Willy Hutton fails his economics GCSE

George Osborne would fail his economics GCSE – he can’t even get the basics
Will Hutton

This is fun, isn’t it? That accusation. Followed by this:

Three fundamental errors underpin his worldview. The first is that he conflates country and government and defines living within our means wholly in terms of the government’s finances. Yet Britain’s international trading position is ominously in the red, running a current account deficit of 5% of GDP and set to rise. Exports stagnate, imports boom. This really is living beyond our means, but about which the chancellor says zilch.

Instead, he makes matters worse, selling government assets such as the Green Investment Bank or, last year, Eurostar to foreigners, so that more interest and dividends flow overseas.

Admittedly, I’ve not checked a syllabus, but I would imagine that economics GCSE includes the thought that the balance of payments does indeed balance. Meaning that if there’s a current account deficit (something similar to but not exactly the same as a trade deficit) then there must be a capital account surplus. Or, in not quite right terms but good enough for most people, if we keep buying all those foreign goods and services then foreigners must also be buying land, buildings, companies and so on. Because, erm, the balance of payments does balance.

So, err, Well Done Willy, well done there.

We might have to coin a subsidiary of Muphry’s Law perhaps, Hutton’s Law. Any Willy Hutton critique of economic policy, theory or practice will contain a greater economic error than the one Willy is complaining about.

All because of a stubborn refusal to countenance all but closet tax increases. The government will receive £47bn in excise duty on alcohol, fuel and cigarettes this year. Forty years ago, it raised nearly the equivalent of £80bn. Some of the shortfall is because, thankfully, we smoke less, but most of it is because taxation on alcohol and fuel has been scaled back.

Dear God I’d love to see someone trying to defend that calculation. Fuel tax revenue is lower now after two decades of the fuel duty escalator? Srsly?

21 thoughts on “Willy Hutton fails his economics GCSE”

  1. Eurostar? We were making around 1% return on investment. Sold for £600m, making annual profits of around £7.5m. And it certainly didn’t pay for the £3bn that we spunked on HS1.

  2. Re syllabus. I checked a few weeks ago for precisely this, and it is on the A level syllabus at least. (Though some boards demand more knowledge about it, in particular OCR demands more and EdExcel less.)

  3. Bloke in Germany in Hong Kong

    Serious question here – is being concerned that selling the entire country to Sheikhs and Oligarchs for a few baubles and slightly cheaper fuel a legitimate concern or a viewpoint to be ridiculed as neo-monetarism?

  4. Surely the Opium Wars are covered in any Economics syllabus which is entirely down to balance of payments. The UK wanted to buy tea from China so money flowed into China, the only way the UK could continue to buy tea from China was for money to also flow /out/ of China, but China didn’t want to send money out (aka buy foreign stuff) so the UK became drug pushers to get the money to flow.

  5. Mr Hutton receives a Gamma- for his statistical work as well.

    All inflation done with the Bank of England’s inflation calculator.

    In 1975, Customs and Excise revenues were £9.08 billion, this is equal to £68.71 billion in 2015 terms based on inflation adjustment. If one uses the £10.65 billion in 1976 and inflate it, it comes to £80 billion. Stats taken from the The Economist 100 years of Economic Statistics. Note that this number is flawed since in the notes on page 70, we see that the Customs and Excise number includes purchase tax and now includes VAT.

    In 1975, the OECD stats show Excise revenue was £4.75 billion, this is equal to £35.94 billion in 2015 terms. This is the correct answer.

    In 1975, the OECD stats show that Excise revenue was 4.3% of GDP (4.5% in 1976). If we apply this percentage to present day UK GDP of approximately £2.2 trillion, it gives us £94 billion.

    The only way to get to Mr Hutton’s £80 billion is to either use the wrong custom and excise tax number or to match it to GDP – which is of course flawed since it does not allow for the growth of elements of the economy that are not subject to Excise taxation.

    It is fortunate for the limited talents of Mr Hutton that he was able to slip into Oxford as the principal of a college since he would never have been permitted in as a student.

  6. I should have said that if one inflates the 1976 tax number and inflate it with 1975 base year, it comes to £80 billion, using the base year as 1976 we see it as £69 billion.

  7. Bloke in Germany in Hong Kong,

    “Serious question here – is being concerned that selling the entire country to Sheikhs and Oligarchs for a few baubles and slightly cheaper fuel a legitimate concern or a viewpoint to be ridiculed as neo-monetarism?”

    Selling the entire country? Eurostar and the Green Investment Bank? The former at a reasonable market price, the latter is some eco project thing that loses money.

    Neither of these should ever have been owned by the state in the first place. I’m not a libertarian. Some things are more sensibly done by the state. But “getting to Paris” has a bunch of airlines, ferries, drive through the tunnel, existing rail and Eurostar. Eurostar can be owned by a bunch of evil capitalists trying to make as much money as possible, because the competition will stop them abusing that position.

  8. “Fuel tax revenue is lower now after two decades of the fuel duty escalator? Srsly?” His comparison was over forty years, not twenty. One point to the arse Hutton, I’m afraid.

    If the govt is in desperate need of tax revenue, wouldn’t this be a good time to raise duty on retail sales of petrol and diesel? It would, of course, be presented as temporary. It’s also time to tax people who own property abroad; the Toynbee tax, it could be called.

  9. Sorry, no, the fuel duty escalator has been around just over two decades. Announced by Ken Clarke in, I think, 1993.

  10. You’ve missed the point, Tim. He said fuel duty had fallen over forty years. You replied that it had risen over the past twenty. Which is no answer at all unless you also say what happened in the first twenty of his forty.

    You lose an extra penalty point.

  11. @dearieme – are you claiming that fuel duty was reduced between 1975-93 by more than it has since increased (which would be necessary for Hutton’s claim to be correct)? Dubious.

  12. Bloke in Costa Rica

    Stigler: you know it’s perfectly possible to be a libertarian and still believe some things are better done by the State. It’s the default position, in fact. It’s only the more hare-brained anarchocapitalists who think differently and I’ve never managed to get a coherent answer out of one of them as to why it wouldn’t degenerate into a cross between Snow Crash and Mad Max.

    Of course if B is the set of things I think should be done by the State and H is the set of things Hutton thinks should be done by the state then |B| ≪ |H|.

  13. Among the greatest downward pressures on excise duties has been the existence of the European Union, which Hutton is a great fan of.

  14. Bloke in Costa Rica,

    It depends on your definition of these words. I class libertarian as believing in government being not much more than simple law and order and protecting borders. Whereas, a classic liberal is more someone who thinks markets work, and you need state for the bits where the market doesn’t work.

  15. @dearieme

    We know that excise taxes in the past forty years have risen. The OECD stats show that in nominal terms the amount of excise duty brought in in 1975 was£35 billion in present day terms and it is currently £47 billion. Since Fuel Duty is the largest of these, we can be reasonably certain that Fuel Duty has risen over the full forty years. As I said Hutton gets a Gamma minus.

  16. BiGHK

    There are two levels to this question:

    Should we be worried that the UK runs a trade deficit?
    Should we be worried that the UK runs a government deficit? And should we be trying to fill the deficit with taxes or by reducing spending, or by selling assets?

    On the first, I tend to the view that running a trade deficit and receiving capital is not a problem – although there are externalities – a loss of control over HQ functions of British businesses sold overseas and the benefits that accrue to society of this function.

    On the second, I tend to think that the UK should not be running a deficit over the economic cycle. I am not convinced that tax revenues can be easily achieved. Selling assets is only a stopgap, although in general the UK government need not be involved in running stuff – government being crap at that. Note that we could be running a trade surplus and a government deficit, in which case selling the assets of the government might mean that UK investors bought it instead.

  17. Dearieme, provide the figures to support your wag that there is an error. Over 40 years, Tim is right. Give your index for the 20 year sub period.

  18. And if your answer relies on the terminology of fuel duty escalator, then you will be burned at Martys’ Memorial, for differences without significance. The real thought-crime now.

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