UK Economy — Predictably — Slows as State Spending Cuts Harm Private Sector

Government “spending cuts” (except of course for foreign aid and foreign wars) have predictably started to have a negative knock-on effect upon the UK economy, sparking concern amongst leading economists, including government allies.

According to Ulster Bank chief economist Richard Ramsey, public expenditure cuts should be targeted at reducing headcount and wages in the civil service “rather than cutting spending which hits the private sector.”

Quoted in a news report, Mr Ramsey made his comments after figures showed an “unexpected drop in spending on accountancy, legal and marketing work.”

Mr Ramsey said the services sector, which includes advertising and professional services, “would lose out all the more because of the drive in the Comprehensive Spending Review to cut £4bn from public spending over the next four years.

“”Given that the approach to delivering the cuts so far has largely avoided targeting the headcount or salaries associated with public-sector employment, the focus appears to be on cutting private-sector procurement such as capital investment, advertising and consultancy.

“”Clearly, this will prolong the downturn in the business and finance sector and will have a knock-on impact on consumer sensitive sectors such as retail.”

In other words, the government “cuts” are being restricted to cutting off contracts to private sector companies, many of whom rely on the state for large parts of their revenue streams.

Mr Ramsey added that “many facets of the services sector, particularly property-intensive professions such as quantity surveying and estate agents, were a shadow of their pre-recession selves”.

Meanwhile, the Confederation of British Industry (CBI) has announced that the UK services sector had found itself in the middle of its fastest decline in business volumes since November 2009.

“What is new, and was not expected this quarter, is that spending on business and professional services also fell, something not seen since November 2009,” the CBI’s head of fiscal policy Richard Woolhouse was quoted as saying.

The economy grew by just 0.2 per cent in the second quarter, taking annual growth to 0.7 per cent, the Office for National Statistics announced late last week.

The ONS said those factors shaved up to 0.5 percentage points off quarter-on-quarter growth. The slowdown in key UK export markets, riots in major British cities and a stock market slump have darkened the outlook for the economy and triggered speculation the Bank of England may decide to increase the money supply even more in a new bout of “quantative easing.”

Even BoE Governor Mervyn King has called on David Cameron to slow the pace of the budget cuts.

According to Mr King, the pace of the cuts are dampening a recovery “facing headwinds that are growing by the day,” Mr King was quoted as aying.

An index of retail sales in August fell to the lowest since the Conservative-led coalition took over in May 2010 and consumer confidence fell for a second month in July, a separate report showed.

Mr Cameron’s “five-year plan” is made up of £80 billion of spending and welfare cuts and £30 billion of tax increases.

Government departments will see their budgets reduced in every year of the five years.

Meanwhile, spending on the Afghanistan war continues apace, as it does on the Libyan campaign, and, of course, on foreign aid.

It has previously been calculated that simply by halting foreign aid, EU membership costs, the asylum and immigration swindle and all foreign wars, enough savings could be made within a year to balance the books.

However, it appears that logic is not something which is in great supply in Westminster.

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2 Comments

  1. Well, on the other hand, in a few years when the ordinary people of Britain are starving in the streets without jobs, shops or affordable food and the infrastructure of orderly society has collapsed, the electorate will be on their knees praying for a Nationalist government to reverse the disaster. If we are ready by then, we could walk into Westminster with crowds of normal decent people cheering our arrival.

  2. I’m fully supportive of the cuts mentioned in the last paragraph of this article. I remember a similar article which appeared on the main BNP website on April 2010. The article stated that the national debt was increasing by around £146 Billion per annum. The cuts (basically the same ones mentioned in this article) totalled £92 Billion, this is all very welcome but it still leaves a shortfall of £54 Billion per annum. Clearly, useful as these cuts are, they do not get to the fundamentals of the problem.

    Under our current debt based banking system, the government has only two sources of income, borrowing on the bond market or increasing taxation. The government would like to borrow on the bond market to avoid making the proposed cuts, but more borrowing means more debts and this of course would increase the deficit even more. Therefore the prevailing wisdom of the political economists of the old school is to cut public spending and increase taxation.

    We nationalist monetary reformers say, “why should a sovereign government have to borrow money from the bond market at interest to pay for its essential expenditure?” If government expanded the note issue beyond its current meagre 3% of the money supply to fund the deficit, no cuts and no tax rises would be necessary and it could all be done without an increase in the National Debt.

    We agree with Thomas Edison when he said “the thing that makes the issue of a dollar bond good also makes the issue of a dollar note good.” In this computer age of course the “note” would be in digital form. The “thing” which Edison was referring to is the productive efforts of doctors, nurses, engineers, teachers, refuse collectors and all the other things in the real economy.

    The great advantage that the note has over the bond is that it comes debt free and that’s why its so hated by the financiers.

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