Ed Miliband is right to expose the Tory “deceit” on debt

Ed Miliband has come out fighting in today's Times pointing out Tory "deceit" on the deficit. The truth is uncomfortable for the Government.

Ed Miliband has come out fighting in today’s Times arguing that “a great deceit designed to damage Labour has led to profoundly misguided and dangerous economic decisions”. The truth is uncomfortable for the Government.

Ed Miliband writes (£):

“What is this deceit? It is that the deficit was caused by chronic overspending rather than a global financial crisis that resulted in recession and a calamitous collapse in tax revenues. One pound in every five of corporation tax disappeared in 2009-10. Their deceit ignores the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason.

“Their deceit seeks to rewrite history, airbrushing out the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997. And it forgets that neither of the two parties now in government called for lower spending at the time.”

How true. The Tories were committed to sticking to Labour’s spending plans until after the collapse of Lehman Brothers on September 15th, 2008. As the graph below shows, it was only as tax revenue fell through the floor and “automatic stabilisers” – like unemployment benefits and increased tax credits – kicked in that the deficit opened up. Prior to that point, the modest Public Sector Borrowing Requirement was due almost entirely to capital spending – entirely acceptable under the old fiscal rules.

Chart: Public spending and revenue (% GDP)

But in his 2009 new year’s message, David Cameron opportunisticially referred for the first time to Labour’s “debt crisis“. He followed up with a speech that March on “Labour’s debt crisis”. The Conservative propaganda around George Osborne’s conference speech in 2009 referred repeatedly to “Labour’s debt crisis” and David Cameron continued the attack after the general election.

Going into May 2010, the Lib Dems supported Labour’s spending plans (although that didn’t stop some of their candidates distorting the facts on debt). The Lib Dems only diverged from Labour’s fiscal policy at some point after they first sniffed the scent of power in that dramatic weekend in May. Yet by August they’d completely forgotten their pre-election policy with Chris Huhne taking the Tory line and declaring:

“A decade of spend, spend, spend meant Labour hid their heads. And they are still hiding them. Labour’s leadership candidates say that spending was not the problem. It was taxes. Nonsense.”

Understanding the truth about the deficit is critical to understanding the right response. Rhetoric about a “debt crisis” only raises expectations for calamitous policies like the rapid cuts to public services or the ideological rise in VAT which was only necessary to pay for tax cuts to corporation tax, council tax, national insurance, and income tax. Don’t be fooled.

62 Responses to “Ed Miliband is right to expose the Tory “deceit” on debt”

  1. Will Straw

    Thanks for the comments. I won’t respond to all the points but instead point to this link from Channel 4 News’ Fact Check which exonerates our blog and questions the Tories’ own figures today.

    //blogs.channel4.com/factcheck/whos-deceiving-who-on-the-deficit/5465

    The only thing I’ll add is that Labour bringing down debt from 1997 to 2007 meant that it had the wiggle room for the recession. That’s been one of the reasons for the cheap cost of borrowing by historic standards.

    Mike Thomas – I disagree entirely with your analysis but thanks for pointing out the lack of a scale earlier. My bad.

  2. Charity Solutions

    RT @leftfootfwd: Ed Miliband is right to expose the Tory "deceit" on debt //bit.ly/fOm5pG

  3. Jack Sutcliffe

    Great take down of Tory debt "deceit" by @wdjstraw on @leftfootfwd //bit.ly/fOm5pG

  4. Mike Thomas

    Will,

    C4 Fact Check does not exhonerate you at all. It’s already give LabourList a slapping down for claiming it does.

    Where exactly in my analysis have I been incorrect, please do tell me?

    A political party cannot pick and choose economic theorem to suit its political ends. A Leader of Opposition with a substantial economic responsibility cannot pick and choose his economic argument.

    The facts are clear, Labour spent and spent and was wholly irresponsible to allow the economy to drown in cash and Labour displayed all the fiscal rectitude of a Lotto winner in Las Vegas.

    Take some responsibility.

  5. Anon E Mouse

    Fat Bloke On Tour – Nice to see you back fella…

  6. Rezdoggy

    Just want to point out that the Tories were arguing that the banks shouldn’t be regulated whatsoever in 2007 and it was only in 2008 that they suddenly changed song and started screaming “blame labour” (as Will said). To be fair on them, it worked. People believed them and they are now in government. Kinda says something sad about British politics.

  7. Owen Jones

    @xkatetaylorx Have a read of this: //tinyurl.com/39rpfjt

  8. Left-ish

    @Mike Thomas:
    Actually C4 Fact Check does, broadly speaking, fit in with the basic argument that LFF is putting forward. The above graph is pointing out that tax revenues dipped vastly during and immediately following the banking crisis. As C4 Fact Check concludes, “the drop in tax receipts triggered by the economic crisis is what’s behind the bulk of the £149bn deficit”. This is not to say that Labour did not spend foolishly prior to the banking crisis; they certainly did in several areas, not least in defence. But it’s hardly true that overspending ’caused’ the deficit, whatever the Conservatives might argue. In short, if LFF are claiming that a massive drop in tax revenues due to the banking crisis was a major factor in the spawning of a vast deficit- and so are C4 Fact Check- then they’re not really wrong are they?

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