The Labour hierarchy has worked out its narrative on the economic mess they created. It runs like this:  NuLabour in power may have made some mistakes, but these were minor and apparent only with hindsight, while the real culprit is the global economy in general and the USA’s obsession with sub-prime mortgages in particular. This is not only a grotesque lie but a stupid one because it can be  readily exposed.

It is true that Britain could not have avoided the global recession entirely, but the Labour Government could have massively mitigated our present plight by exercising restraint in public spending  and responsible regulation of the banks and their ilk.

The  reckless spending is easily demonstrated. Labour ran a surplus for each of their  first four years of government:

1998: £703 millions

1999: £11,976 millions

2000: £16,697 millions

2001: £8,426 millions

Total 1998 – 2001:  surplus of £37,802 millions

Labour ran a deficit for  the rest of their time in government:

2002: £19,046  millions

2003: £34,004  millions

2004: £36,797  millions

2005: £41,355  millions

2006: £30,755  millions

2007: £33,718  millions

2008: £68,003  millions

Total 2002 – 2008:  deficit of £263,678 millions

2009: £152,289 millions

2010: £148,774  millions

Total 2009 -2010; deficit of £301,063 millions

Net total debt accumulated in the period 1998 – 2008: £225,876

Net total debt accumulated in the period 1998-2010: £526,339 millions

(Figures taken from here)

The figures tell their own dramatic story: the Blair and Brown governments continued spending recklessly throughout their period in office (1997-2010). They achieved small surpluses in the first four years because of the favourable conditions created by the prudent  Ken Clarke budgets prior to the financial year 1997/98 and Blair’s commitment to sticking to the Major Government’s spending plans for their first two years in office.

From 2002 to 2008 Blair and Brown ran substantial deficits despite the economy being in a boom. When Lehmann Bros failed in September 2008 Labour had increased the national debt by £225,876. That in itself should have told them (and the other major political parties) that the spending was reckless. A prudent government – as Gordon Brown constantly claimed NuLabour was – should have been paying down public debt during the boom so that when the inevitable downturn came there would have been the opportunity to maintain or increase public spending to keep up aggregate demand.

The exact dimension of the recession/depression which followed the collapse of Lehmann Bros in 2008 may have been impossible to predict, but the persistent deficits  meant that in any downturn the UK public deficit would either have to rise significantly or public spending would have to be cut substantially.

Because Blair and Brown spectacularly failed to satisfy the paying down of debt in good times part of the Keynsian bargain meant there was not only no room to increase public spending when the downturn came, but even maintaining spending at the level it had been during the boom in the downturn was impossible.

Brown attempted to disguise what was happening by creating a distinction between increasing government spending on capital projects (good) and the funding of the day-to-day running of public bodies (bad). Capital project spending was deemed to be allowable even if it placed the national finances in deficit but day-to-day expenditure  was not allowed to add to the deficit. This was a bogus distinction because there is no objective way that expenditure can be cleanly divided between the two types of expenditure. For example, if the hospital capacity is increased by new capital investment it means eventually that extra costs will arise from the day-to-day running of the new hospitals. It is also a value judgement to say that capital expenditure is more valuable than day-to-day expenditure or that capital expenditure is justified because it produces new public projects. In the end debt is debt however it is generated.

Brown’s formula meant there was very weak restriction on the growth of capital projects. To obfuscate matters further, Brown produced a formula whereby the books only had to balance over periods of years, periods which he frequently changed as the figures failed to show what he wanted.

But the figures for government spending and borrowing do not tell the whole story.  Under Blair’s control the Labour Party became if anything more committed to the idea that free enterprise is best than the Tories. This lead them to greatly increase the use of the Tory created Public Private Partnership (PPP) and Public Finance Initiative (PFI)  schemes.

PPP commonly involves the taxpayer and private companies sharing the cost of public projects (with the private contractors commonly being remunerated by drawing an income from providing services for which the public pays over many years) while PFI  schemes required the contractors to provide the full initial cost of a public project which is then paid back with interest out of taxes over periods of time as long as 35 years. (PFI contracts normally result in the private contractor owning the capital product of the contract, for example, a new school or hospital, then leasing it back to the public body who pays for it over a long period, during which time the private contractor normally has a further contractual money spinner such as maintain the school or hospital for which again the taxpayer pays.)

The honest way for governments to finance projects is to borrow the money (which they can do much more cheaply than any private business) and add the loan to the national debt. Brown kept most of the PPP/PFI expenditure off the books by likening it to a mortgage which was only paid off gradually. He argued from this that it was unreasonable to add the entire cost of the projects onto the national debt  and that only the annual cost should be added each year to the public accounts (here). The problem with this was that it severely disguised the full extent of public expenditure.

(To be continued in Part 2 tomorrow)

 

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