Out campaigning in the Meon Valley, I noticed much frustration and not a little anger amongst voters. Most of my attempts to articulate Labour’s policy were quickly cut short with a cross ‘And crash the economy? I don’t think so’ and the voter marching off!
We live in peculiar times: experts in their fields are discredited by some politicians, whilst simple narratives are touted as the solution to complex problems.
Billionaires with dubious motives employ genius writers, who successfully convince us in popular newspapers that a square is really a circle. But what’s the truth here? What do the facts say? Is the Labour Party really economically dangerous?
To quickly clarify key economic terms, Public Sector Net Debt (PSND) is the total amount of debt we owe in the UK. Public Sector Net Borrowing (PSNB) or the Current Budget Deficit is the total amount the government has borrowed in a year. Comparing these debt measures to a percentage of Gross Domestic Product (GDP) is also useful, as it shows how much debt we owe compared to the size of the UK economy. Annual Tax Receipts is the total government income in one year.
In the chart above, we can see in the first four years of the Tony Blair government 97-01, Labour ran a PSNB/Current Budget surplus and in the next six years, Labour ran a small Current Budget deficit, which was mainly used for infrastructure investment. The Current Budget deficit was high for a long time after the Conservatives gained power in 2010, but did eventually reduce as the national and global economy recovered.
Labour were doing great with the economy until the global financial crisis or Great Recession of 2008 hit. This worldwide financial crisis originated in the United States – financiers were collecting up bad mortgage debts and repackaging the bad debt into ‘new and innovative financial products’ – in other words, mis-selling bad debt as good debt. Once stock markets realised what had been going on, they crashed worldwide as they readjusted to compensate for the bad data.
The Great Recession of 2008 wasn’t created by The Labour Party as the Conservatives falsely claim: in fact most economists agree Deficit spending (as Gordon Brown did during 2008/9) stimulates the economy and overall costs the economy less. In a recession, you have to borrow money (deficit spending) to artificially prop up the economy until it is strong enough to stand on its own two feet again.
History has proven that this fiscal stimulus strategy in a recession overall saves money and prevents a recession turning into a 1930’s US style depression – the Great Depression being an example of when no such strategy was initially used. Eventually, deficit spending was used in the US Great Depression and this was what finally led the US out of it. Gordon Brown was the first to adopt this deficit spending strategy upon the outbreak of the 2008 global financial crisis, leading others to say that Gordon Brown had ‘saved the world’.
So, what is our total PSND and how has it risen in recent times? The UK National Debt is currently 1.8 Trillion Pounds and has more than doubled since 2010 when the Conservatives took power; it doesn’t seem fair to blame Labour for this huge increase in our national debt, when it is ten years since Labour were in government.
Labour’s 2019 election manifesto spending plans would have only meant spending a similar amount of money per year as Germany and France, both of which have very successful economies. These spending plans were hardly an existential Marxist threat to us – that idea is absurd!
The current Conservative government is captured by the idea of heavy deregulation, with its mistaken belief that the wealth created will trickle down to all of us and provide for all. Yet in any economic system, too little regulation is equally as reckless as too much – the same rule applies with government spending.
Our enlarging national debt may be caused by the UK productivity gap – we are less productive per person in the UK when compared with similar countries. Britain needs a new economic vision, wage rises need to be supported by genuine sustainable economic growth, not asset bubbles that will eventually burst.