Nick Clegg spoke on Today about his change of heart on the timetable for deficit reduction. His justification for switching from a Keynesian to a deficit hawk does not stack up.
Nick Clegg was given a tough time by Justin Webb on the Today programme this morning about the timing of his change of heart on the timetable for deficit reduction. His justification for switching from being a Keynesian to a deficit hawk does not stack up.
Nick Clegg repeatedly told Webb that, “What we said was that the timing of deficit reduction has to be governed by economics.” During the election campaign, the Institute for Fiscal Studies examined whether the Liberal Democrats were “planning to be more ambitious than Labour in reducing the deficit”, concluding:
“If anything the manifesto implies the opposite: it says that a Liberal Democrat government would carry out a Spending Review over the summer and autumn ‘with the objective of identifying the remaining [our italics] cuts needed to, at a minimum, halve the deficit by 2013-14′.
“At face value this might suggest a less ambitious plan to reduce the deficit overall than that implied by the forecasts in the Budget. The Budget predicted that the deficit (total government borrowing) would be down to 5.2% of national income in 2013-14, whereas halving it means that it need not be reduced below 5.9% of national income (half the 11.8% forecast for 2009-10).
“But the Liberal Democrats tell us that this promise to “at a minimum, halve the deficit” should be taken as shorthand for matching the deficit reduction path set out in the Budget. So, overall, they are no more or less ambitious than the Government.“
And just five days before the country went to the polls, Nick Clegg – when asked by Reuters about the Conservative party’s plans – said:
“Us siding with Labour? It’s siding with common sense.
“My eight-year-old ought to be able to work this out – you shouldn’t start slamming on the brakes when the economy is barely growing. If you do that you create more joblessness, you create heavier costs on the state, the deficit goes up even further and the pain with dealing with it is even greater. So it is completely irrational.”
The Lib Dem leader claimed on Today that he changed his mind because “The economic circumstances [became] more perilous.” He referred to “a climate of sovereign debt crises”. Presumably this meant the Greek crisis which had been rumbling along prior to Clegg’s Reuters remarks. Indeed, contagion was already taking place in late April. On April 28th, after two days of turmoil in global markets, OECD secretary general said:
“It’s not a question of the danger of contagion; contagion has already happened.”
Since the election, far from circumstances becoming “more perilous”, economic news has painted a mixed picture. While business confidence is down and the claimant count increased last month, consumer confidence is up, the yield on 10-year gilts hit an all-time low while the jobless total has fallen.
Clegg, of course, has form. He initially claimed that he had changed his mind as a result of a conversation with Mervyn King after the election – a point on which he later recanted claiming, “I changed my mind earlier than that.” When exactly remains unclear.
23 Responses to “Clegg’s justification for deficit hawk conversion doesn’t stack up”
Derek Bryant
RT @leftfootfwd Clegg's justification for deficit hawk conversion doesn't stack up http://bit.ly/cwi0zO
Shamik Das
Clegg's justification for deficit hawk conversion doesn't stack up: http://bit.ly/cwi0zO explains @wdjstraw on @leftfootfwd
Guido Fawkes
Here’s what deficit hawk Cable wrote for Reform:
The emphasis for fiscal consolidation must fall on controlling public spending, not higher taxes: to commit to additional tax revenue raising from the outset undermines any commitment to setting priorities in spending. This process will be painful and difficult. It will involve real cuts in many areas and will mean that the big budgets – health, welfare, defence and education – must be tackled. There should be no “ring fenced” areas of spending. Existing spending has to be justified, not simply assumed to be necessary and trimmed at the edges.
The traditional method of “salami slicing” with across-the- board cuts to all services without any priorities being set, causes considerable damage to valued services. Instead, a systematic process of selecting high and low priorities for public spending is needed. … No doubt public administrators can be made more conscious of costs and efficient management, but it is not credible to believe that greater “efficiency” is a panacea, not least because it has been invariably promised and not delivered
in the past.
Nine specific areas of potential savings are identified as a start to a radical programme of reform. The main proposals are:
> Zero growth overall for public sector pay (saving £2.4 billion a year), a 25 per cent reduction in the total pay bill of staff earning over £100,000 and a salary freeze and end of bonuses for the civil service (saving £200 million a year).
> Tapering the family element of the tax credit – saving £1.35 billion.
> A radical review of public sector pensions with the view to moving to higher employee contributions and later retirement ages. There is currently a £28 billion subsidy to unfunded schemes.
> Scrapping several major IT systems including the ID card scheme (£5 billion over 10 years), Contactpoint (£200 million over 5 years), the NHS IT scheme (£250 million over the next 5 years) and the proposed “super database” (£6 billion).
> Curbing “industrial policy”, including scrapping Regional Development Agencies (£2.3 billion annually) and EGCD subsidies (£100 million annually) and reducing (by at least half) the Train to Gain and Skills Councils budgets (£990 million together a year).
> Reforming the National Health Service, by reducing the centralisation and over-administration – starting by scrapping Strategic Health Authorities (£200 million a year) – by strengthening commissioning and with “supply side reform” – in particular tariff reform could save around £2 billion a year.
> Curbing the centralisation in education, by cutting national strategies and scrapping quangos – saving around £600 million a year.
> Reducing the amount of waste in the defence procurement process, including scrapping the Eurofighter and Tranche 3 (£5 billion over 6 years), the A400M (total cost £22 billion), Nimrod MRA4, the Defence Training Review contract (£13 billion over 25 years) and the Trident submarine successor (£70 billion over 25 years).
> Examining possible future public sector asset sales, including some aspects of the Highways Agency (land value of £80 billion) and intangibles such as spectrum, landing rights and emissions trading.
Fiscal policy is political. Politicians must not shy away from explaining in detail how they will tackle the problem of deficits and debt. The proposals outlined in this paper do not constitute an exclusive or exhaustive list. Major, specific areas of potential savings are identified though the examples are illustrative and represent only a first, rough, attempt. Undoubtedly more are required to meet the exacting fiscal disciplines that will be required.
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Sounded like a hawk, governing like a hawk, ergo is definitely a deficit hawk.
william
The reason 10 year gilt yields have hit an all time low is the market’s appreciation of the coalition’s deficit reduction programme.Without it, HMG would pay Irish type rates.Can we please learn the lessons of Brown’s calamitous spend and borrow, so that the electorate realises we have learnt the lesson.
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