Latest attack on Ed Miliband not backed up by the facts

As the cuts debate rages, the ippr's senior economist Tony Dolphin looks at whether the latest critique of Ed Miliband's economic policy is justified.

As the cuts debate rages, and strategies for campaigning against them are discussed at today’s Netroots conference, Tony Dolphin looks at whether the latest critique of Ed Miliband’s economic policy is justified

Phil Collins took Ed Miliband to task in yesterday’s Times (£) for not confessing to the hubris that he says afflicted the Labour government ahead of the financial collapse and recession. His charge is that Labour was too optimistic about economic growth at the time and, thus, too optimistic about government revenues. As a result, government spending was too high and the deficit problem that the country now faces is, in part, due to this misjudgement.

There is an element of truth in this analysis – though it must be said that Labour’s hubris was shared by most leading economists and by David Cameron and George Osborne, who promised to match Labour’s spending plans.

In 2007, the UK economy had experienced 15 years of uninterrupted growth, unemployment had fallen by 1½ million from its peak in 1993, inflation was close to its target rate and interest rates were at historically low levels. Things do not get much better than this and if ever a government should have been running a surplus on its current budget, the UK government should have been in 2007.

But, according to the figures in the June Budget documents, the cyclically-adjusted deficit on the current budget – the measure that George Osborne targets to be zero by 2015-16 – was just 0.6 per cent of GDP in 2007-8. If Labour were guilty of fiscal profligacy, it was hardly on a grand scale. There is little doubt that the vast bulk of the deficit problem is the result of the financial collapse and recession.

Ed Miliband is right, therefore, to counter Tory talk of ‘Labour’s deficit’. How much blame he should accept on behalf of Labour when doing so (he did say in his conference speech that Labour was wrong to think that there would be no more boom and bust) is largely a political judgement – and one on which he and Phil Collins clearly disagree.

What matters more, though, is whether the diagnosis of the problem affects the remedies put forward to cure it. The Conservative (and post-election Liberal Democrat) view is that the deficit is too high because public spending is too large relative to revenues.

Their solution, therefore, is a drastic deficit reduction programme tilted heavily (77:23) in favour of spending cuts. Deficit reduction under Labour, if their last budget plans are any guide, would also be achieved largely by spending cuts (accounting for over 70 per cent of the total), though these would be spread out over a longer period.

Both parties, therefore, appear to accept to a large degree that the problem is excessive public spending. But why not increase revenues more?

The Tories, supported by their Lib Dem allies, want to reduce significantly the share of government spending in GDP, Labour’s plans would produce a similar outcome; who, then, will make the positive case for taxation to fund excellence in the state provision of health, education, defence and other services?

Of course, the best – and least painful – way of boosting government revenues, and thus ensuring support for public spending, is to increase the growth of national income. Once it is accepted that the deficit has arisen largely as a result of the recession, it should be clear that more effort needs to be put into public policies that promote economic growth.

George Osborne has spoken about the need to rebalance the economy and generate more growth through investment spending and exports, but he seems largely bereft of ideas to bring about this about.

The failure of the government to come up with enough measures to fill a white paper on growth suggests a new form of hubris has overtaken the Treasury: a belief that deficit reduction, and admittedly some cuts in corporate tax rates, are all that is required to place the economy on a path of strong and sustainable growth. Sadly, this is unlikely to be the case.

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9 Responses to “Latest attack on Ed Miliband not backed up by the facts”

  1. Shamik Das

    Also gd: RT @leftfootfwd: Latest attack on @Ed_Miliband not backed up by the facts: by @ippr's Tony Dolphin #Netroots

  2. jencrago

    RT @leftfootfwd: Latest attack on @Ed_Miliband not backed up by the facts: writes @ippr's Tony Dolphin #Netroots

  3. Ed Marriott

    What ‘cuts’ exactly are you (and most of the media referrring to?

    Are the editors aware that government spending for the current fiscal year of this coaltition goverment is projected to be SIGNIFICANTLY IN EXCESS of that in the year of the last labour goverment?

  4. Stephen W

    “Of course, the best – and least painful – way of boosting government revenues, and thus ensuring support for public spending, is to increase the growth of national income. Once it is accepted that the deficit has arisen largely as a result of the recession, it should be clear that more effort needs to be put into public policies that promote economic growth.”

    But in this you are precisely wrong. Estimates for the structural deficit have ranged between £70 and £110 billion. This element is not going to just go away when we return to growth. It must be dealt with by clear policy choices. You are clear and straight away avoidin g this difficult truth because it does not mesh with your dogmatic commitment to ever higher public spending.

  5. Daniel J

    @ Stephen W.

    Of course the structural deficit must be tackled – but tackling it now, while the economy is weak and barely growing, threatens to exacerbate the problem by stripping demand out of the economy at the worst possible moment. The right seems to approach the issue as though tax receipts are entirely unaffected by government spending. Of course it’s much easier to accuse the left of a “dogmatic commitment to ever higher public spending” than it is to examine the complexity of tackling a deficit during a period of global economic retrenchment.

  6. Nigel Wootton

    The current high level of National Debt (the Tory’s “Budget deficit”) has been inflated by around 10% since the Coalition came into Government, last May. They nevertheless still had a high level of National Debt, to start with. That debt was primarily caused by a very serious world financial crisis, which began in 2006, in the United States, under the administration of George Bush. U.S. banks sold a vast number of Sub-Prime Mortgages to low-paid and poor people in inner city areas, who very rarely can afford to re-pay them. Sadly, Northern Rock did exactly the same at this time, while its Chief Executive also siphoned off millions of the banks money. Low-paid and poor people who defaulted on their mortgages suffered harsh penalties, including swingeing repayment rates, and the repossession of their homes and all of their valuable property as well. In America, large areas of housing would thus be earmarked and cleared for re-development. Very many of America’s historic inner-city housing has been affected in this way, and families made homeless and penniless. Black and Hispanic groups have been hit the hardest by this corporate fraud. The defaulting on repayments of Sub-Prime Mortgages soared much more dramatically than U.S. Banks had expected. In turn, consumers were dramatically drained of their wealth, and U.S. Banks were also drained dry of their Financial Strength. The U.S. Banks became so heavily burdened in debt, that other banks around the world that lent to them also became debt burdened. A domino-effect of critical debt, banking insolvency and lack of credit rippled around the world. Banking Underwriters were gleaned dry of their cash, and were worse affected than the banks themselves. No financial institutions have been unaffected by the world Credit Crunch Crisis. President Obama, Gordon Brown, and other world national leaders bailed out the world’s banking industry by issuing Government Bonds as loans to the world finance industry, in order to prevent their total bankruptcy. After that, it was also necessary of national leaders to provide further cash injections of tax-payer’s money, known as “Quantitative Easing.” The objective of this is to stimulate bank loans to businesses and for infrastructure projects, in order to increase employment and business growth. Negative economic growth, combined with very limited supply of credit would be a recipe for disaster for jobs, businesses, world trade, and the banks. So far, mass world insolvency has been staved off, but economic recovery is currently hesitant. The BRIC countries (Brazil, Russia, India and China) are holding the world economy together by nurturing the largest rates of Business and Employment growth. Other Latin American and South Asian Countries, along with Australia are also growing. The U.S., rest of the Far East, and Europe remain stagnant with little redress against unemployment. (I also recently have begun to expect that U.S. jobs, and the U.S. economy will now grow quite considerably).
    Since 2006, a swathe of conservative Governments have swept to power across Europe. They on the whole oppose the Liberal, and Social Democratic financial solutions to the Credit Crunch crisis that I’ve described above. They tend to resort to reducing National Debt far too quickly, and thus depressing jobs and growth. The bigger economies in the Euro-zone, France and Germany are drawing the money supply to themselves, so that smaller EU countries are starved of cash and put into crises of debt. Resulting austerity measures against the people have resulted, with waves of protests, demonstrations and strikes across Greece, Spain, Portugal and Ireland. Belgium and Italy are also badly affected by cash and budget shortages. The BRIC countries are hurt by the economic stagnation across Europe, because they desperately need to trade with Europe and the rest of the world. World economic growth has slowed, this year.
    For further reading:
    In Britain, the Coalition Government has wrongly blamed Labour for the high National Debt. The Tories have widely publicised that blame, in order to become elected to Government. The Tories also promised that they would leave the structure of Public Services intact, in order to become elected to Government. Right Now, public services are under-going 330,000 job-cuts. There currently are reports of widespread shortages of drugs and vaccines in the NHS. Hospital waiting-lists are about to soar, as they are bed-blocked with the disabled and elderly who will lose their independence at home due to the Tory cuts. The cruel Tory mistreatment of the disabled and elderly are likely to breach Human Rights Legislation. The large loss of Public Sector jobs are likely to knock-on around 700, 000 further job-losses in the Private Sector. Company Sales Revenues are now drastically falling due to Family Budgets and Purchasing Power being cut. That includes cuts to Tax-Credits, Social Security, and also hikes in VAT, fuel duty and rail-fares. Meanwhile, Corporation Tax (as usual under the Tories) is being reduced. Chancellor George Osborne has spoken of the necessity to “rebalance the economy, and generate more growth through investment, spending, and exports.” However, there does not seem to be much evidence that the Chancellor has applied his theories into policies for the delivery of the results. There is no need to unduly attack Ed Miliband on Policy.

  7. Mike Thomas

    If you want to espouse naive Keynesianism now, then why did Labour over-stimulate the economy by running a deficit during much of the 2000s?

    Debt was up on 1997 even before the recession, why? If the economy was in such great shape, why could Labour finance its spending out of taxation like any other sound money exponent.

    Instead, Labour left office with unemployment up and higher than 1997, a country heavily in debt, more so than 1997 and an economy skewed thanks to a complete lack of any economic strategy or plan.

    A long term plan that Ed Milliband was responsible for incidentally.

  8. Stephen W

    The economy is growing at a perfectly decent rate. The left is taking a naive view if they think hundreds of billions of unnecessary debt will not have a negative effect on growth and the public finances for years to come.

    I remember during the election campaign when every leftist was claiming that £6 billion of in year cuts would plunge us back into recession. Didn’t happen. I remember until very recently when ever leftist was claiming spending cuts would push us back into a double dip recession. Didn’t happen. And now we have leftists claiming we should just wait another year, another year, and then start cutting. All the time debt keeps piling up and piling up. I just don’t buy it.

  9. John Perry

    Tony Dolphin speaks at the end of his piece about ‘strong and sustainable growth’. If the piece is a contribution to thinking on economic policy for the left, then surely we have to find a way of breaking our dependency on ‘strong’ economic growth which is all too likely to be anything but ‘sustainable’. Growth depends on resources, and as this admirable series in The Nation is beginning to explain very clearly (, resources are increasingly in short supply and are going to cost more – whether we are talking about oil, natural gas, rare earths, iron ore or dozens of other minerals vital to growth. If a potential Labour government in 2015 simply plans to continue business as usual, it will be ignoring realities that by then can surely no longer be brushed under the carpet. These considerations should increasingly inform Labour’s thinking, and one virtue of having Ed Miliband as leader is that – just maybe – he has the awareness and is brave enough to do it.

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