UK economic statistics leave a lot to be desired especially the national debt ones

A regular feature of UK economic life is that the current Chancellor of the Exchequer invariably likes to present himself (we are yet to have a female Chancellor unlike Prime Minister) as responsible. The modern word used is austere and George Osborne demonstrated this at Mansion House this week. He opened with something to make hearts sink a little.

A new settlement for the way we manage our public finances.

This is course is an area which has had so many changes in the era of QE (Quantitative Easing), ESA 10 (the “improvement” to national accounts) and the effect of the Royal Mail sell-off. But another is now proposed.

and that therefore, in normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future.

In the Budget we will bring forward this strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents.

The moment I read/heard this various issues came to my mind. Firstly this Chancellor promised us that we would be moving into a world of budget surpluses round about now whereas reality is show below.

We have a budget deficit that remains, at just shy of 5% of national income, one of the highest in the developed world.

Secondly future governments can not be bound on a “permanent” basis by a current one otherwise Parliament would only meet about once a year by now. Also we have the getout clause of “normal times”. Thus any Chancellor with a deficit will claim that times are not normal which of course is the current situation. So about as much use as the structural deficit for rather similar reasons.

Just for political balance let me jump into Dr. Who’s TARDIS for a journey back to 1997 when another long-term Chancellor Gordon Brown was setting out his version back in the days when austerity was called prudence.

Our first fiscal rule is to balance the current budget over the economic cycle…..our second rule – to keep debt below 40% of national income.

The get-out clause here was “economic cycle” and I am trying to recall how much questioning there was of a target of 40% of national income for public debt? Actually in the early days of prudence Gordon Brown did actually run some budget surpluses which we are now still quite some distance from.

What is the reality of the situation?

The Office for Budget Responsibility suggests that it is much more like this.

The last two governments both set targets for the National Accounts measure of public sector net debt (PSND) – the difference between the public sector’s liabilities and its liquid financial assets. At the end of 2014-15, PSND was £1,484 billion, equivalent to 80.4 per cent of GDP or £55,600 per household.

So twice Gordon Brown’s Golden Rule and in fact the trajectory would still be upwards but for something of a short-term fix or “significant planned asset sales” . That is the truth I think behind the planned sale of shares in Royal Bank of Scotland which improve both cash-flow and the debt numbers (but not the fiscal deficit).

Other measures of public debt

Politicians love the headline number for the national debt in the UK as it is lower than the international standard. If we use the Maastrict standard common in the Euro area then 80.4% rises to 86.5% so you can see why they prefer the former! To the unwary we look as though we are doing better than we actually are.

We can go wider to the Whole of Government Accounts or WGA where I should warn those of a nervous disposition that the numbers are much larger for those reasons shown below.

the net present value of future public service pension payments arising from past employment was £1,302 billion or 73 per cent of GDP. This is £130 billion higher than a year earlier.

liabilities include £142 billion (8.0 per cent of GDP) in provisions for future costs that are expected (but not certain) to arise. Total provisions have increased by £11 billion since last year’s WGA. (For example nuclear decommissioning)

£63 billion (3.6 per cent of GDP) of quantifiable contingent liabilities had been identified – costs that could arise in the future, but where the probability of them doing so is estimated at less than 50 per cent (so they are not included in the headline total of liabilities).

I counsel caution in the precise numbers (£3189 billion) as for example the discount rate is affected by the current low level of interest-rates but you get an approximate idea. Also something about which I have concerns seems to have been removed.

the removal of the £30 billion contingent liability associated with the UK’s capital subscription to the European Investment Bank (EIB)

I am watching the EIB closely because it is expanding itself into all sorts of areas and the risk to the UK (16% shareholder) is rising and yet well the quote above speaks for itself. As Gary Jules sang.

It’s a very, very mad world, mad world

The WGA does offset the debt with assets such as the road network and the electromagnetic spectrum leading it to crunch an answer as shown below.

The overall net liability in the WGA was £1,852 billion or 104.4 per cent of GDP at the end of March 2014, up £224 billion on the previous year’s restated results.

The future trends

The OBR has looked at the next 50 years and sadly there are a litany of problems with this. Firstly the OBR in its life so far has shown an inability to look beyond the end of its nose without getting things wrong, so 50 years is over 49 years too long for it! Also in terms of specifics you end up with things like this.

we assume in our central projection that whole economy productivity growth will average 2.2 per cent a year, in line with its pre-crisis average rate.

I suppose that if the OBR forecasts this every year then evetually one year it will be right but to assume it for the next 50 years is to ignore the evidence of the last 7 years.

And as to North Sea Oil the OBR seems to be just splashing around in the dark without a torch.

mean that in our central projection just £2 billion of receipts will be raised in total between 2020-21 and 2040-41. That is down from around £37 billion in last year’s projection.

One factor that will be having an impact is this, unless of course the obesity crisis gets even worse.

An ageing population will put upward pressure on public spending.

Number-Crunching

Today’s data releases have indicated that we have sometimes very little idea of where we are let alone where we are going! From the Office for National Statistics on UK construction in the first quarter of 2015.

Output is now estimated to have decreased by 0.2%

You will see the problem when I point out it was -1.1% only a few weeks ago. Okay why?

the incorporation of late data, new seasonal adjustment parameters and the introduction of an interim solution for deflators.

Those who follow the US economy will be wondering if “new seasonal adjustment parameters” are the new flavour of the month! Also we seem to have replaced “improvement” with “interim”.It is a shambles.

Good News

Should these numbers prove to be more than interim then the UK economy grew by 0.4% in the first quarter and not 0.3% (assuming no other changes). Also on a similar road 2014 was revised up from 2.8% to 3.1%.

Sex and Drugs and Rock and Roll

Well illegal drugs anyway. You will be pleased to know that the UK ONS has apparently been carrying out some exhaustive research on your behalf in this area.

A correction to the street price of illegal narcotics. The impact of this ranges from a decrease of £1.0bn in 2007 to an increase of £0.7bn in 2001.

Quite how they know that from 2001 is a marvel of these times or as Matt Brookes replied to me on twitter.

you do know what they’re smoking to come up with those figures, right?

Imputed Rent

The numbers here do seem to fly around more than a bit.

Improvements to the measurement of actual and imputed rental prices. This impacts only on 2010 where it reduces the level of current price GDP by £1.7bn.

Comment

So there you have it. In terms of what are very important numbers which are the construction ones for the UK which are 6.4% of our economy we are not far off being clueless. Perhaps I should go out and count the many cranes in Battersea! Accordingly looking fifty years ahead is rather arrogant in its conception unless you just look at general trends.

As to public debt there has been in recent years much more of it to go around. Even here there is uncertainty over the numbers especially when politicians manipulate and exploit them. Oh and central bankers too because what if the Bank of England simply cancelled the Gilts that it has bought? It is for these reasons that I like to remind myself of the words of Willem Buiter for a little perspective.

I know I know nothing; but at least I know that

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26 thoughts on “UK economic statistics leave a lot to be desired especially the national debt ones

    • Hi Jan

      I think that it is a strength of our nation that we help many in trouble. However in recent times our establishment has increased overseas aid and made it a major priority whilst making cuts in welfare payments in the UK. The 0.7% of GNI (Gross National Income) we give means that under austerity there have to be compensating cuts elsewhere. Those who support the overseas aid increases are quiet on that front

      Also there are issues over how the aid is spent and corruption, before we even get to the point that yes we are borrowing the money.

  1. Great blog, Shaun, as is the norm. Regarding the Chancellor of the Exchequer’s Mansion House speech, it made virtually no reference to monetary policy. This is the first such speech Mr. Osborne has made since the Conservative majority government was established, which will still be in office in 2020. Since Eurostat will decide on whether to incorporate its owner-occupied housing indices in European HICPs in 2018, one of which is the ECB’s Monetary Union Index of Consumer Prices, you would think the Chancellor might have something to say about why, for some reason, he doesn’t want to go there. After all, as Mark Carney, Kristin Forbes and the other members of the MPC tell us, they accept whatever remit Mr. Osborne gives them.
    In Gordon Brown’s October 1993 Mansion House speech, he announced “a new target for domestic inflation in Britain from the time of the pre-Budget report, set on the consumer prices definition”. This was implemented in December 1993, when RPIX was replaced with the CPI as the Bank of England’s target inflation indicator. In this sense, I suppose, we can be glad this speech was silent about monetary policy. Everything seems to be moving in the direction of a change in the remit of the Bank of England to replace the dysfunctional CPI by the dysfunctional CPIH, but perhaps Mr. Osborne doesn’t want to do so in the next 12 months. So there is still a chance that the Treasury Department will have a change of heart.

    • Hi Andrew and thank you

      I agree that it was interesting that the switch from coalition government to single conservative rule meant no change to monetary policy. It begs the question whether any political change would have done so?

      I know that you are aware of this but over readers may not be that we are going into (Yet another!) consultation period for UK inflation data.

      http://www.statisticsauthority.gov.uk/reports—correspondence/consultations/index.html

      It would appear that rather like Ireland and its Maastrict vote we will keep getting the opportunity to pick what is considered to be the right choice by the UK establishment. So perhaps George Osborne is waiting to accept the “right” choice. I am pleased to say that partly due to my efforts he has had to wait a fair bit so far.

      Oh and I think you meant 2003 and not 1993.

  2. Hi Shaun,
    Do you, or any of your readers, believe it is possible for the UK to return a budget surplus without firstly addressing the enormous, and widening, trade deficit? I’m no BoE economist, but I just can’t see how it is possible. So the question we should be answering is how on earth we can do that.

    My own hypothesis is that far more of the deficit is structural than the government of the day wants to assume in its calculations, and in trying to tie public spending to a notional definition of “normal” that uses fiddled stats, the government is creating a mighty great rod for its own back (or that of future governments).

    I am all for reducing our borrowing, I just don’t see any real leadership as to how we should do this in a sustainable way (e.g. without flogging what paltry assets we have left).

    Danny

    • 1 ) bring in rent capping laws, to reduce the largesse given to the BTL brigade.
      2 ) cap all civil servants, quango members and other people receiving taxpayer monies to a quarter million PA. (Carney is welcome to go back to Canada if he dislikes his pay cut …)
      3 ) Abandon and refuse to pay into the scam called the Commons Agricultural Policy. It transfers wealth from the poor to rich land owners.
      4 ) Implement a law that allows Britain to jail anyone improperly using British taxpayer funds (which of course could target dodgy MP expenses, third world aid scammers, EU funds fraudsters across Europe and so on)
      5 ) Stop bank subsidies and let RBS etc sink or swim without taxpayer subsidy.

  3. Hi Shaun

    I think your remarks about the OBR re extremely apposite. I have been reading this:http://www.jbs.cam.ac.uk/media/assets/2015_cbr-report_macroeconomic-impact-of-liberal-policies-in-the-uk.pdf.

    This report is a very useful, but somewhat sobering, counterblast not only to history but also to the future, given what it says about productivity and demographics (also in the OBR report). It paints a none too flattering picture of a future in which secular growth rates may be much lower than in the past. If this is indeed the case then the extrapolation by the OBR of productivity trends may be very wide of the mark which, in turn, makes all of their other projections wide of the mark, Couple this with the demographic trends already mentioned by the OBR and we are decidedly heading in a southerly direction.

    What I find somewhat surprising with bodies like the OBR is that there is rarely any mention in the forecasts over a five year period of the possibility of a recession which will blow holes through any forecast. I realise that these are very difficult to forecast but it seems to me that the probability of a recession in the current Parliament is very high indeed and, if this does come to pass, it will blow both the OBR and Osbornes forecasts out of the water.

    Cooking the statistics is one thing but wilful blindness is another and at times it seems to me we have a surfeit of both.

    • Hi BobJ and thanks for the link

      The rule for official forecasts (which despite the OBR claims of “independence” it is as of course it is picked from our establishment) is that the future is always bright. Thus there will be no recessions according to them.

      Rather ironically they also live in the past as the productivity assumptions I quoted indicate.

      The summary is simply that their performance is likely to be as bad going forwards as it has been up to now. Why is it not challenged? It suits our political class…

    • High, Bob J.
      “Other projected gains from liberal market policies have not been realised or not sustained. Total taxation is no lower now relative to GDP than in the 1970s.”

      The balance has shifted though, median down pay a far greater share, especially due to VAT and other indirect taxes, like fuel excise.

  4. Hello Shaun,

    with all colour of the HMG supporting the current metrics all hoping to use them to bash the others and of ocurse when they are in power showing how brillaint they are , little will changes

    as for the OBR , hahahaha , bonfire of the quangos my bottom!

    as LTO peaks in the USA and supplies still look difficult I have to admit at the US peak I expected a certain amount of economic volatility ….. maybe I should keep my powder dry ! ( or my popcorn !!)

    but then again the evidence is clear that we dont have a free market anymore

    If the TBTF banks dont need the low interest rates then the US and UK governments do !

    As for other posters saying about the figures , thats the trouble with lying , a small one leads to bigger and larger ones…..

    Still gotta lafff haven’t yer ?

    So its TGI Friday , sit back , get another bag of popcorn and crack open a beer !

    Cheers

    Forbin

    • Hi Forbin

      The establishment like the OBR because it in essence says the future is bright. The warnings are for future decades and of course for an establishment that considers next month a long way away that can be ignored…..

      I wonder for how long they can keep getting away with it?

      At least your popcorn may get a little cheaper as corn futures prices have been on a downward trend for a bit.

    • Hi Jim M

      That often gets forgotten. I think the last Tory shadow chancellor to suggest any changes was Michael Portillo and at that time he faced a Gordon Brown who had events going in his favour “no more (Tory) boom and bust” etc.

      Also on the issue of bank regulation which turned out to be a disaster I do not recall claims that policy was to easy..

      By the way do you approve of West Ham’s new manager?

      • Hi shaun,

        I do approve, not because I think that Mr Bilic is about to radically transform anything but rather because Big Sam represents pretty much everything that West Ham aren’t, or weren’t, or shouldn’t be, or some such.

        Mind you, we could say much the same about Karren Brady too.

        O tempora. O mores.

  5. George Osborne’s, (Sod the) Poor Law.
    Neo-liberalism to be enshrined in statute.
    It’s time politicians had the testicular fortitude to balance the books by taxing the rich.
    Scumballs, all of them.

    • Define “rich” as given where I started (child in single parent family on benefits) and where I am now I could be considered “rich”.

      My point being that “rich” is subjective but I’d be interested in your definition all the same.

  6. Maybe the balanced budget “law/rule” will be as successful as the American debt ceiling. It was introduced in 1917 to allay fears that government debt could get out of hand…and now is just raised every year to pretend government debt isn’t out of hand (it’s been raised 78 times since 1960). Targets you continually breach for years and decades just highlight that you haven’t got the situation under control.

    As far as OBR, BOE or any other government bodies are concerned, i wouldn’t trust them to predict what time it would be half an hour from now.

    • Hi Redshft and welcome to my corner of the online world.

      You are right to point out the problems with the US debt ceiling which just keeps going higher and higher making it pointless. Actually as it causes disruption it may even make things worse.

      The OBR is similar in that it is a copy of the Congressional Budget Office in the US which has also had precisely no effect. So we copied a failure.

  7. “As Gary Jules sang.

    It’s a very, very mad world, mad world”

    Or even Curt Smith, that’s my youth you’re trampling on Shaun. I can’t even be bothered to comment on UK stats such is my disinterest in them now, other than to say you have a good idea which I implemented just under a year ago when you suggest counting the number of cranes in Battersea. Anecdotal is now the way to go.

    • Hi Noo2

      I thought that I would bring things more up to date with the Gary Jules version. However I too remember Tears for Fears and with “change” and “pale shelter” on their first album they opened really strongly. Actually they reformed a while back and are currently touring the US.

      As to crane counting someone else is going to count them on the train line into Waterloo so perhaps the coverage will build up!

  8. Hilarious! 50 years ago who would have predicted China would have reclaimed largest economy (based on ppp) so quickly?

    The idea you can make accurate models over such time scales is nonsense.

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