Depressed now?

Some say that our poor growth (stagnant GDP) is a due to a mis-managed economy, and being no fan of Osborne I tend to agree. The problems we have are complicated and driven by a number of factors, trying to connect these might shed some light.

Public sector spending
In 2009 spending was £629m against £694m this year, that's a big increase when we were meant to be slashing our public sector - £47m of £65m increase has come from health, pensions and welfare.  These were all areas that the coalition either ring fenced (health and pensions) or have waited too long to tackle (Welfare).  Another problem has been the stubbornly high inflation inherited from Labour but not dealt with effectively; leading to expensive inflation linked increases in department spending.  To effectively put half your spending out of the austerity plan was madness and Osborne should have known better and quantitative easing has also worked against us pushing up inflation.

Tax receipts
The chart below tells an interesting story - basically receipts from income tax and corporation tax have let the side down (no growth since 2007).  There are two main reason for this.  The enormous collapse of bonuses paid to the bankers (and relocation of banking activities) and other highly paid staff and the fact that companies are having to top up their pension schemes from cash surpluses to counter the effects of quantitative easing (which has keep interest rates and investment income so low).  Its quite probable the the negative side effects of quantitative easing has been to kill off company profits and investments.  So the benefits of creating a number of new private sector jobs has not come through in tax revenues.

Private sector growth
Although we may have created a large number of new jobs in the private sector we aren't creating enough.  Our population is growing quickly and this gives the appearance of high levels of employment but the statistics are deceiving. As the Telegraph tell us:


http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9829379/Bank-of-Englands-QE-hits-tax-revenues.html

The coalition have been busy measuring people in employment not the employment rate (% of those working in the population).  The UK employment rate fell sharply between 2008 and 2010, stabilised between 2010 and 2011, but despite subsequent improvement remains 1.7 percentage points below the pre-2008 recession peak of 60.3%. Without any further rise in population, the total number of people in work would have to increase by more than 900,000 for the employment rate to return to the 2008 peakof 2.8 million. So do we have Record employment? Not really.

Productivity
The final piece in the gig saw puzzle is the terrible productivity numbers.  As the number of people in work increase this should flow down to an improving GDP number, as we know this is not happening!

The issue here is (and I have blogged on this quite a bit) another side effect of Quantitative easing - the exceptionally low 'real' interest rates have allowed a large number of failing business to hang on.  The banks are also unwilling to take the right-off hit as they try to repair their balance sheets.  So we have a large number of Zombie business unable to afford redundancy costs but also not generating the profits the economy needs.

SO WHAT'S THE PLAN? - 
I'll have a go at this tomorrow, time for a whisky!!