Thursday, July 29, 2010

Labour Campaign for Deeper Cuts

Yes you read that right. With the Labour leadership contenders still in deficit denial. With Ed Balls blaming Darling for losing the election over his (limited) honesty in admitting the extent of cuts that would be necessary, it is worth reminding ourselves what borrowing means.

The longer we take to balance the budget, the more money is borrowed on the way, and the bigger the national debt we end up with. A bigger national debt means more spending on interest instead of public services. So if your policy leads to a bigger debt than the other lot, the in the long run you are the attacker not the defender of public services.

Now this is an "all other things being equal" kind of argument. A bigger debt might be worth suffering if it came with a sustained boost in economic growth. But growth was already 1.1% in the last quarter. To practise deficit denial today is not to argue for a fiscal stimulus during a recession, but for heavy borrowing through much of the economic cycle.

The tragedy is the New Labour came to power in 1997 on a manifesto of fiscal prudence in the face of a Conservative government that was borrowing during boom times. (Borrowing heavily we might have said, but peanuts compared to today's borrowing.) It was a good policy, and a tragedy that they forgot it after a term and a half.

Now Labour expect another government to take the hit of raising taxes to pay for their splurge of public spending. Any other government would be within its rights to cancel the lot rather than raise taxes - and an ideologically small state government would cancel it all, and some, and cut taxes. That isn't happening. Taxes are going up so that some of the unpaid for spending can be maintained, and by 2015 there will still be higher spending than there was in the Blair years. 

What's more after decades of flip flopping between Labour stealth taxes on everyone (particularly the poor), and Tory tax cuts for the better off, we are finally seeing movement on the personal allowance, shifting a little of the burden away from low earners. Labour never did anything like that. Remeber the 10p tax rate? However much the Labour leadership candidates froth about public services and progressive values, we know them by their deeds.