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Micro trumps macro

Stephanie Flanders | 15:30 UK time, Wednesday, 23 March 2011

We'd forgotten what these kinds of Budgets were like. The last few Budget statements have produced plenty of satisfying macro headlines, with shock rises in borrowing, and/or shock spending cuts to pay for it.

But for most of the first decade of this century, this is what Budgets were like: the medium term borrowing numbers go up by around £10bn or so; the growth forecasts get revised (usually down); and the chancellor fills the rest of his speech with intricate "micro" measures to stimulate growth and/or achieve various other specific objectives that the Treasury has decided to endorse.

That is what we had from Gordon Brown, many many times. Perhaps surprisingly, that is also what we got from Mr Osborne today. There was even the obligatory cash-grab from an unpopular sector of the economy - in this case, big oil. Though, as befits a chancellor still in his first year in the job, there are some grand ambitions amidst the meddling.

As predicted, net borrowing will be £11bn higher in 2015-16 than had been forecast in November. Overall, the Treasury is borrowing £46bn more between 2011-12 and 2015-16. But the Office for Budget Responsibility (OBR) has decided that nearly all of the increase is cyclical. The structural current surplus, the target the chancellor has set himself, has been cut by just 0.2% of GDP in 2015-16. That measure of the Budget will still be in surplus a year ahead of schedule, in 2014-15, as Mr Osborne planned in his first Budget.

The extra borrowing is the inevitable consequence of higher inflation and slower growth, which the OBR expects to push up the cost of benefits and debt interest. There has also been a slight downward revision in the revenue forecasts. As I discussed on Tuesday, this is because the OBR does not expect workers to be compensated for higher prices - the OBR forecast for labour income over the next few years (and thus income tax revenues) has been pushed down.

The growth forecast for 2011, at 1.7%, is now more or less in line with the market consensus, which is for growth of 1.8% this year. The OBR's forecast for 2.5% growth in 2012 is still well above the consensus, which is now for 2.1% growth. However, the OBR is not far off the Bank of England's forecast of around 2.7%.

But all these changes are small beer. He's spent money here and there, and raised it in other places - the big picture is no change. In 2011-12, for example, he's spending an extra £635m in 2011-12, on balance, but raising an extra £625m to pay for it.

The action, such as it was, came in that headline-grabbing cut in fuel duty (brought to you courtesy of oil companies in the North Sea) and in all those micro-measures to spur enterprise and growth, the sheer number of which would have made Gordon Brown proud, though not necessarily the content.

I asked Chief Secretary to the Treasury, Danny Alexander, what would stop the oil companies passing on the cost of the extra tax onto consumers, at the pump. His answer, give or take, was that he didn't think they would, but they'd be looking out for it. Hmmm.

I also asked him, further to my earlier post this morning, why the government had chosen not to use the room for manoeuvre that it had to boost public investment, or to cut borrowing slightly more slowly. You will be shocked to hear that he did not accept the premise. I'm not sure I expected him to.

The chancellor has stepped back from merging the National Insurance and income tax systems altogether - Paul Johnson, the director of the IFS - said he wasn't surprised. But merging the administration of those two taxes, which he has now promised to do, will make a welcome difference to companies if they can iron out the many practical difficulties. I am intrigued to see how he can "preserve the contributory principle" for national insurance while making it substantially simpler for companies to manage.

There's plenty of tinkering in the much vaunted plan for growth. But the reform of the planning regime, taken alongside the localism Bill, will transform the way planning decisions are taken in the UK. Whether they will make a positive difference or a negative one, of course, will be hotly debated. But as with Mr Osborne's first Budget, you can't say it won't make any difference.

Comments

Page 1 of 4

  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    I am not sure it is fair to compare George Osbourne with Gordon Brown Stephanie. After all Gordon Brown's budgets were usually exposed only a day or two later as often having points in the detail which overrode what he had announced...

    Unless you have examples of that you should not insinuate....

  • Comment number 3.

    The oil companies will not simply pass on the cost of the new tax to their customers for the simple reason that they already charge their downstream divisions the full market rate for oil purchased on the international oil market. If they tried to pass on the extra costs of these new taxes, they would simply be priced out of the market by those suppliers that bought imported oil. The retail divisions of major oil companies operate laregly as independent business entities, generating profit through distributional efficiencies, not through advantageous access to cheap oil, subsidised by their upstream divisions.

    Furthermore, UK oil production is taxed far less than other oil producing countries. Norway, for example charges taxes up to about 95% of revenue less costs from oil produced in Norway.

    This is actually quite a clever tax change, introducing a progressive element to specific oil related taxes.

    I would, perhaps, have been more impressed if you had checked the this speculation before broadcasting it, but Danny Alexander should have been able to put together a better answer than he did.

  • Comment number 4.

    Lies damn lies and stistics!. herecome the pc brigade and the nanny state! sandal-wearing liberals are just helping their conies. Soon we will lock our kids away to save them.

  • Comment number 5.

    No 2 beware there is still time for the smoke and mirrors to emerge.

    For all the pain that the budget consolidates and the CSR brought and is bringing we seem to be going backwards in growth and borrowing. Could it be the Micawber moneynomics chickens are coming home to roost. Ireland and Greece are well advanced in the experiment of having accountants ruining the economy. Osborne will need a plan 'C'. Stephanie you seem distinctly unimpressed.

  • Comment number 6.

    So Danny Alexander wouldn't accept the premise eh? I think you temporarily had him on the ropes so that was the best he could come up with. Marginally better than 'no comment' I suppose but not a lot.

  • Comment number 7.

    I disagree with your prediction that we will be in budget surplus by 2015-16. Growth will not happen over this medium term period or any other medium term period unless we invent and get into production a new form of energy to replace dwindling oil supplies. Hence, tax revenues will fall and the deficit will require further austerity.

  • Comment number 8.

    The tax system and other govt regs are the big problem and failing to roll them in to submission today will be regretted later.
    I welcome the change to planning but add it to rising inflation and anyone with a large multiple mortgage or liar loan needs to consider getting fixed in a hurry.

  • Comment number 9.

    The budget gives an additional twist to the downward spiral of competitive tax decreases to attract big businesses looking for a country in which to site their new facilities. Just like competitive devaluation in the 1930s, competitive reduction in company taxation is likely to be canceled out as other countries retaliate.

    Furthermore, when corporation tax is reduced, a government has either to reduce its expenditure or increase personal tax. In one way or the other, employees lose out. Highly skilled workers are mobile and will stay in, or move to, areas where publicly funded facilities such as schools, policing etc are good and personal taxes are not too high. Companies which require a highly skilled work force might therefore find it difficult to recruit employees in a low company taxation country.

    The only companies likely to be attracted by low corporation tax are those which employ mainly low skilled workers. So the UK, which once had the most highly skilled workforce in the world, has let its education and training system deteriorate so badly, that it is now reduced to competing with third world countries to attract low skill jobs.

  • Comment number 10.

    Stephanie

    I saw your headline 'micro vs macro' and I thought 'Yes. she's been reading Bill Mitchell'

    http://bilbo.economicoutlook.net/blog/?p=13905#more-13905

    Then I read the blog.

    For the third and final time of asking please write a blog on the validity of the national budget constraint i.e. a government (macro) has the same spending constraints as households and businesses (micro) and needs to finance its spending by by taxation and borrowing.

  • Comment number 11.

    The stimulus to growth could have been much greater if the Chancellor had not decided to exclude greenbelt areas from his planning changes. The OECD recommended that controls on greenbelt land should also be relaxed, which could make an enormous difference to growth prospects.

  • Comment number 12.

    I'm a bit disappointed that the NI and income tax systems haven't been merged. As well as the admin issues I suspect as people work more flexibly, mixing employment and self-employment, then simplification would help. But this disappointment is a minor niggle, as is the misplaced property market support. Oveall though I think the Treasury endorsement of "intricate "micro" measures" though was coherent, and so shouldn't be treated as trivia.

    [I still suspect though that 6 members of the MPC are sending out a huge negative confidence signal with their (group escalation of commitment biased) voting on the base rate. How can the BoE have the most optimistic growth forecast, but also have the most pessimistic policy?]

  • Comment number 13.

    I thought it was a shocking performance by DA in your interview. He's out of his depth clealy. But how daft does the gov think we are? RPI rises on alcohol and tobacco but the lower CPI to pensions and thresholds. And it seems the threshold increase will only apply to those under 65. Shouldn't it be those under 66 if at all? No consistency.

  • Comment number 14.

    Same direction from day one. Protect the wealth of the wealthy. There never has been a plan for recovery so the big business community has twisted arms as usual and proposed new tax breaks for themselves. Any increases in taxes for the "haves" are only proposals for public consumption and will never be implemented.
    Basically, Humpty Dumpty...

  • Comment number 15.

    A budget for growth which starts by revising the growth forecast down. Says it all!

  • Comment number 16.

    Well, George Osborne may have delivered a Gordon Brown style budget, but to be fair Goerge Osborne hasn't been allowed any room for financial manouvre by the previous govt whereas Gordon Brown had plenty in most budgets and still chose to raise taxes and waste/over-spend.

    But as well explained on Robert peston's blog ... this is a budget mainly for the benefit of large and global business and the 'most business able' rather than small business and Mr and Mrs Average ... as I think we were promised, in some ways.

    The big disappointment for me was the statement about VAT changes to be illegal and the lack of progress in slashing VAT.

    Apart from the big corporates and global sector of the economy, the budget does very little if anything in terms of impact, momentum and multipliers which are much needed to get the Uk domestic economy ... moving/rebalanced/restructured. redistributed.

    The Chancellor also appears to have ignored the golden opportunity to take a hands on approach to British imports and our supermarket cartels ... and to levy appropriate import duties and trade tax harmonisation tariffs.

    I find this missed budget opportunity to be predictable but very disappointing ... I don't think that the Chancellor will be able to keep his job for very long after this ... the UK domestic economy has stalled and no matter what the GDP progress on British global trade is ... I can't see some of the good work in what overall appears to be a lost budget opportunity - avoiding UK political turmoil in the next few years as the UK struggles under a series of bad economic measures.

    The enterprise zone initiative tends to favour the profits of property developers by ensuring that what new business is around migrates to the tax free/incentivised zones and tends to move business around rather than generate new business.

    The budget has not tackled the underlying structual problems in the UK economy which need very strong rebalancing and protection of domestic UK small business as including agriculture ... so that a redsitributive effect moves capital from big global business schemes into the UK regions.

    A feeble do little budget in effect ... more of the grey stuff ... all the way to the horizon.

  • Comment number 17.

    I forgot to add ... Where's the rabbit?

  • Comment number 18.

    Well said, Stephanie on questions to Danny Alexander who appears to be the real chancellor behind the throne at No. 11 since the emergency Budget last year and increase of Value Added Tax to 20%?

    Imagine this: You earn £100 - income tax of £20 = £80 left before NI. travel to and from work £11, plus a sandwich? Keeping personally clean, plus clean clothes = water and laundry costs, toiletries = £2.50. Rent. heat and light? Apart from water and rent, all the above costs attract VAT @ 20% obvious or hidden and 5% VAT on heat and light.

    Danny Alexander has a lot to answer for, but will never be prepared to answer. No doubt, he will be re-shuffled once the people figure out his position at NO.11?

  • Comment number 19.

    What a waste of time this budget was. Although we were promised a budget for growth precious little was done. Not surprising really as this shambles of a government haven't yet got round to addressing thew development of a strategic plan for our economy and are therefore directionless when it comes to planning for growth.

  • Comment number 20.

    Pity he persisted with the inefficient and environmentally-nonsensical VED - this should have been absorbed into fuel duty years ago and a headline reduction in fuel prices would have been an good opportunity to do so.

  • Comment number 21.

    "But as with Mr Osborne's first Budget, you can't say it won't make any difference."

    Yes, the last "cuts" budget made a great difference; plunging the country into NEGATIVE growth.

    And since the last recession in the early 90s there has NEVER been a rebound in growth from -0.6% into positive territory. So unless we see a STRONG rebound in GDP this quarter we will technically be in a DOUBLE-DIP recession.

    This budget may only have been "tinkering" but at least we seem to be over the obsession with CUTS...

    But as always, SORRY seems to be the hardest word...

  • Comment number 22.

    Cut the corporation tax rate from 28% to 26% and then eventually 23%!!
    Why can't individuals get similar tax cuts?
    Instead, the conservatives give with one hand and take with the other.
    They propose a higher pensions rate of £140 per week, but then change the rate of future pensions rises to CPI from the higher RPI.
    They increase the personal tax allowance rate, then reduce the rate at which you start paying higher rate tax, and then take child benefit away from them because they are higher rate tax payers. Very cunningly done as well.......... announce the child benefit withdrawal, and then several months after announce the reduction of the rate at which people pay higher rate tax.......by spreading it this way, people do not immediately link the 2, and there is less of an outcry!!

  • Comment number 23.

    "12. At 17:31pm on 23rd Mar 2011, Mike3 wrote:
    I'm a bit disappointed that the NI and income tax systems haven't been merged. As well as the admin issues I suspect as people work more flexibly, mixing employment and self-employment, then simplification would help. But this disappointment is a minor niggle, as is the misplaced property market support. Oveall though I think the Treasury endorsement of "intricate "micro" measures" though was coherent, and so shouldn't be treated as trivia.

    [I still suspect though that 6 members of the MPC are sending out a huge negative confidence signal with their (group escalation of commitment biased) voting on the base rate. How can the BoE have the most optimistic growth forecast, but also have the most pessimistic policy?]"

    Reticent trader made a very valid point on RP's blog regarding what would happen to pensioner's tax, given that they are no longer making NI contributions. Also what happens to those people who have made additional voluntary NI contributions over the years?

  • Comment number 24.

    Has anyone noticed that as part of the Coalition Government's aim to increase the Tax Allowance for individuals to £10,000, they appear to be intent on reducing the age related allowance for people aged 65 and on average earnings to nil. The tax allowance for people aged under 65 is to be increased in 2011/12 by £1,000 to £7,475. The allowance for people aged 65 and over will be increased by £450, thus reducing the difference by £550 from £3,015 to £2,465. The increase announced in this year's budget for people aged under 65 is £630 to £8,105. Like last year, they have kept quiet about people aged 65 and over, but I believe that their personal allowance is subject to indexation and will be increased in line with the retail prices index. Not sure when the announcement will be made, but I suspect that it will be a very low key announcement with a further reduction of the difference in allowance between people aged 65 and over and those aged under 65. Is this their way of effectively making pensioners pay for their free bus passes, winter fuel allowance and free prescriptions?

  • Comment number 25.

    I disagree with you steph, what we have been used to is giving with one hand and taking more with the other and usually the taking has been hidden.

    Osborne appears on the surface to be taking the money from the ones who are earning more to pay for his giveaways.

    At last the good old enterprise zones are well and truly back, what ever happened to them; sorry forgot they went by the way for new money to be put in other places and the same can be said for adult education.

  • Comment number 26.

    #25 common_man_123,

    the "good old enterprise zones" from the last Tory government were a complete mess and a waste of time. Unless you have a clear understanding of the type of enterprise that you wish to develop then you will see them used and abused again - to no great benefit for either the local community or national re-balancing effort.

  • Comment number 27.

    Oh dear. It is at this stage that a competent managing director would be planning to dump an incompetent finance director - which is why you should never appoint friends into positions of power in comapny you manage. This will prove to be the defining test of Camerons leadership. More brain power and imagination still needed.

  • Comment number 28.

    Asking DA to justify using the room for manoevre to boost public spending or cut more slowly is surely missing the point big time. Why not give something back to the taxpayer in general e.g petrol tax instead of looking after another privileged sector that has been spoiled for the last ten years at the cost of the taxpayer ? Large numbers of us voted to reduce public expenditure not protect it !

  • Comment number 29.

    I have just finished reading all of the documentation on the Treasury web site....

    There is I believe a fundamental fault in their analysis - namely the nature and predictability of the effects on fiscal, macro and micro economic policy when money is worthless (or of nugatory price). There seems to be no consideration of the consequences of either raising interest rates or not doing so on the effectiveness of fiscal, macro and indeed micro economic policy modifications.

    Previously, I has set out some of the ways in which changes to fiscal and macro economic policy are effected by being done in an environment of elastic supply volumes of zero priced money. I hope this is not too technical, so here is an example: posit money is free and readily available (indeed in oversupply) so as a business proposition 'gambling' on rising property prices is not a gamble at all as prices will go up to meet the supply volumes of free money which are unlimited. This 'bad money' will drive out all enterprising 'good money' and preferentially prevent any other activity apart from property speculation. (Remind you of recent history?)

    In consequence of this glaring and obvious omission: all policy initiatives speculated upon in the Budget will in all probability fail to do anything except create a further property bubble.

    This is the direct and predictable effect of zero priced (or indeed under-priced) money - yet this has NOT formed part of the analysis in the Budget.

  • Comment number 30.

    If cutting fuel duty by 1p is the 'headline' of this budget, then what a non-event the rest of it must be. Fuel's gone up 4-5p a litre round my way in the past three weeks alone - with the potential for further oil price volatility over the coming months, what on earth is 1p going to do to anything?

    And if this governent really wanted to stimulate growth ie get us all spending again (not borrowing to spend), it would cut income tax and reverse recent VAT increases.

  • Comment number 31.

    Why are the government borrowing created-from-thin-air money from the markets, on which they have to pay interest, when they could just as easily create it from thin air themselves ?

  • Comment number 32.

    Still propping up the housing market *sigh*. This 250m "help" for first time buyers just pushes them onto taking on even more debt in an overpriced market. Why can't we just let the market correct as any normal market would, and stop this shared equity and special mortgage payment nonsense. Is it because the housing market and banking is our only real industry? Is it worth holding rates at 0.5% whilst the CPI and RPI are at around 5%......JUST to keep the feckless in their homes? This should be a criminal offence, because it simply encourages people to be completely reckless with their spending, purely to get onto an imaginary "housing ladder" (again, pretty much unique to the UK.....live in a shoebox when you're young, sell a house you don't need when you are old).

    I despair.

  • Comment number 33.

    re #16
    Couldn't listen to the speech and analysis today and only have a sketchy outline from Evening Standard. Your coment, Nautonier, may have summed it up well for me, especially the last couple of paras.

    There's a long way to go yet. I think what I want from Osborne is a hint or three that he is aware of the problems you allude to and has them in his sights. So the IT/NI merger review is encouraging. But set against that appears to be GO's desire to favour the higher paid. He could have abolished Employers NI straight away (most - all? -of the problems around the merger of IT/NI are around personal taxation) but he would have needed to raise some money with another higher rate band. I think this - and/or a tax on individual bonuses - would have been a popular measure. Very targeted towards the problem of unemployment and, I suspect, much more efficient than chucking substantial grants at 'schemes' and 'initiatives' and 'zones'.

  • Comment number 34.

    All declarations are post-assessed. The pretence of a Well Fare State has been on the drawing board and everyone is up for discussion and must render their personal allowances under the same old rules of law.

  • Comment number 35.

    re #27
    I would suggest that it is Cameron who is most at risk. I wonder whether the overall nature of the Budget - detail still to be discovered perhaps - is GO attempting to save Dave's skin?

    People were talking again recently about how impressive GO is and that he is the likely 'Leader in Waiting'. Not heard much of late about bunches of Tory back benchers gunning for Cameron, so perhaps F&CO farces have been forgiven?

  • Comment number 36.

    I note the comments about Danny Alexander and would point out that:
    1. He's a PR man, has no financial or fiscal background, and
    2. He was third choice for the job.

    It's a tough ask for him to slot straight into a financial Cabinet job and have it all tied down and buttoned up.

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 38.

    At 17:48pm on 23rd Mar 2011, tFoth wrote:

    “A budget for growth which starts by revising the growth forecast down. Says it all!”

    Well said that person…

    Just a thought…

    With inflation set to increase over the next year, interest rates set to go up, consumer spending to stay flat or decrease (as people downsize debit), swathes of commercial property and office space unoccupied/decaying, employment set to go through the roof (by design), wages stagnant not to mention fighting wars, sorry “peace keeping”… and the housing bubble still in place, I find it hard to understand how any sane person could issue a budget who’s net effect is null but has the insane title of a budget for growth!

    If anything else goes wrong (oil price goes to $150, asset prices start dropping, a total loss of confidence (this is the most dangerous), another bank goes kaput) or we backed the wrong side in one of our military escapades, what then?

    Interest rates should have started going up six months ago if only to have the option to lower them again. Transport costs (diesel) should be 10p a litre cheaper for at least the next year, the privatised railways, buses, telephone networks, water and gas and TFL’s tendered operations should be looked at again as billions is lost here to the private sector shareholders some of which goes straight out of the country. Yes we had a problem before with state owned companies but this was caused by poor and ineffective management, lack of investment over decades and inflexible trade unions.

    Surely we can all go forward in the same direction… for instance nationalising the rail network (which will assist in the movement of goods and services, labour markets to where the work is and stop alleged abuses by the private sector (for instance the ownership of all the rolling stock hired out to the operators) and the manipulation of statistical data on which their performance and subsequent payments are based.

    I would gladly pay a £7 mill bonus to the chief of a nationalised rail operation that ran it for the public good and told the truth.

    Truth is though we’re still in “Thatcher land”, an individualistic “I’m allright jack”, “it’s the previous governments fault” type of negative and childish thinking.

    The reason we have had this budget is clear proof to me that the current government does not know what its doing and can only act on what used to be, or as I call it… the event driven model.

    God help us all……

  • Comment number 39.

    At 20:01pm on 23rd Mar 2011, ciderwithdozy wrote:

    “If cutting fuel duty by 1p is the 'headline' of this budget, then what a non-event the rest of it must be. Fuel's gone up 4-5p a litre round my way in the past three weeks alone - with the potential for further oil price volatility over the coming months, what on earth is 1p going to do to anything?”

    Have you never noticed that in the weeks preceding just about any budget over the last twenty years or more, fuel prices at the pumps seemed to go up for no reason at all?

    This is because of course the companies involved are hedging their bets.

  • Comment number 40.

    33. At 21:03pm on 23rd Mar 2011, Up2snuff wrote:

    re #16
    Couldn't listen to the speech and analysis today and only have a sketchy outline from Evening Standard. Your coment, Nautonier, may have summed it up well for me, especially the last couple of paras.

    'But set against that appears to be GO's desire to favour the higher paid.'

    .....................
    Hi Snuffie
    You didn't miss a great deal ... you're better off making a bit yourself than listening to Budget statements like this one ... most of which had been leaked and well guessed beforehand and with the predictable rhetoric ... 'both ways'.

    I think that behind the scenes and the image of the big fiscal man with a red leather briefcase is a history of couch lurking, tea drinking, 'bottom line' reading Chancellors who leave most of the real budgetery work to 'Sir Humphrey type' Civil Servants who do most of the real work on this for them anyway ... the bland style of the budget is very familiar with a puzzlle of piddling give and take and probably the busiest men today (sorry ladies but it is true) have been Gus O'Donnell and Danny Alexander as making sure that there is no comeback on themselves/ Whitehall mandararins i.e. in relation to the content.

    GO's budget should have targeting the 'higher paid' ... but in incentivising them to help the 'low paid' and those who need a job ... instead the budget, has mainly incentivised them to do business as usual i.e. helping themselves ...

    Some solid stuff on apprenticeships and technical colleges which is good as we need a lot more of them and as teaching the right stuff.

  • Comment number 41.

    re #29
    re first sentence: well done, that man!

    However, you do not precis for us what the web-site contained ...

    Gotta agree with tenor of your post. However, does not this deposit supplement scheme for first-time buyers - however misguided and fraught with a problem or two - suggest that the overblown housing market is at least on GO's radar?

  • Comment number 42.

    Steph, if you had asked Fanny Alexander if he thought people could remember what political party he represented his answer would be "he didn't think they would". If you then asked him if the economic policies he was being asked to help cover for the Tories went against most of his party's principles "he wouldn't accept the premise".

  • Comment number 43.

    I am glad that budget will provide funding for 12 further university training colleges, extra 40,000 apprenticeships for young people out of work, and funding for 100,000 new work experience placements. I hope this will encourage the reintroduction of degree level apprenticeships (sometimes called student apprenticeships or sandwich courses) which have all but disappeared in recent years. Employers used to fund such apprenticeships in order to encourage A-level school leavers to study suitable university degrees at their expense, interlaced with paid internships. The benefit to the employer was an ample supply of qualified and experienced junior managers.

    If these apprenticeships are reintroduced it would provide a welcome alternative for individuals, avoiding huge educational loans and ensuring a high probability of moving smoothly from education into employment.

  • Comment number 44.

    I don't like posting similar stuff on different pages, but to me the crassest of mistakes is the implicit assumption that ever more lax planning laws will create wealth.

    We already have one of the ugliest typical street scenes in Europe. No one wants to visit huge areas of our country. The properties are low-value slipshod cheapskate affairs. The construction techniques are quick and cheap, not requiring high value skills for large numbers of people. The results are not durable and rapidly tend towards modern slums. Still, a certain type is able to make a few quid.

    Very strict regulation, as in our conservation areas, is a great economic stimulus. Skilled craftesmen/women and the producers of quality materials flourish. Tourists and holidaymakers contribute to the local economies. The resulting properties are of high value.

    I think the whole country should have been a conservation area for a long, long time. This has not been thought through, like much else.

    (One problem with abandoning HYS is that there's no general readership to have its attention grabbed by something that the reader would not otherwise stumble upon).

  • Comment number 45.

    #41. At 21:38pm on 23rd Mar 2011, Up2snuff wrote:

    "re #29
    re first sentence: well done, that man!

    However, you do not precis for us what the web-site contained ...

    Gotta agree with tenor of your post however..."

    I am mainly concerned about the predictable consequences of the lack of understanding of the role of nugatory interest rates resulting if nearly free and almost infinitely expandable money. This is precisely the mechanism that destroys whole nations and yet this set of experts in the Treasury seems blind to the predictable and indeed observable effects.

  • Comment number 46.

    I agree with some of the earlier comments that trying to link George Osbourne with Gordon Brown sounds like cheap points scoring unless you have some evidence to back it up of which there is no sign.

    Also I thought that this was supposed to be an economics blog and not a politics one.

  • Comment number 47.

    Mere window dressing on a ship taking on water badly. More rejection of the marketplace - using public funds to lure first time buyers into a life of debt for a cardboard house in a bubble housing "market".

    "Cuts" that aren't really cuts. A debt that the government hopes it can inflate away without anyone noticing.

    A missed opportunity to cut the minimum wage with a message that it will ultimately be abolished as a destroyer of jobs for the young and unskilled. Then he has the cheek to talk about apprenticeships. Businesses would take on and train their own people is it wasn't so expensive and arduous.

    The ship is going down by the head and I am expected to be grateful for the 74p extra a month I am allowed to keep out of what I have earned, whilst being forced to contribute to escalating war-mongering.

  • Comment number 48.

    44 EFW

    I totally disagree with everything you have written. It is the lack of building land through rigid planning that has contributed to poorly built, high density housing. Planning also delivered all of the ghettos of despair scarring our towns and cities since WW2.

    Leave people alone to be able to build what they want and costs will reduce and quality will increase, as Grand Designs proves. If locally, historical towns and cities like Bath have their own local restrictions then fine, but most of Britain is ugly and desperate when it come to architecture, due mainly to government.

    The best thing GO could have said today was "the government pledges, for the first time, to leave people alone"

  • Comment number 49.

    At 21:38pm on 23rd Mar 2011, Up2snuff wrote:

    “re #29
    re first sentence: well done, that man!

    However, you do not precis for us what the web-site contained ...

    Gotta agree with tenor of your post. However, does not this deposit supplement scheme for first-time buyers - however misguided and fraught with a problem or two - suggest that the overblown housing market is at least on GO's radar?”

    In the first instance I did not post the web-site as it’s this one, just go back to the time mentioned on this blog, which is unique (Post 15 and his/her personal view).

    As regard your second point that relates to the housing market and first time buyers where incentives have been given to offset aspects of this:

    If housing prices continue in an upwards direction as in London, along with wages keeping pace with inflation (most unlikely) and mortgage payments (countrywide) increase a bit then anyone purchasing any property (disregarding regional variations) is taking an enormous risk.

    I say this because if banks/building societies thought the housing market was on the up-and-up they would not be demanding such large deposits… like me they expect a big shake-out here, possibly a 25 to 30% reduction in the near future and as a result a depreciation in their own balance sheets (hence the large deposit).

    The trick here is to supply the first time buyer with the deposit (jointly funded) where they (now usually two people with a guarantor), the mortgage can be obtained without collapsing the asset value on the banks balance sheet, however this all goes horribly wrong if interest rates have to be hiked quickly or one of the mortgagees loses their job, which is a real risk.

    I do not believe that GO has considered what could happen if asset prices (in this case housing) take a hit, but merely tried to introduce a measure to retain the bubble where it is for the time being or at least a few more months as he knows interest rates are only going in one direction.

    Sadly for those taking up this scheme I see nothing ahead but sorrow, you buy at the bottom, sell at the top.

  • Comment number 50.

    The Chancellor kept stating that this budget was 'about growth' but there was no strategy to encourage the development of new and enhanced technology or export businesses. If we do not make things that other people want and to do this quickly and efficiently we are not going to be able to pay off our debts. The reductions in taxes and planning regulations will not generate new ideas - there needs to be enthusiasm for education, practical, artistic and scientific and a national strategy for where we are going and how we are going to get there.

  • Comment number 51.

    48. At 22:33pm on 23rd Mar 2011, Libert_arian wrote:
    44 EFW

    "...I totally disagree with everything you have written. It is the lack of building land..."

    +++++++++++++++++++++++++++++++++++++

    What are we supposed to do? Drain the Atlantic?


  • Comment number 52.

    #49. UnionRep wrote:

    "I do not believe that GO has considered what could happen if asset prices (in this case housing) take a hit"

    You and Up2snuff, both are concentrating on the assets as assets whilst what my real concern is about is the diversion of economic activity into assets (of dubious value) to the exclusion or partial exclusion of more productive economic activity. When property speculation is seen as the only way to make money doing business and making things is relegated to an economic bystander! And it is all due to too much zero priced money trying to find a home, any home! (And this is also absolutely predictable economic behaviour that is being ignored by HM Treasury and the OBR. In short because they ignore it the whole of their economic strategy is blown off course just like Gordon Brown/Tony Blair/John Major and indeed Margaret Thatcher's was! They just don't get it! Or do they? And are they deliberately creating a bubble economy to give money to their friends!!!!)

  • Comment number 53.

    At 22:50pm on 23rd Mar 2011, John_from_Hendon wrote:
    #49. UnionRep wrote:

    "I do not believe that GO has considered what could happen if asset prices (in this case housing) take a hit"

    You and Up2snuff, both are concentrating on the assets as assets whilst what my real concern is about is the diversion of economic activity into assets (of dubious value) to the exclusion or partial exclusion of more productive economic activity. When property speculation is seen as the only way to make money doing business and making things is relegated to an economic bystander! And it is all due to too much zero priced money trying to find a home, any home! (And this is also absolutely predictable economic behaviour that is being ignored by HM Treasury and the OBR. In short because they ignore it the whole of their economic strategy is blown off course just like Gordon Brown/Tony Blair/John Major and indeed Margaret Thatcher's was! They just don't get it! Or do they? And are they deliberately creating a bubble economy to give money to their friends!!!!)”

    I assume by the nature of your reply that you are referring to “how things used to be” when we were a manufacturing economy and employed skilled labour…. sadly now long gone unless you live in China. It did however usher in the end of serfdom only to be replaced in recent years by the same people who operate and manipulate our economy (the banks and some newspapers).

    Any manufacturing process introduced into the UK now is likely to be of the “robotic” nature employing very few people and the initial set-up costs of these plants excludes almost all of our manufacturing economy entirely. These plants cost billions to set up and are run by IT personnel and financed by (guess who).

    We are a service based economy (sadly) reliant on international based operations and banks and its these that control our destiny, or at least at the moment… we seem to have slid into this with our eyes closed…. I agree with your thoughts about housing, it should only be a sideshow or a place that you can call your own and bring up you kids, indeed if you don’t move then most of this is irrelevant providing you can make the payments on the mortgage.

    Productive economic activity is a word I’ve not heard for many years, making things likewise because China with its ultra low wage economy does this in a way we just can’t compete with. This is going to be a never-ending story (bar wars).

    I would guess that we as a nation should look at a different economic model for our people… one thing’s for sure, that being that we can’t continue down the old road we in fact started at the beginning of the industrial revolution.

    Yes they (the current government) are upholding the current bubbles but in my opinion to maintain the status quo (which supports your theory) and does to some extent also keep their “friends” in a style they have become used to!

    The answer to this I don’t have only the feeling that in the eighties we lost our way somehow.

  • Comment number 54.

    • 26. At 19:34pm on 23rd Mar 2011, foredeckdave wrote:
    #25 common_man_123,

    the "good old enterprise zones" from the last Tory government were a complete mess and a waste of time. Unless you have a clear understanding of the type of enterprise that you wish to develop then you will see them used and abused again - to no great benefit for either the local community or national re-balancing effort.

    Xxxxxx

    Speak for your own part of the country not mine! The Black Country (as mentioned in the budget) benefited from this back then! At the same time as chopping this new Labrador also chopped adult education in the area. Ask WoW! We went from an excellent technical and independent 6 form education to practically zilch. It is not rebalancing it is trying to re-establish what we as an area had.

    West Bromwich Technical College – 6 campuses now 1
    Dudley Technical College - At least 5 now 1
    Rowley Regis 6 form College – vanished
    Plus others, Stourbridge, Halesowen, Bilston, Walsall all for the sake of NEW MONEY IN REAL TERMS – Now discuss skill shortages

    Funding cuts for ‘new money’ somewhere else! Do you want to know what is on the sites now? Houses!

  • Comment number 55.

    #54 common_man_123,

    Now ask yourself about the firms that set up in those zones. What kinds of firms were they and where are they now?

  • Comment number 56.

    #53 UnionRep,

    You appear to be working on the basis of what is and loseing sight of what has to be if the economy of the UK is to meet the needs of the citizens. We all know that we have a major imbalance in the economy and that in its present form it has very little chance of succeeding. Our reliance upon services and financial services in particular has exacerbated the failure of the economic dynamic between governmant, capital and labour. Unless or until that dynamic is restored to good health there will be no true growth in our economy.

    We have close to 70 million people within our borders. It is their long term wellbeing that must be our prime economic responsibility. We need to find productive work for them. Now, if we continue to merely accept that we can do nothing about low cost providers then we will fail in that responsibility. If that is true then we have 2 possibilities: (1) we reduce our wage costs to their level - I doubt that would be acceptable to the majority of workers, or (2) we impose tarrifs upon any goods imported from these countries that either are or could be produced in the UK. To my mind, option (2) has far more acceptability as it does not deny international trade (if China or India produce a better mousetrap than we can there is no problem in capturing UK market share) but it does help us to compete upon equal terms - which was what the WTO was set up to achieve.

    We have a very short window in which to refocus upon our strategic economic needs. But merely accepting that the status quo is written in stone is not the way to do it.

  • Comment number 57.

    Morning Stephanie,
    with regard to your comment about libralisation of planning laws to boost the economy, how much of this policy is influenced by the owners of large "land-banks" e.g. Supermarkets or housing developers? This land was bought by them specifically for speculation about whether planning consent would be granted!
    As for the clever idea that Local Authorities could auction planning consents, the mind boggles... How on earth could this work without the temptation to pay financial incentives to our elected representitives?
    In my own area, there are large quantities of arable land but our Local Authority insists on developments being confined to a small area of land bounded by a motorway. I've often wondered why, but this parcel of land has been the subject of speculation for 30 years that I know of. It's worth very little as farmland but with planning consent increases in value by 100-200 times!
    The proposed developer is now trying to evade responsibility for additional infra-structure like new roads, drainage, noise barriers and it is likely that these costs will be foisted on the local taxpayer who doesn't want the development in the first place!
    And still no political commentator has picked up on the implications of introducing a carbon price floor of £16 per ton for the power sector. We really do get the Government we deserve.
    Is this the kind of planning relaxation that Mr Osborne is proposing?

  • Comment number 58.

    I think our politicians need to man up a little and take radical steps to show that they really care, and if we are the first nation to take radical changes and tough challenges so be it !

    Many politicians are ignoring, unaware, or perhaps afraid of the social network company's power, but the damages that the social network companies are causing to our economy is truly beyond believe, why these companies remain unchecked and their effects to our economy are being ignored? I don't know !?

    Graduate unemployment at the moment is at a 17-year high' according to the Higher Education Careers Services Unit, but why? is it recession caused by the banks? I would say yes but the truth is that banks are a small part of the cause of the recession that led to recession, unemployment and slow growth as employment is the fundamental and is one of the most important pillars of the economy growth.
    Graduate leaving universities/colleges used to take small jobs in marketing, retails, recruitment, advertising, telesales ect… and work their way up many of us had that experience somehow not to mention many of our very successful business entrepreneurs, but now those jobs don't exist anymore and if they do they are relatively small compare with the 90s and early 2000, but why? what caused that shift in employment trends?

    Small and medium companies won't need graduate or human beings to for example, market, recruit people or advertise their product in the old fashion way, and the reason for that is as follow…

    If you are in business and have a product to promote or if you need staff than all you need to do is TWEET it, Facebook it, linkedin it ect… and guess what it's FREE ! as result you won't need to advertise in news papers, magazines, portals, PR, or a recruitment agent, job journals, "NO" you won't need that any more, as a result companies that specialised on the above services started to run our of business and laid off people and the companies that provided services to the above companies that provided services laid off people too and the later company had so little business that they could not afford to keep staff, as result a shocking number of people got laid off from their jobs and couldn't pay their mortgages and VOILA disaster and if you work out the circle of spending of an employed person who is a spending power you will see that by laying off people the economy can not possibly grow.

    But the big question is how many people are employed with Facebook, twitter or Linked in? the answer is "Atomically small number"

    Facebook for example employs 2000 people globally, in the UK for example "more or less 60 people", considering that their business ceased companies taking millions of graduates and much in need jobseekers is honestly "shocking"

    Please check this fact http://www.facebook.com/press/info.php?factsheet

    Although I think the Chancellor and his mates had choices, but I am puzzled why they were short sighted to threaten the wealthy, the working class, and indeed the poor by his cuts, not to mention the threat to companies like banks, oil and gas companies ect…

    If they look at what happened to the economy and investigate on what damage the social network companies with a microscope (which are based in the USA anyway) they will see light for employment and a REAL growth.

    These social network companies takes their advertising revenue from the UK to the US treasury not the UK one, I think it's not fair that a company that employs 2000 people have the right to take jobs from our recruitment agencies, advertising agencies, newspapers, telecoms, banks, retail, broadcasting and so on, so what to do?

    Creating a better business environment with a fair competition and NO short cuts, this is what I call tough decision, and if Mr Zuckerberg frowns than remind him that he has a few billions, that will certainly relax him a little I would have thought…


    I think the government need's to restrict social network companies from "FREE COMERCIAL PROMTIONS" and restrict them to do what they meant to be doing in the first place, i.e SOCIAL NETWORK, and that means staying in touch with friends and family ect… and allow competitiveness with other industries, this will work I am 100% sure.

    Please look at the facts and you will find the damages they 've done so far, so they need to be stopped in the way they currently operating otherwise this government, the next and the one after will always be in the same dilemma.

    I have been following the birth of the social network companies since the start of their concept for some years, I knew that they will offer very little to our economy and kids of Britain.

    please have a look at the article below...
    http://www.forbes.com/2007/08/31/newspapers-advertising-media-biz-media-cx_lh_0831newspapers.html

    I think I have a valid point that needs to be looked at and by all means I am not against the Tory nor facebook, Linkedin, Tweeter nor with anyone, but bad things must be addressed and looked at properly in order to ease the economical burden on the millions british people and restrict the very few that create the burden on the millions, I think it's fair enough.

    Cheerio

  • Comment number 59.

    It all depends on how you define growth. The Labour party is talking about the growth of a pyramid scheme, and the govt is talking about real productivity. The Labourites are Keynesians and the Tories and Liberals, classical economists. But it was the Keynesians who brought us this crisis, and it makes no sense to suppose, as they do, that it was brought about merely because there was not enough money being printed.

  • Comment number 60.

    Honestly !?
    CIA's "Facebook" Program Dramatically Cut Agency's Costs
    http://www.youtube.com/watch?v=ZJ380SHZvYU

  • Comment number 61.

    58. At 01:43am on 24th Mar 2011, allegedely wrote:
    I think I have a valid point that needs to be looked at and by all means I am not against the Tory nor facebook, Linkedin, Tweeter nor with anyone, but bad things must be addressed and looked at properly in order to ease the economical burden on the millions british people and restrict the very few that create the burden on the millions, I think it's fair enough.
    _____________________________________________

    Original thinking on an economics blog ?

    I like it and think you have made some very good points. The arguments are similar to those concerned with the effects of ever increasing productivity but the result is the same and has been since the agriculural revolution, fewer jobs.

    The income and spending power from employment can be replaced by Government spending on benefits but spending on jobs would provide a better outcome in terms of social cohesion, innovation and mental health.

    If the coalition do actually understand the problem, their solution is to cross their fingers and hope that these businesses will suddenly start producing hundreds of thousands of jobs. They haven't got a clue and the economists that advise them are a disgrace to their profession.

  • Comment number 62.

    All of the figures being produced concerning national debt over the next four years are fundamentally flawed because they are all still married to the illusion of real above inflation growth. This can not happen for reasons as mathematically simple as 2 + 2 = 4.
    To keep up with the growth in demand for liquid fuels all sorts of expensive, risky, and low yield sources are now being tapped (tar sands, deep water oil, hydraulic fracturing etc). This desperate attempt to delay and avert the inevitable outcome of supply falling massively behind demand (increasing demand and supply are inevitable necessities of growth) is resulting in higher trend prices (15% per annum over the last decade, probably 20-25% in the next). Eventually simple mathematics will prevail and the world will be forced into accepting a different way of running and measuring it's economy and how it distributes wealth and resources. This will either be a return to less equality (gentry and serfs) or more equality (increased democracy, more localisation of much economic activity, and more centralisation of big ticket items such as research on new green technologies, infrastructure, and essential health and education services).

    I suspect different parts of the world will adopt strategies according to tradition. I hope we plump for the latter option personally.

    The first societies to accept that the old economic model is flawed and adapt accordingly will be the relative beneficiaries and adversity is a great driver of change.

  • Comment number 63.

    Osborne's tax hike for oil and gas companies operating in the North Sea is little more than a populist, conceited move to try and deflect the criticism pointed at the Govt. for failing to address the damage fuel duty is having on the economy.

    as 3 pointed out - it's not feasible for those companies to simply "pass on" the increase - but what they can and will do is make cuts in investment and development. Hundreds of thousands of Jobs across the UK are dependant on the oil and gas industry and in the current financial climate it is irresponsible in the extreme to penalise these industries by passing on cuts (which is exactly what it is)

    When Gordon brown announced a similar windfall on O&G profits, the Tories derided him and his budget - so what's the story here George? How is this any different?

    If things carry on like this much longer - the level of investment and infrastructure support for oil and gas will disappear completely and with it any chance of mitigating the advent of the impending energy crisis.

    Short sighted was never quite so apt a description.

  • Comment number 64.

    re #61
    Well, if the Coalition do not understand, then the Opposition apparently have understanding several degrees lower on the scale at the present time.

    I think all the political activity of the last nine months demonstrate that we need a really good Social Democrat or Christian Socialist (although I personally prefer not to tag a political party like that) Party in the UK.

  • Comment number 65.

    re #63
    Inflation doesn't disappear instantly after a Budget with one provision against the primary cause. GO will need to keep his hands on the levers all the time on that one.

    Best R4 interviewees this am: spokesman from oil industry.
    Worst R4 interviewees this am: Ed Balls. Angela Knight.

    GO was somewhere in between and rather poor, I thought. Up against the naughty one and he probably only got a score draw. Against any other presenter, including the Montvague, it would have been a 2-0 drubbing for the CoE.

  • Comment number 66.

    64. At 08:35am on 24th Mar 2011, Up2snuff wrote:
    Well, if the Coalition do not understand, then the Opposition apparently have understanding several degrees lower on the scale at the present time.

    I agree. Why do we put up with any of them?


  • Comment number 67.

    • 55. At 00:45am on 24th Mar 2011, foredeckdave wrote:
    #54 common_man_123,

    Now ask yourself about the firms that set up in those zones. What kinds of firms were they and where are they now?
    XXXXX

    Some have fallen by the side of the road, some are still with us – that is the way of things. What we have seen is an increase (since about 2000/02) of what I call the white van brigade, single operators that will never employ anyone!

    You already know that I believe in education from previous discussions, to enable us to grow then the trend of single operators and educational priorities must change.

    OK back in the 1970’s I was trained as a metallurgist and benefited from the technical colleges, but as we know there are very few foundries and plenty of metallurgists about. Does this mean that my training was worthless – NO! I have used these skills in other areas as a basis to build upon.

    If manufacturing is the body, then education is the organ that supplies the blood, with enterprise being the new birth/evolution. So I welcome the advance in all 3 (be it too little but hopefully not too late)

    An observation about petrol prises: Yesterday a petrol station in Bloomfield, Tipton, had unleaded petrol at 30.9p/lt, today it is 31.9p/lt?

  • Comment number 68.

    Economics student, I agree with both your points at 61 & 66.

    The fact the opposition, which should be more vocal & put their ideas out there & stand up for the disenfranchised voices they are there to represent, is shameful. It is clear, therefore, that the people of this nation cannot rely on them.

    More shameful still is the way political commentators, journalists & people who back this government continually use the oppositions inabilities in this regard as being in some way a valid excuse in defending what is happening in the economy.

    They should be taking Osborne & the government to task for their own failings, not making excuses for them.

    Osborne simply hasn't got a clue. Inflation continues to rise & come in ahead of forecasts. The government is borrowing more than it had planned due to tax revenues have come in lower than expected. They have embarked on a cart before the horse approach to deficit reduction. This is directly due to their own policies and obsession with cuts at the expense of a plan for growth resulting in a weakening British economy, rising unemployment, government's continued inability to regulate & deal with the banks & a reluctance to deal properly with tax avoidance.

    Projected growth for this year has been revised down to 1.7% from 2.1%, and future forecasts for next year & beyond are not much better. Osborne stubbornly hangs on to deficit reduction goals, despite the lack of growth meaning it will take far longer to balance the budget, thereby increasing the pain for ordinary men & women up and down the land. It has even been indicated that cyclical factors will increase annual borrowing by about £10 billion a year for the next five years in any event. He has failed to realise that public investment has been cut too much, too fast & that these unnecessarily swift cuts have added to the British economy's vulnerability at a time of great uncertainty for the global economy. One sneeze & it's back to square one not that, for many, it appears we ever left there. Britain is a hairs breadth away from a return to recession that would destroy any chance of any deficit reduction & destroy even these unimpressive growth forecasts.

    This time it's all down to this coaltion government, their ideals, their policies & inability to do the right thing, whilst simultaneously using the failings of others to validate their own.

    That's the reality of what is happening here. Serious doubts exist as to whether Osborne or his advisors have a clue as to what they are doing. It's already been realised, by many, that thet certainly have very little care for the effects inflicted on millions.

    This budget, in no way, lived up to it's billing as the much heralded 'budget for growth'.

  • Comment number 69.

    #61 Economics Student,

    "Original thinking?" You have to be joking!! All that allegedly has done is to rant from an ill-informed basis.

    I would advise you to look more closely at basic marketing theory and in particular the Marketing Communications element. If you believe that facebook and twitter are essential marketing tools in more than a few particular sectors then you are saddly deluded. Take a closer look at the work (some very good UK research) on Relationship Marketing to see a much more informed picture.

    I will however concede that we do have to urgently look at what we really mean and prize as productive activity.

  • Comment number 70.

    Interesting comment to share by Richard Murphy, I reproduce below.
    '' To get his forecast of borrowing down Osborne is having to assume growth in government revenues of 6% plus a year when real growth this coming year will be less than 2% and historically average growth is not more than 2% pa.''

    See Table C6 in the Budget. What about it George ?

  • Comment number 71.


    In my view the Government has little control over inflation or the economy.
    And here’s why:

    1. In a monetary system where interest bearing debt exists, if the overall level of interest is greater than the overall increase in the supply of all available items to purchase, inflation must exist.

    [Overall price level of all items = (Total amount of money) / (Supply of all available items to purchase)]


    2. Governments cannot control the quantity of money, unless they control the amount of interest bearing debt.


    3. Governments cannot control inflation, unless they control the quantity of money.


    4. Governments cannot control the economy unless they control where credit is extended in the economy.


    5. Continual ‘growth’ is fundamentally impossible on a land mass which is fixed in quantity.


    6. Once a population on a fixed land mass reaches an optimum level, growth in population results in a lowering of overall living standards.


    If it is the responsibility of Government to prevent recessions and promote employment, it will need control over the extension of credit, which it does not have.

  • Comment number 72.

    @9. stanblogger wrote:

    "So the UK, which once had the most highly skilled workforce in the world, has let its education and training system deteriorate so badly, that it is now reduced to competing with third world countries to attract low skill jobs."

    I read that as a prediction, not a description of the existing state of affairs. Despite all the undoubted deterioration in educational standards Britain still has good/great universities and research institutes, much of world standard is still being undertaken, impressive innovation in certain fields is continuing. We haven't lost it all yet.

    But I also think we're at, or approaching, a crossroads where either Britain sorts itself out and launches a really determined investment in achieving excellence from top to bottom in education, and accompanies this with a massive boost in productive investment, your dire prediction will come true.

    It's not too late yet, but it soon will be unless we pull our socks up.

    And BTW we need the security that comes of being an integral part of a very large economic and trading bloc - the EU. It's about time we accepted that and made the best of it, instead of the worst of it.

  • Comment number 73.

    The following is the budget extract concerning Planning Reform:

    "1.82 The planning system has held back investment and created distortions in the way that
    businesses compete, deterring development and growth. To address this, the Government will:
    􀁴 introduce a new presumption in favour of sustainable development, so that the
    default answer to development is ‘yes’;
    􀁴 localise choice about the use of previously developed land, removing nationally
    imposed targets while retaining existing controls on greenbelt land;
    􀁴 pilot a land auction model, starting with public sector land;
    􀁴 introduce a number of measures to streamline the planning applications and
    related consents regimes removing bureaucracy from the system and speeding
    it up. This will include a 12 month guarantee for the processing of all planning
    applications, including any appeals;
    􀁴 ensure a fast-track planning process for major infrastructure applications through
    the Major Infrastructure Planning system; and
    􀁴 consult on proposals to make it easier to convert commercial premises to residential."

    Hmm... so far, so vague... where's the meat???

    Promises to "consult" were Gordon Brown's budget speciality, resulting in no action for 10 years, hence the undersupply of housing for a similar period!

    Point 2 highlights the abolition of centrally imposed targets (now implemented, creating... a policy vacuum) and most Local Authorities have now jumped on the bandwagon stating that they no longer need to find, for argument's sake 10000 houses in the next 15 years, they only have to find 100 - or worse they promise to carry out an expensive public consultation to determine how many they will require to meet "local need" - Nimby response, we don't need any!

    Cue another 2-3 years of delay when no houses get built, prolonging the recession and making the housing shortage even more acute.

  • Comment number 74.

    69. At 10:01am on 24th Mar 2011, foredeckdave

    I know nothing about marketing but the post did make me think about employment trends and it's interesting to consider how the new media affects them. Did you not get breakfast this morning or something ?

  • Comment number 75.

    Good old John From Hendon - I do love his posts.

    But, I would again make two points: (1) in a world where the total amount of habitable/farmable land is certainly not growing and in most cases shrinking (rising sea level and desertification), a world where the population is predicted to grow from 6 billion to 9 billion this century, it does seem to me that the price of land is set to grow simply on the basis of supply and demand - we have to feed people and they need somewhere to live! So John's favourite pet hate - rising property prices - are set to stay, as are rising food prices and rising commodity prices unless we have a breakthrough in alternative energy and farming. (2) in an economy where the majority of companies and individuals are over-indebted, the focus is on repaying debt, not on return on money. Low interest rates allow that to happen faster. Raise interest rates as John is so keen to encourage and with excessive debt we will see excessive default. John has, in previous blogs, indicated this is the way forward, but I would remind him that with our banks in their current state, the only consequence would be further government bail-outs. The debt doesn't "disappear" if the individual or company goes bankrupt/insolvent, it just moves from the individual or company to the bank and thence the government - which, with higher interest rates and lower revenue (all those bankruptcies and insolvencies mean less tax revenue) would be ill-positioned to absorb the increased public debt - leading to a vicious downward spiral.

    So, though I agree with his sentiment in the longer term - money needs value - in the short to medium term, we need low rates to allow debt reduction after which we can reset the value of money. Where the public see the earning of money as a means to repay their debt, they do not care about whether they get a reasonable return on it - because, in effect, they already owe it to someone else!! Of course this punishes those few who have behaved sensibly and saved their money, but they are, sadly, a small minority in a sea of debtors

  • Comment number 76.

    #32. ForgottenYouth:
    #33. Up2snuff:

    Spot on both, IMO.

  • Comment number 77.

    #58 Allegedely - interesting take on Internet advertising tax revenue there. It is true that many of these networking and blogging sites (you can include Google and Yahoo search sites as well). There is indeed a huge drift of advertising revenue over to these areas, none of which is coming to us despite exploiting our distribution infrastructure for free. And for good reason there is a drift over to these mediums as I understand there is 2-3 times return compared to other marketing media - TV, radio, etc.

    Good post given that this is still an emerging market at the forefront of eroding the high street outlets.

  • Comment number 78.

    #75. Tim wrote:

    "Good old John From Hendon - I do love his posts....."

    Perhaps you might also consider the effect of the unlimited volumes of money at essentially zero price on the whole economy, not just the price of houses. This is the main point I was trying to raise here. Houses and their absurdly high price in numeric terms compared to the incomes of those that need homes is a tiny consequence of the free money policy of the Bank of England the far far more serious issues are the effect on inflation and the complete perversion of all economic activity from any form of balance that might provide jobs to a totally property/asset inflation orientation. This is the catastrophic policy error that will bring about complete economic collapse if not tackled ASAP.

  • Comment number 79.

    #74 EconomicsStudent,


    I had a big bowl of oat clusters for my breakfast with a cup of coffee.

    I am surprised that you know nothing about marketing. Surely if you want to study economics then you require more than just a passing understanding of the business and societal activites that form the basis of the economy? Perhaps this is one of the reasons that present day economists come to conclusions like unemployment is work choice!

    If you note my last paragraph does agree that the whole concept of work, its value and reward does need a major overhaul.

  • Comment number 80.

    @43. oldsandbanker wrote:

    "Employers used to fund such apprenticeships in order to encourage A-level school leavers to study suitable university degrees at their expense, interlaced with paid internships. The benefit to the employer was an ample supply of qualified and experienced junior managers."

    Indeed they did, but wasn't that willingness not entirely unconnected with the carrot that they thereby obtained a direct return to the P & L account:- the "training rebate" (offset against the training levy)? I'm referring to Robert Carr's industrial training legislation, back in the good old days of old-fashioned "one nation" toryism before the Thatcher whirlwind struck.

    The scheme was of course doomed, as being "intervention" in the unrestrained operation of the free market (aka "every man for himself and the Devil take the hindmost").

  • Comment number 81.

    @46. Amysmythe wrote:

    "Also I thought that this was supposed to be an economics blog and not a politics one."

    What kind of world do you inhabit in which the one can be hermetically isolated from the other?

    FYI the discipline "economics" was originally christened "political economy". That describes it pretty-well exactly.

  • Comment number 82.

    69. At 10:01am on 24th Mar 2011, foredeckdave wrote:
    #61 Economics Student,

    "Original thinking?" You have to be joking!! All that allegedly has done is to rant from an ill-informed basis.

    I would advise you to look more closely at basic marketing theory and in particular the Marketing Communications element. If you believe that facebook and twitter are essential marketing tools in more than a few particular sectors then you are saddly deluded. Take a closer look at the work (some very good UK research) on Relationship Marketing to see a much more informed picture.

    I will however concede that we do have to urgently look at what we really mean and prize as productive activity. "


    ForeDeckDave - the growth in the use of network sites as main stream advertising mediums is huge. Indeed their economic model is largely based on advertising income. You're behind the curve. The number of users alone of both Facebook and Twitter (for example) not to mention the quality of personal information that both present, presents a massive marketing opportunity that has been far from maximised.

  • Comment number 83.

    Micro trumps macro it says above.

    Well in terms of the topics upon which we seem able to comment at the BBC these days, that certainly appears true.

    Rather than the wisdom of the path upon which any significant group is set, all we get is a BBC journo's nuanced account, of the gait, during a particular step of the walker(s).

    The above article, for instance, appears to me to avoid strenuously any implication, that the debate as to whether rapid cutting of public spending makes sense is in any way still open. Such comments would, therefore be off-topic.

    Elsewhere we find similar apparent painstaking care, in relation to issues such as integration v. multiculturalism and so on.

    In this way the community of commentators have been microdivided between the different stories, and few off these appear to offer a theme to attract much of a following during their conspicuously short lives.

    The BBC does seem to have thought carefully, about how best to prevent some intelligent and articulate people from using its site as a platform, to communicate their views to any significant number of interested people at large.

  • Comment number 84.

    #69 Fordeckdave

    By the way an interesting addendum from Morgan Stanley on social networking outlets as an area of untapped growth for marketing.

    http://www.morganstanley.com/institutional/techresearch/pdfs/tenquestions_web2.pdf

  • Comment number 85.

    75. At 10:52am on 24th Mar 2011, Tim wrote:

    Of course this punishes those few who have behaved sensibly and saved their money, but they are, sadly, a small minority in a sea of debtors

    ----------------------------------------------------------------------------------------------------------------------------------------

    Thanks, Tim, a lovely view of the future for all of us. Act foolishly, spend money you don't have, and in effect, the State bails you out, using the money of those who acted prudently. Lovely. Not a society I want any part of, I'm afraid, but of course that's just my problem.

    However I am interested in the future of my children and grandchildren, so could you enlighten me, please, as to the perceived end point of this borrow, borrow, borrow, spend, spend, spend Nirvana that seems so close to your heart? What happens when absolutely everyone finally gets the message that prudence and saving is a mug's game? Are all these spendthrift borrowers going to bail out each other?

  • Comment number 86.

    micro borrowing and micro public spending (sorry investment)
    micro borrowing and macro public spending
    macro borrowing and micro public spending (does not make sense even to me)
    macro borrowing and macro public spending
    Three alternatives.
    Let's have a vote!
    But with all the commentary on the budget, noone from any political party has the guts to tell the electorate that for their children and grand childrens sake and all the animals as well (plus stop all the horrible oil conflicts) the petrol price of 1000 dollars a barrel can't come soon enough. The car based economy is a waste of world resource.The state encourages people to commute miles and miles everyday in pursuit of work. Talk to new migrants to this country. Their common pathetic dream of life in the UK is of owning their own car and driving around all day. That is happiness to most individuals in the UK.
    And politicians, reporters mess around with this if you dare. The emotion behind this primal urge can influence the way people vote!

  • Comment number 87.

    You are right!
    Micro measures instead of the big changes needed. Or put another way 'fiddling while Rome burns'.

    The problem is that there are so many entrenched positions and no person with the balls of steel required to sort out the mess.

    We live in a country with several hundred different taxes. We need just one, with one tax and no allowances the opportunity for fiddling would be much reduced. We probably won't get to that nirvana, but we could get a lot closer. Obvious candidates for scrapping include the BBC licence, local council tax, road fund licence, special car tax, national insurance.
    We should tax ALL earnings at a flat rate - makes it simple and prevents the rich using allowances and offshore accounts to avoid tax (earnings to include shares, bonuses, company cars and any other benefit). We should tax all corporations for the business (not the profit) they do here (cutting down on the corporation shifting profit to lower tax economies by dubious cross accounting).

    Similarly the number of benefits you receive is beyond counting - we don't need that complication and it leads to many examples where people are better off scrounging than working. If every single person legally in the UK was paid a flat rate benefit they wouldn't starve, they wouldn't be without the basic necessitites and would always always be better off working - even at a very low wage.

    We could then scrap the minimum wage, most of the inland revenue, most of the social services, most of those at dvla, accountants in local government, printing of a myriad of bills, the enforcement arms for many things (like the BBC) and generally get rid of millions of paper shufflers that don't actually produce anything useful.

    After sorting out tax and benefits in a properly large and radical fashion the chancellor could then sort out the governments stupid rules for purchasing. When buying a BMW police car instead of a Jaguar the figures used are nonsense. The Jaguar is cheaper for the country - the people that build it, the materials in it, the profits from it cause tax to be paid here, we also save on the massive benefits bill (though if you take the approach above the situation will be easier to calculate and understand). The BMW provides work, profit, tax, and investment to a competitor, this in the long term destroys British industry - causing job losses, loss of exports and a further decline in our economy. The chancellor could sort out these rules, there would be people saying that its illegal or not fair but those people should be taken for a world tour - Germany doesn't buy French army lorries or Swedish police cars, the French don't buy German, the Americans buy only American products - even to the point of rerunning a bid process to ensure Boeing not Airbus get a military order, the Chinese don't buy British army clothes and the Indians certainly don't buy our software.... This is not selfishness on any of their behalfs, its good, sensible, hard economics. Support your own economy and increase your wealth (as Germany does), support other peoples (as we do) and become progressively poorer (and therefore reduce armed forces, public services, increase taxes...)

    This government has wasted a chance to clean up the situation, it continues to lack the vision needed to fix the country.

  • Comment number 88.

    re #86
    I am afraid that without a car, van, truck, aeroplane and ship-based economy you will have to euthanise about half to four-fifths of the world population and/or shut away half the globe to get by as best they can in complete isolation.

    Suggesting that all wars are over oil is somewhat wide of the mark. They are certainly users of oil and the manufacture and use of bullets and bombs contribute substantially to global warming. War is a far too uncivilised activity for the twenty-first century.

    I would suggest that travelling and trading is a much better idea. For that you will need cars, vans, trucks, aeroplanes and ships.

    And bicycles. :-)

  • Comment number 89.

    #78 John_From_Hendon - you're missing the point only banks are allowed to diminish the value of money. Heaven forbid the diminishing value of money be used to strengthen the social infrastructure in the country to make people more productive (that's public spending for those who don't get it).

    Tim sorry - you are just advocating doing nothing and events will again overtake us. Delegating power to the banks does not help and this has been proved time and again.

    Plus if you seriously think that the extortionate cost of a house is tied to the absolute or market value of the land, then you are deluding yourself. Otherwise a high rise flat would be much cheaper than a house and it is not.

  • Comment number 90.

    "88. At 12:10pm on 24th Mar 2011, Up2snuff wrote:
    re #86
    I am afraid that without a car, van, truck, aeroplane and ship-based economy you will have to euthanise about half to four-fifths of the world population and/or shut away half the globe to get by as best they can in complete isolation.

    Suggesting that all wars are over oil is somewhat wide of the mark. They are certainly users of oil and the manufacture and use of bullets and bombs contribute substantially to global warming. War is a far too uncivilised activity for the twenty-first century.

    I would suggest that travelling and trading is a much better idea. For that you will need cars, vans, trucks, aeroplanes and ships.
    "

    And oil.

  • Comment number 91.

    anotherfakename:
    great ideas, however have to be micromanaged to prevent huge jump in unemployment. government revenue systems are far too complex,they need to simplify and better enforce.We are supposed to be one of the wealthiest nations, but we have to top up wages with benefits(sorry credits) which are expensive to administrate. WHY?

    Your car analogy though, I would be much happier for UK to concentrate on hightech energy replacement. Our building industry is way behind Europe on energy saving ideas. Lets build that hydrogen powered truck here. Lets educate people to take responsibility for their own global footprint and start a revolution in local shopping with less packaging, more kind content. Lets invent that perfect recycled recyclable container. Lets just bypass 4G and invent 20G (superfast broadband!!) and work from wherever is convenient. Lets start to enjoy community and lets start small.

  • Comment number 92.

    49. At 22:34pm on 23rd Mar 2011, UnionRep wrote:

    If housing prices continue in an upwards direction as in London, along with wages keeping pace with inflation (most unlikely) and mortgage payments (countrywide) increase a bit then anyone purchasing any property (disregarding regional variations) is taking an enormous risk.
    ------------------------------------------------------------------------------
    I agree. 'Tis one of things making Snuffy nervous at the moment. (And may negate or impact unfavourably on GO's schemes.)

    I think GO needs to be hands-on all the time for a year or three, with a delicate touch on the levers of the economy. From yesterday, I have the worry that he thinks the petrol/diesel thing is all done and dusted. It ain't. Inflation is a big bugaboo and needs to be dealt with.

    And his moves on Corporation Tax seem a bit lumpen and heavy to me. Another worry is that I am not sure he has got a clear idea where we really need to take personal and corporate taxation in the short, then medium followed by the long-term.

    At present, I would be more encouraged to vote for the Coalition, or the Tories in 2015, if I felt that they had been thinking and planning 5-15 years and more ahead.

    I still think Cameron is weak on strategy and now, surprisingly for one who has worked in the communications industry, poor on PR. Don't want spin but good PR could smooth the way for steady progress.

  • Comment number 93.

    Well, I'm very pleased by the budget because it will, hopefully, result in me saving about £1800 per year. I have told the powers that be (ie. my wife) that I'm quitting smoking now because it's got too expensive.

    Sorry for the loss in tax revenue folks. I'll let you know how I get on; last time I made a decision like this I did indeed quit for 3 years, I'm going for 3 years +1 day this time :)

  • Comment number 94.

    There's plenty of tinkering in the much vaunted plan for growth. But the reform of the planning regime, taken alongside the localism Bill, will transform the way planning decisions are taken in the UK. Whether they will make a positive difference or a negative one, of course, will be hotly debated. But as with Mr Osborne's first Budget, you can't say it won't make any difference.

    .....
    First of all it will only apply to England, because it is a devolved matter in the sticks. secondly the construction sector is going backwards because they cant get access to finance. So no, it will make little difference other than to annoy another bunch of people, ie the NIMBY's. So add them to the long list then.
    There is nothing in this budget to stimulate growth. I don’t think George even knows what the cause of the downturn is. Even if he did the solutions would not be acceptable to him or his chums in the city anyway. The only solutions being presented are the Tories, cut fast now, or Labour's trim now and cut more later. Both wont work. Economic growth will not return as demand will be reduced further and therefore they both fail.The advantage of the Tories approach is that they demonstrate that it doesn't work sooner.

  • Comment number 95.

    Dear Stephanie Flanders,

    Given your recent blogs on growth and inflation, in your next one would you be able to include a brief review of current literature (- the empirical kind that actually looks for (Grainger) causal relationships). As a non-economist, with limited journal access, I have scanned and think the up-to-date evidence suggests:

    inflation uncertainty = f(inflation) +ve relationship
    growth = g(growth uncertainty) +ve relationship (wow!)
    growth = h(inflation) –ve relationship (oh dear )
    growth = j(inflation uncertainty) – unclear, depends on country

    If this summary is correct, and there is no guarantee, the growth uncertainty might be a positive sign in the long run (- would this be an indication of discontinuous change as in innovation theory?), but the inflation in the UK is bad (I think it was a 2003 ECB working paper indicated over 3% poor).

    Much appreciated if you could do this (assuming you have chance/staff to read people’s comments).

  • Comment number 96.

    "75. At 10:52am on 24th Mar 2011, Tim wrote:

    ...a world where the population is predicted to grow from 6 billion to 9 billion this century..."

    (Sigmar: 9.1bln by 2050 according to the U.N.)

    "Of course this punishes those few who have behaved sensibly and saved their money, but they are, sadly, a small minority in a sea of debtors"

    (Sigmar: 29%* of home owners have paid off their mortgages and so, I presume, probably do have savings. Which is a minority but not that small).

    *UK Census 2001

  • Comment number 97.

    From www.bbc.co.uk/news/business-12847061

    "The volume of UK retail sales fell by more than expected in February, dropping by 0.8% on the previous month" and ""The problem facing the High Street is that the cost of living for the average customer is going up more than wages are," said retail analyst Rahul Sharma."
    ------------------------------------------------------------------------------
    So, ?

    Real wages down -> quantity demanded down -> spare capacity up -> real wages down.

    Anything the Chancellor of the Exchequer tries to do for growth will be minor compared with the effects of inflation; a stiff letter to the Govenor needs to be written.

  • Comment number 98.

    48. At 22:33pm on 23rd Mar 2011, Libert_arian wrote:
    'Leave people alone to be able to build what they want and costs will reduce and quality will increase, as Grand Designs proves.'

    I don't see Grand Designs providing much low cost housing for anyone, nor do i see any evidence that it is cheaper. What it does do is enable the rich to look after themselves, which is the real agenda of Libertarians like yourself.

    73. At 10:39am on 24th Mar 2011, houseflogger wrote:
    'Cue another 2-3 years of delay when no houses get built, prolonging the recession and making the housing shortage even more acute.'

    So just building more houses solves the problem? One problem is too many people. What about all the empty property in the country already? I believe there is quite a lot of it, what about confiscating it and putting it to use? Not an Estate Agent are you Houseflogger...seems almost too obvious from your tag.

  • Comment number 99.

    74. At 10:47am on 24th Mar 2011, EconomicsStudent

    you might find this interesting;
    http://ideas.repec.org/p/cfe/wpcefa/2007_02.html

  • Comment number 100.

    http://www.chrismartenson.com/blog/straight-talk-john-rubino-damage-already-done/54475
    Very good article, that squares with my understanding of the way things are heading.
    "Our choices have narrowed to only two: a crash that will dwarf the Great Depression or a hyperinflation that wipes out a whole generation’s savings."
    "Today’s debate over .....spending and taxes is just so much fantasy. We’re like a family arguing about redoing the kitchen while the house burns down. It’s an irrelevant, annoying discussion."

 

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