Here is something of interest from the now departed Stephanie Flanders in 2010 in one of her more impartial moments when she wasn’t urging Osborne to borrow and spend more as ‘interest rates are at a record low’ and pressing the virtues of ‘Plan B’ upon him….why do we have so much debt?…one reason is that Labour increased government spending [but not income] by 26% in 6 years……and to add insult to injury the borrowed money ‘went out the door’…it was squandered by inefficiency….
Spending cuts: Molehill and mountain
Are we all making too much fuss about the Spending Review? Nick Clegg thinks so. He likes to point out that, even with all the cuts we will see unveiled tomorrow by the chancellor, total public spending in 2014-15 will only be back to where it was, as a share of the economy, in 2006-7. At the end of the Parliament, the government will be spending £41bn more, in cash terms, than it is today.
That doesn’t sound so bad. How, you might ask, can it possibly take the deepest and most prolonged spending cuts since World War II, simply to take government spending back to where it was four years ago?
The answer, as a certain meerkat would say, is “simples”. All you need is the largest, most sustained increase in public spending for over 50 years, the deepest recession in more than 70 years, and the first decline in Britain’s nominal GDP since records began.
Pressure on government spending since WWII has been relentlessly upward. As we get richer, we demand more of the kinds of things that government provides, and the cost of those things often rises faster than the economy.
It takes a very determined government – taking some very tough decisions – to fight that upward pressure for any length of time. You’ll note that the Thatcher era barely registers on the chart [of government spending].
Why did spending rise so fast? About half of it was due to the recession. But, as Tim Morgan points out in a paper for the Centre for Policy Studies, spending in 2006-7 was already 26% higher, in real terms, than it had been in 1999-2000. That was Labour’s promised investment in public services.
Maybe public services did not feel 26% better. But all that means is that it was spent inefficiently, and/or prices and wages in the public sector rose much faster than the economy overall (which they surely did). The money definitely went out the door.
Then the recession came, with a real decline in GDP of 6% between the spring of 2008 and the autumn of 2009. We have had recessions before, of course, but few that deep, and none, in modern times, that was accompanied by an annual decline in the cash value of GDP.
If the government follows through on this spending review, public spending in 2014-15 will be 4% lower, in real terms than it is today – but account for roughly the same share of the economy as it was spending in 2005-6.
It is about reversing a small-ish part of the relentless upward march in government spending since WWII. The fact that it should take such a gargantuan effort to achieve even this merely demonstrates quite how relentless that upward march can be, in a rich but now ageing modern economy.
The BBC doesn’t seem to do ‘history’ anymore…at least where Labour’s part in wrecking the economy lies. If any Tory politician raises the matter of Labour’s responsibility for the economy and the subsequent austerity measures to put it back on track they are quickly slapped down by the BBC presenter who tells them that they have been in power for 5 years and can’t blame Labour anymore as if the consequences of one of the deepest and longest recessions can suddenly vanish after a set date.
Even Labour friendly voices admit Labour’s role in the crash….last week on 5Live one (can’t remember who) frightened the presenter by saying Labour had helped cause the recession by failing to regulate the banks and financial institutions….how often, if ever, do you hear a BBC presenter referring to Brown’s ill-judged light touch regulatory regime in a similar tone?

