Some things are worth repeating because they are that important and some things should be repeated because they were not heard, or listened to, the first time. Some fall under both categories.
Some things are worth repeating because they are that important and some things should be repeated because they were not heard, or listened to, the first time.
Some things fall under both categories.
It is testament to a failure in communication on the left that in the years immediately after the financial crisis the consensus was allowed to form that under Labour spending got out of control. The hangover from this communication failure persists in the public’s continued reluctance to trust Labour on the economy.
It is seemingly forgotten now, but the Tories promised to match Labour’s spending plans right up until 2008; in the aftermath of the 2010 election, however, a drawn-out Labour leadership contest allowed David Cameron to define the post-crisis landscape as the hangover of a spendthrift Labour Party.
The country was in a mess and the only ones who could clear that mess up were the Conservatives, who would reign in the excesses of the Blair and Brown years and bring some temperance to proceedings.
It is worth repeating, then, something pointed out by Martin Wolf in today’s Financial Times (£): in the years leading up to the 2007/08 financial crisis – the supposedly out of control, spendthrift years – UK net public debt was close to its lowest ratio to GDP in the past 300 years.
As the graph below shows, government debt as a percentage of GDP was well below average under Labour and rose, predictably, as a response to the collapse in GDP – as it would. And why does this matter? Because the relevance of the amount of money spent by government is related to how big a proportion of GDP it is, not how much is spent in total.
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While debt is now higher than it has been for a considerable period of time, the blatant dishonesty in the claim that spending was out of control under Labour has more to do with finding a rationale for stripping back the state than it does with dealing with any perceived ‘debt crisis’.
60 Responses to “Once again on Labour’s ‘out of control’ spending”
LB
So why do they not report how much they owe the people for the money they have paid in the past for their future pensions?
Under all the accounting rules, that is a debt or liability that must be reported.
However, the government doesn’t do that.
Now you are seeing the consequences with all the parties talking about capping pension payouts. Pensions are welfare. Capping welfare means capping pensions.
I’m all in favour of borrowing if, and only if, the savings (cuts) from the investment exceeds the cost of borrowing, or the income from the investment exceeds the cost of borrowing.
That’s the decision that needs to be made.
So if you want a new railway line – not a problem. The condition is do the ticket sales pay off the debt? Yes or no.
The question for you, if you run the government accounts like Bernie Maddoff, what happens when the Ponzi collapses.
If you don’t know what a ponzi is, ask.
In the interim, tell us how much they owe for the pensions. You might find it a tad hard to find the numbers.
Redshift1
“So if you want a new railway line – not a problem. The condition is do the ticket sales pay off the debt? Yes or no.”
I think this sums up the problem with your analysis. The answer is that with all the projecting in the world, noone knows. An investment inherently involves some risk.
Now with reference to the economic crisis this is what happened and is why we’re running a large deficit. Investments failed so businesses failed. We bailed out the banks. People got laid off, tax income declines, welfare increases. People took pay cuts or hour cuts to save their jobs, tax income declines, welfare increases.
It isn’t all about we spent too much on x, y or z but about dealing with a situation when the economy has gone tits up. If we don’t get the economy moving, we’re never going to rein in the deficit. We need growth and we to get people back to work. If Osborne realised that we wouldn’t have had 2.5 million unemployed for the past two years. We wouldn’t have had sod all growth. And most ironic of all we might not have even lost the AAA rating.
And coming back to your accountancy question – it would be plain mental for a government to project more than a few years in advance. There are too many variables (as the economic crisis proves).
LB
So answer the basic question.
Can the state pay its debts, pensions included?
Remember, if you say it can always print, that the debts are linked to inflation. So if the state pension is 100 a week, and a coffee costs a pound, then the state has to provide enough notes to buy 100 coffees.
It’s a bit hard when you have agreed to pay people more purchasing power than the economy can generate.
That’s the core problem.
It means that people won’t be able to buy 100 coffees. It means pensions will be slashed.
You can disprove this by listing the debts as a starter. Then listing the assets.
If the assets debts, it isn’t.
Remember to include all the debts.
RicardoRed
No, it was a financial global crisis, and one that politicians seems to be among the last to know about. Only when RBS went to Brown to say they’ve got a big problem did he know. The government should have been in a position to have a far greater insight earlier as to what was going on, but as it’s become clear this was a systematic failure across the the banking sector and the same lack of awareness happened across the world
montywarne
The government debt:GDP ratio was low in the years leading up to the financial crises, but a large percentage of the GDP was the spending of personal borrowings fuelled by the housing boom. The underlying GDP, with this debtors boom stripped out, was a lot smaller and therefore the underlying government spending:GDP ratio was much worse that the graph indicates. The government was living off the tax collected on excessive private borrowing – hence its enormous deficit after the inevitable crash.