Michael White on 15 Facts Which Expose the Great Tory Debt Lie
"It's not Labour profligacy that caused the deficit - if the last government was spending too much why did the Tories promise, until summer 2008, to match its largesse? Labour needs to become as tireless at making this case as the coalition is at repeating, ad nauseam, that it "inherited this mess".
The only way to galvanise opposition to the government is to expose the fiction that the UK’s current economic problems are the result of high taxes and overspending and thus undermine the Tories’ only justification for austerity measures. These are the 15 facts which George Osborne doesn’t want us to know because they expose the Great Tory Debt Lie:
Fact 1: Average annual taxation as a % of GDP was lower in the years 1997- 2010 (35.4%) than in the years 1980-1997 (35.5%) as was average annual public spending (40% and 38%).
Fact 2: The national debt was higher in 57 years of the 20th century than in 2010, when it was 52% of GDP. In 1945 it was 237% of GDP and yet Attlee's post-war Labour government was able to bear the costs of introducing the welfare state and nationalising the railways, the public utilities and the coal and steel industries. Maybe that was because in 1945 we really were "all in it together".
Fact 3: As Osborne admitted to the Treasury Select Committee, in 2010 the UK's national debt was the second lowest of the G7 countries and, at less than 60% of GDP net of bank assets, is within Maastricht Treaty limits. It is expected to peak at around 73%. Germany is already above that level and is expected to exceed 80% in 2013. The debt levels of Japan and Italy exceed 100% of GDP.
Fact 4: In June 2010, the budget deficit was under £155 billion, well below the Treasury's £178 billion estimate made six months earlier. In other words, the deficit was narrowing after Labour increased spending in 2009.
Fact 5: The budget deficit is no more “structural” than an overdraft in your bank account when you spend more than you earn. There is either a real deficit or not, and if there is, then it is due to either excessive spending or an inadequate tax take. Since it can easily be demonstrated that the problem is not the former, then it must be the latter - which is around 36% compared to an EU average of 40%, has been adversely affected by the financial crisis and consequent recession, and is likely to be further aggravated when taxes are cut later during this parliament to the benefit of high earners, corporations and banks.
Fact 6: Even if you accept the idea of a “structural” deficit, this was only 3.5% of GDP in 2007, compared with the last Conservative government’s structural deficits of 5.2% in 1992, 6.6% in 1993, 6.2% in 1994, 5.6% in 1995 and 4% in 1996. Similarly, the last 3 Labour governments managed to earn enough to cover their spending for 3 of their 13 years in office, whereas Thatcher and Major only managed to balance the books for 2 out of 17 years.
Fact 7: Osborne's claim that the UK is in danger of having its Triple AAA credit rating downgraded ignores the fact that the UK government is a reliable borrower with zero chance of defaulting, since most of its debt is held by financial institutions in the UK over a very long period of time and at very low interest rates. In fact, according to economist Ray Barrell (National Institute Economic Review, January 2010), government interest payments as a % of annual GDP are around 3.5%, the same as in the last year of Major's government.
Fact 8: Basing an economic policy on the predictions of the credit ratings agencies is absurd. As happened in the 1930s, when they failed to foresee the Great Depression, these agencies have behaved pro-cyclically - encouraging reckless borrowing when the economy seems to be strong and threatening to slash their ratings when a crisis develops.
Fact 9: Despite Osborne's fatuous comparison of Britain's problems with those of Greece, a 2010 IMF study suggested that "the USA and UK could probably increase their debt burden by another 50% of GDP beyond projected 2015 levels without triggering a crisis."
Fact 10: Osborne has ignored a core principle of Keynesian economics - that government spending should be counter-cyclical. In other words, when growth is slow, you increase public spending and when it is strong you reduce government debt by cutting spending. Governments that reduce spending during a recession, or before full economic recovery, invariably make things worse: Economic growth slows, tax revenues fall, and welfare spending increases as unemployment rises.
Fact 11: The US, which has made no serious attempts at deficit reduction, has suffered almost the smallest recession of any major economy, whereas Ireland and Greece have suffered the most because of drastic spending cuts.
Fact 12: The worst recessions of the 20th century have been caused by harsh spending cuts. For example, in 1937, FDR's premature attempt to balance the US budget helped to plunge the US economy back into recession and Neville Chamberlain's disastrous deflationary budget of 1932 had a similar effect in Britain.
Fact 13: Even if Osborne's policies are successful in reducing debt, their only effect will be to transfer it from the government's books to private households. Although household debt has drastically increased since Cecil Parkinson's "Big Bang" financial deregulation of the 1980s, and is the highest in Europe, the household debt-to-income ratio fell between 2007 and 2010. But according to the OBR, household debt will rise again (by £245 billion from 2011 to 2015) whilst public debt will fall by only £43 billion - the former the result of rising unemployment, falling wages, cuts in benefits and inflation and the latter the effect of a slump in demand and falling tax revenues.
Fact 14: Three Nobel prize-winning economists (Stiglitz, Krugman and Pissaredes) condemn Osborne’s austerity measures as seriously misguided, as does Martin Wolf of the Financial Times.
Fact 15: In 2007, Cameron promised to stick to Labour’s spending plans. Then came the financial crisis, the damaging effects of which he chooses to ignore. Not surprising, since before the financial crisis he had criticised Gordon Brown for regulating the banks too tightly.
So Osborne's “Big Lie” is the product of what Karl Rove called “creating your own reality”. As the cuts begin to bite, it will be peddled ad infinitum until the Tories have turned their small-state, low-tax dreams into reality and achieved a further transfer of wealth from rich to poor."
http://www.guardian.co.uk/commentisfree/2011/apr/12/conservative-labour-pendulum-coalition?commentpage=1#comment-10345084
The only way to galvanise opposition to the government is to expose the fiction that the UK’s current economic problems are the result of high taxes and overspending and thus undermine the Tories’ only justification for austerity measures. These are the 15 facts which George Osborne doesn’t want us to know because they expose the Great Tory Debt Lie:
Fact 1: Average annual taxation as a % of GDP was lower in the years 1997- 2010 (35.4%) than in the years 1980-1997 (35.5%) as was average annual public spending (40% and 38%).
Fact 2: The national debt was higher in 57 years of the 20th century than in 2010, when it was 52% of GDP. In 1945 it was 237% of GDP and yet Attlee's post-war Labour government was able to bear the costs of introducing the welfare state and nationalising the railways, the public utilities and the coal and steel industries. Maybe that was because in 1945 we really were "all in it together".
Fact 3: As Osborne admitted to the Treasury Select Committee, in 2010 the UK's national debt was the second lowest of the G7 countries and, at less than 60% of GDP net of bank assets, is within Maastricht Treaty limits. It is expected to peak at around 73%. Germany is already above that level and is expected to exceed 80% in 2013. The debt levels of Japan and Italy exceed 100% of GDP.
Fact 4: In June 2010, the budget deficit was under £155 billion, well below the Treasury's £178 billion estimate made six months earlier. In other words, the deficit was narrowing after Labour increased spending in 2009.
Fact 5: The budget deficit is no more “structural” than an overdraft in your bank account when you spend more than you earn. There is either a real deficit or not, and if there is, then it is due to either excessive spending or an inadequate tax take. Since it can easily be demonstrated that the problem is not the former, then it must be the latter - which is around 36% compared to an EU average of 40%, has been adversely affected by the financial crisis and consequent recession, and is likely to be further aggravated when taxes are cut later during this parliament to the benefit of high earners, corporations and banks.
Fact 6: Even if you accept the idea of a “structural” deficit, this was only 3.5% of GDP in 2007, compared with the last Conservative government’s structural deficits of 5.2% in 1992, 6.6% in 1993, 6.2% in 1994, 5.6% in 1995 and 4% in 1996. Similarly, the last 3 Labour governments managed to earn enough to cover their spending for 3 of their 13 years in office, whereas Thatcher and Major only managed to balance the books for 2 out of 17 years.
Fact 7: Osborne's claim that the UK is in danger of having its Triple AAA credit rating downgraded ignores the fact that the UK government is a reliable borrower with zero chance of defaulting, since most of its debt is held by financial institutions in the UK over a very long period of time and at very low interest rates. In fact, according to economist Ray Barrell (National Institute Economic Review, January 2010), government interest payments as a % of annual GDP are around 3.5%, the same as in the last year of Major's government.
Fact 8: Basing an economic policy on the predictions of the credit ratings agencies is absurd. As happened in the 1930s, when they failed to foresee the Great Depression, these agencies have behaved pro-cyclically - encouraging reckless borrowing when the economy seems to be strong and threatening to slash their ratings when a crisis develops.
Fact 9: Despite Osborne's fatuous comparison of Britain's problems with those of Greece, a 2010 IMF study suggested that "the USA and UK could probably increase their debt burden by another 50% of GDP beyond projected 2015 levels without triggering a crisis."
Fact 10: Osborne has ignored a core principle of Keynesian economics - that government spending should be counter-cyclical. In other words, when growth is slow, you increase public spending and when it is strong you reduce government debt by cutting spending. Governments that reduce spending during a recession, or before full economic recovery, invariably make things worse: Economic growth slows, tax revenues fall, and welfare spending increases as unemployment rises.
Fact 11: The US, which has made no serious attempts at deficit reduction, has suffered almost the smallest recession of any major economy, whereas Ireland and Greece have suffered the most because of drastic spending cuts.
Fact 12: The worst recessions of the 20th century have been caused by harsh spending cuts. For example, in 1937, FDR's premature attempt to balance the US budget helped to plunge the US economy back into recession and Neville Chamberlain's disastrous deflationary budget of 1932 had a similar effect in Britain.
Fact 13: Even if Osborne's policies are successful in reducing debt, their only effect will be to transfer it from the government's books to private households. Although household debt has drastically increased since Cecil Parkinson's "Big Bang" financial deregulation of the 1980s, and is the highest in Europe, the household debt-to-income ratio fell between 2007 and 2010. But according to the OBR, household debt will rise again (by £245 billion from 2011 to 2015) whilst public debt will fall by only £43 billion - the former the result of rising unemployment, falling wages, cuts in benefits and inflation and the latter the effect of a slump in demand and falling tax revenues.
Fact 14: Three Nobel prize-winning economists (Stiglitz, Krugman and Pissaredes) condemn Osborne’s austerity measures as seriously misguided, as does Martin Wolf of the Financial Times.
Fact 15: In 2007, Cameron promised to stick to Labour’s spending plans. Then came the financial crisis, the damaging effects of which he chooses to ignore. Not surprising, since before the financial crisis he had criticised Gordon Brown for regulating the banks too tightly.
So Osborne's “Big Lie” is the product of what Karl Rove called “creating your own reality”. As the cuts begin to bite, it will be peddled ad infinitum until the Tories have turned their small-state, low-tax dreams into reality and achieved a further transfer of wealth from rich to poor."
http://www.guardian.co.uk/commentisfree/2011/apr/12/conservative-labour-pendulum-coalition?commentpage=1#comment-10345084