I don't claim any great understanding of economics but how was it that labour made all these plans for grants, schemes and so an when there was no blooody money?

What is happening now is exactly what a Tory Government would have done regardless of our overall economic state - they just have a nice shiny 'austerity' badge to hide behind, not to mention the numpty Nick Clegg who is going to be the fall guy for all of this.

In 2007 our % of debt to GDP was the 3rd lowest in Europe - which doesn't tie in with 'the Gordon Brown was an appalling spend thrift who was just buying votes' theory.

And, re universal benefits there are some very strong arguments for things like Child benefit being universal - you should look at Gingerbread for the details, but their argument is very convincing.

And re big state small state, the fundamental difference between left and right wing is that left believes that the economy should work for the people, and right believe that people work for the economy. Left invest to create jobs and wealth through the poorest sectors of society, Right contract the state so those who are able to can look out for themselves, and this supports low tax rates for the richest, but the poorest and most vulnerable are impacted the most.

It's the fundamentals of left and right wing politics.

sorry for any confusion, the website I quoted was for Over 60's, so applicable to over 60's claiming DLA etc

Sorry, I don't know how that last post got all jumbled up but hopefully the point is clear!

There is an element of ringfencing with the Winter Fuel Allowance, free TV licences and bus passes.

Old people vote. Young people don't. Therefore it is usually good tactically to please old people.

However there is also a more fundamental point. Should benefits be universal or means-tested?

Universal benefits are wasteful because they go to people who don't need them. By doing so they often lock into an annoying dependence on the State.

However means-tested benefits require oodles of admin, and more perniciously, increase effective marginal tax rates. If the benefits is purely paid for compassionate reasons, these questions don'really t arise - but especially for employment related benefits, means testing acts as an active disincentive to work.

The balance between means-testing and universality is very difficult.

My inlaws use their winter fuel allowance as spending money on their winter cruise

Meanwhile, low income families with disabled and terminally ill children aren't entitled to it.

Utter madness.

I get IB and DLA and have never had winter fuel allowance.

you don't need to claim Winter Fuel Allowance it is sent automatically

"How to get a Winter Fuel Payment

Most people who are entitled to a Winter Fuel Payment do not need to make a claim. If you get State Pension, Pension Credit, Income Support, income-based Jobseeker?s Allowance, Attendance Allowance, Disability Living Allowance, Incapacity Benefit, Industrial Injuries Disablement Benefit, Carer?s Allowance, Severe Disablement Allowance or a Bereavement Benefit, and you are getting one of these benefits in the qualifying week you do not need to make a claim. A Winter Fuel Payment will be made automatically."

from www.adviceguide.org.uk/index/life/benefits/benefits_for_people_over_sixty.htm

Just had time to find the Krugman article you all talked about. Samuel Brittan and now him. Finally my degree in eceonomics is paying off.

Takver and Riven I agree with the two of you, but I do not really have time to post.

and welfare reform can also mean the sort of thing that Madeleine Bunting talks about in this article.

My understanding is that GB is an out and out Keynesian.
He believes, no doubt still does, that you have to intervene and stimulate an economy with state money.

What he always refuses to accept though, is that Keyenes was writing before the advent of the bond markets and the impact of international credit ratings.

So, like beenbeta says, whatever GB believed about deficits, we would in reality, as opposed to economic theory, have eventually hit the wall of having our credit rating reduced.
You can only borrow when lenders will lend

re. interest rates - I think it's not so much about 0.5%, more that after this budget, small businesses can feel more relaxed there won't be a major interest rate hike. Which is important, given that access to finance is a major issue for them.

Obviously they're not happy about the VAT rise/general effect on their customers, but I can't see that confidence would grow much in the knowledge that there were cuts to come, but not for 12 months.

Takver - no I haven't read the book but I see Reinhart & Rogoff often on CNBC talking about their findings which I think are consistent with what Ferguson is saying.

Meanwhile the European money markets are effectively closed to Greek and Spanish banks tonight. There is a deadline on Thusday when European banks have to pay back 442 billion Euro of funding to the European Central Bank.

No one knows if they can and how much funding they will have to roll over. No one knows if they can roll it over.

The credit crunch is stil here and stock markets were off a lot today.

claig Lack of jobs, certainly. That is why lowering corporation tax and scrapping national insurance for startups in low employment areas are excellent ideas. Both promote private sector job creation.

but isn't the route of the problem, low wages and lack of jobs

Takver Don't get me wrong - I acknowledge the car scrappage scheme was a success. It did exactly what it was meant to do.

I just think that in general creating these short-term distortions to small parts of the economy by fiscal policy is less important than getting the broad monetary policy.

However I accept there must be occasional exceptions and am not too dogmatic about it.

As for "state handouts" I obvious acknowledge that those in genuine need will need permanent state support. However, Labour simply cannot run away from the fact that the "benefits as lifestyle choice" is a reality for too many people. It is much less compassionate than trying to get to the root of the problem.

Fair play then - its just this return to the TINA principle really, really annoys me. We (or rather the govt) are making political decisions, and there are alternative choices that could be made.

I would agree 100% with you though regarding not being in the Euro, it is probably the single biggest factor in our favour at the moment.

Not convinced that 0.5% cut in interest rates will balance out the negative effect of taking money out of people's pockets at this point in the cycle. (Though agree car scrappage etc. daft).

'Weaning people off state handouts' - find it hard to respond there without getting unhelpfully cross. Yes, of course there are some people who receive benefits who could be in work. There are an awful lot of other people who couldn't - either because they are not capable of doing the work available, or because there are no jobs where they are, and they don't have the social/human/financial capital to get to somewhere where there are jobs. Cutting welfare benefits to them just makes them poorer.

Takver As I said, previous governments, both Labour and Tory, didn't perform well on debt either.

The issue of debt financing is far worse after the credit crunch than before.

Luckily our debt has long maturity, we are not in the Euro, and Margaret Thatcher's labour-market reforms were largely kept by New Labour and make Britain more competitive and flexible than many other European countries. Most importantly, we are dealing with our debts while many of our European competitors drown under theirs.

All these factors make it easier to finance our debt than other countries - thanks to the Budget, Britain is now seen as a flight-to-quality country instead of a basket case. But debt now is still a bigger problem than debt 40 years ago. We need to compete for financing amongst more nations.

However the government's strong stance on reducing the deficit is already paying dividends. The interest rate on UK government debt has declined by about 0.5% - and that is largely passed on to companies by banks. What a brilliant stimulus a 0.5% cut in effective interest rates is! It will be far more useful than a car scrappage scheme, a new visitor centre at Stonehenge, or a loan to Sheffield Forgemasters, even if it is less visible.

As for shrinking the State and welfare reform - well, for me, it is both pragmatic, ideological and political.

Pragmatically, we have no money. If we don't cut welfare bills we have to cut public services even more.

Ideologically, I believe it is not compassionate to just give people money. Nor should people on average or better than average salaries have to depend on the State via tax credits - it isn't a sustainable model.

Politically, by weaning people off State handouts, it becomes possible to weaken the long-term prospects of Labour and their authoritarian, controlling, centralising mindset - which, in my opinion, is also better for Britaain.

BeenBeta, have you read the 'This time is different' book? Its definitely worth a read if you haven't. (Not that it would stop us disagreeing, but it is full of fascinating information.)

Ah, and jackstarbright - "I would go back to a point made by Longfingernails (at regular intervals ) GB began to increase government borrowing well before the credit crunch hit. "

Well yes, but only in the context of it having previously reduced to historically low levels.

There would be far more point in arguing about whether the money was spent wisely, and whether there was sufficient investment for the future. And indeed why we spend 2.5% of GDP on defence, whereas Spain, for example, spends only 1.2%, which is more typical for Europe.

Longfingernails - my point is that in Labour's first term debt as a % of GDP reduced to its lowest level since the 2nd world war. It then increased again from 2003 onwards back to approximately the same level that it was at the end of the previous Conservative government. Then of course with the onset of the international crisis it shot up. (Though not - if you look at the Reinhart & Rogoff data - to historically surprising levels given the circumstances.)

When I read things like
"There was almost no welfare reform in the years when jobs were plentiful and the pain could have been easily mitigated. Now sadly it must be done when jobs are scarce."
it makes it abundantly clear that these cuts are part of a political project to reduce the size of the state yet further. Why did we need welfare reform? Govt. spending as a % of GDP was (and is) low by European standards, the national debt as a % of GDP was at a 50 year low - there was no reason to cut the extremely minimal levels of benefits offered yet further at that time.

(Its very hard to find easily linked figures for govt spending as a % of gdp, but this link here gives international comparison for 2007, and this chart here has a historic data series for UK spending. The IFS has a better chart here but only running up to 2000 unfortunately)