David Gauke is Financial Secretary to the Treasury and MP for South West Hertfordshire.
There is a framed Matt cartoon which sits on a table in my Treasury office. The cartoon appeared in the Daily Telegraph in the run up to the June 2010 Budget. It shows a father leaving home for work. At the front door, his young son shouts out, “Have a good day at the Treasury, Dad. Be brave, try not to cry.”
I am not sure the state of the economy ever quite reduced any of the members of that 2010 Treasury team to tears, but we should not under-estimate the scale of the crisis we faced. At over 10 per cent of GDP, our borrowing levels were the highest in our peacetime history and forecast to be the highest in the G20. A sovereign debt crisis was raging and the fiscal plans of our predecessors were widely seen as inadequate to restore the UK’s credibility. The risk of contagion was real.
Tough decisions to reduce the deficit were necessary, but some doubted how the public would respond to an era of spending cuts unprecedented in modern times. Unemployment had risen to eight per cent and many commentators believed it would rise much further. Our banking sector was crippled and small businesses were struggling to access finance. And, as the IFS has pointed out, such was the size of contraction in the economy in 2008 the knock-on effects on living standards would feed through for many years.
Appropriately enough, the Treasury Ministers who appeared outside Number 11 for the traditional photo call were a pretty sombre bunch. “Grim-faced”, the newspapers described us. The Government faced a choice between the disastrous and the unpalatable and, even though we were all confident that the Chancellor was about to set out the right measures for the country, that did not diminish the fact that we knew that not everyone would see it that way.
Nearly five years on, and yesterday the Chancellor delivered the final Budget of the parliament. Of course, we continue to face significant challenges but the contrast between the state of the economy in 2010 and 2015 is striking.
In 2010, Labour politicians argued that measures to reduce borrowing would mean higher unemployment. Harriet Harman, the acting Leader of the Labour Party, responded to the Budget by stating that it was a Budget that was “bad for jobs” and that “private sector jobs will not spontaneously emerge as we see fewer people employed in public services…this budget will hit private sector jobs as well as public sector jobs”.
It hasn’t quite worked out like that. Employment is up by 1.9 million (private sector employment is up by 2.3 million) and our employment growth rate since 2010 has been the fastest in the G7. The latest employment numbers show that the UK has the highest rate of employment in our history. The OBR predicts unemployment will fall to 5.3 per cent, nearly three percentage points below the rate we inherited.
On growth, we were the fastest growing economy in the G7 in 2014. Over the course of the last parliament, the UK has grown faster than any major European economy, including Germany. Yesterday, the OBR uprated its projections for growth in future years.
Despite the challenges we have faced, it is now clear that living standards have risen over the course of this parliament and are forecast to improve strongly over future years.
As for the deficit, the consequences of financial crash and the Eurozone crisis made progress harder than the OBR and others predicted in 2010. But had it not been for the difficult decisions made in 2010, we would not have halved the deficit as a percentage of GDP and would not be on course to reduce Government debt next year.
Over the course of this parliament, our long term economic plan has enabled us to step back from the brink. We are delivering an economic recovery that provides more job opportunities than ever before, secures the public finances and enables us to lower taxes. We have gone from a period of bleak pessimism to one of cautious optimism. Yes, there is still more to do but it is unlikely that Treasury Ministers in the next Parliament will need to be told to “be brave, try not to cry”.