The Effects of Conservative Cuts 2015-2020

setmefree2

Regardless of whether you are pro or anti the cuts what do you think their effects will be in the UK economy? They are to be about £33 billion after 2015-2016, the bulk of which will be in the first 2 years because of the election cycle.

It would be great if you could link to any good articles you come across.

setmefree2

George Osborne returns to the Treasury on Monday with colleagues predicting that he will deliver his second Budget of 2015 “relatively soon” to mark a distinctive new phase of his chancellorship.
With the Liberal Democrats ejected from 1 Horse Guards Road, Mr Osborne now has the chance to deliver his first truly Conservative Budget, as well as an opportunity to make big cuts in an autumn public spending review.

The chancellor has already promised to legislate within 100 days to, in effect, ban himself from putting up income tax, value added tax or national insurance in the new parliament.
The “tax lock” was widely criticised by economists as an election gimmick but it does reflect Mr Osborne’s determination to finish the task of deficit reduction by cutting public spending — not raising


According to the Treasury, one option is to replay 2010 with an early limited Budget statement, setting the total of welfare cuts to be achieved and spending for government departments over the next few years.


Alternatively, Mr Osborne could start a summer spending review, to report in the autumn, without a firm total for departmental spending, giving himself more flexibility but a less clear mandate.
taxes.

The chancellor will welcome his newfound freedom but now has no excuse for not delivering on promises made during the election campaign, including raising health spending £8bn above inflation, freezing rail fares, cutting taxes and finding £12bn of welfare savings.
The broad economic strategy will remain unchanged. Fiscal austerity will still be married with monetary activism and low interest rates to keep growth high, unemployment down and the deficit falling.

The new government’s first task should be to underpin productivity. If it fails, growth will settle back to rates that fail to improve living standards or it will generate inflationary pressures, prompting the Bank of England to raise interest rates.
The biggest direct challenge for Mr Osborne remains the fiscal one. The coalition managed to cut the deficit in half as a share of national income and the chancellor has pledged to eliminate it by 2019-20.
With more than £7bn of income tax cuts, a pledge to reduce inheritance tax and commitments to increase spending on health by £8bn more than inflation while also protecting pensions, schools and overseas aid, the cuts to the rest of government will be brutal.
In non-protected departments, the proposed cuts are similar in scale to those since 2010 but they will come from a base that has already been trimmed of the fat of the Labour years.
Economists describe the task as ranging from difficult to impossible. Paul Johnson, director of the Institute for Fiscal Studies think-tank, said these cuts were “probably as difficult as those achieved over the last parliament”. They will come on top of the £12bn, or about 10 per cent, sliced from the annual bill for non-pensioner social security.

http://www.ft.com/cms/s/2/cd9f8620-f588-11e4-bc6d-00144feab7de.html#axzz3ZpOXZ4zf

wymondham

are these the cuts nobody spoke about before the election?

setmefree2

wymondham wrote: »

are these the cuts nobody spoke about before the election?

I think they were in the Conservative manifesto

gadgetmind

Nobody spoke about them as they mostly didn't happen. There were some in 2013, and these resulted in the economy starting to recover, so bring them on!

antrobus

setmefree2 wrote: »

Regardless of whether you are pro or anti the cuts what do you think their effects will be in the UK economy? They are to be about £33 billion after 2015-2016, the bulk of which will be in the first 2 years because of the election cycle....

Since they have not happened yet, and we don't even know where they will fall, it would be difficult to say what economic effects they might or might not have.

wymondham wrote: »

are these the cuts nobody spoke about before the election?

Oh, I don't know about that. I thought Mr Balls was pretty clear about it when he said;

"We will have to govern with less money, which means the next Labour government will have to make cuts too.”

http://www.telegraph.co.uk/news/general-election-2015/11326446/Ed-Balls-forced-to-admit-Labour-could-cut-5billion-in-first-year-of-Government.html

Not that what the Other Ed has to say on the matter is of any particular significance now. But it might have been regarded as such when he said it.

setmefree2

The British central bank said on Monday that it would maintain its benchmark interest rate at 0.5 percent, the level since March 2009, as the markets digest the implications of the Conservative Party’s election victory last week.
The Conservatives, led by Prime Minister David Cameron, made fiscal tightening a key tenet of their campaign, and many economists predicted that the party’s victory meant the Bank of England would further delay any rate increase. As the government cuts spending, the idea is that the Bank of England mitigates the impact of those cuts with low interest rates to encourage borrowing and other economic activity.
The JPMorgan economist Allan Monks trimmed his forecast for Britain’s 2016 growth rate to 2.3 percent, from 2.6 percent, based on the impact of expected budget cuts. The Conservatives have pledged to eliminate the overall deficit, now running around 5 percent of gross domestic product, by 2019.

http://www.nytimes.com/2015/05/12/business/international/bank-of-england-holds-rates-steady.html

Mr_Incredible

They have been cautious and balanced so far and the economy has begun to turn around. If they cut too much it will knacker the infastructure of the reason people are in UK and catapult us back into recession.

Delicate balance

Generali

setmefree2 wrote: »

Regardless of whether you are pro or anti the cuts what do you think their effects will be in the UK economy? They are to be about £33 billion after 2015-2016, the bulk of which will be in the first 2 years because of the election cycle.

It would be great if you could link to any good articles you come across.

There are two competing economic theories that address this for the main part: Crowding Out and the Multiplier Effect.

Crowding out says that if the Government borrows a pound, business can't borrow a pound to invest. As a result, if the deficit falls, businesses can invest more and then make more, employ more, pay more taxes (reducing the deficit further still). The only time Crowding out doesn't happen is in the depths of a recession when businesses simply don't want to invest.

Set against that is the multiplier effect. That says that if the Government borrows a pound and spends it to pay a nurse, that nurse will buy a beer so the pub will employ a barmaid who will spend money so the local shop will take on an extra shelf stacker and they will all start savings accounts so the local bank takes on a bank teller.

Really the question is which is the most powerful effect. Empirical evidence shows that crowding out is very powerful in normal economic times. There is some evidence that the multiplier effect works in bad times but there is a huge amount of controversy about how powerful it is and whether it's really worth the extra debt that is taken on.

I could write a few thousand words on this as there are lots of other things. What happens to interest rates if the deficit isn't addressed? What happens to consumption if you take money from poor people (poor people spend the largest proportion of their income)? What happens to economic efficiency if you remove some rent seeking? How do you get triangles from a cow? What happens if you increase taxes rather than cutting spending? What level of spending cuts leads to genuine cuts in the level of services as opposed to public employees earning less or working harder?

Anyhoo, that's my first thought. Reducing crowding out is what I think allowed the public sector to increase private sector employment enough to take up all those sacked public sector workers too.

TheBlueHorse

they need to cut the welfare first and hardest.

people had the cheek to moan that those on benefits would be capped at £23k a year - less than minimum wage they bleat.

YES - because people on minimum wage WORK.

No one working should be on less than those on benefits.

gadgetmind