Painful spending choices will happen, even if a future Labour chancellor can avoid an outright cut in expenditure

December 7, 2012 4:50 pm

P.G Wodehouse said ‘it is a good rule in life never to apologise’. As he delivered a grim Autumn Statement to the House of Commons on Wednesday George Osborne demonstrated his commitment to this maxim. Once again the Office for Budget Responsibility revised down UK growth forecasts and the Chancellor confirmed that austerity would continue until 2018. But he rejected any claim that his economic plan was to blame. Better to massage the numbers and pin the worst of it on Europe.

George Osborne was never going to waver at the dispatch box. In spite of the unprecedented length of fiscal consolidation and the longest recession since the second world war, there was never any doubt we would hear that the government was making ‘progress’.

But the Autumn Statement does shift the ground, especially for those of us thinking about who might govern after the next election, because it unveiled austerity for three years of the next parliament. This alters the context in which a 2015 administration will make spending decisions as well as the election which delivers that government.

With some irony a 2015 Labour government would be able to repeat the Coalition’s line on a toxic economic inheritance. But it should not distract from the difficult choices about public spending it would then confront.

Given Wednesday’s figures the spending envelope will be extraordinarily tight so Labour politicians must start thinking now about how to pick priorities if we are elected to office. We’ve crunched the numbers and it looks like the chancellor’s plans would mean spending falling by £9 billion in real-terms between 2015 and 2017. The figures look especially grim for public services which can expect a cumulative cut of more than 7% over those two years. Although, these long-term projections are bound to be revised, the recent past suggests the numbers could end worse not better if the economy ends up growing by less than the OBR predicts once again.

The Fabian Society’s Commission on Future Spending Choices, which meets for its second hearing next week, will give a full airing to these questions but frontline Labour politicians should be ready to join the debate too. The commission will be looking at the alternatives to the coalition’s plans and asking whether modest spending increases will be affordable, for sticking to Osborne’s cuts will hurt those who need our help most and leave us with precious little opportunity to differentiate ourselves in 2015.

But painful spending choices will happen, even if a future Labour chancellor can avoid an outright cut in expenditure. Our inquiry’s ‘exam question’ is how a centre left government should restrain spending while maximising prosperity, sustainability and social justice. We’re starting by considering whether government can reduce demand for spending through early intervention or economic reforms in the labour or housing markets. We will also look at where spending might ‘pay for itself’ either by generating future revenue or boosting growth and tax receipts.

However, although ideas in these areas will hopefully reduce some of the pressures, the commission will inevitably have to look as well as the ‘least bad’ ways to hold down spending. In this we will cover both public services, which are bearing the brunt of the cuts in this parliament, and social security, where there are always upward pressures, due mainly to spending on the state pension (rightly) increasing.

So while the media narrative on the autumn statement focuses on Osborne’s duplicity and Ed Balls’ stammer, for Labour the increasingly negative outlook for 2015 portends long-term challenges for its own future programme for government. How the party makes those choices in order to offer credibility and hope will be the central challenge for Labour’s political strategists in the next two and half years.

Andrew Harrop is the General Secretary of the Fabian Society

  • aracataca

    The key to getting out of this mess is to increase demand and generate higher rates of economic growth.We also need to spend more not less during crises of this kind. It is during times of growth that we need to cut spending. To simply focus on restricting government spending in all its variations is completely misguided.

  • aracataca

    The key to getting out of this mess is to increase demand and generate higher rates of economic growth.We also need to spend more not less during crises of this kind. It is during times of growth that we need to cut spending. To simply focus on restricting government spending in all its variations is completely misguided.

  • aracataca

    The key to getting out of this mess is to increase demand and generate higher rates of economic growth.We also need to spend more not less during crises of this kind. It is during times of growth that we need to cut spending. To simply focus on restricting government spending in all its variations is completely misguided.

  • aracataca

    The key to getting out of this mess is to increase demand and generate higher rates of economic growth.We also need to spend more not less during crises of this kind. It is during times of growth that we need to cut spending. To simply focus on restricting government spending in all its variations is completely misguided.

  • aracataca

    The key to getting out of this mess is to increase demand and generate higher rates of economic growth.We also need to spend more not less during crises of this kind. It is during times of growth that we need to cut spending. To simply focus on restricting government spending in all its variations is completely misguided.

    • http://twitter.com/renieanjeh Renie Anjeh

      You cannot sell orthodox Keynesianism like that, and it is also a bit of a caricature. We need to cut the deficit but at a slower pace, as set out by Alistair Darling.

  • Serbitar

    Jobseeker’s Allowance claimants are currently mandated to spend 20 hours a week actively seeking work set rise to a preposterous 35 hours a week next year if Iain Duncan Smith and his head-banging cronies get their way. I say “preposterous” because the demand is made sans providing the majority of “jobseekers” with facilities or help to carry out this direction. Many of the unemployed have no telephone or internet access and are too poor to travel far from home or even to afford to buy the stationary and stamps they need to apply for job vacancies with a view to securing employment. People finding themselves in this invidious situation will already be struggling mightily with their lot.

    To make matters even worse George Osborne has now compounded the plight of these unlucky men and women by announcing that the already incontestably small Jobseeker’s Allowance would be receiving below inflation 1% increases every year for the next three years(!), which will at best hamstring job seeking activities as far as the affected go and at worst bring to an end any hope such people have to pursue employment in the way the government impossibly expects of them. Osborne’s cuts will pauperise huge numbers of the unemployed and render them literally too poor to be able to effectively look for work; by his parsimony the Chancellor is closing off any hope of improvement as far as entering the workforce goes for hundreds of thousands of people.

    Like Marie Antoinette before him Osborne seems now to advise the poor to eat cake, metaphorically speaking, after rendering them too penniless to be able to purchase bread.

    This is beyond nasty and totally self-defeating.

  • Serbitar

    Jobseeker’s Allowance claimants are currently mandated to spend 20 hours a week actively seeking work set rise to a preposterous 35 hours a week next year if Iain Duncan Smith and his head-banging cronies get their way. I say “preposterous” because the demand is made sans providing the majority of “jobseekers” with facilities or help to carry out this direction. Many of the unemployed have no telephone or internet access and are too poor to travel far from home or even to afford to buy the stationary and stamps they need to apply for job vacancies with a view to securing employment. People finding themselves in this invidious situation will already be struggling mightily with their lot.

    To make matters even worse George Osborne has now compounded the plight of these unlucky men and women by announcing that the already incontestably small Jobseeker’s Allowance would be receiving below inflation 1% increases every year for the next three years(!), which will at best hamstring job seeking activities as far as the affected go and at worst bring to an end any hope such people have to pursue employment in the way the government impossibly expects of them. Osborne’s cuts will pauperise huge numbers of the unemployed and render them literally too poor to be able to effectively look for work; by his parsimony the Chancellor is closing off any hope of improvement as far as entering the workforce goes for hundreds of thousands of people.

    Like Marie Antoinette before him Osborne seems now to advise the poor to eat cake, metaphorically speaking, after rendering them too penniless to be able to purchase bread.

    This is beyond nasty and totally self-defeating.

    • aracataca

      Correct. However, the real way out of this situation is to create employment through government spending. When everyone else stops spending the government has to. New crisis? – time to reread old books – most notably perhaps J M Keynes’ ‘The General Theory of Employment, Interest and Money’

      • Serbitar

        I agree. As things stand we now seem to be in a downward spiral which will be very difficult to turnaround whoever is in power; Osborne’s polices have not worked, are not working, and never will work in the delusional way he seems to believe. The OBR predictions for growth are ridiculous and absolutely will NOT happen. Like Japan, another island nation as it happens, the British economy looks set to stagnate indefinitely or fail further, possibly catastrophically.

        But the thing I hate the most is the Tory tactic of pillorying the poorest of the poor in 21st century Britain as a diversionary tactic. These ideas are as old as time and have been used by rogues and bullies everywhere, i.e., if you can’t improve the lives of the people you most want to please convulsing the lives of selected demonised minorities is a cheap way to look reforming and busy. It makes me want to put my head in my hands and weep. If conscience and kindness and compassion and humanity begin to be disdained as signs of weakness or support for a “something for nothing” culture the lie has to be challenged.

        Come on Labour!

        Don’t be afraid to be the good guys!

      • Serbitar

        I agree. As things stand we now seem to be in a downward spiral which will be very difficult to turnaround whoever is in power; Osborne’s polices have not worked, are not working, and never will work in the delusional way he seems to believe. The OBR predictions for growth are ridiculous and absolutely will NOT happen. Like Japan, another island nation as it happens, the British economy looks set to stagnate indefinitely or fail further, possibly catastrophically.

        But the thing I hate the most is the Tory tactic of pillorying the poorest of the poor in 21st century Britain as a diversionary tactic. These ideas are as old as time and have been used by rogues and bullies everywhere, i.e., if you can’t improve the lives of the people you most want to please convulsing the lives of selected demonised minorities is a cheap way to look reforming and busy. It makes me want to put my head in my hands and weep. If conscience and kindness and compassion and humanity begin to be disdained as signs of weakness or support for a “something for nothing” culture the lie has to be challenged.

        Come on Labour!

        Don’t be afraid to be the good guys!

        • aracataca

          This is correct in every regard. Osborne’s approach is clearly not working and I would question whether it was intended to ‘work’ in the strict sense of that word. Borrowing is currently rising and indeed has been rising throughout the past year. The only reason why borrowing appeared to be declining in the Autumn Statement was because Osborne included the sale of 4G licenses which hasn’t happened and may not happen -at least at the price projected in the Statement. However, Osborne’s policies will drive down living standards and subsequently labour costs. ( See JoeDM below who admits to being a Tory- ‘Keynesian Demand management will not address the fundamental long term problems of low productivity, high costs, excessive red tape and so on’). The current austerity policy may in part driven by dogma and in part driven by a desire to reduce labour costs enabling Western economies to compete with China et al and improve profit rates).

      • jaime taurosangastre candelas

        Keynes’ theory and book were developed when Governments typically spent about 30% of GDP. (Western) Governments now spend 45-55% of GDP****, so it is appropriate to wonder whether Keynes’ theory still works: there is only “so much” private investment money to fund the additional Government debt that would be needed.

        It would be unfortunate for the Keynes fanatics if the Government held a debt auction to fund some big expansion of Government spending, and no one wanted to buy the debt. After that, the only choice is to cut back on spending.

        **** See http://www.heritage.org/index/explore?view=by-variables

        • JoeDM

          Exactly. Short term Keynesian Demand management will not address the fundamental long term problems of low productivity, high costs, excessive red tape and so on.

          There has been a fundamental shift in the structure of the global economy that was mostly hidden from us by Brown’s financial boom. The terms of trade have turned against the western economies. Life in the old world is going to be more difficult going forward.

          By the way, the US will be protected by its self sufficiency in energy as a result of its exploitation of shale gas and oil.

          • aracataca

            Keynesianism was adopted by this country after the war between 1946 and 1973 (averaging in excess of 3%) it produced unequalled rates of growth before or since. Is 26 years short term?

          • jaime taurosangastre candelas

            26 years? Certainly, that is short term.

          • jaime taurosangastre candelas

            26 years? Certainly, that is short term.

          • JoeDM

            You seem to have little understanding of Keynesian economics. It is essentially a theory of flattening out a business cycle through managing the level of aggragate demand. It is not an explanation of long term economic growth.

            You only have to look at the decision making and macro economic data from the 50′s & 60′s to see that Governments tried and failed to manage demand. They consistently overshot or undershot targets and the result was higher inflation and unemployment than would have been likely if they had done nothing. Add to that the need to defend a ‘pegged’ exchange rate and you have the recipe for the ‘stop-go’ policy so typical of the period.

            The long-term growth of western economies in the post WW2 period is best explained by post-war reconstruction improving the capital stock, technical innovation, and the huge growth of trade.

          • JoeDM

            You seem to have little understanding of Keynesian economics. It is essentially a theory of flattening out a business cycle through managing the level of aggragate demand. It is not an explanation of long term economic growth.

            You only have to look at the decision making and macro economic data from the 50′s & 60′s to see that Governments tried and failed to manage demand. They consistently overshot or undershot targets and the result was higher inflation and unemployment than would have been likely if they had done nothing. Add to that the need to defend a ‘pegged’ exchange rate and you have the recipe for the ‘stop-go’ policy so typical of the period.

            The long-term growth of western economies in the post WW2 period is best explained by post-war reconstruction improving the capital stock, technical innovation, and the huge growth of trade.

          • aracataca

            To purloin a phrase from the great man himself:’In the long run we are all dead’. True to form you’re completely wrong. Keynes devised his theories to try and mark a way out of the Great Depression and in this respect he was extraordinarily successful. For instance, after Roosevelt introduced the New Deal in 1932 (increased government spending) in the US the annual growth rate increased to 4% per annum between 1932 and 1937. There is no great mystery to Keynes’ theory but it does involve increasing government spending and expanding aggregate demand during prolonged periods of debt deleveraging. This is what we are going through at the moment and in resolving these kind of crises we have conclusive proof that Keynesian theories actually work. Conversely the record of the neo liberal slash and burn approach of Osborne & Co is less impressive (See Japan 1991-present).

            On a different tack I note that you remarked in last Sunday’s Independent:
            ‘Why don’t Cameron and Osborne just join the Limp Demoprats? They are no longer Tories’.

            Isn’t this kind of remark nearer to your usual level of debate?

          • aracataca

            To purloin a phrase from the great man himself:’In the long run we are all dead’. True to form you’re completely wrong. Keynes devised his theories to try and mark a way out of the Great Depression and in this respect he was extraordinarily successful. For instance, after Roosevelt introduced the New Deal in 1932 (increased government spending) in the US the annual growth rate increased to 4% per annum between 1932 and 1937. There is no great mystery to Keynes’ theory but it does involve increasing government spending and expanding aggregate demand during prolonged periods of debt deleveraging. This is what we are going through at the moment and in resolving these kind of crises we have conclusive proof that Keynesian theories actually work. Conversely the record of the neo liberal slash and burn approach of Osborne & Co is less impressive (See Japan 1991-present).

            On a different tack I note that you remarked in last Sunday’s Independent:
            ‘Why don’t Cameron and Osborne just join the Limp Demoprats? They are no longer Tories’.

            Isn’t this kind of remark nearer to your usual level of debate?

          • aracataca

            Keynesianism was adopted by this country after the war between 1946 and 1973 (averaging in excess of 3%) it produced unequalled rates of growth before or since. Is 26 years short term?

        • aracataca

          However, we know that Keynes’ theory did work. (See Western growth rates 1947-1973). 10 year UK gilt yields are currently at 1.75% (hardly ruinous) and when I last looked they were continuing to fall. Furthermore, you will of course know that over the past year the level of UK government borrowing is rising not falling largely because of negative growth rates and as a consequence of falling tax revenues. In addition your remark about radically different levels of government spending as a % of GDP between now and years when Keynesian policies were enthusiastically applied to Western economies seems to be erroneous. In 1964-65 ( the zenith of Keynesianism in the UK IMHO) for instance government spending as a % of GDP was at 36.2% while in 2010-2011 it was at 35.8%. In terms of trend we are perhaps looking at a difference between 30%-35% as against 35%-40% more latterly- with government spending as a % of GDP reaching its highest level during the ‘Thatcher revolution’ of the late 1980s.
          http://www.guardian.co.uk/news/datablog/2010/apr/25/tax-receipts-1963#data.

          It might be an idea to check the empirical data before uttering articles of faith?

          • jaime taurosangastre candelas

            Keynes theories were developed in the 1930s-46, so your exemplar of 1964-65 is “halfway down the track”, not put at the point of origin.

            The data I have (and linked to above) is that UK spending as a % of GDP is 51.2% in 2011/12, not your stated 35.8%. Are you looking at different data to me?

            (EDIT: In your Guardian link, you are looking at tax RECEIPTS, not SPENDING. Do you honestly not know the difference, and can understand that is how deficits are caused?)

            Of course, once we have sorted out and agreed a dataset, the real long-term question is how much of GDP should Government spend before it becomes ridiculous. My view, I suspect, will be lower than yours, probably by about 40-50%.

            (SECOND EDIT: it might be an idea to get to grips with basic concepts before uttering articles of misplaced faith?)

          • aracataca

            Apologies JT – completely correct in respect of your first edit- (haste is my excuse and I’m sticking to it) – still:

            Government Spending:
            1967-68- 44.6% of GDP

            2010-2011- 46.7 % of GDP

            Not a colossal difference

            http://www.guardian.co.uk/news/datablog/2010/apr/25/uk-public-spending-1963

            UK government spending as a % of GDP 1944-46 (within your Keynesian theory window) rose from 65% to 70% of GDP. http://www.ukpublicspending.co.uk/spending_chart_1940_1950UKp_12c1li011mcn_F0t_UK_Public_Spending_As_Percent_Of_GDP

            I would argue that government spending would increase the growth rate (again see Western growth rates 1947-1973) and subsequently tax revenues) -public spending as a proportion of GDP would therefore not necessarily rise if Keynesianism was readopted.

          • jaime taurosangastre candelas

            Well, we are “inching” towards an agreed dataset. One thing – your 1944-46 example was during a world war – this is hardly a good benchmark? The link you give also shows that in the 1930s, we were indeed at the 30-35% level. And my figure of 51% includes PFI spending (normally off books, but it is real and happening), and the financial interventions.

            So, my contention is that Keynes’ theories have a practical application if the “bar” of Government spending as a % of GDP is set in the 30-40% range, but that if you start from 50%, then maybe not so much. Given a wider context (all other western Governments also spending that sort of %), then the “pool” of available money to finance Government debt is probably unable to service every Western Government debt auction, to increase the overall spending from 50% to maybe 60%.

            At that point you enter into a “beauty contest” between Governments, where investors judge Governments on their short term policies. Interest rates are an expression of how “beautiful” investors think is the set of policies. Investors cannot be forced to invest, you have to persuade them. And they do not like risky policies.

            So, while I do not state categorically that you are wrong in your shouts for Keynes’ policies (I do not have access to the sort of “supercomputer” the Treasury need to model these things), I will state that your assumption of Keynes’ theories still applying in an era of 50% Government spending needs to be tested, and that my instinct is that with every other western Government also spending this level of GDP, the appetite to fund even more spending is unlikely to be there.

            So, how can you fund your desires without increasing spending still further?

            Of course, there are two further options if you do not find the interest rates charged to be acceptable: “print money”, which will not last for very long, or “live within your means”, which in turn indicates that the sort of whining we have seen over benefit rises being capped at 1% will be as nothing in comparison with people asking all sorts of uncomfortable questions such as whether a particular benefit – for example housing benefit – should exist and be paid at all.

            There is also another option – tax the rich. But you have to be careful not to run out of rich people.

          • aracataca

            OK JT you have got me.I would of course increase tax rates.

          • aracataca

            OK JT you have got me.I would of course increase tax rates.

          • jaime taurosangastre candelas

            My last edit (last paragraph) “crossed” with your reply, but unusually pre-empted your response!

          • jaime taurosangastre candelas

            My last edit (last paragraph) “crossed” with your reply, but unusually pre-empted your response!

          • JoeDM

            I thought you were arguing for an expansion of demand. An increases in taxation takes demand out of the hands of consumers..

          • jaime taurosangastre candelas

            It also takes money out of the country, if the increase is severe. This is what the French are discovering.

            New rates of (higher) tax, announced in advance, are unable to cope with electronic banking where money can be moved in only a few clicks of a mouse. It costs me only about £30 a year to have bank accounts in Chile, Canada and the UK, and they are all set up to move money between them electronically. So long as I am on the correct side of the currency exchange rates, it is not hard even to make them effectively “free” (indeed, with interest rates so low, but currency exchange rates oscillating by up to 10% over a 12 month period, it is the only way I can make banked money work effectively at over 7-8% interest per annum). The hardest thing is to recall the various passwords.

          • jaime taurosangastre candelas

            It also takes money out of the country, if the increase is severe. This is what the French are discovering.

            New rates of (higher) tax, announced in advance, are unable to cope with electronic banking where money can be moved in only a few clicks of a mouse. It costs me only about £30 a year to have bank accounts in Chile, Canada and the UK, and they are all set up to move money between them electronically. So long as I am on the correct side of the currency exchange rates, it is not hard even to make them effectively “free” (indeed, with interest rates so low, but currency exchange rates oscillating by up to 10% over a 12 month period, it is the only way I can make banked money work effectively at over 7-8% interest per annum). The hardest thing is to recall the various passwords.

          • JoeDM

            I thought you were arguing for an expansion of demand. An increases in taxation takes demand out of the hands of consumers..

          • jaime taurosangastre candelas

            Well, we are “inching” towards an agreed dataset. One thing – your 1944-46 example was during a world war – this is hardly a good benchmark? The link you give also shows that in the 1930s, we were indeed at the 30-35% level. And my figure of 51% includes PFI spending (normally off books, but it is real and happening), and the financial interventions.

            So, my contention is that Keynes’ theories have a practical application if the “bar” of Government spending as a % of GDP is set in the 30-40% range, but that if you start from 50%, then maybe not so much. Given a wider context (all other western Governments also spending that sort of %), then the “pool” of available money to finance Government debt is probably unable to service every Western Government debt auction, to increase the overall spending from 50% to maybe 60%.

            At that point you enter into a “beauty contest” between Governments, where investors judge Governments on their short term policies. Interest rates are an expression of how “beautiful” investors think is the set of policies. Investors cannot be forced to invest, you have to persuade them. And they do not like risky policies.

            So, while I do not state categorically that you are wrong in your shouts for Keynes’ policies (I do not have access to the sort of “supercomputer” the Treasury need to model these things), I will state that your assumption of Keynes’ theories still applying in an era of 50% Government spending needs to be tested, and that my instinct is that with every other western Government also spending this level of GDP, the appetite to fund even more spending is unlikely to be there.

            So, how can you fund your desires without increasing spending still further?

            Of course, there are two further options if you do not find the interest rates charged to be acceptable: “print money”, which will not last for very long, or “live within your means”, which in turn indicates that the sort of whining we have seen over benefit rises being capped at 1% will be as nothing in comparison with people asking all sorts of uncomfortable questions such as whether a particular benefit – for example housing benefit – should exist and be paid at all.

            There is also another option – tax the rich. But you have to be careful not to run out of rich people.

          • aracataca

            I note your data reference does not make historical comparisons.

            NB In terms of the supposed negative effects of high rates of public spending as a proportion of GDP I could of course point to Sweden where the 2012 rate is 55.2% (according to your data reference).

            Forgive me if I am wrong but clearly civilisation hasn’t collapsed in Sweden nor are its citizens especially impoverished as per capita income is $49,930 per annum which of course exceeds the UK per capita income of $38,540 by over $10,000 per year (or 25%).

            http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

          • jaime taurosangastre candelas

            I do not say that there are not choices, and clearly the Swedish Government and people are happy to make a different choice than those made in the UK.

            You should however acknowledge the “other” side of the picture. If we wish to live like Sweden does (I find that quite an attractive model), we will need to pay taxes at the rate that Sweden does (about 55% of gross salaries disappears in 3 levels of income tax and NI payments, in comparison to about 35% in the UK). So your Swede paying 55% of his $49,930 has about $22,467 left to spend, and the Briton paying 35% of his income of $38,540 has about $25,050 left to spend. And then Swedish VAT is 25%.

            But the benefits available in Sweden to all members of society are indeed applaudable. I honestly mean that.

            But, whichever party wishes to put forward that as a model for society in the UK will first of all need to convince all voters to pay an aggregate 20% more tax. Clearly, that could be made very progressive across the income scale, but to make the “numbers” work, you would be asking those at the lower end of payments for even part time work pay an additional 10?% in tax, and those on median incomes maybe a total of 15% or slightly more, those on the higher levels of income perhaps 40% more. I do not say this is impossible: it is however a “hard sell”

            A higher rate taxpayer on £50,000 pays currently about £17,500 in tax and NI. If you ask that taxpayer to pay an extra £10,000 a year, and then also put VAT up to 25%, it will be “difficult” to make that attractive.

          • jaime taurosangastre candelas

            I do not say that there are not choices, and clearly the Swedish Government and people are happy to make a different choice than those made in the UK.

            You should however acknowledge the “other” side of the picture. If we wish to live like Sweden does (I find that quite an attractive model), we will need to pay taxes at the rate that Sweden does (about 55% of gross salaries disappears in 3 levels of income tax and NI payments, in comparison to about 35% in the UK). So your Swede paying 55% of his $49,930 has about $22,467 left to spend, and the Briton paying 35% of his income of $38,540 has about $25,050 left to spend. And then Swedish VAT is 25%.

            But the benefits available in Sweden to all members of society are indeed applaudable. I honestly mean that.

            But, whichever party wishes to put forward that as a model for society in the UK will first of all need to convince all voters to pay an aggregate 20% more tax. Clearly, that could be made very progressive across the income scale, but to make the “numbers” work, you would be asking those at the lower end of payments for even part time work pay an additional 10?% in tax, and those on median incomes maybe a total of 15% or slightly more, those on the higher levels of income perhaps 40% more. I do not say this is impossible: it is however a “hard sell”

            A higher rate taxpayer on £50,000 pays currently about £17,500 in tax and NI. If you ask that taxpayer to pay an extra £10,000 a year, and then also put VAT up to 25%, it will be “difficult” to make that attractive.

          • aracataca

            I note your data reference does not make historical comparisons.

            NB In terms of the supposed negative effects of high rates of public spending as a proportion of GDP I could of course point to Sweden where the 2012 rate is 55.2% (according to your data reference).

            Forgive me if I am wrong but clearly civilisation hasn’t collapsed in Sweden nor are its citizens especially impoverished as per capita income is $49,930 per annum which of course exceeds the UK per capita income of $38,540 by over $10,000 per year (or 25%).

            http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf

          • aracataca

            NB – 10 Year Swedish government bond yields are currently at 1.432% significantly lower than that of UK government bond yields.

            http://www.forexpros.com/rates-bonds/sweden-government-bonds

          • aracataca

            NB – 10 Year Swedish government bond yields are currently at 1.432% significantly lower than that of UK government bond yields.

            http://www.forexpros.com/rates-bonds/sweden-government-bonds

          • jaime taurosangastre candelas

            Keynes theories were developed in the 1930s-46, so your exemplar of 1964-65 is “halfway down the track”, not put at the point of origin.

            The data I have (and linked to above) is that UK spending as a % of GDP is 51.2% in 2011/12, not your stated 35.8%. Are you looking at different data to me?

            (EDIT: In your Guardian link, you are looking at tax RECEIPTS, not SPENDING. Do you honestly not know the difference, and can understand that is how deficits are caused?)

            Of course, once we have sorted out and agreed a dataset, the real long-term question is how much of GDP should Government spend before it becomes ridiculous. My view, I suspect, will be lower than yours, probably by about 40-50%.

            (SECOND EDIT: it might be an idea to get to grips with basic concepts before uttering articles of misplaced faith?)

          • JoeDM

            The growth rates from 47 to 73 were the result of post war restructuring resulting in a much improved capital stock in many countries damaged by WW2 and the growth of international trade rather than attempts at managing short-term aggregate demand.

          • JoeDM

            The growth rates from 47 to 73 were the result of post war restructuring resulting in a much improved capital stock in many countries damaged by WW2 and the growth of international trade rather than attempts at managing short-term aggregate demand.

        • Alexwilliamz

          So your solution is more of what is not working either. At what point are you going to acknowledge that you like Osbourne have made a serious error in how to work towards solving this problem. It is no good whining on about how we got into the mess, we have to work from where we are. It took decades to get into this situation so why do people think that a few years of austerity are needed. Their is historical evidence that this does not work, we are seeing the effects but carry on regardless. Spending willy nilly is no better but spending strategically in a way which generates a public asset at the end of it is. Surely even you must be coming round to this.

        • Alexwilliamz

          So your solution is more of what is not working either. At what point are you going to acknowledge that you like Osbourne have made a serious error in how to work towards solving this problem. It is no good whining on about how we got into the mess, we have to work from where we are. It took decades to get into this situation so why do people think that a few years of austerity are needed. Their is historical evidence that this does not work, we are seeing the effects but carry on regardless. Spending willy nilly is no better but spending strategically in a way which generates a public asset at the end of it is. Surely even you must be coming round to this.

      • postageincluded

        You don’t need to go all the way back to JMK even. You could just deploy Milton Friedman’s helicopter and bundles of newly printed banknotes. Anything must be better than 19th century accountancy.

        • JoeDM

          That’s been happening. It’s called quatiitative easing.

        • JoeDM

          That’s been happening. It’s called quatiitative easing.

          • brianbarder

            Except that under QE the helicopters are dropping the bundles of bank notes onto the banks, not on those with the highest marginal propensity to spend them — namely benefit recipients and the rest of the poorest, whose spending power is actually being reduced by Osborne’s policies.

          • aracataca

            Correct BB

          • postageincluded

            Nice that we can agree occasionally, Brian.

          • postageincluded

            Nice that we can agree occasionally, Brian.

    • aracataca

      Correct. However, the real way out of this situation is to create employment through government spending. When everyone else stops spending the government has to. New crisis? – time to reread old books – most notably perhaps J M Keynes’ ‘The General Theory of Employment, Interest and Money’

    • LeeMatthews

      Normally you are required to apply for one or two jobs a week. When i was seeking employment, i actually had to volunteer the information as the jobseeker staff never bothered to check.
      I noticed that many claimants did not even bother to bring in their signing on books let alone any evidence of job applications.
      Jobs can be applied for at the job centre on their computers etc, it’s also worth noting that most of the job seekers could afford new mobile phones and that libraries have free internet access and most jobs are applied for electronically these days.

      • Serbitar

        It seems that £71.00 a week goes a long way in your world. It’s difficult for me to see how anyone living on so small an amount could possibly afford £15.00 a month, or so, to service a mobile phone contract. Even less so over the next few years if benefits are cut in real terms by capping their uprating at 1% a year.

        As for the laxity of Jobcentres I couldn’t comment although I would remark that we’ve had a predominantly Tory government for the last two and a half years, which initiated the Work Programme and said that it was going to tighten the screws and mercilessly sanction slackers. (Although lying about pretty much everything else they were true to their word as far as their sanctions regime went: so far about 10% of Work Programme participants have been sanctioned, i.e., three times more than the programme managed to get into six months work. This doesn’t look like an easy ride to me.) In the town where I live my public library provides 1 hour of free internet access to benefit claimants on a daily basis, assuming that not every workstation has been booked, so the unemployed are eligible for five hours a week of free internet at most. What the heck they’ll be able to do to fill the remaining 30 hours of jobsearch that they’ll soon be expected to do, without further provision of facilities, is a question I’m clearly not clever enough to answer. Haven’t a clue how anybody could do this. And although there are Jobpoints in my local Jobcentre to look for jobs I’m pretty sure I am correct in stating that no computers are actually available that claimants could use to actually apply for jobs or email letters of application and copies of their CVs and such like to employers. Obviously the situation is better in your home town or city.

        One point you fail to address is that even if there is plentiful free and unlimited access to the internet available, many people will live their lives far removed from it and will need to pay bus or train fares to enable them to travel from their home to make use of these fabulous free cyber facilities. This is factually the case in rural, coastal and other isolated areas throughout the UK. Unless somebody reimburses them in respect to these very significant costs the internet facilities might as well be on the Moon as far as these people are concerned: to be blunt they will simply be too poor to be able to travel from their homes to use the equipment on a regular basis.

        • Alexwilliamz

          I’d imagine they expect them to take their cat with them on a walk to London to seek their fortune, in the 35 hours available to them. There is loads of evidence in my big bedtime book of how to get out of poverty. Why aren’t some of these people checking suspicious looking caves for magic lamps, for a start? Or perhaps they could trade one of their numerous playstations for some magic beans. There’s loads of opportunities out there, that young Gideon chap, he’s got virtually no experience and he has made it to being chancellor of Exchequer, so I really can’t see why not having held down a proper job should be barrier.

          • Serbitar

            I think the things you’re talking about are what Hayley “Fairy Jobmother” Taylor, formerly of A4e, calls “hidden jobs”.

        • Alexwilliamz

          I’d imagine they expect them to take their cat with them on a walk to London to seek their fortune, in the 35 hours available to them. There is loads of evidence in my big bedtime book of how to get out of poverty. Why aren’t some of these people checking suspicious looking caves for magic lamps, for a start? Or perhaps they could trade one of their numerous playstations for some magic beans. There’s loads of opportunities out there, that young Gideon chap, he’s got virtually no experience and he has made it to being chancellor of Exchequer, so I really can’t see why not having held down a proper job should be barrier.

      • Serbitar

        It seems that £71.00 a week goes a long way in your world. It’s difficult for me to see how anyone living on so small an amount could possibly afford £15.00 a month, or so, to service a mobile phone contract. Even less so over the next few years if benefits are cut in real terms by capping their uprating at 1% a year.

        As for the laxity of Jobcentres I couldn’t comment although I would remark that we’ve had a predominantly Tory government for the last two and a half years, which initiated the Work Programme and said that it was going to tighten the screws and mercilessly sanction slackers. (Although lying about pretty much everything else they were true to their word as far as their sanctions regime went: so far about 10% of Work Programme participants have been sanctioned, i.e., three times more than the programme managed to get into six months work. This doesn’t look like an easy ride to me.) In the town where I live my public library provides 1 hour of free internet access to benefit claimants on a daily basis, assuming that not every workstation has been booked, so the unemployed are eligible for five hours a week of free internet at most. What the heck they’ll be able to do to fill the remaining 30 hours of jobsearch that they’ll soon be expected to do, without further provision of facilities, is a question I’m clearly not clever enough to answer. Haven’t a clue how anybody could do this. And although there are Jobpoints in my local Jobcentre to look for jobs I’m pretty sure I am correct in stating that no computers are actually available that claimants could use to actually apply for jobs or email letters of application and copies of their CVs and such like to employers. Obviously the situation is better in your home town or city.

        One point you fail to address is that even if there is plentiful free and unlimited access to the internet available, many people will live their lives far removed from it and will need to pay bus or train fares to enable them to travel from their home to make use of these fabulous free cyber facilities. This is factually the case in rural, coastal and other isolated areas throughout the UK. Unless somebody reimburses them in respect to these very significant costs the internet facilities might as well be on the Moon as far as these people are concerned: to be blunt they will simply be too poor to be able to travel from their homes to use the equipment on a regular basis.

  • Geektapestry

    Where are the jobs to come from?

  • http://twitter.com/renieanjeh Renie Anjeh

    I agree with this piece. I think it is very important for Labour to now bringing forward an alternative to some of these cuts, and different spending choices. For eg. Osborne has put forward a cap of 1% on benefit uprating. Labour should oppose it and instead argue for different cuts to the welfare bill, lilke scrapping higher-rate pension tax relief altogether to pay for free childcare, possibly scrapping Child Benefit for those aged 16-19 to pay for a cut in tuition fees, a freeze in child tax credits and child benefit to reinvest in SureStart and maybe look at scaling down child benefit to make it more age-related so parents get more when their child is young, ending tax-free lump sum pensions to pay for universal social care or scaling back on universal non-pension benefits for the elderly.
    Also, there is the issue of wider welfare reform, by making it more contributory and cracking down on those who refuse to take their obligation to work seriously. If Ed does this by showing clear differences in approach, he will not only show the public that Labour is fiscally responsible but Osborne’s political trap will backfire and blow up in his face.

  • aracataca

    Accepted that the days of Orthodox Keynesianism are over ( there are hardly any left) but check out the writings of Krugman and Stiglitz. We need to stimulate growth through state spending – otherwise we are in huge danger of going down the Japanese road.

  • Dave Postles

    This Coalition is not making painful choices. Gove has overspent on his budget for free schools and academies (so has vired a billion away from LEA schools to pay for the overspend). Willetts has enabled £100m to be spent on loans/grants to students to attend privately-run colleges of HE, in his ideological prospectus to introduce private higher education. They are not making hard choices at all.

  • PaulHalsall

    Raise 2p on income tax. Reduce VAT to 10% to make up for it.

    Suspend Trident

    Begin a land and wealth tax as in the Netherlands and Denmark.

    Oh, and close down ALL the British Tax Havens (BVI, Caymans, Jersey, Isle of Man) and support France in closing down Monaco, and Germany is shutting down Lichtenstein. Take EU action against Luxembourg. And it Switzerland wants to remain in the EEA, it must reform big time.

    Oh, and adopt the LibDem’s Mansion Tax idea. If it is OK for Tories to force working class pensioners out of council houses they have lived in for decades, why not apply the same policy to little old Tory ladies and gents.|

    When we get in power, let’s do as Denis Healy once suggested – squeeze until the pips squeak.

  • PaulHalsall

    Raise 2p on income tax. Reduce VAT to 10% to make up for it.

    Suspend Trident

    Begin a land and wealth tax as in the Netherlands and Denmark.

    Oh, and close down ALL the British Tax Havens (BVI, Caymans, Jersey, Isle of Man) and support France in closing down Monaco, and Germany is shutting down Lichtenstein. Take EU action against Luxembourg. And it Switzerland wants to remain in the EEA, it must reform big time.

    Oh, and adopt the LibDem’s Mansion Tax idea. If it is OK for Tories to force working class pensioners out of council houses they have lived in for decades, why not apply the same policy to little old Tory ladies and gents.|

    When we get in power, let’s do as Denis Healy once suggested – squeeze until the pips squeak.

  • PaulHalsall

    Raise 2p on income tax. Reduce VAT to 10% to make up for it.

    Suspend Trident

    Begin a land and wealth tax as in the Netherlands and Denmark.

    Oh, and close down ALL the British Tax Havens (BVI, Caymans, Jersey, Isle of Man) and support France in closing down Monaco, and Germany is shutting down Lichtenstein. Take EU action against Luxembourg. And it Switzerland wants to remain in the EEA, it must reform big time.

    Oh, and adopt the LibDem’s Mansion Tax idea. If it is OK for Tories to force working class pensioners out of council houses they have lived in for decades, why not apply the same policy to little old Tory ladies and gents.|

    When we get in power, let’s do as Denis Healy once suggested – squeeze until the pips squeak.

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