Fair warning

Robert Chote had a cheery chat with Evan Davis on the new look Newsnight (October 21.) Chote is the chair of the Office for Budget Responsibility that was set up to make sure that only one approach to the financial crisis, reducing government expenditure, is acceptable. These two young lions of current British economics were mulling over the curious fact that this financial year's budget deficit is likely to be the same or larger than last year's.

Employment is up. Economic growth is up. Perhaps its the fact that wages are low and therefore less income tax is being paid. Possibly that plays a role, our scions agreed. (50% of British workers now earn less than £10 000 per year.)

Then they considered the thrilling idea that the damage to the British economy caused by the 2008 crisis meant that what we were seeing was a long view of the future economic life of the country. Robert Chote laid it out;

'Wage growth is weak  ... due to low productivity growth.' And increasing wages without productivity going up just causes inflation. So no dice there then. (But no matter how hard you sweep, or clean or care, productivity barely moves. New machinery and technology spur growth. There is a massive capital investment strike in Britain. Companies, many of whom pay little Corporation tax, are holding vast sums of money estimated at nearly £1 Trillion.) Chote and Evans therefore went on to consider what had to happen if our current difficulties turned out to be 'structural' (permanent.)

Chote helpfully agreed that the OBR had done some calculations in light of this possibility and in light of all of the main Westminster parties' commitments to reduce the deficit to nil.

'Look over the next 5 years .. the economy rebuilding will not do much for you ... (it is) the day to day expenditure on public services that will have to reduce the deficit ... public services share of national income would be at their lowest level since the 1930s.'
'Fascinating' murmured Davis.

Public services are 45% of national income today (5% lower than Germany.) In the 1930s they were 25% - 30% of national income. This course of action will take British public expenditure to a lower proportion of national income than that of the USA (currently 37%.)

Fascinating.