BBC BLOGS - Stephanomics
« Previous | Main | Next »

All in it together?

Stephanie Flanders | 13:50 UK time, Wednesday, 20 October 2010

"Today is the day that Britain steps back from the brink," was the chancellor's opening promise today. That is one yardstick by which today's decisions have to be judged: have they supported our economic future or put it at risk? The other measure of this review - as the government has itself insisted - must be whether the cuts that George Osborne has announced are fair.

Spending review book

 

On the first, he said that Britain was now "out of the danger zone". Certainly, the UK is not now on the list of governments whose deficit-cutting credentials are in doubt. Quite the opposite.

But the interest rate on government bonds - which fell slightly today - is only one measure of the contribution that these spending cuts will make to the recovery. The other is whether the chancellor has done his best to pick cuts that will do least economic harm.

The chancellor said he had done this. For example, by adding £2bn to the capital investment plans he outlined in June, and by protecting the science budget, relatively speaking. The City won't mind that: with the government now borrowing at record low interest rates - barely 1%, in real terms - many large-scale public investments probably represent good value for money (see my piece on the Ten last week). But he can't get around the fact that public investment in real terms is still going to fall by around 30% by 2014-15.

Don't forget that around £2bn of the £5bn in cuts for 2010-11 announced soon after the election were investment projects. I have to confirm this when I see the document, but, at first glance, this extra £2bn merely puts that investment back on the books - a few years later than it would have happened if the old plans had gone through.

The OBR reckons that every 1% of GDP fall in public investment translates into a 1% hit on national output - far more than any other form of cut (or tax rise). That is one reason why the IMF suggested, in its otherwise supportive report on the UK a few weeks ago, that the government should be looking to take more from the welfare budget, especially benefits that go to people in the upper half of the income scale.

Have they done that? Yes and no. Taking child benefit from higher-rate tax-payers is going to raise a bit more than he thought - £2.5bn. But clearly the government were so spooked by the response to that change that they decided they couldn't do any more to middle class benefits.

There will be an extra £7bn from the means-tested part of the welfare budget. This will overwhelmingly affect families in the lower half of the income distribution. I cannot see how to avoid that conclusion - even with the increase in the child element of the working tax credit, which enables the government to say that child poverty is not directly increased by these changes.

But better-off pensioners can relax. Here's the key part of the speech: "we also keep the universal benefits for pensioners, in recognition of the fact that many have worked hard and saved throughout their lives. Free eye tests; free prescription charges; free bus passes; free TV licenses for the over-75s; and Winter Fuel Payments will remain exactly as budgeted for by the previous government - as promised."

True, the state retirement age is going up - but even that rise (which will be much welcomed by economists) is regressive. Poorer people start working earlier in their lives, often need to retire sooner because they do physically demanding jobs, and do not live as long as the better off. We found out this week that the gap in life expectancy between the richest and parts of the UK has risen to 13 years. The gap between the North and the South is at least seven years.

That is where judging the economic impact of these cuts overlaps with the assessment of its fairness.

We have been promised - for the first time - a Treasury assessment of the distributional impact of today's spending and benefit decisions. Since the document has not been released, I don't know what is included in that calculation - and what is left out. But, at first glance, the cuts to the welfare benefit are regressive, in the most basic sense of costing families in the lower half of the income distribution more, as a share of their income (and often in cash terms as well) than families in the upper half.

That could have an economic downside. As the IMF noted in that same report, poorer families, are more cash-constrained (you don't need an economist to tell you that. A lack of cash is rather what it means to be poor). If you cut their benefits they tend to cut their spending more than richer households do. They do not necessarily have the same capacity to complain.

But here is what seems to me to be the ticking time bomb in the government's plans - which will have economic implications as well as political ones. That is the likely impact on the demand and supply for housing.

With the housing benefit cuts, the cuts in social investment, and the re-definition of "affordable" housing to include rent that is 80% of the going market rate, the government is surely ensuring a massive rise in the demand for social housing, and only a modest increase in supply. When you consider that local authorities have also been told that they do not have to stick with the targets for private house building which were imposed on them by the previous government, this is a big gamble with the bottom end of the UK housing market.

The chancellor says, rightly, that the old system of social housing was not working. He has some bold ideas for creating a better one. But they will take time to work - if they actually do. In the meantime, you have to wonder where a lot of lower-income households in the South East are going to live.

Update, 14:30: Now we have the Spending Review document [2.03MB PDF], I can tell you that the chancellor has indeed found an extra £10.5bn from non-departmental spending to ease the burden on departments - in addition to the £11bn in welfare cuts announced in June.

£3.5bn of that has come from non-welfare changes, like the rise in public sector pension contributions. Around £7bn comes from welfare, only £2.5bn from the universal benefit change - removing child benefit from the better off.

I am now wading through the promised distributional analysis of today's changes - and all the cuts announced by Labour and the coalition in the past few years which have yet to come into force.

The headline from Chart B5 (below) is that today's welfare changes are indeed regressive. The biggest losers, as a share of their income, are the bottom fifth of the income distribution. As the document points out, many in this part of the income distribution are not "poor" - many, for example, are students, or self-employed with intermittent income. But the bottom 30% of the income distribution each lose more from these changes than anyone else.

Chart showing impact of Spending Review and Budget measures (including pre-announcements) as a per cent of net income by income distribution (2012-13)

Overall, the chart shows that the benefit and tax changes coming down the track hit the richest tenth of households worst. But, as the IFS has shown, that is only because of the decision to retain part of Labour's National Insurance rise and the new 50p rate. Without those, the IFS has concluded that the extra tax rises and benefit changes announced by the coalition have been regressive. That is all the more true after today's announcements.

There is a very complicated table (see below) that claims to take account of the impact of departmental spending cuts as well - this reaches the same conclusion. The richest fifth are worst hit, but only because of the tax increases which the coalition inherited.

Chart

Overall, this table shows that the top fifth are paying most as a share of their income, but once again, this is only due to the tax increases coming in the next few years. The bottom 20% don't fare worst, but the IFS has pointed out, the Treasury is still not including in its analysis several benefit changes which probably most affect the poor. By the Treasury's own calculation, the spending and benefit changes which, famously, make up 80% of the coalition's deficit plan will hit the lower 60% of the income scale harder than the top 40%.

It would have been almost impossible for the government to avoid this outcome: to cut the deficit, they need to cut government spending, and the lower half of the population is much more dependent on the things that government provides than the top half. But, looking at the universal benefits that this spending review has left intact, many economists would say that they have not tried as they might have done to even the score.

Comments

Page 1 of 2

  • Comment number 1.

    Limit supply of housing = price of existing homes goes up.

    Sack 500,000 public sector workers = banks make a nice profit selling on reposessions.

    Homeless ex-public sector workers then spend every penny they have on private rent.

    Does George Osborne have a large rental portfolio?

  • Comment number 2.

    All it means is that rents will fall, buy-to-letters will fail and house prices will go down even faster. What's not to like? Those lower-income households in the south-east will be able to afford to buy privately from the distressed buy-to-letters.

  • Comment number 3.

    SF: "With the housing benefit cuts, the cuts in social investment, and the re-definition of "affordable" housing to include rent that is 80% of the going market rate, the government is surely ensuring a massive rise in the demand for social housing, and only a modest increase in supply."
    -----------------------------------------------------------

    A crash in house prices will sort this out. It will be cheaper for government to buy distressed property than have new build social housing.

  • Comment number 4.

    at their press conference yesterday -

    the French, Russian and German leaders, Sarkozy, Medvedev and Merkel, stated that it has been agreed that a NEW world reserve currency will be on the agenda at the next G20 summit in November.

    They also said that a permanent restructuring of wold finance is the TOP of the agenda for discussion, led by Medvedev as Russia has presidency of the G20 at the moment.

    They also confirmed that the EU 27 have reached agreement on stricter rules and penalties for member countries regarding running deficits, i.e. to head of assest bublles (ref UK!) in the future.

    This is revolutionary, yet doesn't get mention on the BBC!

  • Comment number 5.

    What about the North East? Most people in this area are in office jobs in local government or benefits agencies. On top of this there is not the affordable housing. There is a lack of jobs with 17 people for every vacancy. I am thankful my state pension starts in a few weeks time.

  • Comment number 6.

    Clearly if you work for the NHS you are not ''in it, to lose it''.

    Labour spent billions to reduce waiting lists and the money now, not required, because there are fewer patients to operate on, should be 'returned' to the Chancellor's Budget for all to benefit.

  • Comment number 7.

    All in it together?
    Yes, it would seem so, except of course for those huge investment banks too big to fail that caused this financial mess in the first place.
    That's right:
    It wasn't Labour.
    Better Governments than Labout got fooled by the American bundled derivatives that held all those doomed, debt-laden mortgages, and all those credit default swaps, some of which bet again sovereignty.
    I don't see the banks in this with the rest of us, do you? Are they in camouflage?
    The decisions made by The Coalition Government have put the future of the UK at risk.
    But why?
    As much as George Osborne insists the cuts must be "fair", they are not fair. I ask again, where do you see the levy against the banks? How come they get away scott free when it was their nefarious financial tricks that undercut the world's financial systems?
    Mr. Osborne knows about FTT (Financial Transaction Tax).
    Mr. Osborne knows about FAT (Financial Activity Tax).
    But Mr. Osborne choises to ignore both, which likely means that he intends to fight, along side the UK good-buddy, the United States of America, to stop both taxes dead.
    Why?
    Because you can't make the huge banks too big to fail pay their "fair" share! My God, they might leave the country!! Whatever will London do?
    I don't care what George says. Until he takes into account the inequitability of leaving the investment institutions out of the "cut" picture, until he shows me bank levies, I am just not interested in what he defines as "fairness".
    What's going on?
    First we bail-out the banks too big to fail, and then we leave them out of any demand for levies. Does this make sense to you?
    Second we get walloped with all this auterity. Has it not occurred to the great thinkers in the UK that the financial institutions have escaped their "fair" share?
    The IMF suggested that the government should be looking to take more from the welfare budget, especially benefits that go to people in the upper half of the income scale. Really?
    Well, this sounds like the IMF. First, according to the IMF, you need to get rid of the country's social programs; then you need to privitize; and then, you are all set for pure, raw, destructive capitalism.
    Has The Coalition followed this advise.
    Yep, it has. There go the social programs flying off The Coalition's foot right out the window.
    I can't wait for the Treasury assessment of the distributional impact of today's decisions. This will take a lot of tap-dancing to circumvent public wrath, and there should be public wrath.
    What do you think the public will do when they find out that George Osborne, in his need to be "fair" has decided along with The Coalution Government to sidestep a FTT or FAT, both of which could help the poor avoid the burden of big-bank-caused mega-debt.
    Why is it that the United States and the UK appear to be two of the countries (contrary to EU thought) that want to bury FTT andd FAT? If the EU believes FTT and/or FAT is a good idea, how come the UK is holding hands with the US?
    How come?
    Personally, I don't much care what the Chancellor is saying until and unless he starts talking about
    - FTT (financial transaction tax) and
    - FAT (Fiunancial activity tax),
    starts explaining why he, and the United States want no part of these bank levies, why The Coalition Government feels that it is "fair" to burden the weakest and most desperate of UK society with Phase 2 of bank-bailout (i.e. paying off the consequences of irresponsbile, unregulated banking).

  • Comment number 8.

    "In the meantime, you have to wonder where a lot of lower-income households in the South East are going to live."

    It's called The North. Workers will be bussed into London to work, and be allowed to return home periodically to visit their families. South Africa did this on the basis of race for many years and it was called apartheid based on the "bantustans." This is far more subtle, but basically the poor will be driven out of London and the South-East to live in regions that will be allowed to stagnate economically therefore having lower costs-of-living requiring lower benefit rates for those unable to be a gastarbeiter in the south. Houses will be owned by absentee "buy-to-rent" landlords who will be inaccessible geographically and socially, and with cuts to legal aid will be inaccessible through the courts, but there will be no alternative to renting from them as there will be no social housing. And with all the social problems parked well out of sight of the London media there will be no public opinion for the government to contend with either. "O Brave New World, that hath such people in it..."

  • Comment number 9.

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

  • Comment number 10.

    "The City won't mind that: with the government now borrowing at record low interest rates - barely 1%, in real terms - many large-scale public investments probably represent good value for money."

    Can you explain your maths Stephanie please? Inflation is at either 3.1% on the governments existing measure or 4.6% on the old one of RPI.As the benchmark ten year gilt yield is 3% you estimate appears to be completely wrong...

  • Comment number 11.

    House prices - we live in Kent - people can say house prices will go down but try and get a home seller to acknowledge it or an estate agent who sets reasonable house prices!

  • Comment number 12.

    "6. At 2:35pm on 20 Oct 2010, SSnotbanned wrote:
    Clearly if you work for the NHS you are not ''in it, to lose it''.

    Labour spent billions to reduce waiting lists and the money now, not required, because there are fewer patients to operate on, should be 'returned' to the Chancellor's Budget for all to benefit."


    I think the whole point of the NHS is that ALL DO benefit. The extra billions Labour pumped in reduced the backlog but the theatre lists are still full (my wife complies theatre lists). You wait a 1 or 2 months for your op now, not 18... the operating theatres aren't empty with surgeons sitting around doing Suduko! The NHS has got pretty good at treating the major stuff but its still pretty wretched with minor stuff that still affects peoples quality of life.

    In any case much of the money Labour spent was on infastructure and wages. There's nothing "returnable" unless you plan on selling hospital sites and sacking staff.



  • Comment number 13.

    #1 Nice try but your research is not thorough.

    Housing isn't in as short supply as you think. The problem with housing was that when house prices rise 10% per year every year people can't wait to buy. The massive amounts people made on houses turned them into cash machines rather than a place of living.

    With the perma-uptrend in housing banks could give out loans which put people in negative equity at point of signing on the basis that in two years time the house would have surpassed the loan value. So now we have people in houses they can't really afford, and won't leave because either they don't want to drop their lifestyle a peg or two or they would not be able to get another mortgage due to being in negative equity after selling.

    Unfortunately as with all bubbles, when it goes pop the hangover is bad.

    >>Sack 500,000 public sector workers = banks make a nice profit selling on repossessions.

    And how are they going to do that then? Sell them for what the outstanding loan value is? If the people are defaulting as easy as you claim the loan is probably already underwater.

  • Comment number 14.

    ' But better-off pensioners can relax. Here's the key part of the speech: "we also keep the universal benefits for pensioners, in recognition of the fact that many have worked hard and saved throughout their lives. Free eye tests; free prescription charges; free bus passes; free TV licenses for the over-75s; and Winter Fuel Payments will remain exactly as budgeted for by the previous government - as promised '

    Yadda, yadda, yadda. Those benefits won't be there when I am a pensioner, AND they raised their kids with universal child benefit.

  • Comment number 15.

    Chancellor George Osborne has announced that as part of the £6bn savings the Government is aiming to save through Public Sector Reforms under the Spending Review, that there will be an estimated 490,000 reduction in headcount over the next four years.
    The Public Sector workforce has an older age profile than the private sector, with an estimated 30% of employees being aged over 50, and for those over-50s who lose their jobs, the chances of remaining unemployed are much higher. This could add almost 150,000 to the current 4 million workless over-50s, which already costs the UK economy some £72bn per annum in welfare benefits and lost productivity.
    According to Office for National Statistics figures for August[1], 43% of unemployed over 50s have been out of work for more than 12 months, compared with 34% of under 50s; over the period of the recession, we have seen a disproportionate number of over-50s becoming long-term unemployed, and it is worrying to see that this trend is continuing.
    The total number of workless people aged 50 to 64 now stands at almost 3.97 million, more than one-in-three, compared with one-in-five for the under-50s[2].
    Osborne announced a further £5bn saving through Pension Reform, by moving State Pension Age for both men and women from age 65 to age 66 by the year 2020; whilst this clearly reduces the pensions bill, we question whether the calculations take into account the sizeable proportion of people of this age who are out of work, with little prospect of getting back into a job. For this group, we could simply be shifting the cost from the Pensions budget to Welfare Benefits.
    The Chancellor also made reference to the coalition Government's new Work Programme which is aiming to provide intensive support to help people back into work, and to the role to be played by the private and third sector organisations. PRIME, the national charity for which I work, sees an opportunity to use its expertise to tackle growing levels of 50+ worklessness, including support to help individuals set up businesses and becomes self-employed. There is a lack of confidence that there will be sufficient private sector jobs in the economy, and for many, self-employment will be a necessary option.
    Government has yet to announce the detail of the Work Programme, but is expected to make specific support available to older jobseekers, recognising the particular challenges they face in re-entering employment


    [1]ONS Labour Market Statistical Bulletin October 2010
    [2]ONS Labour Market Statistical Bulletin October 2010, excluding full-time students.

  • Comment number 16.

    Surely this cut in child benefit is a cut against people in 2nd marriages. I did my single mum bit, worked hard, childcare, tax credits, then remarried 2 yrs ago. I earn an ok wage and support my kids. My husband earns just over the £44k but pays for his 3 kids from 1st marriage plus her spousal maintenance (which she spends in tk maxx) thousands at court because CSA made errors but don't compensate. There isn't much money left each month. Now, cos my husband earns over I will lost the child benefit for MY children. How is this right? How can the government say he has to pay for his children and yet is also responsible for mine! I am appalled - they must look at this - and only apply the removal of the benefit if the high earner is the parent surely? His ex wife, with her higher tax credit(maintenance isnt taken into acct) will now have much more a month than us! crazy...think again George - I was better off b4 marriage - now wheres that divorce lawyers number............

  • Comment number 17.

    I'm sorry to bang on about this, but y'man Osbourne said that spending is going to rise steadily: I think I heard £740bn by 2014 but the reported figures is £693bn.

    Either way, these are only "cuts" in the strange world of "real terms" and exacerbated in some cases by protecting real term increases elsewhere.

    It takes some complex double thinking to marry this increase in spending to 500,000 job losses: when they could have just frozen everyone's budget (and spent the same) and let it sort itself out.

    What ever the reasoning behind that - it remains a fact that if spending remains this high then on any reasonable projection of private sector growth (or more sensible any reasonable projection of tax revenues) these pretend cuts simply won't reduce the deficit.

    What happens in two years time when the deficit is still around £150bn and the hoped for economic growth has not materialised? More cuts?

    The only possible way out of this mess without a massive collapse is by stimulating real economic growth. That can only come if we have the capability (where is the education and training?) and the investment (where is all the capital going?). Who is doing anything to start that ball rolling? As I see it they're still waiting for the invisible hand to click its fingers - but what if the invisible hand is not British!

  • Comment number 18.

    My 88 year old Mother has more money over each month than we do - she treats us to lunch! yadda yadda indeed....

  • Comment number 19.

    #11 sandie

    You seem to misunderstand how the housing market works. It is the buyers that set the house prices, not the sellers. If it's too expensive then don't offer list price, or you can move out of the south east.

  • Comment number 20.

    Brink to broke, great.

  • Comment number 21.

    I’m just a simple ex sailor but it strikes me from looking at my seaweed indicators such as the Total Managed Expenditure graph that what we are seeing is in many ways one of the classical indicators of a society that is experiencing marginal utility, where it increasingly costs more for the same, or in our case more for less. The logistic curve is trying to tell us something about the complex nature of the system; the trouble is that politicians and economists are trying to read it with a lens of traditional thinking, thinking that has taken us to where we now globally find ourselves. Just read the latest report from the Public Administration Committee on the UK’s dismal capabilities in understanding, never mind creating grand strategy!

  • Comment number 22.

    "The headline from Chart B5 (below) is that today's welfare changes are indeed regressive. The biggest losers, as a share of their income, are the bottom fifth of the income distribution."

    So the govt own figures show that the claims that this would be 'fair' are as believable as the Lib Dems opposition to Uni Course Fees going up or one D.Cameron saying that cuts would not hit front line services.

  • Comment number 23.

    jizzlingtons wrote:
    #11 sandie

    You seem to misunderstand how the housing market works. It is the buyers that set the house prices, not the sellers. If it's too expensive then don't offer list price, or you can move out of the south east.

    Hi - know how it works - buyers try to set price - we certainly don't offer asking - reality is ppl won't move if they don't get what they want here - and there's always some fool who will pay over the odds..Moving out of the SE - a simplistic view - not whilst one is doing A levels and the other beginning GCSE work...but it will come after for sure.............

  • Comment number 24.

    Universal benefits like maintaining the Winter Fuel Payment seems ridiculous in the spending review. For all those 60 and over it should be means tested. It was raised by £50 months later after the 10p tax rate was scrapped to offset that loss - How silly was that. David Cameron should never have said on the election debates he would keep it. There are people of 60 and over who just don't need this benefit.
    When will the pension age be raised again 2 - 4 years time ? My father never reached, I'd like to think I will but I'm beginning to wonder!

  • Comment number 25.

    It may take several weeks to get a gauge on the true impact of the CSR. The devil is in the small print produced by the treasury. By next spring we will know what the real effects on the recovery and the deficit are. I dont think you will see the private sector continue to generate more jobs on a large scale even if they have a large element poor pay and part time. Remember many in the private sector are in work only because they have reduced their hours and/or terms and conditions. Absence of a strong up turn could see 'watered down' jobs quickly converted to a lengthening dole queue.

  • Comment number 26.

    Benefits for votes? Hmm... Now where have I heard that before, still it is nice that pensioners will still get their Christmas spending money.

  • Comment number 27.

    Where will low income households in the South-East live? Not in affordable housing any more that is for certain. Someone living round here and earning the minimum wage will not be able to afford to pay 80% of the market rate for their home, it is a total joke. Are we now saying that 'affordable housing', the cheapest housing there is, will be priced out of the reach of the poorest workers in society? The only people round here who will be able to afford that are young, aspirational middle class people who can't afford to buy a home because they are priced out of the local housing market!
    How is this not anything other than a blatant attack on the working poor?
    There are people with 8 times their salary mortgages paying £40 a month because of low interest rates. How fair is it to expect someone who stacks the shelves in a supermarket to pay £500 a month?
    There is a disabled girl who lives in the flats near me and she works in a local school canteen doing the washing up, so she works part-time, in a job that pays the minimum wage, and when you take into account the fact that she can't be earning when the school is closed for the holidays her pro-rata wage must be tiny. The market rent for a one-bed flat round here is £550 a month, how can she afford 80% of that?
    I can't get my head round it. How can you price affordable housing out of the reach of the most poorly paid, vulnerable people in our society?
    Its staggering!

  • Comment number 28.

    I think I have said this before but I am not worried about the housing market implications for the simple reason that the only consistency in govt housing policy over the last 100 years is that they will always manage to make a bad situation worse. Why should GO be any different?

    Lets look at current positions (and announcements)

    1. "localism" in planning means that it is very easy for NIMBY to stop new house building

    2. Total lack of finance to property development market means even if you can get planning you are unlikely to be able to build

    3. Last govt spent millions demolishing thousands of perfectly habitable Victorian terraced houses (often better built than modern houses).

    4. Over the last few years as a country we have consistently built far less new homes than the predicted (and actual) rise in demand

    5. Buy to let boom has resulted in lots of city centre flats being built, but we now have a shortage of 3 and 4 bedroomed houses.

    All this looks doom and gloom for the supply side but what is often forgotten is that there are thousands of empty properties around the country.

    The problem with govt housing policy is that they are incapable of joined up thinking and this has been true for decades. They make changes to rules surrounding private rental market without thinking how that will effect social housing demand (or vice versa), or make rule which restrict building without thinking what that will mean for market rents.

    What needs to be done is something along the following lines

    1. Complete review of laws on private rentals. Some parts of over regulated and restrict landlords other parts of the law have resulted in tenants not having adequate protection - the whole law needs reform with the objective of making it easier for private landlords yet at the same time ensuring that tenants are not ripped off. A simple example of how legislation gets everything wrong: lots of people complain that they are only ever offered 6 months tenancies and therefore have no comfort of permanence, the reason is not greedy landlords but anything longer than that triggers so many tenants rights that a landlord can spend months trying to get rid of tenants who have stopped paying rent and are trashing property.

    2. We have to accept that a lot more houses need to be built and that means easing planning restrictions.

    3. Social housing like benefits should not be a way of life but a safety net.

    4. Yet social housing must be built to a much higher standard than it is currently. Shoe box sized room dimensions are not appropriate.

    5. (and this is the most important) somehow we have to break the British mindset that you have to own property. There is nothing wrong with renting

  • Comment number 29.

    When will we start calling what we are starting on a depression? For that is what it is.

    Unemployment Outlook

    500,000 public sector jobs and another 500,000 private sector ones directly and perhaps 3 times that number who need the money spent by the first million. That is the private sector needs to generate 4 million jobs. Just to stand still!

    Raising the pension age also increases unemployment!

    I doubt if the Treasury has taken into account the necessary social payments that the first 4 million will need in their calculations so we can expect further austerity measures every year for the next four or five.

    This is a DEPRESSION! (Just as history, and some on this blog have been forecasting for several years.)

    House Prices Outlook

    At some point interest rates will have to be raised and this will without doubt put further downward pressure on the housing market and property prices. Even today there is announced considerable downward pressure on rents which feed directly into prices. To say nothing of having a cadre of overly indebted graduates who are the next potential first time buyers also putting downward pressure on prices. House prices have no other direction of travel for the next decade other than downwards. This will in turn put pressure on the asset bases of banks and force then to retrench further. Even now loan to values are being crushed and loan to salary ration are on the way down. Forcing the public sector employees to contribute more to their pension also forces house prices down.

    Exports Outlook

    All the new private sector jobs have to come from exports and yet many of our potential markets are also retrenching and also trying to rely on exports too.

  • Comment number 30.

    #13 >>Sack 500,000 public sector workers = banks make a nice profit selling on repossessions.

    And how are they going to do that then? Sell them for what the outstanding loan value is? If the people are defaulting as easy as you claim the loan is probably already underwater.



    I'm 5 years into paying off a 90% mortgage and in live in a student area where every house is sold to a buy-to-let landlord within a month or so of it hitting the market. However as there's a fast turnover of property there's decent supply too so price's never rose much nor have they fallen.

    My mortgage is quite manageable and there's a good £20K equity on the house but I couldn't even begin to meet the payments on £65 a week job seakers so when the building society kicked me out they'd get £20,000 profit as soon as it was sold to my local student letting company.

    THAT is how the banks make a profit on repossession. You might also remember a little something called 'mortage indemnity insurance' which most lenders make you take out when you take out a 95% (or less) mortgage. A huge one off fee paid by the house buyer to insure the bank against any losses if the bank sells their house below loan size. Even if you're deep in negative equity the bank's losses are covered.... and its probably our taxes underwriting the damned insurance these days too!

  • Comment number 31.

    #17 tFoth

    Totally agree with you're comment. Particuarly the last paragraph. The only way out of this is real economic growth (and I would suggest that the term 'real' would exclude financial services). For this growth we need relevant training, education, infrastructure, and investment in new business.

    Sadly the government are happy to make cuts, but haven't been willing to implememnt any kind of strategy to get the growth. They seem happy in the make believe world where the economy will flourish immediately without any sort of investment in the future.

  • Comment number 32.

    19. At 3:35pm on 20 Oct 2010, jizzlingtons wrote:
    #11 sandie

    You seem to misunderstand how the housing market works. It is the buyers that set the house prices, not the sellers. If it's too expensive then don't offer list price, or you can move out of the south east.



    From experience I mostly agree with Sandie's statement. I've seen people asking £160,000 for a house thats maybe worth £120,000 and not sell for 18 months, then end up renting it out. In part this is driven by estate agents telling you they think the house is worth (in exchange for 2%... and 2% of £160,000 is better than 2% of £120,000) but is also due to no sane person selling for less than their mortgage unless they really, really have too.

  • Comment number 33.

    Bond Prices and yields for the UK are attached to those of the US - where a different economic approach is to sustain growth. The international differentials are the same as last January.
    Stand by for a rescue by the Fed and BoE to re-open huge QE to protect both economies from the "madness of George" and the wretched lunacy of the Tea Party in the US. They may partially mitigate but at great expense.
    UK had a growing economy in first half year, now spooked by the doom laden messages from the 'madness of george', and the savage attacks on low and middle income earners.
    Add to that madness the swingeing VAT hike of 15% over current levels and you have a recipe for absolute disaster that Tories were always planning - but didn't ask for a mandate in May. They have no authority for any of this.
    As for the slippery Liberal-Dems, they stand condemned for selling their souls for a handful of ministerial perks.
    All the rapid increase in poverty, business and personal bankruptcies, foreclosures and massive unemployment is on the heads of those who failed to vote in May against this attack on the British people by the wealthy classes.

  • Comment number 34.

    24. At 4:00pm on 20 Oct 2010, AndyC wrote:
    Universal benefits like maintaining the Winter Fuel Payment seems ridiculous in the spending review. For all those 60 and over it should be means tested



    And what would that cost? My mother (a citizens advice councillor) has two clients who have had all their benefit stopped. One was unable to attend the assessment hearing because she was receiving kidney dialisis at the time. Because she didn't attend she automatically lost her money. The other picked up a pound of shrapnel in his back in Afghanistan and can barely walk... his friend drove him to the hearing so the hearing decided because he can sit in a car for 30 mins he's fully fit. It appears if you don't attend your assessment you lose your money but if you can attend your assessment.... you lose your money.

    Frankly its easier and cheaper just to pay everyone the winter fuel allowance and not spend the same 'means testing it'. If any OAP doesn't need the money they can spend it in the shops and drive the economy or give it to a charity. I'd suggest the British Legion or McMillan Cancer Nurses... both of whom need charity to do work the government (ANY government.. Lab or Con) should be doing.

  • Comment number 35.

    #23 sandie

    You are of course correct that there is always someone that will pay over the odds. That's how the bubble develops! It is exacerbated by all the vultures (property developers, private landlords etc) looking to make a profit off everyone elses back, and the banks who irresponsibly lend too high mortgages to people. The only way out of this is to hammer the landlords hard, and force the banks to be more responsible. Less chance of an easy profit for landlords, and lower obtainable mortgages will then force the house prices down for the real people. Unfortunately politicians are blind to this, and the rich vultures are immune to these cuts. (In fact the more people unable the buy the better because they pick up houses cheaply but can charge higher rents.)

    As to the moving out of the SE, well yes that is an over simplification for what many people would be very difficult do to family/friends etc. But I would say that until people of the SE do take it upon themselves to take this hit and move to other parts of the country then the problem will only get worse.

  • Comment number 36.

    It seems that Cameron and Osborne lurch from one so-called "strategic" economic cut to the next, thinking each figure they grab will be the final and ultimate solution to our "crisis" and their inheritance from Labour.

    In respect of the defence cuts and the future technology, the development of scalar weaponry,which is kept from the public domain, means that most of our existing "defences" are indeed obsolete. That's one of the main reasons why the cuts have fallen where they have in the current defence budget.

    However all their proposed "cuts" are smoking mirrors and sticking plasters. They will not cure the reality of our economic bankruptcy.

    In 1790 Mayer Amschel Rothschild made an obscene promise:
    " Let me issue and control a nation's money and I care not who writes the laws".

    His statement has now become our global reality. The world's central banks, including the Bank of England, are not government institutions. They are privately owned corporations run by the very wealthy and powerful elite. Their agenda is to control governments and thereby consolidate and centralize more power and wealth for themselves.

    In both economic and moral terms, there is absolutely no thing that is fair and just or in this country's National Interest, which Cameron, Osborne and Clegg persistently justify as necessary for our good. Their insistence that the British ordinary man and woman must suffer the greed and speculation of a small minority of rich elite, endorsed by the mainstream media moguls and large business corporations, is corrupt and disingenuous.

    It means that the rest of us must suffer deep and rapid cuts in public spending and pensions with increasing unemployment over the years to come. There will be no respite for us or our kids of for future generations. The economy is designed to keep us paying off "debt" to wealthy Central Banks and their affiliated and unregulated "derivative" market interests.

    Successive governments, including this coalition and the mainstream media keep us ever distracted from asking two fundamental questions:

    Why do we really have this debt?
    Is it actually possible to ever pay it off, given the current Central Banking model and the High Street Banking fractional reserve system?

    In 1810 William Cobbet MP made a very pertinent observation:
    "There is something so consummately ridiculous in the idea of a nation's getting money by paying interest to itself upon its own stock, that the mind of every rational man rejects it. It is, really, something little short of madness to suppose that a nation can increase its wealth; increase its means of paying others; that it can do this by paying interest to itself. When time is taken to reflect, no rational man will attempt to maintain a proposition so shockingly absurd".

    If there wasn't so much debt floating around pretending to be an asset we would not have the deficit problems we now have. Instead, we now have the Bank of England with sole power to regulate a failing economic system that loans imaginary money at several times more than the original sum, cycling us into recession every ten years or so.

    As part of the Quantitative Easing measures the BoE in 2009 electronically created £200bn of new money out of thin air. The bank then proceeded to purchase gilts and allowed vast sums of money to leave the UK for overseas bond markets. The proceeds from the gilt sales were spent by the Labour government and their value added to the national debt.

    The purchase of gilts is never an effective way to inject money into an economy. The bank could have purchased corporate bonds and allowed money to pass directly to companies which needed it. The UK has now effectively destroyed much of its industry and manufacturing base and instead relies heavily on the City wheeling and dealing on the "Derivatives" market.

    In 1998 Brown was responsible for handing over to the BoE total independence regarding monetary policy. In 2010, the coalition then scaled back the FSA and made it a formal subsidiary of the BoE.

    So now we have a central bank, shrouded in secrecy, protected by its royal charter status and the official secrets act, controlling our monetary supply, with total monetary independence and the ability to regulate itself!

    So these cuts wherever they fall have nothing to do with reducing the deficit. They are solely intended to cripple and destroy Middle England and to conecentrate as much wealth as possible for all those at the top.

    Our "economy" and "education" has been designed and engineered specifically to ensure the "masses" are always slaves to "debt".

    Until some government has enough b-lls to radically reform the way in which our economy has been contructed by Central bankers, Middle England will continue to bear the brunt of a never-ending cycle of debt.

    When the derivatives bubble bursts it will cause not just a double dip recession but a world wide economic melt-down, which will make our current crisis look like a teddy bear's picnic.

    God help us all when Cameron "calls" on the Bank of England and the IMF to regulate and help us! Middle England will cease to exist.

  • Comment number 37.

    I do wish that commentators would understand that the issue of government expenditure and the banking problems are not the same thing! The bankers did not make Gordon Brown spend like a teenager with their first credit card ( actually most teenagers would be more responsible ). This governments is having to reign in the spending because the previous government was so unbelievably reckless and are faced with the realisation that other sovereign lenders will either demand more interest or stop lending to us if we had continued 'a la G.B'. Keeping the banks going was necessary to prevent the total collapse of our economic system and was the right thing to do. If the banks hadn't had their problems we would still have had to cut back spending.

  • Comment number 38.

    Osborne said much what was expected of him.

    The postman said much what was expected of him.

    End of.

  • Comment number 39.

    7. At 3:32pm on 20 Oct 2010, tFoth

    Indeed. And he ended by trying to suggest that the cuts implemented by the coalition were less significant than those planned by Labour. Not sure how that sits with most of the apologists around here.

    The real issue is lack of demand in the economy and failure to fully utilise our national capacity/resources (unemployment). There is nothing in this review to address that. Fail.

  • Comment number 40.

    Looking at the report it says
    Child Benefit: remove from families with a higher rate taxpayer from January 2013.
    So those earning most and taking their fair share of the burden have 2 years grace it seems!

    Stephanie rightly explains "and the lower half of the population is much more dependent on the things that government provides than the top half. But, looking at the universal benefits that this spending review has left intact, many economists would say that they have not tried as they might have done to even the score "

    The other bombshell might be how much more Council Tax will increase to offset the lack of government funding to local councils.

  • Comment number 41.

    A great time to be a slum landlord!

    And with the government cutting health and safety regulations and the abolishing of No win no fee the poor will not be able to sue, even if they were educated enough to know that they could.

    How long before victorian like work houses are seen in the Northern cities?

    Wish I was French!

  • Comment number 42.

    34. At 4:23pm on 20 Oct 2010, Peter_Sym wrote:
    "Frankly its easier and cheaper just to pay everyone the winter fuel allowance and not spend the same 'means testing it'. If any OAP doesn't need the money they can spend it in the shops and drive the economy or give it to a charity "

    Peter - That's true but why not raise the age to 66 before you receive the Winter Fuel Payment. It still means taxpayers are funding this scheme who as individuals could pick a charity of their choice.
    Were not supposed to be OLD enough now till 66 before we can finish work.
    Regarding Climate change doesn't that mean that winters will be milder or is the UK bucking the trend and entering an ice age

  • Comment number 43.

    How do they expect us Disabled people to get back into work when there are no jobs to go to, and consecutive governments have failed to tackle our biggest obstacle - discriminatory employers who refuse to employ us even if we fit the job spec? This time limit on ESA (along with changes to DLA for those in residential care) will have a massively detrimental effect on us as a community.

  • Comment number 44.

    The Chancellor's claim that the cuts are fair is laughable. Apart from the higher proportion of income lost by poorer people, the cuts will cause them much more real hardship.

    To be fair, the cuts should have to be targeted solely on the wealthy, say those having more than 100k of personal wealth per member of the family. They are the people who would have had heavy losses if the banks had not been bailed out, so the large public debts were incurred mainly for their benefit, and they could cuts without any hardship. Coincidently, this would have had less effect on demand and therefore would have slowed the recovery less.

    The nasty party is certainly living up to its name. The formerly nice Lib Dem people have a choice, join the nasty people and back this package or rebel against their leaders, who have been seduced by jobs in the government.

  • Comment number 45.

    Hi,
    Fully agree that there will be need for more from SE - I already did that some yrs ago - to Northants for 10 yrs - divorce brought me back down here for family spt - but I will likely return once schooling is completed for my 2(lifetsyle was alot less stressful). The other issue in house prices in this area is, as Peter mentioned, estate agents severely over valueing peoples property - the tendency for pensioners to view it as their pension - the house we are trying to buy she has an unrealistic figure and says "Well that's what I need for my house and pension" so little realism in house prices by some here. Winter fuel payment being means tested is a very good point....but you can't upset all those wealthy conservatives pensioners can you......

  • Comment number 46.

    Speaking in terms of recruitment for the team I look after - it's all well and good saying they will get people working but I see so many people that just don't want to work. Have ppl had it so good that they now think its an affront to actually ask them to work hard!!??

  • Comment number 47.

    43. At 5:16pm on 20 Oct 2010, Chris_Page wrote:
    How do they expect us Disabled people to get back into work when there are no jobs to go to, and consecutive governments have failed to tackle our biggest obstacle - discriminatory employers who refuse to employ us even if we fit the job spec? This time limit on ESA (along with changes to DLA for those in residential care) will have a massively detrimental effect on us as a community.


    CHRIS - the new Equality Act that came in on 1st Oct means employers cannot discriminate. Employers are not allowed to even ask if you have a disability until after a job offer is made - help?

  • Comment number 48.

    Today the European Parliament agreed to increase the EU budget by 5.9%.

    So our European partners are also 'all in this together'.

  • Comment number 49.

    "Many economists would say that they have not tried as they might have done to even the score."

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

    Most people would agree that this is a direct consequence of the way the media reacted to the child benefit changes. You could fairly argue that the extra attention the media pays to the South-Eastern middle classes has hit the pockets of everyone else in society.

    The thing is, what can we do about that? Is there any way to make the media more objective when their own benefits are on the line?

  • Comment number 50.

    Now that the Spending Review have been announced. I expect it to affect all of us. I predict the UK will probably go back into recession due to the facts that the spending cuts are so big for nearly all departments. By this time next year, we will all get a rough idea on whether UK economy is slowly growing or slowly going back into recession.

    From my view, I am more concern about the cuts for the universities. Students like me will finish university in massive debts if the tuition fess get increase to £6000 a year. By the time students start to pay them back after finishing university, their debt will increase even more. Hence debts will get bigger and bigger over time and will not decrease.

    Also the jobs available for the students once they finish university will be significantly less than before due to these massive cuts and high competition for jobs. This will probably slowly affect the UK economy growth in the near future.

    The only time I see the economy start to grow significantly is in Summer 2012 when London hosts the Olympic Games. Most services and goods in UK will benefit from the Olympic Games.

  • Comment number 51.

    Regressive not progressive - no surprise there.

    A tighter fiscal policy & even looser monetary policy isn't going to prevent the return of recession.

    Even an expasionary fiscal policy can't help.

    To understand why you need to use a model of the economy that has the rate of profit in it.
    Capitalists only produce if they expect a profit.

    All these equilibrium models based upon output, expenditure & income, in the private, public & foreign sectors simply delude.

    A deficiency in demand cannot be simply solved by expansionary fiscal policy, & certainly not by fiscal tightening.
    You have to understand just what monetary value is & why value needs to fall to stand any chance of restoring profitability & so economic growth.

    The classical economists had a much better understanding of value than today's economists.
    They hadn't fully worked it out, but Ricardo was close.
    They knew that the one thing all commodities had in common was labour.
    For sure, prices can diverge from values in the short-run due to fluctuations in supply & demand for individual commodities.
    Even the sum total of prices can diverge temporarily from the values of all commodities.
    But the law of value will always assert itself.

    But the problem is more than fictitious capital (e.g. QE) inflating exchange-values (prices) that eventually have to deflate.
    The deeper issue is the accumualtion problem.
    Just why Says Law doesn't hold - supply does not create its own demand because the neither the workers nor capitalists have the effective demand to realise the ever increasing production of commodities without looting 'free' inputs into the circuit of capital, such as Chinese peasant labour or fossil fuels.

    Capitalism has always been crisis prone due to production running ahead of effective demand.
    But this crisis cannot even be resolved by a huge devaluation in capital - sure it could appear so for a few years, but the supply-side constraints to growth mean profit rates will continue to be stressed without the artifical monetary stimulus.
    And all this stimulus will achieve is the debasement of the currencies.
    Maybe the dollar is about to collapse at long last - its played a central role in hiding the declining productive rate of profit for near on 40 years now.

    And with profits under stress, workers will continue to face assaults like todays.
    Eventually, the people will snap, & eventually they will realise that the 'good life' will not be one where profits & wage labour exist.

  • Comment number 52.

    The disabled, the sick and the vulnerable do not have powerful voices in Westminster in the way the Police, NHS, schools etc have, so they are a soft target. By boasting that he has managed to only cut 19% instead of 20% Osborne has made a virtue of hammering the softest targets with the least amount of clout. Cameron, Osborne and Hague truly are Thatcher's children, they've waited 13 years for this...its payback time.
    Remember, getting the deficit down is one thing, it is how you go about it, who you make pay that cuts through all the hot air and spin.
    So much for 'those with the broadest shoulders carrying the heaviest load'.
    They are creating an underclass of the sick and the very poor, on purpose, by design, and I hope the BBC takes the opportunity to follow the fates of some of these individuals over the coming years as they become dispossessed and abandoned.

  • Comment number 53.

    Big banks are doing well. The extent of governmental corruption leads to such crisis. History has shown this over and over. The government becomes controled by the wealthy and they abuse their power and the policial hadnmaidens are left to face the people. Take any major civilization and look at the model....right before the fall.

  • Comment number 54.

    It is a topsy turvy world. Fist, we had Nick Clegg saying he would reduce student fees and then saying he would increase them.

    Yesterday, we had Liam Fox making the defence cuts seem good by saying that people could take early retirement. Phew! I thought that they wanted to put up the retirement age. He also said that people could take voluntary redundancy. I thought that he thought the unemployed were lazy. Not now – it is good to take voluntary redundancy and be unemployed. That is a turn up for the books.

  • Comment number 55.

    I would have started by ending 2 wars. We would be able to reduce the deficit and some children may get live.

  • Comment number 56.

    @47 sandie
    Do you really think any employer is going to hire a person who may have to take a day off a week or a week off a month due to ill health or disability?
    Whatever the law says it won't happen, not when there are 10 fully fit and able people applying for the same vacancy. No, what will happen to the weak and vulnerable is that their 12 months benefit will run out and they will be left high and dry, 'no sympathy for you chum...you've had your chance', after falling a few months behind with their rent they'll be evicted from their homes...and George Osborne will dance naked on their graves singing Hallelujah.

  • Comment number 57.

    We are all in this together, does that include the bankers that created this mess in the first place and then back heeled the problem on to the ordinary tax paying people?
    The size of this mess is only really just becoming evident and in the mean time the financial world is in complete denial about how big a screw up they have created.

  • Comment number 58.

    The letter from the 37 business persons to the Telegraph supporting GO should have read : Osborne’s cuts will strengthen Britain’s economy by allowing the private sector to generate more jobs---- overseas. The sad thing is that those who are glad that the public sector is being cut because they think there will be more jobs in the private sector are wrong. More of the money stays within the country when it goes to the public sector to do jobs that need to be done. Look at the list of the business persons and ask how many produce things in this country and, for those that do produce in this country, ask what percentage is produced in this country. So a significant portion of the savings will go to generate jobs overseas not here. And the people overseas don’t pay taxes here. Also, when the ‘back office’ work of the public sector is outsourced, a portion of it is also off-shored. These business persons do not care about Britain. They care about their profits and their tax.

    http://www.telegraph.co.uk/comment/letters/8069609/Osbornes-cuts-will-strengthen-Britains-economy-by-allowing-the-private-sector-to-generate-more-jobs.html

  • Comment number 59.

    "Today is the day that Britain steps back from the brink," says Osborne, only to take a run up and jump in with both feet me thinks.

    Its the end of the beginning and now its the beginning of the end.

    A regressive budget indeed.

  • Comment number 60.

    53. At 7:21pm on 20 Oct 2010, ghostofsichuan wrote:
    Big banks are doing well. The extent of governmental corruption leads to such crisis. History has shown this over and over. The government becomes controled by the wealthy and they abuse their power and the policial hadnmaidens are left to face the people. Take any major civilization and look at the model....right before the fall.


    Yes - you make a good point.

    Political croneyism, hypocrits and corruption. This obscene slogan 'we are all in it together' hand in with a cabinet containing 20 milionnaires most of them with money in tax havens.

    When you add to the mix the 'celebrity culture' and 'sexual excess' you have the makings of a massive swing of the pendulum back to the future - facsism.

    Fortunately for libertarians like myself the BNP lack the wit or imagination to make it happen. All they need to to do is create a massive youth wing with a carefully crafted brand image which could be no more than identical coloured t-shirt and a program of voluntary public works like cleaning up neighbourhoods. It starts with the youth.

    But the conditions are emerging. We await the players.

    Probably kick of in Northern Ireland with a resurgence of Irish republicanism.

  • Comment number 61.

    60 Richard Dingle

    Libertarians believe in the small state, whereas you believe int he big state?

  • Comment number 62.

    "Who will be affected by the Spending Review"

    Well, I think we can all take comfort in the fact that the beneficiaries of international aid i.e. British taxes, will not be affected. It's heart warming to think that various military dicatatorships and countries whose economies are racing ahead of ours will still be getting their handouts from the few working Brits who will be lucky enough to remain in employment and able to pay taxes (obviously that doesn't include bankers or those so-called business leaders "based" in Bermuda or the Caymens or those who transfer their "earnings" to their wife). All in it together my backside!!!

  • Comment number 63.

    The key thing for the economy is optimism. If we're optimistic about things being OK in a few years time, we spend more.

    Just knowing that Osborne has taken the debt mountain by the scruff of the neck and is dealing with it properly is cause for optimism. To some extent it doesn't matter what he did, so long as it is bold enough to make a difference and install a level of confidence/optimism that we've been missing for the last few years.

    Letting the problem rumble on unchecked or pathetically holding it at arms length and flapping at it with a fly-swatter would have been no good at all today.

    Well done George...!

  • Comment number 64.

    61. At 9:33pm on 20 Oct 2010, truths33k3r wrote:
    60 Richard Dingle

    Libertarians believe in the small state, whereas you believe int he big state?


    I believe in an effective state. One that treats all its citizens equally. Rather than the 'Toffs and Fags' culture that has permeated British society since the Civil War.

    The Prussian State of the last decade of the nineteenth century would be a good model.

    This country needs another Cromwell.

  • Comment number 65.

    Richard Dingle - is this a fair reflection of the 19th century Prussian State?

    "The modern Prussian police state was built by Bismarck and others in the 19th century on a Spartan model, giving the central government vastly greater control over the individual than had ever been considered possible before.

    Bismarck’s program centered squarely on insurance programs designed to increase support for the ever larger and more powerful government. The program included health insurance, workman’s compensation, disability insurance and old-age retirement pensions, all innovations at the time.
    “It is possible that all our politics will come to nothing when I am dead, but state socialism (“Der Staatssozialismus”) will push itself through,” Bismarck said in 1881." From freerepublic.com


    If so it is a long way from libertarianism.

  • Comment number 66.

    65. At 10:12pm on 20 Oct 2010, truths33k3r wrote:
    Richard Dingle - is this a fair reflection of the 19th century Prussian State?


    An excellent quote.

    Thanks for posting that.

  • Comment number 67.

    #64. Richard Dingle wrote:

    "This country needs another Cromwell. "

    Long live the Glorious Revolution!!!?

    'David Cameron's Government is more socialist than the last Labour Government' - is a reasonable view given the evidence. The only flaw in the argument is the treatment of the bankers - but there again the Labour party was also scared to do anything to them!

    My main fear is that David Cameron has still not tackled the diabolically bad regulation that caused the bubble that led to the crash. We are still seeing the Bank of England run by the man who caused the crash! He really has to go and go soon!

    Regulation cannot be blamed, as George Osborne did today, without blaming the person of the regulator - the Governor and his boss - the Permanent Secretary of HM Treasury.

  • Comment number 68.

    I needed a good laugh to lift the gloom and Richard Dingle and truths33k3r have just provived it - thanks lads!

    Now you two can fight it out if you wish or spiritualise Bismark and Heyek and Mises to do it for you but please let the rest of us try and make sense of todays Spending Review - Ta.

  • Comment number 69.

    67. At 10:35pm on 20 Oct 2010, John_from_Hendon wrote:

    'David Cameron's Government is more socialist than the last Labour Government'


    Agreed. Just about anything is more socialist than the obscenity that was New Labour.

  • Comment number 70.

    The slogan "we are all in this together," does make one think. Many areas of public life have special arrangements for pension age, for instance doctors and police officers, who are able to retire at 55. As we are all living longer (a justification for the State pension age to rise to 66), couldn't these dedicated public servants be asked to make their contribution by retiring later (and foregoing these years as pension years).
    In the NHS (a protected area of public spending), this would make a huge contribution? Maybe the BBC economics team could calculate this?
    It would also set a good example to the rest of us.

  • Comment number 71.

    FDD happy to oblige.

    For those who see the furthest these issues are inseparable. They go to the heart of liberty - the more money government takes and spends the fewer choices individuals have to manage their own lives.

  • Comment number 72.

    68. At 10:38pm on 20 Oct 2010, foredeckdave wrote:
    "...try and make sense of todays Spending Review..."

    If you wish to concentrate on the 'after birth' of 30 years of failure (Conservative and Labour alike) be my guest.

    The only thing I can say with certainty is that if we enter a double-dip the Condems will start spending like mad and we will be back in an even worse situation. The only consistency in the last 30 years is that seem to go round in circles.

    Focus on the key elements that need to be put in place to build a genuine successful fairer country.


  • Comment number 73.

    Regarding houses and house prices...It is very appealing to sit in a house that is getting richer in nominal terms than one earns in a year from work.

    That sense of effortless financial wellbeing is so addictive I feel it's where historians should look for the reason for Japan's lost decade, and our own soon-to-be lost decade---- people will hold property because of the legacy of years of apparent property 'gains', first created by inflation, then latterly sustained by debt....because of this there is always a moment when the determination NOT to sell collides with a point at which, suddenley, they can't afford TO sell.




  • Comment number 74.

    The real terms cuts are cash terms increases over the four years. So there are assumptions about inflation and growth employed. On that basis there is immense scope for various outcomes four years down the road.

    Looking at the bullet points it seems that a fair amount of the burden will be felt lower down the income distribution. The only contrary indicator to this is the measure regarding child benefit.

    I’m struck by the contrast between welfare benefit cuts and the comments by Mervyn King reported today that there is a readiness to resume QE.

    Surely if there isn’t enough money to go around to protect the poorest in society then there can’t be enough money available for QE?

    Especially when you consider where QE is likely to end up: increased commodity and asset prices pushing up the cost of living, which will be felt particularly by those on lower incomes.

  • Comment number 75.

    #71
    " fewer choices individuals have to manage their own lives."

    A more constraining factor on 'choices' is the availability of jobs.

    Consider 4 points.

    1. We are in a recession that was caused by the 'banking sector'. I agree this masks a downturn in the cycle that was due anyway.

    2. The Keynsian push orchestrated by Brown and adopted in varying succesfull degrees by most western economies kept people in jobs and homes.

    3. This 'push' resulted in a sharp increase in the deficit.

    4. The private sector in the UK has a poor track record of creating proper jobs (as in jobs that pay more than the NMW and are not part-time).

    'Choices' don't really come into it.

    When it comes to Oscars For Economic Failure the Austrian School ranks with the Soviet Model.

  • Comment number 76.

    #74
    You are confusing 'resource' with 'money supply'.

    QE is just an increase in the economy's 'blood supply' necessary until the economy's pump (the banking system) get back on track. Key are both the supply of money and its velocity. We can take it as a given that the economic straits we are in are due to sharp decrease in liquidity caused by the antics of you know who; a sort of economic 'toxic shock'.

    It won't work.

  • Comment number 77.

    I'm sorry, regular readers will be bored with this but ........

    Both Danny Alexander and George Osborne said today ' we were on the edge of bankruptcy...'

    Both are wrong and display an enormous ignorance of the truth and consequently economics.

    The £ is a fiat currency, and we cannot go bankrupt if our debt is denominated in £s.

    This is fundamental. Political a government can declare bankruptcy, but then they must know their party has no future, so they won't do it. Therefore the UK will not declare bankruptcy ever.

    Showing this level of ignorance is staggering. If this is their level of knowledge, they should never have bee put in any position of responsibility.

    Their analysis is flawed, their advisors incompetent and we are in the mire.

    PS. for those who are worried by the term 'fiat currency' the US$, AUS$ and most other currencies are in the same class. So 'don't panic, don't worry! The countries in the euro-zone are the exception and the UK with its £ should never, ever be compared to any country in the eurozone because the whole basis of their currency is different.

  • Comment number 78.

    On the spending review, we've only had the headlines, the detail must shock. Sacking 490,000 people from th public sector will destroy functions the general public currently rely on; even if only a quarter of them were doing worthwhile tasks. [I suspect that 75% or more were actually doing things that really did benefit us all to a greater or lesser extent, so expect to be hurt, but you might not feel it for some months or even a year or two.

    But just remember who first fired the arrow at you - GO and DA [perhaps GODA for short, sounds almost like something nasty out of Tolkein]

  • Comment number 79.

    I would still like to know just where are we going to find Millions of New Jobs and not just while even many more will be made Redundant over the next 5 Years.

    Since, if ever should there be any New Jobs identified, it would still mean that either a Traning/Retraining Course would be needed to fulfill the task of learning any New Skill, or that it would most proberly require that an Apprenticeship term would be needed to learn a New Skill for the floor up-wards.

    This to me poses a REAL problem, for given that the Coalition Government wants to get the Long - Term Unemployed back into Employment, and given that quite a few of these Claimants will be OVER 55 - 60 Years of Age today, then really what is the Point of Spending un-told Millions of Pounds that will be needed to take on a [Re]- Training Course / Apprenticeship that may last for up-wards to 5 OR MORE Years, and just what is in this for any Employer to be paying for this to happen just to get at best a couple of Years Employment [ if at all ], out of this Age - Group, when any Money would be better spent upon a much younger person learning a Skill.

    I don't think for one minute that the Government has even started to get their Heads around the Scale of the Unemployment Issue, or where and in what Fields of Employment any NEW Jobs will finally come from, if at all.

  • Comment number 80.

    I am a bit confused.

    "...top fifth are paying most as a share of their income, but once again, this is only due to the tax increases coming in the next few years..."

    "but only due" ...??? Surely, that is the whole point. That is why this is progressive amd not regressive. You can't say "but only due". The other really important breakthrough is that this budget marks the first step for addressing the unintended consequences of the welfare state. It was never the intention of Beveridge to create a permanent underclass who could be supported by a lifetime on benefit. Alongside an honest and deserving claimants the UK funds a very expensive section underclass who have the resources and potential to be self sufficient and make a contribution to our economy and society whose lives are ruined by the availability of a subsistence income from the state. This income income is below the poverty line but high enough to sustain a life and support a family. The cuts in social support are a brave effort to reverse this. It will take time but let's hope that teenage mothers and single mothers of large families with multiple fathers and economic migrants who seek state income get the message and change their behaviour. Welfare was only ever meant to be a measure to bridge through temporary hardship. The fact that the UK sucked in millions of migrants whilst its own citizens stayed on benefit during an economic boom shows that it is a flawed concept in need of radical reform.

  • Comment number 81.

    How I totally agree with the comments of Insidermole. How long will it take people to realise that we have been manipulated by the great World banks for over two hundred years.But we have only ourselves to blame for this mess- which surprisingly is the same every country in the West is facing at the present. But of course- that is the old- yawn yawn- conspiracy theory raising it's ugly head again.

  • Comment number 82.

    #75 I'm not confused. If bank balances at the Bank of England can be created out of thin air for QE then the same can be done for other things. There is a policy choice being made to create money for one purpose but not for another. I'd like to see the reasoning behind that being unpicked.

    The current orthodoxy is (i) government finances are on the verge of bankruptcy and so government expenditure has to be cut and (ii) interest rates are kept at an extremely low level for an unprecedently long time. (iii) money is created to buy back government debt from financial companies.

    For an institution that is near to bankruptcy the government is able to borrow at a startling low interest rate.

    Changes in the level of unemployment is heavily correlated with the rapidity of change in the level of debt (private and public). Public sector cuts coupled with the private sector deleveraging which is already occurring will sharply increase unemployment and even more sharply increase the fear of unemployment. As a result wages and salaries will continue to be held down in cash terms and eroded in real terms and pension costs will be cut in cash terms.

    Meanwhile cheap cash is dropped in to financial companies. QE originally was about getting banks to start doing business with each other. For some reason it now appears to be the macroeconomic policy of choice. Why it is thought that long term interest rates need to be even lower heaven knows.

    Central banks perpetuate the myth that we have a fractional reserve banking system that requires the prior creation of base money for credit to be created (in return for the promise to pay) to occur within the private sector. This isn't true. Credit is created in the private sector and reserves are sorted out later. In particular I would point to the creation of lines of credit to companies that are not fully used immediately.

    So the official line is that QE will stimulate banks to increase the supply of new credit to the wider private sector. The reality is that banks have somewhat already increased the supply of wider money in the period before 2007. They are more concerned with repairing their balance sheets (which is what regulators want them to do anyway). Also the wider private sector's desire to take on more debt is lower. At an aggregate level the private sector wants less debt and is deleveraging.

    Therefore the new cheap cash in financial institutions will seek a return elsewhere by speculating on perceived dislocations in supply and demand in commodity markets and by investing in emerging markets - particularly property.

    So financial companies will enrich themselves on the back of this speculation and the poor of the world will find it more expensive to secure the necessities of life.

    QE may also reduce the desirability of holding sterling and so reduce the value of the currency. Given that Mervyn King's recent speech warned against the use of competitive devaluations I think this does show that the policy levers available are running out.

    Meanwhile, on the other side of the Atlantic BlackRock is threatening legal action over mortgage-backed securities against an institution that owns over one third of its share capital. Watch that one.

  • Comment number 83.

    #71 truths33k3r,

    I find it very strange. Now we come from very different standpoints and it is unlikely that we will ever agree on policies. Having said that, I have no doubt that we both wish to achieve the same objective - a safe secure and prosperous future for all of our citizens.

    So, the arguments will go on but that's all they really are.

    Now, what insult can I find today about Austrian School economics :)

  • Comment number 84.

    Yes. We are all in it together.

    Most of us are confined, rowing relentlessly below decks - some compelled to be relaxing above, a broken compass to hand, unsure of our destination, but we'll find it be trial and error.

  • Comment number 85.

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

  • Comment number 86.


    29. At 4:13pm on 20 Oct 2010, John_from_Hendon wrote:
    ‘This is a DEPRESSION!’

    I agree with you, and I wish I didn’t.


    36. At 4:33pm on 20 Oct 2010, Insidermole wrote:
    'Successive governments, including this coalition and the mainstream media keep us ever distracted from asking two fundamental questions:
    Why do we really have this debt?
    Is it actually possible to ever pay it off, given the current Central Banking model and the High Street Banking fractional reserve system?'


    Excellent questions, that will presumably never get answered in the mainstream media, which is possibly why people discuss them on blogs like this.

  • Comment number 87.

    "Today is the day that Britain steps back from the brink," was the chancellor's opening promise today.
    Steph, today is the day we step towards the brink. A depression is now guaranteed. The government's hope all along is that growth will come out of thin air to save us. It wont, the US is on its knees, europe is looking shaky. We are drowning in a sea of debt as a result of having a debt based monetary system, how obvious does it have to be. The Government will watch the grim reality unfold as each year the budget deficit gets worse and they will continue to hack into the public sector as a result. Look at Ireland or Greece, is austerity getting the results, nope, its getting worse, and we will follow the same path of destroying our real nations wealth simply to service the fake claims on wealth (debt). I'm sure this day will be remembered in the decade to come. Maybe we should start praying.

  • Comment number 88.

    #72 Richard Dingle,

    Last night, I deliberately refrained from posting as these cuts really do need to be very carefully considred in their application. I have to hand it to the Condems in that they have politically presented the unacceptable very well - the figures are out but the people don't know or feel what they really mean.

    A number of points underpinning the review cause me concern:

    - At best the economy is merely keeping its head above water at the present time. Take 90bn out and you expect it to keep growing?

    - Even if the private sector can "soak-up" the majority of the private sector redundancies (we already have 2.5m unemployed - the majority from the private sector) just how many of these people will be employed in export related jobs to add value to the economy? Merely moving jobs from the public sector to the private sector will only increase velocity within the economy. This may make GDP appear to rise but will add no new wealth.

    - Within the statement yesterday there was no reference whatsoever to any form of industrial strategy. Oh, we maintained the science budget but at a time when we desperately need to increase it!

    - Somehow Osbourne seems to think that the economy will grow. There are no indicators from the global economy that this is going to happen any time soon. Despite your later assertion, this is not a recesion it is a depression and that is a very different beast.

    - Osbourne cuts and the BoE talks about QE. Now during QE1, the 'new' money stayed within the financial system. Little or none of it re-appeared within the 'real' economy. So are we now going to face desperate cuts in our services whilst the banks are re-bouyed.

    - What part of the £120+bn of evaded tax is going to be recovered?

    We will have to see how this plays out.

  • Comment number 89.

    The CSR was for the benefit of Britain's standing in the markets with e.g bond rates and interest and exchange rates. An important phase in UK recovery ... but now the real work of 'recovery' should begin ... but a recovery to something better and more sustainable and fair for British people and taxpayers.

    Now the real work begins for the govt; creating jobs, sacking foreign workers first, requiring foreign workers to pay for their own health care, repatriating illegal immigrants and convicts etc.

    In putting British people first (although not allowed by EU and Human Rights legislation), the real job of the Coalition should start now as in planning for the March 2011 budget with a range of import tariffs as only a few percentage points of levy on damaging import goods e.g. Dutch bacon, cheap and not so cheap Chinese junk products ... can raise a huge amount of money for reinvetsment in new business operations where the govt owns and controls the facilities as British based and retained industry as carefully located in all of the UK regions. The industry to be managed by local 'stakeholders' in partnership with new start up companies.

    The key problem is how to fund the huge initial investment ... this I beleive could be done with a either a UK special issue secondary reserve currency and.or or as a variation on QE. The central idea is to tie the benefits of the money to the various local and regional economies before the banks get hold of it and pay themselves with it in bonuses and then invest all over the world for the benefit of greedy spivs and parasites.

    Going forward, the UK govt can fund large projects like e.g. Nuclear and other power facility, alternative green energy, Trident by:

    e.g. authorising the Bank of England issuing a special reserve funding instrument or 'UK govt SRF investment bond' in the way of e.g. conversion of 'SRF' for e.g. tax credits for British based firms with substantially British interests and employing e.g. 75% of its workforce in the UK.

    This SRF instrument would be issued in preference to ordinary QE and would have the advantage of keeping the QE money away from the rabid UK banking system that dissemenates much of its available money supply, instantaneously e.g. overseas and in bonuses etc.

    This would require UK based competition for operations like BAE systems and the many benefits would be e.g. large scale UK job creation and multiplier benefits from the jobs and UK banks using UK stakeholder funds including e.g. pension fund constributions for the initial investment. Some international investment could also be involved. The key is keeping much of the effects of this in the UK.

    This could raise an enormous amount of money for UK plc but would still allow some limited international investment as a special govt. issue bondholding. i.e. a process of axchanging QE issued bonds for exchange as 'tax credits' on adding substantial process value to UK plc.

    Now if someone at e.g. the BoE/HM Treasury can't arrange something on this to design and procure a UK manufactured replacement for Trident on this or a similar basis for £90Bn or less and on time and budget and with massive benefits to Britain/British workers ... then they should all be sacked and replaced with someone/some persons who can asap/pdq.

    Then do this with aircraft, ships, satellites, security, weapon systems etc ... and put the country bcak on its feet with a very low level of unemployment/ 'economic inactivity'. Also, roll this out across the entire UK manufacturing sector using 'process added tax assessment'.

    END OF ... 'UK RECESSION' ... millions of new jobs for British workers - the alternative is ... what we have got now. What are those overpaid next to useless money shufflers in BoE, govt, HM Treasury, Parliament waiting for ... let's have it now ...!!!

    Has Mr V Cable created a single new job yet for a British worker? SACK HIM!

    We all need to say to our MP's politicians ... no more QE unless it creates long term jobs for British people and investment direct in the oppressed localities and regions in our UK economy ... and keep the benefits of QE away from the banks ... let the ordinary British people feel the benefit this time. We can pay taxes aand we can lift the economy ourselves ... but we need local facilities, basic market facilities, farmer's markets etc to stimulate our home markets ... less globalisation of Britain more direct real domestic invetsment ... tax the foreign spiv middlemen importers and goondog billinaire retailers sucking in trillions £'s in foreign imports ... out of Britain ... tax the 'spivs'. hit them hard ... 99% tax rate for spiv import gamblers and parasites.

  • Comment number 90.

    Reminds me of the Thatcher government in 1979. A bold fundamental shift in government finances, called "monetaryism". The resulting recession was only ended when Thatcher dropped Monetaryism dogma quietly by hiding the change in policy behind the wall of news coverage generated by the Falklands war.

    Over the next few years some of these cuts (particularly ones that affect the middleclasses) will be reversed as the ConDems look to the polls.

    However I suspect that the welfare cuts will stick.

  • Comment number 91.

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

  • Comment number 92.

    88. At 09:18am on 21 Oct 2010, foredeckdave wrote:
    "We will have to see how this plays out."


    It is predictable I am afraid.

    We have as I have pointed out many times a country run by and for a clique who 'like it the way it is' hence no fundamental change.

    The cuts fall most heavily on the poorer end of society which is hardly surprising given the mantra 'we are all in together' which usually means the opposite.

    Ordinary people in this country have no political party to represent them and a poor track record in organisation.

    The first battle that needs to be fought is to counter the 'lie' that the New Labour caused the deficit; every Western economy built a deficit due to the necessary stimulus package that was extremely successful in protecting jobs and homes.

    It is always interesting when politicians use certain phrases. As a point of reference you might like to reflect that Hitler's speeches were peppered with nice words like fairnes, liberty, freedom and democracy.

    Any references Osborne and chums make to re-balance, investment, boosting manufacturing is just lip service.

    In all of this the Liberals are just stooges, fools dazzled by the bright lights of office.

    A prediction: the minimum wage will go within 2 years. Business don't like it and after all, according to them, it hinders job creation.

    This could all get very ugly indeed but most likely we will have a grey drab decade.

  • Comment number 93.

    " In the meantime, you have to wonder where a lot of lower-income households in the South East are going to live."

    I just wonder why you focus on the South East. Housing is a devolved matter. From my understanding, each locality/borough/region has differing social housing and affordable housing needs and plans and rental values vary significantly.In some areas private provision is working well, in some it isnt. Scare stories abound today, but I feel there should be less knee-jerk reaction and more considered discussion, even if that involves waiting for several days before people have had time to reflect and consider.

  • Comment number 94.

    #93 shireblogger,

    The South East housing dilema is a reflection of the total lack of any coherent national economic plan since the 1970's. When you allow such a concentration of of economic 'power' then the bubble will grow and grow.

    If you consider that the South East boomed because of its closeness to our European customers then you realise that, not only was that too simplistic, but also cut off measures to aleviate the problem - eg high speed rail links.

  • Comment number 95.

    Whatever your political viewpoint, we cannot sustain our ever increasing population. Our hospitals and schools cannot cope with the numbers and roads all over the country are regularly congested. This is a small island and we cannot keep building houses and roads, in fact at some stage in the future we may need to grow a lot more of our own food, especially if the EU/global markets change drastically.
    With a population of 60m+ will it be ever be possible to find adequate employment for the potential workforce? It seems we are moving to a situation where a ever decreasing number of people paying into the system are supporting an ever increasing number of people (some through no fault of their own) who are taking out of the system.
    Any thoughts

  • Comment number 96.

    89. At 09:25am on 21 Oct 2010, nautonier wrote:
    'We all need to say to our MP's politicians ... no more QE unless it creates long term jobs for British people and investment direct in the oppressed localities and regions in our UK economy ... and keep the benefits of QE away from the banks ... let the ordinary British people feel the benefit this time'

    Good point, get the BOE to create UKIC (United Kingdom investment credits), sounds better than 'quantitative easing' anyway.

  • Comment number 97.

    A prediction: the minimum wage will go within 2 years. Business don't like it and after all, according to them, it hinders job creation.

    This could all get very ugly indeed but most likely we will have a grey drab decade.


    Well of course. Until we are as competitive as workers in Poland it is inevitable. How much longer do you think the UK can live at a higher standard of living by exploiting those in other countries? We will slide down as they crawl up and we will meet somewhere in the middle.

    It amazes me that more people do not think how unfair it is. They sit in a warm office, pushing paper around, staring at clocks during long meetings, not really achieving much if they are totally honest. Yet from this labour they expect to buy goods off the back of some person who earns a few pounds a day making the metal panels for their new car, sewing all their clothes, assembling all their electronic goodies.

    Globalisation is only good news during the early years while you can exploit this inequality. But the rest of the world is waking up, and a great levelling is going to happen over the next 20-30 years. And for us, this means levelling a long way down.

  • Comment number 98.

    All in it together?

    Hmmm. Let me think.....

    Pensions and Welfare?

    "State pension age for men to start rising from 65 in 2018 - six years earlier than planned - and reaching 66 by 2020. Rise in retirement age for women to accelerate, also reaching 66 by 2020. The measures combined will save £5bn a year."

    "A further £7bn in welfare savings planned on top of £11bn already announced."

    And the Bank Levy?

    "It is expected to raise about £2.5bn a year by 2013 - less than one-tenth of 1% of the banks' relevant liabilities."

    What was the question again?

  • Comment number 99.

    96. At 10:48am on 21 Oct 2010, Dempster wrote:

    89. At 09:25am on 21 Oct 2010, nautonier wrote:
    'We all need to say to our MP's politicians ... no more QE unless it creates long term jobs for British people and investment direct in the oppressed localities and regions in our UK economy ... and keep the benefits of QE away from the banks ... let the ordinary British people feel the benefit this time'

    Good point, get the BOE to create UKIC (United Kingdom investment credits), sounds better than 'quantitative easing' anyway.
    ..................

    Hi Dempster

    Thanks ... I think that you can add more to this ... sounds better than QE ... should be much better than QE ... and not any more complex than many ordinary govt/bank transactions?

  • Comment number 100.

    Victor52
    Indeed there cannot be enough real jobs to go around.
    The only solution is job sharing, before I was made unemployed i used to work part time,this was an ideal situation able to earn some money and have time for the family.
    Apart from some who want big salaries because they are greedy and want to show off the main reason people "need" to work full time is becasue of the cost of housing: answer if everybody earned less houses would cost less!
    (also stop banks forcing debt on people and the stupid need for "growth" that is really only needed because of all the debt interest that has to be repayed )

    We also need to encourage the creation of as many real jobs as possible: real jobs being those that will allow this country to be less dependent on the rest of the world, in terms of energy ie invest in technology for efficient utilization of soon to be scarce resources.

 

Page 1 of 2

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.