Sunday, March 24, 2013

Budget special - how much austerity do we really have?

The past week has been dominated by the budget. Government borrowing is forecast to fall this year, though it is helped by a few 'useful' accountancy tricks. In 2012/13 borrowing is forecast to be £ 80 billion (5.1% of GDP - down from £121bn or 7.9% of GDP) - borrowing  is reduced in 12/13 by £28bn transfer because of a transfer of Royal Mail pensions in April 2012 and reduced by £6.4 bn because of transfer of funds from Q.E.). It's hard work keeping on top of these debt statistics.


Do we really have austerity? - A big debate is the extent to which the UK actually has austerity. It is true UK spending cuts are quite minor compared to some of our European neighbours. But, it should be remembered, in a recession, automatic fiscal stabilisers automatically increase spending (e.g. on welfare benefits), so to cut spending overall requires bigger cuts elsewhere.

To what extent is Europe to blame for the UK double dip recession? - The European recession is definitely a factor in holding back UK recovery, but with exports to Europe rising between 2009 and 2012, there's only so much blame we can put on Europe.

How bad is the recession?

In terms of GDP, this recession is worse than the great depression, though paradoxically, unemployment is lower than in many other recessions.


Other blogs

Escape velocity - the speed and effort you need for an economy to recover from a liquidity trap and return to normal trend rate of growth .

Patching up the economy with plastic bands - It's hard to have strong recovery when you don't really expect it, but spend most of your time saying how bad the economy is.

UK Government spending - There is a lot of debate about the level of government spending; these are some statistics from HM Treasury about how much, and where government spending goes.


Housing is less in the news, but the UK still faces a curious situation - despite the credit crunch, house prices are still very expensive. The budget offered some help with getting a loan, but will this measure deal with the fundamental lack of supply?


The number of households is forecast to grow by 232,000 a year until 2033, and yet the current rate of home construction is struggling to increase above 100,000 a year. You don't have to be an economist to work out the mismatch of supply and demand is likely to push up prices.

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