Tuesday 24 May 2016

Deficit not coming down when the sun is shining - no wonder Brexit is off the menu for Osborne

A long time ago, a phrase was used by the Leader of the Opposition, it went along the lines of

"You did not fix the roof when the sun was shining."

And it rang true, because at the time the Labour Government was busy increasing state spending. In 2000, having followed Tory budgets for the first term in office, total UK Government spending was £341 billion.

United Kingdom Government Spending to GDP

By 2005 and the second Labour General Election win, Spending had reached £492 billion. A massive 31% increase in state spending in just a five year period. No wonder the Government won the election easily even with the unpopular Iraq war as a key issue.

At the 2010 election, £693 billion was being spent by the Government. More than double what has been spent 10 years earlier in a time of relatively low inflation. However, with GDP growth quite high as a result of the bubble Government spend had only gone up by 4% of GDP so not great but not terrible...except....

United Kingdom GDP

The real issue had come in 2007, with all new fangled benefits galore to hand out, social spending in the Financial Crisis combined with a horrific loss of tax income saw Government spending saw to 50% of GDP. An the deficit and national debt soared with no money to pay for the 'automatic stabilisers.'

So to 2016, the Tory Government has seen a return to GDP growth and cut Government spending back down to 43% of GDP. The real damage though is in the tax base. There has been no recovery of the fake boom Banking tax take. Nor are there any signs it is coming back.

In April 2016 corporate tax receipts are lower than a year ago despite a growing economy. The tax won't come back. And because of that the deficit remains very high by historical standards at 4.4% of GDP.

With little appetite for tax cuts the roof is not fixed, the next recession is pretty close being at most 3 years away and possibly sooner with Brexit, there is no chance of the deficit being fixed in time. The sun has been shining but he damage was too great is what Osborne will argue.

But this alone makes me wonder about a Corbyn Government. By 2019 plenty of people will have forgotten the 2007 mess and who was at fault or not. When the Tories look vulnerable on the economy they generally lose the election. I wonder if it will come to pass. 


Umbongo said...

Odd isn't it? Everybody tells me that Labour under Corbyn could never win an election. I really don't understand why so many believe this - especially Conservatives. Frankly, why would anyone vote for Cameron or Osborne? FFS, if you want SJW politics and statist economics - which is more or less what we're getting with the present government - then there's no reason not to vote Labour next time - or, rather, just not vote Conservative (or at all?). After all Labour should be better at ruling from the lunatic left than those currently at No 10 and No 11. Sure the country would be ruined but, as your posting more than implies, the Cameroons are in the process of ruining the country anyway.

E-K said...

After a Remain result it won't matter if Labour is in.

Our government won't matter at all. We could be in the Euro too.

John miller said...

As long as The Wee Pixie reigns in Porridgeland the Tories are safe.

Ravenscar. said...

Very pretty, stats, figures, fundamentals (pah) and GDP blah effin, cunting blah.

I don't give a flying **** about fancy stats.

There has been no rebound, their GDP figures are pure fantasy, we know it, they know it, lets stop playing the fucking game.

Japanization of the economy, zombie manufacturing, a core of dead wood needing to be cut away and a nation which is attempting to absorb > 800,000 new mouths to feed well the ones we(?).... (they HMG) know about.

It's a sinking ship, George knows it, we know it.

QE on top of it all was taking the piss and led to guess what?? Uh, a housing and equities bubble way out of control evidently that is: justly described as "economics of the madhouse".

Keep it up George, the next one will be on YOU and we will remember you by what you didn't do, rather than what you did.

Anonymous said...

I doubt Corbyn will or even wants to win the 2020 election. I doubt the Tories will want to win it either but they probably will with a slim majority. As you say the economic clouds are darkening and the Labour party's strategy may be to let the Tories hang themselves whilst replacing Corbyn with some suitable figurehead and then go for the jugular in 2025. By that time I reckon even Jo Stalin could win.

Raedwald said...

With dire warnings that we should expect a massive global crash, and broadsheet money advisors telling us to buy gold and keep £5k cash handy for when they take the ATMs offline, and respected financial journalists debating not IF but WHEN helicopter money should be distributed as a sort of last-ditch financial defibrillator, Osborne's failure to manage the economy is small stuff. If the dire predictions are right, we'll be lucky to feed ourselves in three years.

Steven_L said...

More than double what has been spent 10 years earlier in a time of relatively low inflation.

Let me fix that one for you: More than double what has been spent 10 years earlier in a time of relatively low official inflation.

After all, we'e talking about a period where oil prices rose from $10 to $147 at one point, where metal prices quadrupled, the money supply and house prices trebled, food prices doubled, jeans and trainers remained flat and the cost of DVD players went through the floor.

CityUnslicker said...

Fair point SL!

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