Saturday, 8 September 2012

Labour trying to have it both ways

Geoffrey Robinson in conversation with Sue Cameron and Lord Lawson on "The Week in Westminster" this morning said that the rise in borrowing showed that the coalition's plan was failing and the extra borrowing should be spent "on investment instead". He is either unwittingly or deliberately confused.

What Robinson (not to mention the succession of Labour speakers peddling the same basic line) failed to point out is that the continuing rise in public borrowing was built in to the coalition plan from the start. It results from not eliminating the budget deficit at a stroke. Even if the Conservative proposal (see their 2010 manifesto) to remove the bulk of the deficit by 2014 had been put into operation, debt would inevitably have accumulated until that point were reached. (There is a neat explanation of the relationship between debt and deficit here. It is a US site, but the principles are the same for all national treasuries.) All the government hopes to do is to slow the rate of increase.

Robinson should have given credit to Liberal Democrats in the coalition for their refusal to go along with the more draconian Conservative cuts. In fact, the coalition's deficit reduction programme is, give or take a billion pounds, of the same order as that planned by Labour's outgoing chancellor, Alistair Darling, and that in the Liberal Democrat manifesto.

The process has been dragged out even longer by the unexpectedly protracted eurozone situation. Labour was very quick to say "it wasn't me, guv", when the 2008 transatlantic credit drought struck. (Some of us, though, apportion part of the blame to Labour's failure to regulate the London end of financial institutions.)  It is therefore inconsistent for Labour to place all the blame for the drop in GDP over the last twelve months, common to most western nations, on the coalition.

But it was that word "instead" that particularly struck me. Most of the increase in the deficit, and therefore in the bulk of the extra borrowing, is caused by social spending. Does he advocate a further shift from benefits to pay for public construction schemes?

It is not as if the coalition had dragged its feet over infrastructure schemes, in the same way as Labour had. We in South Wales especially will benefit from the electrification of the Great Western main line, and there are similar examples in England.

Turning the oil-tanker round

At the end of his segment of the Radio 4 programme, Lord Lawson counselled patience. (It is not something I recall Nigel Lawson, chancellor, as being well-known for, but he has clearly matured.) It is going to take time for government plans to show results. Even so-called "shovel-ready" construction schemes take time to get going.

Impatience renders politicians susceptible to the blandishments of political Snake-oil salesmen. The Beecroft report raised its ugly head in Business Questions in the House last Thursday. It is disappointing, but understandable, that Jo Swinson in her first session as junior minister did not give a more robust answer to Sir Tony Baldry's question. Beecroft's most contentious proposal, to scrap the concept of unfair dismissal, would make little impact on the speed of the current recovery. What it would do, though, is aggravate the next recession as firms - large as well as small - would find it easier to sack workers.

A concern is that the up-turn coincides with one of these wild ideas (like the Welsh government tearing up environmental guidelines), thus giving unwarranted legitimacy to something which would otherwise be summarily thrown out.

1 comment:

Frank H Little said...

In contrast to Jo Swinson's non-committal answer in the House, Vince Cable is reported by the FT as saying "there were no plans to resurrect the Beecroft proposals". It looks as if there is some loosening of employment protection on the way, though.