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About time too – government recognising public money sometimes needed to get private money flowing

Posted on 31 October 2011 | 8:10am

No cliche is being left unturned to emphasise the Prime Minister’s determination to kickstart the sluggish economy. He is straining every sinew. He has found his passion (er … again). He is on an all-out mission. He is tackling red tape. Unblocking the system. He has an ‘obsession’ with ‘shovel-ready’ projects. He is determined to deal with the ‘infrastructure deficit’ which is every bit as serious as the other deficit they keep talking about.

And on and on and on they go, trying to make today’s announcement of a billion pounds worth of infrastructure projects sound like a natural progression of the economic policy they have been pursuing. Which it isn’t.

It is not exactly plan B. But it is an admission of sorts that plan A isn’t working, that their hope that the private sector would fill the gap left by their huge cuts in the public sector (most of which are yet to be felt incidentally) was exactly that – a hope.

Now that the hope has been shown to be largely hopeless, their magic wand having failed to deliver, and more bad figures due this week, they are having to turn back to good old-fashioned public money kickstarting. And about time too.

I will particularly welcome the go-ahead for the £8m Todmorden Curve rail link project, which will link Burnley directly to Manchester, and help drive investment and housing into the Burnley area. This will include huge private sector investment in the £100 million development in the 3.9 hectare Weavers’ Triangle project. It will take public money for the rail link to unlock it though.

and shows once more that a lot is happening there to challenge the caricature.

But above all I welcome the acknowledgement that government has a major role in creating jobs, taxation, and spending power. It is unfortunate that it has taken them so long to realise this, and that their attempts to defy gravity coincided with such a calamitous period in the eurozone. Also the projects in themselves will not be enough to drive away the general gloom which DC is straining every sinew to dispel in his FT article today. But it is a belated start of sorts.

  • Simon

    Something’s not quite right – is there a bit missing?

  • Your assertion that the “government has a major role in creating jobs, taxation, and spending power” is true but only because government takes money away from the revenue and profit generating part of the economy.  Without the private sector the government would have no money – moreover there would be no infrastructure, no jobs, no welfare state.  Therefore, in suggesting that the government is doing a good job by spending in this way you are asserting that this particular spend – diverting spend from other parts of the economy – is a good thing.  I suspect that your plan B is suggesting that the government spends more when the revenue generating part of the economy isn’t producing anywhere close to the funding that government needs to pay for everything else.  If you were to look at the spending figures from the Treasury you would note that this government is spending even more than the last Labour administration, although its tax take is a bit higher. But the spend levels are unsustainable – and even the Labour front bench recognises that.

    Where do you propose that the government gets more money to pay for more infrastructure projects?  And why do you believe that the government can revive the economy through debt when the cost of debt is much greater than the benefit of the spend?  

  • Chris lancashire

    Fortunately the present government has learned that splashing public money around with gay abandon is the long term road to national penury as demonstrated by Mr Brown. Limited, sensible infrastructure is desirable. I doubt very much that the Todmorden Curve is it and sadly predict that this is wasted public spending.

  • Your fourth para says government is resorting to “good old-fashioned
    public money kickstarting”. PM’s article/announcement in today’s FT actually talks of
    private sector infrastructure: power plants, BT
    superfast broadband.

     

    I especially liked your third para: Private sector not filling gap left by cuts AND cuts not really started yet. Which is it? Can’t be both.

  • Olli Issakainen

    Time for a plan C.
    People should stop talking down the economy. This from a man (David Cameron) who lied in 2010 that Britain was on the brink of bankruptcy when the debt was still only 53.5% of GDP – under the Maastricht Treaty level!
    Quantitative easing 2 (QE) was already the plan B. Now we need a plan C to save the British economy. But do not expect it from Mr Osborne – he has promised that he is not for turning.
    Mr Osborne has painted himself and Britain into a corner. No one will believe a word Osborne says if he now changes course.
    But without a new plan, Britain will not recover.
    Recent paper from IMF proves beyond doubt that “plan” A (expansionary fiscal contraction) cannot work. It will only reduce private consumption and cause a decline in GDP.
    Nobel-winning economist Paul Krugman confirmed this in NYT.
    What is happening in Britain is as follows.
    The £111bn austerity is mostly unnecessary and harming the economy. The aim of this austerity is a small state, not a recovery which it cannot produce even in theory.
    You only have look to eurozone to see what austerity does to economic growth which is the key to recovery – along with jobs.
    Mr Osborne now plans “credit easing”. But it was easy credit that caused the financial crisis in the first place!
    Unemployment is 2.57m. Inflation 5.2%. Growth almost zero. Output still 4% below the 2008 level, so Britain is technically in depression.
    If Labour were in power, rightwing press would be screaming that Labour could not be trusted with the economy.
    The weakness in British economy started with Mr Osborne´s Spending Review long before the eurozone crisis got worse. People are mainly losing jobs in areas which are not affected by the eurozone crisis.
    Growth this year will be 0.9% at best. 1.7% is needed for plan A. 2.5% next year, but in 2012 Britain will be in recession like the rest of Europe.
    More QE will be in offer. This will damage the savings and pensions. It will also increase inflation.
    So the “plan A” is, in fact, a plan to rise unemployment to 3m. To cause a recession. To damage the living standards of the middle class.
    This is the real aim of plan A. And this the reason why Mr Osborne will not change his plan even though economists and common sense tell that it is not working.
    But plan A is, of course, working for the elite. The Tories do not care about unemployment.
    What would my plan C include?
    New economic model to replace neoliberalism.
    Reform of the banking sector.
    Tax cuts for people with low incomes to create growth.
    Active industrial policy by the state.
    Infrastructure projects to create jobs.
    Nationalisation of a bank to increase lending to small businesses.
    And, of course, the CUTS must be eased.
    All other European countries must also end the austerity demanded by banks. Co-ordinated global stimulus is needed.

    Ps. Markets have now realised that the “rescue” deal of the eurozone was just a sham. The real purpose of this package is to develop a huge Ponzi scheme which will then collapse with governments losing their money and sovereignty. This is what the globalists want in Europe – and in Britain.

  • Richard

    The £1bn is not new investment, it is simply the so far unspent money of the £1.4bn regional growth fund. A con-trick in other words.

  • MicheleB

    There is lots of private sector in Greece, tons and tons of the stuff in Italy  and in Spain and RoI ……. and precious little benefit to anybody from most of it when the bubbles burst and the private beneficiaries finally realise that sheer self-serving profit-gobbling has its payback and they too need(ed) a solid infrastructure which they too need to pay for, kinda pro-rata.

  • MicheleB

    If you were predicting something ‘sadly’, why would you bother doing it at all?

    Done a snip/screen save of the post?

  • MicheleB

    ” ……………. DC is straining every sinew ……”

    Rees-Mogg will be looking for the signs of sharpened claws and rising blood …..   !!

    ……. I have a vision of some long-past TV character chomping his gums and rubbing his thighs …..

  • ambrosian

    Time for the regular reminder that before the banking crisis of 2008 the Tories pledged that, if elected as a majority government, they would stick with Brown’s spending plans.
    Back then, they said that “the proceeds of growth” would be split between public expenditure and tax cuts, though in what proportions they never said.
    What’s interesting is their assumption that there would always be growth and that there was no mention of using the proceeds of growth to reduce government debt.
    Subsequently, they cynically decided it would be in their interest to blame the deficit on Brown’s over-spending rather than the cost of bailing out their friends in the banks.

  • Richard

    The coalition government, in office for 18 months, has changed the “direction of travel” of many spend, spend labour policies. Big State, bad: big society possibly good.
    In his examination at the welfare state, Labour style, last week John Humphreys examined the feckless and the arrogant hopelessness of the dependancy culture. “Why should I work for the minimum wage?”. “For the few pounds more I would earn for working, I would rather stay at home with my family”…..no doubt allowing more time to breed more dependants. ” As a migrant worker I wish for the state to subsidise my rent of £2,300 per month by £2,000 per month because I CHOOSE to live in Islington.”
    It is noticible that you do not wish to get into a debate, Al, about this area of policy, but perhaps you might comment on how it will impact on the folk of Burnley, at the receiving end of £8 million Todmorden curve investment. Will this change the dependancy culture thereabouts or purely change the property market so that commuters can flood the area?

  • George

    So, you’re suggesting we all work for the government? You missed out on the part that Germany has lots of private industry and services, producing lots of revenue for the government or is it all self-serving?

  • George

    They also pledged a referendum on the Lisbon Treaty and look how far that got!

  • Chris lancashire

    Believe me Richard, commuters won’t flood the area – nobody would actually choose to live in Burnley.

  • Gilliebc

    I beg to differ with your final paragraph Simon Carne, about the gap left by cuts in the public sector.  I believe AC is correct, it can and it is both.

  • Chris lancashire

    Absolutely correct ambrosian and they were totally wrong to do so; fortunately they have since seen the error of their ways.

    Time also for the regular reminder that governments don’t have any money of their own, it is taken from one taxpayer to give to another taxpayer thus depriving the first taxpayer of the decision as to where and how he spends the money he earned.

  • MicheleB

    Nope, am not suggesting we all work for the govt at all, stop the exaggerating George, it makes you sound hysterical.

    Some services NEED to be for the state to ensure they are not owned by profiteers.

    Stop the hyperbole, calm down dear *blows a kiss*

  • MicheleB

    Yep it can be both, did you miss the word ‘really’?

    Ergo, things can only get even worse.

  • MicheleB

    You need to be more honest Richard.
    If the man you saw on TV the other night left Islington he would most likely be going to somewhere without a job and therefore no longer being on Income Support, being 100% dependent.

    Be honest, don’t you think a landlord that is charging £2,400pm rent is the exploitative one?  They are using the state to pay their mortgage (without  showing any willingness to share ownership).

    I think it is very likely that that flat in that part of Islington used to be in the public sector …..  it would have been interesting if that had been traced back for info.

  • MicheleB

    Cor, I bet you fink you sound all glamorous don’t you wiv your snotty pseudery.

  • Dave Simons

    I saw the John Humphreys programme and thought he didn’t really get to grips with the problem of dependency culture, which largely grew up under Margaret Thatcher. Thatcher did wonders by reverting to the old Tory stick of mass unemployment, which subsequently reduced the stigma of being on unemployment benefit or social security. Dependency culture has especially now to be put into the larger context of bonus culture, bank bail-outs, expenses fiddling, unclaimed benefits, tax avoidance and tax evasion. Some of the sums involved in all these areas dwarf the amount spent on ‘scroungers’. Humphreys mentioned none of that. Nevertheless I think he tried to give a more balanced interpretation of dependency culture than you quote him as giving. Would you do a full-time job for the same pay as you could get for doing nothing?

  • Richard

    This town ain’t big enough for both of us,Richard, please will you resubmit your thoughts under another handle.

    Thanks

    Richard

  • Ehtch

    Cams is throwing everything in the air, and see how it falls. Shamens used to do that with dead bones, to predict the future.

    Cams and his Torys/LibDem mates are off their rocker.

  • George

    “Some Cupid kills with arrows, some with traps”

  • Richard

    Tax evasion etc is a problem which any government can tackle, given the will. No government has been willing to tackle it , ever. Why? Because their donors would object. The coalition could start tomorrow if it wished.

    Dependency culture is a totally independant factor: by mentioning the two in the same breath you are giving credence to those who think that it is ok, as the others are worse! Both are not acceptable and should be blackballed.

    Oh, and yes I would work for minimum wages, as I have a pride which would not accept handouts. That is what my generation do. The thought of balancing what one might get on benefit ia anathema to many of us,and the politicians who promote it should be………..

  • Richard

    What are youy talking about? The man  who owns a property which is (crazily) valued at £1,500,000 is encouraged by an estate agent that at 4% return rental it is  worth £60,000 per annum, £5,000 per month. If he makes two flats of it they are worth £2,500 per month, each!!!!!! What would you do,MicheleB, if you were in that position?

    Be honest.

  • Richard

    Sorry, I thought we may get a serious debate going here.

  • Richard

    More honest?

    If we have to support people by subsidising £30,000 per annum rent to pay their wages do you think that is sustainable?

    Catch a grip!

  • ambrosian

    Thank you for that. I had no idea that governments got their money from taxation! In view of such ignorance, it’s amazing that I got a Grade 1 O Level in Economics and a place at Oxford to study economics. It’s a wonder I didn’t also manage to blag my way into a Tory Cabinet.

  • Richard

    “Tax cuts for people with low incomes to create growth.”
    How doTax cuts for people with low incomes  create growth when you incentivise them and you do give away money to the well off as well?

    “Nationalisation of a bank to increase lending to small businesses.” So what are the lending criterea of such a bank, Olli? Do they lend money unsecured to all comers who ask for it? Or do they operate as all banks do by wanting coverage of a multiple of money lent to security offered? You are so full of ****. Or are we to borrow money on the national health, Olli?

    “Active industrial policy by the state.” Sounds like ” state control of  the means of production etc…” Is that what you really mean, Olli?

    You have still not answered any queries as to how you are going to redistribute all the wealth from the (named) families who you hate so much, back into the hands of those who so deserve it. We are all ears, Olli.

    Your GCSE primer approach to economics and politics are presumably the reason for your successful rise to the top of politics in your own country; we so welcome your daily “politics by menu” approach to matters over here.

  • Dave Simons

    The present economic crisis started off in the private sector – banking. Government money comes to a large extent from taxpayers who work in both the private and public sectors. A lot of firms in the private sector depend on the public sector for business, and when the public sector is cut they lose business and often go into liquidation. When UK banking was on a cliff edge in late 2008 it was bailed out by public money. There is no necessary correlation between the profit-generating part of the economy and the private sector. The electricity industry generated profits when it was publicly owned. I think Northern Rock is picking up a bit now it’s government owned. And so on. I say all this to challenge what I see as your simplistic black-and-white idea that we have this wonderful private sector sweating away in total altruism and carrying on its shoulders the rest of us who loaf away in the public sector doing non-real jobs. The private sector generates profits which it keeps for itself as much as it can, and when it starts generating losses it expects the taxpayer to bail it out.

  • MicheleB

    I’m being honest Richard.  I would not rent out my property with a bias towards benefits claimants based on the criteria so many do. 

    Now that’s something of a dilemma isn’t it?  It’s not due to the bias that some might feel, it’s about ensuring nothing goes to waste.

    I’ve posted before about a family member who rented a house on a 12m lease while looking to buy.  They gave notice (I think of 6wks) and advised that a colleague (also in secure employment) wanted to move in literally on their moving out day.  Their landlady chose instead to rent her house to a young single Mum with a baby, on benefits and with a 3yr lease accepted!

    Let’s really be honest about this, there are as many scroungers that are lessors as there are among benefit claimants.. Re-read the last two paras of my previous post. I’m sure the young Mum needed a home, I’m not sure she needed 3-bedrooms.  Why was she preferable to the landlady as the new tenant? Was she exploiting the duty that social services have to house people no matter the cost?  I’d say she was.

  • Gilliebc

    Nice one ambrosian.  It almost caused me to ROFL !

  • Gilliebc

    Actually Richard I’m inclined to agree with most of that comment.  The fact that the state is expected to pay for or subsidise people who choose to live in big houses in places such as Islington is patently absurd. 

    Surely this shouldn’t be a matter of left v right politics.  It’s just common sense really.  If ever I have the misfortune to become dependent on the state,  I would make sure I cost the state i.e. the tax payers as little as possible.  

    I wouldn’t want to see a return to the old days where people were made to feel ashamed at having to go cap in hand to the welfare.  But, I do feel the pendulum has swung too far the other way now.

    There are those who are making a mockery of the system imo and seem quite proud of it.  Few people are brought up to stand on their own two feet these days.  This nanny state has been a complete disaster for the individuals concerned and for the country as a whole.

  • Gilliebc

    I would complain to Disqus if I were you.  They are not supposed to allow two different commenters to have the same user name.

  • Dave Simons

    Yeah – one’s enough!

  • Chris lancashire

    All that education doesn’t seem to have done much good.

  • Chris lancashire

    Quite serious Richard. There is no good economic reason for the Todmorden curve. It has much more to do with the fact that Burnley is a marginal LibDem seat proving that politicians of all colours – Con, Lab, Lib are generally not to be trusted with our tax money. Unfortunately I have to admit nobody has come up with a better system so all we can do is hold them to account for this type of chicanery.

  • MicheleB

    You don’t see anything serious in a snotty pseud being so dismissive about a place that is lived in by real people?

    Oh no, I’m writing about someone instead of to them…..

    Back to the general; I’m sure there are good and bad parts of Burnley, just as there are everywhere and I find the idea of the Curve exciting, let’s hope it is as popular and useful as the (curved) DLR here has been.  Transport matters, KL knows that and did wonders for smoothing out life in London, Prezza knows that and knows linkage between systems and teams was essential and the whole UK has benefitted.

    When a snotty pseud makes a cheap jibe AT a blogger they seem to need to stalk, s/he risks offending third parties that witness it and feel collateral damage. 

    The snotty pseud presumably has nothing against these witnesses, no competitive urgeagainst them, no need to diminish them but they do still so.  Snotty pseuds need to think ….. aaaagh I’m abouting again.

  • MicheleB, I was referring to Alastair Campbell’s third para. Your reference to “really” seems to indciate that you are trying to associate my view with the third para of Richard’s comment (written some hours after mine).

  • MicheleB

    You’re part right; confusion caused by your post being an ‘open’ one, not showing itself to be/headed in response to another.

    Open posts are usually re the OP itself (hence my post’s angle) or general new input.

    However, I see you’ve now started using the Reply function so I don’t need to lecture you about its purpose  😉   
    I don’t actually like it btw, I much prefer chronological stacks of posts and post numbers to refer to but there I go, digressing.

  • MicheleB

    Just to clarify my last para’s bad grammar …..  it’s the landlady that I believe was the exploiter in the example I gave.

    To repeat: landlords / lessors can be benefit cheats too, exploiting SSD responsibilities to house people.

    What a shame there’s so little publicity / media coverage about that.

    I suppose claimants are softer targets.

  • MicheleB

    I’ve remembered ….. Rees Mogg was invoking how he though DC should behave ( vs the DPM he thinks of as Bagpuss)

     and I was thinking about Vic Reeves.

  • MicheleB

    Can’t help feeling sickened by one of these cash injections; the one in Clegg’s constituency; glad as I am that Forgemasters will now be able to make its thingy with all the export potential .

    Last year Forgemasters had been offered/promised a loan of a larger amount by Labour, a loan that was as safe as houses. 
    Post-election it was described by Clegg as attempted blackmail in his marginal seat.

    http://www.guardian.co.uk/commentisfree/2010/jun/18/sheffield-forgemasters-political-folly

    How should it be described now?