The background
For months we’ve been hearing how Labour left our country’s finances in dire straits, and today Labour veteran Alan Johnson tried to knock that on the head.
It was all “fiscal fables and Greek myths,” he said. But has the Shadow Chancellor cooked up a few myths of his own? Four of his “fables” caught our eye.
The analysis
“The simple and inescapable truth is that Labour paid down debt.”
Shadow Chancellor Alan Johnson, 11 November, 2010
In John Major’s last year in Number 10, total government debt was 42.5 per cent of national income (GDP).
It fell gradually to 29.7 per cent in Labour’s first term in government, before rising to 36.5 per cent as the financial crisis and recession took hold.
It stands at 53.5 per cent today, a level not seen since the 1970s.
So, the debt was “paid down” before the crisis, in the sense that it was reduced, like a mortgage. But it’s at a staggeringly high level today.
“And the claim that we presided over years of ever-rising borrowing is also untrue.”
Shadow Chancellor Alan Johnson, 11 November, 2010
Government borrowing (the deficit) was 3.4 per cent in 1996-97, but then fell throughout the Labour years, before rising to 6 per cent in 2008-09 and 11 per cent this year.
This level is unsustainable, according to the Institute for Fiscal Studies, which is why the former Chancellor Alistair Darling set out plans for tax rises and deep cuts in spending when he was in office.
Had the public finances been in a better state, he wouldn’t have needed to do so.
“We were never living beyond our means.”
“Spending under Labour was not out of control.”
Shadow Chancellor Alan Johnson, 11 November, 2010
An IFS report points out that while debt and borrowing fell from 1997-2007, they dropped further in most other industrialised countries.
“So while the UK public finances were in better shape when the financial crisis began than they were when Labour came to power, the UK was in a worse position relative to most comparable countries.
“The UK is forecast by the OECD to experience the highest level of borrowing in 2010.”
Failing to keep a firmer grip on the public finances meant that “by the eve of the financial crisis, this had left the UK with one of the largest structural budget deficits in the developed world”.
The verdict
It is true that Labour “paid down debt” and cut borrowing in the good years, but it could also have done more to prepare Britain for the bad times.
It is difficult for Mr Johnson to argue that “we were never living beyond our means”.
Yes, the public finances appeared to be in a relatively healthy state throughout most of Labour’s time in office – helped along by a strong economy.
But by the end, admittedly after the worst recession on record, Alistair Darling was envisaging tax increases and tens of billions of pounds of spending cuts.
As to Mr Johnson’s claim that “spending under Labour was not out of control”, we can hardly ignore Labour’s last days in power, when Mr Darling was busy sharpening the knives.
Let Tony Blair have the last word. In his memoirs, A Journey, he says: “We should …. accept that from 2005 onwards Labour was insufficiently vigorous in limiting or eliminating the potential structural deficit.”
