The country owes them a debt – a trillion to be precise

There is a cut-off point beyond which a government can blame others but it beggars belief that the Eds can sit on the opposition benches looking supercilious

They may look like a pair of economic Neanderthals...
Simon Miller
On 27 January 2012 12:50

This morning I watched in disbelief as some ridiculous man said that he joined a credit union because a high street bank “allowed” him to rack up debt.

The idea that it was his responsibility to manage his income and expenditure seemed to be beyond him as it seems to be beyond the Labour party and its supporters.

Ed Miliband showed disgust upon learning that the national debt had breached £1trn this week, which put me in mind of certain assets of Katie Price -- and not her economic tweets.

Somehow, he, Balls and his party have managed to shrug off their own complicity in leaving the UK in this mess in the first place. And to be fair, voters also have some responsibility for believing in and voting for Labour’s economic policies.

Here’s a bit of history.

For the first two years of the Labour government, Gordon Brown stuck to the spending plans of the previous Conservative government hovering around 36 percent of GDP. However, post-1999, Brown went on a binge.

Spending rocketed from £928.73bn in 1999 to £1398.88bn in 2007. Now because times were good, boom and bust had finished (if only; seems that it was only the boom that had bust) and the percentage only went up to 38.89 percent of GDP.

However, then the financial crisis began. Spending went from 39.75 percent of GDP to a peak last year of 45.54 percent.

Debt, if managed, is not a problem for governments. Indeed it could be argued that the British Empire was created through debt. By the end of the Napoleonic Wars, the UK owed 237 percent of GDP. Indeed, during Margaret Thatcher’s first term, debt was around 44 percent.

So debt is manageable. With historically low interest rates at the moment, debt repayments are about 2.86 percent of GDP.

So far so no problem for Labour, it was doing what every other UK government has done in history.

However, take a look at the current account. This is the contrast between taxes and expenditure and the money we need to borrow each year to pay for all those diversity officers in the MoD rather than things that may be of use, like ships, planes and guns.

John Major and Kenneth Clark essentially committed political suicide in pursuing a policy that left Labour with a surplus current account for its first term. Of course that couldn’t last long with “Fingers” Brown in charge of the till.

Spending went so far out of control that, by the end of 2009-2010, the deficit had grown to £170.8bn.

This is the inheritance that the coalition has been given. An inheritance that is leaving little in the purse to deal with and actions taken are being sneered at by the shadow chancellor Ed Balls and leader of the Opposition.

Ed Balls, economic advisor to “Fingers” from 1994-2005, economic minister until 2007 and Ed Miliband, political fratricide and adviser to, firstly shadow chief secretary to the Treasury, Harriet Harman, then to “Fingers” until he was elected in 2005. These two were in close proximity to the-then-Chancellor when he embarked on his insane spending plans, racking up the deficit and failing to follow the examples of Canada and Australia in building up a war chest for when times got tough.

Now, there is a cut-off point beyond which a government can blame others – and David Cameron started to sound suspiciously like “Fingers” at the ballot box on Wednesday – but it beggars belief that the Eds can sit on the opposition benches looking supercilious as more bad news filters through for a government that was left with no ammunition by the previous government – the very one that the two Eds first advised and then sat in.

For the Coalition and more particularly the Conservatives they need to be “bold” to quote the Davos-lecturing prime minister.

Actually make cuts, not slow down spending.  Do we really need that many civil servants? Instead of cutting troops, ships and planes, why not see how many desk warriors there are? Cut regulations and red tape, not just talk about it. And if it breaches European law, then tough, just don’t pay the fine. Use France as an example of cherry picking what suits in the national interest.

Instead of quantitative easing – which only puts the money into the banks not the economy - cut taxes and VAT; get the money back in the hands of the taxpayers. Get the money to the producers and consumers. With inflationary pressures and wage freezes (at least in the private sector), get that money back in the pocket. Cut transport ticket prices and fire any union member who refuses to do their job during the Olympics – I don’t think many private sector people will be getting obscene bonuses for working in London during the summer.

And above all, stop worrying about growth. Recessions are natural. They cut the deadwood and make economies leaner. Yes recessions hurt. I know; I’ve been there. But the western economies need re-focusing, need to re-examine their relationships with cheap money and need to reconnect as societies.

In general, after every recession the UK has bounced back fighting fit and refocused. If the Big Bang gave us the City as a world leader, then post-recession, those specialised skills – pharmaceuticals, hi-technology, programing, precision engineering, etc.  – should be the next phase in our post-industrial age. We cannot hope to compete with cheap labour in the East but we can compete in those fields where we are contenders already.

And above all, can all governments of which ever colour from now on keep your hands out of the till. If you need to spend ask yourselves why and is it in the country’s interest. You are responsible for the debt that we and our children will have to pay for if you cannot read the balance sheet.

Simon Miller is the Editor of Financial Risks Today. He tweets at @simontm71

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