Posted: 19 May, 2015 at 12:20 pm
This critical period we have to choose the next person to lead our party into government in 2020 is being dogged by the question we should have dealt with decisively years ago – ‘Did Labour spend too much?’.
It’s one of the first questions journalists are asking all our candidates, and it is presented as a litmus test for the political outlook and views of each. This plays right into Tory hands. And it obscures the conversation we should be having within our party and with the country.
The answer isn’t about views or values, but cold facts and common sense – so let’s finally put it to bed.
Our argument simply, must be this: ‘In hindsight we should have closed the small deficit we had before the global crash by small tax rises or small spending cuts, but that’s a total distraction from the hard fact that the world-wide financial crisis and recession caused the UK’s large deficit by 2010, and it’s a diversion from the crucial post-crisis task of building a fairer, stronger economy which the Tories have still failed to do’.
When Northern Rock fell, both the government deficit and overall debt were lower as share of national income than in the last year of the previous Tory government.
Borrowing was 3.3% of GDP in 1996/7, and down to 2.7% in 2007/8. Government debt was 39.9% of GDP in 1996/7, falling to 36.7% in 2007/8. So Labour in government both cut borrowing and reduced the national debt.
However, we were still running a small deficit and in hindsight we shouldn’t have been at that point in the economic cycle. So there should have been either a small reduction in spending or a small rise in taxes, or both, to close down that small deficit. Or we might, of course, have held back on tax cuts. In normal times this deficit would have remained marginal and entirely manageable. But then the worldwide banking and economic crisis hit, totally out of the blue.
The Tories, who of course backed our spending plans until late 2008, have since tried to make a completely different argument: that it was Labour’s small deficit in 2007/8 which somehow caused the much larger deficit that as a country we faced by 2010.
That is completely and categorically false.
The large deficit by 2010 was the result of a global crisis of capitalism and a Labour government rightly doing what only governments can do – borrowing to help pull Britain through recession and keep the country running by helping firms stay in business, workers stay in jobs and people facing repossession stay in their own homes. We were also able – though we’ve made too little of this in the last five years – to stimulate jobs and growth, including through a £1.5bn boost to our house-building programme that I led in government, which meant by May 2010 the economy was recovering strongly and growing a full 1% in the quarter the Tories took over.
The public finances became a political issue when the Tories decided they could twist the truth for political gain. From the Labour’s budget in 2009 onwards – and not just during our last leadership election in 2010 – they redefined the central political challenge from economic recovery to public spending. And we didn’t do enough to challenge them. But they also did it because they had no answers to the real post-crisis economic question. Not ‘did Labour spend too much?’, but ‘how can we make our UK economy more resilient by spreading wealth more widely, to everyone and all parts of the country?’
Now in 2015, the Tories still can’t answer this question after five years spent building an economy on low wages, growing consumer debt and uneven growth across the country.
One task for us, and for our Labour leadership candidates, is to force them to do so.
• This article first appeared on LabourList on 18 May 2015