cuts are pushing us into a double-dip recession

[darleneconnor]

www.google.com/hostednews/ap/article/ALeqM5ijzMRzu10jnYoqIb69_R0hrzgnoQ?docId=4c0373e5575c4481ba144f9b11dd5e83

This isn't good news.

Manufacturing isn't booming - believe me. I have worked in the manufacturing indusstry for years in one of the UK's supposed niche markets, and it aint growing.

Thatcher did a lot of damage in the 80s it is true, however the real impact to UK manufacturing has been the rabid growth of the BRIC economies, and the fact that most UK companies are outsourcing the vast majority of what is made in this country.

That is my job - identifying key components to be moved from the UK supply base either to Taiwan or India. And when the anti-dumping restriction is lifted from China in (supposedly) February, even more will be moved offshore.

I am personally involved in moving £8million pounds worth of business from a UK manufacturer (probably busting their business in the process) and moving it to Taiwan, in order to achieve the cost down targets imposed on my company's customers.

We cannot compete with the prices charged in LCCs.

And yes I do have a huge moral problem with that.

GOML - problem is we as individuals and private business likes buying cheap things and dislikes paying taxes even more so the public sector has to seek out lower costs goods too.

Truth is, manual labour wages in this country have to drop to Chinese wage levels to compete. I dont think that is likely.

Blog here

Nick Robinson writes;

"PS. Normally we're cautious about reading too much into what is only a first estimate of growth figures. They are due for revision. However, the ONS says today's numbers focus on the output side of the economy (services, construction and manufacturing) and don't include consumer spending, which is the area that would be most affected by the weather. This means that the second estimate, due in a month, could come in even worse."

Please people whether you call it a recession or a double dip recession.We are screwed for the next 2-3years. The construction industry hasn't felt the effects of the spending cuts yet! Many are still cash rich because they are half way through projects, government funded projects.When these hospitals/schools are completed and the cash flow slows to a trickle(most construction have around 50-70% of their works is public)there will be serious redundancies. Prorbably more going the way of ROK. As for Joe public, VAT rise, crazy fuel prices(despite starting a war to get cheaper oil!)Expect everything to go up about 10%!
Although it is not terribly English, i think you will be seeing many protests on the streets.
There will also be many more anti-capitalists created as the medium to poor lose jobs and then houses or just get screwed by the banks as their tracker mortgages run out.
I'd rather a rich snob then a poor beggar ran the country, at least the snob is used to dealing with large amounts of money.
Anyway this is not really a political thing, it's caused by the banks and their making up money in the form of credit and then not having enough actual cash to cover their made up credit!Plonkers.

Anyway this is not really a political thing, it's caused by the banks and their making up money in the form of credit and then not having enough actual cash to cover their made up credit!Plonkers.

I think the cuts will exacerbate it but they aren't causing it.What is causing it as that twice in the last 10 years the Uk was heading for a natural recession which is common in the chronology of economics and it was artificially halted by the labour govt.Interest rates have been too low for too long and this has made people unrealistic about their finances.These cuts will just make it more painful quicker but this has always been coming in one way or another!

The deficit was partially caused by overspending, BUT the overspend was necessary because of the woeful state of the public services after 18 years of Tory under-investment. It is good to run an economy on a smallish deficit, because generally you grow and cover the cyclical deficit. But, yes, the Labour government should have been much more cautious about the over-spend in public services. On the other hand, they left the NHS in a much better state than they found it, with waiting times right down, and the highest 'satisfaction' rating from its users in its history. Lots of schools have benefited from new buildings, which in turn provided work for construction companies/employees etc.

The reason the banks are so culpable is because the crash was caused largely by irresponsible lending (esp in America in sub-prime mortgages), without taking proper safeguards. Once the world economy crashed, the deficit grew monstrously, because the economy was not growing to cover the deficit. Banks then had a massive bail out which increased the debt of the country (and therefore the interest paid to service the debt, thereby increasing the deficit). Their response was to stop lending at all, including to small businesses, which meant the economy stuttered, many businesses struggled or went under, and this has still not been resolved. Banks seem able to pay out obscenely large bonuses to their top people, but won't lend to businesses to get the economy going again.

Any idiot can leave the NHS in a better state than they found it. All you need to do is throw money at the problem.

Wait, that's what Labour did!

To argue an overspend was necessary to improve public services is a bit like arguing you borrowed beyond your means because you were sick of driving an old car and you felt you deserved a shiny new one.

Sure....as long as you can afford the repayments. Unfortunately this means you have to cut back elsewhere and here we are. We are having to make cuts elsewhere to pay off money we borrowed.

Every action has a consequence.

Let's save billions straight off then and scrap these lunatic reforms.

Every little helps.

Your argument is wrong, because although the economy is important, there are some essentials in the country that have to be right, and the NHS is the most critical. And looking at it economically, it is better economically to have ill people treated quickly, so they can get back to work quicker, rather than being home claiming sick pay.

In 1997 the NHS was barely functional. They were absolutely right to sort it out.

Article here about the lack of pre-crash deficit

Another here - interesting pre and post crash figures for different countries

I'm not arguing that they shouldn't have cut back at all. But I think the whole Tory 'blame Labour for everything' is disingenuous, ESPECIALLY as they approved and pledged to match ALL of Labour's spending plans up to 2008. They weren't worried about the overspend at all, and pledged to do the same.

(that was in response to NiceGuy btw)

wubblybubbly, I agree with you, the proposed reforms of the NHS are stupid, they will cost a huge amount, are a massive gamble and may be the end of the NHS altogether. Surely a steady course would be better.

Not to mention the total lack of mandate to do this - they promised 'no more top-down reforms of the NHS'. And yet they say they have been planning this for 20 years. Michael Portillo said 'they didn't put this in the manifesto because they knew no-one would vote for them if they did.'

So there we have it. Lie to the public, get the votes, and then do whatever the hell you want. Cameron doesn't even have a majority - how DARE he dismantle the country in this way?

"But I think the whole Tory 'blame Labour for everything' is disingenuous, ESPECIALLY as they approved and pledged to match ALL of Labour's spending plans up to 2008. They weren't worried about the overspend at all, and pledged to do the same."

"It is good to run an economy on a smallish deficit, because generally you grow and cover the cyclical deficit."

Those two things tie right together.

It has been the prevailing political philosophy that running the economy at a small deficit is a good thing. I think that time has now proven otherwise. We've been trying that almost every year since 1950 and possibly tricking ourselves into thinking "we're investing for the future, things will sort themselves out". But the investments never paid off and the future that came was continued debt. Successive generations of politicians refused to tackle the problem, because to do so would mean great cuts to public spending or equally great tax rises. So, as they also did with pensions pensions, they brushed it under the carpet and left it to future generations.

The Tory party are happy to mumble that it's Labour fault.

Labour are happy to blame the banks.

The Lib-Dems can keep quiet as they can claim they've never been power.

The truth of the matter is that the way the economy has been run by both parts for 60 years has plainly failed.

You cannot routinely spend more than you earn. If you do that in the good years then what happens in the bad should be utterly predictable, and that is what has happened to us now. The banks might have caused these bad years, but the economic mismanagement and believe in debt by successive Governments it what's led us to be crippled by it and has lead to these massive cuts.

BadgersPaws - the reason you run at a small deficit is because of the timelag of getting tax revenue in, and also because of economic growth. The first few years of the Blair government didn't run at a deficit, as they saw paying the debt off as a priority, before putting investment into services.

It's always a tussle between the 'reduce the deficit as fast as possible' philosophy and the Keynesian philosophy of not taking money out of the economy at a time when it really needs stimulus.

"BadgersPaws - the reason you run at a small deficit is because of the timelag of getting tax revenue in"

Tax revenue should balance out over time, you can't you're consistently getting into debt because your income is late and then getting into debt even more next year.

"also because of economic growth"

And that is the fallacy of the last 60 years of economic practice. Debt can't just be explained away as being coverable by future growth. Following that belief is what has ultimately led us to where we are with public spending that is utterly unsupportable in the good years yet alone in the inevitable bad ones.

"The first few years of the Blair government didn't run at a deficit"

I've never denied that, and they did better at it than the Conservatives who only ever managed two years of deficit. Labour managed about three years of deficit, the best being 2% of GDP. However right after those years they went back to borrowing to sustain their spending and never balanced the books again. Debt relative to GDP and in absolute real terms continued to climb from then onwards. And that was before the banking crash.

And if you have to borrow, and borrow progressively more each year in real and absolute terms, to fund your spending during the "good" years then it should be obvious that that is unsustainable.

"It's always a tussle between the 'reduce the deficit as fast as possible' philosophy and the Keynesian philosophy of not taking money out of the economy at a time when it really needs stimulus."

If the economy could be brought into balance then there would be savings from the good years to sustain the level of public spending during the bad and to even invest to stimulate the economy.

That is not what we've been up to.

We reached a level of public spending that was not sustainable and no political party wanted to be the one to say that the good living funded by debt had to stop. No the parties have someone to blame, the bankers or the Labour party, they're hopefully finally going to change things.

Something has got to give, we cannot continue to have the level of public service that we do.

Either we drastically cut the services, the American model.

Or we raise taxation, the Northern European model.

Must learn to proof read....

"I've never denied that, and they did better at it than the Conservatives who only ever managed two years of surplus. Labour managed about three years of surplus"

Badgers, what you say makes sense, I think.

I'm wondering, do any other european economies also run at a deficit?

"I'm wondering, do any other european economies also run at a deficit?"

There are the 2009 figures here:
en.wikipedia.org/wiki/Economy_of_the_European_Union

Our deficit then was 4 times the European Average.

Picking two pretty random examples of longer views...

Germany did run a deficit from 2002 to 2008 of at worst -2.4% in 2005 and then continually dropping to -0.35% in 2008.

Finland on the other hand ran with a surplus from 2000 to 2008 that never dropped below 2% and went up to about 7%.

During the same time our deficit never dropped below 2%. So in 2008 just before the banking crisis Germany's deficit was nearly 7 times as small as ours relative to our respective economies.

And when Finland were balancing the books, we were funding our spending with credit.

Deficits as % of GDP (full year 2009, EuroStat)

Ireland -14.3%, Greece -13.6%, UK -11.5%, Spain -11.2%, Portugal -9.4%, France -7.5%, Belgium -6.0%, Italy -5.3%, Netherlands -5.3%, Austria -3.4%, Germany -3.3%

There's quite a nice chart here from 2008, so before the banking crisis hit things.

seekingalpha.com/article/158722-list-of-european-surplus-and-deficit-countries

So 8 of the countries in the EU were making hay while the sun shined and were running their economies at a surplus.

And there we are right at the bottom having to sustain our "normal" level of spending during a pretty "normal" year by having to really hit the credit cards.

You know what. I do understand the theory that sometimes a small deficit is desirable. But like Badgers says...one day you must pay it back. We've been avoiding it too long.

And right now our deficit is anything but small.

Last year, our deficit as a percentage of GDP was 8th in the world. You know who is 9th? Iceland. 10th? Ireland.

I guess we can take some small comfort that our deficit is slightly better than 5th & 6th places...Iraq & Afghanistan respectively.

But hey, lets ignore all the facts and keep borrowing indefinitely to fund things we think we deserve but in fact can't afford. Let's be good at one thing and get to number #1!

NiceGuy, the problem with comparisons with other countries is that economies aren't equal. The UK economy is highly dependent on the banking sector, which is why we fell into such a big hole. It's worth remembering though what George Osborne said about Ireland's austerity measures - that they were a shining example, and sought to emulate it. Hence we are following Ireland...

Just joined this thread.Looked at the link and was horrified at figures. It seems to me we need to manufacture more AND spend less. You don't need to be brain of Britain to realise that this will only work if we EXPORT what we manufacture.
On a minor point, I think MNetters need to keep off the topics of shopping and education when talking about the state of the economy as they do tend to distract us from the real issue.
We have overspent BIGTIME so we need to put in a few solid years of hard work, underspending (don't know how) and paying off that national debt so we can look the rest of Europe in the face again. What became of national pride? Come to that what became of pride full stop?
(please don't shoot the messenger)

Look. We are in a big hole because of 50 years of overspending....not because of the banks.

And yes all economies are not the same. That's why we look at percentages and not absolute terms. It gives us a fairly good idea.

No matter how you slice & dice it we're in the shit because we've overspend on things we cannot afford.

The banking crisis was the straw which broke the camels back but trust me there have been many many straws loaded over the years.

"The UK economy is highly dependent on the banking sector, which is why we fell into such a big hole."

So what were we doing in such a big hole, compared to other European countries, in 2008 before the banking crisis?

About a third of the EU were managing to live within their means, and there we are right down the bottom max'ing out the credit cards when things should have been doing OK.

The current recession is due to the banks.

That our country was hit so hard and that we are now so much worse off than other European states is because we were living beyond our means and had no slack ready to get through the lean times.