By Jonathan Isaby
Labour leader Ed MIliband has written a piece behind the Times' paywall today that he has now helpfully reproduced on his own website.
He accuses the Government of propagating "a great deceit designed to damage Labour" over his party's handling of the economy:
What is this deceit? It is that the deficit was caused by chronic overspending rather than a global financial crisis that resulted in recession and a calamitous collapse in tax revenues. One pound in every five of corporation tax disappeared in 2009-10. Their deceit ignores the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason.
Their deceit seeks to rewrite history, airbrushing out the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997.
I'll leave it to the economists to provide a detailed rebuttal of his assertions, but suffice to say that by maxing out the nation's credit card and failing to fix the roof while the sun was shining (to coin a phrase), Labour did massive damage to the country and that record speaks for itself – as former Chief Secretary Liam Byrne seemed to find it so funny to joke about.
Until Miliband is willing to accept that, he has zero economic credibility.
CCHQ has issued an excellent rebuttal of Miliband's various claims. I reproduce it below.
Incredible claim 1: Labour did not over-spend and bears no responsibility for the deficit.
“Neither is it true that Labour is to blame for the deficit… What is this deceit? It is that the deficit was caused by chronic overspending rather than a global financial crisis that resulted in recession and a calamitous collapse in tax revenues.”
Truth: Going into the crisis Britain had one of the largest structural deficits in the developed world. Tony Blair, Alistair Darling and Mervyn King have argued that Labour’s spending was “extraordinary”, not “sustainable” and that from 2005 Labour failed to deal with the deficit.
Institute for Fiscal Studies: ‘By the eve of the financial crisis, [fiscal drift under Labour] had left the UK with one of the largest structural budget deficits in the developed world… the vast majority of other OECD countries did more to strengthen their public finances during Labour’s first eleven years in office than Labour did in the UK’ (IFS, The Public Finances: 1997-2000, 19 April 2010, p. 2 and p. 10).
The Governor of the Bank of England: ‘We are confronted with a situation where the scale of deficits is truly extraordinary. This reflects…the fact that we came into this crisis with fiscal policy on a path that wasn’t sustainable and a correction was needed’ (Mervyn King, Guardian, 24 June 2009).
Tony Blair: ‘We should also accept that from 2005 onwards Labour was insufficiently vigorous in limiting or eliminating the potential structural deficit. The failure to embrace the Fundamental Savings Review of 2005-6 was, in retrospect, a much bigger error than I ever thought at the time’ (Tony Blair, A Journey, pp 681-2).
Alistair Darling. [by the autumn of 2007]‘We had reached the limits of what I thought we should be spending’ (Alistair Darling, The Times, 19 November 2010).
Incredible claim 2: The deficit was caused only by a collapse in tax revenues in 2009-10
‘[The Coalition’s deceit] is that the deficit was caused by chronic overspending rather than a global financial crisis that resulted in recession and a calamitous collapse in tax revenues.'
Truth: During the crisis spending grew faster than tax revenues fell.
The fall in tax revenues made up less than a quarter of the deficit. Official figures show that public sector current tax receipts fell by 2.5 per cent in 2009-10 on 2008-9. But Total Managed Expenditure grew by 7.4 per cent in the same year. (HMT, Public Finances Databank, 7 December 2010, Table C1 and Table B1).
Net taxes and NICs peaked in 2007-8 at £516 billion, and fell to a low of £477.8 billion in 2009-10 – ie a drop of £38 billion. This is less than a quarter of the deficit which reached £156 billion in 2009-10 (HM Treasury, Public Finances Databank, Tables C1 and Key)
Incredible claim 3: Under Labour Britain’s national debt was lower than under the Tories
‘Their deceit seeks to rewrite history, airbrushing out the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997.’
Truth: Labour more than doubled the national debt
Labour doubled the National debt. In May 1997, public sector net debt was £351 billion. By April 2010 it had more than doubled to £893 billion (ONS, Time Series RUTN, 16 September 2010).
Even in real terms (at 2009-10 prices), at the start of the credit crunch in August 2007, the national debt was £530 billion, higher than the £466 billion national debt Labour inherited from the Conservatives in May 1997. (ONS, Time Series HF6W and HMT, GDP Deflators, 29 September 2010).
As a result of which we are spending £120 million per day on debt interest. In 2010- 11, debt interest payments will be £42.7 billion or £120 million per day (OBR, Economic and Fiscal Outlook, November 2010, Table 4.14, p. 106).
Britain had the second largest increase in debt in the G7 between 2007 and 2010. According to IMF figures debt as a share of GDP grew from 38 per cent in 2007 to 69 per cent in 2010. This is the second largest increase in the G7 behind Japan (IMF, World Economic Outlook Database, October 2010).
Incredible claim 4: the deficit reduction programme is not necessary
‘neither is it true that … the deficit reduction programme being pursued by this Government is necessary.’
Truth: Britain is showing leadership in dealing with our problems.
Britain’s deficit reduction plan has been praised around the world. The IMF called it ‘essential’, the OECD said it was ‘necessary’ and the World Bank said it is ‘important’
IMF: ‘The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery… With record-high budget deficits, credible fiscal tightening is essential to preserve confidence in debt sustainability’ (IMF, United Kingdom – Article IV Concluding Statement, 27
OECD: ‘The comprehensive budget announced by the government on 22 June was courageous and appropriate. It was an essential starting point. It signals the commitment to provide the necessary degree of fiscal consolidation over the coming years to bring public finances to a sustainable path, while still supporting the recovery’ (OECD, UK: Policies for a Sustainable Recovery, 13 July 2010, p. 3).
The World Bank: ‘What frankly is being done in Britain is courageous and important. It’s going to have to be done elsewhere to deal with the uncertainty created by very, very, very large debt’ (Robert Zoellick, President of the World Bank, Sky News, 6 October 2010).
Incredible claim 5: The Coalition is cutting too far
‘Mr Osborne is going too far and too fast on the deficit’
Truth: Labour say they want to eliminate the deficit. Doing so slower would make the cuts bigger due to the higher cost of interest payments.
Alan Johnson: ‘We need to get the structural debt eradicated’ (BBC Today, 4 Jan 2011)
According to the OBR, debt interest payments would be £8 billion higher in five years’ time under Labour, at £67.2bn rather than £58.9bn under the Coalition. (OBR, Pre-Budget Forecast, 14 June 2010 and Economic and Fiscal Forecast, November 2010).
Incredible claim 6: The Coalition is cutting too fast
‘Mr Osborne is going too far and too fast on the deficit’
Truth: 2011 was the year of the biggest consolidation in Alistair Darling’s last Budget.
Darling’s plan amounted to £13.5 billion of spending cuts in 2011/12, compared to £8.5bn in 2012/13, falling to £6bn in 2013/14. (HMT, Budget 2010, 22 June 2010, Table 1.1 and Footnote 2).
The graph below from the Treasury compares the consolidations planned in the March Budget (ie by Labour) and in the June Budget and the updated OBR Autumn Forecast (ie by the Coalition). 2011-12 is the year of the biggest consolidation under Labour’s plans. (HM Treasury)
International experts like the OECD, IMF, European Commisssion support the Government’s measures. 89 per cent of UK business leaders agree that the government’s policies will improve the state of the British Economy according to the 2010 Captains of Industry survey from Ipsos MORI. 75 per cent say that the deficit needs to be cut quickly, which increases to 85 per cent of FTSE 350 respondents. Last year, 70 per cent in the same survey disagreed with Labour’s economic policy (Ipsos MORI, Press Release, 5 January 2011).
'On growth, our concern is that conditions are not right for the rapid rebalancing that the Chancellor is hoping for.'
Truth: Labour spent 13 years pursuing an unbalanced economy. There are signs the necessary rebalancing is emerging.
This week’s headline Purchasing Manufacturing Index was at its highest since 1994. New orders rose to 58.7 from 56.8, with export orders rising to 59.9 from 57.9 (Credit Suisse, Economics: UK manufacturing PMI points to solid, export-led growth, 4 January 2011).