Glasman is battling over postage stamps, but growth is the priority

Cormac Hollingsworth argues that Lord Glasman is focusing on the smallest, least relevant areas of policy, and ignoring the only one that can make a difference: Growth.


There is a well-established phenomenon in behavioural economics where consumers spend hours shopping around to save pennies, and then make snap decisions on big ticket items.

If you’ve ever been a board member of a voluntary organization you’ll recognise it: in the discussions about the the budget the board would spend fifteen minutes auditing over £200 on postage and then the £100,000 staffing budget gets waived through without a word.

The same thing is happening right now in the debate about Labour’s policy focus, that we should divert from a focus on growth to a focus on reforming the state.

This week the pugnacious Maurice Glasman railed against Labour being stuck in a Keynesian mindset rather than engaging with reform of the state. But if solving the deficit is the biggest problem of our time, then Glasman’s contribution is about as useful as the postage budget debate. It doesn’t engage with the real problem, and that is one of growth.

According to the OBR’s new November 2011 predictions, low growth will mean £113 billion more borrowing this parliament because of lower tax receipts, but with a backdrop of rising unemployment and poverty, government expenditure (TME) is only increasing by £2 billion. While that £2 billion is a large number, the £113 billion number means growth deserves to be front and centre.

This is not a new result. Duncan Weldon showed how the Labour deficit of 2008/9 and 2009/10 was created by a collapse of tax receipts, not by a explosion of government spending, no matter what the Tories might say.

What’s now clear from an examination of the OBR’s first predictions of June 2010 versus the recent November 2011 is that all of the increase in borrowing is down to a similar fall in receipts. The Tories have the same problem that Labour had and that was a collapse in growth causing a ballooning deficit.

Over the life of the Parliament, the total management expenditure predicted by the OBR has increased by £2 billion versus a collapse of Total receipts of £113 billion.

Indeed even when you break these numbers into their constituent parts (shown in the chart), it’s clear where the big increases in borrowing are coming from.

Biggest of all, over the lifetime of the parliament, borrowing will be £34 billion higher because of lower corporation tax receipts.

Next culprit is lower income tax increasing borrowing by £30 billion.

The good news is that VAT and the nice friendly bond market are both reducing borrowing, but the most interesting numbers are how little the poor are contributing to higher borrowing compared to the collapse in tax receipts.

The poverty created by the government’s economic strategy will increase both Social Security and Tax Credits but in they are a fraction of the numbers for falling receipts. Together the increase in poverty will only increase borrowing by £18 billion.

The problem of this parliament is the deficit, and it is being exacerbated by the wrong government policy which has cut growth and decimated tax receipts.

Between the three large tax of economic output, income tax, corporation tax and NI, lower receipts will cause borrowing to rise £73.2 billion.  The increased dependence on the state that the increased poverty will only contribute 25 per cent to borrowing that the collapse in receipts will.

Glasman is wrong. We should be completely focused on boosting growth.

See also:

Grim economic news II: OECD cut UK growth prediction. AgainAlex Hern, December 13th 2011

Women’s work – an opportunity for growth we can’t afford to pass upJames Plunkett, December 12th 2011

More grim news: Economists predict UK will be back in recession in 2012Alex Hern, December 12th 2011

How the OBR’s growth projections have fallenWill Straw, November 29th 2011

UK growth – bottom of the table, wallowing with the PIGSDaniel Elton, November 28th 2011

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10 Responses to “Glasman is battling over postage stamps, but growth is the priority”

  1. neilrfoster

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  3. Political Planet

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