Gerry Jones, Branch Secretary for New Malden in Kingston & Surbiton CLP, provides a detailed analysis of public finance after the latest Liberal Democrat / Tory Coalition Budget, and exposes the Coalition “myth-making” about Gordon Brown and Alistair Darling’s role in the global recession.
Commenting on George Osborne’s 2013 Budget, Ed Miliband has said, “Wages are flat. Prices are rising. Living standards falling and squeezed further. Low growth. What the Government offered in this Budget was no change, just more of the same. They are resigned to a lost decade of national decline. Perhaps a little more objectively the OBR (Office of Budget Responsibility) has concluded “that while some of the Chancellor’s measures will have a small positive impact on economic growth, others will have an equally small negative impact. The overall impact was negligible and deficit reduction appears to have stalled“.
Osborne’s Not So Big Ideas
For example, the Chancellor’s ‘big ideas’ for helping house buyers with shared equity loans for borrowers and mortgage guarantees for lenders can do little to increase the housing supply (with new starts now the lowest since the 1920’s) More likely they will just distort the market and push up prices. And changing the remit of the new Governor of the Bank of England (Canadian Mark Carney) to include economic growth is unlikely to do much good between now and 2015. Since 2010 the main contribution of the Bank of England has been £375 billion of ‘Quantitative Easing’. This deluge of bank-printed money has seen the interest rates on our savings dwindle. These lower interest rates have in turn skimmed an additional £200 billion from UK pension funds.
Coalition’s Failing Strategy
When David Cameron & Nick Clegg first set out the Coalition ‘growth strategy’ they had a fairly simplistic neoliberal view of British society. It was “…..over-reliant on welfare, with mass worklessness accepted as a fact of life and around five million people now on out-of-work benefits. It has become increasingly hostile to enterprise.” The Coalition clearly views its three year onslaught on local government, our schools and universities, the NHS, and our system of benefits as part of this ‘growth strategy’. But these moves have often had the effect of adding cost, demotivating staff and reducing accessibility. A key part of the Cameron/Clegg strategic agreement was the reduction of public sector deficit.
Spending Cuts Halted Growth
As a result in 2010 the Coalition immediately opted for large cuts in capital spending – despite their high GDP impact – and indirect tax increases – in spite of their high inflation impact. The effects on the UK economy are there for all to see – growth has collapsed (in 2012 housing investment fell by 7%, subtracting 0.4% from GDP) and now inflation is on the rise. Cameron ironically set great store by progress in various international negotiations (the Doha world trade round, the EU-India trade agreement and the Basel committee on banking reform) – all these have stalled.
And while the Coalition has continued Labour’s support for a pilot Carbon Capture project, High Speed Rail, Crossrail and Superfast Broadband, the progress towards a government-aided British Business Bank has been painfully slow. Small businesses still struggle to get investment funding from the banks.
Better With Labour!
So the Coalition ploughs on with its ‘double dip’ policies and the Chancellor’s right hand man, Danny Alexander is now looking for even more spending cuts and tax rises (unless, of course, you are a millionaire!). Whisper it, but if Messrs Cameron, Osborne & Alexander could have forgotten their neoliberal obsessions and stuck to Alistair Darling’s original 2010 programme, growth would now be higher, unemployment would be lower and almost certainly our public sector debt would be reducing more quickly. At the Birmingham policy conference Ed Miliband concluded by saying, “The task of one-nation Labour is to halt the slide into a lost decade for Britain.” It is a pity that we must wait till 2015 before Labour’s next Budget can start that recovery. Meanwhile we must content ourselves with Ed Ball’s hypothetical 2013 Labour Budget which would:
- reverse the millionaires’ tax cut;
- protect the tax credits that help work pay for millions;
- reintroduce a 10p tax rate – paid for by a new tax on houses worth over £2 million;
- introduce a temporary cut in VAT; and,
- reform energy markets to get a better deal for consumers.
In the opening remarks of the Chancellor of the Exchequer’s 2013 Budget speech George Osborne took credit for ‘cutting the deficit by a third’. What he didn’t say was that as a % of GDP, public sector debt has actually risen from the 53% they inherited from us and is now approaching 90% of GDP. According to the OBR, public borrowing for 2012/2014 will be £360bn and in 2014/15 George Osborne will be borrowing £70bn more than he forecast in 2010. As the table of HM Treasury data above shows, back in 1997 when Tony Blair and Gordon Brown took over in Downing Street, net public sector borrowing had just fallen from £39bn to £29bn. But public sector debt had stayed at 42% of GDP although growth was 3.9%.
|GROWTH & PUBLIC SECTOR DEBT 1995-2012|
|Year||Gov’t||GDP Growth (%)||Public Sector Borrowing (£bn)||Public Sector Debt (% of GDP)|
Labour initially stuck to Tory spending plans and by 2001 brought the debt ratio down to 31% of GDP. By 2008 we had significantly increased public sector spending and infrastructure investment. Public sector debt increased to 37% of GDP but growth averaged 3.2%. Then came the financial meltdown! The banks had to be bailed out and the economy shrank and with it, the amount of tax that could be collected. In 2009 (and for the first time!) Labour posted debt numbers higher than we had inherited from the Tories in ‘97.
A tale of four chancellors
When we left office in 2010, public sector debt had risen to 53% of GDP but the economy was on the mend and growth had risen to 1.8%. Over their first two year’s of government the Coalition have indeed reduced the deficit by a third (in cash terms) but this was largely at the expense of massive cuts to Labour’s public investment projects and by also increasing VAT. As a result the UK economy has been damaged as growth first halved to 0.9% and then dropped to zero. Basically it is economic growth that balances the books: cutting public expenditure results in unemployment, increased welfare payments and falling investment all of which shrinks the economy and increases the public sector debt as a percentage of Gross Domestic Product.
Labour’s policy is a careful and targeted investment in infra-structure and a budgetary policy to enable ordinary people on middle and low income to have money to spend in the UK economy (as opposed to the Coalition focus on giving more to the already wealthy). This is the way to get the economy growing. It is not, as the Liberal Democrats and Tories in the Coalition Government want to portray it, borrowing to spend on anything and everything.