Clinton: UK’s austerity budget could mean deficit will increase


Bill Clinton yesterday warned David Cameron that Britain’s spending cuts could end up raising the deficit. He becomes the highest profile critic yet of the Tory-led coalition’s economic strategy.

Speaking at the annual Campus Progress conference in Washington DC, the former US President said:

“In the current Budget debate there is all this discussion about how much will come from spending cuts, how much will come from tax increases. Almost nobody’s talking about one of the central points that everyone who’s analysed this situation makes – including the bipartisan Simpson-Bowles Commission – which said you shouldn’t do any of this until the economy is clearly recovering.

“Because if you do things that dampen economic growth. And the UK’s finding this out now. They adopted this big austerity budget. And there’s a good chance that economic activity will go down so much that tax revenues will be reduced even more than spending is cut and their deficit will increase.”

Watch it:

The warning follows concerns a fortnight ago from the head of the respected Institute for Fiscal Studies think tank, that the prospects for growth certainly don’t look rosy” and that a Plan B might be necessary if the OBR downgraded its predictions of growth. The chief economist of the OECD, Pier Carlo Padon, has said recently, “we see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front.” Even the IMF said earlier this month that there are, “significant risks to inflation, growth and unemployment”.

US gross federal debt (Table 7.1) was 66.1 per cent when Bill Clinton became president in 1993 and had fallen to 56.4 per cent when he left office in 2001. In 2001 – after eight years of George Bush – it had risen again to 83.4 per cent.

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  • William

    UK manufacturing output up 1.8 percent in May.Government expenditure and borrowing increasing every year to 2015.Austerity?

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  • Anon E Mouse

    William – Absolutely agree. Where is this austerity everyone keeps banging on about and what happened to the double dip recession Will Straw was confidently predicting a year ago?

  • Leon Wolfson

    Simply because they’ve diverted the money to Tory issues like cutting corperation tax dosn’t mean there’s a massive degree of austerity going on in basic public services, William.

    I’m sure you personally won’t notice it, but tens of millions WILL.

  • Will Straw

    William – Expenditure is falling as a % of GDP. To measure it any other way is flawed. Growth has been flat for the past 6 months and we’re heading for 1.4% in 2011 (nearly half what the OBR predicted this time last year). If you’re a public sector worker or contractor, recipient of tax credits like the childcare tax credit, or shopper subject to VAT (ie everyone) you’ll certainly be feeling the austerity.

    Anon – When did I ever predict double dip? Others may have done but dont tar me with the same brush. I said that the Tory strategy risked a double dip and since growth has been flat for the last six months, I’d say that was pretty accurate.

  • Josh

    But as a % of GDP, public expenditure is returning to where it was 3-4 years ago. That was hardly a time of Dickensian austerity for public services, and in absolute terms, no government has cut spending since Stafford Cripps in the 1947-48 during post war austerity. The size of government and public expenditure has inexorably increased, even during the supposed stringent Thatcher years.

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  • Ed’s Talking Balls

    Well said Josh. It is important to keep these things in perspective.

    I grow tired of people dealing in certainties where the economy is concerned. Simply, no-one, however well qualified, knows what is going to happen.

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  • Leon Wolfson

    Josh, except public service spending ISN’T returning to that level. It’s being slashed by massive amounts more, since the Tories have business tax cuts and their own expensive pet projects to follow. More, inflation is soaring due to Tory policy, which slashes the real-world value of that expenditure.

    Ed – What nonsense. It’s VERY easy to see the consequences of many actions. If you make much of the UK unaffordable to the poor, they’ll turn to crime or move to the jobless areas, for instance. This is predictable, predicted and when it happens you’ll whine endless about how Labour caused it. Sigh.

  • Nigel Wootton

    Bill Clinton provides a simple equation. Tax-dodger Osborne’s swingeing cuts and VAT-hike mean that People’s Earnings and spending power is rapidly decreasing. Tax Revenues fall accordingly, so that now The Treasury is desperately short of money. Tax-dodger Osborne is having to borrow up to £46 Billion more, for the Treasury, which also puts up the National Debt (Tory spin + “budget deficit”) by that amount. So don’t believe any Tory deficit lies! As earnings and private spending steadily decrease, company Sales Revenues will decrease (Except for export orders) reciprocally until the country goes bust. There are numerous clamours for Plan B, but Tax-dodger Osborne continues to hoard £1.6million that he owes to the Treasury and ignores everyone’s request. The Cameron regime want to bust , then and boom the economy on cheap-jack labour just as Thatcher and Major did. The ConDem government should be out on its arse before the current Political and Criminal Corruption investigations are finished.

  • matthew fox

    @ William

    Would you like to tell me what happened to UK Manufacturing in Apr 11?

    I don’t think Anon E Ratface will be too pleased.

  • Ed’s Talking Balls

    One of the few genuine laugh out loud moments I’ve had while reading this blog, Leon. Even if you had the combined talents of Adam Smith, Milton Friedman, Friedrich Hayek and John Maynard Keynes (which you clearly don’t), I wouldn’t trust you to predict the future. I suggest you market yourself as a clairvoyant, if you genuinely know what is going to happen. What will Friday’s Euromillions numbers be, by the way?

    Inflation is not down to Tory policy. What simplistic nonsense.

    Much of the UK is, was and forever shall be unaffordable to the poor. Much of the country is unaffordable to the moderately wealthy too. We don’t live in a utopia.

    I only whine that Labour has cause or exacerbated a problem when it has. For example, running large budget deficits during a boom. Or trying to introduce ID cards against the popular will. Or hurting the poor through scrapping the 10p tax (etc…) The coalition will be responsible for its record on the economy come the next election. I will judge it then, observing economic performance in the meantime and maybe making cautious predictions on the way. I won’t, however, rush to judgment and deal in certainties one year into a term.

  • Dave Citizen

    @Ed – while I agree it’s not possible to be sure how the uk economy will be doing a year from now it is possible to see what direction current policies are taking us in, and what this is likely to mean for things like levels of inequality, the affordability of housing to ordinary working people or the extent to which we are dependent on international capital investment to do what we want to do in our country.

    A move to a less unequal distribution of the rewards of hard work is anything but utopian. Most other EU societies do it and their majority populations enjoy a higher standard of living as a result. Getting there is about having the guts to stand on our own feet, supporting manufacturing, releasing productive assets from those who accumulate them in there own narrow interests and supporting and building the skilled workforce that offers the only realistic chance of delivering majority prosperity in future – it’s not too late to build our trains at Bombardier – that’s what more equal societies would be and are doing!

  • Ed’s Talking Balls

    Dave,

    You’re right. I commend you for a more nuanced approach and avoiding certainties: this is what prediction is all about. In terms of prediction, I’m encouraged by the trends in exports and, to a lesser extent, manufacturing, while employment figures have also been encouraging. Growth is weak and predictions are being downgraded (rather proving my point that even renowned economists don’t get in right most of the time, let alone all the time) but I remain optimistic that we will return to stronger growth and that double-dip doom-mongers will be proved wrong. Interest rates have remained low and inflation is my major concern. The Bank of England is treating its target as more of a vague hope.

    I don’t disagree that we should strive towards correlation between hard work and reward. Wealth inequality, to such a degree as we see nowadays, is unhealthy. Yet I find any notion of equality of outcome anathema; equality of opportunity is what society is entitled to expect. One step in the right direction would be making it impossible or highly undesirable for buy-to-let barons hoard such a scarce resource as land. It is one of the greatest scourges of our time and really must be addressed. I am appalled that none of political parties give a toss about such an important issue.

  • Leon Wolfson

    Erm Ed? Dave said the same thing I did.

    “Much of the UK is, was and forever shall be unaffordable to the poor.”

    What bullshit. There are mixed communities up and down the UK right now. You’re conflating your ideal society in a decade’s time with what we have right now – which will be destroyed by the Tories.

    The preductions made by the Office for Budgetry Fiddling were higher than the international ones on politician’s orders, but the repeated cuts made by every organisation, British and international, to the UK’s growth rate are because of, plain and simple, Tory policy.

    We need to learn from better-balanced societies, but instead we’re very rapidly being taken in the opposite direction, which is going to do a massive amount of damage to the country (again). And yet while we agree on some things, you still defend many Tory policies…

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  • Ed’s Talking Balls

    I don’t think that what you said first time round was the same as Dave. You replied to my comment, which warned against dealing in certainties where future economic performance is concerned, by saying ‘What nonsense. It’s VERY easy to see the consequences of many actions.’ I thought you were disagreeing what I said. If, however, you were, like Dave, admitting that none of us can know for sure but can nonetheless make predictions, then we’re in agreement. I guess what I was railing against was some unthinking commentary on the left which would have us believe that a double-dip is a foregone conclusion. Patently nonsense. Given that the figures are so mixed and ‘Plan A’ is still in its (comparatively) early stages, it’s way too early to pass definitive judgment on economic performance, either way.

    Neither do I think that my comment, which you quote, is ‘bullshit’. There are very few people in the world with the means to buy property in Belgravia, Kensington, Hampstead etc. Houses in such areas cost millions of pounds and it’s not simply the poor who can’t afford to live there. That’s not my ideal society, however. Nonetheless, I think it perfectly fair that some people can afford things others can’t. To the extent that that isn’t fair, well, I’m afraid that’s life.

    I was under the impression that the OBR was independent. Sneer if you will, but I’m prepared to accept that it is, although I concede that its proximity to the Treasury (and other factors) give rise to suspicion. Still, even if its predictions were more optimistic than international ones, the IMF, OECD, etc were and are all supportive of government plans on deficit reduction and have all predicted growth. And I think that the economy is a little more complicated than you give it credit for: we live in a global economy (as Gordon Brown never tired of telling us, when seeking to deflect attention from domestic budget deficits) and so are affected by myriad global issues over which the Conservative Party has no influence.

    Yes, I still defend government policies in a number of areas (chiefly education) but I never want to be partisan to the point of claiming black is white. When the government gets something wrong (NHS reform, treatment of circus animals and the ringfencing of the aid budget) I won’t defend it.

  • Leon Wolfson

    Ed;

    I initially thought the OBR was a genuine effort. Then Sir Alan Budd was forced out, and I started calling it the OBF. The way they’ve shaped over-enthusiastic predictions for the government has put the nail in the coffin of any idea of their independence for me.

    While we live in a global economy, most of that economy is doing a LOT better at this “recovery” thing than we are, not least because they didn’t start slashing spending for longer, and now THEY’RE starting to see a stall too. This is predictable, and predicted.

    And once more, I am NOT talking about exclusion from a few regions in London. I am talking about *two-thirds of the country*. I *wish* I was engaging in hyperbole, but that is what poorer people are facing!

  • Anon E Mouse

    matthew fox – The clear glee you show that UK manufacturing fell in this country illustrates exactly why Labour and it’s activists care only for the tractor statistics in this country and deserve the kicking they are currently getting in the polls.

    You’re right – of course I’m not pleased when working class people in this country lose their jobs due to a lack of manufacturing orders.

    Obviously being the lickspittle you prove you are in most of your comments here, it means the plight of the workers is of little concern to you.

    There used to be a time the Labour Party cared about the workers but your callous remarks against that particular demographic would indicate those days are long long gone.

    Well done matthew fox….

  • Leon Wolfson

    Glee? Everything you blame him for is your party’s responsibility. Your ability to dodge is on a par with the NoTW’s, and is about as welcome to the public.

  • Anon E Mouse

    Leon Wolfson – My party was Labour my whole life pre Brown. Lib Dem now FYI.

    No one is dodging – it’s just we have different views on things like fairness clearly and you will twist, turn and spin like a washing machine to justify the unjustifiable Leon Wolfson.

    matthew fox is a not so bright Labour lacky, who would swear black was white or vote for a monkey in a red shirt. The coalition government prays for people of his ilk in the way they thought heaven was on earth when the hopeless Ed Miliband was forced on the party by the union dinosaurs.

    Me I’m a Charles Clarke or John Reid type of admirer and less of a Damian McBride or Gordon Brown fan and you sir, as usual, are ignoring the point about his glee at the flatlining economy or the past where Labour wouldn’t have knighted failed bankers and cared about ordinary workers…

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  • matthew fox

    @ Anon E Ratface,

    I looks like I have hit a raw nerve.

  • Anon E Mouse

    matthew fox – You certainly haven’t hit any raw nerve with me fella.

    All you’ve done (once again) is show how little you care for the working classes and how little you understand or appreciate the reasons we have a “Labour” political party in this country.

    My remark of you being a “lickspittle” who’s only interested in tractor statistics is an insult – a particular left wing insult as it happens, although it may be at bit much for you to understand that.

    You do the coalition government a great service with your attitude and it serves to remind people like myself that I made the right decision in not voting Labour at the last election.

    Well done matthew fox…

  • matthew fox

    Are you sure Anon E Ratface, you seem very emotional, is it because UK Manufacturing actually declined in April 11, strange how you and your good buddy failed to acknowledge that.

    Another dirty little secret Anon E Ratface won’t publish, is that growth in UK manufacturing slowed for the fourth consecutive month.

    What did happen to the phrase ” March of the Makers ”

    If I didn’t care, I would be a Conservative like you, my dim-witted rodent.

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