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Rupert Seggins @Rupert_Seggins
, 16 tweets, 5 min read Read on Twitter
1. Sixth (can’t get enough!) in my series of threads looking at recent UK economic performance, from a national accounts viewpoint. History, not forecasts. Today is #Budget2018, so let’s take a peek at government spending's contribution to GDP growth.
2. The government spending that I’m going to focus on here – spending on newly produced goods and services (government consumption) and government gross fixed capital formation (government investment). This is only part of total spend. It excludes stuff like pensions and benefits
3. The pre-crisis period saw a long run (starting in 1998) of fairly elevated growth (by historical standards) in government consumption, which contributed an average of 0.5%y/y to GDP growth between 1998 and 2009.
4. 2010 saw the introduction of austerity & a fall in gov't consumption's contribution to growth. Local gov't consumption fell, dragging on GDP growth to the tune of on average -0.1%y/y between 2011 & 2018. Meanwhile central gov't consumption grew, contributing an average 0.3%y/y
5. While central government consumption is up 17% in real terms since 2010, local government consumption spending is down 13%. (And investment spending is down in both cases).
6. As for government investment, the pre-crisis backdrop was a contribution to GDP growth to the tune of 0.2%y/y on average between 1998 and 2009.
7. From 2010 to 2013, both central and local government investment spending fell, with each dragging on GDP growth by an average -0.1%y/y. This was unsurprising, since investment spending was explicitly singled out for cuts in June 2010.
8. 2013 & 2014 saw an interesting turn. First, in April 2013 came the Help to Buy announcement, which had immediate consequences for economic growth via the real estate and construction sectors.
9. Second, government spending went from being a drag on GDP growth to being a boost to growth to the tune of 0.5%y/y on average from 2014. The boost came almost entirely from central government. The fall in local government spending was merely less of a drag on GDP than before.
10. The combination of Help to Buy and the temporary boost to government spending growth led to an average contribution to economic growth of 1.3%y/y, compared with a 2.6%y/y average for GDP growth during 2014 & 2015.
11. Since the end of 2016, government consumption & investment have ceased to be a boost to GDP growth once again.
12. As for government disposable income growth (i.e. taxes, net property income net of benefits & other payments) pre (1998 to 2007) & post (2010 to 2018) crisis the major driver behind higher post-crisis growth has been faster growth in VAT & other product taxes.
13. Finally, a quick word on government debt. The crisis precipitated a surge in government debt issuance, as tax revenues fell and spending demands on things like unemployment benefits increased as a result of the recession.
14. Most of this debt issuance was absorbed by the UK financial sector, with deposit-taking banks (& via QE the Bank of England) accounting for much of this from 2009 to 2013.
15. UK government debt has also proved popular with investors from outside the UK, a trend that started before the crisis. The post-crisis period saw a much-diminished role for insurance companies & pension funds here, and a greater role for investment banks & funds.
16. Lots of other possibilities talk/argue about – wider tax & benefit impacts, distribution, any second round effects (fiscal multipliers), local authority finances etc. But for now, I’ll leave it at that. [End]
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