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.

Have we got anything else we specialise in apart from the banking sector? If not, then we need to look around for something we are good at and fast!
Insurance, education, farming? What do other countries excel at? How come Finland is doing better than us?
Now is not the time for petty cross-party squabbles, it's time for all of us to come to our senses. Doesn't really matter who got us into this mess, does it? Think of yourselves as Titanic survivors. We need to row the lifeboat first and sue the White Star line later on!

"How come Finland is doing better than us?"

We were vulnerable because:

• We're more dependent on one industry, banking, rather than a diversity of them like other European nations.

• When everything was going OK and other European Governments were either spending less than they earn or running far smaller deficits than us the British Government were already living beyond our means and having to borrow to finance their spending.

So specialisation is a part, but the biggest problem is that we couldn't afford the level of spending to which we've grown accustomed to in our good years.

Finland is running a deficit now, but for years it's been running a surplus so it can better afford to push and spend through the recession using it's savings.

We were having to borrow and sell the family silver before the recession and didn't have any savings, now that we're in hard times we're really in trouble and have nowhere left to turn.

"Think of yourselves as Titanic survivors"

And using that analogy don't blame the equivalent of the ice berg, the banks.

The problem isn't that we hit something, it's that we're so utterly unprepared for any problems and didn't have the capacity in our economy (lifeboats) to save the day.

There is no joined up thinking in this programme of cuts though, Take performing arts. They contribute tp something like 3.7% of GDP, we have the largest performing arts economy relative to GDP, the outgoing budget is small, so the government os cutting MASSIVELY arts budgets - 100% of the funding for arts degree courses, 100% of the funding for world class institutions like the Royal College of Music, despite the fact that the investment brings such a high return. They have only looked at the outgoings, and not looked at the incoming revenue.

Think of the number of theatres in London. Think of all the people employed there. Thhink of all the tickets sold - all of these things contributing far more than they receive to the treasury - is it really helping the deficit to slash in this way?

Just remember - Ireland took on a programme of draconian cuts - a shining example Osborne said - one to emulate - and now look at their economy. With no growth, or worse, contraction, the deficit gets bigger not smaller. That's why you have to keep some spending going.

sorry for typos, typing one-handed while feeding baby! that should have been largest perf arts economy relative to gdp in the world

"There is no joined up thinking in this programme of cuts though"

That's a separate debate, and one that you can have once you accept that the situation is that our level of Government Spending is unsustainable, has been unsustainable for years and that that lack of sustainability has nothing to do with the banks.

We have got to cut somewhere, real genuine cuts, or we've got to ramp up taxes.

I think the figures work out at about a 6% spending cut across the board or a 7% tax rise.

And that's just to balance the books in the "good" years, it won't come close to balancing how they stand at the moment.

Badgers I take in all your points - sure you are talking a lot of sense BUT
What suggestions have you got for getting us out of the situation we are in? I mean as well as cuts?
Back to my point - we need to look around for something we're good at and fast.

Badgers - you keep talking about cuts. But you are missing the point that if you cut severely, take so much out of the economy that it contracts (as it may now be doing), the DEFICIT WILL GET BIGGER. The overspend will be more. The problem will be worse not better. That's why growth is so important too.

"What suggestions have you got for getting us out of the situation we are in? I mean as well as cuts?"

"But you are missing the point that if you cut severely, take so much out of the economy that it contracts (as it may now be doing), the DEFICIT WILL GET BIGGER."

These two are connected...

Public sector spending needs to be reduced, it was already unsustainable before the banking crash. Cutting Government spending back to a level that is normally sustainable, even though it would be unsustainable in the current climate, is a first step. Trying to wipe out the deficit now is, I believe, not practical. However getting back to a budget that would be sustainable as things were before the crash is a good start. And it also means that when we do start to see a recovery we don't then have to make further cuts as we switch to a sustainable economy.

However then it becomes personal.

Firstly I do believe in the principles behind Keynesian Economics. So supposing we cut public sector spending by say x%, divert half of that savings into investment projects that can help revitalise an economy. Build homes or build HS2 for example. Funding that will make a difference and won't be noticed when it's withdrawn, which is different from being forced to borrow to pay for normal staffing levels.

Secondly I also believe that in order to fund the kind of state that we want, which will probably still have to be smaller than the one we're used to, we will have to raise the tax burden across society. Simply putting it on the credit cards isn't going to work any more.

However those two final points are just my opinions. But they're the sort of debate that we need to be having once it is accepted that the level of Government spending and support to which we have become accustomed is unsupportable given the current level of taxation.

Previous generations of politicians have been happy to mislead us into thinking that would could have all of the wonderful things that the state can provide without the tax bill. We can't. They were just loading the price to be paid onto our children in return for getting your vote.

"But they're the sort of debate that we need to be having"

Thinking some more....

At the moment Labour are running around bleating "it's the banks' fault!" while the Tories are harping on about "Labour's spend spend spend".

Both are silly and pointless diversions from the truth.

We all really need to sit down and decide if we want a "small Government low tax" or a "big Government big tax" type of country and make that change.

"Big Government with low tax but maxed out Credit Cards" is simply not a viable long term option unless we want to be back in this hole again in 10 or 20 years time.

Personally I'd like to see a lot more overt support for manufacturing and new start ups.

I can't see any reason why we can't give grants to manufacturing companies who have sensible plans to expand and need help with investment.

New startup businesses are the lifeblood of any economy. Amazon, ebay, Google all started in someone's shed/garage/bedroom. They need to be nurtured and supported....yes even subsidised for a little while until they can stand on their own two feet.

At the end of the day, manufacturing is what creates wealth in an economy. Services shifts it around. And taxation just removes it.

Also the government MUST start supporting UK industry in more than name only. Recently a french firm won a tender to build power stations which are desperately needed to cope with our future power demands. Fair enough, if a foreign firm win the tender fair & square I have no truck with that. But given the billions of pounds involved you'd think the government would have stipulated to all companies bidding that x% of work must be manufactured/serviced in the UK. Nope, nothing nada. So EDF can now go and get their widgets directly from China at a knockdown cost using our taxes. Fantastic. Thanks Gordo....another one we owe you.

"But given the billions of pounds involved you'd think the government would have stipulated to all companies bidding that x% of work must be manufactured/serviced in the UK. Nope, nothing nada. So EDF can now go and get their widgets directly from China at a knockdown cost using our taxes. Fantastic. Thanks Gordo....another one we owe you."

Tbh, a far worse example of this is the steel works in Sheffield - their loan that was cancelled (and bear in mind it was a LOAN), was to make specialist parts for nuclear power stations - it would have been one of only 2 manufacturers in the world, and it would have been very lucrative both for the firm, and for the treasury. But the loan was cancelled, so they can't do this. The Government then announced.....8-10 NEW nuclear power stations. So we will be importing the parts from the Far East.

BadgersPaws - I basically agree with your last 2 posts, I do agree we need cuts, I fear the cuts we are seeing are not the correct ones though, as I think anything that encourages growth needs to be nurtured. And I would be in favour of putting HRT up by 2p, and the 50p rate up to 52p, perhaps for a limited period, to be reviewed in 4 years.

In terms of the small/big state, I think I'm probably medium state, but with progressive tax and spend policies, in order to encourage social mobility.

I accept that we need to tackle the deficit. I also wonder what impact the wars in Iraq/Afghanistan have had on our spending?

It's a done deed (and a whole other argument) I know, but I wonder whether our figures might have looked a little better right now without the cost of those wars.

I have nothing against cuts in principle, it just depends where they are. How much does Trident cost us for example?

I also wouldn't be making cash available to fund free schools and these NHS reforms in the current economic climate.

As for taxation, I think an increase on PAYE could be justified. The level would need to be carefully considered of course.

We do also, surely, need to look at creating growth in the economy. I think it was Lily who mentioned the scrapping of the loan to Forgemasters in Sheffield. Absolutely bonkers.

"And I would be in favour of putting HRT up by 2p, and the 50p rate up to 52p, perhaps for a limited period, to be reviewed in 4 years. "

But to reach a sustainable economy with the same level of public spending as we had back in 2008 we need to raise Government revenues by about 7% in total.

You're proposing raising HRT by 5% and the 50p rate by 4% which most people don't pay and even then only for a short term. 5% for some and 4% for even fewer is not going to make 7% on average. So that's not enough, we'd still have to cut and cut deeply.

"In terms of the small/big state, I think I'm probably medium state, but with progressive tax and spend policies, in order to encourage social mobility."

OK so rolling back to how things were in 2008 before the banks went pop what are you going to do to balance the books? Cut spending by about 6% or raise revenue by about 7%?

"I accept that we need to tackle the deficit. I also wonder what impact the wars in Iraq/Afghanistan have had on our spending?"

A very left wing newspaper gives the figure as £20 billion (www.morningstaronline.co.uk/index.php/news/content/view/full/91782) and I've seen that figure elsewhere.

And that's the cost of both Iraq and Afghanistan over 10 years. So £2billion a year.

"I wonder whether our figures might have looked a little better right now without the cost of those wars."

Not really.

This years shortfall is going to be about £150 billion, so even the £20 billion figure is a drop in the ocean. Back in 2008 the deficit, before the crash, the deficit was still about £40 billion. £2 billion a year is not going to sway things either way.

For the sake of comparison each year we spend about £140 billion on the benefits system, so that's 70 times as much as we spend on wars overseas.

"How much does Trident cost us for example?"

It originally cost about £10 billion to get into service (bear in mid that was in 1994). Ongoing costs are meant to be about £2 billion a year and are met as a part of the defence budget.

We're not in debt because of the wars, we're not in debt because of Trident and we're not in debt because of the banks.

We're in debt because we spent more than we earn.

BadgersPaws, I didn't say 'only' to raise those things, I do think cuts are necessary, but not cutting things like loans to steel works so they can't do highly profitable work. It should be clear from my post that a mixture would be my ideal solution - shallower cuts combined with a bit of a rise on the higher rates of tax. I'd much rather see a rise in HRT than the insane child benefit cut, which is regressive and blatantly unfair because of the random way it hits people.

The Conservatives are pathologically opposed to rises in income tax though.

I would also try and get in some of the tax owed by the super-rich and companies such as Vodafone.

"BadgersPaws, I didn't say 'only' to raise those things"

Fair point, but I was trying to point out how little those suggestions will actually accomplish when faced with the gap between what we're spending and what we can afford.

Personally to me this isn't a time to nibble around the edges but a chance to have a big think about exactly how we want this country to work.

Sorry Badgers, I've had a tough day and my brain is on a go slow. You say the deficit, in 2008, prior to the banking crisis was £40 billion (a year?) and this year we're looking £150 billion, yes? Does that mean that the banking crisis and the subsequent recession has meant the deficit has increased by about £110 billion this year? Or are there other factors which have caused this massive leap?

Apologies if I'm totally misunderstanding this Might be better if I don't post until my logic returns

"Personally to me this isn't a time to nibble around the edges but a chance to have a big think about exactly how we want this country to work."

I might agree with you if we didn't have such a bunch of clowns running the show at the moment, with no mandate. Asked about the shock contraction last quarter, Osborne blamed the weather no less than 24 times in 3 minutes. 4 times he repeated the crappy cliche "We will not be blown off course by bad weather". And in actual fact, as someone pointed out to me, no-one plans to be blown off course, it's something that happens accidentally. The Child Benefit cuts, had they a brain cell between them, would clearly be seen to be both unfair and unworkable. And the list goes on.

A major reworking of the country is not within their abilities to achieve. And a lot of economy is about confidence - who has confidence in them?

"Does that mean that the banking crisis and the subsequent recession has meant the deficit has increased by about £110 billion this year?"

Yup.

But we remember we were starting from a bad position of overspending by £40 billion anyway. There was no slack in our economy ready for the next crash, we weren't saving, we'd spent the "good years" building up the debt not paying it off and put reserves aside.

And the root problem is that £40 billion overspend in what should have been "good" times. Times when while other European nations were running surpluses or deficits many times smaller than ours and getting smaller every year we were right down there at the bottom of the European table with a huge deficit that was getting worse.

Running a deficit through a recession is understandable, being unable to get it under control in the good years is totally irresponsible.

"I might agree with you if we didn't have such a bunch of clowns running the show at the moment, with no mandate."

But the bunch of clowns they replaced couldn't even manage the economy when everything was ticking over nicely, and they had even less of a mandate in the last election.

"Asked about the shock contraction last quarter, Osborne blamed the weather no less than 24 times in 3 minutes."

Well he was right, the weather has a statistically provable and predictable effect on an economy.

Trying to argue that the weather has nothing to do with it is just ignoring reality.

A much better question would have been "putting the weather aside you still dropped to 0% growth, why was that?"

"A major reworking of the country is not within their abilities to achieve."

I also doubt their interest in changing things, which would be an unpopular vote looser that would see either tax massively rise or spending dramatically drop.

The Tory's are much happier blaming Labour for the problem.

Labour meanwhile are much happier blaming the banks.

Both are happy to have someone to blame rather than admit that both parties' policies of funding "normal" spending by borrowing is just wrong and unsustainable.

And the longer we hurl insults at the bankers or Labour the longer we play their game. As said we have got to ask the bigger questions and sort out our economy so that we're ready for the next recession.

"A much better question would have been "putting the weather aside you still dropped to 0% growth, why was that?""

Yes, I forgot to mention that bit. He was asked that question. His reply...

"I've said the figures were disappointing, but....We've had the coldest December for 100 years, we will not be blown off course by bad weather."

The GDP contraction does not show the consumer retail figures, which are one of the sectors most affected by the weather, the true figure may well be worse. No doubt the weather had some effect. I think though that the range of cuts coming next year may have had a bigger effect though.

"But the bunch of clowns they replaced couldn't even manage the economy when everything was ticking over nicely, and they had even less of a mandate in the last election."

I disagree that they had less of a mandate - they won a majority in the election. The majority vote in this election was for a slower deficit reduction plan (as LibDems campaigned on this basis, and the combined Lib/Lab vote was more than the Tory 'slash and burn' vote). Added to which, many of the major policies were not mentioned in the manifesto - eg NHS reforms - they in fact said in the coalition agreement that there would be no more pointless top-down reorganisations. Portillo said they had been planning this for years, but didn't mention it, because they knew they would lose votes over it.

when you have the cabinet and senior bankers coming from the same schools with the same self-interested natures, do you really think the economy is going to be built well? Bankers make more money the more governments borrow, and then when governments cut public jobs and raise taxes in period of increasing costs of goods - banks make more money lending to people who want to ride it out.

Its interesting that the economies with the strongest ties and legal obligations with Unions did much better than ones whose governments were more influenced by the banks (iceland - whose banks recruited any government officials who sought more regulation, the UK and the US are great examples).

"I think though that the range of cuts coming next year may have had a bigger effect though."

Possibly, but that quarters figures were hit by the weather, however that put aside the drop down to 0% is worrying. We'll know in another three months or so once the next quarter figures come out.

"I disagree that they had less of a mandate"

That's for another thread.... But in brief the Lib-Dems had an awful choice to make. Support Labour whose vote had dropped by 7% and who had lost a third of their seats. Or support the Tories who got the biggest single share of the popular vote and the most seats. The mood of the country had clearly swung away from Labour and to the Tory's. And it's also very questionable if there was any alternative coalition that could possibly hold together and work, where as with the Tory's it would be a "simple" two party deal.

And no I'm not a Tory voter, far from it, but I can see why the Lib-Dems sided with who they did.

"Its interesting that the economies with the strongest ties and legal obligations with Unions did much better than ones whose governments were more influenced by the banks"

It's far more interesting that the countries that had the surpluses or the smallest deficits have done much better than those who just spent spent spent.

But yes banks do have an interest in debt. Which is yet another reason why I firmly believe that we should run the country at a surplus whenever we can.

Failing to tackle the deficit is giving yet more power to the banks.