When we were faced with a worldwide recession and the worst financial crisis in 60 years, the Government was not prepared to let the recession take its course so priority was given to protecting homes, jobs and businesses. By not taking action to support people we could have repeated the experiences suffered in the 1990s, house repossessions and businesses failures would have been twice as high; and millions more people would have lost their jobs.To strengthen the recovery we need to continue supporting the economy and take the actions necessary to promote growth and jobs. The Government has been clear that they will halve the deficit over four years, but it would be a huge mistake to cut support while the economy is still recovering.
There’s a lot of unsubstantiated guessing here, plus a little bit of half-truth. If we learned anything from our exit from the ERM (and it seems Kevin Barron hasn’t) then it’s that the power of a government in relation to global financial markets is minimal, so to claim that the government was ‘not prepared to let the recession take it’s course’ is a little fanciful. The government did a reasonable job of staying on the bucking bronco, but it wasn’t at any point in control of it.
The ‘twice as high’ supposition Kevin appears to have plucked from thin air to guess at how many homes would have been repossessed had the government not intervened is also misleading. 1 in 290 mortgages led to repossessions in 2008, and the number of homes repossessed last year was the highest since 1995, which are hardly figures to be proud of – and of course in the early 1990’s the corrective action the government was forced to take didn’t involve bailing out banks to the tune of billions of pounds and printing money.
I like the bit about the government ‘halving the deficit’ over four years – this seems an admission that running a deficit – i.e. spending more money than you have – is a bad thing. We all know this from our own lives; if you spend more than you have, you need to borrow money, which costs you more money so you have even less to spend, so you borrow more. You can get away with if for a bit – perhaps you’re between jobs, or an expensive essential has broken, so you borrow a bit, but if you keep on borrowing you’re in trouble. Kevin Barron can see this too – that’s why he thinks it’s good that the defecit will be havled within four years. I wonder then what he thinks of the fact that we’ve been in deficit for most of the years his party has been in power?
This graph shows the UK budget deficit as a percentage of GDP. You’ll notice it was pretty high in the late 1970’s when Labour was in power, then it slowly falls to actually be in surplus by 1989 to 1991. A deficit then rises again during the 90’s recession (good Keynsian policy to spend in a recession to stimulate the economy) and then it falls again to be at break even by the time Labour came to power in 1997. Then we had 10 great years economically, with low infaltion, low interest rates, low unemployment and decent growth – and yet the government still managed to run up big deficits. You simply cannot afford to spend what you haven’t got year after year – especially when times are good and you should be making hay – because otherwise when the bubble burts (and the bubble always bursts) you have nothing saved. Especially if you’ve sold off most of the gold reserves at rock bottom prices along the way.
I’ve no argument about running a deficit in recession, but I have a big issue with running a deficit when everything is going fine.