As I watched the Chancellor deliver his Autumn Statement to MPs yesterday, I couldn’t help but remember his 2010 conference speech in Birmingham and, in particular, this bit of the speech:
Imagine, if I were to stand up in the House of Commons in two weeks time and say: I’m cancelling the deficit plan.
I agree with Ed Miliband.
Let’s delay the tough decisions.
Let’s borrow more.
Let’s go on adding to our debt.
Imagine if I said that.
Now imagine what would follow.
The market turmoil.
The flight of investors.
The dismay of business.
The loss of confidence.
The credit downgrade.
The sharp rise in real interest rates.
The extra debt interest.
The lost jobs. The cancelled investment. The businesses destroyed. The recovery halted.
The return of crippling economic instability.
Britain back on the brink.
Hmm. Yesterday, George Osborne stood up in the Commons to reluctantly reveal that he would indeed be borrowing more – an astonishing £158bn more than he had planned to in last October’s Spending Review and an embarrassing £37bn more than the much-mocked Labour plan (or “Darling plan”) to cut the deficit in half over the lifetime of this parliament (as outlined in the March 2010 budget).
The Opposition has put together these two tables below, based on yesterday’s OBR figures:
| 2011/12 | 2012/13 | 2013/14 | 2014/15 | 2015/16 | |
|---|---|---|---|---|---|
| November 2010 | 117 | 91 | 60 | 35 | 18 |
| November 2011 | 127 | 120 | 100 | 79 | 53 |
| Change since Nov 2010 | +10 | +29 | +40 | +44 | +35 |
| 2011/12 | 2012/13 | 2013/14 | 2014/15 | 2015/16 | |
|---|---|---|---|---|---|
| June 2010 (pre-Emergency Budget) | 127 | 106 | 85 | 71 | n/a |
| November 2011 | 127 | 120 | 100 | 79 | 53 |
| Change since before Emergency Budget | 0 | +14 | +15 | +8 | n/a |
Then there is the graph (number 2) put together by our friends at the Spectator which shows that public sector net debt, as a percentage of GPD, will be higher in 2014/2015 than it was forecast to have been under – yep, you guessed it! – the afore-mentioned Darling plan. (“We are sinking in a sea of debt,” shrieked the Chancellor in his conference speech in 2009. Now we know that, despite his savage cuts, we’ll still be “sinking” in an ever-greater “sea of debt” at the next election.)
So what I’m wondering is: why isn’t “Britain back on the brink”? If the country was on the verge of defaulting on its debts and being downgraded by the credit rating agencies when borrowing was forecast to be lower and growth higher – under the Darling plan – back in 2009 and 2010, why don’t the latest OBR figures – which also downgrade growth for the fourth (!) time since Osborne took over at the Treasury – presage financial and economic armageddon? Isn’t this the best evidence for the claim by Joseph Stiglitz, the Nobel Prize-winning economist, that the then shadow chancellor was guilty of “scaremongering” about borrowing and debt in an interview in the New Statesman in February 2010?
Referring to Cameron and Osborne as modern-day “Hooverites”, Stiglitz said:
I say you’re crazy — economically you clearly have the capacity to pay. The debt situation has been worse in other countries at other times. This is all scaremongering, perhaps linked to politics, perhaps rigged to an economic agenda, but it’s out of touch with reality.
Before the Tory trolls arrive below the line to shout about bond markets, confidence and low interest rates, I don’t deny Osborne’s contention that “debt interest payments over the Parliament are forecast to be £22 billion less than predicted”. But I do dispute his description of Britain as a “safe haven”. And I ask the deficit fetishists: if low rates are a sign of economic success and market confidence, why then did Japan enjoy such low rates in the mid-90s, during its “lost decade”? Why have borrowing costs in the United States, in the aftermath of its fiscal stimulus, the failure to sign off on spending cuts and its credit-downgrade by Standard & Poors, plummeted to historic lows?
Sticking with the subject of “confidence, the eminent economist, former Tory frontbencher and biographer of Keynes, Robert Skidelsky, writes in today’s Guardian:
We come to the question of confidence. The chancellor has repeatedly claimed the deficit reduction programme was, and is, necessary to maintain investor confidence in government finances. Confidence is very important, but also mysterious: the bond markets can believe a dozen contradictory things before breakfast. The main point is that confidence cannot be separated from the economy’s performance. As it stalls, the creditworthiness of governments declines as their debt increases, raising the likelihood of default.
A year ago bond traders, having forgotten what little economic theory they knew, were inclined to believe that deficit reduction would in itself generate recovery. For several months the Osbornites fed them the fantasy of “expansionary fiscal contraction”, the idea that as the deficit falls the economy would expand. This story is now exploded. It’s the economy that determines the size of the deficit, not the deficit that determines the size of the economy.
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