It’s astonishing. Right-wing politicians, journalists and members of the public are still – still – pushing the myth that the financial crisis and recession of 2008 onwards was caused by the last Labour government overspending, being “profligate”, “not fixing the roof while the sun was shining”.
This Writer heard it twice on Thursday evening alone – from the Tory candidate at a local hustings event (although, bearing in mind that Brecon and Radnorshire’s Conservative candidate Chris Davies has all the intelligence of a farm animal, this is not surprising) and on the BBC’s Question Time, from William Hague (who was probably one of the Tories who invented this particular tall story in the first place).
Professor Simon Wren-Lewis wrote illuminatingly on the subject in his Mainly Macroblog, saying that the Coalition government wanted people to believe a myth that it rescued the economy from an impending financial crisis, but this could not be squared with the fact that the very large government budget deficit in 2010 was largely the result of the recession.
Therefore, he stated, it was important for the Conservatives and Liberal Democrats “to push another explanation for the large deficit: that it reflected the profligacy of the previous government.
“Economic journalists know full well this is a myth. Yet it is a myth repeated on countless occasions by the coalition parties, and by journalists working for the partisan press. On one occasion one of these journalists tried to rubbish a post where I wrote it was a myth, and I hope learnt to regret the experience.”
As ever, with a big lie (and here on Vox Political we have seen this very often in regard to the SNP’s claims) there is a nugget of truth. Here, it is the criticism that Gordon Brown was not as prudent as he might have been in his pre-recession budgets. Professor Wren-Lewis writes: “That memory is both correct (both the IFS and NIESR made that criticism) and the criticism is valid… This is the half-truth that sustains the myth.
“But mild imprudence is not profligacy. We can see that by looking at another chart, for the debt to GDP ratio. Profligacy would imply a rapidly rising ratio, but this ratio before the recession (37% in 2008) was below the level Labour inherited (42% in 1997), and below its fiscal rule figure of 40%. No profligacy there.”
More prudence would not have helped because, “as Vicky Pryce, Andy Ross and Peter Unwin state in their book ‘Its the Economy Stupid: Economics for Voters’ (which I happily recommend, and which in its initial chapters covers much of the ground of this series): ‘The elimination of the UK’s structural deficit [under Labour before the recession] would not have been even a sticking plaster in the face of the haemorrhaging of the finance sector’s jugular’.”
The professor also adds that the Tories argued for less financial regulation before the collapse, and opposed Labour’s measures to moderate the recession in 2009.
In addition, this blog can add a recent response to a commenter, which ran thus: Labour didn’t ‘recklessly spend money we don’t have’ [as the commenter had claimed]. Labour ran the economy very well – as reports from such leftie strongholds as Oxford University have shown.
The global economic crisis that started in the US subprime housing market affected the UK deeply, and the Labour government of the time was forced to take action to prevent a run on the banks that would have deprived most people in the UK of their bank account savings – including people criticising Labour now.
The narrative about Labour profligacy is a fairy tale made up by the Conservative Party … in order to fool voters into supporting that party so it could win the 2010 election. Even then, it didn’t work and the Tories had to go into a coalition with the Liberal Democrats. They anticipated this, and hedged their bets by making a deal with the Lib Dems in March 2010, two months BEFORE the election (this information is from Five Days To Power, a book on the subject by Rob Wilson, Conservative MP for Reading East).”
The issue is not Labour profligacy; it is Conservative (and Liberal Democrat) dishonesty.
What an embarrassment: George Osborne’s silly ideas about the economy are enough to make anybody red-faced.
You probably won’t find the failure of the Conservative-led Coalition government laid out any more bluntly than this.
Speaking at Jaguar Land Rover in the West Midlands today (Monday), Ed Balls said George Osborne had failed to reduce the national deficit because of disappointing tax revenues.
“To make up that shortfall, George Osborne has now said he is going to carry on with even bigger spending cuts in the next parliament,” he said, adding that this will result in the biggest cuts in public services over the next five years in any country around the world.
“I don’t think that plan is remotely credible,” said Mr Balls.
Osborne cut public spending hard because he believed the claims of an academic thesis that has long-since been disproved, by Reinhart and Rogoff, that suggested states should not allow their national debt to rise above 90 per cent of GDP.
The result is clear: He stalled the UK economy.
The only way Osborne was able to get the UK moving again was by creating a new housing bubble (which is yet to burst) and by enabling employers to make real-terms cuts in wages, in what amounts to a fiddle of the employment figures.
But tax receipts don’t lie. Despite claims that we have more people in work now than ever before in history, the Treasury is taking less money.
And Osborne’s idea for regeneration is to repeat the strategy that stalled the economy in the first place?
The Resolution Foundation’s predictions for government spending, based on the different parties’ declared plans.
Vox Political’s article on Nicola Sturgeon’s London speech provoked a disgruntled response from Jonathan Portes. The NIESR boss sent a message stating that the article’s fiscal arguments were out of whack.
He didn’t ask for this blog to straighten them out, but the information he sent, coupled with some other pieces he suggested – by Professor Simon Wren-Lewis and the Resolution Foundation – make it inevitable that another stab is required. If you support the SNP, you’re still not going to like it.
The first comment from Mr Portes is as follows: “1. SNP plan is slower deficit reduction than Lab/LDs, which in turn slower than Cons. All consistent with falling debt/GDP ratio. So all are sustainable. Haven’t looked at detail, but Simon WL & I both think Lab too cautious – so SNP not obviously crazy.”
Simon Wren-Lewis’s article states: “In reality what Sturgeon was proposing was still deficit and debt reduction, but just not at the pace currently proposed by Labour.”
And the Resolution Foundation adds: “The SNP would commit to delivering existing 2015-16 plans, as each of the Westminster parties have, before changing course.”
There’s a major point to make here, which all three of the sources above have missed. It’s that the SNP and its adherents have been cursing Labour from High Heaven to Low Hell for committing to Tory austerity policies because Ed Balls promised a Labour government would stick to Coalition spending – note that word, spending – limits for the first year after the general election.
Why have SNP adherents been slating Labour when the SNP has committed itself to the exact same Conservative spending limits, for the exact same period of time? Doesn’t this also make the SNP a party of austerity?
This leads us neatly to a point made by the Resolution Foundation. Ms Sturgeon wants to put a lot of space between SNP plans and those of Labour by claiming that Labour is committed to eliminating the UK’s structural deficit by 2017-18. They say Labour signed up to that when it voted to support the Charter for Budget Responsibility. You may recall there was another big fuss about Labour supporting Tory austerity, being just the same as the Tories, and there being only 17 MPs who oppose austerity (the number who voted against the CBR). Bunkum, according to the Resolution Foundation.
“The ‘Charter for Budget Responsibility’ is highly elastic: it’s not based on a firm commitment to reach balance in 2017-18,” states the Resolution Foundation article. “Instead it represents a rolling ‘aim’ of planning to reach current balance three years down the road.” The article adds: “Most economists are sceptical about how much difference it (the charter) will make.
“So what if Labour targets a current balance in 2019-20 instead? Based on current OBR assumptions this could be achieved with as little as £7 billion of fiscal consolidation in the four years to 2019-20 (including the cost of extra debt interest).”
Labour has made it clear that it plans to make only £7 billion of cuts. As this coincides exactly with the Resolution Foundation’s figures for a 2019-20 budget balance, logic suggests that this is most likely to be what Ed Balls is planning.
So SNP (and Green) adherents who crowed about Labour austerity being as bad as that of the Tories need to apologise – sharpish.
Now that these points are cleared up, let’s look at the substantive issue. Here’s the Resolution Foundation again: “The first minister’s headline was that she favours £180 billion of extra spending in the next parliament relative to current coalition plans… an increase in ‘departmental spending’ of 0.5 per cent a year in real terms over four years [we’ve established that the first year’s spending would adhere to Coalition-planned spending levels]. Our estimates suggest that raising departmental spending by 0.5 per cent in each of the four years after 2015-16 would indeed yield a cumulative increase in spending of around £180 billion (in 2019-20 prices, £160bn in today’s) compared to existing coalition plans. So that seems to fit.
“Another, more conventional, way of putting this is that in the final year of the next parliament, departmental spending would be around £60 billion higher in the SNP scenario than it would be under the coalition’s outline plans. This means that departmental spending would end up in roughly the same place in 2019-20 (in real terms) as it is now. We’d see £8 billion or so of departmental cuts in 2015-16 broadly cancelled out by a rise of around £7 billion across the following four years. It also means that, all else equal, there would still be a (small) UK-wide current deficit come the 2020 election.”
As you can see from the graph, the scenario that suggests a Labour balance in 2017-18 would imply a big difference with the SNP, particularly in the first half of the next Parliament – but, come 2019-20, “there would still be a £48 billion gap between Labour and the coalition plans; not that far short of the £60 billion gap that would exist between the SNP and the coalition”.
The scenario in which Labour balances its budget by 2019-20 “would in theory be consistent with spending roughly £140 billion more than coalition plans.
“The SNP proposal implies increases in total departmental spending of £1-2 billion per year over four years whereas Labour’s 2019-20 scenario implies cuts of £1-2 billion per year over the same period. This is against total departmental spending of around £350 billion. By 2019-20 this difference adds up to roughly a £14 billion gap between the two parties. Now, that’s a real difference but given the scale of the numbers involved, (and the fact that some of Labour’s consolidation may come from tax increases rather than spending cuts), it’s also a relatively modest one.”
It’s more or less the same amount the Coalition Government borrows every month, in fact.
Now let’s throw a spanner in the SNP’s works. The Resolution Foundation points out: “Fiscal discussions of this type tend to suffer from a severe case of false precision. None of the party leaders knows any better than you or I what will happen to productivity next year, never mind in 2020… Any difference between, say, the Labour and SNP spending plans would be dwarfed by the fiscal implications of even modest boosts (or dips) in productivity. Indeed, even the very large difference between the SNP (or Labour) and the coalition’s plans could be overshadowed by a significant shift in productivity trends. And, to Sturgeon’s credit, her remarks this week emphasised productivity.”
Yes – productivity. Does anybody remember that, prior to the referendum, the SNP wanted Scottish voters to believe that any borrowing that might be necessary in an independent Scotland would be offset by increased productivity? What did Simon Wren-Lewis have to say about that? Oh yes: “Governments that try to borrow today in the hope of a more optimistic future are not behaving very responsibly.”
But that is exactly what Ms Sturgeon was proposing for the whole of the UK; borrowing on the assumption of increased productivity.
Here’s a chance to put another SNP myth to bed, from the same writer. In his article about Ms Sturgeon’s speech, Professor Wren-Lewis states: “Of course this is the same person who, with Alex Salmond, was only six months ago proposing a policy that would have put the people of Scotland in a far worse fiscal position than they currently are, an argument that has been reinforced so dramatically by the falling oil price. You could say that it is a little hypocritical to argue against UK austerity on the one hand, and be prepared to impose much greater austerity on your own people with the other.”
The argument he mentions ran as follows: “Scotland’s fiscal position would be worse as a result of leaving the UK for two main reasons. First, demographic trends are less favourable. Second, revenues from the North Sea are expected to decline. This tells us that under current policies Scotland would be getting an increasingly good deal out of being part of the UK [and therefore independence would be detrimental].”
He added that the Institute for Fiscal Studies, which had independently analysed the SNP figures, had made a mistake on interest rates. The IFS analysis, he wrote, “assumes that Scotland would have to pay the same rate of interest on its debt as the rUK. This has to be wrong. Even under the most favourable assumption of a new Scottish currency, Scotland could easily have to pay around one per cent more to borrow than rUK. In their original analysis the IFS look at the implications of that (p35), and the numbers are large.”
The Resolution Foundation notes that “the flipside of higher spending, all else equal, would be higher debt and higher debt interest payments”.
So the SNP plan, as this blog pointed out, could create an interest-payment problem for the next government that bites into the extra money said to be for services.
Mr Portes made two other minor points, as follows: “2. Your stuff about Lab could spend more if economy does better wrong way round. If economy worse, we need higher deficit. Over time, as income goes up, so does/should spending. But short-term macro should be countercyclical.”
When I wrote the material about Labour spending more in a better-performing economy, I was thinking of the Labour government immediately after World War II. The current Labour Party has mentioned this period in recent speeches and releases, and it seems clear that Messrs Miliband, Balls et al consider their task, if elected in May, to be similar to that faced by Mr Attlee and his party – the reconstruction of the UK after a long period of destruction.
Are we to believe the economy is likely to worsen, in which case more borrowing will be needed? It’s certainly possible that major shocks are on the horizon. This writer is in no position to speculate.
“3. Finally, stuff about credit rating agencies/bond markets/Greece is absurd propaganda. I’ve written on this many times.” He’s right; it wouldn’t have been included it if Yr Obdt Srvt had stopped to think about it, but the article was up against a deadline and this writer was throwing in all the cautionary words he could find.
So let us forget about them. Here are a few more. Simon Wren-Lewis, at the end of his article, notes: “I read a blog post recently that suggested this was an election Labour would be better off losing… A Labour government dependent on SNP support would be abandoned by the SNP at the moment of greatest political advantage to the SNP and disadvantage to Labour. However if we assume that the oil price stays low there is no way a rational SNP would want to go for independence again within the next five years. It might be much more to its long term advantage to appear to be representing Scotland in a responsible way as part of a pact with Labour.”
Is the SNP rational? All the evidence available so far suggests it isn’t.
It put forward arguments that were deceptive about an independent Scotland’s economic future.
Its representatives and followers spread lies about Labour economic policy.
All indications suggest the SNP will try to create the conditions required for Scottish independence at the earliest opportunity, and then leave the rest of the UK hanging.
The original article on Ms Sturgeon’s speech ended by saying the SNP would be hard to trust.
After the findings of this one, it is nigh-on impossible to do so.
Don’t you love articles by economic experts that put George Osborne down hard? This one, by Professor Simon Wren-Lewis on Mainly Macro, manages a double by putting down “biased newspapers” as well. Here he is:
Paul Johnson of the IFS has written that under Labour “national debt [could be] around £170 billion higher (in today’s terms) by the end of the 2020s than would be achieved through a balanced budget.” That was all that certain newspapers needed to start talking about a borrowing bombshell under Labour.
£170 billion is a meaningless number, and the end of the 2020s is a meaningless date. First, we should put everything as shares of GDP. £170 billion is about 10% of GDP, and debt is currently around 80% of GDP. However it would be completely wrong to infer that under Labour debt to GDP would be 90% of GDP by 2030. If they achieved current balance by financial year 2017/18, then my Excel spreadsheet says that with nominal GDP growth of 4% a year, by 2030 debt to GDP would be around 65% of GDP. (A few points below 65% if investment remained at 1.5% of GDP, a few points above it became 2% of GDP.) If the Conservatives balanced the overall deficit each year debt to GDP would be about 47% of GDP by 2030.
So a £170 billion bombshell actually means debt to GDP would have been reduced from 80% of GDP to around 65% of GDP. So the correct headline should have been “debt to GDP cut by a fifth in 2030 under Labour’s plans”. That is debt, which is much more difficult to reduce than the deficit. To say this is a ‘different interpretation’ is too polite – newspaper reports got it completely wrong. Who should you blame for this: Paul Johnson, innumerate journalists, biased newspapers? I’ll leave that to you.
For the more interesting part, in which Professor Wren-Lewis discusses the speed at which the debt-to-GDP ratio really should be reduced – a matter that has been pressed onto most voters’ minds recently – along with that dig at George Osborne, visit Mainly Macro.
Note also that, although he admits that the Tories would have a lower debt-to-GDP ratio by 2030 under these conditions, Professor Wren-Lewis does not speculate on the amount of damage this would cause to the state infrastructure and the British way of life.
What a relief to see Ed Miliband putting out a New Year message that clearly shows, not only that he understands the problems facing his Labour Party, but he also understands how to frame his appeal to the people.
One fact that has become perfectly clear over the last year or so is that many readers of this blog have serious doubts about Mr Miliband and the party he leads. The perception is that he has been seduced by the Tory ‘deficit reduction’ narrative.
This writer has held concerns that Mr Miliband did not realise that the only argument he really needs to use is that of history – that it was the Labour Party that set the UK on three decades of continual growth after World War II.
How refreshing, then, to hear the Labour leader say: “This coming year we mark the 70th anniversary of the end of the Second World War, when our parents and grandparents overcame the most daunting odds to rebuild.
“After the war – badly battered and deeply in debt – Britain rose again.
“We built the NHS, a modern welfare state, homes for people to live in, and still dealt with our debts.
“We set the stage for a generation of progress for working people.
“Today’s challenges are different – but if we could walk through those fires, we surely can meet the problems of our time.”
He’s right, but there will be critics who won’t accept these words. They’ll say that the answer lies in further austerity – in withdrawing the cash that forms the lifeblood of the British economy and is needed to bring growth to the system as it flows through. They’re wrong, but to understand why, we need to examine the historical context provided by Mr Miliband.
So let’s put some flesh on the bones provided by his speech.
“UK national debt peaked in the late 1940s at over 230% of GDP. From the early 1950s to early 1990s, we see a consistent decrease in the debt to GDP,” according to the Economics Help website.
It continues: “The main reason UK debt to GDP fell in the post-war period was the sustained period of economic growth and near full employment until the late 1970s. This growth saw rising real incomes which in turn led to higher tax revenues and falling debt to GDP ratios.”
“Sustained economic growth” – Ed Balls has made it clear that he intends to stimulate the economy, if Labour is elected into government in May (despite the interruptions of such interviewers as Martha Kearney on BBC Radio 4’s The World At One – she insisted that such plans were irrelevant in the short term and demanded that he tell her what he was going to cut, completely missing the point).
We all know the Conservative-led Coalition ran a policy that stalled the economy for three years. The only reasons it is improving now are the fact that every economic downturn eventually reaches its lowest point and picks up again, plus the economic bubble that George Osborne created in the housing market.
“Near full employment” – Labour has made a return to full employment one of its policy goals. Detractors will say we’re close to that already; the difference is that Labour intends to achieve this with what this blog considers to be proper jobs – not zero-hours contracts or part-time fiddles.
“Rising real incomes” – Under the Coalition, incomes have stagnated, with most families having to endure a real-terms income drop of £1,600 while the richest one per cent have doubled their wealth. Labour plans to raise the minimum wage and push for the Living Wage wherever possible – as a start in its programme to cut income inequality.
“Higher tax revenues” – George Osborne has affected surprise that his policies have led to lower Income Tax returns, but it seems clear that this is an act; the plan was to engineer a drop in tax receipts, in order to justify further cuts to social security and public services. Labour’s plan would reverse this trend.
“Falling debt to GDP ratios” – The Conservative-led Coalition has overseen a catastrophic increase in the National Debt, while continually claiming that the economy is safe with them; because of this, we can look on the 2015 General Election as a measure of our own gullibility. Labour’s plan would bring prosperity back to the UK, allowing us to pay off our debts – just as we did after the Second World War.
Needless to say, the BBC Newsreport of Mr Miliband’s speech completely missed all of these points.
Back to Economics Help: “Note – Debt to GDP fell, despite higher real government spending on the newly formed welfare state and national health service. In fact government spending as a percentage of GDP rose from around 35 per cent of GDP in the early 1950s to the high 40 per cents in the 1970s.”
You see, debt isn’t a problem if you’ve got the economic strength to deal with it. The Coalition has weakened the country; Labour would build up our muscle again.
Another feature of the post-war period was high tax rates – but perhaps that’s a story for another time.
Miliband’s message is a solid statement of hope for the future. Cynics will try to shoot him down – but they’ll need far more substantial arguments than any seen so far.
Here’s a timely reminder from Alex Little that it seems the government is trying to fool us all – yet again.
He writes: A lot of the commentary around the recent Autumn Statement has been around how the plans to move the government’s budget from deficit to surplus over the next five years will involve cuts and a rolling back of the state to 1930s levels of expenditure.
This doesn’t make a lot of sense to me, however, because lower government spending as a proportion of GDP does not mean the deficit would be lower. You can just as easily have a five per cent deficit with the government spending 50 per cent of GDP as you could if they were only spending 35 per cent. The two just aren’t related. For example, Denmark’s government spends about 57 per cent of GDP, but has a budget deficit below one per cent. The US government on the other hand spends about 40 per cent of GDP, but has a deficit of over five per cent.
Absolutely correct. And in the case of the UK, lower government spending will necessarily lead to a lower GDP anyway. George Osborne won’t tell you, but restricting the amount of money circulating through the national economy makes it much, much harder to turn a profit, therefore taxes shrink, therefore government spending has to increase – not just in relation to a lowered GDP but to cover for what they imply for the British people.
It’s probably not possible (even if it were desirable to do so) for the UK to reduce its deficit for the foreseeable future. It has a large trade deficit because countries like Germany, China and Japan have based their economic strategy on exports, so to really cut its deficit, the UK would have to rely on the private sector (households and businesses) taking on more debt. This could work for a while, but as recent history shows us, it’s not really a sustainable economic model. We would probably crash again before the budget was balanced.
This is exactly what the government is doing, though. If nobody has seen the relevant graph, here it is:
As you can see, households go from a surplus of nearly five per cent of GDP during 2009-10 to debt of almost the same amount by 2019-20.
So what is this talk of massive cuts all about if it’s not about the deficit? It’s already transparent to many, but it seems to be about ideology. Proponents of a smaller state have given up trying to argue for this on its merits and are instead trying to frighten people into accepting cuts. Will this work? I think not because even if the public did accept further cuts, it’s not a strategy that’s likely to create a smaller state, rather one with worse public services with the cracks being covered by expensive sticking plaster solutions.
We’re already seeing worse public services everywhere – most notably (or indeed, not ably) last week with the revelations about the Border Force.
What are we to conclude?
Simply that the smaller state envisioned by George Osborne means worse public services, households deeply mired in debt, and a national deficit no nearer to being cleared.
Damning: The graph by the House of Commons Library, showing how earnings have plummeted since Cameron’s Coa-lamity government came into office.
David Cameron must be so proud. He wanted a return to the Victorian era and that is exactly what he has achieved.
Wages have nosedived, meaning the gap between the richest and poorest is larger than it has ever been; we already know that diseases once thought long-gone are stalking our streets once again while the National Health Service has been bled to the point of death; and the welfare state is in critical condition, with people who have paid into the system all their lives bullied out of claiming benefits when they are needed and sent back to die in their homes.
This is David Cameron’s brave new Britain.
The figures on wages are the latest blow against the public-relations Prime Minister’s credibility – they come from the respected House of Commons Library.
The graph (above) uses figures from the Office for National Statistics, the Bank of England and forecasts from Coalition poodles the Office for Budget Responsibility.
It shows that real earnings are expected to have fallen by 2.3 per cent between 2010 and 2015 – the first fall since 1922-3 when wages fell by 1.8 per cent – and the largest since 1874-80, under Conservative Prime Minister Benjamin Disraeli, when they fell by 2.6 per cent.
Firm figures for 2010-13, from the ONS, paint an even worse picture – they show a 4.6 per cent drop during the three-year period.
So, Dear Reader, if you have been doubting Labour’s claim that wages have dropped by £1,600 per year, in real terms, since the Tories and the Liberal Democrats sidled into office, doubt no more!
This factual evidence has thrown into chaos Conservative claims that the UK has returned to prosperity because our Gross Domestic Product has finally exceeded its pre-financial-crisis peak.
Vox Political was right to say GDP might be up 3.1 per cent on last year but it has nothing to do with most of the population.
What is our part-time Chancellor going to do about it? He’s done quite a lot of nose-diving himself and, considering what he has managed from his office…
Let’s hope the song isn’t ‘Gold’, because the irony would be too much to bear.
George Osborne might as well go back to prancing around a prostitute’s boudoir to a soundtrack by Spandau Ballet.
[Image: David Symonds for The Guardian, in February this year.]
Britain has returned to prosperity, with the economy finally nudging beyond its pre-crisis peak, according to official figures.
Well, that’s a relief, isn’t it? Next time you’re in the supermarket looking for bargains or mark-downs because you can’t afford the kind of groceries you had in 2008, you can at least console yourself that we’re all doing better than we were back then.
The hundreds of thousands of poor souls who have to scrape by on handouts from food banks will, no doubt, be bolstered by the knowledge that Britain is back on its feet.
And the relatives of those who did not survive Iain Duncan Smith’s brutal purge of benefit claimants can be comforted by the thought that they did not die in vain.
NO! Of course not! Gross domestic product might be up 3.1 per cent on last year but it’s got nothing to do with most of the population! In real terms, you’re £1,600 per year worse-off!
The Conservatives who have been running the economy since 2010 have re-balanced it, just as they said they would – but they lied about the way it would be re-balanced and as a result the money is going to the people who least deserve it; the super-rich and the bankers who caused the crash in the first place.
You can be sure that the mainstream media won’t be telling you that, though.
Even some of the figures they are prepare to use are enough to cast doubt on the whole process. The UK economy is forecast to be the fastest-growing among the G7 developed nations according to the IMF (as reported by the BBC) – but our export growth since 2010 puts us below all but one of the other G7 nations, according to Ed Balls in The Guardian.
“Since most international trade is in goods and not in services, once the proportion of the economy devoted to producing internationally tradable goods drops below about 15 per cent, it becomes more and more difficult to combine a reasonable rate of growth and full employment with a sustainable balance of payments position,” he writes.
“In the UK, the proportion of GDP coming from manufacturing is now barely above 10 per cent. Hardly surprising then that we have not had a foreign trade surplus balance since 1982 – over thirty years ago – while our share of world trade which was 10.7 per cent in 1950 had fallen by 2012 to no more than 2.6 per cent.”
All of this seems to be good business sense. It also runs contrary to successive governments’ economic policies for the past 35 years, ever since the neoliberal government of Margaret Thatcher took over in 1979.
As this blog has explained, Thatcher and her buddies Nicholas Ridley and Keith Joseph were determined to undermine the confidence then enjoyed by the people who actually worked for a living, because it was harming the ability of the idle rich – shareholders, bosses… bankers – to increase their own undeserved profits; improvements in working-class living standards were holding back their greed.
In order to hammer the workers back into the Stone Age, they deliberately destroyed the UK’s manufacturing and exporting capability and blamed it on the unions.
That is why we have had a foreign trade deficit since 1982. That is why our share of world trade is less than one-third of what it was in 1950 (under a Labour government, notice). That is why unemployment has rocketed, even though the true level goes unrecognised as governments have rigged the figures to suit themselves.
(The current wheeze has the government failing to count as unemployed anyone on Universal Credit, anyone on Workfare/Mandatory Work Activity and anyone who whose benefit has been sanctioned – among many other groups – for example.)
You may wish to argue that the economy is fine – after all, that’s what everybody is saying, including the Office for National Statistics.
Not according to Mr Mills: “The current improvement in our economic performance, based on buttressing consumer confidence by boosting asset values fuelled by yet more borrowing, is all to unlikely to last.”
(He means the housing bubble created by George Osborne’s ‘Help to Buy’ scheme will burst soon, and then the economy will be right up the creek because the whole edifice is based on more borrowing at a time when Osborne has been claiming he is paying down the deficit.)
Ed Balls has got the right idea – at least, on the face of it. In his Guardian article he states: “We are not going to deliver a balanced, investment-led recovery that benefits all working people with the same old Tory economics,” and he’s right.
“Hoping tax cuts at the very top will trickle down, a race to the bottom on wages, Treasury opposition to a proper industrial strategy, and flirting with exit from the European Union cannot be the right prescription for Britain.” Right again – although our contract with Europe must be renegotiated and the Transatlantic Trade and Investment Partnership agreement would be a disaster for the UK if we signed it.
But none of that affects you, does it? It’s all too far away, controlled by people we’ve never met. That’s why Balls focuses on what a Labour government would do for ordinary people: “expanding free childcare, introducing a lower 10p starting rate of tax, raising the minimum wage and ending the exploitative use of zero-hours contracts. We need to create more good jobs and ensure young people have the skills they need to succeed.”
And how do the people respond to these workmanlike proposals?
“You intend to continue the Tories’ destructive ‘austerity’ policies.”
“The economy isn’t fixed but you broke it.”
There was one comment suggesting that all the main parties are the same now, which – it has been suggested – was what Lynton Crosby told David Cameron to spread if he wanted to win the next election.
Very few of the comments under the Guardian piece have anything to do with what Balls actually wrote; they harp on about New Labour’s record (erroneously), they conflate Labour’s vow not to increase borrowing with an imaginary plan to continue Tory austerity policies… in fact they do all they can to discredit him.
Not because his information is wrong but because they have heard rumours about him that have put them off.
It’s as if people don’t want their situation to improve.
Until we can address that problem – which is one of perception – we’ll keep going around in circles while the exploiters laugh.
Isn’t it shameful that the Conservatives are attacking Labour because the Co-op Bank chief has been behaving like the Chancellor of the Exchequer?
The ex-chairman of the bank, Paul Flowers – who is a former Labour councillor, is being investigated by police after he was filmed appearing to buy drugs. How is that different from the above photograph of one G. Osborne (now Chancellor of the Exchequer), raving it up at a party with a lot of cocaine on the table (ringed in red)?
Comedy Prime Minister David Cameron made much of the Flowers investigation at Prime Minister’s Questions – even suggesting, after the unimpeachable Michael Meacher asked an important question about business investment, that the honourable gentleman might have “been on a night out on the town with Reverend Flowers” and the “mind-altering substances have taken effect”.
Apparently it is all right for Gideon to be a drug casualty because he is a Tory; only Labour supporters who take drugs can be bad in Cameron’s addled world.
No wonder Labour MPs chanted “Shame!” at Cameron as he slunk out of the Chamber.
His attitude seems wrong-headed because, as managed by Mr Osborne for the past three and a half years, the economy can only be regarded as improving if one has the aid of Mr Cameron’s “mind-altering substances”.
Economic figures released this week are being touted as good news, with tax revenues “boosted” by “a recovering economy and housing market”, according to the BBC.
Take a closer look at those figures and they fall down. Borrowing (excluding the cost of interventions like bank bailouts, so we’re already in the realm of made-up figures) fell by two one-hundred-and-thirds, from £8.24 billion in the same month last year to £8.08 billion in October. Less than two per cent and they’re calling it a “boost”. It might be wiped out again in November’s figures.
Also, it should be borne in mind that growth in the housing market is due to the bubble created by our formerly-substance-abusing Chancellor, while any other economic growth has nothing to do with him and, in any case, does not help the vast majority of the population.
Total public debt has risen again, to £1.207 trillion or 75.4 per cent of gross domestic product – the highest it has ever been – under the Conservatives.
The aim for the national deficit, we are told, is to keep borrowing for 2013-14 at £120 billion or below. In his ‘Emergency Budget’ of 2010, Osborne predicted that borrowing this year would be down to half that – at £60 billion, and estimates have been rising ever since.
The 2011 budget had the 2013-14 deficit at £70 billion; in 2012 it was expected to be £98 billion; and now – £120 billion. Perhaps his original estimate was a coke-fuelled fantasy?
Of course – as this blog repeated only days ago – the Conservative-led Coalition never intended to cut the national debt. This was just a claim ministers made while they changed the system to take as much money as possible from the poor while making it possible for the rich to remove their personal earnings and corporate profits from tax to the greatest extent possible.
Result: Increasing debt and lower-than-necessary tax returns, making it possible for the Tories to claim they must cut public services and the benefit system, while laughing all the way to the banks (the ones that were never penalised for burning all our money in the first place).
So much for “We’re all in it together” – unless that was another reference to “mind-altering substances”, and we didn’t understand it until now.
George Osborne’s claim that his nonsense policies have magically turned the economy around, coupled with his equally-preposterous claim that the UK needs another seven years of austerity before he can balance the books – provides a fine example of the duality at the heart of Conservative economic policy.
He needs to convince you that his choices have made a difference and the nation’s fortunes are changing, but he also need to convince you that we’re in a terrible mess – or he won’t have an excuse to continue cutting more public services and selling them into the private sector so his rich friends can use them to fleece you.
The two claims are not only contradictory of each other – they are self-contradictory. The evidence shows that Osborne’s policies delayed the recovery, rather than encouraging it, and the ‘Starve The Beast’ plan he cribbed from George W Bush has long been recognised as harmful to any country’s economic health; by cutting services he is starving the economy of the liquidity that is its lifeblood.
(This is a point worth remembering: Whenever a TV news reporter says Osborne or the government want to make cuts in order to “save” money, they mean the government will be “taking money out of the economy” – which will consequently be worth less. As a result, some people will have to become poorer. Can you guess who?)
Before we congratulate Osborne in ways that are anything like as effusive as David Cameron’s endorsement earlier this week, let’s look at the facts: According to Martin Wolf in the Financial Times, in three and a half years, the UK’s economic performance has improved by just 2.2 per cent – against a prediction of 8.2 per cent by his pet Office of Budget (Ir)Responsibility. In the second quarter of 2013, Gross Domestic Product was 3.3 per cent below its pre-crisis peak and 18 per cent below its 1980-2007 trend, making this the slowest British recovery on record.
Osborne and the Conservatives point proudly to the strong increase in private-sector jobs but, as Mr Wolf states, “this is hardly something to boast about”. While employment – on paper – is at an all-time high, productivity has fallen back to the level it reached in 2005. What does this say about the quality of the jobs that are being filled? Are they high-quality, long-term, well-paid careers, or are they part-time, zero-hours, throwaway fillers? We all know the answer to that. Average wages have been cut by nine per cent, in real terms, since 2010 – and they are still falling.
Even by the standards of other crisis-hit, high-income economies, the UK’s performance has been dismal, says Mr Wolf, pointing to work by Spencer Dale and James Talbot of the Bank of England. This indicates that the Eurozone has performed just as badly – but the difference is that the Eurozone countries do not have control of every economic lever that is available to them; Britain does.
Osborne claims that high global inflation and the performance of the Eurozone have impacted on the UK; Mr Wolf’s assertion is that austerity is the reason for this disappointment – and Osborne was just as much a cheerleader for austerity in Europe as he has been for it in the UK. Furthermore, as the Labour Party pointed out in its report, “David Cameron’s out of touch, you’re out of pocket” (2013), inflation in other G7 countries has been lower than in the UK, indicating that high global prices have little to do with the problem.
“Yes, but,” says Osborne, “austerity has kept interest rates down.” Did it? Did it really? In that case, interest rates would have been kept low because of the promise (in 2010) that borrowing would be brought down by 2015. When the Coalition came to power, Osborne said he expected to borrow a total of £322 billion by 2015. In March this year, that figure had risen to £564 billion – an increase of 75 per cent! Meanwhile the deadline for the national debt to start falling has slipped from 2014-15 back to 2017-18 and the level at which the debt was expected to hit its peak has jumped from 70.3 per cent of GDP to 85.6 per cent. The deficit has been stuck at £120 billion a year for the last two financial years, despite the repeated claims that it has been cut by one-third. None of this has affected long-term interest rates and neither did the loss of the UK’s AAA credit rating in February this year.
As Professor Malcolm Sawyer notes in Fiscal Austerity: The ‘cure’ which makes the patient worse (Centre for Labour and Social Studies, May 2012), “It is well-known that a government can always service debt provided that it is denominated in its own currency. At the limit the UK government can ‘print the money’ in order to service the debt: this would not take form of literally ‘printing money’ but rather the Central Bank being a willing purchaser of government debt in exchange for money.” This is what is happening at the moment. Our debt is in UK pounds, and we can always service it. Our creditors know that, so they remain happy to continue financing it.
“With interest rates at the zero bound, austerity weakened the economy relative to what might otherwise have happened,” wrote Mr Wolf.
“Nobody thought recovery would never happen under austerity, merely that it would be damagingly delayed… This has been an unnecessarily protracted slump. It is good that recovery is here, though it is far too soon to tell its quality and durability. But this does not justify what remains a large unforced error.”
Looking to the future, Osborne has reacted to the new barrage of Labour policies, all of which have been carefully costed against savings in current budget areas, with a series of rushed measures that are entirely unfunded. Remember that, next time a Conservative accuses Labour of borrowing and spending!
The married couples’ allowance, worth less than £4 per week (and less than £2 if you’re on a low income) is unfunded. The promised fuel duty freeze is unfunded. These will cost more than £2 billion and no source has been identified.
And what about the £12 billion stage two of the housing ‘Help to Buy’ scheme, that Osborne rushed forward to this month?
He has pulled £14 billion out of nowhere, but still expects us to believe he will resume his stalled deficit cuts by £35 billion by 2015, £42 billion by 2017-18 and £43 billion by 2020, in order to create a budget surplus.
All the while, he is promising “improved living standards for this generation and the next”. For whom? These cuts must come from somewhere, and they mean removing a cumulative total of £120 billion from the economy each year by 2020. That has to come from somewhere.
Look at the amount by which bosses’ pay in FTSE100 companies has increased in the last three years – 32 per cent, while average worker pay has dropped by nine per cent.
Do you really think the “Have-yachts” will be paying for these cuts?
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