Seumas and logic fail to shake hands again

The most spectacular failure, however, is in the government’s central economic objective – for which all the pain was supposed to have been endured. After four years in office, the budget deficit and debt are growing, when the original plan had the books as good as balanced by now. The government’s core policy has failed on its own terms – let alone anyone else’s.

A crucial factor in that failure is falling wages and job insecurity. Cuts in real pay and growing low-wage employment have meant lower tax receipts and greater demand for benefits. Almost all the pain of benefit cuts for the most vulnerable has come to nought.

If cuts aren’t working, and low pay and insecurity are shrinking tax revenues and boosting benefit costs,

Well, if benefits have been rising and tax revenues falling, thus the deficit is till blowing out and the national debt rising, then what cuts have there been?

Has government spending fallen in nominal terms? Cash terms? Real terms? So, what cuts?

43 thoughts on “Seumas and logic fail to shake hands again”

  1. And from Seumas tomorrow on his infinite loop: “The deficit doesn’t matter so we shouldn’t be trying to reduce it; shame on the government for failing to reduce the deficit.”

  2. Tim I call this a Murphy grade fail on your part.

    Imagine a simple government that does two things – provide income support and run schools and hospitals.

    A recession happens, and this government finds itself running a deficit. It announces a plan to cut the deficit by cutting spending on schools and hospitals. It does this and finds both tax receipts fall and income support spending rises.

    The government’s policy has failed on its own terms. It tried to cut its way to budget balance and failed.

    if you want to know there the UK has made cuts, you could read the FT http://www.ft.com/indepth/britain-cuts you could read Flip Chart Rick, you could follow Portes or Wren-Lewis.

    In my eyes your persistent denial of the reality of cuts and the fact that they have imposed real pain on real people without achieving what they set out to do, is as bad as anything Murphy ever does

  3. confusing instruments with outcomes is a schoolboy error, cuts are the instrument.

    the fact that if you cut in one place spending rises in another (and tax revenues fall) is WHY those who opposed austerity did so. If it wasn’t for that, austerity (in the midst of a downturn) would cut the deficit. If this is basically your position, I do know why you aren’t joining those who opposed austerity on this basis that it will impose real pain on people, weaken the economy and all – almost – for naught

  4. I agree with Luis.

    Also, we have seen a tax cut (top rate of tax from 50% to 45%) which the Left love to point out. You can argue that it didn’t make much difference to the total revenue raised, but it’s still a factor in the failure to reduce the deficit.

  5. Or, if your position really is that we ought to have cut government spending across departments and accompanied this with major reductions to automatic stabilizers, removing tax credits, housing benefit etc. to ensure that the worst off in society really bear the brunt of adjusting to the damage wrought by bankers etc. then you really are moving into evil bastard territory

  6. I do agree that the government has failed to achieve its STATE objective. I do wonder, however, whether it is I reality tried to reduce the deficit from where it found it. I would prefer, much prefer, our politicians to say what they mean. I am also a firm believer that we get the politicians and government we deserve and work for. If we are an infantalised electorate that doesn’t wish to do crunchy thinking and prefers instead to choosing to blame alternatively ‘bankers’ for ‘stealing our money’ or ‘immigrants’ for ‘stealing our jobs/benefits/women’, then we will get politicians who promise whatever it suits them to promise today.

    So, given that absolute deficit reduction hasn’t been seriously attempted, the questions become
    1. Have there been cuts? Ans: yes, some.
    2. Have they reduced spending? Ans: yes, certainly below what it would otherwise have been.
    3. Has it reduced the deficit below what it would otherwise have been? Ans: depends on your view (probably pre-formed).

    Tax receipts are lower than expected, certainly. Why? Well I do not accept for a second that the famed multiplier effect is at work here. And certainly the tax cut from 50 – 45% is irrelevant. The drop in unemployment has been more largely than expected down to part-time work and self-employment. Self-employment yields lower tax receipts than employment. Increases in PAs and NI thresholds have also dampened receipts.

    Are real cuts, painful cuts likely after the next election? Almost certainly, whoever wins.

  7. Leftist bullshit week is it?

    The govt are the cause of the fucking recession in the first place. They were happy indeed with the prospect of limitless cheap cash when the Bottle-fed Boy boasted that busts were bust. Reality arrived and then it was all the banks fault (they played their part but watching political scum trying to blame the bankers for everything is like watching Baron Frankenstein trying to pass it all off on Igor “Monsters?. I just live at Castle Frankenstein Guv–I don’t know nothing about monsters”.).
    Then, as if ZaNu weren’t bad enough,along comes the stale jizz of BluLabour. Who can’t do real cuts because the wouldn’t be able to keep welfare/warfare running or pay for green bounty. But they are stupid enough to make piddly little cuts that achieve sod all in the larger scheme of things but allow leftists to start the “austerity” squark. Why do something that dumb when the practical effect of their cuts is zero?. I believe to give the few remaining faithful something to feebly cheer at Tory conference. IanB has the phrase “those who clap like seals” at attacks on those they class as “scroungers”. All the more hilarious when these measures are proposed with maximum venom by top table spongers like the Westminster gang.

  8. It’s perfectly logical to complain both that austerity is awful, and that austerity has not been imposed. It’s quantum austerity, that’s all.

  9. LE,

    I’ve been reading Rick’s blog for a few years now and he makes some good points about austerity, or lack of it. What we are looking is approaching LaLa land. I also read Chis and agree with most of his points.

    The reason I think we should still be making cuts is that once we do get an upturn in the economy there will be no political imperative to make cuts and we’ll see yet another increase in spending, making the next recession even worse.

    I’m not convinced by either of them that ending austerity will lead to a quicker and healthier pick up in growth, one that will make us richer in the end.

    At least with some cuts that increase in spending in the next boom starts from a lower base.

  10. During the Brown days, tax receipts were high but so was borrowing and increasing in order to maintain Government spending.

    Whether or not tax receipts had remained the same or even grown, the deficit would have opened.

    Tax receipt were already falling when the Coalition circus pitched its tent, with promises to cut spending.

    It did not cut spending, it merely shelved plans to increase it.

    The only way to balance the budget is to stop spending on the champagne and caviar so we can still have bread and butter.

    That means stop spending on the sacred relics schools and hospitals privatise them to take capital expenditure and payroll off the books, and cut welfare to a payment per person over the age of 18 to £10 000 pa with no other benefits, with a 20% reduction to zero over five years.

    So get a job, starve or seek private charity… that latter is no more stigmatising than State charity.

    These real cuts should then allow everyone under £20K to be taken out of the tax system, NIC abolished permitting an extra 26% of wages to remain in their owner’s pocket, then abolish corporation tax and minimum wage so more employers will be able to offer work, start up or expand business, increase wages.

    Cue shrieks of anguish. Won’t work? Let’s try it and see.

  11. Mr Ecks

    It might be me, but I’m not quite sure where you are coming from here. On the one hand you denounce “limitless cheap cash”, which you say lead to reality finally arriving. Then, however, you denounce people who condemn scroungers and you describe them as “those who clap like seals”, ergo: there are no scroungers. You also denounce those who try to blame it all on bankers.

    Well, if there are no such scroungers, where did all the limitless cheap cash go? It just seems to me to be playing for both teams. I can’t imagine that’s what you’re doing, please help me understand.

  12. Never said there were no scroungers. The cash went on welfare/warfare–welfare including corporate welfare and the state sticking its nose into every aspect of life. I said that making piddly little cuts –bedroom tax whatever–has allowed leftists to open a propaganda front against (their half?-brother leftists/fellow middle-class cultural Marxists?) BluLabour without any actual benefit to the economy that real and very large cutbacks in govt spending would bring.

  13. Roue le Jour

    yeah, something like that. Or maybe half the world’s banks simultaneously committing suicide.

  14. Real and very large cutbacks would bring massive befits to the economy. Maybe. But then maybe some very good spending would be cut and real pain would be the outcome.

    So it begs a couple of questions: how big should the us be and where?

  15. I work with a bit of the public sector that has incurred significant cuts. It was right and proper that budgets were cut, because said sector is hopelessly inefficient. A managerial class and a unionised class are taking the piss, and delivering shit outcomes to boot. It’s not high-profile enough to get a cushy ring-fence.

    So what happened was that the cuts were almost exclusively lumped onto everyone except the managerial and unionised classes who were the problem. The result? Hardship for the poor shmucks who lost their jobs, reduction in resources available to actually do what the sector is supposed to do (contributing towards hardship for the poor shmucks relying on the sector for help in life) and no net gain to the treasury because protected spending on the hallowed NHS and pensions hoovered up the paltry savings, and more besides.

  16. @ Ironman

    In that instance, about a billion quid a year. Less any net increase in welfare spending that it might have caused.

    Most cuts will cause pain somewhere, either directly (if people are put out of work) or indirectly (if actual useful services suffer). It’s about trying to allocate the pain intelligently and appropriately.

    For example, tackle bloated senior salaries before sacking admin staff. If admin staff must be sacked, lessen the admin burden so that those left behind don’t have to pick up loads of extra work. Don’t inflict all the pain, by one way or another, on the weakest stakeholders, which is what tends to happen.

  17. Yeah but, do ‘ bloated salaries’ really amount to much in the bigger picture.? Really? It seems to me to be the mirror of those lefties who think bankers’ bonuses bankrupt the nation.
    May I suggest that a real reduction in public spending will require seriously painful cuts in services. “Waste” is self – serving rubbish.

  18. @The Thought gang –

    you have got it in one, and in fairness this was something that was true in local government 20 years ago – the people doing the work (to varying standards) or as you so appositely put it, the weakest stakeholders, were made redundant or TUPE transferred to outsourcing companies with awful T&Cs, whilst the Senior bureaucracy feathered its nest and continued to prosper. Until we tackle those at the top, from MPs on downward, then any austerity is likely to be as ineptly implemented and random in its effects as the last 4 years have been.

  19. “Look, do we really think cuts CAN be painless. Anyone really think that?”

    Cuts of the size we would need clear the deficit, no.

    The problem is that no matter how big, small or well targetd the cuts are everyone affected screams they are hurting, if they didn’t it would be tantamount to accepting they were bloated and badly managed. We’ve even got screaming for those departments that are ring fenced because their budgets aren’t rising fast enough. So we can’t use the screams as a measure of how well or badly that policy is working.

    Governments have been making “efficiency” cuts as long as I can remember so its a fair bet that there isn’t a great deal of slack in any budgets and if they were its a rounding error of what is needed. If the Tories mean what they say they are going to have to do a lot more than cut a few budgets, it needs a whole rethink about the nature of Government and what it can deliver. Whole departments will need to go – do we really need a Department for Culture Media and Sport for example? Of course people in Culture, Media and Sport will say we do but that’s no guide. What does Defra really do?

  20. Yesterday I had a parcel from an NHS trust. It was an item my company had sent out for £2.04, the cost to return was £7.50.
    Is the NHS getting best use out of its resources? Just thinking with their total clout they should be able to get a better deal from royal mail than a small 3 person company can.
    Is the NHS the only behemoth not getting the best deal it can?

    Labour went into the last election with cuts already announced. The coalition imposed cuts in particular spending while not cutting other spending. Nice soundbites from government but who does the implementation?
    I’m sure ministers can tell their staff ‘we are going to get less budget next year so need to make savings’ but who decides what exactly is cut? Management?
    And of that management how many will cut themselves? Or will they see themselves as essential and the lower paid staff as less essential?
    Or particular programs as less essential so cut x, y and z it doesn’t matter if people complain. Just point to government and scream about the ‘cuts’.

  21. One thing thaybstrick me in America a couple of years ago was Tea Party diehards insisting government should get out of the way. All fine and dandy until I started going into details; how about x and y is scrapped? At which point I had pushed their buttons, about their, shall we call them ‘subsidies’.. my experience is there is some government expenditure we each like very much and it correlates closely to heir own interests. This is why I ask.

  22. First define “cuts”.
    Do your cuts mean less spending in monetary terms or just less spending after an academic adjustment for the GDP deflator or cuts in the amount of GDP funneled through the tax system from one person to another.
    Government spending has risen in cash terms and shrunk a little as a %age of GDP.
    Seumas is simply lying when he says the deficit is growing, but it is a truism that debt is growing until the deficit is eliminated and “books as good as balanced by now” would mean that debt was growing, as a %age, by less than nominal GDP which would be tens of £billions in cash terms.
    Falling wages – lies, utter lies. Mean or median real wages for those in work and staying in work are rising faster then the cost of living – and that is even before the benefits of tax cuts for the lower-paid. The figures trumpeted by the two lying Eds are combining the higher wages of those continuously in work with the wages of those moving into work, which are considerably greater than JSA but lower than those who were in work last year and saying “We’ve got five oranges and a tangerine so we are worse off than last year when we had five oranges and no tangerine”. Of course a minority are worse off because their wages have fallen or failed to keep up with the cost of living, so they will fall for the Labour spin.

  23. @Ironman

    1. Is govt spending ever painless? They take money from me to waste. That hurts ME.

    2. This meme that waste is not a problem is nonsense. It’s huge. And to be frank, I don’t care if it is not. Waste is waste. I regard it as the bare minimum requirement that they treat our money with respect

  24. John77

    For this purpose I mean less spending in absolute terms. Real term cuts are indeed cuts. However, when talking about eliminating the deficit in any defintion of the medium term, as opposed to marginally reducing it as a percentage of GDP%, we are talking about absolute spending reductions of a very high order.

    P.S. I have not personally entered any discussion on mean or median wages, for those with extant postions or those re-entering employment. I am simply discussing one vey simple question on the deficit.

    Interested

    I think we are at cross purposes. Nobody on this thread as far as I can see is calling for high levels of gov’t expenditure, let alone high taxes. Certainly I’m not. Neither am I arguing in favour of waste in any way (?). I am quite simply saying that waste accurs by its nature at the margins. Those that talk of cutting gov’t expenditure by tens of billions in order to make huge tax cuts – and I believe we are talking UKIP here – are not entitled to point to ‘waste’ as the means of doing so. The sort of cuts they are offering – absolute and very large cuts in expenditure – can only be achieved by cutting deep into genuine services, services people quite like.

    I am suggesting that more candour is required.

  25. And I wasn’t criticising you at all. So your annoyance is a bit surprising. A pity really, I found your analysis of wage rises very interesting and informative.

    However, Tim’s post isn’t about wages either. Your observation is very useful, just not necessarily on this thread.

  26. @Ironman

    It rather depends on your definitions of ‘waste’ and ‘pain’.

    Of course waste occurs – the question is, what is waste?

    Ordering unnecessary pot plants, for sure. Ordering useles IT systems, too. Billions there. But I’m not on about that.

    There’s a lot of waste in public sector wage bills, and that does amount to serious money. We could cut a large number of people altogether and reduce the salaries of the remainder.

    No council chief executive should earn more than (say) twice the average wage (at time of cutting their wages). No head of department should earn more than 80% of what the CE earns.

    No State employee should earn more than the Prime Minister, would be a pretty good rule.

    People might squeal that you can’t get a decent head of Ofstead, or the BoE, for £150,000 a year. But that can’t be true, since these people are all about the ‘service’. Unlike the ‘greedy’ private sector.

    Now, if you don’t think it’s wasteful to pay the head of middling local authorities in the (broke) north of England an average of £150,000 a year, maybe we will just have to agree to disagree as to our definitions of waste.

    If you are worried about the ‘pain’ they would feel in coming down to £50,000 a year, for making sure the bins are emptied now and then, I can’t share your empathy.

    Equally, if you’re worried about the ‘pain’ involved in sacking idle people doing unproductive, and often counter-productive, ‘jobs’ at the expense of actual working people, then I can’t share that empathy either.

    What I can say is pain is irrelevant as to the question of how much money is wasted.

  27. @Ironman

    ‘Tim’s post isn’t about wages ‘

    The piece he quotes talks explicitly about wages. Public sector wages are a significant cost and a driver of the deficit.

  28. @ Ironman re. ‘bloated salaries’

    I’d agree that these are often not the problem that they are made out to be. A small number of people earning too much isn’t a big drain on a large organisation. However, when organisations both greatly expand the numbers in the management class AND up the salaries, it starts to bite a bit.

    The other problem is that people who earn big salaries seem to then overestimate their importance (Chris Dillow has written approximately 5000 blog posts on the subject which cite actual research, I can merely say that I’ve seen it happen a lot in my narrow career experience.. both public and private sectors).

  29. Wow, multiple threads!

    First, Tim’s post is not about wages. Yes he quotes extensively from Seumas’ meanderings. He though asks “what cuts?”, that’s it.

    Second, what I suspected would happen is indeed happening; we are now well into the 30-somethings on posts and the direct and quite straightforward question I have posed has not been answered, instead a skirting exercise has taken over.

    Nobody, nobody at all, is arguing FOR waste. Nobody is arguing for a bloated head-count or bloated salaries or excessively generous non-salary benefits. My point is that ‘waste’, whatever your own personal favourite definition, occurs at the margins. Anyone who is prepared to stick their head above the parapet and argue for SIGNIFICANT cuts in public expenditure needs to be able to say what genuine, significant, structural budget cuts they would make. Anything else is dishonest.

  30. Actually I think I need to repeat, I am seeing here the mirror image of Ed Miliband’s “it’s all the bankers’ fault. Blame them for everything. Stop their bonuses and everything will be right; the fiscal deficit will disappear, we’ll get growth with no inequality and our kids will be drinking milk and honey at breaktime.” Here we are saying “public sector managers all earn three times what they should for doing eff all. Slash their salaries and everything will be right, the fiscal deficit…”

  31. public sector managers all earn three times what they should for doing eff all. Slash their salaries and everything will be right, the fiscal deficit…

    Actually, I expect many here believe that even if public sector _managers_ did it purely on minimum wage or even for free, they would still be a net loss to the economy. I suspect that many public sector workers would agree.

  32. Sorry, pure rhetoric. Are we seriously suggesting that the deficit would disappear if we just sacked the right people? Really? How much would be saved? What would be the benefit to the fiscal deficit?

    This is my beef: here we are saying government expenditure is great too high, i.e. beyond marginal savings. If we made these fundamental savings the deficit would fall away and growth would increase. And funnily enough I personally think that public spending is too high. And yet, when asked to identify the areas of reduction we fall into tired abuse about senior managers, as if that will make any difference other than at the margins. We fall back onto clever quips to avoid a direct response.
    Most disappointing is to read 4 of the most intelligent contributors to this blog doing it.
    Look, senior managers’ salaries impact on public expenditure AT THE MARGINS, they are the public sector equivalent of bankers’ bonuses.
    Is anyone able to offer a genuine response?

  33. £40,000 a year should be the max public sector wage and £25,000 a year the maximum pension–local or national. Most of the ordinary staff (and voters) will be below that by a mile and would have nothing to gripe about. The “I’m worth it” management class won’t like it–tough. Leave and let their superior skills carry them to fame and fortune in the private sector.
    As for cuts–the budget could be cut near in half without too much damage to the Social Security/NHS .By starting at the top. Senior Civil Service fired without compensation and pensions confiscated–along with all 40-50 thousand CS managers. All non-science university places shut and the teachers fired as per Senior CS. That’ll bring socialism down a peg or two as well as save money. Most govt depts. closed and ordinary CS staff redeployed on sorting out the immigration backlog. All green antics stopped and a free market in energy supply. Locals neutered too. There is a huge amount that could be done without yet upsetting the voting block of ordinary people still in the public sector or dependant on state handouts. Of course DHSS and the NHS also need to go along with pretty much all the rest of the state but on a wind-down plan across 30 years that would give people plenty of time to adjust.

  34. @ Ironman

    I don’t think anyone is arguing that the bankers bonuses themselves ruined the economy. That is to say, that the transfer of cash from ‘not the bankers’ to ‘the bankers’ is why there’s not enough cash for ‘not the bankers’. If we ignore those ranting from simple envy/hatred, the proposition is that bonuses encouraged reckless behaviour which, in turn, crashed the economy. I don’t agree with the proposition (or, rather, I think there were one or two other factors in play), but let’s not misrepresent the argument.

    As for blaming high public sector salaries for whatever problems we are presently alleged to have, some here may think that but, for the avoidance of doubt, I don’t (except for, perhaps, the indirect problem of them leading to poor decisions) in that I agree that cutting them down won’t do much to get rid of a £100b deficit. But that doesn’t mean they’re OK. Accumulated marginal gains and all that jazz.

    What i did to was point at a sector where high senior salaries were protected at the expense of others, and that led to more pain that was necessary. I would also argue that in that particular sector, the straight financial hit from those high salaries, by virtue of the sheer number of people on the gravy train, was big enough to be an issue in the context of that particular sector. That’s based on observation, not research, and I accept the limitation of that.

    I think that the principle personal beneficiaries of government waste are in the private sector organisations that take the piss because the government is a shit buyer. But the real issue I personally have with government spending is not the quantum, it’s what we get for it. How much do we spend on an education system that struggles to teach kids to read and write? Why must our welfare system be used for social engineering? Why is the police budget spent on a futile ‘war on drugs’ and chasing after people who are mean on twitter instead of the things that actually make peoples lives worse on a daily basis.

  35. Ironman

    Not sure which questions of yours have not been answered. As far as I can see, you’ve answered all of your own questions entirely to your own satisfaction, as you usually do, so I assumed they were rhetorical.

    Anyway, you’re right about a lack of candour – governments are untruthful? who knew? – but wrong that there’s no significant waste (as defined) and that wages are irrelevant as to the size of the deficit.

    It’s not ‘tired abuse’, it’s just a fact – the major cost in the NHS (for example) is salaries. I strongly suspect that this is true of all government organisations, bar the military (and if it’s not then it’s a major, major factor).

    Now, much of this wage bill is fine, but we know that much of it is not. To pretend that it’s not relevant to the situation we’re in is idiocy of the first order.

  36. Two points: first, there’s a fiscal multiplier associated with paying money to poor people, and hence a fiscal divisor for taking money away from poor people. So cuts of this sort never achieve what their proponents claim.

    Second, eliminating waste can be very expensive. Estimates of the annual admin cost of the NHS internal market start at £4.5bn.

  37. Mr Ecks

    A wind down plan over 30 years. By which time the national debt will be… how much? Oh and to confirm, since we’re talking about expenditure, it is the paying for the NHS that is so wasteful right? Not the single provider, the paying for it? And we will replace it, presumably, with insurance. And some won’t be able to afford it and, well, and then what?

    The Thought Gang

    Thank you. I find I agree with much of what you say.

    Interested

    Straw man – marginal and irrelevant are two different words. However, I see you are quite determined not to move off your “public sector – scroungers ” line, so I won’t bother you with it any more

    However, you are right on one point: I have answered my own question to my satisfaction. People do talk about cutting all that wasteful public expenditure but do not want.to talk seriously about what that expenditure is they would cut, how much would be saved by doing it and what the effect of ending that state expenditure would be.

    Phased over 30 years – love it.

  38. You seem to be becoming incoherent Ironman. Check your arc reactor or get Jarvis to give you a reboot.

    One of the main reasons for cutting the expenditure of the state is to get rid of the “national” debt (another even better reason is to disempower a gang of dictatorial turds). In 30 years (in the scenario I’m talking about) the debt will be zero. We have a Nat’l debt because the bastards waste all they steal from us and then borrow to put the unborn in debt and then print cos even all that cash cannot sate their love of wasteful antics and their endless promises to the voting numpties. Who are set to get a very rude awakening soon enough unless something is done to rein in the state.
    The NHS is extremely expensive. Insurance/friendly societies etc would replace it and folks would have 30 years to prepare.If people can’t afford it (and short of very bad luck that is hard to envisage in a land free from tax thieving) because they are wasters, dossers, etc then they would have to ask for charity–as they do not have a right to demand others support them. Remember that a free society without state parasitism and “regulation” would be vastly wealthier and more advanced after 30 years of growing prosperity.

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