No, there wasn\’t a double dip recession

If you change the calculation slightly that is.

Earlier today, the Office for National Statistics confirmed the economy had contracted by 0.3pc in the final quarter of last year, mainly as a result of a collapse in North Sea activity.

However, it revised up its estimates of previous quarters, and said there was 0.2pc growth in 2012, up from the zero growth it had estimated previously.

The ONS said growth in the third quarter was 1pc rather than 0.9pc and that the economy shrank in the first quarter of 2012 not by 0.2pc but by just 0.1pc.

The chief economist at the investment house said the “phantom” recessions reflected continuing weak North Sea oil and gas extraction and when that was stripped out, it revealed that there had never been a ‘double-dip’ in the UK onshore economy.

Mr Ward said North Sea oil production is supply-driven, and while it has been weak because of reserves depletion and unusual maintenance shutdowns, \”these are of no relevance to the wider economy so it is reasonable to strip out the North Sea when assessing underlying trends\”

It\’s a fair enough point.

As long as everyone knows that this adjustment is being made, it\’s a fair enough point that is. What would not be fair would be to announce that we really didn\’t have a double dip recession at all: that would be changing the scoring method for political gain, something of a no no.

Accepting that correction though, we can move on to something much more interesting. Which is who is to blame for that declining North Sea?

No, it isn\’t just that it\’s a declining resource. It\’s actually, at least partially, to do with the idiot Gordon Brown. He raised production taxes on North Sea production up over the Laffer Curve peak. There really was a fall in investment in the area when his taxes started to bite. And given Osborne\’s cut in those taxes there has now been a surge in investment.

And yes, given that we are talking about investment taxes on long term projects there is indeed a several year lag between the imposition of the tax and the effects on the level of activity. Which leaves us with an even more delightful point that we can make.

Even if we include the North Sea, Britain still wouldn\’t have had a double dip recession if it hadn\’t been for Gordon Brown and his over-taxation of the oil and gas business.

18 thoughts on “No, there wasn\’t a double dip recession”

  1. I’ve never trusted the way we measure recessions, US NBER system is way better. Ward though is surely splitting hairs here though, I mean either way our economy is pretty much fucked for the foreseeable. Especially with economic illiterate Gormless Gid at the helm.

    And is there anything wrong about the UK that you DON’T blame Gordon Brown for?

  2. The Gordon Brown scorched earth policy is indeed a wonder to behold. He knew exactly what he was doing when he did this. Personally I think the nokia’s where a front!

  3. are you sure that declining production had nothing to do with oil majors exiting the region looking for new frontiers?

    And new production? I’m sure oil at +$100 a barrel has encouraged smaller entrants to come in and take on ageing fields

  4. Seth, the real problem with Osborne is he’s too like Brown. For a long time now, we’ve had politicians bribing us with our own money, throwing cash at stuff, grandstanding, buying badly, cocking up contracts, introducing strangling legislation… Brown or Osborne, or any of them, all this country needs is for them to get the fuck out of the way.

  5. I’m sorry but I’ll start taking all this seriously when the figures get into whole numbers.
    When whether or not you’ve emptied out the china pig has a discernible effect on the economy it’s all getting a bit silly.

  6. There are no production taxes on North Sea oil (well, except for fields established before 1993, which still pay PRT). So, erm, no, this is bollocks.

    (oil extraction business pay a higher level of corporation tax than other businesses. But this is tax *on their profits*, not a production tax, so has no effect on optimal production levels).

  7. john b

    Brown doubles North Sea oil tax

    Who cares what the taxes are called, they exist and the genius Brown raised them.


    …..are you sure that declining production had nothing to do with oil majors exiting the region looking for new frontiers?……

    The companies that bought properties from the majors, very often increased production. The majors left because the easy stuff was gone and they couldnt be bothered to sweat out the rest.

  8. Serf: yes, it matters a lot. A tax on *output* depresses volumes in a way that a tax on profit (after capital allowances) doesn’t, for reasons that are incredibly obvious.

  9. What BIS said.

    Under the measures we use, the economy is flat, and the opposing political factions loading significance onto small variations above or below zero is pathetic.

    And it’s not as if most people have the faintest clue what any of it means anyway.

  10. John b, so an increase in tax on profits doesn’t make any oil producer think twice about investing in North Sea Oil? Or are you saying it’s not as pronounced an effect as a tax on production/output?

    But there is an effect, however small, and if so, it must affect how companies decide to do business. Remove that effect, production increases, so a tax is a tax no matter what you call it.

  11. Interesting to see the claim that an increase in profit tac levels can’t shift profitability for a project from positive to negative… We can stop bothering including taxes in our business plans from now on

  12. the margin for error around those estimates of growth is way higher than the estimates of “growth”….is anyone capable of determining economic activity in the UK to within 5%? They are still revising figures from the 1980s! The data are not sufficiently reliable to inform any conclusions, apart from Brown really buggered the economy.

  13. Interesting to see the claim that an increase in profit tac levels can’t shift profitability for a project from positive to negative

    That’s trivially true.

  14. “Here is my project. It is lossmaking. At least I don’t have to pay any tax.”

    “Here is my project. It is profitable. I am being taxed on the profit. My returns are still positive, because duh.”

    Tim adds: EH?

    Here is my project. The cost of capital is 10%. The profit is 20%. It is profitable.

    Here is my project. The cost of capital is 10%. The profit is 20%. The tax on profit is 75%. My project is not profitable.

    And that’s without even adding in risk…..

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