“Don’t let anyone tell you that Labour in government was profligate with public money – when we went into the crisis with lower national debt than we inherited in 1997.”
Shadow Chancellor Ed Balls, speech to the Labour Party Conference, 26 September 2011
Cathy Newman checks it out
Ed Balls doesn’t really do contrition. He flirted with the idea on the Today programme this morning when he said sorry for the failure of banking regulations, and admitted that not every pound had been well spent by Labour.
So is the coalition unfair to blame Labour for fiscal profligacy? Or would we have been better placed to weather the economic storm if the last government had spent and borrowed less? Over to the team.
The blame game is one of the key tussles between the parties, and Ed Balls knows he’s got to win it.
Voters might not be thrilled with the way the government’s handling the economy, but 57 per cent think the austerity measures are a necessary evil. And the majority (38 per cent) blame Labour for getting us into this mess – while just 25 per cent blame the coalition, according to a YouGov poll.
The Shadow Chancellor said today “nowhere is it more important that we win the public’s trust for an alternative future – a better way forward – than on the economy.”
Mr Balls said Labour had much to be proud of, and out rolled Labour’s record on national debt – which refers to the total amount the country owes, that’s built up over time. Any talk of the “deficit” meanwhile, refers to the gap between what’s coming in (in taxes and receipts) and what’s going out (in government spending).
Government debt today currently stands at £944.5bn or 61.4 per cent of GDP, according to the Office for National Statistics.
Back in 1997, Labour inherited a debt of 42.5 per cent of national income (GDP) in 1997. It slid to 29.7 per cent under Labour’s first term, before creeping up to 36.5 per cent of GDP on the eve of the financial crisis in 2007.
So Labour did manage to reduce government debt, Ed Balls is right. That said, we had the 11th highest level of debt compared to the other 26 OECD countries for which data is available. And during Labour’s tenure 16 of those countries chipped off larger chunks of their national debt than we did.
Unlike Tony Blair and Alistair Darling, Mr Balls refuses to admit that Labour was spending more than it could afford. (A competitive type, he is picutred here doing press ups before today’s annual MPs versus journalists football match).
Mr Blair wrote in his book: “We should also accept that from 2005 onwards Labour was insufficiently vigorous in limiting or eliminating the potential structural deficit.” While former Chancellor Darling has admitted that (by the autumn of 2007): “We had reached the limits of what I thought we should be spending”.
By 2007 Labour was running a lower annual deficit than it inherited, but Britain’s efforts were vastly outstripped by the majority of OECD countries – which arguably left the UK in a worse position, comparatively to deal with the financial crisis. The National Institute of Economic and Social Research (NIESR) said the deficit was Labour’s legacy; “a peace-time budget deficit without parallel”.
The Institute for Fiscal Studies (IFS) explains that in 2007, the UK’s deficit of 3.5 per cent of GDP was the third highest among the G7 countries and the sixth highest among the 26 OECD countries for which comparable data are available (behind – from highest to lowest – Hungary, Greece, Japan, France and Poland).
Eleven of the 26 countries actually had structural budget surpluses in the run up to the global financial crisis. “In other words, the vast majority of other OECD countries did more to strengthen their public finances during Labour’s first eleven years in office than Labour did in the UK,” the IFS concluded.
Economist Simon Kirby from NIESR told FactCheck: “No, Labour’s spending is not the cause (of the current economic climate) but what’s happened is a consequence. If borrowing figures had been lower we’d have gone into the crisis in better shape.”
Before the financial crisis hit, in 2007/08 the government borrowed £33.3bn, and planned to borrow £43bn the next year.
When the crisis hit, borrowing shot up to £156bn in the 2010 financial year. Though it’s worth pointing out that this, as the 2009 budget shows, is largely down to the fact that the Treasury’s own projections for the tax take plummeted. It had expected growth in revenue, but in fact it got a collapse.
By 2009/10 the Treasury was taking about £112bn less than they had expected to. And that’s why they needed to borrow so much. Yes, spending went up a bit. But really, they just had a lot less income than they had planned for.
Cathy Newman’s verdict
It’s certainly true that Labour’s over-spending didn’t cause the current economic crisis. But the last government allowed the country to plunge deeper into the red than it should have done.
The NIESR’s description of a “peace-time budget deficit without parallel” is sobering, as is the IFS data showing that in the run-up to the 2008 financial shock the UK’s deficit of 3.5 per cent of GDP was the third highest in the G7.
That’s why perhaps Ed Balls would have done well to go further – as Tony Blair and Alistair Darling have done – in admitting that Labour didn’t do all it could to batten down the hatches before the storm broke.
But for a politician as aggressive as the shadow chancellor (just look at the pictures of him on the football pitch), sorry is not only the hardest word, but one which would give his opponents a free kick.
The analysis by Emma Thelwell