Comments: How to blow 50 billion without really trying

David

You, along with your fellow Times colleagues, are some of the bullish commentators on the UK economy. You are in stark contrast with Larry Elliot of The Guardian. Yet you have written this article largley arguing that the great British economic miracle of the last 8 years has been built on public spending based on consumer and Government debt. This will have to stop... probably slow down in the next 2 years. What will happen after the public spending tap slows down? There are only two ways a country can become richer in the long run: productivity growth and/or exports - neither of which looks like improving.

What will happen after the public spending tap slows down? Will the sandcastle economy not fall when the waves come in?

Posted by Ash at November 15, 2005 11:13 AM

Pulic sector has grown at an alarming rate thanks to new labour.
This has given the economy a serious imbalance. When this bubble
bursts its going to take more than Mr Bling's men to put it back together again.

Posted by Frank Smith at November 15, 2005 01:36 PM

In response to Ash's comment - it's a little bit more complicated than you suggest. The successful run for the UK economy (continuous growth, low inflation rising employment), which began four years before New Labour was elected, remains worthy of note. I attribute it to:

1. The Tories' microeconomic reforms of the 1980s.
2, The better macroeconomic management of the 1990s and beyond, including inflation-targeting (since late 1992) and Bank of England independence.

I agree, and have written often, that the economy has been over-dependent on the consumer. As for the public sector, I'm glad to say that even under Labour, private sector employment has grown by more, in absolute terms, than public sector jobs.

But there are problems, not of the bubble-bursting variety, but that when you factor in slower growth in consumer and public spending, the re-regulation of the economy and an abject productivity record, the risk is that our performance going forward may not be much better than our sclerotic European neighbours.

Posted by David Smith at November 15, 2005 02:44 PM

David, I think you have a point about the last 8 years being - partly - the fruits of the structural/supply side reforms of the Conservative governments (I am left of centre).

When you say that private sector jobs have expanded at a faster rate than public sector jobs...is it not likley that while the private sector jobs have been low paid and largley unsustainable retail and construction jobs - as in America - the public sector ones have been the more high paying jobs (40-50K bureaucratic management jobs).

I am really keen to pin you down on this. You are saying there is no significant bubble and so there will be no bubble bursting....but the next 5 years might see far less rosy times....possibly with an ever increasing current account budget deficit going to the levels of the Americans; further higher taxes; and some increases in unemployment?

I suppose PBR will give some indications of what lies ahead.

Posted by Ash at November 15, 2005 04:17 PM

David,

What I think you're missing when you say that private sector jobs have grown by more than public sector jobs under New Labour, is that many (perhaps most) of these private sector jobs only exist because of increased public sector activity. That is either supplying the public sector directly, or complying with increased tax complexity, regulations, etc.

Look on any jobs website and you will see the preponderence of jobs selling pharmaceuticals to the NHS, tax accountancy, etc. Every public sector worker requires office space, a desk, software, etc., thus making business good for those companies that supply these things. I am convinced that the part of the economy that does not have the public sector as a customer or work creator has shrunk massively. I know from my own experience in the electronics industry that every job vacancy attracts dozens, if not hundreds, of well qualified applicants - so much for science and engineering skills shortages that we keep hearing about.

This must all end in tears, surely, as the money runs out.

Posted by HJ at November 16, 2005 12:32 PM

i read you articles quite often and you are pretty not far off the mark there is a recession as i work in the manufacturing side of the economy work is slack especially in plastics we have all seen the sales on tv &the lack of confidence in the high street every day some bussiness is squealing and many bankruptinces doesnt that show something about the economy ?so there where has all that 700m
from the nhs gone to ? as i was made redundant last august 04
ifound jobs were there there not there today are they?its just that the government wont admit that there is a recession on for if they did the economy would just collapse even further with the cost of living so frightening can you blame many brits leave this blair land?for 7 out of 10 recon that the grass is greener on the other side they all cant be wrong can they?one more question if gordon becomes pm who is have his old job ? some ones got to clean this mess up havent they? latley gb has blamed everyone else for his mess and certianly not himself how history repeats its self in many ways the buck stops where?.... thats another fine mess you got us into!

Posted by john musty at November 17, 2005 04:52 PM