JUST in case you were in any doubt about the scale of the crisis engulfing Britain’s public finances, yesterday’s official figures demonstrated that the situation is, if anything, worse than even the gloomiest economists had been predicting.
Government revenues collapsed by 9.1 per cent year on year in October; they have slumped by a tenth in the fiscal year to date, much worse than the Budget forecasts of 7.8 per cent for the fiscal year as whole. Corporation tax receipts were down an astonishing 27 per cent in April-October compared with the same period the previous year – they are now at their lowest level since 2004, according to Citigroup. The deficit, which was supposed to hit an already ridiculous £175bn this financial year, will now probably be closer to £200bn. It will be the sixth time in the last eight years that the deficit has overshot the Budget forecast (with one in line and one undershoot). Don’t be fooled by the claims that this is a deliberate policy to stimulate the economy: the truth is that the government has simply lost control of the public purse.
Yet none of this is especially surprising when one grasps the full extent of the collapse in UK output since the recession started. The economy is now producing the same level of output as it was in 2005; all of the growth since then has been wiped out. And given that public sector GDP today is larger than it was then, the private sector has shrunk by even more than the overall economy – probably back to levels of output last seen in 2004.
However, one crucial private sector industry which remains more successful than four years ago is business services and finance: value added remains 9.6 per cent higher than in 2005, making it the best performing ONS sub-category (though at their peak in 2008, they were up by 15.4 per cent from 2005). This is an astonishing finding. Overall, services are still up by 4.5 per cent since 2005, though this is down from a 9.4 rise at peak in 2008.
The economy has really been dragged down by manufacturing (which has suffered an 11.5 per cent drop in output since 2005, compared with an increase of 2.9 per cent at its peak in 2008); forestry and fishing (down 9.8 per cent since 2005); mining, quarrying, oil and gas (down a whopping 24 per cent, led by the demise of North Sea oil extraction); construction (down 9.8 per cent); and electricity, gas and water (down 10 per cent on the back of the collapse in industrial production). These sorts of figures confirm two things: that the recession in much of the economy has been truly devastating; and that the City has not suffered as badly as other parts of the private sector UK economy. The output of all these industrial sectors is back down to where it was at the start of the decade; it is not four but at least seven – and in some cases many more – years of growth that have been reversed and wasted.
All of which confirms the absurdity of those who would pin their hopes of a UKrecovery on a renaissance in industrial output. The production of tradable goods remains the most volatile part of the economy, as Germany, Japan and America have also found out; services, even after the worst financial crisis since the 1920s, remain much more stable. We should of course encourage a recovery in manufacturing, perhaps by creating low-tax, low-regulation enterprise zones; but Britain’s future lies with high value added services produced by an educated, skilled and incentivised workforce. Of that there can be no doubt.