As the Independent reports:
The Government's deficit reduction plans were dealt a blow today after official figures revealed that last month's borrowing figures were the highest ever recorded for the month of April.
Public borrowing, excluding financial interventions such as bank bail-outs, hit £10 billion, compared with £7.3 billion the previous year, said the Office for National Statistics (ONS).
The figure, which is higher than City expectations of £6.5 billion, will cast doubt on whether the Government can meet its target of bringing the deficit down to £122 billion this financial year.
The ONS said tax receipts fell year on year, which had been boosted to the tune of £3.5 billion a year earlier by the tax on bankers' bonuses.
I wonder if the ONS really think the bankers don't know that? Of course they did, and of course they included it in their estimates. The result is that this is an outright disaster for George Osborne.
This man has staked his entire credibility on reducing the deficit, and he has delivered an increase in borrowing.
This is not a one-off. This is the inevitable consequence of reducing demand, increasing unemployment, increasing benefit payments, reducing potential tax receipts and telling millions of people in this country that their services are not needed.
There is only one way out of a deficit when there is a shortage of demand in an economy. That is for the government to spend and to increase its investment in particular. So right now the government should be building infrastructure, it should be improving our flood defences, it should be building alternative energy systems, it should be improving our railways, it should be building hospitals by borrowing, it should be ensuring that every house in this country is thermally efficient, it should be building social housing, it should be investing in the skills we need the next generation to have.
It's not doing any of those things. The result will be continuing stagnation, and increasing the deficit, and that is the exact opposite of what it said it would do.
If that is not a measure of economic incompetence, it's hard to suggest what is.
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Brilliant,, hear hear!
‘Without knowledge of wind and current, without some sense of purpose, men and societies do not keep afloat for long , morally and economically, by bailing out the water.’ (Richard Titmus)
Another highly pertinent gem from Tony Judt’s, ‘Ill Fares the Land’, Richard. Clearly Osborne and the gang have no idea of wind and current. Indeed, such is their ignorance that I’ll confidently predict that by the end of the day we’ll be seeing press releases claiming that these figures show that the Tories’ policy is correct but that the problem is that we are not cutting hard or fast enough. That is, that the wind and current will – if they can just keep bailing long enough – change direction.
Later, along will come a press release from your old mate Vince reminding us that none of this has anything to do with the government – it’s all the fault of ‘external forces’ (the wind and current being exactly that, to continue the metaphor).
Anyway, you, Wolf, Krugman and so on are right, but despite that, they’ll be no U turn for a while yet. Not until the pips start to well and truly squeak (or they drop the bailer over the side of the boat :-).
Agreed!
I hope that Obama does not endorse the Coaltion’s approach to the deficit reduction when he meets Cameron today. Unfortunately our current political leaders are devoid of any kind of vision for the future apart from protecting their super rich cronies,and alas the majority of the population seem to be content to be distracted by the cult of celebrity and wrangling about the merits of Twitter. The most important discussion should be about the creation of jobs especially for the young and investment for the future. It is not surprising that we are falling further and further behind the Asian powerhouse economies.
Obama would be wise to keep his nose well clear of this issue
Richard you write …
“So right now the government should be building infrastructure, it should be improving our flood defences, it should be building alternative energy systems, it should be improving our railways, it should be building hospitals by borrowing, it should be ensuring that every house in this country is thermally efficient, it should be building social housing, it should be investing in the skills we need the next generation to have.”
But instead the government spends £billions on pointless and unwinable wars for unknown causes and reasons and our soldiers die not fighting for their country but rather for some nefarious vested interest in oil, finance and politics.
UK pensioners receive the least resources in the whole of Europe – but this is of no concern to the few “Fat Cats” as they plan their latest tax dodges via one of their assiduously cultivated and submissive tax havens situated not a million miles off our beaches.
There are thousands of disparaging adjectives which can be used to describe this situation — with “disgusting” being close to the top of the list.
“If that is not a measure of economic incompetence, it’s hard to suggest what is.”
I’d suggest it’s deliberate, a scorched-earth policy unfolding in slow motion. I’m uncomfortably reminded of every conspiracy theory I ever heard of, in particular the one suggesting the point all this is to rid the planet of its superfluous (read; poor) population. The future seems to hold only Tragedy without Hope.
BB
In an earlier post Richard drew attention to a cynical Government initiative to use the state of the economy as an excuse to remove supposedly excessive regulation and bureaucracy. As we know, Gideon Oliver Osbourne, heir to the baronetcy of Ballentaylor, has effectively bet the house on the private sector to alone drive the recovery. The ongoing inability of the private sector to create growth and jobs will no doubt be put down to over-regulation of labour markets, and an excuse will be made to cut the ‘red tape’ around employment legislation. Interesting then to read a CIPD report blows that argument out of the water, pointing out that the UK has the third least regulated labour market in the world.
http://www.peoplemanagement.co.uk/pm/articles/2011/05/red-tape-arguments-overdone-cipd-argues.htm
Seeing as how the public sectr grew to be more than 50% of GDP without stimulating the private sector, it might make sense to find out what is holding back the private sector.
The private sector is being held back by its own incompetence: it has no idea what to supply, to whom. That is because it has ceased to innovate, and can seemingly only trade in the short term. The focus of innovation is now within the state sector, because it is that sector which is meeting public need, not the private sector. Of course I simplify when making such a bold statement, but the thrust my argument is reflected in those bold comments
Would any one of the “free market” (I use the word advisedly) fundamentalists such as the Adam Smith Institute, the IoD, Tim Wotherspoon, etc etc, care to refute the above? And actually provide a reasoned argument that, despite all the evidence pointing to the contrary from Ireland, Portugal and Greece, that massive cuts to public expenditure and cutting ‘stifling red tape’ will provide economic recovery from the current crisis?
Can I make clear that is reasoned argument that we are seeking, and not more of the usual rhetoric.
If the Government continues to borrow in the short term to finance an increase in infrastructure spending as a means to increasing aggregate demand in the economy, who do you suggest they borrow from ?
Assuming it is the capital markets, how would justify to these creditors the potential non-repayment of this debt which you are advocating as a solution for Greece on your most recent thread ?
Let’s be clear, first of all the government has no need to borrow, it can, and quite probably should, print this money. We are short of liquidity in the economy. Quantitative easing works if directed properly towards the productive economy, rather than banking.
Second, there is absolutely no shortage of money to be lent the UK government at all. Corporations are awash with it, have no idea what to do with it, and throughout the Eurozone people are looking to safe havens. That’s the UK right now. We can have all the money we like it almost no cost. We could have a really strong economy which will put us in an enormously competitive position if only we had a government with the vision to deliver it. But that’s what we’re missing.
I hope that as an accountant you understand the difference between debt and deficit? The coalition said they would reduce the the deficit over the lifetime of the parliament, which is exactly what they are doing. Darling stated much the same, and as I recall Milliband Jnr stated his support for this – even as he appointed Balls to shadow Osborne. The only difference was in timing and the relative balance between tax rises and spending cuts. He did not say he would return to a surplus – hence all things being equal growth in borrowings (debt) is expected. Both parties were planning on relying on growth to deliver this.
I agree credibility is important – for politicians and COMMENTATORS.
I admire your persistence in providing completely inaccurate observations.
If you can suggest any way on earth in which in decreasing a deficit can be reconciled with increasing borrowings to a record level for a month then I will be pleased to know what that explanation is, but the truth is that you are simply relying upon some spurious rhetoric to defend the indefensible. Of course I know the difference between a debt and the deficit. And however looked at, Osborne is both currently pushing the deficit upward, and in process is increasing the debt.
No rhetoric on your part can change that. Your credibility is in tatters, mine most certainly is intact, not least because I’ve been consistently right on this issue
Thank you for your reply.
My question was prompted by your suggestion that the government ‘should be building hospitals by borrowing’.
Yes, there is no shortage of funds available to borrow, whether it be from corporations, banks, or whatever alternative description to ‘capital markets’ you would suggest. However the avilailability of funding was not my question.
My question was how you reconciled the suggestion that Greece repudiates its debts, but that, at your suggestion, the UK should borrow more money, and how these potential creditors should be assured that the UK would not follow the same course of action you are suggesting for Greece ? It seems that on the one hand you wish to punish those who have provided funding for Greece, but that those same creditors (Not just banks but other corporations, as well as EU and Non- EU Governments) should be the ones who provide further funding for a country with a far worse absolute deficit than the Greeks themselves ?
Additional Quantitative easing is indeed a viable alternative, however what do you imagine the affect that a further increase to the money supply would have on the UK’s rate of inflation, given that it is running at one of the highest levels of any developed economy already. Do you believe that an inflation rate approaching double figures, and the resultant further debasement of the value of the Pound, would assist the economic plight of the nation ? Growth of 5% and an inflation rate of 10% is in real terms, still economic decline, albeit with fuller employment.
There is every reason to think that the UK Can completely, and reliably, repay its debts.
First, unlike most countries, the UK has a track record of managing its national debt since the 17th century, without default. Secondly, demand for UK debt is now very high, for very good reason, which is that it is one of the most attractive investments in the world. If the U.K.’s debt fails, then I think we will have bigger issues to worry about than that fact: the world economy at large is likely to have failed at the same time.
Third, the UK has its own currency and will repay using that currency. This is fundamentally different to Greece, which had to repay using a currency other which it had no control. There is, as a consequence absolutely no comparison between UK sovereign debt’ where would have absolute economic control, and Greek debt, over which it had little or no control.
Fourth, unlike Greece, we have a government which does collect a reasonable proportion of the tax owing to it. With investment of the sort that I have suggested in closing the tax gap, we could have a substantial additional source of income which could guarantee repayment of a substantial additional sum.
Last, the inflation rate, as you will well know, is completely beyond the U.K.’s control with regard to commodity and oil prices, but entirely within its control with regard to VAT. It is entirely plausible that the inflation rate will, within a year, be about or below 3%, which is actually a lot healthier than a figure much lower than that, which gives rise to the fear of deflation, and in turn then gives rise to a substantial risk of serious economic collapse. Do not avoid the fact that we actually need inflation in an economy or investment fails. We have no inflation crisis in this country, just an incompetent Chancellor who created a temporary rise in inflation when none was needed.
I am not saying we do not have issues to face, because we clearly have, but we have absolutely no risk of a sovereign debt crisis, and need have no fear of inflation. You might not have noticed, but in practice real incomes are falling, and no action is being taken to reverse them. There is no prospect of real underlying inflationary pressure from that source in the UK economy, and as a consequence talk about deflation as it was going to run out of control is quite absurd.
I am pleased Richard Murphy appears to be an advocate of debt-free money. I simply fail to see the sense in the government effectively subsidising the banks up to £100 billion annually when they borrow from banks and other financial institutions to supply the economy with money when our own central bank can simply create this money for nothing.
The BoE already produces notes and coins debt-free (minus costs for materials, of course) to the public purse, but this is only 3 per cent of the actual money supply.
There is absolutely nothing to stop the BoE creating its own number money and supplying the country with the other 97 per cent interest free and at absolutely no cost to the taxpayer.
Now brace yourself for screams of “HYPERINFLATION!!!” 🙂
Thank you for your reply again, and your explanation of the UK debt situation.
I will try and make this question shorter, as I obviously keep missing the heart of what I am trying to ask:
Do you believe that a Government is justified in defaulting on their obligations, as this is essentially what your piece on Greece suggests ? Any lender obviously bears the risk of default by its debtors, however your article suggests that it is improper for the creditor to attempt to gain recompense for their loans from the debtors available assets, or indeed to try and take some security, and a means of securing repayments, for further loans they are being asked to provide ? Remember that it is not just banks who have lent money to Greece. It is also other corporations, as well as the citizens of many nations, through their governments, all of whom will lose out (And in the case of foreign citizens, will be asked to provide greater levels of taxation to pay for these losses).
On a personal basis, do you believe that it would be similarly acceptable for you to retain your house if you defaulted on your mortgage ? I realise that there is no direct ‘mortgage’ attaching to the loans granted to Greece and that the assets are essentially the property of the Greek people, however it is these same people who have benefitted from loans granted to the country, and have kept in power a government who have proved themselves incapable of economic management.
The second issue to consider if Greek does default (or ‘restructure’ or whatever verb the EU chooses to use tomorrow) is that in addition to international banks, corporations, and other Governments taking losses, the damage would be most severe on the largest owners of Greek debt themselves, the Greek banks, which would immediately become insolvent. The consequences of this for the Greek population might be far worse than accepting foreign ownership of `some of their assets.
On the issues of UK Debt:
I don’t believe I have questioned the extent of demand for UK debt., or the UK’s record of debt management.
I am aware that the Euro is the constraining factor which has driven peripheral EU countries into the impasse they now appear to be in.
Without a further round of QE, I agree that inflation could well be lower than it is at present in 12 months time. However , it was your suggestion that the Government increase the money supply, and I am sure you would not argue that increasing money supply is inherently inflationary ?
I would not disagree that there is very little chance of the UK defaulting on its debts. I do believe however that there is a very real threat of a Sovereign Debt Crisis (i.e. a decline in the country’s ability, or investors perception of the country’s ability, to repay its debts), irrespective of whether the Government chooses to add further money supply through QE (Stoking inflation, depressing further the value of the Pound, in turn lessening demand for UK Debt from foreign investors) or whether it attempts to correct the deficit through a combination of borrowing more, and spending less (Growth stagnates, tax receipts fall, so greater debt issuance required to meet the shortfall, so higher yields required, so interest cost increases, so spending cut further etc .) .
It would seem that the Dagong ratings agency (Which is far less conflicted that than the discredited Moody’s, S&P, Fitch) would agree with this sentiment.
http://www.telegraph.co.uk/finance/economics/8532373/Chinese-rating-agency-downgrades-UK-debt.html
Please let my reply to Adrian Kerridge with regards to Greece: you display the same complete indifference to the fate of an entire nation, a fate that would precipitate an international crisis far worse than anything which would be created by the rescheduling of Greek debt. You seem to forget that the rescheduling of debt has been commonplace throughout history, and has occurred regularly over the last 30+ years.
With regard to the UK, you now reveal that you are simply intent on believing that there will be a currency crisis when there is absolutely no evidence whatsoever that one will ever take place. You can live with your fantasies you wish, but the rest of us will get on with reality. Thankfully, some of us are in possession of a grasp of what that is, although very few from the political right seem to possess this desirable attribute.
This debate with you is closed: it is obvious that you are intent on wasting my time
I’m not sure quite what I said that warranted that degree of venom, but if that’s the way your engage with anybody who asks you, politely, to expand on your comments (Which I now see is not an atypical occurence looking through some of your other responses) I pity you. I thought your christian beliefs would engender a more tolerant attitude to others, but I can see that you are just a rude, prejudiced individual.
Jesus was an angry man
He over turned the tables of those who abused the poor
I have a good mentor
I see no reason why I should be tolerant of comments condoning situations that are abusive
If more were forthright about those who condone abuse we would not be in this mess
Neoliberal thinking was at the core of what you wrote and it is designed to abuse, and succeeds in doing so
Psalm 37:8
Refrain from anger and turn from wrath; do not fret–it leads only to evil.
Psalm 145: 8-9
The LORD is gracious and compassionate, slow to anger and rich in love.
Proverbs 15:18
A hot-tempered man stirs up dissension, but a patient man calms a quarrel.
Proverbs 16:32
Better a patient man than a warrior, a man who controls his temper than one who takes a city.
Proverbs 20:3
It is to a man’s honor to avoid strife, but every fool is quick to quarrel
Ephesians 4:31-32
Get rid of all bitterness, rage and anger, brawling and slander, along with every form of malice. Be kind and compassionate to one another, forgiving each other, just as in Christ God forgave you.
2 Timothy 2:23-24
Don’t have anything to do with foolish and stupid arguments, because you know they produce quarrels. And the Lord’s servant must not quarrel; instead, he must be kind to everyone, able to teach, not resentful
Bible bashing right wingers are enough to turn any sensible person into an atheist
And with good reason: you’re ignoring the fact that in Luke Chapter 4 Jesus said his mission was to bring good news to the poor and deliver a Jubilee – a forgiveness of debt
That was the purpose of his mission
And you ignore it
Now why is that?