The Doubling of the National DebtThe Conservatives Have ‘Spent All the Money’
James Melville on another big myth in UK politics – that the Labour Party cannot be trusted on the economy.
“Every single Labour Government in history has left this country with an economic crisis” – Chancellor Sajid Javid
This well worn, disingenuous adage of “Labour spent all the money” is one of the biggest myths in UK politics. At the last Conservative Party Conference, Boris Johnson applauded the Tories for having “tackled the debt and the deficit” left by the last Labour Government. But, the truth is that the Conservatives have created a huge national debt.
Since the Tories came into power in 2010, the national debt has more than doubled. It now stands at more than £2 trillion. They have increased the national debt more than every Labour Government combined. What is also conveniently forgotten is that the Labour Government ran a surplus between 1998-2002 – an achievement almost unparalleled in modern history in the UK.
In 1997-1998, public sector debt as a percentage of GDP was 40.4%; in 2007-2008 it was 36.4%; in 2010-2011 it was 60.0%; and in December 2019 it was 82.9%.
Since World War Two, Conservative Governments have borrowed £24.3 billion a year on average in historic prices – compared to Labour Governments, which have borrowed £18.8 billion a year on average (and that includes the spike in borrowing over the financial crisis in 2008-2009).
The financial crash caused by the banks added an extra £500 billion of potential government debt liabilities, largely due to the colossal leveraging of the banks through the government stimulus programme – a policy that was first instigated by Gordon Brown and Alistair Darling and then mimicked across all major economies.
In 2010, the Conservatives implemented a programme of austerity that has failed to deliver upon their promise of ‘balancing the books’. In reality, it has done the opposite. Despite a decade of austerity, economic growth stalled and the total amount of Government borrowing has rocketed.
The Tories didn’t focus on economic recovery, but prioritised deficit reduction at the wrong time. Austerity has proved to be a drag on the recovery, making it one of the slowest on record. It led to more part-time workers, zero hours contracts and one of the worst real average wage growths in the G20 from 2010-2019.
what the papers don’t say
Austerity led to lower aggregate demand, for example, public sector pay freezes reducing consumer spending and a loss of confidence associated with austerity policies that encouraged less spending. This, combined with a continued trade deficit and bank stimulus packages has led to a sharp increase in the overall national debt.
Brexit could also place a greater burden of debt upon future generations as economic activity slows. The Government’s economic impact assessments of Brexit indicate a significant economic slowdown, regardless of the eventual trade agreement with the EU. According to the Bank of England and the Government itself, a hard Brexit could see GDP fall by as much as 6%. This would have a dramatic effect on tax receipts, whilst increasing expenditure such as benefits.
And, yet, it doesn’t have to be this way. Austerity isn’t the solution to debt, it becomes part of the problem. This was recognised in Portugal.
Back in 2010, Portugal stood on the brink of economic catastrophe: harsh austerity policies pushed by the conservative government lead to significant rises in poverty and unemployment. The economy declined due to the lack of confidence and consumer spending power. Portugal is now celebrating an economic recovery after a prolonged recession that began in 2003 and worsened after the 2008-2009 recession. The nation’s GDP has now grown at more than 2% since 2017.
Joao Borges de Assuncao, a professor at the Católica Lisbon School of Business and Economics in Lisbon, said Portugal’s ongoing economic recovery has made it “a poster child for what could be done differently in the context of the European recovery”. His view is that the country’s recovery began when some of the austerity measures were ended, allowing it to recover from the 2008-2009 financial crisis and three years of negative GDP growth and high unemployment as austerity measures took hold.
The Conservatives should take note of the reasons behind the Portuguese economic turnaround. Ideologically-driven austerity has choked the economy, harmed public services and doubled the national debt. The Tories are the ones that can legitimately be accused of ‘spending all the money’, while at the same time cutting the vital investment for our public services. They have created a lost decade.