcheted higher on growth, and that on borrowing ratcheted lower as we went through the year. The supply side of the economy in particular surprised, with the result that the highest quarterly growth this century in Q2 2010 and the highest half year growth of the past 10 years allowed the supply side to respond and generate tax receipts that will grow over the financial year by 7.7%.

This has meant that the primary budget deficit has been slashed by a massive 33%. From last year’s 9.1% of GDP to 6.2% GDP, the growth in the economy has closed the gap in the deficit, supported by the government’s focus on growth-supportive spending. Getting the primary deficit down is the first step to paying off the deficit. The reason the budget deficit itself has not fallen by the same amount is that the interest on the government’s inflation-linked debt has risen considerably, because the Bank of England has failed to keep inflation under control.

As we head into a period of retrenchment and possibly another recession as a result of the cuts, it is instructive to look at the effects of the stimulus from research published by the OBR’s counterpart in the US, the Congressional budget office. It has published estimates of how the stimulus package has created growth in the USA:

Full time equivalent is a better measure of maintenance of living standards – estimating both the maintenance of jobs together with the maintenance of full time employment that would have become part time. Clearly, the stimulus kept things going both over in the US and here in the UK. The rise in tax receipts is probably the best evidence we have for how much UK productive capacity the stimulus kept alive.

Alas, as we look at where the current government is cutting taxes in their neo-Ricardian view on growth over the rest of the parliament, it’s useful to see what the CBO estimates are of the growth multipliers on different policy effects:

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The coalition’s new clothes

11/03/2011, 04:40:38 PM

by David Seymour

One of the first rules of politics is that the big lie is the one you get away with. If you tell a little fib, bend the truth a bit, you will be savaged, mocked and denigrated, while the utterer of the breathtakingly dishonest outrage will escape unchallenged. Rather like the foolish citizens who were embarrassed to point out in the emperor’s new clothes that his majesty was actually walking around stark naked because they thought there must be something wrong with them not to be able to see his finery, no one wants to be the first to stand up and boldly proclaim that a monstrous untruth is just that.

The government’s big lie is that the cause of the historically large deficit is entirely due to Labour’s profligate spending on public services. That simply is not true, but almost no one is contradicting the Tories when they say it. And they say it all the time.

Not only ministers but backbenchers never miss an opportunity to utter the mantra that this is all Labour’s fault. How this big lie works is simple, as most big lies are. All that has to be done is to proclaim it with absolute certainty and ridicule anyone who dares to contradict. It is crucial for the big liar that serious analysis is avoided. So let’s analyse how we got this size of deficit. (more…)

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There’s no excuse for cuts. Public spending is the solution.

26/10/2010, 02:00:06 PM

by Katy Clark

Public spending is the way to overcome the economic mess that bankers’ greed created. In an extensive report, Dave Hall of Greenwich university business school nails the lie that cuts are inevitable. The fair way out of this crisis is to restore sustained economic growth. The empirical evidence contained within Dave Hall’s report, Why we Need Public Spending, provides the weapons that our movement needs to win the battle of ideas. There are no economic justifications for these cuts.

During the last Parliament, I voted against our government when it introduced legislation to cut the deficit in half by 2010. I was not willing to vote for such massive cuts and thought that having a fixed timetable was far too rigid, took no account of what future economic challenges we might face and was largely silent on growth. I was blissfully unaware that a debate supporting my concerns was taking place around the cabinet table. Ed Balls was leading the charge against setting a timetable while also arguing that we needed to prioritise policies that deliver growth.

He was right to do so. If history has taught anything, it is that you don’t cut public expenditure during a period of sluggish growth. We need look no further than the Republic of Ireland to see this. During the last two years, a series of emergency budgets have been introduced to supposedly combat the effects of the economic crisis. They each brought additional cuts that went further and further into the bone. Yet, their economy is once again on the brink of recession, having contracted during the last quarter. The real spectre haunting us is the possibility of a decade-long depression and a return to the disastrous economic failures of the 1930s. (more…)

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The CSR was a political disaster for Labour, says Dan Hodges

22/10/2010, 09:00:17 AM

We fell into a trap. The CSR saw us out-thought, out-spun and out-positioned. First casualty of Osborne’s cuts: the Labour party.

There will be others. Those set to lose their jobs, their benefits, their housing. We will weep for them. Some of us will march for them. Though, wisely, not our leader. We will rage at the injustice.

It will achieve nothing. Neil was right. He has got his party back. A party of protest, not influence.

Wednesday was a slow motion car crash. For months people have been warning that our failure to articulate a coherent position on deficit reduction would cost us dear. Dismissed as siren voices, they were ignored. So we drove, unblinking, into the wall. (more…)

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We must be honest so that we can be distinctive on the deficit, says Jonathan Todd

19/10/2010, 02:30:34 PM

SOCIAL and economic debates on tax and spend run through the messages George Osborne will project tomorrow: his actions are fair (the social debate), best for the economy (the economic debate), and necessary, which intersects both debates. Clarity, and Labour’s cause, is aided by disentangling these strands.

Deficit reduction strategies need not only beginnings (start this year, next or when?), endings (completed in this parliament or next?), and content (tax and cuts mix?), but, crucially, they must also say what this content means for tax and spend in each year of this parliament. Political debate has so far failed carefully to pick over budgetary consequences from year to year.

There are opportunities for Labour in this examination. The government plans that cuts will account for three-quarters of the deficit reduction by 2014. However, next year, half the fiscal consolidation comes from tax rises. That spending cuts are intended to take greater strain over the longer-run has obscured the fact that 2011 sees ominous tax rises: increases in VAT and national-insurance. (more…)

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The Tories aren’t winners, so don’t let them write our history, says Michael Dugher

18/10/2010, 09:00:45 AM

Nixon once said that the moment the public begin to complain about the message is the moment that some of the public have heard the message. At 1230 on Wednesday, George Osborne will get to his feet at the dispatch box to announce the outcomes of the comprehensive spending review. Even if the precise measures contained in the review were only finalised late at night over recent days, his script was agreed months ago. With tedious repetition, Osborne will once again blame all of the country’s woes on the size of the deficit. He will say that Labour’s legacy, in terms of the public finances, was the product of reckless irresponsibility, “profligacy” and waste – and that the Tory-Lib Dem government is determined to “clean up the mess” Labour left behind. This, of course, is a complete untruth. But if Labour does not confront this argument, there is a danger that the message will not only be heard, but believed. (more…)

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We must plan to do more for less, says Jonathan Todd

29/09/2010, 02:30:48 PM

“Facing a new world with new challenges, we need to think again about how we can best serve the people we seek to represent”.

So argues an email which Ed Miliband sent to Labour party members last night. As Ed acknowledged in his conference speech yesterday, one of this new world’s realities, even if we were to now have a Labour government, is the necessity of cuts; and one of the challenges, therefore, is to deliver more for less.

Deficit reduction, however, has simply brought into sharper focus an inescapable trend. An ageing society makes ever less viable established means of financing and delivering pensions, health and social care. Innovation will remain a precondition of improved public services beyond the correction of the structural deficit, which all major parties are committed to achieving over this parliament. Successful adaptation to our cold fiscal climate isn’t simply about muddling through coming years but of making sustainable for the long-term, given profound demographic shifts, vital public services. (more…)

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