Last Thursday in the Lords I led a debate on the the Impact of Government policy on Family Budgets. It was a good debate although it would have been nice to hear from some other benches than the Labour ones, but second debates on a Thursday afternoon are often not popular.
When I was winding up the debate at the end I made Lord Sassoon on offer. I said:
The Minister started off his comments by saying that it is difficult but that external forces are responsible for making the recession more drawn out and more painful. If he is going to pray in aid external forces now for why his Government’s economic policies are not working, he cannot talk any more about the legacy that they inherited and the economic mess because that was down to the external forces of the global financial crisis. I shall come to a truce with him: I will not bang on at him about how he has got it all wrong, how everything that is going on with the economy of this country is all the Government’s fault and I will admit that there are some external forces if he, too, will stop going on about how it is all the horrible inheritance from the Labour Government because that was all down to the global financial crisis. Before that hit, our level of debt in this country was the second lowest of any of the leading industrialised nations in the world.
There is a serious point about being grown up here. Ed Balls has said that we didn’t get everything right, in particular we under-regulated the banks, but that the deficit is largely down to the global financial crisis. It is true that, prior to the global crash, amongst the G8 only Canada had a better debt to income ratio than the UK. So it is fair to say that the economic inheritance was largely as a result of global forces out of the control of the Labour government. Equally it is true that the crisis in the Eurozone is having a significant effect on our ability to trade our way into growth and on business and consumer confidence. Therefore the Opposition can’t solely blame Government policy for the economy going backwards since the Coalition took office.
The sad truth is that this reality is too muddy for modern politics. The sound bite communication age means media want black and white arguments. Politicians and journalists collude in assuming that the public can’t absorb such sophistication on something as dull as economics. So it suits the Coalition to blame the inheritance on Labour and the current problems on the rest of the world. It suits Labour to say it was not us but the Global financial crisis, and the worsening economic outlook is all down to the Tories.
I had hoped that the Lords was a more sober chamber where, away from the theatre of the media spotlight in the Commons, we could do things differently. I’ll keep trying.
All rather simple isn’t it.
If you take 50% of what people earn, you’re the biggest villain in affecting people’s income.
Mind you, if you need your job and it costs us 2,700 a day to run you, you’re going to carry on making sure the poor person on minimum wage has to work for more than a year to keep you in a job for a day. (2,500 in tax for someone on minimum wage).
The British standard peasant has to work for over a year to keep you going for a day.
So let me ask you a question.
How much does the government owe people for the state pension? (Net present value) It’s the major debt that the government has, and as a proposed expert on the economy, you’re going to know the top 5 government liabilities aren’t you?
“he cannot talk any more about the legacy that they inherited and the economic mess because that was down to the external forces of the global financial crisis.”
And where was the crisis in 2000-2007? Labour came to office with 350Bn in debt and following the Tories spending plans brought that down to ~300 (’01) and then went on a public sector spending spree pushing the debt to 500 before NRock went bust and the crisis developed. That’s 150Bn we didn’t have for the crisis or to shield the economy from a massive structural deficit increase.
“the deficit is largely down to the global financial crisis.”
At the crisis the SD was ~4% which was higher than any comparable/major economy. Indeed compare Britain which was averaging ~2.5% SD (OECD) in the five years prior to the crisis with Spain, Holland or Canada which ran a surplus. Comparable G8 or EU countries didn’t have such prior SDs enabling their SD to rise without massive debt increases.
“So it is fair to say that the economic inheritance was largely as a result of global forces out of the control of the Labour government.”
The debt accrued from the bailouts certainly but not covering the non-cyclical SD during the crisis and the debt repayments covering the SD prior to the crisis.
“Equally it is true that the crisis in the Eurozone is having a significant effect on our ability to trade our way into growth and on business and consumer confidence. ”
Well we agree here at least. But of course the 09 stimulus while giving a short term boost to jobs immediately prior to the election had a wholly predictable bigger hit to jobs and GDP in the years immediately following.
“It is true that, prior to the global crash, amongst the G8 only Canada had a better debt to income ratio than the UK.”
A sleight of hand. Firstly Labour can hardly claim credit for the debt/GDP ratio created over 300 years nor for that matter is that figure in and of itself most significant. The key issue for the servicing of debt is the maturity time-line. If you compare the UK to the G7 (as was) then Italy/Sp/Jp/Ger/US all had short term external debt in the 5 years to the ’08 crisis at ~ less than 50% most less than 30%. The UK by comparison went from 200% to 300%
As to Canada since Labour excluded PFI from its debt figures the comparison is apples and oranges.
“The sad truth is that this reality is too muddy for modern politics.”
Coughs 🙂
The British standard peasant has to work for over a year to keep you going for a day.
The East Europeans and Russians who come to the “West”, and probably the Asians from rural Philippines and Thailand as well, are not in the least bit afraid of thinking of themselves as peasants. There are none in the British countryside, in the traditional sense.
There are plenty of urban peasants, with low life ambitions, coarse opinions, and so on, but the rural land worker is well paid, well trained, well housed in local (urbs) towns,
and a rarity among men (Drat that muck spreader).
Even though there were 40% of the population of Spain were “Campesinos” or “Paysanos” in the early 60s when I first studied the culture, today all housed in expensvie apartments in town, they are thoroughly ashamde to have anything to with the countryside, except when they return for their summer genealogical prayer time, in August;truth to know exactly the same in Gret Britain.
Blagger’s assertion of a day’s pay for one being a year’s pay for the other, is not so far from the truth, but is pay necessarily the criterion for pleasure,job satisfaction, happiness, way of life and a multitude of other things that the townee capital-ist has to do without?
Occupy campers are in the wrong place at the wrong time. They could be Christian socialists (idiorhythmic cenobite sketes)
or Atheist socialists viz the atheist socialism of Soviet Russia, but which ever they are,
” campin’ ain’t something to do on Capital concrete! You gorrer start digging somewhere to plant yet bread and it ain’t outside yet tent in St Paul’s Churchyard!!!”
No quotes available from Anna Karenina but the same applies.
I’m sorry but Labour also need to apologise for running a deficit when times were good. Other countries may have done the same, and I’m sure the Conservatives would have too, but this recession would have been a lot easier to get over if we were able to increase rather than contract spending. Obviously this is basic Keynesian economics but somehow the idea that permanent budget deficits would never do any harm caught on (I guess it’s good for elections as long as you’re not around when it goes ugly).
How about a new deal in which the three main parties agree not to run structural deficits in future?
It is worth looking at this Treasury graph: http://www.flickr.com/photos/hmtreasury/5260056945/. It shows the cyclical nature of things as well as the scale of the challenge. The last Labour government ran a budget surplus in three years out of the 13 in office, compared to two years during the 18 years under Thatcher/Major. It shows the Major government higher deficits in the early 90’s recession that was not on the scale of the 2008 crash. The fall in GDP has only been exceeded in the 30’s (see http://www.guardian.co.uk/news/datablog/2009/nov/25/gdp-uk-1948-growth-economy#zoomed-picture). The golden rule appeared to be working until the collapse of Northern Rock in 2007 and then the global crash following Lehmanns collapse in 2008. Then the dependency in receipts from the City was exposed and the deficit soared, with increased welfare payouts and reduced tax income adding to the problem.
“The last Labour government ran a budget surplus in three years out of the 13 in office, compared to two years during the 18 years under Thatcher/Major.”
As Labour pledged to follow Tory spending plans in the years immediately following the ’97 election and only decisively broke with them and substituted their own spending plans after 2001 it’s not exactly a ringing endorsement of Labour on the debt curve. However that’s not the central problem, the 97-2001 figures are distorted by windfalls, one intended and the other somewhat of a surprise: the winfall tax on industry (5Bn) and the 3G mobile band sales (21Bn). Strip out those figures and its rather less impressive!
“The golden rule appeared to be working until the collapse of Northern Rock in 2007”
Err in 2005 the definition of the rule was changed to the period starting 97 (not 99) allowing the government to spend more and claim it was meeting it’s own test. However as Labour excluded PFI liabilities the rule was meaningless anyway.
Thanks for your reply. You’re quite right to say the Tories were guilty of near-permanent deficits too. That’s why we need to ensure any current consensus about balancing the books isn’t forgotten about a few years or decades down the line. “The golden rule appeared to be working [with lots of fudging] until…” it didn’t.
Lisbeth Salander’s remarks (2009) in that Guardian link, are relevant,noting the effect of inflation in the previous cycle in the 70s.
“This is not about being right, it’s about doing right” (‘Law & Order’ USA TV).
Similarly, just as in addressing “climate change” we should be specifying “climate-worsening”,
here we must be about “doing things better”
Doing things “differently” is one of the many old political saws that aims to quietly-and-controlledly transfer us masses from the frying-pan to the fire.