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”
Stephen W
You accuse the Conservatives both of supporting Labour’s high spending plans and of having an ideological desire to cut spending and shrink the state. Which is it? Either they supported high spending or they are consumed by a desire to cut spending? It cannot be both!
You say Labour was not responsible for the deficit, and you blame the recession, but you ignore the £100 billion structural deficit. If you’re having trouble with the terms I will explain. Structural means not caused by the recession. That’s £100 billion that was not caused by automatic stabilisers and £100 billion a year that needs to be addressed if we are to avoid a debt crisis.
The IFS, Melvyn King and Tony Blair all admit that Labour got it wrong on this section of economic policy. http://conservativehome.blogs.com/leftwatch/2011/01/ed-miliband-is-still-in-denial-about-labours-spending-binge.html
Until Labour is also willing to admit they got it wrong they will be unable to move on. It’s not the end of the world, people do get things wrong. It does not mean they can’t be trusted ever again. But first there must be honesty. Labour made a serious mistake.
Frances London
RT @leftfootfwd Ed Miliband is right to expose the Tory "deceit" on debt http://bit.ly/gmo0Z8
matthew fox
@ Mike Thomas
What was George Osborne’s advice to the UK, in 2006?
Can you explain to me what happen to the North Sea Oil Revenues of £300 Billion that where generated between 1979-1997? because if you consult the history books, Labour came to power inheriting a National Debt of £400 Billion.
When people describe Labour inheriting a ” Rolls Royce Economy ” they tend to gloss over some pretty awful stats.
Fat Bloke on Tour
Will
Best of luck with your attempt to talk sense to a gaggle of Tory astroturfers and Mr Mouse. Main point is that AD had a plan to get us out of this global economic crisis but Sniffy and all the other ConDem dog boilers just see it as an opportunity to roll back the state to some sort of Edwardian idyll.
The point needs to be made about the quality of the figures the Treasury has produced over the past 18 months and how the issue of the structural deficit has been over stated, doubley so since the OBR or as they are colloquially known the “three brothers grimm” have got involved.
Their 8.8% structural and 2.3% cyclical split of the 2009/10 deficit is probably the most shamelessly political stat put out by officials since the Treasury put a bend on its deficit forecasts that Beckham would be proud of.
Back to the cyclical deficit number, this is a complete sham cooked up to allow Sniffy to “fire up the chainsaw for a lot of slash and burn”. It is based on a 4% output gap, that is what we can produce and what we are producing.
Does the UK look like a country that is only missing 4% of its possible GDP?
Even the previous Treasury figure of 6% looked suspect, again does the UK look like a country that is producing 6% less than it can?
However this change to the output gap from 6% to 4% allowed the OBR to reduce the cyclical portion of the deficit from 3.3% to 2.3% meaning that the structural deficit couldbe increased to 8.8%. Very handy for the dog boiler now in charge of the country’s economy.
The main thing to point out is that an 11% deficit is not Treasury breaker it is made out to be. We have a private sector surplus of 10% to go with it so we can fund our own debt from within. Add in the heavy public sector investment included in the figure and a realistic view of the output gap like 8% and the structural deficit is looking at 4%’ish and consequently not the bogeyman figure it is often portrayed in the media.
Finally compare and cotrast the 1991 recession, a pimple in the post war economic history of the UK, in some places it was never noticed due to the prevailing poor economic conditions and the 2008 Credit Crunch, the biggest global financial shock in 135 years.
1991 = 2.4% drop in GDP / 8.7% deficit including limited public sector investment.
2008 = 6.4% drop in GDP / 11.1% deficit including significant public sector investment.
Ask now who was running the country properly when the global economic events turned sour?
Consequently I hope that Milli-E goes long and loud on the shambles the ConDems are making of the recovery.
Finally the double dip is out there, the second half of 2011 is looking shaky if it gets caught up with the global third wave of the crisis.
David
This is sophistry with statistics; the fact is that Brown borrowed tens of billions of pounds more every year than he got back in tax, since 2001/2, and this was extra debt that had to be paid for – i.e. the interest on the growing loan – and it doesn’t matter what the ratio was to GDP, it was hundreds of billions of real pounds extra borrowed over the space of just a few years. It’s like me saying that racking up ever more debt on my credit card doesn’t matter because my house is worth more; a lot of people did that and we know where they are now – in the bankruptcy courts. The left, and Ed Miliband, is in complete denial. If Labour had got back in it would be the IMF who snapped them out of this – just like the last time.