Just cutting spending isn’t enough. Osborne needs to invest as well

21 March 2013

Economic growth for the next year is predicted to be lower than 1.0%. I can’t think, offhand, or a more obvious indication that the Chancellor is gripped by some sort of weird paralysis which will result, for the rest of us, in continually declining standards of living.

I have no great objection to many of the cuts he has made; and believe, à la Dr Fox, that he could be still more stringent. However, he should also be investing heavily in stuff which will see our economy grow – science, engineering, what used to be called ‘public works’. Simply cutting spending will not promote growth. Simply investing in the productive parts of the economy will not clear our debt. We need to do both, no?

Give the perfect gift this Christmas. Buy a subscription for a friend for just £75 and you’ll receive a free gift too. Buy now.

Show comments
  • AlexanderGalt

    No, Rod.

    After a 60% real terms increase in spending under Labour he needs to cut and cut deep.

    We need a Neville Chamberlain.

    I’m not joking!

    As Chancellor in the 1930s he was a great success. He cut spending across the board by 10% and Britain went on to grow at over 6% in 1934.

    There’s a good analysis of this in: “Here’s to a 1930s Style Recession” at:!/2013/03/heres-to-1930s-style-recession.html

  • Baron

    Why am I being censored, can anyone tell me?

    • Swank

      Hi Baron. I tried to answer you but lost my reply :^)

      It might just be that Disqus is at fault, or some aspect of your browser settings is causing a problem. May I suggest that you save all comments (say, as a draft in your e-mail) or write them first in Notepad? Then you can try again if the first attempt gets ‘disappeared’. I have had comments ‘flagged for review’, never to be seen again, simply because I decided to add italics or bold for clarity after I’d posted them. Sometimes one can fall over the trip-wires of ‘trigger’ words, and if you think you may do so (as with the names of American presidents, for instance), you can either use asterisks or what I prefer, which is blanks (sometimes asterisked words are trip-wires, too, it seems). So you can write Pres dent B sh. Just a thought.

      • Baron

        Swank, you are a true star, many thanks. It may also be someone doesn’t like what the poorly educated Slav says, you know.

        And apologies for the late response. Baron’s blood pump is causing him problems. Shall the barbarian give you a tip? Avoid growing old at all cost, it ain’t half the fun some would have you believe.

        Also, how are you doing on global warming in your neck of the wood? Has it arrived yet? Here, it seems to be late, snow everywhere, bitterly winds. It won’t take long Baron will begin to think it’s all a con.

        Happy Easter, my charming friend.

        • Swank

          So sorry to hear that your ticker is not ticking quite as it should. Sounds alarming. I hope someone competent is overseeing it in a kindly and useful fashion.

          Thanks for the tip about not growing old. Ideally I’d like to be youngish for a very long time and then be felled of a sudden. Some people do live too long in the manner of that Elvis Costello song: ‘Living a life/that is almost like suicide’. Drugs keep them going but all the lustre is gone. I don’t want that to be me, though with my luck it probably will :^)

          Man-made climate change is a fraud and a hoax, as you are aware. Of course it used to be the coming Ice Age (1970s), before it was ‘Global Warming’, but as the temperature stopped rising and has leveled off since 1997, they had to change the name of it, didn’t they? ‘Climate Change’ is so much more versatile: one can blame any weather on it and ignore the fact that the planet warms and cools all by itself, as it did in the Middle Ages, long before industrialization.

          A Happy Easter to you, Baron. Oh, and in answer to your other question: yes, it’s been a very unusually cool March in the subtropics. I’ve never known a cooler one. Most people, overall, would prefer to be warm!

  • The Sage

    Great to read the musings of one of our leading economists and his innovative remedies for the UK economy.

  • DougS

    Cuts? What cuts? We’re heading for a £1.6 trillion (a number that’s hard to get your head around) debt by the end of this parliament. And a catastrophic crash if we believe a recent ‘Money Week’ piece – and who’s in a position to argue?

    Sterling has been devalued by 25%. If that hasn’t stimulated exports then there’s probably very little business to be had out there.

    They should have told us at the beginning of the parliament that everybody in the country was going to be worse off for the next 5 – 10 years – and that’s just to get a handle on the deficit.

    Anything else is propaganda!

  • Wilhelm

    There’s a giant gorilla in the room, no pun intended, but immigrants / invaders are costing us Billions, in educating their many many children, housing them, health care, and generous dole payments.

    The welfare budget costs £ 200 Billion a year.

    • The Sage

      What’s more they send a large slice of their income back home creating little or no benefit for the UK economy. This fact is often forgotten.

  • David Webb

    Your English is appalling. “We need to do both, DON’T WE?” I wonder if you have ever read a whole book. Look! It is the private sector who should be doing the investing. We need to cut taxes enough to boost the animal spirits of private business.

  • Curnonsky

    Put the unemployed to work chopping down wind turbines.

    • DougS

      Now there’s a policy I can sign up to – recommended!

    • Hexhamgeezer

      It should be compulsory while watching Jeremy Kyle to have a tube inserted up one’s colon to gather methane which can usefully be used to power their TV’s

  • OldSlaughter

    Bollocks Rod. The turn around for the things you claim is at best half a generation. We are screwed because we were in 2010 and because the Euro zone is in recession. There is almost nothing Number 11 can do.

    • Democritus

      So it’s the “it’s not our fault, it’s everyone else’s” tactic? it wears a bit thin after a while. Actually Stimulating the economy through capital projects has almost immediate effect, within months it raises GDP and gets money flowing around the economy. In 2010 this Government came up with Plan A and stopped all capital projects. Three years later GO unveils plans to start capital building projects (though a piffling amount compared to before) but still insists we are still on plan A! What has changed since 2010? Higher unemployment, higher borrowing, heading towards an unheard of triple dip recession, the longest recession in history, wages reduced in real terms, manufacturing down, retail sector down and Loss of AAA rating, remember it was GO who stated that his reputation would be judged on keeping the AAA rating!

      Under Plan A the defecit was supposed to be reduced in 5 years. So in 3 years it should be 60% less and it’s only 30% less and only after some creative bookkeeping that pushes some expenditure to the following year. We are now looking at 10 years austerity instead of 5.

      • OldSlaughter

        “it wears a bit thin after a while”

        Doesn’t make it less true.

        “What has changed since 2010?”

        External situations. Originally we were set to scrape through.

        “Higher unemployment”

        Barely, if at all.

        But yes, you list a bad situation. What a waste. I have never said otherwise. We are talking about why.

        “Under Plan A the defecit was supposed to be reduced in 5 years. So in 3 years it should be 60% less and it’s only 30% less and only after some creative bookkeeping that pushes some expenditure to the following year. We are now looking at 10 years austerity instead of 5.”

        Again, thanks for the recap, now go and find a relevant space to say it.

  • Social Worker Spray

    I haven’t heard Germaine Greer, Lynne Featherstone or Jeremy Hardy complain about the difference in pension age between men and women. I mentioned it to a leftie friend of mine once and she said they’ll be equalised in the year 2020-something. The funny thing is that whenever feminists want something I’ve never heard, “What do we want? Blah blah blah, When do we want it? 2025!”

  • Forest Fan

    One thing that should be cut is VAT. He could also raise the threshold of when you start charging VAT.

    • Swank

      Agreed. VAT is way too high. An easy stupidity to correct, one should think.

  • Noa

    Well No, Rod.
    Mr Osborne, or more properly this Government, should certainly not be ‘investing’ in any of that stuff you mention; especially housing. Remember, Freddie Mac, Fannie May and the cowboys at Lehmans? Governments doing social engineering nearly did for us all then and may yet still do.
    But he can cut taxes and create incentives which might, just might, re-build our Green shattered energy infrastructure and the Industrial-Corporate infrastructure sale over which first Mr Blair and now Mr Cameron carelessly presided.
    In fact, given the total mess Government makes of everything it touches; but particularly the National Death Service, Welfare, Foreign Aid and Defence, should we not cut the budgets on the first two by 50% immediately?
    We can then wait six months for the user numbers to drop commensurately or even more and reap the savings harvest of permanently departing pensioners and Roumanian Roma.
    Those savings to be deployed in the re-housing of Anjam Choudray and Sons into a Belgravia newly deserted by the Somali and Nigerian refugees, who previously had barely found lebensraum alongside the likes of Abramovic and Saudi princelets.
    And that should create plenty of good cleaning jobs for all the Mockneys who now live on subsistence in TOWIE land.
    Job done.
    Take a pat on the back, George.
    And you too Rod, for thinking of it all in the first place.

  • edlancey

    Poor Rod, still darkening the Islington salons with a copy of the Ragged Trousered Philanthropists in his pocket.

    ps It’s not THEIR money, it’s ours.

  • Daniel Maris

    Er – how do you cut spending if you are investing in public works, science and engineering. Do you mean you cut things like welfare by x amount but invest in public works etc to the tune of x-y, so that you have money left over to pay the debt?

    You’re not very clear.

    As soon as you cut welfare, local authorities etc you cut employment opportunities as you cut people’s expendtiure and undermine consumer confidence.

    I think the way forward lies more in helicopter money, and inflating away the debt.

    Also we need to be more imaginative about what we spend on. We should be focussed on spending on things that get people’s bills down. Installing insulation, improved glazing and PV panels will get bills down. We should be offering these to everyone free.

    Maybe we should also subsidise people changing the engines in their cars to run more efficiently so they use less fuel.

    Similarly, introduce rent controls to reduce housing costs for families.

    • Swank

      Daniel (hand smacks forehead!): Your ‘solutions’ are already fashionable or post-fashionable (having been shown to be unworkable), already the status quo, already fiscally nonsensical and already causing the problem!

      I can’t explain to you at length — got proper work to do, with hope of revenue — what is so dreadfully wrong with everything you endorse, but it’s all… dreadfully… wrong-headed. With the best intentions, I understand that. Still wrong, though.

      • Wilhelm

        Maris thinks Botswana is a major economic player, need I say more.

      • Daniel Maris

        Fine. “I don’t like your arguments but I am not going to explain why.” It’s not debate as we know it.

        Why not rent controls – plenty of countries have them and have had them for over 100 years.

    • Wilhelm

      Well, well, well, look what the cat dragged in.

      • Daniel Maris

        Yep, a rat – and they can come in any colour.

  • Tim

    Stop all this blather about ‘public works’, ‘investment’. ‘borrowing for growth’ and all the other nonsense.

    The simple fact is this. I can spend my money better than the government. End of. Full stop. Tax cuts will ;

    1) Drive spend – i.e. people spend more
    2) Drive savings – allowing the banks to repair their balance sheets and lend sensibly.
    3) Drive productivity – if you keep more of what you earn you have more incentive to work harder, create value and generate real growth.

    Giving the government more money is like giving a drunk another drink to help him stop boozing; it just gets pissed up the wall.

    • David Lindsay

      And how’s that working out, then?

      • Damon

        Well, it’s at least working out better than the 1945 – 1979 Keynesian ‘consensus’ which saw our economy become the laughing stock of the western world.

      • Baron

        David, what you reckon would be the outcome if this chap Mo Farah were given a heavy rucksack, asked to wear shoes that don’t fit, starve of food then asked to run, compete with the other lot. Would he still be the best?

        Tim, papyrus and co. have it just about right. It’s the private sector, and only the private sector that generate wealth. Governments, as the example of the now defunct East European communist satrapies shows for everyone prepared to learn from history, aren’t good at it. The statists here have managed to fugged capitalism up with taxes, regulatory regime, laws and stuff our hungrier competitors like the Chinese have not. The borrowing that keeps us going must stop at some point. When it does, the system will implode. Trust Baron, he knows, he’s looked it up.

    • Andy

      They ought to be done for drink driving. Case comes up week friday.

    • Democritus

      1) Drive spend – i.e. people spend more….
      …..Imports go up
      2) Drive savings – allowing the banks to repair their balance sheets and lend sensibly…….
      ………..interest rates below inflation means savers are worse off.
      3) Drive productivity – if you keep more of what you earn you have more
      incentive to work harder, create value and generate real growth……
      ……..The police are cut, the street lights go out…welfare decreased…..crime increases….everyone suffers.

      Giving the government less money means anarchy.

    • Walter Ellis

      Any time I see a commenter writing, “the simple fact is,” “end of story,” “full stop,” my hackles rise. It’s not just a question of manners, O Tim, it’s also one of subtlety. Few of us are ever a hundred per cent right, but simply to dismiss a view that runs counter to your own as “blather” gets us nowhere.

    • andagain

      Fine. We can eliminate spending on road maintanence then. It won’t have any bad effects, because you can spend your money better than the government.

      Unless it turns out that some government spending is more important than others, of course.

  • LB

    The other argument is that its no existing people who will pay more tax because of growth, its that we get the unemployed into work, and they pay the deficit.

    So what are the numbers.

    1. We get a million unemployed back to work
    2. It costs nothing – not going to happen
    3. Most will get min wage jobs, but lets be generous and say they earn more and pay 3K a year in tax
    4. We save on the benefits bill, say 12K each. JSA, IS and HB + the perks

    15K each, times 1 million = 15 bn

    Ho hum, where’s the other 100 bn going to come from?

    Growth doesn’t work, unless you mean 35% increases the amount of tax.

    • Daniel Maris

      “Ho hum, where’s the other 100 bn going to come from?” QE

      • LB

        So you need more – its inflation and the debts are primarilary inflation linked

  • Studley

    Gosh, if we just put the commenters below into a new government, we’d actually have the chance of a well-run, democratic country!

    • papyrus_minimus

      Thanks! If you make me Chancellor I’ll do away with the XJ. It’s lovely and all that, but an obscene luxury paid for by the tax payers.

      • arnoldo87

        Actually, we should make sure that ALL vehicles paid for by the public purse are made in Britain. Imagine the police in Munich driving round in Jags!
        As a nation, our stupidity on these sort of decisions sometimes defies belief.

        • DougS

          I’d extend that to foreign aid, after cutting it to about £0.5bn. We can’t afford to borrow billions to give away and make our deficit/debt problem even worse that it is.

          Only UK manufactured goods should be offered – not cash!

  • LB

    Put some numbers to it.

    Deficit = spending – taxation (if you want a positive number)

    So you can deal with the deficit either by cutting spending or by taking more money from people in tax. There is no other way.

    So growth mean taking more money from people.

    That’s anti growth. Taxation takes money out of the economy and reduces the growth figure.

    Hence the only way to make people in the UK better off is to cut spending.

    • Democritus

      No, they take the same money from more people whilst paying out to less people through unemployment. That increases the government income and decreases the deficit. Cutting taxes and spending during a recession increases unemployment and prolongs the recession.

  • papyrus_minimus

    Why should the state “invest” in science and engineering? It’s not like the government can get value for money doing these types of things. Throwing borrowed money down the drain, by the billion, is hardly sensible.

    How about the government leaves money to the people and businesses, and lets them invest or spend in whatever way they think best?

    The problem is not the lack of investment. The problem is having way too much, and way too expensive government.

    • Youbian

      Correct. The government should supply the infrastructure, opportunities for training and leave people to spend their own money and provide a low tax economy to encourage them to do this.

      • LB

        And if you want more jobs

        1. Stop low skilled migration.
        2. Increase high skilled migration
        3. Stop taxing employment. If it works for ciggies, taxes such as NI screw things up

        • papyrus_minimus

          I don’t think the problem is the low skilled migration. There’s plenty of literature and studies showing that the employment rate of low-skilled workers doesn’t change with immigration.

          There’s no fixed pool of jobs filled on a first-come-first-served basis. The number of jobs usually depends on the number of people.

          Not to say that I’m pro unrestricted immigration! I think it does cause problems (too much immigration simply cannot be assimilated, thus creating ethnic areas, social frictions etc).

          Taxing employment, I agree, is a particularly stupid move.

          But then again, the same people who believe that the minimum wage (minimum pricing for work) doesn’t harm employment, while believing that a minimum alcohol price would in fact reduce consumption.

          They also believe that taxing tobacco reduces consumption – because it’s more expensive, but taxing jobs – making them more expensive – somehow doesn’t.

          That’s why they’re called politicians, I guess. They seem to have no trouble professing simultaneous beliefs in contradictory ideas.

          • LB

            don’t think the problem is the low skilled migration. There’s plenty of literature and studies showing that the employment rate of low-skilled workers doesn’t change with immigration.


            I disagree. However I’m always up for a good read. Do you have some links?

            The rest I agree with

          • Democritus

            Taxing jobs is a fallacy. I agree employers national insurance should be scrapped in favour of higher corporate or income taxes.

            As an employer employment costs are a part of the equation. But more important to me are skills and productivity. Any employer can go to a 3rd world country for cheap,employment costs, but the skills aren’t there and then there is the cost of importing to the EU.

        • Eddie

          Indeed – any large building projects in the UK end up enriching non-British firms (unlike other countries we don’t award contacts for ‘public works’ to our own companies automatically) and employing mostly non-Briotish workers.
          They tried this sort oif investment in Spain, End result: loads of emply properties.
          Osbourne was very wrong to try and prop up the housing market: he and all political parties have pandered to the British obsession with house prices for 40 years: in that time wages have increased by 10 times, property by 40 times. So spending money has come from spiralling property prices, not earned wealth. That is what needs to change.
          We need a housing crash and price correction. We need to start rent controls. We need to stop the buy to let market – which now owns 20% of council houses. We need heavily tax second home owning. We need to stop mass immigration and instead invest in our own people. We need to stop foreigners buying property here to safeguard their wealth – Eurozone rich investors, Chinese, Russians, Indians.
          Will this happen? No. Because politicans all have to bribe voters to get elected – which is why we have so many schemes now to massively enrich already rich women who have babies.

        • Democritus

          “And if you want more jobs
          1. Stop low skilled migration.
          2. Increase high skilled migration
          3. Stop taxing employment. If it works for ciggies, taxes such as NI screw things up ”

          1. already done
          2. not possible as Cap stops that.
          3. Employment tax is at it’s lowest level ever (for a first world country)
          But of course we are well above the tax rate of a third world country.

          • LB

            But that’s the government’s policy.

            Here’s mine.

            1. Government spends 11K per person per year.

            2. You can come so long as you pay 11K a year, per person in tax.

            3. It’s assessed at the end of the year on your tax form.

            4. For the first X year, your company guarantees the tax

            or you take out an insurance bond for the tax

            or you pay it up front.

            5. You can stay so long as you pay over the average government spend.

            6. No recourse to public funds.

            7. 20 years before you get nationality

            Applies to existing migrants.

            If the EU doesn’t like it, the EU can lump it.

            There you go. Problem solved. As the low skilled migrants leave, we make the unemployed take the jobs or lose benefits.

            Unemployment tax is too high. It needs to be set at zero. It’s a tax on employment and that is bad.

    • Studley

      Hear, hear!

    • Baron

      spot on, young sir.

Can't find your Web ID? Click here