07 December 2011

Labour Will Struggle Unless They Shoot Down Deficit Lie.

It doesn't matter how right Labour are proved about the Coalition's slash and burn approach to the deficit if people believe that the deficit was Labour's fault in the first place. As Cameron and Osborne persist in destroying public services under the guise of responsible deficit reduction, the economy is going into a downward spiral. Reduce demand by sacking hundreds of thousands in the public sector and far from stimulating the private sector, it not surprisingly drags it down. And without growth, the deficit won't go down either. Labour will win the argument that the Tories and their Lib Dem sidekicks have cut too fast and too drastically. Labour might even win the argument that this was an ideological decision. But they will struggle to win support if people believe the deficit was created by Labour in the first place.

It actually wouldn't be that difficult for Labour to argue their case, but strangely they have given up the ghost and allowed the media and government free reign to claim that Labour overspent so therefore we have to tighten our belts. On first inspection this sounds very plausible to most voters, but as soon as we consider some actual facts it quickly looks very absurd.

1. In 2008 when the financial crisis hit, both the Tories and Lib Dems were still claiming they would maintain Labour spending on public services. Strangely this fact has disappeared from the media. If they believe Labour had overspent why would they claim to match their spending?

2. Just before the banking crisis hit, the national debt was actually lower than Labour had inherited off the Tories at around 37%!

3. The financial crisis has hit the entire developed world, even the most die hard Tory would struggle to claim that Labour spending policies in one small country off Europe - i.e. the UK have affected the whole world. So to blame Labour for the crisis just seems wierd.

4. Finally, government debt only ballooned when it had to take on the private sector debt of the banks. You can blame Labour for not regulating enough, but the only voices advocating that were on the left, certainly not from the hedge fund bankrolled Tories.

Imagine if Labour had not increased spending AT ALL on public services in its 13 years in office. Well for a start I don't imagine that would have gone down well with voters who in 1997 were crying out for investment in health, education and the rest. But leaving that aside, the maybe 200 billion Labour might have saved in expenditure, would still only have made a small dent in the trillions of bad debt the banks had racked up by buying up US and other bad debt in casino style deals.

Which ever way you face it, the problem is not that Labour overspent on public services (we still spend less than the EU average). Yet that Labour spent too much on public services is what most people believe, and until that changes, Labour and Miliband are in real trouble. They have to be clear about this and absolutely refute it when the media and Tory led government try to pin the blame on them. It is rubbish and people need to be told.


  1. Um, all this might be relevant if the Coalition were actually cutting government spending but they aren't. Actually spending figures rose (in real terms no less!) in 2010/11 over 2009/10 (the last year of Labour), and have continued to rise in the first 6 months on 2011/12. The only reason the deficit is coming down somewhat is the extra tax (mainly VAT) that has been collected.

    As for the record of Labour the real issue is that they failed to realise that the massive rise in tax revenues from 2002/3 (tax revenue of £396bn) and 2007/8 (tax revenue of £549bn - a rise of nearly 40% in 5 years) was not due to their wonderful stewardship of the economy, but in fact was the product of the mother of all debt fuelled booms. If the economic maestro in charge of the economy in those years had merely grown public spending by 5% per year (a good 2% real increase) from what was spent in 2001/2 (£389bn) it would have reached £521bn by 2007/8, when tax revenue was in fact £549bn. There would have been ample scope for a massive fiscal boost to the economy to ameliorate the worst effects of the global crisis (and bail out banks if necessary). We would be starting from a much lower debt position, and able to run large annual deficits for a good number of years. Instead we are in a position of having to cut the deficits inside the next 4-5 years, otherwise we will be broke. Four more years of an 8-10% annual deficit would put us over 100% debt to GDP ratio. That is not sustainable at all. At some point there would be a funding crisis and there would be enforced cuts (of the actual cash sort) in the order of 10-20% of spending. That would be disastrous.

    The current Labour front bench know this. They know if they were in charge they would be doing exactly the same as the Coalition. They might rearrange the deckchairs a bit, but the overall thrust of public spending would be exactly the same. To pretend otherwise is sophistry of the highest order.

  2. So, Sobers were you saying all this 5-10 years ago? If you were, you were content to see our public services remain massively underfunded in comparison to our European neighbours or you supported tax increases. The truth is there is plenty of money out there that the richest are pocketing. A one off tax on their wealth could pay off the deficit tomorrow without having to ruin growth or put millions on the dole. For example a 10% land tax on the 2 trillion of land value in this country which is owned by the wealthiest 10% would raise 200 billion - that would cover the structural deficit for a start. As for the claim that 100% debt ratio is unsustainable. When the NHS was created in 1948 we had a ratio nearing 250%. It is growth that will pay off deficits. Labour could have paid off more but that is tough when public services were in the dire straights they were in 1997 and the public wanted to see improvements. Labour had to spend to get re-elected especially when faced with a Tory media trying at every step to shoot them down.