[update] UK economy grows in Q1 2011

[Chrysalis]

as I said ignition if tax cuts dont have other consequences such as spending cuts then no problem, but in this case it isnt the case. Whats going on now is basically giving money back to people who dont need it so much and taking it away from others who need it more simply because the tories think its otherwise 'unfair'.

[dazzer89]

Originally Posted by Chrysalis

as I said ignition if tax cuts dont have other consequences such as spending cuts then no problem, but in this case it isnt the case. Whats going on now is basically giving money back to people who dont need it so much and taking it away from others who need it more simply because the tories think its otherwise 'unfair'.

That is bang on the money there Chrysalis.

The company I work for have invented a medical patch that uses Manuka Honey to aid wounds naturally. They've had to postpone expansion into the USA due the state of the UK's economy including the recent fuel and VAT hikes.

[Ignitionnet]

Originally Posted by dazzer89

Sweden. High taxes. High public spending, allowing tax cuts to fight recession. No austerity shocks. Lots of jobs around.

Really.

http://www.indexmundi.com/sweden/unemployment_rate.html

Not immune despite not having much of a financial services sector, and it should be noted Sweden have been rolling back the size of their state.

Also noteworthy is that Sweden have been paying down their deficit for quite some time and are very happy about it. How odd given that running deficits is apparently business as usual.

Australia also did much the same thing, a huge austerity package relative to ours, however they actually paid off their public sector debt, in full, and had funds in the bank to throw at it.

We entered in a totally different situation, even without stimulus spending the structural deficit was unsustainable.

Originally Posted by dazzer89

Public spending, like it or not, is the key to a smoothly running, shock resistant economy. Also, Germany. Increased spending, came out of recession before anyone else.

Agreed on the first point, that's common sense, however it's about how much of it you do.

Interestingly Germany is already engaged in austerity measures.

http://dealbook.nytimes.com/2010/06/...erity-package/

"The German state budget was balanced in 2008 before the crisis began and the deficit came only then," Horn told Deutsche Welle.

Are we seeing a pattern here? Again the budget was balanced pre-crisis, not already running deficits.

They seem to be doing ok despite the impending austerity bite.

http://online.wsj.com/article/BT-CO-...12-705004.html

WIESBADEN (Dow Jones)--Germany's economy in 2010 grew at its strongest rate since the country's reunification, propelled by buoyant exports and rising investment, the Federal Statistics Office said Wednesday.

Originally Posted by dazzer89

UK. Increased spending initially, rode out the worst of it, and now since this government came in, we've had 3 successive quarters of slowing growth and now shrinkage of the economy.

Right. They came in in May 2010 and instantly had such an impact that they slowed down recovery in the quarter April -> June 2010.

The issue with the ConDem policies isn't austerity it's the lack of policies promoting growth. Just throwing money at the public sector is not growth - just ask the communities that are, necessarily, having this unsustainable life support taken away from them.

Originally Posted by dazzer89

Sweden. High taxes. High public spending, allowing tax cuts to fight recession. No austerity shocks. Lots of jobs around.

Really.

http://www.indexmundi.com/sweden/unemployment_rate.html

Not immune despite not having much of a financial services sector, and it should be noted Sweden have been rolling back the size of their state.

Also noteworthy is that Sweden have been paying down their deficit for quite some time and are very happy about it. How odd given that running deficits is apparently business as usual.

Australia also did much the same thing, a huge austerity package relative to ours, however they actually paid off their public sector debt, in full, and had funds in the bank to throw at it.

We entered in a totally different situation, even without stimulus spending the structural deficit was unsustainable.

Originally Posted by dazzer89

Public spending, like it or not, is the key to a smoothly running, shock resistant economy. Also, Germany. Increased spending, came out of recession before anyone else.

Agreed on the first point, that's common sense, however it's about how much of it you do.

Interestingly Germany is already engaged in austerity measures.

http://dealbook.nytimes.com/2010/06/...erity-package/

"The German state budget was balanced in 2008 before the crisis began and the deficit came only then," Horn told Deutsche Welle.

Are we seeing a pattern here? Again the budget was balanced pre-crisis, not already running deficits.

They seem to be doing ok despite the impending austerity bite.

http://online.wsj.com/article/BT-CO-...12-705004.html

WIESBADEN (Dow Jones)--Germany's economy in 2010 grew at its strongest rate since the country's reunification, propelled by buoyant exports and rising investment, the Federal Statistics Office said Wednesday.

Originally Posted by dazzer89

They're simply incompetent, but not only that, downright bloody irresponsible.

Yet almost everyone agrees that it's required and vital for the future prosperity of the country and the general consensus, beyond those on the economic left, is that either pain is felt now or more pain later.

I agree that incompetence is there though, to appease Liberal Democrats many pro-growth policies traditionally associated with the Tories aren't happening.

---------- Post added at 11:26 ---------- Previous post was at 11:23 ----------

Originally Posted by Chrysalis

as I said ignition if tax cuts dont have other consequences such as spending cuts then no problem, but in this case it isnt the case. Whats going on now is basically giving money back to people who dont need it so much and taking it away from others who need it more simply because the tories think its otherwise 'unfair'.

OK, firstly no-one is giving money 'back' to me through tax cuts they aren't taking it in the first place. It starts out as my money, not the state's.

Secondly the more I have the more I will spend, the more I spend the more money flows, the more money flows the better off everyone is. Your constant discussion about how I will automatically use all of this for saving holds no value at this time due to low interest rates and high inflation.

Tax cuts stimulate production and stimulate economies - that's why VAT was dropped - higher production and healthier economies means all levels of income end up better off.

[Chrysalis]

ignition whats wrong with increasing income tax to fix the defecit? instead of consumption taxation and public cuts.

[Ignitionnet]

Originally Posted by Chrysalis

ignition whats wrong with increasing income tax to fix the defecit? instead of consumption taxation and public cuts.

It won't work. Punish the productive section of the economy you reduce the incentive to produce and reduce overall tax take.

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

To close the deficit without cuts would require an... unpleasant increase in income tax. I am not convinced that taxing people for working is the best way to power the economy, it's a great way to get more people on welfare though as working, across many different income levels, becomes less viable.

What's wrong with taking the state back to historical trend levels Chrysalis? Will the country fall into disarray if we go back to only spending 40% of our entire national wealth on services? Were we in some post-apocalyptic wasteland back in 2005-2006 when this was the spend?

[Chrysalis]

incentive will always be there, the incentive been in that you pay for your own food and whatever you been taxed at the income beats the dole and been on the street.

Historical trends have a higher income tax ignition

90% top rate?

[Ignitionnet]

Originally Posted by Chrysalis

incentive will always be there, the incentive been in that you pay for your own food and whatever you been taxed at the income beats the dole and been on the street.

Historical trends have a higher income tax ignition

90% top rate?

Not comparable due to the number of tax bands and relative numbers of people paying the higher rates, along with the extra indirect taxes and higher national insurance now.

http://www.hmrc.gov.uk/stats/tax_str...1974to1990.pdf

The incentive isn't always going to be there, for many of the working poor the financial case for working is precarious enough already without taking more of their income. With increased mobility of labour it wouldn't take a huge tax increase to push large numbers of people abroad.

[Chrysalis]

well I also mean to reduce consumption taxes, which generally will make the lower paid better off.

[Digital Fanatic]

More bad news for the coalition...

http://www.bbc.co.uk/news/business-12306336

The confidence of UK consumers in the economy and their finances has suffered its biggest monthly drop in almost 20 years, a survey has suggested.

Rising VAT was a key factor behind the "astonishing" confidence fall, the GfK NOP Social Research report said

On Friday, analysts said that the rise in VAT appeared to be a key factor in declining weekly sales at department store John Lewis, which fell 2.2% on the same week a year earlier.

"The slowdown in John Lewis sales is particularly notable as the company has been clearly out-performing the retail sector as a whole," said IHS Global Insight economist Howard Archer.

"The John Lewis figures suggest that consumers are becoming increasingly less prepared, or less able, to spend as higher inflation and muted earnings growth squeezes their purchasing power."

[Chrysalis]

http://www.bbc.co.uk/news/10604117

all this talk of the tories been economy genuises yet check the bottom graph, compare the unemployment to the 2 tory recessions.

The economy is structurally different now than it was in either of the previous two, especially the first - thanks largely to painful but necessary Tory reforms that have largely prevented the inevitable Labour bust from being quite so severe this time round.

[Digital Fanatic]

I'm reserving judgement until next quarter, but it's not looking good for the ConDems.

I hope they have a plan B.

[dazzer89]

Originally Posted by Chris

The economy is structurally different now than it was in either of the previous two, especially the first -

Yeah it's on it's backside under the Tories "AGAIN".

---------- Post added at 22:12 ---------- Previous post was at 22:07 ----------

Originally Posted by Ignitionnet

It won't work. Punish the productive section of the economy you reduce the incentive to produce and reduce overall tax take.

We don't produce anything anymore, If you live in a service economy such as ours it's an act of gross stupidity to take cash out of that economy, the only effect it can ever have is to slow consumer spending and confidence and set off a chain reaction that will drive the economy straight back into recession.

The socialists dropped us in it blah blah blah.

1. First of all it was the BANKERS who really dropped us in this mess and how many bankers do you know who are socialists?
Yes, I will concede that Labour govts failed to get to grips with that reprehensible City culture but it was Thatcher and the Tories who invited Financial Services to this country (at the expense of industry) and introduced rampant deregulation that allowed a lot of clever, rich bankers to make even more money off the backs of decent hard working people.

---------- Post added at 22:14 ---------- Previous post was at 22:12 ----------

Originally Posted by Digital Fanatic

I'm reserving judgement until next quarter, but it's not looking good for the ConDems.

I hope they have a plan B.

Election before next spring? You heard it hear first.

[Ignitionnet]

Originally Posted by dazzer89

We don't produce anything anymore, If you live in a service economy such as ours it's an act of gross stupidity to take cash out of that economy, the only effect it can ever have is to slow consumer spending and confidence and set off a chain reaction that will drive the economy straight back into recession.

Agreed, time to cut spending more harshly and correspondingly cut taxation in order to reduce the amount of money being taken out of the economy by the government.

Incidentally services produce revenue, revenue means government gets some money in taxes on that revenue. That's what I was referring to by 'productive'.

Originally Posted by dazzer89

The socialists dropped us in it blah blah blah.

1. First of all it was the BANKERS who really dropped us in this mess and how many bankers do you know who are socialists?
Yes, I will concede that Labour govts failed to get to grips with that reprehensible City culture but it was Thatcher and the Tories who invited Financial Services to this country (at the expense of industry) and introduced rampant deregulation that allowed a lot of clever, rich bankers to make even more money off the backs of decent hard working people.

No, it wasn't bankers alone who dropped us in this mess, it was us, assisted by government policy. We're the ones who borrowed ourselves senseless, they just facilitated it. We were encouraged by the previous two governments to purchase property and the last Labour government indeed substantially incentivised using property as an investment by raiding pension funds. Property boom, people borrowing more than they could afford, writing on the wall.

Private debt was the root cause of these issues. We were the ones doing the borrowing, the banks borrowed to service our borrowing requirements, not for their own entertainment. Those mortgage backed securities fundamentally were backed by the (bad) mortgages of real people. That same debt bubble that powered the economy to such an extent burst. Either the banks were bailed out or they went under taking depositors' funds with them. I would have leaned towards the second option but that's me

It is interesting to note that no-one is commenting on how much government revenue came from those bankers, and indeed how much is coming from them again.

Easy scapegoat, morally questionable in their own right and partly to blame, little interest in defending themselves, easy to throw the whole blame at them. They did what most of us would in their position, and wouldn't have done it if the demand hadn't been there.

Originally Posted by dazzer89

Election before next spring? You heard it hear first.

That's about as likely as Ed Balls admitting Labour spent too much in government pre-crisis and crippled the country's ability to execute a full stimulus to recover more quickly. Something he has in common with Gordon Brown is an inability to accept responsibility.

If there is an election it's because the Tories want it. There is no way the LDs will be wanting one right now, it would be simply suicidal.

The economy was structurally broken, austerity had to happen if for nothing else so that we could afford Labour's PFI bills. How they managed to raise taxes and run deficits during a boom while hiding all that future liability off the books is a mystery to me, they must have been really spending, that Stephanomics graph is just the on the books stuff.

[Chrysalis]

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

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.

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.

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.

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.

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.