Today is Budget Day in the UK and if you think they are be coming more frequent you are right as it is the 4th financial statement in the last year. That is partly a reflection of it being election year in 2015 but under the bluster the Chancellor George Osborne would rather have avoided it if he could. We can reflect this by looking at what has become the UK’s most important economic statistic wage growth which by coincidence is released this morning. You see the July release for the post-election Budget told us this.
Comparing March to May 2015 with a year earlier, pay for employees in Great Britain increased by 3.2% including bonuses and by 2.8% excluding bonuses
This was also reported by the Office for National Statistics in this fashion.
regular pay for employees in Great Britain increased by 2.8%, the highest annual growth rate since the 3 months to February 2009
total pay for employees in Great Britain increased by 3.2%, the highest annual growth rate since February to April 2010
Actually if you take my argument that much of the UK economic improvement has been down to higher real pay (leading to higher retail sales and consumption) then this was something of a peak for that.
Comparing the three months to May 2015 with the same period in 2014, real AWE (total pay) grew by 3.2 per cent, the highest rate of increase since July to September 2007 when it rose by 3.3 per cent.
Such good news led the hapless Office for Budget Responsibility to do this.
We have revised borrowing down by £5.8 billion in 2015-16. That reflects: • stronger than expected receipts growth, particularly income tax, VAT and stamp duty on property transactions;
Accordingly they forecast a fiscal deficit for the UK of £69.5 billion in 2015/16 which allowed the Chancellor to come up with his new Fiscal Charter.
While we move from deficit to surplus, this Charter commits us to keeping debt falling as a share of GDP each and every year– and to achieving that budget surplus by 2019-20.
Ooops! As is the way with fiscal rules it has backfired although most at least get through the first year. Actually it always depended on asset sales (mostly bank shares) which have not happened on the scale predicted either.
If we move to borrowing so far this year we see the problem.
Public sector net borrowing excluding public sector banks decreased by £10.6 billion to £66.5 billion in the current financial year-to-date (April 2015 to January 2016) compared with the same period in the previous financial year.
So if we only borrow some £3 billion in February and March we will be fine!
What about today?
If we look at the average earnings figures we see this.
Between the 3 months to January 2015 and the 3 months to January 2016, in nominal terms, total pay increased by 2.1%.
This means that real wages rose by 2% compared to the official inflation measure or a bit over 1% if compared to the Retail Prices Index or RPI. These were a little better than last month’s but we get the full picture from the chart below.
It is the latter dip which concerns George Osborne as there were hopes of wage growth persisting especially from those who persist in believing in the “output gap” mirage. Added to this whilst it is welcome that hours worked has grown that too has disappointed in 2015/16.
13.6 million (1.4%) more than for a year earlier
Whilst the January earnings numbers were better at 2.5% the fact is that they have faded overall since the heady days of last summer and with hours worked only edging higher there are obvious implications for the growth of taxes on income. Also a high for taxes on expenditure such as VAT.
We remain unaware of what is happening to the wages of the self-employed as they are excluded and as I reported it to the Bean Review of UK economic statistics I wait to see if we get anything more than an admittal. Also it would be helpful if we got numbers for median wages as well as the numbers are skewed which poses a challenge for using an average. Those who read the Generation Rent article in the Guardian may have noticed a shameful and innumerate switching between the two concepts for effect.
The impression of UK economic growth slip-sliding away was reinforced by the latest NIESR (National Institute of Economic and Social Research) forecast for economic growth.
Our monthly estimates of GDP suggest that output grew by 0.3 per cent in the three months ending in February 2016 after growth of 0.4 per cent in the three months ending in January 2016.
It looks as though December was a particularly bad month for some reason but the general trend now seems to be for 0.4% growth per quarter.
The problem with Sofa Economics
The slowing of the UK economy poses various problems for the Office of Budget Responsibility. The first is that as ever it did not predict it! Indeed it is as poor on this front as the Bank of England almost as if the same group of people are responsible. Oh hang on! Anyway there is another problem shared with the Bank of England and it concerns the meaning of the word “independent”. You see last November the OBR conveniently found this down the back of its sofa.
This reflects higher expected receipts from income taxes, corporation tax and VAT – some of which result from modelling changes to our NICs and VAT deductions forecasts.
These totalled some £34 billion over time which beats the occasional pound coin I find down the back of my sofa. But as their fantasies boomed the economy slowed which gives the Chancellor and the OBR’s credibility a double=whammy effect.
It is way past time to scrap the OBR which is an example of a jobs for the boys ( the main 3 are men) Quango. A bit like the Money Advice Service. From the BBC.
The Money Advice Service (MAS), which has provided financial and debt advice to consumers since 2010, is to be abolished, the BBC understands……
One study commissioned by the Treasury found that few members of the public had even heard of it.
Some real austerity
This subject has one of the longest entries in my financial lexicon for these times and I note an addition from Ed Conway today.
Kind of amazing: there are more people working in central government today than before austerity.
This needs to also be cross referenced into the “Up is the new down” section as well. Also he goes on to point out that it is local authority employment that has been hit although care is needed as for example in Battersea Park the same jobs are now done by the same people as private company employees.
However there was an extraordinary number tucked away in this chart from RBS earlier, can you spot it?
They pretty much miss it but it is debt interest which has barely changed over the period. As our national debt has surged by around 27% of our annual GDP bond yields have plummeted giving governments quite a boost in terms of public finances. That presents them with a problem as whilst they want to take the credit if they keep it quiet they have some “free” spending!
We sometimes discuss households being unable to cope with a rise in interest-rates well what about governments?
Today the Chancellor finds himself between a rock and a hard place as a slowing economy combines with him and the OBR having joined in with Earth Wind and Fire.
Take a ride in the sky
On our ship, fantasize
All your dreams will come true miles away
As he has announced some minor spending increases he needs to find more revenue. The UK’s establishments campaign for institutionalised inflation has already been boosted by the plan to increase insurance premium tax for the second time in only 8 months. Also along the same lines an increase in fuel duty must be tempting with oil prices where they are. Each 1 pence increase raises around £500 million. Speaking of inflation a friend of mine did the St.Moritz (ski) marathon at the weekend and found himself paying £80 for a pizza in a restaurant that in the picture looked distinctly average! Remember there is no inflation…..
Meanwhile we have for this series what is peak Shaun so far.
Many of the programmes I watched as a child were the product of the imagination of her and Gerry Anderson. My particular favourites were Thunderbird and UFO. Should we require someone to fly one of the Interceptors from Moonbase I am always available. After all as the Bank of England only meets 8 times a year now I could potentially do both jobs. RIP Sylvia.