May 21, 2017 by Paul Goldsmith
I actually can’t take it anymore. It is economically illiterate and it is self-defeating and it has to stop. It is like someone lighting a fire, which is an inferno when the fire brigade arrives, and then the person who starts it runs around replacing the brigade’s water with oil, and fanning the flames, whilst screaming at the fire bridgade that they can’t believe the fire isn’t out. Yes, Labour’s repeated taunts about the national debt really are that preposterous. Self-defeating too, as it brings attention back onto how the fire got started in the first place.
Look at the picture above. It is being posted by smug Labour supporters who think it makes a helpful point about the Conservatives’ management of the economy. At first glance, it seems pretty cut-and-dried. The National debt was £980 billion in 2010, when Labour was last in Government and it was £1,731 billion at the end of 2016, after six and a half years of Tory rule. Case proven, right? WRONG.
Have a look at the chart below. It shows net borrowing as a percentage of GDP. Net borrowing is the difference between tax revenue and government spending, otherwise known as the deficit. This was about £160 billion when Labour left office in 2010. That is the highest bar on the chart. You might notice that the bars go down from there, as the Conservative Coalition and now Goevrnment have reduced this deficit by around £20 billion a year. At the moment it is about £50 billion a year.
So, having left a deficit of £160bn, and a national debt (cumulative deficits added together), of just under a trillion, Labour have noted that the debt is bigger. Well, duh! Were the Tories supposed to have eliminated the deficit in their first year in Government? Impossible. In fact, what the Tories chose to do is to cut spending, added to a few tax rises, and slowly eliminated that deficit. Very slowly, slower than they originally hoped. But at every turn, every cut, Labour opposed them. Every single one. So yes, every year a lot of deficit (decreasing every time) got added to the national debt, but that is because Labour left such a massive deficit.
Now, yes, they left that deficit mostly because of the action they took to save the banking system and to try and stimulate the economy to stave off depression during the financial crisis. A financial crisis that wasn’t caused by Labour.
But look at the seven years between 2001 and the start of the crisis in 2008. Those were times of economic growth. During times of economic growth that deficit should have been a surplus (tax revenue greater than government spending). But it wasn’t, as Tony Blair and Gordon Brown chose to spend and maintained a deficit of around £40 billion a year. This means there was no financial room to manoeuvre when the inevitable recession came. Of course, Brown had boasted that he might have abolished boom and bust, so may not have been ready for that recession. But when it came, a huge amount of public money was thrown at it, which meant the Conservatives inherited a massive deficit.
Here’s my point, every time Labour mention the addition to the debt under the Conservatives, the Conservatives can just point to what they were left with. Best summed up by the note left by the last Labour Chief Secretary to the Treasury, Liam Byrne, to the first Coalition replacement, David Laws: “I’m afraid there is no money.”
Maybe Labour supporters don’t understand the economics behind this? Maybe they think that the public don’t understand the economics either. But given the current economic credibility gap between the two parties, they had better not bring constant attention to it. Pictures like the one at the top of this article do just that.