Some things are worth repeating because they are that important and some things should be repeated because they were not heard, or listened to, the first time. Some fall under both categories.
Some things are worth repeating because they are that important and some things should be repeated because they were not heard, or listened to, the first time.
Some things fall under both categories.
It is testament to a failure in communication on the left that in the years immediately after the financial crisis the consensus was allowed to form that under Labour spending got out of control. The hangover from this communication failure persists in the public’s continued reluctance to trust Labour on the economy.
It is seemingly forgotten now, but the Tories promised to match Labour’s spending plans right up until 2008; in the aftermath of the 2010 election, however, a drawn-out Labour leadership contest allowed David Cameron to define the post-crisis landscape as the hangover of a spendthrift Labour Party.
The country was in a mess and the only ones who could clear that mess up were the Conservatives, who would reign in the excesses of the Blair and Brown years and bring some temperance to proceedings.
It is worth repeating, then, something pointed out by Martin Wolf in today’s Financial Times (£): in the years leading up to the 2007/08 financial crisis – the supposedly out of control, spendthrift years – UK net public debt was close to its lowest ratio to GDP in the past 300 years.
As the graph below shows, government debt as a percentage of GDP was well below average under Labour and rose, predictably, as a response to the collapse in GDP – as it would. And why does this matter? Because the relevance of the amount of money spent by government is related to how big a proportion of GDP it is, not how much is spent in total.
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While debt is now higher than it has been for a considerable period of time, the blatant dishonesty in the claim that spending was out of control under Labour has more to do with finding a rationale for stripping back the state than it does with dealing with any perceived ‘debt crisis’.
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60 Responses to “Once again on Labour’s ‘out of control’ spending”
Jason Butcher
The Govt deficit = govt spend – taxation. If we were to follow your logic, we would be comparing x with x: completely nonsensical.
LB
Look, when you go for a mortgage, what do you get to borrow?
Muiltiples of your income, or can you include your neighbour’s income too?
Same with GDP and tax. The government debts should be paid out of government revenue – taxes. They aren’t paid form the money you need for your food.
Hence debt (all of it) to taxes is better ratio to use in order to measure affordability.
So why leave off the pensions?
LB
No, I prefer total debt to total income as a ratio.
You don’t include your neighbours income when working out how many times your income you can sensibly borrow. Why should it be different for the state?
LB
I’m not including future debts. I’m just including past debts.
On the future income. Yes, It’s an asset. You could book that as an offsetting asset.
However, by the same logic, you need to book future spending (none debt related). The cost of keeping the income generators slaving for the state going in health care costs etc.
The problem for your argument is that 550 bn income (taxes generate), against 700 bn (spending) cost of keeping the serfs going.
On average, the UK citizen is liability.
Are you going to book that in the accounts too?
Wizard
It’s a pretty standard method. Isn’t the obvious argument that if you’re gonna make a comparison over hundreds of years that this way negates the impact of varying fiscal policy over that time?
What you suggest would be fine to look at. I suspect, as in most of economics, what’s at stake is how it makes one group look compared to another, supporting a particular government or set of political views. It isn’t some cold reading of what provides empirical truth, everything is contingent. But on the face of it I’d say it seems that what’s used here is a pretty fair measure, no?
And to be fair ‘when you go for a mortgage….’ sounds a bit like the comparison between the UK economy and a household budget, which is basically absurd.