Sunday, 17 May 2015

Labour's mess over public spending ...


Labour's leadership candidates (so far announced) don't even understand the mess they're talking about, says Andrew Fisher ...

At the Leaders' Question Time programme, Ed Miliband was met with groans when he said that Labour did not overspend in the Blair/Brown years.

Of course, by most measures it didn't and Miliband was right. Labour under Blair and Brown spent less as a percentage of GDP (a smaller proportion of what the nation generates in total) than did the governments of Thatcher and Major - as the graph below shows:

And as the graph below by Michael Burke shows, Labour ran a surplus for more years than either Thatcher or Major managed:

However, Labour let the lie that they overspent get established. They didn't, but they never had a strong message for challenging it - and Miliband was derided when denying the overspending myth.

Miliband's muddle

The problem for Miliband went deeper though. Osborne said that Labour spent too much so that he could justify the slashing of public spending especially on social security, but also in other areas like further education, criminal justice, and social care. He did this alongside an attack on the pay and pensions of the staff who delivered those services too.

Miliband was always in a pickle since he and Balls stated categorically that they would not reverse any of those cuts, and would actually impose further cuts if elected. That's a strange policy if you don't believe Labour spent too much. It is implicitly saying to voters, "Labour [under Blair/Brown] wasn't spending too much, but it should be lower" - and that's why Labour didn't have any credibility.

From muddle to capitulation

Labour's capitulationist tendency - now vying for the Labour leadership - have a clear solution: denounce Labour's spending, capitulating to the myth that it was too high. These candidates are often described as Blairites, but in fact they're renouncing Blair - a more accurate description for their economic policies would be Tory (and probably the right of that party since Osborne and Cameron backed Labour's spending plans in 2007/08).

So when those like Liz Kendall, and the since-departed Chuka Umunna, say that Labour spent too much they are taking a position in the company of John Redwood and his ilk.

While Burnham and Cooper don't take that line - they carry on the Miliband muddle.

Can't we aspire to better?

Labour did spend more than it received in revenue (as the second graph above shows) and during an economic boom - Keynes would disapprove, but that doesn't inevitably lead to the conclusion that spending was too high. Instead of slashing corporation tax or even the basic rate of income tax, Labour could have increased revenues by leaving those tax rates where they were under John Major (lower than under Thatcher).

But this all rather misses the point - and that's about whether New Labour's economic model was sustainable in the first place. As John McDonnell wrote in The Guardian:
"When the Tories shamelessly accused the last Labour government of crashing the economy, they were right, but for the wrong reasons. The crash was not down to over-spending and over-borrowing, but down to the policy of lifting virtually all lending controls off the banks and finance sector; a policy promoted by both New Labour and even more virulently by the Conservative party."
Sadly that is not an argument likely to be heard in Labour's leadership debate, precisely because the parliamentary Labour party is either wedded to the the Miliband muddle or wants to jump into bed with the Tories. The left has been divorced.


1 comment:

Will Richardson said...

Substantially agreed with the major caveat that the surplus and too small stimulus combined with our foreign trade deficit mean that the private sector had to spend more than their income, to balance the national income accounts.

Here is a good set of graphs;

http://leapeconomics.blogspot.co.uk/2015/05/labours-mess-over-public-spending.html

Professor Bill Mitchell has excellent in depth commentary on it here;

http://bilbo.economicoutlook.net/blog/?p=30896