Thursday, 11 September 2014

Public spending out of control under Gordon Brown

It is strange how two respected financial commentators like Hamish McRae ("Why the same public spending feels like much less" in the print edition of yesterday's Independent, but not online) and Ben Chu can take opposing views on the same official paper. Political party allegiances have to be taken into account, but to me the OBR's executive summary

1.4 Looking back to the pre-crisis era, it is hard to argue that the tax and spending policies
implemented in the early and mid-2000s were in themselves an important cause of the
crisis and recession. But there were undoubtedly weaknesses in fiscal management during
that period, some apparent at the time and some more with the benefit of hindsight.

1.5 The then Labour Government increased public spending significantly as a share of GDP in
the mid-2000s, arguing that this would be paid for by an increase in tax receipts that then
did not fully materialise. External forecasters were consistently – and rightly – more
pessimistic about the fiscal outlook than the Government. Public sector net debt increased
during a period when it was being reduced significantly in most other industrial countries.
And the OECD said at the time (and says more forcefully now) that the UK entered the
financial crisis with one of the largest structural budget deficits in the industrial world. This
limited the Government’s perceived room for manoeuvre when the crisis hit.

1.6 And, when the crisis did hit, the fiscal consequences were dramatic. The budget deficit
quadrupled between 2007-08 and 2009-10, reaching £157 billion or 11 per cent of GDP –
and it was still £115 billion or 7 per cent of GDP three years later. Public sector net debt
increased by £647 billion, doubling to 74 per cent of GDP, over the same five years.

is not ambiguous.

It is good to see authoritative - and independent, by statute - confirmation of what Peter Black and I wrote a few years back.

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