Tory press blasts Miliband on Labour spending and the crash. But he’s right

The Sun claims 'no sane person' can believe spending didn't cause the crash. These economists disagree.

Spending papers may 1


The papers are ablaze this morning with write-ups of last night’s BBC Question Time, where Labour leader Ed Miliband defended his party’s record on economics.

While the liberal Guardian and Independent papers lead with Miliband’s declaration he would sooner not be prime minister than forge a deal with the Scottish National Party, the Tory press has seized on his questions about public spending.

When asked by audience members if he agrees Labour spent to much money while in office, Miliband said he did not, repeating his argument that the financial crisis caused the rise in spending, not the other way around.

The audience, which the Tory press warned would be too left-wing before the broadcast, cut with the grain sown by the very same papers that praise them today, accusing Miliband of peddling a lie.

Always at the head of the pack, today’s Sun editorial says:

“To gasps and groans, the Labour leader insisted the Gordon Brown government in which he served played no part in the financial disaster which left the coalition with ‘no money’ in 2010.

It was all down to the grasping bankers and the global crash, he claimed. Not Labour’s overspending. 

There cannot be a sane person who believes that.”

As it happens, Miliband does not clear Labour of responsibility. He has said repeatedly its failure to adequately regulate the banks led to the crisis.

But is it true that ‘no sane person’ can believe it was Labour’s spending that caused the crash?

William Keegan, economics commentator at the Observer, begs to differ in his 2014 book Mr Osborne’s Economic Experiment:

“On the eve of the 2007-2008 financial crisis, public spending as a share of the economy was, at 39 per cent of GDP, close to the levels recorded during the latter years of Kenneth Clarke’s 1993-1997 chancellorship.”

Or what about Nobel prize-winning economist Paul Krugman? Writing in March in the New York Times, he said:

“Was the Labour government that ruled Britain before the crisis profligate? Nobody thought so at the time.

In 2007, government debt as a percentage of G.D.P. was close to its lowest level in a century (and well below the level in the United States), while the budget deficit was quite small.

This graph puts spending under the last Labour government into historical perspective (click to enlarge):

UK public sector net debt as pc of GDP

In fact, the pre-crisis deficit was lower under Labour than during the previous Tory government of John Major, as this graph shows:

Public sector current budget

Oxford macroeconomics professor Simon Wren-Lewis, writing in the Independent, explains:

“We can see the surpluses in the early years of the Labour government, followed by the deficits around 2002/3. In the final years before the recession, we can see how policy tightened, so that just before the onset of the recession the deficit was very small.

This is hardly the story of a profligate government creating a crisis. Compare the tiny budget deficit in 2006/7 with the much larger deficits under the Conservative government in 1992-4.”

Of course, government debt as a percentage of GDP did rise under Labour, but after the financial crisis hit and tax receipts collapsed. As this graph shows, the spike in borrowing corresponds precisely with the sharp drop in GDP growth during the crash:

PSNB and growth, or borrowing and the crisis








It’s a breakdown in the logic of cause and effect – as well as basic chronology – to say the rise in borrowing and spending after the crash was what caused it.

Writing in his excellent article ‘The Austerity Delusion‘ in Wednesday’s Guardian, (which includes a bruising critique of the current Labour party), Krugman called the idea that Labour’s fiscal irresponsibility caused the financial crisis ‘nonsensical’.

Wren-Lewis said blaming Labour’s spending and borrowing for the crisis is ‘economically illiterate’:

“the last government did not borrow excessively, whilst the recession was a consequence of overleveraged banks and the collapse of the US housing market.

The banks overextended themselves in poorly regulated financial markets, indulging in high-risk lending in the belief that a housing bubble would never burst.”

We’ve seen the Sun try to paint its political enemies as ‘insane’ before, writing on April 14 that anyone who thinks Miliband will run the economy more sensibly than Cameron shoold seek a psychiatrist.

Meanwhile, the current government’s record on the economy is a complete shambles, baring no relation to the rosy picture in the press, and has even seen (gasp) massive borrowing.

Sanity or insanity aside, no sensible person can take the Tory press seriously on economics as long as it continues to promote falsehoods on Labour spending and the financial crash.

Adam Barnett is a staff writer at Left Foot Forward. Follow MediaWatch on Twitter


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39 Responses to “Tory press blasts Miliband on Labour spending and the crash. But he’s right”

  1. keeshond

    Some Labour politician, or an impartial, well-regarded figure (not an economist) needs to get these facts across to voters in plain English, albeit in bite-sized chunks, pretty damned fast.
    Ed Miliband failed to refute the argument of a puffed up financial services adviser in the Question Time audience who put the blame, bizarrely but convincingly, that the UK went had nothing to fall back on when the 2008 crash came because Gordon Brown had sold off its gold reserves. That a preponderance of financial institutions in London had been a major cause of the disaster didn’t seem to occur to him and Ed really shouldn’t have allowed such a flawed analysis to resonate at this stage of the campaign

  2. ShafHansraj

    I agree, it’s all well and good trying to say this at a local level on the door step but we need an election broadcast with all of this explained by the experts with members of the party leadership. Why we didn’t shout about this after the last election I don’t know!

  3. James Chilton

    That Labour’s profligacy caused the recession is an economic myth. Miliband and Balls should have steadily refuted the allegations over the last 5 years. They did not, and it’s now become a commonplace of political discourse that very few people critically examine.

  4. JoeDM

    The trendy-lefties trying to rewrite history.

    The crash happened on Labour’s watch. The ‘light touch’ regulation and the huge government over spending was the cause.

    Brown, Balls and Miliband were responsible.

  5. Leon Wolfeson

    You’re no lefty.

    The bank crash and a short recession happened. There was a recovery underway. Your coalition cut it off and caused a depression.

  6. Leon Wolfeson

    The problem is Labour can’t while also championing austerity. And…they’ve made their choice.

    Seems downright silly to me, but oh well.

  7. Selohesra

    Labour may not have been entirely responsible for recession – but they must take blame for leaving economy in poor position after booming economy so when trouble broke we were ill equipped to face it. And if you check the facts – no double dip, no tripple dip , no depression – just one rather deep recession when your beloved Labour were in charge.

  8. Glen Shaky Shakespeare

    JoeDM. Were you born a total moron or did the onset happen gradually? There was no overspending you idiot. Labour have the backing of George soros, David Blanchflower, Paul Krugman and Mervyn King, the former governor of the BofE. The 1st being probably the most eminent economists on the planet Earth. The Tories have the backing of ummmmm. Oh yes. Myleene Klass and Katie Hopkins. Go crawl back into your stupidity hole you prick.

  9. Gordon Mackay

    Andrew Neil asked a brilliant question to Hilary Benn the other day. Considering the Labour party were running a deficit after 14yrs of straight growth, under what circumstances would they ever run a surplus? Benn, of course, couldn’t answer and the truth is Labour will always spend too much of other people’s money until there’s none left.

  10. Cole

    Boring cliche. Did you actually read the article before spouting this Tory nonsense?

  11. Cole

    And in case you hadn’t noticed there was a worldwide recession after 2008. That wasn’t caused by Gordon Brown.

    Of course the U.S. Economy recovered faster because they didn’t have the incompetent Osborne in charge.

  12. robertcp

    It is just stupid to say that high public spending can cause a recession. It might have meant that the deficit was higher in 2010 than it should have been but that is another discussion. As it happens the deficit was what prevented a massive depression if not total catastrophe.

  13. Gordon Mackay

    Yepp, still not sure what Labour’s position is regarding under what circumstances they would run a surplus. If they weren’t spending too much before why are they promising to make cuts now? Every Labour government that’s ever been has increased the deficit, increased taxes and increased unemployment. It’s the poor who suffer most under Labour not millionaires such as Ed Miliband.

  14. Leon Wolfeson

    Yes yes, no depression because you say so. As you ignore the figures for your blind ideology, never mind the GDP figures alone, let alone the other indicators.

    As you blame Labour for the Coalition’s actions.
    Anything but admit how poverty has risen and wages have fallen.

  15. Leon Wolfeson

    So, you deny fiat currency. Sad.

  16. Leon Wolfeson

    Yes, those poor…let’s see…what happened in 1945-1950.

    Oh right, disproved.

  17. Leon Wolfeson

    Oh it could, in some situations. I can definitely see ways to do it.

    Was the UK near them? Absolutely not. Moreover, a depression is exactly when some kinds of spending such as high-return welfare *should* rise sharply.

  18. Simon Glass

    The poor suffer more under labour? What are you on?

    Child poverty reduced dramatically between 1998/9-2011/12 when 1.1 million children were lifted out of poverty. Conversely Thatcher increased child poverty dramatically:

    And now? The number of those on less than the so-called minimum income threshold in 2012/13 was up by more than a third from 5.9 million in 2008/09,

    And as to labour’s so called economic profligacy:

    George Osborne’s own estimates, the national debt will have grown by 26.9% of GDP between 2010 and 2015. If you want to check this for yourself, have a look at page 19 of the November 2010 OBR Economic and Fiscal Outlook which records the debt to GDP ratio as 53.5% of GDP for 2009-10, and page 20 of the December 2014 OBR Economic and Fiscal Outlook which records the debt to GDP ratio for 2014-15 as being 80.4%.

    In the last 200 years of economic history there have only been three prolonged periods of debt accumulation worse than George Osborne’s tenure as Chancellor of the Exchequer: The First World War (+110% of GDP), the Second World War (+100% of GDP) and the tenure of Tory Chancellor Nicholas Vansittart 1812-1823 (+64% of GDP).
    Having increased public sector debt by 26.9% in five years, George Osborne has undeniably created more new debt than any single Labour government in history ever has. In fact it’s a bigger proportional increase in the national debt than all of the Labour governments in history combined.

    On the two occasions that Labour oversaw increases in the national debt as a percentage of GDP there were the mitigating circumstances of huge global financial crises. The Ramsay MacDonald government of 1929-31 coincided with global fallout from the Wall Street Crash (they left a 12% increase in the debt to GDP ratio), and the last few years of the Blair-Brown government of 1997-2010 coincided with the 2008 financial sector insolvency crisis (they left an 11% increase).

    The other Labour governments all reduced the scale of the national debt, Clement Attlee’s government of 1945-51 reduced the national debt by 40% of GDP despite having to rebuild the UK economy from the ruins of the Second World War; Harold Wilson’s 1964-70 government reduced the national debt by 27% of GDP; and even the Wilson-Callaghan government of 1974-79 managed to reduce the debt by 4% of GDP.

    The majority of Labour governments have ended up reducing the national debt, and the two that didn’t happened to coincide with the biggest global financial crisis of the 20th Century and the biggest global financial crisis so far in the 21st Century.

    George Osborne is such a poor Chancellor that he makes Gordon Brown’s tenure look highly competent in comparison!

  19. Gordon Mackay

    Unemployment rose significantly between 1945 and 1950.

  20. Gordon Mackay

    I thought the Willson-Callaghan government had strict spending controls imposed upon them by the IMF in return for a massive bailout.

    Osbourne has cut the structural deficit that was left by the previous government. Some say he had cut too fast, others not fast enough. The point is the debt continues to rise until we run a surplus. The last Labour government did not run surpluses after 14 years of straight growth, the questions remains to be answered, under what circumstances would they?

  21. Leon Wolfeson

    From 1.3% to 1.6%.

    Bearing in mind that a lot of war industries had to be wound down. 1.6% is still considered “too little labour flexibility” today, of course.

    Very different from the dreadful conditions of mid-war Britain, which was over 10% almost constantly between 1921 and the outbreak of WWII.

    (In fact, it didn’t hit that kind of level again until the early 1980’s. Oh hey!)

  22. robertcp

    I am curious to know how public spending can cause a recession.

  23. Simon Glass

    2 years of austerity killed the growing economy that the coalition inherited which reduced tax returns and added to the debt, as did the too little too late recovery when they ever so quietly gave up on austerity – a recovery that has been falling for the past 5 quarters. The labour spending, which was not fiscally irresponsible, was in the successful effort to improve the NHS and education after decades of Tory neglect, and lift 1.1 million children out of poverty – they were still in the best economic position in the G7 in 2010 (UK debt to GDP ratio was the best, as it was in 2007). Of course what happens when the Tories get there hands on the levers of power again? They callously increase child poverty and mess up the NHS, and drive the poor and disabled to suicide.

  24. Leon Wolfeson

    One example is lots of low-return spending. Pork-barrel spending, effectively.

  25. robertcp


  26. Simon Glass

    And another thing you mentioned the structural deficit – that is pseudo scientific bullshit, a political term used for political purposes. By the same political definition thatcher and major ran structural deficits (for longer periods than New Labour) And the deficit was reducing in 2010 until austerity ramped it up so that Osbourne missed all his targets and the triple A credit rating – duh! the deficit now is still largely due to do with austerity – there’s structural for you! And before you get distracted by anymore smoke and mirrors:

  27. Gordon Mackay

    “On the eve of the financial crisis, the UK had one of the largest structural budget deficits among either the G7 or the OECD countries and a higher level of public sector debt than most other OECD countries, though lower than most other G7 countries. Most OECD governments did more to reduce their structural deficit during the period from 1997 to 2007 than Labour did. This fiscal position formed the backdrop to the financial crisis.”

  28. Gerschwin

    Face it Leon she nailed you there. You can always fall back on the old ‘The Joos’ ‘The Joos’ line. Someone might fall for it some day. She’s sharper than you but you could always try. Mazel Tov!

  29. Gerschwin

    Gov’t overspends, gov’t puts up taxes to pay for it, country goes into recession. Labour PIErty have been doing it for years. Public spending is recycling money – it doesn’t create money. Pay attention and learn.

  30. Leon Wolfeson

    No, there’s no nail my skull, and I’m not using your blade or your fallback trenches. Shmegegge!

  31. Leon Wolfeson

    He’s made some reductions, but could have done far more without austerity. We could be well back in surplus by now, otherwise.

  32. robertcp

    That is not what happened in 2008.

  33. Leon Wolfeson

    Oh right, so you claim that your moral superiors caused “for years” non-existent recessions. As you deny all benefit from either public spending or the velocity of money, and absolutely deny fiat currency.

    “Believe my propaganda”, you say.

  34. Gordon Mackay

    The argument being that there would have been more growth without austerity? I think some reduction in public spending was inevitable after 2010. Labour apparently knew that in 2006 but Brown refuted it with the infamous “we abolished boom and bust” thing. We’ve had more growth than most other countries and growth rates like those before the crash are not likely to happen again. Those growth rates turned out to be unsustainable anyway.

    I would argue we have austerity because we were spending too much and wasting too much. The Independent reckoned £25bn wasted on failed IT projects. I’m not defending UC, HS2 or the NHS reorganisation by the way, there have been plenty mistakes in the last five years but there have also been a lot more jobs created.

    Labour spending did not cause the crash, that much is true. That they were spending too much before the recession is also true in my opinion.

  35. Simon Glass

    You need a bit of critical awareness to think that just because the IFS uses the term ‘structural deficit’ it is anything other than pseudo scientific – but then that’s economics for you, definitely not a science. And the reference to the OECD when the G7 doesn’t provide fertile ground for the preconceived neoliberal view they wish to promulgate makes this the same spin. Labour borrowed to invest in health and education, and actually the deficit/GDP ratio was improving, year on year up to 2007 (from a position of 4 years of absolute surplus 1999- 2003, a record which recent Tory (including thatcher) governments haven’t even come close to matching) In addition, at no point between 2003 and 2007 was the deficit as high (in absolute terms) as it was under Major in 1996 after several quarters of growth.

  36. blarg1987

    Yet the Conservatives pledged to match labours spending pound for pound and demanded the labour government do less regulation, note not the word better but less regulation of the financial industry.

    It is also worth noting the debt increased significantly when the government took on responsibility for the banks.

    If you took on responsibility for your children’s mortgage would that by your own definition imply your irresponsible?

  37. Guest

    Having read this article three times now, there are points to be made on both sides of the fence. Firstly Labour did NOT overspend on public services, but they FAILED to regulate the banks.

    This happened as has been pointed out, that both David Cameron and Nick Clegg called for less regulation on the banks, after Gordon Brown (bad PM), went to Parliament to call for more regulation on the financial services industry….result? The banking crisis not of Labours doing, but ALL major parties.

    As for Cameron and Osborne saying we’re all in this together, what a joke. Osborne himself is heir to a baronetcy and fortune, but claims child benefit for his children… you think he will give that up like he is forcing others to? I doubt it seriously.

    This is true of all politicians sadly, and until we embrace Dr Brian May’s campaign for decency in politics, and vote for the MP we feel will fight for LOCAL issues then this situation will keep happening.

    Also, looking at the Tory narrative this election, and before….first we had vote Farrage, anmd wake up with Milliband….well in 2010 people voted Cameron, and we woke with Clegg……and now Labour will just get in with the help of the SNP…..unless I am wrong Milliband has ruled out any kind of deal with the SNP.

    The real issue for me in all of this is why can’t the tories tell us what cuts are happening in Welfare, being disabled myself and unable to work due to chronic pain, that worries me….and the other issue is why can’t Labour tell us what tax rises we will have?

    Let’s face it, neither of the big two parties are being transparent enough……but whoever I vote for, I’ll make sure it is for an MP who will fight for my community, and not my damned vote.

  38. Leon Wolfeson

    2006? 2006 is not 2010. And no, it wasn’t inevitable that we’d have a depression – that was the coalition’s choice.

    We have a bubble in the city and due to high housing prices, as you oppose normal growth rates, calling a basic functioning economy where poverty is not rising “unsustainable”.

    Of course you argue that we don’t have enough austerity and too high a GDP, too high wages. Lots of zero-hour, self-employed (due to desperation) and part-time jobs, while hours worked are flat. This is terrible.

    And great, so you argue for the international food aid the poor will need under more austerity, right?

  39. sarntcrip


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