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The meaning of mean

Stephanie Flanders | 00:25 UK time, Wednesday, 6 April 2011

Ed Balls says today is Black Wednesday for British families: the day when tax and benefit changes will come into force which will cost the average household about £200 a year. But the Treasury says that for most households, today will actually be slightly brighter than yesterday, because, on average, the changes that are coming into force will leave households in the lower 80% of the income scale better off.

Who is right? Unfortunately, they both are. Fittingly enough, it all depends on the meaning of the word mean.

First things first. The opposition are right that, on average, British households will lose over £200 a year as a result of the mass of changes that come into force today - or about 0.7% of household income. Among other things, there'll be a significant rise in the personal tax allowance which will benefit around 23 million basic rate taxpayers, a 1% increase in National Insurance contributions, the removal of child tax credits for better-off families, and a move to uprate benefits and credits in line with the CPI instead of the RPI.

The Treasury doesn't dispute the £200 a year figure. But they say the average does not do justice to the highly progressive nature of the changes. The losses are heavily concentrated in the top 20% of the income distribution - so concentrated, in fact, that on average, households in the other 80% of the income distribution actually gain from the changes - albeit very marginally.

Figures from the IFS back up the Treasury analysis, at least on that point. The IFS says households in the top 10% will see an average 2.7% cut in their net income from the changes coming in today, whereas a household in the middle, in the 5th or 6th decile, will see their income go up by about 0.3%. A household in the bottom 10% will get an average increase of just 0.1%, and the average boost for households in the 2nd and 3rd deciles is even smaller than that, However, it's enough to allow ministers to claim that the bottom 80%, on average, will gain.

But then it's the opposition's turn to point out that an average can hide a multitude of sins. In fact, many families within each of those segments will lose out - in some cases, quite significantly - from the changes, even if the net impact on households in their income group is positive.

That's no surprise: the benefit changes generally hit families with children, because that's who generally gets the benefits in the first place. Whereas basic rate taxpayers will gain from the increase in the personal allowance, whether they have children or not.

In the IFS example, a single earner household with 2 children starts losing money from today's changes the moment their income goes above £18,000. By and large, the "winning" examples that the Treasury point to involve households with two earners, with both able to benefit from a higher personal allowance.

By their nature, all of these estimates also leave out the much bigger hit to household incomes from the rise in VAT. When that tax change is added to the others for the new financial year, the average household will be losing about 1.9% of their income, with the top and bottom tenth of the population losing most.

And of course, that's on top of all the price rises and real wage cuts that are also hitting households, which are not due to the government but are hitting family budgets all the same.

Depending on what you mean by mean, it might not be such a "Black Wednesday" for British households. But it's shaping up to be a pretty dark year.

Update 1755:

It's no surprise that Ed Balls and Danny Alexander have been trading statistics all day on today's tax and benefit changes. To add further light to this murky topic, I've pulled together more numbers to clarify exactly what's happened to household incomes as a result of today's tax and benefit changes, and the VAT rise earlier this year.

It turns out the average loss to households from today's changes is just under £225 a year: that's the 0.7% hit to net incomes that I mentioned earlier.

Within that, the average loss for the top tenth of households will be in the region of £2,415 a year, while the average gain to households in the 5th and 6th deciles - in the middle - will be about £74 a year. The gain to households in the bottom tenth will be about £15 a year, on average, and households in the 2nd decile, one up from the bottom, will enjoy a princely gain of £1.42 a year. No wonder Labour has found it easy to find lower to middle income families who lose out.

As I described earlier, when you add in January's VAT changes, the numbers get much bigger, and they are all negative. The average loss for 2011 goes up to £600 per household.

Within that, the average total loss to households in the top 10% will be just over 3.6%: in cash terms, just over £3,200. The average total loss for households in the bottom 10% will be £190, but that's the equivalent of 1.8% of their net income, making them the second biggest losers, in percentage terms. On average, families in the 5th and 6th deciles will be about 1% worse off as a result of all these changes. That's the equivalent of about £272 a year.

So now you know. But all the same caveats apply. There'll be plenty of families in these income brackets who will lose more than the average figures suggest - and many others who will lose less. That's why they call it an average.

Comments

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  • Comment number 1.

    There'll be a significant rise in the personal tax allowance which will benefit around 23 million basic rate taxpayers
    ---------------------------------------

    That's the biggie, the one which will help millions of low income earners.
    1000 more of tax free income to pay the bills, 7400 quid woohoo!
    NI still kicks in pretty early though, at around the 5000 mark.
    Council tax kicks in at 0, so -1500 on average
    TV tax kicks in at 0, around -150
    7400-1500-150 leaves ya with 110 a week to pay for food clothing heating phone etc

    One day we might be better off working instead of staying on benefits.

    The focus seems to be on the rich folk earning over 45000 who are losing a whole 200 quid, golly gosh.

  • Comment number 2.

    Lies, damn lies and statistics . . . . .
    It seems to me that you can paint any picture with the figures, but I guess we already knew that.

  • Comment number 3.

    Nothing like a bit of BBC obfuscation.

  • Comment number 4.

    The change from RPI to CPI for calculating pensions, and benefit rises has sinister undertones for most people, except those at the top end of the food chain. The attempt to allow the rich to remain very rich at the expense of the many, is a flawed ideology. The very rich own the companies, along with most of the land, budgets have little affect on them. We need land reform almost as much as Zimbabwe needed it.

  • Comment number 5.

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

  • Comment number 6.

    Must be awful for the BBC to admit the Coalition have got it right...

  • Comment number 7.

    "5. At 01:33am on 6th Apr 2011, spacepidgeon wrote:
    why cant we comment on the ian tomlinson case?
    ..somehow seems fitting to the whole scandal.."


    It's not relevant to this tread, otherwise I agree.

  • Comment number 8.

    Ed Balls says today is Black Wednesday for British families! Now that's a fine comment from the party that wasted the money in the first place. The most inept and incompetent administration in history! If they had stayed in power think of the mess we would be in now. I don't know how he has the front to say anything.

  • Comment number 9.

    "8. At 02:02am on 6th Apr 2011, Skittler wrote:
    Ed Balls says today is Black Wednesday for British families! Now that's a fine comment from the party that wasted the money in the first place. The most inept and incompetent administration in history! If they had stayed in power think of the mess we would be in now. I don't know how he has the front to say anything."

    He has to say something to denegrate the Coalition, after he made a right Ed Balls up of it as the chief economic adviser to HM Treasury from 1999 to 2004.

  • Comment number 10.

    Every new budget the National Insurance goes up and I still wait for the day when somebody will explain to me why I pay tax on NI?! Is the NI a tax or not? (and a hefty one I should say). I wish the tax man had the decency to first take the NI out of my gross income and then take the 20% tax.

  • Comment number 11.

    @1 ady
    "TV tax kicks in at 0, around -150" - Simple. Do what I did and cancel your TVL. All content I care about is available online. I stopped watching TV 2 years ago and don't miss it one jot.

    "Council tax kicks in at 0, so -1500 on average"
    Make sure your dwelling is in the correct banding. Compare your home to your neighbours and if you're paying more challenge it.
    http://www.voa.gov.uk/council_tax/cti_home.htm

  • Comment number 12.

    ady #1 ...

    slight flaw in your calculations, in that £1000 extra tax free allowance means £1000 is not taxed at 20% - thus represents only £200 extra in your pocket.

    If this is an example of how the general public calculates relevant income and tax liabilities, then no wonder the national personal debts is in trillions. The increases in VAT an extra 2.5% on nearly all purchases; the re-writing of contracted indexing from RPI to CPI taking 1-2% of future inflation related increses; the proposed merger of IR and NI taxes to further muddy the "deductions", all in the name of reducing a deficit in finances that seem to be getting worse. GDP growth stagnant or even in recession; the pound having been "devalued" by about 5% against most major currencies; huge cuts in employment that are going to be mysteriously taken-up by small and medium businesses that cannot get money out of the banks (who we gave so much of our future debts to). As the reality of this "coalition" demolition of the English social structure (Scotland, Wales and Northern Island in some way protected by there devolvement) through taxation and removal of social support - the good old days of Thatcher's police state is coming back. Oh no, I am mistaken there are not going to be any policeman; prison warders; social workers; qualified teachers; nurses and doctors - because the "structural deficit" demands we all share in the restructuring. Hold on though, I do not see the "the banker who cannot be named as a banker" (yes we all no the one with so much money he can pay for the high court to conceal his very existence, and late history) feeling any of this pain in his offshore security, along with some many of his replacements at the institution his governance destroyed.

    We all have to pay towards stabalising the debts, the mantra of the herd heading to slaughter, if so why are we able to bomb Lybians at will; send vast resources to Afghanistan; promise financial support to nearly every country the David Cameron seems to fly off to at a drop of a hat (just how much time has he spent in blighty since the realities of his failing "coalition circus". How many more smoke screens to distract from the madness at home - Gove's privatisation and Americanisation of state schools; Lansley's wholesale sell-off of hospitals and GP practices (again likely to foreign organisations). To hide the increasing levels of corruption and deception in the policing of major events (or in the case of some illegal activities the burying of the evidence). No coincidence that on the day a high court judge rules on phone hacking some policemen arrest further "scapegoats" at the NOW - is it just me or does this seem quiet relevant to the Murdochs taking over BSkyB and creating another Fox Empire in Britain?

    Ed Balls pointed out some umpalatable truths, from an institution that has for so long been more interested in their share of the cake (pensions that make civil servants look like paupers; perks and bonuses taken for granted; self-regulating self-interest), ever seen a politician actually solve national/regional/local problems. In my neck of the woods regional development is a "will-o-the-wisp", employment and transport non-existant and every change sent for consultation, review, reassessment, re-bidding until the initiative dies in the annuls of time. One local transport restructuring (a by-passed village) took fifty years from necessity to instigation (and has since needed safety modifications having suffered from serious subsidance). The wrong people, with the wrong self-interests are running the country as a club with token theatre for what should be debate of crucial matters. When the "coalition parties" were discussing "coalition" nine months before the General Election; the media turned a serious decision, concerning the future of the majority of the country, into an X-Factor telethone - the cult of personality and charade of debate (agreeing with Nick - while negotiating how to present the 1922 Committee as the "caring future"). To question Ed Balls' culpability appears to ignore the blatant deceptions of the LibDems signing documents in "university constituencies" claiming to scrap university fees; of David Cameron saying the NHS is in safe-hands with the Conservatives in the full knowledge that Lansley had been publishing his proposals for its destruction for the past seven years. "The Big Society" where everybody pays the "central government" increasing amounts of tax (unless you can afford to pay somebody to organise youe "excemption" - or do we call it avoidance) for the then well paid representatives to then place the burden on "local groups" to make decisions and implement much of the support structures developed over the past 150 years (from libraries to social care). Yet, there is no indication how the vast sums taken will be returned to the "locals", when Parish Councils run on a shoe-string, local government is constrained financially and increasingly marginalised in the interests of "private enterprise" (when was the last time you got to vote for your local supermarket owner - and don not suggest there is freedom of choice when Tescos open a new store every month).

    The reality is a group of "university and public school chums" sat round the dinning table for many years working-out how they could breakup the social support mechanisms that had taken generations to establish. Lucky for them that those who remember the country before Atlee and Bevan, are now truely in their dotage, while those who remember the more recent deprivations of Thatcher's 1980s are accused of causing the problem (those naught "baby boomers"). Yet lurking in the back of one's mind is some recollection of a "financial collapse" where banks were on the brink of meltdown; where the smokescreen of of their moneymaking activities dispersed to reveal a miasma of greed fueling a fantasy of wealth creation. While the banks have our money (for the next 30 or 40 years), the "educated future" of the country have debts for their whole working lives for the privilege of demonstrating their ability to be business leaders, politicians, doctors, nurses, teachers, etc. then let us be honest and get out while there are still some countries that will take us. To quote Mr Murdoch - will the last one out, please turn out the lights (at least Lord Ashcroft has been able to get safely back to Belize).

  • Comment number 13.

    More useful background to the 'cuts'. It's good to get a more informed analysis than politician's press releases.

    For what it's worth, I think the Coalition has just about got the broad balance of policies correct.

    The biggest criticism is that despite raising the issue of transferable personal allowances for couples the Government has still not taken any action and it is single earner households that are currently being hit hardest.

  • Comment number 14.

    Stephanie, I must take you to task on your comment "...that's on top of all the price rises and real wage cuts that are also hitting households, which are not due to the government but are hitting family budgets all the same." So this government did not raise VAT to 20% which has the effect of increasing the cost to the consumer not only in the rise in VAT but the knock on effect of all goods carried by road, rail or air.
    The current government has managed to provide finance for a war in Libya at the same time cutting the head count in RAF pilots, scrapping the Harrier force and scrapping early 1 aircraft carrier. Not exactly brilliant financial skills shown here then. The Prime Minister has just promise Pakistan additional funding courtesy of the UK taxpayer, I thought this country was so up to its neck in debt that we had to tighten our belts! One way to start would be to freeze the overseas aid budget not add to it. The we have Treasury speak of averages, you know yourself what averages mean, a 1% average cut in income is going to to hurt someone earning £10K far more than someone on £100K. As for raising the ceiling at which basic income tax starts wow. £1000 a year extra of tax free income equates to £19.23 per week. So lets see what that benefit is worth - its worth less 1% increase in NHI, less 2.7% increase in heating, lighting and fuel costs (compunded by VAT increase) less effective 1.7% increase in rent and housing costs, less percentage VAT increase on telephone charges and telecommunications, less rise in cost of postal services, less inflationary costs in basic food, less non indexation cost of child support.... rough calculations have turned any so called benefits for the low income groups into a weekly net loss of about £43. But then were all in it together aren't we! Will the overstuffed bankers be worried? will the likes of Philip Green and ohers be worried? I very much doubt it. This government is about divide and rule across the whole spectrum of our society. It deliberately attempts to divide unemployed and employed, working class and middle class, rich and poor, so that they can continue to destroy public assets at the altar of profits for the few. But, they are slowly being rumbled, they cannot continue to blame the last government for all the woes that have been delivered by their economic meddling, and now the NHS has come to the fore, yet another example of poor planning, tory doctrine and breathtaking arrogance. Please stop trying to indicate that this government is trying, it is, very trying.

  • Comment number 15.

    These cuts are tickling around the edges. The welfare / warfare state is alive and well.

  • Comment number 16.

    So Ed balls is sticking up for the rich again and is not interested in the rise in tax breaks that the the poor will get. He also forgets to tell us that the NI rise was HIS idea and that it is because of his party's gross mismanagement of the economy, iof which he was part, that these cuts are necessary. He will not be satisfied until we are handing out the begging bowl like many Eurozone basket cases, who also once thought that jam today was much tastier than jam tomorrow.

    When is he going to apologise for messing up the country's finances?

  • Comment number 17.

    May 14th - march for cuts.

    Taxed Enough Already.

  • Comment number 18.

    Still the rich looking after the rich plus an appeasment to the masses to keep a vote of confidence for the lib/con gov.People paying above 40% tax threshold only pay 1% nat insurance tax up to april 2011 now pay 2%. equals 42% tot.People below 40% threshold pay 14% nat insurance plus 20% tax equals 34% tot.Thus A RICH EARNER ONLY PAYS 7% MORE TAX THAN A POOR PERSON .SUCH A JOKE.Thus somone earning £100.000 will have tax up to 42,745 @34% and the remainder @42%.Thus he is getting an additional %58k @42% .It seems the poor a paying for the NHS AS this is where nat insurance contributions go.The rich only pay 2 %(1%up to april 2011)It is time for the rich to stump up more.Where are the statistics to show a breakdown of salaries in uk in percentage terms.This middle class squeeze has to stop.The real truth is the gov does not want working class people to get affluent.

    If you have a second income say pension £4000/annum and you earn the now 35k+new tax allowance of £7475 equals £42745 you will get stung from tax people either lowering your personal allowance to say 531 instead of 745.They do not broadcast this fact.

  • Comment number 19.

    Quite obviously, I belong to the group that is most hard done by. How about you? Also, anyone who did not severely criticise (as opposed to being uneasy, but made money all the same) the Labour government in 2000 - 2006 and whose home did not increase in value should be allowed to criticise the coalition.

    Those who criticise Ed Balls for his past record are right to do so. But I don't recall being deafened by members of the present government opposing the policies until they began to go wrong. Perhaps they did have an alternative, but they kept so quiet, they can't say, "I told you so," even now. Isn't it to role of the opposition to question and provide alternatives? Part of the failure of the Labour government was a pathetic opposition. I'm not saying even now that the Labour oppostion is right, but by being more questioning they are making the government think a little more carefully.

  • Comment number 20.

    Taxes - don't you just love them?!

    First though - why are we still using the phrase BLACK - it's been banned in the USA - I

    thought state media in this country had to be PC (politically correct)?

    BROWN is the term used instead, cf BROWN-OUT (not Gordon!) for POWER OUTAGES etc.

    Back to taxes - now we have ASKMID (continuous insurance on your car), enforced by

    nationwide camera network, do we really need that silly piece of paper called a TAX disc?

    Yes, we pay petrol tax, vat on fuel, vehicle tax (car tax disc) insurance tax on our

    policies, tax on every vehicle service item, tax on the manufacture of tyres we use to

    drive with and yes, (you guessed it) an ENVIRONMENTAL DISPOSAL tax on used tyres!

    In case everyone's gone to sleep, ASKMID is replacing CAR TAX DISC - we won't need

    that part of the DVLA anymore - just put petrol/diesel up a penny and it pays for itself.

    Think of ALL the CIVIL SERVANTS we won't need anymore! Yippee!

    Brilliant and in the process, WE MAKE FOREIGN DRIVERS AND HAULIERS PAY THEIR FAIR SHARE!

  • Comment number 21.

    Stephanie,

    "mean"...as in Scrooge?

  • Comment number 22.

    What do people expect, some sort of windfall?
    We are coming out of one of our deepest recessions and have one of the largest debts/deficits ever.

    "The losses are heavily concentrated in the top 20% of the income distribution - so concentrated, in fact, that on average households in the other 80% of the income distribution will actually gain from the changes - albeit very marginally."

    Of course there will be winners and losers within each of these groupings but on average this is a very progressive strategy.

    I noticed on Radio4s today, they empahasised the losers.

  • Comment number 23.

    There is of course a deeper and far more important slow burning and hugely damaging economic train crash developing and it is not related to the actions of governments in budgets. It is the economy. The economy needs to be stimulated and therein lies the problem. Which economy? The banks, or the real economy, make no mistake the banks and bankers and the regulators whose actions destroyed the nation a couple of years back and being resuscitated or at least kept alive, but at the cost of the rest of the economy. The reason fro this is that nothing has changed. The bankers are still carrying on doing the things that destroyed the country. This must be tacked FIRST!

    I need to be a bit repetitive, but it matters - fiscal and macroeconomic policy adjustments such as those starting today depend fro their effectiveness of money. However the Bank of England has destroyed and is still destroying (the price of) money so the rest of the government's policies will not work! (I'll not bore everyone with how the mechanism works again.) But until interest rates are increased by a factor of at least 5 and probably ten the banks will continue ripping us off and will have no incentive to put their house in order and the economic malaise will continue, but, by continuing, the depression that will result will devastate lives far more than these 'small' fiscal adjustments.

  • Comment number 24.

    6. At 01:42am on 6th Apr 2011, JeremyP wrote:
    Must be awful for the BBC to admit the Coalition have got it right...

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

    Seconded...

  • Comment number 25.

    Yes.... but only a partial description.

    The VAT rises make everyone 2.5% worse off.
    The increase in pension age mean we work longer.
    The increase in university tuition fees to £9,000 per year will financially cripple our children.
    Public sector workers can easily be worse off by 20-30%.

    Also after the budget, the Coalition tried to sneak out revised estimates of the increase in household debt that the Coalitions policies will cause. The "correction" was released without press release with the obvious hope that no one would notice.

    Pre budget OBR was estimating that household debt would fall from 150% of income to 143% by 2015.

    The corrected figures showed that as a result of Coalition policies that household debt would increase to 173% of household income - a 20% or £500billion increase.

    As Paul Krugman noted on his blog this is entirely due to the coalitinos flawed economic policies (designed to help Tory funders in the banks and big business rather than UK households).

    Austerity programs as in Greece, Spain, Portgual and Ireland cause growth to stall, unemployment to rise and public sector debt to INCREASE. There real purpose is to suppress wages, increase inequality and unfairness, allow privatisation and funnel greater profits to big business.

    In Japan, Gereman and USA where national debt is higher than in the UK, Government policies have prevented economic collapse by continued stimulation of the economy.

    In the UK the Coalition policies mean that the austerity progam will cause growth to contract and the only way that this shortfall can be met is by households going further into debt.

    A perfect circle - with bank losses socialised tot he public sector by the bail outs and then passed on to households by the austerity programs.

    This economic horror is on top of the stagflation we will all feel as the coaltion policies cause wage demands to be suppressed so that housholds feel a continous fall in living standards.

  • Comment number 26.

    They are all in this together - these so called Economists. Its time they did some real work contributing to GDP by working in Manufacturing Industry rather than living in College Green talking Balls.

  • Comment number 27.

    I can understand the support from the majority to tax the higher earners and before I comment I should say I am not a high earner and work a manual job. But just saying leveraging higher and higher taxes on the higher earning in society is equally unfair for those that legitimately worked hard to be in such a position, it also reduces the motivation for people to want to progress and earn more and that I think is the real killer. I agree the deficit needs to be addressed but most other developed countries have a deficit, the main thing is that the economy continues to grow and business continues to grow, it is that that will ultimately point us in the direction of the light at the end of the tunnel and exit from the deficit and depression!

  • Comment number 28.

    Austerity is food and petrol rationing.

  • Comment number 29.

    Good piece ! ... Ballsenomics, Bunglenomics and Botchenomics

  • Comment number 30.

    How dare Ed S(pendaholic) Balls says this and you probably failed to mention that, if without the £1,000 increase in personal allowance, the biggest influence in the figures is the 1% increase in national insurance! That was a LABOUR policy!!!!!!!!! So much from a party that "we don't/won't raise tax rate" but NI seems not a tax but something magically disappear from my pay...........

  • Comment number 31.

    We have a huge deficit to try and reduce. Of COURSE people are going to be worse off, unless the magic money tree has been invented.

    The blame for us having to pay more tax and get fewer benefits lies with GORDON BROWN and his incompetence, profligacy and abandoning of prudence. Let that never be forgotten.

  • Comment number 32.

    No matter how these figures are cast or re-worked it is obvious most of us are becoming worse off fast. 1st Quarter GDP followed by local election results will panic the Coalition who will then call for plans 'B', 'C' ....... Could we not have seen the drift with the Irish and the Greek economies who are trying to austeritise their deficit away?

  • Comment number 33.

    22. At 08:57am on 6th Apr 2011, TheWalrus999 wrote:
    I noticed on Radio4s today, they empahasised the losers.

    I think you are being a little kind to the Beeb.
    If SF hadn't come on afterwards and put some flesh to the bones you would have thought that it was more doom and gloom for everyone.

  • Comment number 34.

    #18. "People paying above 40% tax threshold only pay 1% nat insurance tax up to april 2011 now pay 2%. equals 42% tot.People below 40% threshold pay 14% nat insurance plus 20% tax equals 34% tot.Thus A RICH EARNER ONLY PAYS 7% MORE TAX THAN A POOR PERSON .SUCH A JOKE."

    That is an incorrect statement.

    NI is paid at 12% on earnings between £139pw and £817pw (£7,228 - £42,484pa). Above £42,484pa the employee pays AN ADDITIONAL 2% on earnings...

    So effective taxation is 34% for £7,475 to approx £42,500, then it is at 54% for income from approx £42,500 to £150,000 and then taxation is at 64% for each pound over £150,000pa

    Check the direct.gov website....

  • Comment number 35.

    When you are spending 175 Billion a year more than you are collecting , you know your in trouble.

    Everyone is going to be worse off , that is a fact. Counting inflation we will ALL be worse by at least 5% and in some cases 10%..

    But to pretend , no cuts are required and we can cut just a "Little Bit" is disingenuous and unrealistic.

    Even after all 4 years of cuts , the government will still owe £1000 billion , equal to £20,000 for every man , woman and child.

    The bottom line is our current public sector and benefit system is currently unfunded by approx 25% ie for every £4 spent we are only collecting £3 in taxes.

    So lets stop the winging and move on to a more realistic position.

  • Comment number 36.

    24. At 09:15am on 6th Apr 2011, Marnip wrote:
    6. At 01:42am on 6th Apr 2011, JeremyP wrote:
    Must be awful for the BBC to admit the Coalition have got it right...

    Was there some evidence you had in mind to demonstate what it is you think they have got right?

  • Comment number 37.

    Does ANYONE value what Ed Balls has to say? If so WHY????????????

  • Comment number 38.

    "20 sanity...
    Brilliant and in the process, WE MAKE FOREIGN DRIVERS AND HAULIERS PAY THEIR FAIR SHARE!"

    Will they? I thought the foreign hauliers just brimmed the tank on the continent before coming to the UK then drive on that returning on an empty with an empty tank wich won't be filled here!

  • Comment number 39.

    25. At 09:15am on 6th Apr 2011, Payguy wrote:

    "The VAT rises make everyone 2.5% worse off."

    Only if you buy the same amount of stuff. The whole point is that you're not meant to buy as much stuff - it's that that caused the household debt. VAT is on a wide range of items, but not many basic essentials. Discretionery spending is not the same as tax.

    "The increase in university tuition fees to £9,000 per year will financially cripple our children."

    No, not really. Given no one pays a penny to go to university up front, and the repayments threshold rose by 40% to 21k, and further from that the repayments are a percentage of your yearly salary above the threshold - well, they just aren't going to cripple anyone. All these supposedly intelligent people, and I could count on one hand how many of you have bothered to calculate the figures.

    "The corrected figures showed that as a result of Coalition policies that household debt would increase to 173% of household income - a 20% or £500billion increase."

    Household debt is up to the household, not the Coalition. Look after your own damn debt and stop blaming everyone else for your credit card.

    "As Paul Krugman noted on his blog this is entirely due to the coalitinos flawed economic policies (designed to help Tory funders in the banks and big business rather than UK households)."

    Because whatever Paul Krugman says is right. Especially so when what he says pleases you. What a coincidence.

    "Austerity programs as in Greece, Spain, Portgual and Ireland cause growth to stall, unemployment to rise and public sector debt to INCREASE."

    No, being unable to raise the money required to service debts on the bonds markets caused these things to happen. Interest rates flew up because of downgrading of credit ratings. Stop making up things you clearly don't understand.

    "In Japan, Gereman and USA where national debt is higher than in the UK, Government policies have prevented economic collapse by continued stimulation of the economy."

    The USA is now cutting. Germany had the common sense to run a surplus before the recession, and so can spend as much as they like. We cannot. Please don't be so simplistic that you think everyone was doing the same thing before 2008. Germany ran their economy well, so they have more options available to them now. We did not, so we have fewer options.

    "In the UK the Coalition policies mean that the austerity progam will cause growth to contract and the only way that this shortfall can be met is by households going further into debt."

    Once again, fundamentally wrong. The relocation of business to the UK, along with the investment money they require, creates jobs and stimulates growth. Borrowing from other countries does not, because it is not invested at all. Again, pathetic mismanagement.

    "A perfect circle - with bank losses socialised tot he public sector by the bail outs and then passed on to households by the austerity programs."

    You strike me as someone who already made their mind up before looking for arguments that support your position.

    "This economic horror is on top of the stagflation we will all feel as the coaltion policies cause wage demands to be suppressed so that housholds feel a continous fall in living standards."

    Because inflation has nothing to do with rising commodity prices overseas, right?

  • Comment number 40.

    None you have got it yet. We are broke, skint, pennyless. It is the system that is wrong. Continued growth in a finite world is delusion. Look at the good old USA.

    Tax income = 2.4t.
    Expenditure 3.8t.
    Deficit = 1.4t

    They are all arguing over cuts of 60b. Thats how insane is that?

  • Comment number 41.

    The switch from RPI to CPI was much more sinister and a greater loss to all. Shame these politicians flip flop between the two just to keep the little man down. Mr Balls has no room to talk. His economics are on a par with those of the BOE. By all accounts they have now shifted about 72 billion of savers money to their banking friends. Poor man pays again.

  • Comment number 42.

    32. At 09:56am on 6th Apr 2011, watriler wrote:
    No matter how these figures are cast or re-worked it is obvious most of us are becoming worse off fast. 1st Quarter GDP followed by local election results will panic the Coalition who will then call for plans 'B', 'C' ....... Could we not have seen the drift with the Irish and the Greek economies who are trying to austeritise their deficit away?

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

    But they're failing with austerity measures - that's the whole point.

  • Comment number 43.

    1. At 01:08am on 6th Apr 2011, ady wrote:

    ---
    The focus seems to be on the rich folk earning over 45000 who are losing a whole 200 quid, golly gosh.
    ++++


    Actually Ady the £200 figure was the AVERAGE across all households. the fact that approx 80% are no worse off means that the top 20% will lose approx £1000. Seems reasonable although hopefully the to 20% will continue to pay slightly larger share PS my wife is higher rate taxpayer so we will be worse off but this seems a fair balance to the benefits we get from the system etc.


  • Comment number 44.

    36. At 10:02am on 6th Apr 2011, Squarepeg wrote:
    24. At 09:15am on 6th Apr 2011, Marnip wrote:
    6. At 01:42am on 6th Apr 2011, JeremyP wrote:
    Must be awful for the BBC to admit the Coalition have got it right...

    Was there some evidence you had in mind to demonstate what it is you think they have got right?

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

    Stabalised credit rating, reduction in the deficit, manufacturing still growing, and policies that are progressive. Any more questions?

    I mean, seriously - what did you expect to happen? The Coalition fails if within 12 months of them entering office the economy isn't the greatest in the world, and we're not all living in sunshine and happiness, greeting each other with hugs in the street?

    Be realistic. Everyone said it would be tough before the election, and now it is tough. No one misled you.

  • Comment number 45.

    30 Marnip

    You write so forceably about rubbish. See my figures in my comment #40 re your 'USA is cutting' comment.

    You continue:

    "Austerity programs as in Greece, Spain, Portgual and Ireland cause growth to stall, unemployment to rise and public sector debt to INCREASE."

    and

    "being unable to raise the money required to service debts on the bonds markets caused these things to happen."

    Sorry, but so far none of the countries you mention have failed to service their debts. That woud be a default and there has not been one so far. But Portugal does look close.

    I really do think that people who try to belittle others should first look to there own statements.

  • Comment number 46.

    I thought that this was supposed to be an economics blog. All we seem to get are politics and personal finance....

  • Comment number 47.

    At 01:08am on 6th Apr 2011, Im_alright_jack wrote:

    Yes Jack but the problem is most people in this country believe the bull. You watch the next prime minister will be Milliband that is a certainty.

    Me ? No I will vote for UKIP if they do not have a candidate any one else will do except the big 3, and I mean any one even the Islamics or Ravin loonies.

  • Comment number 48.

    This is all the usual obfuscation, dissimulation and balderdash that we have come to expect from the political class, waving words at each other as if they were light sabres in Star Wars and about as factual.

    Your are regressive, no we are progressive! NerNerNeNernNerNer. Horrible children, all of them!

    The behaviour of Labour is opportunist and the Coalition just plain simple bumbling. None of them have a clue as to what the real problem is and how to solve it.

    The problem is that the economy is crippled by debt. As we seek to tackle the debt, both public and private, from our current economic platform inevitably means that the economy will suffer. There is a high probability it will shrink again. Aha: double-dip the lunatics will shriek, let's pile on more debt! No, debt is the problem.

    What needs to be done is to begin to change the economy from banking towards manufacturing. So reform the banks, make them more competitive and remove the taxpayer guarantee from the casinos. At the same time as this process is started the huge cultural and economic shift back into manufacturing must begin.

    To start with much of this has to be in the high-tech, high quality end but this will call for component suppliers in the immediate locality. So green networks need to be built up to sustain those industries. Then, since we will no longer need the high rate of exchange against the dollar the banks need to make easy profits, we can gradually make the rest of the country competitive in international markets in making more volume articles.

    Yes, this means change. Yes, this means a decline in perceived living standards for a limited period. But we were living an illusion anyway. This had to happen eventually so stop getting worked up over the fantasy economics of the world from 2001 to 2008. It is over, dead, gone. A new reality beckons: we need to embrace the hope that this new reality contains.

    The big necessity is a shift towards full employment, away from the bonused divisive turbo-capitalism of the Blair-Brown years. We must get the country back to work. In that way the debt will shrink over time but because debt was overdone hair-shirts are the inevitable consequence.

    All that I ask from the political class is that they be truthful. If they can't be truthful then I suggest they shut up.

  • Comment number 49.

    Having just made a comment about the RPI to CPI switch for pension and benefit uplifts on the article about Black Wednesday I am pleased that Stephanie has raised it here along with "poorpeasant". The long term effects of this move will be profound and felt long into the future by many more folk than currently realise they'll be affected. It is a disgrace that has not received enough publicity and criticism from the media.
    Of course, companies and the government are still using RPI for the bonds market. Typical hypocrisy from H M Government. I hope they get their just desserts in the local elections on 5th May. They are just an ideologically driven wrecking crew.

  • Comment number 50.

    At 02:39am on 6th Apr 2011, ReformNotRevolution
    ++++++++++++++++++++++++++++++++++++++++
    Hard luck reform if you were an MP you wouldn't pay tax, you could pay yourself thru all your £200k expenses.
    For the rest of us lowlife we are bled by the gov to give our money away overseas in wars we shouldn't be in.

  • Comment number 51.

    Coalition have it spot on. To say that 'generally' households have £200 pounds less a year is useless, unless we've all just statistically become a completely homogenous society. That number by itself is utterly useless, and everytime Miliballs opens its collective LieBour mouth i'm thankful those jokers aren't in power anymore.

    Yet the welfare bill could be cut even further if we just crack down on tax avoiders at the top end of spectrum that seem to think they're above the laws of the land, and self entitled benefit scroungers at the bottom that think they're entitled to get that for free off the teet of the state just because they keep dropping kids every 9 months. Both make me sick, and HAVE to addressed; the rot has set in on both ends of the scale. Then and only then will we see economic turn around, when the blood suckers have been dealt with.

  • Comment number 52.

    Pretty pitiful that all Labour can do is nit pick, without offering any real suggestions/ alternatives.

    We have 25M tax payers, it is impossible to have a 100% fair tax system, despite what Ed Balls tells you.

  • Comment number 53.

    £200 a year for the average household? Well, really. That amounts to 55p a day. Is it really that difficult to find 55p's worth of expenditure savings in any particular day?

    Now, 'Black Wednesday' Ed Balls is known to be partial to dropping 'Ricardian' this or that into his arguments. Unfortunately since, compared to the lucidity of Adam Smith, David Ricardo is positively incoherent at times, despite the importance of his densely elaborated ideas, Ed Balls tends to end up confusing things even more with his references to the 'Ricardian Equivalence' and terms of that ilk.

    Whatever, it's useful, in the light of the recent tax changes affecting household budgets, to have a closer look at what Ricardo ( in his 'The Principles of Political Economy and Taxation') had to say.

    First, on the VAT rise we've already had. Well, since it is by and large, with a few exceptions, a tax on what Ricardo defined as luxuries rather than necessities he notes, in 'Taxes on Wages':

    'A man intent on saving will exempt himself from a tax on wine by giving up the use of it...(but that) A country whose financial situation has become extremely artificial, by mischievous policy of accumulating a large national debt, and a consequently enourmous taxation, is particularly exposed to the inconvenience attendant on this mode of raising taxes...(so that)...a minister is induced to have recourse to more direct taxes, such as income and property taxes...'

    Fine, you may well say, though it was written amost two centuries ago it just about sums up where we are now. However, it's easy to see why Ed Balls appears to be so enamoured of Ricardo because, elsewhere in his aforementioned tome, he says things that could be construed as supporting the main thrust of Mr Balls' arguments.

    For example, whilst in the chapter on 'value' - where, if he had it in his vocabulary, he would have found the word 'productivity' useful - he notes that the more that products can be made with less labour the value of labour is diminished. Then, in the chapter 'Effects of Accumulation on Profits' he appears to realize that, if productivity of necessities grew to the point where:

    'If every man were to forego the use of luxuries, and be intent only on accumulation, a quantity of necessaries might be produced for which there could be no immediate consumption...there might undoubtedly be a universal glut, and consequently there might neither be demand for an additional quantity of such commodities nor profits on the employment of more capital.'

    Which brought him to the stark realization that:

    'If men ceased to consume, they would cease to produce'.

    Then, almost as if struck by the possibility that his own conclusion would suggest lots of people ceasing to produce and, consequently, being unemployed, he brings 'luxuries' to the rescue with:

    'In such a country as England...it is difficult to suppose that there can be any disposition to devote the whole capital and labour of the country to the production of necessaries only.'

    Thus, one suspects, since many subsequent serious bouts of high unemployment due more to gluts and insufficient demand for what Ricardo would undoubtedly term luxuries, rather than necessities, were born the notions of Keynes and his followers, such as Ed Balls, advocating that the government should step in and reduce taxes and increase spending to get more men, and women, consuming and producing, so to speak.

    Of course, the trouble is that it depended on the government building up reserves during the good times, the 'boom' if you will. Unfortunately that didn't happen so the situation now is more akin to the government attempting to repair its finances and build up a reserve in a 'bust', so to speak. A most troubling thing to do and I'm sure some commentators will remark that Ed Balls' 'Black Wednesday', the reckless actions of the financial services sector aside, is one partly of his own previous government's making.

  • Comment number 54.

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

  • Comment number 55.

    At 10:06am on 6th Apr 2011, StartAgain wrote:
    Does ANYONE value what Ed Balls has to say? If so WHY????????????
    ++++++++++++++++++++++++++++++++++++++++++++++++++++++++
    No none of it absolutely none of it.
    I don't believe anything any politician says.
    Like they say "the proof of the pudding" ?

    My daughter and son in law have both lost their jobs, lost their house, no one will help them, not the bank, Building Society, not the dole, welfare or any organisation.

    My daughter is a trained nurse. But now she requires a degree to go back to nursing, but if she was an agency nurse from Africa she wouldn't require a degree.

    If she lived in Africa, Afganistan, Iraq, Libya or was an illegal immigrant then she would qualify for help, but she is British never been unemployed, never claimed dole, always payed her taxes, stamps, NI, Grad pension - for WHAT ?

    So consecutive governments can give all that hard earned money away.

    Do I feel bitter? Of course I do !
    Milliband is your next PM that is for sure as the Brits don't have the guts to vote for anyone but the big 3
    Me ? I will vote for UKIP if they don't stand in my constituency then I will vote for anyone but the big 3 and I mean any one - the Islamics, Ravin Loony - anyone.

  • Comment number 56.

    40**

    You raise an excellent point and any other country apart from the USA could not get away with it . But the Dollar is the reserve currency for the WORLD which seems to insulate them from the realities of debt . There will be a point in tie when it is perceived that the debt is to big and interest on the bonds will have to rise. Alternatively the crisis my happen if the Chinese refuse to buy any more bonds..

  • Comment number 57.

    45. At 10:45am on 6th Apr 2011, Seer wrote:
    30 Marnip

    You write so forceably about rubbish. See my figures in my comment #40 re your 'USA is cutting' comment.

    You continue:

    "Austerity programs as in Greece, Spain, Portgual and Ireland cause growth to stall, unemployment to rise and public sector debt to INCREASE."

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

    Actually, I didn't say the last bit. It was quoted from someone else, and I replied.

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

    Sorry, but so far none of the countries you mention have failed to service their debts.

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

    But that is the point - all of them face higher borrowing costs because they are in danger of failing to service their debts. It doesn't require actually failing to do it; all that is needed is for markets to think the possibility is coming. Come on, this is pretty basic understanding of bonds markets.

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

    That woud be a default and there has not been one so far. But Portugal does look close.

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

    Sigh, you really didn't grasp the point, did you? The point was that they are not in trouble because of the austerity measures, but because they couldn't get the markets back on side. We did. That's why we're not in their situations.

  • Comment number 58.

    However you twist it we are going to be taxed harder over the next year as if you benefit as many will from the rise in peronal tax allowances you will still be hit by the rise in VAT and the rise in national insurance that the last government put in place.

    But on the other side we seem unable to get control of certain types of public-spendng such as overseas aid.I notice that David Cameron's hand-wringing seems to have led him to dip into our pockets for aid to Pakistan. However I agree with this analysis.

    "The Prime Minister on his trip to Pakistan has announced that over the next four years we will increase our aid to Pakistan’s educational system from £250 million to £650 million. This is the same Pakistan which is planning to buy 6 submarines from China and spends 15% of its budget on defence. Have our politicians lost touch with reality?"
    http://t.co/DdFFnAK

    Thanks Dave,what about our children's education?

  • Comment number 59.

    For those who believe the austerity measures are failing , I disagree.

    I would rather have 5 years of NO growth , but start paying back some of the debt we have accumulated (Remember current plans are to JUST to balance the books by year 4 ,not pay anything back!), than grow at 3% backed by continued borrowing @ £200 billion a year , with a £1500 Billion debt in year 4.

    We have got to get off this "Debt" lifestyle like a junky off Heroin , accept we lived a "La La" existence under Gordon Brown premiership and face the facts. We spend to much and need to save more. It might take a decade , then so be it . But the status quo is a dream world that only the 2Eds can live in, for us mortals we have to face the realities of live.

  • Comment number 60.

    I've just wasted time reading the majority of the above posts. What a load of futile nonesense!

    The only 2 posts that come near to adressing the real problems are #23 from John_from_Hendon and #48 from stanilic - thanks lads!

  • Comment number 61.

    #57. At 11:18am on 6th Apr 2011, Marnip wrote:

    "Sigh, you really didn't grasp the point, did you? The point was that they are not in trouble because of the austerity measures, but because they couldn't get the markets back on side. We did. That's why we're not in their situations."

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Absolute rubbish.

  • Comment number 62.

    As a citizen of capitalist Britain, I invested in shares, saved for my future, took out a personal pension plan, bought my own house and worked in the private sector for decades. I have never claimed unemployement benefits in my life or had any debt other than my mortgage.

    My shares are worth what they were 10 years ago, my savings are being eroded by inflation, I am now unemployed, my job having been outsourced abroad and the value of my house is falling.

    Clearly the solution to my problem is to spend all my savings and investments on things I don't need, default on my mortgage and run up as much debt as I possibly can. Apparently that is the way to proceed these days.

  • Comment number 63.

    #34 and #18 you are both wrong but in different ways

    NI is 12% (not 14%) but only on £139pw and £817pw (£7,228 - £42,484pa).

    Above that figure you pay 2% NI

    So we now have a daft system where up the combined tak rates are as follow

    £0-£7,228 0%
    £7228-7475 12%
    £7475-42,475 32%
    £42,475-42,484 52% (a £9 band caused by NI threshold and higher rate tax threshold being different)
    £42,484-100,000 42%
    £100,000- 115,000 ~60% (some people have calculated it at 62%, it is very strange)
    £115,000-150,000 42%
    £150,000+ 52%

    As an example of complete tax absurdity and irrational complexity it is difficult to beat

    Long term we have to combine income tax and NI. Yes there will be losers (particularly pensioners but that could be dealt with by a temporary increase in age allowance), but the simplicity it would bring would be a massive improvement.

    What I think Labour politicians in particular (but all politicians are guilty of this) is the simple failure to understand that there is a limit to the amount you can tax the country. Based on long term historical statistics that number for the UK appears to be around 37% of GDP. Each country has its own long term limit (Denmark, Sweden Norway all seem happy at 50% of GDP). Why each country has its own limit is an interesting subject probably related to social, legal, economic traditions, but a subject for a different time.

    There is a further driver in that if you look at the BRIC countries their idea of taxation rates and public sector spending is much lower than western countries. I have no doubt that their public will demand higher social spending in due course as their income rises but "in due course" may be decades away. In the meantime the western european model of public sector spending at 40%+ of GDP with taxation at a level to support that may be bust.

  • Comment number 64.

    Here we go for all the socially/politically/economically confused bloggers.

    Circa 1970's:- Labour was to powerful. The common man had too much power in relation to capital. Maggie demolishes labour's power and freedoms and creates a police state in all but name. Sold council houses so workers would not go on strike. Sold lots of state run basic human needs. Water, Gas, Communications, Power,

    Circa 1985/1986:- Labour problem solved. Capital now had access to world labour markets due to massive 'off-shoring' but this just turned the problem upside down. We now had excessive power of capital.

    Wages since 1970 have remained stagnant across all OECD countries. It is called Wage Repression. So in real terms labour has less and less with which to buy more and more. Now it is this spending that creates demand, so how can demand be increased?

    Circa 1990:- If wages were not to be increased then credit had to become freely available to buy the goods to create growth. This overcame Effective Demand. The credit economy blossomed. Up/US households have roughly tripled their debts over the last 20 years.

    Circa 2000:- Deregulation, bankers got greedy. Last year the number of Billionaires doubled in India. 10 years ago many hedge fund managers paid themselves £250,000,000. Last year they paid themselves £3,000,000,000,000. That’s each, not in total. All the while financial profits soared, while manufacturing profits plumbited.

    Circa 2010:- No real wealth has been created in 20 years. Debt needs to be paid off. In the UK, the austerity measures will, in 4 years, only stop our debt from growing, it will be bigger in 4 years than it is now, but these measures should stop it from growing. By then our debt will be topping out at around £800,000,000,000.00 low end or £1,000,000,000,000.00 top end.

    No answers I'm sorry to say, but this is about the size of it. Clever money is betting on inflation, i.e. inflation of assets and again workers real wealth decreasing, together with currency deflation. - look out for currency wars.

    I hope that at the next election and all other election that you, your children and your children’s children never let capitalism enslave you again.

    All the wealth in this county was created by the working man, and yet he is poor and all the debt is his.

    Rich getting richer. Poor getting poorer. The only constant.

  • Comment number 65.

    Excellent Blog Stephanie and once more illustrates the key point that none of our bessed political parties have got it yet.

    The Labour Party mismanaged the economy from 2006-2008 where they over spent when they should have been building up a surplus. The International Banks behaviour duing the last 2 decades has been atrocious, trading non existing assets and making money from them (why isn't this theft/fraud, it would be in the "real" economy) Anyone who still believes in light touch regulation must want capitalism to fail. We are now suffering from this unfortunate combination, what happens??? It is also now very difficult to put in the sort of regulation that is really needed because our economy will rely on financial services for a good time to come and any real regulation will have to be Internationally agreed as otherwise the banks will use their "we are off to the country that still allows us to behave in an atrocious way" threats.

    The blessed Coalition, having supported the Brown years spending plans, come in and proceed to cut all expenditure to reduce the deficit in 4 years. They know this will be extremely painful but they need a growth plan to go with it and what do they choose to do, tinker round the edges and hope that the magic of market forces will create the jobs and alleviate some of the pain from the cuts. Unfortunately for them the results of 3 decades of neo conservative economic strategy is in place and as a result the UK has a very small industrial base and sits in an economy dominated by the very financial services that caused the problem in the first place. Any growth from the tinkering will be trivial. Can you remember all those companies we had in the bad old days of the 60's and 70's, they were either made bust by the mad moneterist experiment of the early 80's or sold off to foreign buyers and their assets moved to cheap labour economies by the market forces neo conservative economic strategy of the late 80's 90's and naughties.

    I begin to despair when te political parties get into their tribal non arguments and am at least reliaved when I see Post 48 STANALIC begin to suggest a real solution. The reality "fast and deep" or "slower and shallower" are the trivail parts of this debate and just the foundation stones, the answer to that debate is whichever causes the least pain to the majority of the population and comes with a believable growth strategy wins (I have no preference for which Party gets there). What we should be discussing is that Growth strategy and we should learn from countries in South East Asia that have achieved this and sadly market forces on their own will not deliver.

  • Comment number 66.

    "46. At 10:45am on 6th Apr 2011, LadyEcon wrote:

    I thought that this was supposed to be an economics blog. All we seem to get are politics and personal finance...."

    Hear, hear, well said LadyEcon.

    Now, to join in the fun... for anyone interested (I haven't got any friends so thought I'd tell you lot), I'm still not smoking - that's 8 days and counting :)

    I'm not a blue nose but inflation +2% on a pack of fags in the budget did the trick for me so I guess I should show (reluctantly) some kind of "thanks" to Georgie boy - cheers mate :D

  • Comment number 67.

    61. At 11:56am on 6th Apr 2011, NorthSeaHalibut wrote:

    "Absolute rubbish."

    Thank god you made that persuasive argument.

  • Comment number 68.

    19. Boilerbill wrote:
    “... anyone who did not severely criticise the Labour government in 2000 - 2006 and whose home did not increase in value should be allowed to criticise the coalition...”

    Really?
    Why?
    What exactly did the coalition do wrong 5-10 years before they came to power?

  • Comment number 69.

    39. At 10:12am on 6th Apr 2011, Marnip wrote:

    "Household debt is up to the household, not the Coalition. Look after your own damn debt and stop blaming everyone else for your credit card."

    No such thing as your debt/thier debt. Money is like a bath of water which we all rely on - whatever someone does with the water affects everyone else.

    It appears householders are looking after their debt - they are paying it off in record amounts - £7bn on mortgages alone overpaid. Unfortunately this does become a Coalition problem as we saw yesterday.

    This is £7bn which isn't being spent in the High Street and the lending rates are at record lows, so the money we are paying off isn't even being recycled into buying property.



  • Comment number 70.

    67. At 12:28pm on 6th Apr 2011, Marnip

    But reasonable accurate none the less.

  • Comment number 71.

    69. At 12:32pm on 6th Apr 2011, whirlygig wrote:

    "No such thing as your debt/thier debt. Money is like a bath of water which we all rely on - whatever someone does with the water affects everyone else."

    No, money is like the ocean. One person urinating in it is hardly likely to have a measurable effect on your water 10 miles away, but it sure as hell is going to make their water a little bit less pleasurable to swim in. Come on, don't try to conflate compulsory with discretionary spending.

    "It appears householders are looking after their debt - they are paying it off in record amounts - £7bn on mortgages alone overpaid. Unfortunately this does become a Coalition problem as we saw yesterday."

    Why householders? What happened to credit cards and overdrafts? I think we all accept that people need a house, and a mortgage is perfectly reasonable a debt to take out. But spending on credit for certain items is the kind of thing to be criticised here.

  • Comment number 72.

    70. At 12:36pm on 6th Apr 2011, Squarepeg wrote:

    "But reasonable accurate none the less."

    I know, that's why I commended you on the intelligence, profundity and informative nature of your criticism. Thank you. You have contributed well here, and I just want you to know that. From the bottom of my heart, thank you.

    And I love you.

  • Comment number 73.

    44. At 10:44am on 6th Apr 2011, Marnip

    Really!

    Net Public Sector Borrowing (£M)
    2008 Feb – 687
    2009 Feb – 7,088
    2010 Feb - 8105
    2011 Feb – 10,280

    Industrial output falling in February – worst month for a year and a half
    http://www.bbc.co.uk/news/business-12985722

    I am not sure what you mean by credit stabilising.

    If you see a path leading upwards from here then I very much hope you are right. I can't share that vision based on current (and previous) government policy.

    If you take away what 'economists' would normally expert in terms of economic performance following recession there would appear to be nothing positive left to say about this administrations performance.

    Socialism for the rich continues.

  • Comment number 74.

    It's time Ed Balls learnt the meaning of average.

  • Comment number 75.

    Hughesz @ 59

    Bad news mate, but the debt is going to be £1.314tn (and still growing) even under our austerity measures. Check out Office of Budget Responsibility post March budget report. If you also check out the OBR report from last June, before Osborne started to systematically damage any growth prospects, Labour would have left us with £1.376tn (and still growing slightly faster to begin with, £25bn, falling over the following years) under the Darling "half the deficit" plan. The GDP figures are a massive £12bn apart, £1.802tn for Labour, £1.814tn for Tory.

    Unfortunately under both plans/projections we need growth (at least 2%, 2.5%-3.0% to make any real dent) or never mind reducing the debt, the deficit aint goanie shift.

    Marnip up above tells us how we have persuaded the market to like us again (unlike poor Portugal, Ireland etc). Hmmm, worth about 0.2 or 0.3% interest on our borrowings compared to this time last year, based on 10-15 year gilt rates (pretty much nothing at shorter or longer durations). We never were like those guys due to the relatively low level of starting debt and our debt profile (ie when we have to refinance). Unfortunately politicians dont like to explain to people the full picture.

    So basically, under Labour or Tory, the outcome is pretty much the same. We're suffering from 30-40 years of piddle-poor economic policies from both sets of politicians, resulting in imbalances in our private and public sectors.

    We need Osborne to get a grip, stop being fixated on the dogmatic element of the cuts (concentrate on the bits that are necessary) and see if as a Chancellor he can do this country any form of economic benefit. We also need far better levels of financial education in this country so we are not left prone to the politically biased numbers we get fed to suit whatever purpose (just look at today's argument on tax/benefit changes to see that trick in action elsewhere).

    I wont be holding my breath.

  • Comment number 76.

    72. At 13:00pm on 6th Apr 2011, Marnip

    I think I made a similar level of justifcation in my comment as you did in your assertion.

    My position in terms of 'market confidence' is failry political. I would see the system as a whole as a mechanism to allow neo-liberal 'capitalists' to gouge as much rent as possible.

    Is there some specific reason why you believe governments are forced to 'borrow' money in the bond markets? A reasonable government deficit to support some level of saving within the economy seems desirable but the 'requirement' to match government spending by money market borrowing during a downturn appears fictitious.

    Which sovereign governments not implementing hard austerity measures are currently having difficulty in the bond market?

  • Comment number 77.

    I'm one of the winners from this; single, £23k/yr, no kids, managed to keep my (private sector) job so far.

    This won't be popular, but - I'm glad about the vast majority of the tax/benefit changes.

    Direct taxes (IT/NI) - Good, helping people at the lower end of the working group while taking a bit more from the top.
    VAT - Meh. Don't like this. Probably necessary.
    Child Benefits et al. - This is probably the most contentious of the changes, but it really needed to happen. I for one cannot afford to hand over such a vast amount of my money to pay for other people's children. (And then have to vacate buses, pavements, just about anything to make space for a parent & child combo)
    Housing benefit - The debate about "cleansing" expensive areas of cities of people on housing benefits is a red herring. The fact is, NOBODY who doesn't work should be able to claim a nicer house for free than someone who works. Simple.

    Sure, the ConDem coalition made the biggest mistake I can think of with their attacks on uni fees + EMA, but this budget is nothing to criticise them for in a household sense.

  • Comment number 78.

    re #72
    Sweetness and light.

    Could it spread to Dave Cameron, George Osborne, Ed Balls and Danny Alexander?

    And between the political class and the electorate?

  • Comment number 79.

    re #60
    This is a worthwhile post in that it may have saved me some time. Agreed!

    Thanks, FDD.

  • Comment number 80.

    "Why householders? What happened to credit cards and overdrafts? I think we all accept that people need a house, and a mortgage is perfectly reasonable a debt to take out. But spending on credit for certain items is the kind of thing to be criticised here."

    I don't know what has happened to credit cars and overdrafts - there wasn't a report about it yesterday and you have missed the main point of the thread.

    That £7bn hasn't been spent on the High Street, that is a problem for the Coalition. It's not a problem for me as my mortgage is getting smaller.

  • Comment number 81.

    51. At 10:53am on 6th Apr 2011, Alastair wrote:

    "if we just crack down on tax avoiders"

    Tax avoidence is legal, tax evasion is illegal, too many people fail to understand the difference.

    For Example: -

    Placing a bet online with a bookmakers based in Gibralter and not paying any betting tax that may have been due if the bet was placed in the uk, is TAX AVOIDENCE, this is legal. Not declaring an income earned in cash for work carried out decorating a house, is TAX EVATION, this is illegal.

  • Comment number 82.

    Bill Mitchell is worth a read today whatever your position on MMT (I am still working on mine).

    He articulates some of my thoughts behind my post #76 far more eloquently than I could.

    http://bilbo.economicoutlook.net/blog/?p=14057

  • Comment number 83.

    #62 inacasino

    "My shares are worth what they were 10 years ago, my savings are being eroded by inflation, I am now unemployed, my job having been outsourced abroad and the value of my house is falling."

    What conclusions do you come to that explains why this has happened?

    It's an economics blog but we have very little economic theory to explain the reality.
    Why have we had a recession?
    Why is the UK & other 'developed' governments in debt?

    We live in the capitalist era.
    Before capitalism, declines in production were due to external factors, such as bad weather or war.
    Capitalism, every since the first half of the 19th century has suffered recurrent crises.
    When we have a crisis there's unemployment & immense social suffering.
    Why is capitalism prone to crises?
    Stephanie never takes this on.

    So for what it's worth here's my explanation.
    In the late 1960's the rate of profit began to decline after the post-war boom.
    The dominant US economy wanted to take Keynesian measures to boost monetary demand & avoid recession.
    But the dollar being pegged to gold was an handicap - there were already more dollars in circulation than gold in Fort Knox.
    Fortunately, when the US unpegged it's currency, the dominant oil producer, Saudi, was prepared to continue to sell oil in US dollars.
    The US has been able to effectively write IOU's that will never be repaid.
    This massive growth in fiat money is divorced from its monetary base.
    Monetary value is divorced from productive exchange value, i.e. from value measured by actual productive labour.
    The result is money divorced from productive capital.

    This fictitious capital has found a home in inflating asset prices, houses & shares, etc (you are unlucking to have shares that are worth the same as 10 years ago; the FTSE is much higher than it was 10 years ago).
    It is the asset price bubble that has hidden the fall in the true productive rate of profit.

    What's beeen happening is money is printed, typically used to buy goods from China, the Chinese government buys US bonds, the US continues to run a huge budget deficit which fuels the trade deficit & US (& other Western) consumers get deeper into debt & the Chinese (& other developing & oil-producing countries) build up large IOU's from the US (& others) that will not get repaid.

    Much of this printed money also finds its way into the world's financial centres, e.g. rich arabs depositing money with international banks & getting them to invest in sub-prime mortgages & derivatives.

    Whether its the global imbalances or debt-saturated consumers it's not a situation that can go on forever.
    Eventually, those who are owed the money realise that those who they lent to are unable to pay back.
    This is when financial panic threatens to bring the whole house of cards down.

    This was where we were in September 2008.

    The ruling class delayed meltdown by printing even more money (& the Chinese showed that there was still some central planning by embarking on extensive public investments).
    The banks could breathe for another day but the governments were now deep in it.

    Hence where we are now, declining living standards for ordinary people, to pay for the true underlying fall in profitability for those who own capital.
    In otherwords, the financial sectors contribution to profits has been found out.

    But the central problem remains.
    Printing money to hide the fall in profitability happened in the 1970's & continues today with QE.
    When the penny drops & the banks realise that spending cuts will not resolve the underlying profitability problem we'll be back to September 2008, except this time governments can't afford to bail them out & the public won't let them.

    This will be when creditors get their hair cut, or rather get scalped.
    Unforunately, at the same time the printing presses will debase the currencies & unemployment will leap.

    Only then will people start to seriously ask why capitalism has crises.

  • Comment number 84.

    81 Isleworth.

    You were right to point out the difference between tax aviodance and tax evasion but unfortunately chose the wrong analogy to explain it.

    As a regular visitor (and loser, aren't we all?) at my local turf accountants I can assure you that taxing bets or winnings was removed many years ago so it would make no difference. However, the difference is the UK based bookmakers pay tax on (some of) their earnings whereas I expect the on-line ones based in Gibraltar don't, which of course is the point of being based there.

  • Comment number 85.

    I'm one of the few victims of RPI being negative when CPI was positive, at least for the month when my pension 'increase' was calculated back in 2009, with the result that I had no increase in my pension in the tax year just gone. Now not only will I get an increase from RPI but added to it the personal allowance goes up as well. Oh joy. Then VAT kicks in plus raw fuel prices feed into domestic tariffs and world commodities accelerate food costs. That feeling of wellbeing didn't last long did it?

  • Comment number 86.

    76. At 13:22pm on 6th Apr 2011, Squarepeg wrote:
    72. At 13:00pm on 6th Apr 2011, Marnip

    "I think I made a similar level of justifcation in my comment as you did in your assertion."

    Course you did.

    "My position in terms of 'market confidence' is failry political."

    Who cares what your position is? The market is the market, and it works the way it works. We are coming out of a recession, and I'm all for reforms to the entire economic system - but now is not the time when we have pressing concerns. No one is interested in your theory of how things *should* work. Right now we need pragmatism, not idealism.

    "Is there some specific reason why you believe governments are forced to 'borrow' money in the bond markets?"

    Yes. That's where they get the money from for the level of spending that this country is accustomed to.

    "A reasonable government deficit to support some level of saving within the economy seems desirable"

    What savings are these? Tax revenues aren't savings. Personal savings are unrelated to the macroeconomy in this context. I have no idea what you are referring to in this context when you say saving.

    "but the 'requirement' to match government spending by money market borrowing during a downturn appears fictitious."

    Without the money markets providing the capital, the spending does not occur at the level forecasted. This isn't tough.

    "Which sovereign governments not implementing hard austerity measures are currently having difficulty in the bond market?"

    What an incredibly stupid question. The whole point is that austerity measures are needed to shore up the bond markets. Now, how many examples would you like of statements released demonstrating that investors are unconvinced by the austerity measures of other countries?

    In Spain and Portugal, Moody's has said it is unconvinced by the austerity measures, and that the governments need to do more.

    In Ireland the low corporation tax rate is frowned upon, hence borrowing problems.

    What happened to the UK when the Conservatives looked like they would be in power last year? The markets reacted instantly. Moody's now says our credit rating is not under threat. Additionally, the IMF warned Brown twice during his time in office that the deficit being sustained by his government was dangerous and irresponsible. Did he listen? No, he didn't.

    To think that markets believe austerity measures make a state LESS likely to pay their debts is profoundly lacking in understanding.

  • Comment number 87.

    Why is the emphasis in these comparisons almost always upon income - not wealth? Surely, when considering ability to pay, having great wealth or large reserves of assets, should be taken into account, as well as income.

    The government talks a lot about the burden of public and private debt. For every debt there must be a creditor. Some direct, or indirect creditors, live abroad, but many reside in the UK, even if as so called non-doms. A reduction in debt levels can only occur if wealth is transferred by some means to the debtors. Why not do this directly by means of a really effective wealth tax used finance benefits for the poor? The answer is of course that prime concern of the present government is the interests of those very same wealthy people.

  • Comment number 88.

    The illusion of change...it is all about paying for the sins of the bankers. While the criminals wander the beaches of sunny climates the cuts and slight of hand tricks will continue by their handmaidens in governments. They really have no plan except to protect the wealth of the wealthy. When they say "we all must sacrifice" they don't mean "all"..and proportion of sacrifice is scaled to the middle class.

  • Comment number 89.

    73. At 13:00pm on 6th Apr 2011, Squarepeg wrote:
    44. At 10:44am on 6th Apr 2011, Marnip

    "Really!

    Net Public Sector Borrowing (£M)
    2008 Feb – 687
    2009 Feb – 7,088
    2010 Feb - 8105
    2011 Feb – 10,280"

    Before a recession, there should be net SAVING. Pointing out that a deficit expanded during a recession is so ignorant. There should have been no deficit whatsoever during an expansion. For anyone who understands economics, this is the proof of how bad a job Brown did - and the irony is that you think it absolves Labour. Hilarious.

    "Industrial output falling in February – worst month for a year and a half
    http://www.bbc.co.uk/news/business-12985722"

    Manufacturing growth slowing from a 16 year high - shocker. What did you expect, some prolongued magical revival in the sector? We're coming out of a recession and implementing austerity measures to shore up the credit markets. It's meant to be difficult. This isn't even close to being the worst of it.

    "I am not sure what you mean by credit stabilising."

    Credit rating. Portugal's is slipping, Ireland's has fallen, Spain too. This is what happens if you control your public finances like drug addict controls their private finances.

    "If you see a path leading upwards from here then I very much hope you are right."

    I don't think you understand the numbers you're putting out there. Remember Osborne is undershooting his target deficit by £6bn this year, which is mightily impressive. Secondly, you seem to think comparing February year on year is a good, representative measure. Thirdly, slowing growth is still growth. Something it rarely did under Labour (the manufacturing sector).

    "I can't share that vision based on current (and previous) government policy."

    Well, I'd take a look at what Thatcher's reforms overall did for the state of the economy. Whether you agree or disagree with her, she sorted out the public finances. Until someone has an alternative, these policies are tried and tested as the best solution we have available. And it keeps being needed after Labour are in power. People need to stop listening to them, because last time they bankrupted us. This time they were very close.

    "If you take away what 'economists' would normally expert in terms of economic performance following recession there would appear to be nothing positive left to say about this administrations performance."

    Wow. You mean apart from being responsible for ensuring there is money for us to borrow, and having a clear plan of how to wean us off borrowing? Wow. Do you really think Labour could have done that?

    "Socialism for the rich continues."

    So does ignorance amongst the population.

  • Comment number 90.

    88. At 15:22pm on 6th Apr 2011, ghostofsichuan wrote:
    The illusion of change...it is all about paying for the sins of the bankers.

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

    And nothing to do with running a deficit during an expansion, of course? You know, it's very easy to blame it all on the bankers. To actually understand why what Brown was doing was so incredibly immoral as well as moronic, you need to do a bit of study.

    And if there's anything people don't like in this country, it's study. Everyone wants an opinion, few want to put the effort in to base that opinion on fact.

  • Comment number 91.

    People seem to get hung up on the "rich" earning more than £45k a year. In our household the mortgage accounts for over a third of the net income. After bills, food and tube travel to work we have just enough but are far from "rich", we're just increasingly taxed!

  • Comment number 92.

    86. At 15:10pm on 6th Apr 2011, Marnip

    Discussion based on misinterpretation, straw men and ad hominem attacks is pointless. Let’s see where this government gets to in the next two years. I would be entirely happy to be shown to be wrong and, whatever I may say or think, they still get to make their choices. As it happens I voted for them.

    Any thoughts on why industrial output dropped 1.2 % in February vs the expected increase?

  • Comment number 93.

    From the budget a few weeks ago, to the start of the fiscal year today, the reality of a really painful period is there to see. The quality of living has now gone to a point where it is becoming far more difficult to stay above the breadline, and these National Insurance increases and cutting the tax limit on 40% taxpayers is only going to make things worse. I currently live with my parents, and work full time, and I can see the pressures of what a normal working family goes through day by day, week by week and so on. My Mum and Dad and myself, for instance, work to the bone 60 hours a week, mainly to fight off all the bills and rising fuel prices that come our way. I for one am disgusted that VAT hasn't been cut on oil, gas and electricity prices, mainly because these resources are necessities and not luxuries. We need them to survive on a daily basis, and VAT could've been one popular measure the coalition could cut (not scrap) for the start of the fiscal year just to provide that extra breathing space. But no! The squeeze is getting to a point where families, especially the poor, will be unable to cope. They may be a big national deficit, one of the biggest in the G20. The government may want to scrap the deficit as quickly as possible,so future generations don't inherit this mess. But they are doing it too fast, and the marches and demonstrations have proved this. People marching in their hundreds of thousands, and that number will only increase if the government keeps coming up with these painful policies. This is a mess, and unfortunately we, the public, will have the unfortunate pleasure to deal with it. How the bankers and reckless borrowers can sleep at night is beyond me, and it will be interesting to see how all this will play out this year.

  • Comment number 94.

    Has everyone in the UK forgotten basic maths?! Tax is a percentage. Take this very basic example:

    Poor man earns 10,000 at 40% pays £4000 tax.
    Rich man earns 100,000 at 40% tax pays £40,000 tax.

    That is TEN TIMES as much. And that isnt fair?! What so paying 50% or even 60% tax is fair. I don't think so. This isnt even taking into account all the allowance, reduced rates for lower earners.

    I am 25 and not earning enough to attract the top rate of tax but can someone please explain to me why, if I make choices in life to work hard, put the effort in, work longer hours should I be penalized?

    You know what, I don't mind potentially paying 40% or 10 times more than lower income earner. I want the UK to prosper and be a better place for all but can we please stop basing high earners as a source for tax or the grounds of fairness. Be honest, you want them to pay because you think it will hurt them less. That may be true. But that may be because they took pain earlier in their lives to help secure a higher paying job.

    I for one took accountancy exams. I couldn't go out drinking, I couldn't go out buying clothes or gadgets a) because studying consumed my life and b) because I was earning a poxy trainee wage. Other friends earned far more that me and had free time to enjoy that money. But in 10 years time, my earnings will probably be more than them. I made the sacrifices for my future so why should I effectively be punished for doing that. That isnt fair.

    I think I would feel happier about this debate if fairness wasn't used. Taxing the rich more is simply not fair. It is just easy.

    And for the record. Ed Balls needs to look in the mirror. Labour caused this damn mess.

  • Comment number 95.

    87. At 15:21pm on 6th Apr 2011, stanblogger wrote:
    A reduction in debt levels can only occur if wealth is transferred by some means to the debtors.
    -----------------------
    Substitute wealth with money, and you have spotted the way out of this crisis.
    The means are to work for the creditors, or sell assets to them.
    However, the money holders don't want to employ us to do productive work that enhances society for all. Parasitic capitalism will destroy the economy as the masses will have nothing left to trade.

  • Comment number 96.

    93. Andy Blythe

    Andy,

    I agree that it's going to be a difficult period, but I don't think that's anything other what any rational person would expect when you're trying to get the a record deficit in order and it's not as if it's not been widely trailed.

    I also agree that there is an argument between how deep and how fast the cuts should be and time will tell on that, not now, not next year, but in at least 3 or 4 years time as it takes time for economic measures to work. Personally I trust the Coalition's judgement on this rather than the people who greatly contributed to wards this mess, Labour. And as for the marchers, I am afraid that from what i have seen I don't accept your analysis about the marches being about the cuts being too fast. It seems to me that the vast majority of the marchers actually believe there is no need for any cuts, hence all the banners saying 'no cuts'. Labour are largely to blame for goading a gullible minority that we can blithely carry on with our heads in the sand as while they said in the election campaign that they would halve the deficit (i.e swinging cuts), their public pronouncements give the impression that there is no need for any, as they have opposed virtually every cut that has been made or suggested and they have not said, despite repeated invitations to do so, how they would have fulfilled their pledge to halve the deficit. the most you'll get is 'difficult choices' and too deep and too fast' and other such platitudes. that doesn't constitute an economic policy to get the country back on its feet.

  • Comment number 97.

    @93

    I find interesting your comment "how the bankers and wreckless borrowers can sleep at night".

    I often do wonder why the bankers get all the blame for alot of this stuff. All those 110% mortgages or people borrowing 6x their income never seem to take any criticism.

    Everyone needs to take some responsibility for where we are, from people spending money they didn't or never would have on plastic, thinking i'll just keep moving it to the next 0% card next year. To the idiots that kept lending them the money.

    The real question is how we get out of this mess, and the reality is lifestyles will change, end of. Those sky subscriptions will be cut, the new car won't be bought, the second car will be sold, the house will go undecorated for a year or two extra. The sofa will get recovered rather than replaced and perhaps the TV won't be thrown out and replaced when the next gimmick comes along.

    Although painful alot of these lessons are not a bad thing to learn. We're looking to move house, but instead of seeing how much we can borrow and stretching ourselves, we're looking at what we actually want, and what we can comfortably afford.

    The best thing that can happen from all of this is that we never go back to the position we got ourselves (all of us) in the last 10 years.

  • Comment number 98.

    92. At 15:43pm on 6th Apr 2011, Squarepeg wrote:
    86. At 15:10pm on 6th Apr 2011, Marnip

    "Discussion based on misinterpretation, straw men and ad hominem attacks is pointless."

    Oh please; there were plenty of relevant points in there that you're just ignoring.

    "Let’s see where this government gets to in the next two years. I would be entirely happy to be shown to be wrong and, whatever I may say or think, they still get to make their choices. As it happens I voted for them."

    And now you're complaining about what you voted for, incredible. So did I, and this seems to be exactly what I voted for. Were you reading the wrong manifesto or something?

    "Any thoughts on why industrial output dropped 1.2 % in February vs the expected increase?"

    It was quite clear in the article; falling gas and oil production. It also pointed out that year on year it's still 2.4% growth. Exploratory industries such as those are always hard to predict, because they're based on something we're unsure of. Manufacturing has been at a 16 year high, of course, but that's hardly mentioned.

  • Comment number 99.

    98. At 16:18pm on 6th Apr 2011, Marnip
    'Were you reading the wrong manifesto or something?'

    I did not vote conservative.

    'It was quite clear in the article'

    What is not clear is why the 'experts' got is so wrong. Those 'experts' include Mr Osbourne

    'Oh please; there were plenty of relevant points in there that you're just ignoring'

    There were one or two along side a whole lot of intentional misinterpretation but why should I waste my time on someone so rude?

    It is good to see someone so confident in what this government is doing. I hope you are right.

  • Comment number 100.

    To be near whichever mean you need a job.

    Oh dear...
    http://www.bbc.co.uk/news/uk-england-northamptonshire-12984637

 

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