Labour need to cease and desist their self-destructive line of attack on the deficit and debt5
December 5, 2014 by Paul Goldsmith
UK budget deficit as % of GDP
When you have to rely on the public not understanding Economics to make your point, you are really grasping at straws. So glancing at the many tweets from Labour figures, in addition to comments to the press and even in the Commons Chamber, about the Coalition’s management of the economy I have reason to be concerned for Labour.
The context is that the Coalition, rather eradicating the deficit (the amount that government spending exceeds tax revenue) as they promised by the end of this Parliament, haven’t even managed to halve it. This means that whilst in 2010 it was £168bn, it is now about £90bn. This means that £90bn is being added to our country’s debt every year. When the Coalition took over, our national debt was £1trillion and now it is £1.5trn (that is 1500000000 that we owe to our creditors), which means that we are paying about £50billion a year in interest on our debt, more than we spend on education. So there is a problem.
But where I think Labour is going wrong, and inviting ridicule and easy answers from the Conservatives in particular, is how they are attacking them for not meeting their deficit targets. It is hard enough for Labour to gain credibility on the economy having run up the deficit that they did (specifically for arriving at the recession in 2008, however it was caused, after 15 years of solid growth, without managing to create a budget surplus). It is hard enough for Labour to gain credibility with little explanation of how they will balance the books in the future. But when they use the tactic they used today, it really does make it too easy for the Conservatives to come back.
So what was the tactic. It was to point out all day that the Tories had ‘added to the debt’. Yes, fine, they have. But they had to get the deficit down from £168bn!This means that even if the Tories had managed to get the deficit down to zero as they thought they would, they would still have added to the debt. If they had achieved that feat, Labour would be in an almost impossible position now. But Labour instead are, whilst trying to point out that the deficit hasn’t come down as promised, are simply reminding us every time they mention the debt that they put us in £1trn of it themselves.
The Conservatives’ answer to this is pretty simple: “We led this economy into recovery. We started to get Labour’s deficit down. Every step of the way Labour has opposed the cuts we have tried to make to spending. Imagine what the debt and the deficit would be had they still been in charge. Imagine what would happen if they were in charge again.”
So if I were Labour, I would stop this line of attack. Quickly.
Now I shall show my ignorance of Economics…. If the deficit had been brought to zero, why would the government still be adding to the debt? Are deficit and debt different?
Yes, deficit is the difference between tax revenue and government spending every year. If the latter is higher then the the deficit grows. So if tax revenue is £500bn and government spending is £600bn the deficit is £100bn. The debt is the cumulative amount of these deficits. If the deficit was £100bn for 5 years, then £500bn would be added to our debt. My point is that to get the deficit down from £168bn in 2010 to £0bn now would have meant, assuming the deficit was reduced by around the same every year, it would have been £130bn in 2011, £95bn in 2012, £60bn in 2013, £30bn in 2014 and £0bn by the election. To do that would have still seen the debt grow by 130+95+60+30 which is £315bn. It’s not until you run a surplus, with tax revenue above government spending, that you start getting the debt down.
Eloquently put, as always, but it should also be added that (as mentioned on your post) we are paying £50bn a year in debt interest alone so we need to add that into the pot too. It seems to me that all politicians do this which is a bit like doing your household budget and ignoring the mortgage payments!
That’s true. There is no doubt that a situation where we spend more on debt interest than we do on education isn’t ideal but by the same token Labour should be careful about getting into any argument about debt and deficits unless they are on very firm ground, and in this case I think they are on quicksand
Now I understand the logic, thank you.
It seems to me we need radical changes to make politics – and economics in particular – comprehensible to the many so people can vote with understanding.