Via the Autumn Statement, page 25, forecast Government receipts and expenditure through the Parliament as a percentage of GDP:
Click for PDF
See also this chart, showing how our national debt is forecast to increase as a consequence.
The legacy this Government was handed remains a scandal.
What would they have done about this “new fiscal compact” agreed at the recent European Council:
- General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP.
- Such a rule will also be introduced in Member States’ national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation. It will be defined by each Member State on the basis of principles proposed by the Commission. We recognise the jurisdiction of the Court of Justice to verify the transposition of this rule at national level.
- Member States shall converge towards their specific reference level, according to a calendar proposed by the Commission.
- Member States in Excessive Deficit Procedure shall submit to the Commission and the Council for endorsement, an economic partnership programme detailing the necessary structural reforms to ensure an effectively durable correction of excessive deficits. The implementation of the programme, and the yearly budgetary plans consistent with it, will be monitored by the Commission and the Council.
- A mechanism will be put in place for the ex ante reporting by Member States of their national debt issuance plans.
The requirement that government budgets shall be balanced or in surplus is eminently sensible, but by when would the PM’s critics have achieved it? Given that measure is combined with further surrenders of sovereignty to the Commission, no wonder the EU attracts criticism from both Left and Right.
The PM made a good decision, but far more remains to be done if we are to achieve lasting prosperity and bring European political power under democratic control, perhaps by excluding it from this country.
The economic facts behind the Autumn Statement, in as far as they are known or forecast, are available in the Economic and Fiscal Outlook from the Office for Budget Responsibility. Table 4.7 provides forecast current receipts. Table 4.18 provides total managed expenditure. So, here’s a chart of current receipts (i.e. tax) and total managed expenditure (i.e. spending) for the next few years:
The reality is that the Government intend to increase spending every year of the forecast period and to meet that spending with increased revenues. There will only be cuts as a proportion of GDP, and only if it grows. There will only be real cuts if there is inflation.
It’s tragic that we have created for ourselves a state which cannot provide more with more money and that, from the perspective of real public services, there are cuts at all.
There’s much to be said about inflation, inflating the debt away and, indeed, inflating away public expenditure. There’s something fundamentally dishonest about it. That’s why I co-founded The Cobden Centre to press for honest money: our inflationary financial system is undermining society, just as Keynes and Mises said it would.
Keynes wrote,
There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
And Mises explained,
Inflation is the last word in destructionism. The Bolshevists, with their inimitable gift for rationalizing their resentments and interpreting defeats as victories, have represented their financial policy as an effort to abolish Capitalism by destroying the institution of money. But although inflation does indeed destroy Capitalism, it does not do away with private property. It effects great changes of fortune and income, it destroys the whole finely organized mechanism of production based on division of labour, it can cause a relapse into an economy without trade if the use of metal money or at least of barter trade is not maintained. But it cannot create anything, not even a socialist order of society.
We have been plunged into the present misery by a long credit boom caused by low interest rates. Politicians now seem to be helpless in the face of a crisis caused by the inflationary financial institutions they have allowed for the decades following the collapse of Bretton Woods. The only prescription for recovery appears to be more inflation or, as they call it today, “quantitative easing” and “credit easing”.
Yet more money and bank credit may lead to a boom initially, or perhaps merely to a moderation in our difficulties compared to our neighbours, but it is bound to erode the capital stock, to hide losses and to cause a yet worse problem later. The illusion of prosperity created by “monetary activism” cannot last.
If we are to have lasting prosperity and a just socio-economic system, we need instead, as the Chancellor used to say, an economy based on save and invest. That requires, as prerequisites, honest money which holds its value and a state which lives within its means.
Via the Chancellor’s Autumn Statement (PDF), the revised trajectory of public sector net debt:
Click for Autumn Statement Green Book (PDF)
City AM reported back in July on a poll that,
asked whether the coalition would be keeping the national debt the same over the next four years, increasing it by £350bn or cutting it by £350bn. Just nine per cent got it right – 21 per cent thought it would be staying the same and an astonishing 70 per cent thought the national debt would be cut by £350bn.
Allister Heath went on to call this widespread failure to distinguish between debt and deficit “a massive failure of journalism”. I wonder what the survey would report today, now that the debt will be even larger.
The deficit is what the Government intend to reduce: that is, the shortfall between taxes and spending. Our debt will not just continue to balloon, but to ballon to a greater degree than forecast.
See also:
Via PAUL: One year to go – Washington Times (and twitterer @tomjdalton):
I firmly believe the American people are serious about cutting spending and fixing our debt crisis now. Those struggling to make ends meet and provide for their families while also trying to save for the future know we must change course immediately.
I’m not running for president merely to trim a little here and there from our bloated federal budget. Instead, I have offered the boldest, most specific and most comprehensive solutions in the history of American politics to restore our economy and once again make America the most innovative, competitive and prosperous nation in the world.
We face no problem that cannot be solved by reaffirming our trust in the fundamental principles of freedom, limited constitutional government and individual responsibility.
I recommend the rest of the article: for example, “I will move to abolish all corporate subsidies and end all bailouts.”
The question is not whether these are the right arguments, but how to win these arguments in the UK.
Via Federal, State, and Local Expenditures as a Share of GDP at WWII Levels | Mercatus.
Today federal, state, and local expenditures as a share of GDP are back at the highs reached during World War II. This time, however, we are unlikely to see a swift decrease. Wartime expenditures on items like weaponry and salaries for conscripted soldiers were relatively easy to wind down. The bulk of current and future government spending is on entitlement programs like Social Security and Medicare. This variety of spending is nearly impossible to reduce in the near term.
The relevant chart for the UK is this one from How Should Britain’s Government Spending and Tax Burdens be Measured? by David B. Smith:
For more commentary, see this presentation and for why state spending is hard to cut, this video.
I met three bright young men this morning, two representing students at Bucks New University and one representing FE students at Amersham and Wycombe College. Our conversations covered tuition fees, Education Maintenance Allowance, social mobility, life chances, career prospects and related subjects. It was a real pleasure to have thoughtful, measured and insightful conversations about these difficult and sensitive subjects on this controversial day.
I thought all three young men were inspiring.
However, stepping out of the tuition fees debate for a meeting, I turned on the news. The first thing on screen was a report of missiles being thrown at police, right outside Parliament. I understand officers have been injured.
It’s a real pity some are spoiling these protests. I took this short video of Parliament Square: note the fires and communist flags:
David Willetts is just wrapping up – here comes the division…
This conference left me with a sense of the Party’s sincere humanity and compassion. Our aims include lifting the poor out of poverty through the best possible means: work, education, strong families and wealth creation. I happened to have dinner with John Hayes MP who set out an inspirational vision and purpose for education as the key to social mobility: like me, John comes from a modest background.
Regarding the coming cuts, David Cameron said:
And when we are done with these cuts, spending on public services will actually still be at the same level that it was in 2006.
And as John Redwood has pointed out:
You can overdo the dire warnings about cuts to come, especially when the plan is to increase public spending each year for the next five years. If they do announce difficult cuts in particular departments and programmes it will be because the public sector is unable to manage with a 6% cash increase this year and another 2.5% next year.
A great many companies would, I am sure, be very glad of such guaranteed increases in turnover. They would hardly respond by cutting key business lines…
John has also summarised our tax and spending plans in stark terms:
I have long been pointing out that over the five years of this government’s plans total public current spending will rise by an annual £92.1 billion from the last Labour year. I should also add today that over the same time period tax will go up by £176.8 billion a year. In the last Labour year they collected £479.7 billion in tax. This government plans to collect £656.5 billion in tax in 2014-15. ( Budget Red book forecast p 100). The annual tax increase by year five of the planned increases will be £3000 for every person in the country or £12,000 for a family of four.
Labour’s legacy is not just comprehensively dire, it is also absurd: we find journalists discussing “drastic cuts” when in fact both taxation and spending are set to increase significantly.
I don’t know what will be in the Comprehensive Spending review but I hope it will be much more sensible than our distorted political discourse suggests.
Brought forward. I was challenged last night to advocate flat taxes. Here’s one of my previous posts which does so. Another is here (you will have to forgive the oversize graphs).
The Georgian recipe for “an amazing transformation”:
See also: Tory conference: Georgia’s Prime Minister makes surprise appearance.
Hat tip to Dr Tim Evans
Via the Cobden Centre, a report from the Bank for International Settlements on public debt.
Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age- related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.
The charts in the report speak for themselves. For example:
Click to enlarge
The projected impact on our debt servicing costs is staggering: by 2040, we would be paying over a quarter of GDP in interest. That would be grave news for everyone. It’s time for change.
