Jan 2011 15

The IPPR has a new research note out, you can read it here.  They claim:

“Analysis of the historical data on debts and deficits shows the UK’s fiscal position in 2007–08, immediately ahead of the recent recession, was reasonably sound.”

They provide some context, they are trying to support this political strategy of the Labour leadership:

“Reports of a recent shadow cabinet meeting suggest its strategy is to insist the deficit was not caused by overspending or fiscal carelessness. It will continue to argue that deficits have increased in all developed economies as a result of the financial collapse and recession, and that the government’s finances were in a healthy position before the crisis began.”

The first important point to note is that no one has accused the last Government of fiscal irresponsibility before 2000.  While they stuck to the previous Government’s spending plans the fiscal position continued to improve as it had since the end of the early nineties recession and the country ran a healthy surplus.

After 2000 the problems began as the Government put in place a massive rise in spending, which led Britain to leave the rest of the OECD far behind.  Spending continued to rise and, while there was a particular spike connected to the recession which was seen around the world, that spike was considerably larger in Britain and took spending to well over 50 per cent of national income.

General government total outlays, per cent of nominal GDP, UK and Total OECD, 2000-2010

Despite a strong economy and healthy tax revenues from a booming financial services industry in particular, that translated into increasingly large deficits relative to the rest of the OECD.  The advantage from the relatively healthy recovery of the public finances from the previous recession was eroded and then lost.  Even before the latest recession, Britain was borrowing substantially more than the OECD average and had been for several years.

General government financial balances, surplus (+) or deficit (-), per cent of nominal GDP, UK and Total OECD, 2000-2010

The extent of the problems in Britain’s public finances are widely acknowledged, here are just a few of the sources that show the extent of the problem:

  • In November 2009, an IMF report put Britain’s structural primary balance at the second worst in the G20 advanced countries.
  • Eurostat statistics show that Britain had the third highest deficit of any country in the EU27 in 2009, behind only Greece and Ireland (both being bailed out).
  • A report from the Bank for International Settlements in March 2010  showed that Britain has among the worst long term fiscal problems in the developed world.  They reported that:
“The results plotted as the red line in Graph 4 show that, in the baseline scenario, debt/GDP ratios rise rapidly in the next decade, exceeding 300% of GDP in Japan; 200% in the United Kingdom; and 150% in Belgium, France, Ireland, Greece, Italy and the United States. And, as is clear from the slope of the line, without a change in policy, the path is unstable. This is confirmed by the projected interest rate paths, again in our baseline scenario. Graph 5 shows the fraction absorbed by interest payments in each of these countries. From around 5% today, these numbers rise to over 10% in all cases, and as high as 27% in the United Kingdom.”

Even with a substantial fiscal adjustment they still projected an unsustainable rise in our debt ratio.

The IPPR report avoids these basic realities primarily by avoiding the context, not including a comparison with other countries in their time series data.

The Labour party can try to blame the problems on an international recession.  The reality though, is that when the economic tide goes out, you find out who is swimming naked.  Gordon Brown’s economic failure was that a decline in our economic competitiveness and fiscal position from 2000 meant that, despite a long run of economic growth, we were poorly prepared for any kind of downturn and increasingly exposed to one.

That doesn’t excuse the Conservatives of some responsibility for what went wrong.  A far more legitimate Labour response to attacks on their fiscal responsibility would be to point out that, for a period immediately before the crisis, the Conservatives were pledging to match Labour’s spending plans.  To that extent, the fiscal crisis is a result of a collective failure of the leaderships of both major political parties.  Attempting to pretend that their fiscal policy was responsible will not wash though, and it is inappropriate that a charitable think tank like the IPPR is trying to write such disingenuous talking points for a political party.

Matthew was the Chief Executive of the TaxPayers' Alliance, author of Let Them Eat Carbon and editor of How to Cut Public Spending (and still win an election)

  • Handsome B. Wonderful

    Yeah but it’s not as if Labour’s plan to increase public spending was a big secret. Blair was elected on a landslide in 1997 on the back of promises to tackle the problems that had been caused by a decade of Conservative tax and spending cuts – a crumbling transport infrastructure, poor schools, a NHS that was financially starved and stubbornly high levels of unemployment in areas which never recovered from the worst excesses of Thatcherism.

    The problem with New Labour wasn’t so much the amount they spent – it was the fact that money was never linked to wider reforms of services.

    • Anonymous

      Well, actually schools were fine – attainment was higher, as was literacy. The eceonomy was far stronger in 97 than it was in 2007. The NHS hasn’t improved and this is poor, but nothing was done to reform it appropriately as they would have been politically unpleasant. Of course, this ignores that there are fewer beds in 2007 than 1997 yet ten times as many managers and a few dozen more feet of legislation.

      No, it was not reform that was needed simply not to waste the money in the first place. Margaret Thatcher hasn’t been in power for over twenty years. Please grow up and appreciate that the problems this country has are related to the nonsense of high wages, low growth and endless socialist interference in the economy.

    • ISC

      What spending cuts? As a long-time campaigner for actual massive spending and tax cuts, I would have loved to see Thatcher make some. But she did not. No matter the left wing mythology which has grown up, where “cuts” were in reality a slight cutback on what the left would have liked to spend rather than any actual real cuts, the fact remains that state spending continued to grow inexorably.

      The problem WAS the amount Labour spent – spending when you did not have the money was just plain silly. Even if you follow the discredited doctrines of Keynes, you save money in the boom times. Which Brown did not.

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  • http://pulse.yahoo.com/_MLULJJC5KDB3A3HCQMIQDJ3JTI Peter

    ippr is headed by James Purnell, isn’t it?
    Purnell, former ippr policy wonk and now its head honcho, former ‘minister’, you know, the one who said on tv that Abraham’s illegal donations had been repaid when they had not.
    What else would you expect from him?

  • Eddie

    The Global crash came at the right time for Gordon Brown in one sense. The country was, in the face of a global boom, suffering the prospect of rising inflation, that would have resulted in the BofE having to hike interest rates.

    The inflation was caused by commodity prices escalating in the face of Chinese growth, and cheap money in the UK from easy lending, chasing too few UK manufactured goods, and ever more expensive overseas manufactured goods.

    As individuals were heavily in debt, an increase in mortgage rates at that time to bear down on inflation would have precipitated a crash to house prices and a recession similar to those of the Tory years, but due to the level of borrowing, potentially worse.

    The global crash allowed the B of E the excuse of lowering interest rates to prevent deflation, but we have been running higher rates of inflation than permitted for most of the time since.

    When Gordon Brown claims that this was a global recession, he is strictly speaking correct, but had it not been a global recession, we were headed for a UK one, made in Downing Street.

    The widening deficit that the UK was experiencing during the good ‘boom’ times, would have become much larger as the UK went into the inevitable bust that Brown thought was extinct.

    We had the bust anyway, but hiding behind it was the prospect of a UK only one, which made the impact on the UK as a result of the Global Crash hat much worse.

  • Emilyscat

    I can’t see how you can criticise anyone else’s analysis given your own appalling record for propaganda – TPA is a joke organisation that consistently peddles disinformation to the credulous and naive readers of the tabloids.

    • AdrianS

      Yeah right, it wasnt me Sir it was the other boy!
      I’m neither credulous, naive or read tabloids.
      The TPA has it right on so many occassions.
      Who do you spin for?

      • Tony

        Adrians – i am sure the TPA has been right on some occasions. I think what the public find misty about the TPA is the communication coming from people like you who pretend to be Joe Public but are in fact TPA website moderators… who do you spin for? not Joe Public…..

        • http://twitter.com/vi__sa Vishal Sawant

          Well, I am Joe Public, and I am all for transparency and more returns on the amount of tax I am paying. I am all for the TPA – the idea is right, and it is one whose time has come.

  • Emilyscat

    I can’t see how you can criticise anyone else’s analysis given your own appalling record for propaganda – TPA is a joke organisation that consistently peddles disinformation to the credulous and naive readers of the tabloids.

  • http://twitter.com/vi__sa Vishal Sawant

    Just one comment – the Tories were pledging to match Labour’s spending plans because of what happened at the previous election. They announced reduced INCREASES in spending and that was used against them by Labour. Labour produced charts which portrayed that as CUTS, and I am afraid most people were taken in by that.
    The Tories had to use language that wouldn’t cost them votes – yes, not the most honest of approaches, but one I am afraid they needed to take to get Labour out.

  • dreamingspire

    On yesterday’s Andrew Marr show, Ed Milipede used the global recession argument as per ippr briefing, then slowly admitted that Brown’s spending was indeed risky. He was more convincing when attacking the massive short term cuts being rolled out now, pointing out that economic growth is being stifled and the consequences of that.

  • Turbonorton

    Shocker! A Taxpayer funded left wing Think Tank (the IPPR) thought that the Government spending was OK and sustainable.

  • foolsgold gordo

    When asked in the commons, labour now have all the answers. They’re all the same. We are keeping the quangos and high paid council executives and getting rid of school crossing patrols. The only answer from any party is to rob the tax payer. Mostly the pensioners and motorists. They have no other answer have they. What can they be spending money on that shows no benefit whatsoever? They want us to buy foriegn TVs and cars to boost our economy, rather than building them ourselves and selling them abroad (or anywhere for that matter). Is that because our middle men make more money out of selling a Korean car than the Koreans do? We’ve had it anyway, the recession is now firmly the coalitions fault and not labours as they have been in power for over six months (memories ain’t what they used to be) and labour will be voted back in soon as!