Sunday, 3 October 2010

Labour's deficit

You would think that the message would have got through to the public by now that the structural deficit created by Gordon Brown was separate from, though aggravated by, the mortgage-led crash. (The UK government was not such an innocent party in the latter, either, but that's another story.) If banking had not reached a crisis point, some other factor -  high demand for basic raw materials, or an OPEC strike, or a food shortage, say - would have brought the boom years to an end.

Yet, no doubt thanks to Labour apologists deliberately fogging the issue, many people still believe that our economy was basically sound until the banks failed. But just look at the run of budget figures from 2001/2 when there was a surplus of £10.6bn: deficits of £12.3bn, £20.4bn, £19bn and £15bn, all before the troubles of 2007.

A posting on Liberal Conspiracy and resulting comments are instructive. One in particular struck me: looking at the pre-crash deficit and the post-crash deficit, it’s quite clear they would have had to be running a really quite massive surplus to have avoided having an enormous deficit afterwards – something I don’t think the Tories would have tolerated in opposition. If Labour had insisted on running a surplus on that scale, I can guarantee they would have been screaming blue murder about the greedy state unnecessarily hoarding money when they could be cutting taxes on wealth creators.

But running a surplus through the noughties was just what Brown said he planned to do.  Look at the Treasury Red Book for Budget 2001. The projected surpluses for 2001/2 through to 2005/06 were £17bn, £15bn, £8bn, £9bn & £9bn. It is a pity that he didn't heed the warning signs in 2002 when the actual outturn for 2001/02 was £6.4 bn less than the original projections. Instead, he embarked on an expansionist budget which relied on optimistic growth figures and tax returns. He carried on fiddling one or the other or both through the rest of his tenure.

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