[update] UK economy grows in Q1 2011

[Ignitionnet]

Originally Posted by Chrysalis

Ignitition I will try and give you a real world analysis of how I see things.

Please!

Originally Posted by Chrysalis

If I see an extra £10 a month in my wages from a tax cut, its unlikely to change my spending habits, and its unlikely to make me feel confident about the economy. Obviously high end wage earners would see a bigger difference in tax cuts but they would simply save it instead of spend it, in that respect it is not taking money out of the economy it is enforcing it in circulation (which you agreed with earlier). Someone stashing money in a bank account is not keeping it in the economy, especially when its off shore.

You're making assumptions about the behaviour of higher earners there. That may be the case for the super-rich but many increase their quality of life with their disposable income. Obviously for the super-rich there is a ceiling.

Originally Posted by Chrysalis

So lets take someone on 17k a year with say a 10k tax allowance, so taxed 20% on the 7k. £1400 tax a year, paid weekly so £26.92 tax a week on income tax before tax credits. a tax cut of 1% on income tax would drop it to £25.57 tax.

Now give me a honest answer please.

Which is going to make someone feel more confident in the economy so they more willingly spend.

A tax saving of £1.35 a week or the government maintaining spending in public services. As such avoiding announcements about half a million job losses, cuts everywhere, and local firms going bust due to loss of contracts.

I think you give people too much or too little credit and are being too narrow. You're ignoring entirely the other effects of cutting taxes and focusing purely on the saving to that one individual while taking account of all effects of maintaining public spending rather than focusing purely on services as they directly impact that one individual.

The private sector has been known to contribute to confidence in the economy as well as the public sector you know.

Your example is an extreme one, I would imagine such a person to have a minimal disposal income in any event. I am amused that you mentioned an income before tax credits though, few things show up how pathetic our taxation and welfare system is better than handing working people money to top up their incomes while charging them tax and national insurance (which incidentally you forgot to mention and for low incomes is far more significant).

Originally Posted by Chrysalis

The only logical reason I can come to that you pushing for 'more' tax cuts is you on a decent salary and you personally would gain a modest amount. Taxation generally forces money to circulate, it is not the opposite way round. As I said before the fact people moan about paying taxes is proof that they would not willingly spend the money otherwise. A contracting economy in the long run would probably make you lose more because whatever wage increases you would like would become less likely if your company is struggling.

My company is performing extremely well and frankly public spending is having a far greater effect on my personal wealth through the inflationary effects creating hundreds of billions on pounds from thin air to purchase government debt is having. Looking at the inflation figures and how they affect minor things like food prices I would suspect that inflation is going to bring pain across the income spectrum.

That however isn't the point. The point is that we don't pay for our public services, indeed at very least in the short term we are as an economy not structured to be able to pay for public services. On the books spending of close to 50% of GDP in the public sector which easily goes over 50% of GDP when factoring in those stashed away expenses is not sustainable when the overall tax burden is pretty much as high as it ever has been at about 40% of GDP and people are protesting that. I said overall burden by the way, not income tax.

It's not austerity that's the problem, it's the lack of pro-growth policies. Only those on the left advocate a reversal of austerity measures, the centre and right are far more concerned about the lack of stimulatory policies to take up the slack.

Countries that have higher standards of living generally have higher income taxes as well. The long term reason we are struggling more than france and germany, is we simply stop producing goods, which of course damages exports and GDP, the bottom line of a economy, a service economy is purely based on national confidence. The damage on that side of things was started by thatcher, however I dont put all the blame on her, blair and brown could have reversed her policies but chose not to.

Originally Posted by Chrysalis

Also I am not dead set against cuts, but any cuts should be done reasonably eg. 1-2% a year, not draconian 80billion annual cuts. These cuts dont feel thought through, they seem to be done to appease a certian part of the population. We are entering a double dip and negative growth is almost a garuantuee for the next quarter. The bright side is if you lose your job you will be paying less taxes.

Where did you get 80 billion annual cuts from? That's the entire cuts package over the entire course of this 5 year parliament.

You mentioned 1-2% a year. I hate to tell you this but these cuts average out to about 2.5% a year. That some consider them to be so draconian is merely a measure of both how excessive the state's spending has become and how accustomed to that level of spending, while remaining extremely resilient to the level of taxation required, we have become.

It is interesting how it was perfectly fine to have the most sustained and largest increase in public spending since the 2nd world war but correcting that level of spending to what is nothing more than the long term trend is draconian.

It is also noteworthy that we both object to the course of the economy, just for very different reasons.

Regarding your quality of life comment, doesn't work. 4 of the top 5 have lower tax takes than we do and one of them is having to engage in strong austerity due to overspending despite the state eating over 50% of the entire country's income in taxation.

It's a slightly better picture if we go out to the top 10 but still 7 out of 10 have a lower tax take as a % of the economy than us. The evidence would appear to disagree with you regarding high state spending equaling quality of life.

I tend to take the view that high state spending absolves people of responsibility for themselves, takes away some of the incentive to strive to be better, and fosters a sense of entitlement. Recent experiences in the UK of Labour's grand social engineering project would appear, at first impression, to bear this out.

[Chrysalis]

If you reffering to the problem where low paids jobs are worse off for people than some on benefits, I agree thats a problem that needs fixing. The only situation where I would find acceptable for someone on benefits to be as well off as someone working is if they have no choice ie. due to health reasons or are retired.

I also have took in your views and my concern is how do we raise GDP with a shrinking public sector. The private sector wont pick that up unless we start producing things that can be exported. I will check myself into the 2.5% annual cuts, that seems a very low figure compared to what I have read reported.

Some words from the previous but one leader of the Labour Party and PM

I think the first think you've got to do is take a cold, hard, long look at the figures and work out what they really mean.

I don't think anyone quite knows what those figures mean at the moment, frankly. We did have a spell of really, really bad weather in the UK. That must have had an impact on the retail sector. I just don't think you can tell.

Look, the issue for the UK is very simple. It's about reducing the deficit, but reducing it in such a way that you don't choke off growth in the economy. Personally, I regard that not as left/right issue. It's a matter of judgment. And it's for the government of the day to make that judgment.

[Ignitionnet]

Originally Posted by Chrysalis

If you reffering to the problem where low paids jobs are worse off for people than some on benefits, I agree thats a problem that needs fixing. The only situation where I would find acceptable for someone on benefits to be as well off as someone working is if they have no choice ie. due to health reasons or are retired.

I also have took in your views and my concern is how do we raise GDP with a shrinking public sector. The private sector wont pick that up unless we start producing things that can be exported. I will check myself into the 2.5% annual cuts, that seems a very low figure compared to what I have read reported.

In purely fiscal terms it isn't even cuts Chrysalis it's just the slowing of growth of public expenditure below the rate of inflation.

Stop thinking about 'things', we are a service based economy and export skills far more than we do physical objects. We have a niche in higher tech manufacturing if we pursue it properly but our place as a manufacturer of any scale is largely over.

Germany is the exception rather than the rule as they were pretty much reconstructed by the allies post-World War 2 and kitted out with nice shiny industrial hardware until reunification.

I largely agree with you, however you are pointing out what's wrong then suggesting that, rather than fix what's wrong, the government spends money on public services. If exports are a route out of the mess that is what the government should be legislating to assist.

It looks as though the GDP figures have reminded them of that, and hopefully more pro-capitalist voices will be heard more given that they are being relied on.

---------- Post added at 13:55 ---------- Previous post was at 13:39 ----------

Just a thought to mull over.

http://www.independent.co.uk/news/wo...y-2197778.html

Enough is enough, says IMF as spending spree revives US economy

Obama warned that America's borrowing is getting out of hand – while Cameron and Osborne praised for deficit reduction plan

Driven by an unprecedented mix of tax cuts, public spending increases, low interest rates and the direct injection of money, the American economy expanded by 0.8 per cent in the last three months of 2010, an annualised rate of 3.2 per cent. But America has been given a stern warning by the International Monetary Fund to rein in its borrowings.

The only reason the US keeps its AAA credit rating is because it is the US and their currency is the dollar, reserve currency for much of the rest of the world. Their debts are phenomenal.

Leading Foreign Holders of US Treasury Securities (November 2010)
Nation/Territory	billions of dollars (est.)	percentage
People's Republic of China (mainland)      	895.6	 20.6%
Japan 	 877.2	 20.2%
United Kingdom	 511.8	11.8%

[Ignitionnet]

I was just surfing and noted a quite interesting factoid.

http://www.reuters.com/article/2011/...7100FU20110201

Why would they do that? Simple, wages in Germany have been essentially flat for several years and there has been zero growth in consumer spending in the past 8 years - they are strongly export based rather than concerning themselves with domestic consumption.

http://www.ft.com/cms/s/0/3eea6b80-2...#axzz1CcQ3xwpc

Can you imagine prolonged wage freezes in the UK?

[Chrysalis]

I dont need to imagine it, for some its a reality.

In different parts of the country wealth growth is very different from each other, eg. round here during labour's boom it was unknown off to hear about above inflation pay rises so wage infation has been very restricted. Whilst in the south people are going on about how their wage's increased way above inflation. Now round here people are taking pay cuts to preserve their jobs, which to me is worse than a freeze.

im seeing prices rocketing on some stuff. Couple of years ago I painted my kitchen in Dulux Trade Diamond matt expensive paint anyway as you can scrub it cost around £35-£40 for 5 Litres. This week and only 2 years later its £50 a tin thats one hell of a jump for a short time and there is loads going up like this. Just look at domestic fuel prices 5 years ago I was paying 5p p per kilowatt hour on a DD monthly deal now with EDF I am paying 7.5p per kwh and standard rates and token metres are a lot higher 50% in 5 years is a lot. And petrol well thats just nuts

---------- Post added at 15:42 ---------- Previous post was at 15:41 ----------

on the plus side of course I am a tech freak and consumer electronics have fallen exponentially so it aint all bad lol

[Chrysalis]

ooogemaflop your post says it all for me, luxuries have either dropped or stayed stagnant, but essentials are sky rocketng, food, fuel 2 prime examples.

[Ignitionnet]

Originally Posted by Chrysalis

I dont need to imagine it, for some its a reality.

In different parts of the country wealth growth is very different from each other, eg. round here during labour's boom it was unknown off to hear about above inflation pay rises so wage infation has been very restricted. Whilst in the south people are going on about how their wage's increased way above inflation. Now round here people are taking pay cuts to preserve their jobs, which to me is worse than a freeze.

That's nonsense. I know of virtually no-one who has received above-inflation pay rise and the only ones that come to mind are unionised. I have no idea where this comes from but there is no magical dividing line where pay settlements mysteriously get better even within the same company once one goes south of Watford.

There's no way people would tolerate a pay freeze for years on end, unprecedented.

[hezzabell]

Local authority in Scotland is considering a 4 day school week -just another horrendous potential ramification of public sector cuts.
The public sector is there to serve everbody in the UK, private industries are there to serve the needs of capitalism. Attacks on public sector spending are counterproductive. Private industry requires the gains from public sector employees and services to exist. As these gains and services are reduced the private sector will contract and yet the population will continue to subsidise, in various ways, the private sector for dubious gains. The private sector will continue to extract vital resources from the economy for the benefit of the few at the expense of the many.
As to pay freezes - these are a reality and at the end of the day a pay freeze is a pay cut.
Thatcher and her political class ushered in such fundamentalist capitalism, Blair, as opposed to Brown, kept it going and the shower in power now are just more of the same.
Doomed, i say.

Originally Posted by hezzabell

Local authority in Scotland is considering a 4 day school week -just another horrendous potential ramification of public sector cuts. .

Correction: North Ayrshire Council officers have suggested the four-day week as a worst case scenario. And it's one that the councillors do not support. Even the leader of the council (David O'Neil, Labour) is against it, and he has every reason to use a soundbite like this as a Ryanair-style PR stunt.

http://www.bbc.co.uk/news/uk-scotlan...-west-12380012

As usual, there is more to a story than the headline. It's useful to read as widely as possible around these sorts of things, rather than simply swallowing news items without establishing anything beyond whether they scratch your own personal political itch.

[Ignitionnet]

http://www.heraldscotland.com/news/e...ions-1.1083663

Is a link to that mention of a 4 day week. I use mention as the most appropriate word as that's what it was, doesn't look like it's happening and regardless it wouldn't mean children missing out on 20% of their school time as the law requires 190 days of school per year.

This isn't fundamental capitalism, even at 40% of the national income the state is still larger than it pretty much ever has been.

The rest of your post is the usual socialist diatribe. Private enterprise functioned fine before the last Labour government embarked on the largest, most sustained increase in public spending in over 50 years and will do so just fine when that has been partially corrected.

I say partially because the state will still be much bigger and we'll still be facing a 20% higher tax bill than pre-Labour when all is said and done. The public sector cuts are barely adequate for the job to be perfectly honest.

[hezzabell]

Ah yes, but i did say "potential" ramification.

It is intersting that you have decided to label me as "socialist". I don't believe i mentioned any political preference, and indeed, if you check my post you will see that i am equally critical of all parties.
The crux of the matter is that the economy is subject to continual readjustments according to the political perversities of whoever is in charge at the time and yet capitalism exists to a large extent outside the capabilities of politicians. This is fundamentalist capitalism.
As to the vexing question of taxation - nobody likes paying taxes but if your taxes are funding sociaty as a whole then we all benefit, when your taxes are subsidising capitalism then only the few benefit.

Originally Posted by hezzabell

Ah yes, but i did say "potential" ramification.

... which is still inaccurate, given that the elected members of North Ayrshire will not vote for it and the council leader has said that the idea "Will not fly".

You know, I could make the observation that a bank robbery would make me rich - that doesn't make me a potential bank robber.

[hezzabell]

Ah but an idea once thought cannot be unthought, once expressed cannot be eliminated. The mere fact that such like is being considered and being put out there makes the proposition more likely. Vocalsising ideas, no matter how unusual, often solidifies the original proposition, indeed, some would say that this is the very essence of progress. Not to suggest that all solidified ideas are progressive.