Debt has become a convenient cover for ideological cuts

We must be watchful of a spinning of facts by this government to justify its policies. Nowhere has this been more apparent than when Cameron and co talk about government borrowing.

That Robert Chote, the head of the Office of Budget and Responsibility (OBR), decided on a public letter to the prime minister rather than a quiet word last Friday, tells us a lot about how dramatic was the perceived misrepresentation of the OBR findings by David Cameron.

It was also a timely reminder of how we must be watchful of a spinning of facts by this government to justify its policies.

Nowhere is this more apparent than when Cameron and co talk about government borrowing. It has been from this narrative that the whole justification for austerity has emerged.

It is therefore important to check the statements of this government and hold them up to proper scrutiny.

“First, the last government borrowed too much money…they saddled the country with the worst debt crisis in our history.” (George Osbourne Conservative Conference Speech 2011)

“Now this deficit didn’t suddenly appear purely as a result of the global financial crisis. It was driven by persistent, reckless and completely unaffordable government spending and borrowing over many years.” (David Cameron, 8 March 2012).

Let’s now check these statements against the facts.

When comparing how much the government borrowed year upon year, the most meaningful comparison is to compare the amount of debt leveraged compared to the size of the economy (GDP) for that year.

We can then compare the last Labour government’s borrowing with that of other governments since 1900 and see how it compares.

Debt

 

The graph shows that, between 1997 and 2010, the Labour administration averaged out as the lowest  20th percentile in comparison with the last 112 years. In  2001 they borrowed the 8th lowest yearly percentage and in 2002 they borrowed the 10th lowest  yearly percentage since 1900.

To put that in its historical context, the Conservative administration of Margaret Thatcher averaged at its lowest 30th percentile and another Conservative administration of Eden and McMillan averaged within the lowest 70th percentile for their administration.

The conclusion is that if the last Labour Government did leave the Country with an unsustainable debt, this charge would also need to be leveled at the previous Tory administrations of Thatcher, Eden and McMillan.

This analysis also provides another portent lesson as well: from 1945 to 1960 government debt did increase 64 per cent from £21.4 billion to £33.08 billion. However, GDP grew by 522 per cent within that same period, therefore making the debt unproblematic.

For Conservative and Labour post-war administrations alike, it has been growth that has been the key to financial success not the reduction of national debt per se: a cross-party ethic that this government seems to ignore.

Another issue raised consistently by the coalition is related to the interest payments on the debt.

Our growing annual debt payments threaten our “whole way of life”, said David Cameron in 2010.

The below graph is part of a parliamentary briefing paper.

It shows the size of the UK’s debt repayments in comparison to GDP from 1955.

Graph2

Although the recent rise is a concern for the government (and of its own making), to make the conclusion that it is a threat to our “whole way of life” is ridiculous if one considers the historical evidence.

David Cameron seems to revel in hyperbole about debt, however, for in 2012 he stated:

“We inherited a deficit …. bigger even than Greece. This has meant taking decisions no other government had dreamed of taking before.”

After putting the UK’s current debt in a historical perspective, we can compare it to other similar countries. In the below graph, we compare the Gross National Debt against the size of the country’s economy (GDP) for the G7 countries – including for Greece – for the year 2011.

As we can see, the UK has a comparative Debt to GDP ratios as that of Germany and Canada, and is in a superior situation to that of the United States and far better then Italy, Greece and Japan.

Graph 3

What is clear is that the UK historically and comparatively speaking is not experiencing a “once in a lifetime moment” .

The tragedy is that this narrative is preventing the investment needed to push this country out of recession, whether in terms of the infrastructure spending, the education, research and development and new technologies that are vital to our future competitiveness.

7 Responses to “Debt has become a convenient cover for ideological cuts”

  1. LB

    Where’s the pension debts?

    Why are you using GDP and not taxes?

    Perhaps you’ll loan me some money. I don’t earn much but my neighbours do. If I include their income with mine I’m a safe bet.

    There is 5,300 bn of pensions debt. That’s didn’t exist in the past.

    2005-2010 it went up by 736 bn a year according to the ONS.

  2. Selohesra

    and there was me thinking Govt spending had gone up – sometimes wonder if both Labour & Conservative both like to big up the scale & impact of cuts

  3. Sensible Lefty

    Thanks you for you great concern about the pension liabilities.

    How would you make sure people get paid there pensions?

  4. Newsbot9

    …He’s an anti-pension shill.

  5. Newsbot9

    Yes yes, and doesn’t exist in your future. Same old shilling.
    And I’m sure you meagre millions are SO bad.

  6. Newsbot9

    The cuts have stopped growth. And raised borrowing. They’ve taken demand out of the economy…there’s absolutely no structural reason we should be in this much trouble!

  7. Newsbot9

    It’s a once in a lifetime moment. For the Tories.
    Track their slowly declining support over the years – about 2% per decade. Unless they can change the narrative entirely, change how Britain works to favour them so much more strongly when their voters base is shrinking..

Leave a Reply