Michael Burke discusses how the coalition's economic policies represent a transfer of income from poor to rich, and how the Daily Mail are deficit dunces.
UPDATE: Left Foot Forward gives its sincere apologies. The piece is entirely accurate about the status of debt, however the headline had previously stated that the issue on hand was the deficit and for that our sub-editing skills deserve a dunce’s hat like the Daily Mail.
The national debt level has passed the £1 trillion psychological mark – and on cue the Tory press has manufactured a sense of alarm and outrage. Typical is the Daily Mail, whose headline screamed:
“£1 TRILLION: Our National Debt pushes through barrier to reach £40,000 per household”
But, then again, when do Daily Mail headline writers do anything other than scream?
To gauge the importance of large numbers requires meaningful comparisons. The chart below shows the level of public debt in the British economy in relation to GDP. This represents the income from which public debt must be financed, both the interest and the debt repayments as they fall due. Under the impact of the most severe recession since the 1930s public sector debt as a proportion of GDP rose from 35.5% to a projected 60% this year. This compares to a peak on the debt of 178% of GDP during the Great Depression, under Tory-led administrations.
The much milder recession under John Major was not a global phenomenon, but a uniquely British disaster of Tory policymaking. Yet the downturn then, just a fraction of the recent slump, produced a comparable rise in the debt level from 26.2% of GDP to 42.5%.
The policy pursued in the Great Depression, and under both Major and Thatcher, was to reduce government spending in response to rising deficit and accumulating debts. In all cases, the effect was to exacerbate the downturn – causing unemployment (and reducing income taxes), while providing tax breaks for companies and the rich. In every case the deficits rose and (apart from the windfall of North Sea oil under Thatcher), so did the national debt. This Tory-led government will produce the same result.
The debt level of £1trillion needs to be seen in light of the fact that the annualised level of GDP is currently £1.46trillion.
Even so, £40,000 debt per household does seem like a lot of debt, which comprises the other part of the Mail headline. Especially as households’ average wage incomes are not much more than £26,000. Except that this is a government debt, not a household one. Government revenues arise from both the household sector (direct taxes like income tax and indirect ones like VAT) and the business sector (corporation taxes, etc.).
But the effect of government policy is increasingly to shift the burden of taxation away from companies and towards individuals, especially the poor. While VAT was hiked, a string of other taxes were cut including corporation tax while the upper earnings limit on National Insurance was frozen. The amount gained from raising VAT is almost exactly equal to the amount lost from these tax cuts which benefit companies and the rich, £13bn compared to £12bn. These measures are therefore not about debt or deficit reduction at all. Together they represent a transfer of incomes from the poor to the rich.
The Office for Budget Responsibility recently forecast falling real incomes over several years, at the same time as modest real GDP growth. The Tory-dominated coalition does not dispute this. Logically, if total real incomes rise but the majority experience falling real incomes, then this must mean that a tiny minority will experience very strong income growth.
It is the falling incomes of the poor that are being saddled with the burden of the debt, while the rising incomes of the rich have tax cuts. This will prevent any significant reduction in either the deficit or the debt levels.
There is an alternative: The national debt was even higher after the costs of WWII. A Labour government which nationalised industries, introduced the welfare state and had a massive housebuilding programme was able to produce a sharp fall in the national debt, as the chart shows. Above all it is the commitment to full employment which rescued the economy and government finances in the process.
45 Responses to “The Daily Mail are debt dunces”
13eastie
@Jon #4
How is anyone to reason with denial such as yours?
Do you actually contend that there was no deficit prior to the “international banking crisis”? That during Brown’s “un-pree-cee-dented period of growth” Labour continuously balanced the books?
As far as debt in the 19th century is concerned, you fail to recognise the obvious contrast: government investment in the 1800’s built the biggest empire the world has seen and left the UK as the most powerful nation on earth. Thirteen years of Labour has seen the UK itself fragment, while we are being overhauled by our competitors, marginalised internationally, and undermined by the EU.
THERE IS SIMPLY NOTHING TO SHOW FOR BROWN’S DEBT.
ZILCH.
UNISON East Midlands
The Daily Mail are deficit dunces http://is.gd/nuIgck
BenM
I see a small error has got the Tory debt hysterics piling in. Don’t know what 13eastie has been drinking but it sure has made him annoyed.
13eastie – the debt has ENSURED THAT UNEMPLOYMENT HASN’T BREACHED 3 MILLION. THAT’S TENS OF THOUSANDS OF HOUSEHOLDS SAVED FROM THE BLIGHT OF UNEMPLOYMENT.
It is usually wise not to listen to the counsel of a hysteric.
LondonStatto seems to think the debt to GDP ration “should have been below 30% before the crisis”. Why? Who says? LondonStatto? Why should anyone listen to LondonStatto for advice on the level of National Debt? Many western governments had debt much much higher than this at 2008 prior to the private sector caused credit crunch.
The fact is that we have seen a small uptick in the Borrowing Requirement as unnecessary, economy destorying Coalition spending cuts kick in. We are about to re-learn the lesson of the Great Depresssion – cutting spending too soon maintains a deficit and, like Ireland, can even increase it.
No amount of Tory shrieking about debt will wish that kind of Tory driven whammy away.
Richard
So Andy C relies on that emminently unrelialble source of information Wikipaedia. He truly takes the dunces cap.
Richard
Biggest empire on the earth that asset stripped entire countries by force, that ran a slave trade, that suppressed the indigenous population, that ruled dictatorially with an iron fist, that tortured, starved and killed hundreds of thousands of people for not being white British, to name just a few of the atrocities committed in the name of empire. There is nothing at all in that to be proud of – unless, that is, you’re seriously and irrevocably deranged.