Oh heck … Bloated public sector is damaging economy, warns Andrew Bailey.

“The country isn't a business. It doesn't have to 'make money' to continue to exist.”

No it doesn’t have to make a surplus and most years it doesn’t, only occasionally has a surplus been made the last was 20 yrs ago.
It would be good if governments actually tried to balance the books

But imagine everyone working in the Public service.
There would be no money made by the Country at all?

The country isn't a business. It doesn't have to 'make money' to continue to exist.

We'll never have everyone working in the public sector because the public sector depends on the private sector to supply it with goods and services. What is more, the employees in the public sector spend their wages in the private sector. Which would encourage the private sector to expand.

FriedGreenTomatoes2

Zero growth and an extra 900,000 people in the country. 78% of which - according to David Smith of the Sunday Times - do not work. What else could go wrong?. Oh, I forgot a bloated Civil Service that works from home. And train drivers given a huge pay rise and now won’t work over the weekend.

We are truly in a mess.

I cant see us getting out of it until the general public as whole have worked things out.
They are largely going along with all sorts of things.

Jane43

Ilovecheese

Yup, let's sack a load of public servants and give them Universal Credit instead, that will really help the economy!!!

There would be a hefty bill for redundancy payments as well.

But imagine everyone working in the Public service.

There would be no money made by the Country at all?

Grantanow

I don't think Bailey used the word 'bloated': it's DT speak.

He presumably implied it, or the DT wouldn't have picked it up.

Or would they just be making it up?

Whatever. We just don't have a 'bloated' public sector. We have a seriously poverty stricken public sector.

Thank you for those kind words, Terribull I do try to look at economic phenomena objectively and apply some logic. And read as widely as I can around the whole topic of 'economics' to inform my opinions.

Regarding the stagnation in wages, I wonder whether a higher threshold before those on lower incomes become liable for tax would make any economic sense.

This was suggested by Reform in their 'manifesto' last year. It is the only thing they proposed that I would be in agreement with. Based on the premise that business needs consumers to buy their products, so keeping the critical mass of consumers short of money makes no sense whatsoever when it comes to looking for growth.

OTOH, I think they are also in favour of cutting taxes for the wealthy. The theory is that they will spend more and the benefits will 'trickle down' through the economy.

Economists will tell you that it doesn't work because the rich are less likely to spend the extra money they gain. 'Marginal propensity to spend' is how they phrase it. Whereas give more money to poorer people and they will spend it into the domestic economy.

Professor Prem Sikka (Labour peer) asks today why vastly inflated pay rises for CEOs aren't seen as being inflationary, whereas pay rises for workers are?

Good question... After all, the pay rises are funded by the money we've spent with their companies (as are the dividends their shareholders enjoy). And neither CEOs or shareholders are going to return much of it, if any of it, to the domestic economy.

Money is only of real value if it circulates in the economy to promote economic activity. The seriously wealthy just take it out and break the economic cycle.

I don't think Bailey used the word 'bloated': it's DT speak.

FriedGreenTomatoes2

No country has ever taxed its way to growth. It's even impossible to tax your way out of recession. How come I, as a senior citizen, knows that but Rachel Reeves doesn’t?

Thats probably correct, growth comes from exploiting resources Labour, Minerals and Technology we are not, in fact some are proposing we exploit less.

Zero growth and an extra 900,000 people in the country. 78% of which - according to David Smith of the Sunday Times - do not work. What else could go wrong?. Oh, I forgot a bloated Civil Service that works from home. And train drivers given a huge pay rise and now won’t work over the weekend.

We are truly in a mess.

No country has ever taxed its way to growth. It's even impossible to tax your way out of recession. How come I, as a senior citizen, knows that but Rachel Reeves doesn’t?

Overseas budget for UK of 14 million petra!!! In December the UK Government pledged 50 million in aid to Syria.

Barleyfields

We need a chancellor with a brain!

And a Chancellor with compassion. Going for the low‐hanging fruit, the pensioners, long-term sick, the disabled, and giving them a good kicking (with both feet too!) is never going to end well.

But I fear Reeves will get even worse and more incompetant as she panics, now that the rumours of her possible removal are multiplying.

MaizieD

valdali

High interest rates are supposed to encourage saving & discourage spending (particularly on credit) so although they put up mortgage costs I didn't think they were inflationary - they put the rate up to control inflation, which can spiral out of control.
To be fair, inflation has come down with the high interest rates.

The rationale which you describe, valdali is only valid if the inflation is caused by too much money in the economy and not enough goods available to purchase with it. i..e. demand led inflation.

The inflation were are only just recovering from was caused by supply shocks, mostly of energy, caused by the Russian invasion of Ukraine. Energy suppliers raised the future prices of gas and oil in anticipation of a shortage, domestic energy suppliers followed them by putting up prices to consumers. This inevitably caused inflation as the price of energy is key, not only for consumers but also for manufacturers and the logistics industry. It was inevitable that once prices had stabilised, fallen, even, inflation would also fall, without any need to withdraw money from the economy.
How you can say that increasing mortgage costs wasn’t inflationary is a mystery to me. Is it just that mortgage and rental costs aren’t included in the CPI? It certainly increased the cost of living for mortgage holders. Sometimes by almost unmanageable amounts.

In a country with some 14 million citizens living in poverty and many living close to the poverty line or on wages frozen for a decade, one cannot seriously believe that our inflation was demand led.

High interest rates exacerbated the situation.

Thank you for your objective post MaizieD, Your clear analysis is interesting reading and I do agree with the points you have made.

Regarding the stagnation in wages, I wonder whether a higher threshold before those on lower incomes become liable for tax would make any economic sense. Companies are far less likely now since the NI hikes to increase staff's pay and those languishing at the bottom, as you say are going to be plunged into poverty, particularly when the largest proportion of their earnings will be going towards the ever increasing cost of putting a roof over their heads. Thus far, I don't have any faith in Rachel Reeves steering the economy towards growth and advancing the prospects of the lower paid on the bottom rung.

Public services do need to be maintained for those that need them, I don’t think we can afford to give services to those that are well able to pay themselves anymore, the prospects for a growth in GDP is pretty shaky. Either higher taxation or means testing services and pensions would balance the books, both are going to be extremely unpopular.

The cartoonists have plenty of material to lampoon these days with Reeves’ policies.

Just imagine if we hadn't wildly over reacted to something with a 99.7% survival rate and blew £400bn in the process. Things might be a bit rosier.

FriedGreenTomatoes2

MaizieD you always have your finger on the pulse when it comes to matters fiscal. I bow to your superior knowledge. Do you think that Bailey will cut interest rates again soon?

I sincerely hope so. If Rachel wants growth she needs to get the cost of credit to business down otherwise they will be even more reluctant to invest in expansion.

As it is, they’re not terribly keen because there is not enough prospect of increased consumer spending for them to profit from. There will be even less if Racheal ploughs on with cutting government spending.

The Bank of England may be nominally independent but it is ultimately subject to government control. It has the power to tell it to cut rates. (and to issue money to cover government spending)

Ilovecheese

Yup, let's sack a load of public servants and give them Universal Credit instead, that will really help the economy!!!

There would be a hefty bill for redundancy payments as well.

valdali

High interest rates are supposed to encourage saving & discourage spending (particularly on credit) so although they put up mortgage costs I didn't think they were inflationary - they put the rate up to control inflation, which can spiral out of control.
To be fair, inflation has come down with the high interest rates.

The rationale which you describe, valdali is only valid if the inflation is caused by too much money in the economy and not enough goods available to purchase with it. i..e. demand led inflation.

The inflation were are only just recovering from was caused by supply shocks, mostly of energy, caused by the Russian invasion of Ukraine. Energy suppliers raised the future prices of gas and oil in anticipation of a shortage, domestic energy suppliers followed them by putting up prices to consumers. This inevitably caused inflation as the price of energy is key, not only for consumers but also for manufacturers and the logistics industry. It was inevitable that once prices had stabilised, fallen, even, inflation would also fall, without any need to withdraw money from the economy.
How you can say that increasing mortgage costs wasn’t inflationary is a mystery to me. Is it just that mortgage and rental costs aren’t included in the CPI? It certainly increased the cost of living for mortgage holders. Sometimes by almost unmanageable amounts.

In a country with some 14 million citizens living in poverty and many living close to the poverty line or on wages frozen for a decade, one cannot seriously believe that our inflation was demand led.

High interest rates exacerbated the situation.

MaizieD you always have your finger on the pulse when it comes to matters fiscal. I bow to your superior knowledge. Do you think that Bailey will cut interest rates again soon?

unless she changes tack very soon we’re in for more austerity, no growth and a depression

I agree.

High interest rates are supposed to encourage saving & discourage spending (particularly on credit) so although they put up mortgage costs I didn't think they were inflationary - they put the rate up to control inflation, which can spiral out of control.
To be fair, inflation has come down with the high interest rates.

I don't!

I agree with MaizieD 👍🏻

Andrew Bailey is part of the problem. He's kept the interest rate too high for too long, contributing to inflation.

And I'm sure most of the regulars on this thread know my opinion of Reeves. Unless she changes tack very soon we're in for more austerity, no growth and a Depression.

I'm thinking of changing my username to Cassandra...