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Who to believe?

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Stephanie Flanders | 17:52 UK time, Wednesday, 1 July 2009

Does anyone believe the government's own spending assumptions? I ask because this week both the prime minister and the first secretary of state (aka Lord Mandelson) have seemed to suggest that they were a bit iffy.

Okay, so they didn't exactly put it that way. But that was the implication.

Consider, first, the prime minister, in today's knockabout with the leader of the opposition. In round three (or is it 42?) of the Spending Cuts Saga, he once again insisted that current spending would rise after 2011 under Labour, but be cut by the Conservatives.

I won't go back over the main elements of the spending row right now (I have written a quick primer on the numbers below, for those that want it). But for me, one of the big unanswered questions in this debate has been whether or not the government actually disputes the IFS numbers which are so often quoted against them.

All that the Treasury says is that "they are not our numbers". But, at times, both the prime minister and Ed Balls have appeared to suggest that there will be more space for spending growth than the IFS implies, because unemployment and other "unavoidable" costs will be lower than they think.

The PM was gesturing in this direction today when he said that Mr Cameron's spending plans were based on a rise in unemployment "because you will do absolutely nothing about it".

But, you'll recall that the Conservative figures are taken from the IFS, which are themselves based largely on the Budget's own unemployment forecasts, or the Department for Work and Pension's long-term forecasts for benefit spending.

So any problem the prime minister has with the Conservative/IFS numbers would surely apply to the government's numbers as well. I wonder if the prime minister knows something the chancellor doesn't.

I had the same thought listening to Lord Mandelson's comments on the Today programme on Monday, when he said that it wouldn't be right to make spending plans based on "speculative projections".

The first secretary of state said "we are not in a position to be able to forecast what growth will be or the performance of the economy will be in 2011-12". Evan Davis pointed out that the Budget had indeed made just such a forecast - in fact, based the government's spending and tax plans on it.

Mandelson replied that any such forecasts were "entirely speculative," and it would be better to base spending on "reality, not speculation".

So, neither the prime minister nor Lord Mandelson seem to put much store by what the Treasury says these days. Curious times indeed.

PS. A PRIMER ON THE SPENDING DEBATE

There have been some interesting twists and turns along the way, but these are the basic facts which have kept the barbs flying over the dispatch box for so many weeks.

The numbers in the Budget suggest that total spending between 2011 and 2014 will fall in real terms by 0.1% a year. In other words, essentially flat.

public_spending_466x248.gif

But that total includes a massive (and now much-discussed) cut in capital spending of 17.3% a year over that period. The prime minister suggested recently that asset sales would make up the difference, but the government has not identified things to sell that would come close to filling the gap.

That leaves current spending - everything that isn't capital investment. That is due to grow in real terms by 0.7% a year, the lowest growth since 1997-2000 when Labour was following through on the previous government's spending plans.

So, current spending will grow from 2011 to 2014, as the prime minister suggested today. But, as has been thrashed out many times over the past few weeks, that figure includes the rising cost of social security and debt interest. If you take those and other "uncontrollables" into account, the IFS says that current spending on everything else will fall in real terms by 2.3% a year.

nhs_spending_cuts466.gif

If you protect health and development spending from real terms cuts, as the shadow chancellor promised once again yesterday in his interview with Nick Robinson, other current spending would have to fall by 3.3% a year in real terms - or roughly 10% over three years. If schools are also protected, as Ed Balls has sometimes suggested, there would need to be cuts in other spending of 13.5% over three years.

Comments

  • Comment number 1.

    Its a joke isn't it? none of them will tell us the truth, I can't bear another 11 months of this!

  • Comment number 2.

    "Does anyone believe the government's own spending assumptions?"

    Of course not. You'll be asking us if we beleive in Santa Claus next.

    Right I'm now off down the pub, which I suspect is where everyone else is this evening.

    Maybe if we have a heatwave this summer HMRC will make enough booze tax to fund the governments fairy tale spending plans.

    Or maybe Gordon should mint a few million more of those dodgey 20p pieces, I hear they're going for 20k on ebay. That would solve the budget crisis.

  • Comment number 3.

    Who to believe? Exactly.

    But an effort to get some bloggers to get down to basics on this troublesome issue, which is endemic, sent blogdog into a frenzy/rage.

  • Comment number 4.


    who to believe?: no one! All governmental budgets are "speculative" because they are based on a forecast of tax revenue based on economic "projections." Budgets are based on assumptions and as we have seen those assumptions can be wrong, even greatly wrong. Governmental budgets are also political and therefore those in power give positive news and those out of power give negative views. Just like bailing out the banks. There was not money to do that, but somehow it appeared and the money that was lost by investors and retirement accounts, apparently it just disappeared. Governmental budgets are like Iranian elections, it depends on who is counting.

  • Comment number 5.

    Does the 09 Budget make assumptions which they know are over-the-top on the downside eg losses on bank bail-outs equating to 3.5% of GDP? Oil assumed at mid 40 dollars per barrel-North Sea revenues. If they cant rely on growth to bail them out, more tax rises?

  • Comment number 6.

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

  • Comment number 7.

    The only thing we know about forecasts is that they are generally wrong. The sensible question to ask about these figures is how big is the error likely to be?

    We know that forecast error increases as we increase the specificity of the forecast (the number of elements that we are forecasting within the total or the specificity of a date at which something could be achieved). The debate about spending plans is, at best, entertaining. To believe that it relates to real numbers would be a mistake.

  • Comment number 8.

    Hold on a minute if public capital expenditure is set to take a nose dive what will be the effects on unemployment and therefore on loss of taxes and increased payment of benefits. Has this been built into the treasury model?
    Cutting capital expenditure is probably easier to present than cutting current services or raising (ideally progressively) taxes. This government nothing if it is not focused on presentation.

  • Comment number 9.

    I agree, the Labour party should have a meeting so Balls, Brown and Mandy start to talk from the same hymn sheet.
    They have forgotten why they became politicians. They are supposed to fight for us and not try to deceive us. I am embarrassed to be British.
    What happened to integrity, honour and respect?
    Any one got any ideas how to get these clowns out before next May?

  • Comment number 10.

    eatingantonyo (#9) "I am embarrassed to be British. What happened to integrity, honour and respect?"

    Thatcher and Blair dispensed with all that as part of their Libertarian/equalitarianist programme of anarchistic wrecking. 'Integrity, honour and respect' limited that freedom too much. All three main parties have now become clones, and to see what's coming, one just has to look to how the BNP is treated, as that tells one all one needs to know about the main parties and what they are not doing.

    This is not an endorsement of the BNP.

  • Comment number 11.

    What disturbs me in this whole thing is that this is only going to get worse as we sit about debating it. Are the figures speculative, of course! We don't know what is going to happen, so build a scalable plan that has tiers to it and adjust to suit.

    I'm aware of the political reasons for not waiting to unveil a plan with massive cuts but we are where we are and the longer we sit around the harder those cuts are going to have to be (unless the tooth fairy leaves a few hundred billion under UK plc's pillow).

  • Comment number 12.

    The title should read "Whom to believe", not "Who to believe"

  • Comment number 13.

    We don't need to plan for the future. It's not the government's job to encourage stability. Therefore, there's no need for accurate forecasting.
    It's better to wait for the future to happen, and then react after it's too late to treat the causes of any problems which may have occurred.

    The fact the economy is in a mess has simply been caused by a bit of bad luck. The worst economic crisis since World War I could have happened to anyone. No-one saw it coming; it came from nowhere. It's impossible to manage an economy, which is why no-one studies economics anymore.

    Anyway, the government will produce jobs from thin air, as we all know that governments can, because there is no unemployment anywhere in the world, and there is no poverty.

    If the government doesn't quite get everything under control, rest assured that Britain's magic exports will save the day, by arriving just in the nick of time.

    There is no need to worry.......

    Mr Micawber frequently tells us to have faith that "something will turn up". Jolly Mr Micawber has become synonymous with someone who lives in hopeful expectation. This has formed the basis for the "Micawber Principle", based upon his radical observation:

    "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."


    If we had a general election now, we would all then be able to get on with the unpleasant business of cuts and tax rises, as we all know there is no other option, as Britain cannot escape the need to balance its income with its expenditure.

  • Comment number 14.

    So the government is bankrupt and the country is facing ruin.
    I hear that Margaret Thatcher (Baroness Thatcher...sorry) is out of hospital and sitting at home with little to do.
    Perhaps someone from Downing Street should go around to her house and ask her what they should do!

  • Comment number 15.

    "Does anyone believe the government's own spending assumptions?"

    My laugh for the day. Does anyone believe anything they hear anymore? From anyone, not just those in the government? As the economic "miracle" that began in the 1980s began to unravel about the year 2001 starting with Enron, the more you probed, the more falacies, errors, absurdities and mostly out and out lies were uncovered. Whevever you looked there were nothing but lies. What was the miracle? That there was enough smoke and mirrors, spit and Scotch tape to keep the illusion alive for as long as they did. From corporate execs to polticians, investment bankers to regulators, they could hardly have been more wrong. Just go back a mere 18 months and look at what most of them forecast for the future. At that time most of them said there wouldn't even be a recession, no chance of one at all. Had you suggested that the entire world's economy was about to collapse, they would have laughed at you and then said you were crazy. Every one of their predictions has proven wrong and each time their excuse is that if they had done anything else than what they did when they did it, things would now be even worse. Yet these are the very same people who engineered the collapse in the first place. And why shouldn't they continue to lie to the world and to themselves? How else could they pat each other and themselves on the back as they justify their huge salaries and bonuses while the rest of us go broke?

  • Comment number 16.

    MarcusAureliusII (#15) "And why shouldn't they continue to lie to the world and to themselves? How else could they pat each other and themselves on the back as they justify their huge salaries and bonuses while the rest of us go broke?"

    That certainly appears to be what's happening - with a little theatrical contrition thrown in. That's how such people behave - they're incorrigible.

  • Comment number 17.

    3. At 8:09pm on 01 Jul 2009, JadedJean wrote:
    Who to believe? Exactly.

    But an effort to get some bloggers to get down to basics on this troublesome issue, which is endemic, sent blogdog into a frenzy/rage.

    ==============================
    First, some help please on demystifying your post..

    Basics.. basic what? or is that just a lazy cliche?
    What is endemic and to what??

    For those (like me) who were fortunate enough to miss the exchanges that were moderated out that day between you and the usual suspects, we have absolutely no idea what you are on about and due to the moderation you probably have no way of telling us. So, pray, why bother?

  • Comment number 18.

    No.12. FrankSz

    We don't want your high standards 'round here mate......clear off.

    You are, of course, correct:
    We believe "him", not we believe "he".
    Therefore, it is "whom to believe" and not "who to believe".

  • Comment number 19.


    Who to believe? I believe MrTweedy.

    The prime minister and Ed Balls are appearing to suggest that "unavoidable" costs will be lower. aye, ok...

  • Comment number 20.

    Comment 15 : MarcusAureliusII

    Hmmm. Pretty much my thoughts exactly.

  • Comment number 21.

    We can believe this and this But who is prepared to believe this or this?. If you do, what measures can be taken to 'address' it now? The UK is already splitting up (Balkanizing) into 'Regional Development Agencies'. Scotland, Wales and Ireland are almost adrift.

    The harsh truth is that what is happening in Califirnia (see the changing demographics and TFRs) casts some harsh light on what happened in S. Africa and Rhodesia, and what's happening today in Israel. Nobody wants any of this, but unless one faces the reality underlying diversity, it happens. :-(

  • Comment number 22.

    ThorntonHeathen (#17) As one of the usual suspects, I suspect you'll never know.

  • Comment number 23.

    Look, the time will come soon (it's almost certainly happening right now) when reality will crunch into Brown's spending fantasies.

    Everywhere, individuals, companies and public organisations are running out of credit and/or cash. For example, where I live, Moray Council just shocked themselves by discovering unexpectedly that they were £2 million overspent, against a forecast overspend of £600,000. The Council says (jokes?) it will be saving millions of pounds in the coming 2 or 3 years ... but is clearly haemorrhaging cash today. Hardly an organisation in control of its finances. This type of situation means that organisations start to operate in atmospheres of near-chaos for much of the time.

    Similar situations are arising everywhere across our economy, at every level. Gordon Brown can bang on as much as he likes about spending the money he doesn't have now, and certainly won't have tomorrow, but this cold, stark reality - of individuals and organisations running out of money - will smash Brown's fantasies to smithereens soon enough. Ask any company owner struggling with a cashflow crisis. Er, sorry, I forgot: MPs aren't supposed to have second jobs, still less have a clue about how companies operate.

    What the politicians have yet to grasp, from inside their Westminster pay and expenses cocoon of thieves, is that unless and until they front up to the shocking reality that is now the UK economy, then with each passing day we shall edge closer to socio-economic armageddon. It's happening now.

    The political shysters in Whitehall are living in a deluded world of their own, obsessed with personal survival. When that devil-take-the-hindmost attitude extends to us ordinary citizens out here in the increasingly financially desparate real-world, there will be hell to pay on our streets and in communities.

    This is the imminent reality of a political elite now so far removed from the nation's citizens that one wonders which planet these people inhabit.

    And right up there at the top of this unholy economic, political and, indeed, moral mess is ... Mr Gordon Brown MP: the man with the moral compass who saved the world.

    Even Kafka couldn't make this up.

    PS Why has the mightily expensive BBC not yet figured out how to print a pound sign?

  • Comment number 24.

    When are people going to grasp that if you populate you back yard with fast growing vegetation, no talking to it will make it any more manageable. The usual suspects have only learned to think and talk in terms of magic. When that's exposed for what it is, they get petulant or worse. When led to behave in more pragmatic, realistic ways, they behave like any animal dragged out of their comfort zone.

  • Comment number 25.

    #21 JJ etc.

    Isn't it interesting that California is about to be unable to pay its debts (if not default). (If it was a county California would be about the same size of the UK give or take - it has suffered a dramatic property collapse, a dramatic down turn in income tax and so on.)

    You are worried about the UK!!!!

    California's solution is to print IOUs and some banks have agreed to cash them too!) Will the UK not do the same! (and I wonder at what discount the IOUs will be traded!)

    What price UK Treasury Bills now! (This will be seen in the yield on these bills first - it will rise substantially indicating lack of faith in the UK's books. GB please note.)

    All because of the refusal to get a grip on things and move back to sound money (positive, sensible interest rates)! The sooner it happens the sooner we can start to recover!

  • Comment number 26.

    To put it in a nutshell, Brown , Balls and Mandellson are liars, meanwhile the chancellor stays silent . Is this because he wishes to distance himself from the obvious untruths being told or does Yvette (Rosa Kleb )Cooper/ Balls have her spiky shoe strategically placed where it can do damage if he opens his mouth.

  • Comment number 27.

    There appears to be a policy of head_in_the_sandism at work?

    A reminder:

    "Without any censorship, in the West fashionable trends of thought and ideas are carefully separated from those which are not fashionable; nothing is forbidden, but what is not fashionable will hardly ever find its way into periodicals or books or be heard in colleges. Legally your researchers are free, but they are conditioned by the fashion of the day. There is no open violence such as in the East; however, a selection dictated by fashion and the need to match mass standards frequently prevent independent-minded people from giving their contribution to public life. There is a dangerous tendency to form a herd, shutting off successful development.

    Should someone ask me whether I would indicate the West such as it is today as a model to my country, frankly I would have to answer negatively. No, I could not recommend your society in its present state as an ideal for the transformation of ours."


    Aleksandr Solzhenitsyn (Harvard, 1978)

  • Comment number 28.

    We're at it again. Spending cuts, spending cuts, spending cuts.

    Well I know as well as anyone else that there are a lot of jobs in the public sector that aren't fulfilling any particularly useful purpose. But the same is true of much of the private sector (three quarters of the finance sector for a start, plus most of those in marketing and HR, half of middle management and so on). But what would happen if we got rid of these non-jobs? Mass unemployment and the ecomony even further down the pan.

    Non-jobs are what keep the economy afloat. We all know that most of the things we actually need in life (food, drink, shelter, health, education plus most of the minor "luxuries") can be provided by a small proportion of workforce. The rest need to have something to do. What really gets peoples goat though is when the non-jobs get paid vastly more than the jobs that are actually doing something useful. There needs to be a sensible balance here, Don't whinge about people doing jobs that aren't necessary, but at the same time make sure they are not paid excessive amounts for doing so.

    And by the way, the Government should start encouraging people to work part time. All this nonsense of Tax Credits (where you are severely penalised for working less than 30 hours per week) is complete insanity.

  • Comment number 29.

    No.27. JadedJean

    That reminds me of the recent book "The Silent Takeover" by political economist Noreena Hertz.

  • Comment number 30.

    JJ

    My (limited) investigations of have taken me to identify a prime suspect:

    http://en.wikipedia.org/wiki/Jeremy_Bentham

    See para 3 - A staunch proponent of individual & economic liberalism (most importantly the freedom to practice usury).

  • Comment number 31.

    We're not hearing what's really going on from the three main parties because if they called it as it is they would have to take a line something like that taken by the BNP, which is really just taking the stance which Germany took to this in the 1930s. It's history repeating itself. This is why the BNP is treated with such fear, I suggest, not because the BNP is a credible party itself, but because they expose the three main parties as powerless when confronted with 'Financial Services'. :-(

  • Comment number 32.

    The government keeps peddling the equalitarian, 'it can all be addressed via educational opportunity_extra_tuition' line because it hopes the electorate will believe this will soften the blow, i.e. that parents will be led to believe that their children won't be victims of predatory lending/debt as they'll have a better education, mor e'opportunity'. But even basic arithmetic ability, like memory, is heavily loaded for 'g', the heritable component of intelligence. Education equips this ability - but it can't create it.











    ecause that softens the predatory blow they think. That is, people are naively led to believe that their children won't be victims of predatory lending/debt as they have been as they'll have a better education than they did. In fact, mathematical ability, even basic arithmetic ability, like memory, is highly loaded for 'g', i.e. heritable intelligence. Education equips it, but it doesn't create it.

  • Comment number 33.

    I am beginning to despair about BBC journalism, I might as well read the Daily Mail. Cameron attacks Brown saying the spending figures are dishonest. It's the opposition's job to attack but that doesn't make it correct or newsworthy. But, the honesty issue is immediately picked up as 'the issue' by Andrew Neil and by BBC commentators all day long, including Stephanie Flanders and Paul Mason, from whom I expect just a little more. The BBC says all day long, indeed all week long, that 'everyone knows cuts are inevitable after the General Election' but that is opinion - David Cameron's opinion, actually - not fact. Many people disagree but get no air time. The sale of just one of the Banks nationalised would put the public finances right in one go, but that is never mentioned. It is not the BBC's job to be Cameron's loudspeaker, but that's the way it seems to me at the moment. His policies are never subject to any detailed scrutiny - they would lead to a longer and deeper recession, but when will the BBC point that out?

  • Comment number 34.

    Does anyone believe the governments assumptions? No, they are not assumptions. They are bare faced lies. Only a simpleton would believe otherwise, surely.

    As I bang on the root cause of all this mess is government largesse permitted by borrowing and irredeemable currencies. Here is Antel Fekete's latest:
    http://www.financialsense.com/editorials/fekete/2009/0706.html


  • Comment number 35.

    I have just read that the sale of a nationalised bank would put the nations finances right in one go. If it needed to be nationalised, it was insolvent and hence not worth anything if not bailed out. Please think before writing.

 

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