Hundred Pockets

Policy Exchange won a fair amount of coverage this week, announcing that the UK private sector has shrunk since 1998. That would be staggering, if true.

In calculations which underline the catastrophic collapse in Britain’s non-public sector economy under Labour, experts have revealed that the private sector will by next year have suffered a “lost decade” of less-than-zero growth.

Fortunately, it isn’t true. David Smith explains why:

The Policy Exchange calculations were based on a popular misconception, that of assuming government spending has risen to around 50% of GDP. Spending may be equivalent to 50% of GDP but that includes transfer payments that are not part of GDP. The G that goes into the national income identity – G + C + I + X – M – is around 20% of GDP (general government spending), plus government capital spending. The public sector has grown too much but it hasn’t crowded out the private sector to quite that extent.

Oops…

In the interests of balance, I should add that Policy Exchange have produced some truly excellent reports on the education system.

But this wasn’t their finest hour.

This entry was posted on Friday, August 21st, 2009 at 9:25 am and is filed under economics, factcheck. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.