23 April 2009

Labour must cut spending now

Alistair Darlings announcement to the Commons yesterday could very well be the Labour Party’s penultimate Budget in Government for some time. The polls remain heavily stacked against a fourth term Labour government, and despite economic and polling volatility, there is little sense that yesterday will begin to turn the tide against the Tories.

I am immensely proud of many of the Labour governments achievements over the past 12 years. The minimum wage, maternity and paternity leave, civil partnerships, Sure Start centres, devolution, the London mayoralty, free entry to national museums – all of these have impacted massively on people’s everyday lives for the better.

I have spent much of my time as a Labour member largely agreeing with our agenda, although often lamenting that the Government did not go far enough on some vital reforms. I do not carry any residual anger over the war in Iraq, having been an early supporter of the action. The part privatisation of the Royal Mail, although not a policy I would pursue, seems justifiable given the limited future for a cumbersome postal service. I may have strongly disagreed with 42 day detention but I have wondered whether a Government who was willing to stake so much political capital on an unpopular policy had legitimate reason to call for such draconian measures.

But yesterday’s budget left me fuming at the Labour governments policies. It was not the new 50% tax rate that infuriated me, as I generally support the measure to ensure those who can most afford it shoulder more of the tax burden; I was delighted with the pledge to offer new training and jobs to the under 25’s and felt that the scrappage scheme could give a much needed boost to the car component manufacturing industry in the United Kingdom.

What is unforgivable is the dire state of the public finances that was laid out for all to see yesterday and the complete lack of willingness to tackle the growing mountain of debt. There seems to be an unwillingness to discuss this problem at the highest level of government for fear we give credibility to Tory attacks.

But the figures speak for themselves. Britain will borrow £175 billion this year and £173 billion in 2010. This is a higher total of government borrowing in two years than in the entirety of the 316 years since King William introduced the national debt. This is equivalent to 11.9% of GDP in borrowing this year alone. It is worth noting that the official level the EU regards as acceptable as a maximum for any member state is 3%.

If growth figures are as optimistic as the Chancellor suggests, Government debt will still reach a staggering 79% of GDP in 2013/14. This is higher than the United States, whose mind boggling deficits we have gawked at with disbelief. It is also a higher national debt than Germany, France, Canada, Portugal, India, Pakistan, and Brazil, to name merely a few.

Arguably more realistic growth forecasts released by Citigroup indicate that national debt will eventual reach 90 per cent of GDP, with public debts at £1.6 trillion in 2013/14.

This staggering burden is not simply the result of extortionately expensive bank bailouts - public spending is poised to jump to about 48 per cent of national income next financial year, a figure not seen for 27 years. Investment in education, healthcare and infrastructure should be commended. But sound fiscal policy is not a uniquely conservative or progressive cause. It is the foundation of good economic management and up until as recently as six months ago the Government was reiterating its belief that the burden of public-sector net debt should not rise higher than 40% of GDP. Optimistic estimates put it at double this figure within 4 years.

I am by no means advocating that the Government slashes vital public services and much needed help for those worst hit by the recession. A number of the measures we have advocated are vital to ensuring, as Alistair Darling stated, we do not leave people on the scrap heap. The under 25’s are particularly susceptible to rising unemployment and we must target resources to ensure they remain in education, training or the work place.

But offering this help can not obscure the need for clear and decisive action to enable fiscal recovery. This is likely to include painful spending cuts across Government and a willingness to make a progressive case for increased taxation.

Otherwise we face the prospect of storing up even more severe spending restrictions for the next administration, giving the Conservatives an excuse to attack the public sector budget with an axe, thus potentially destroying Labour’s legacy of investing in education and healthcare. We can make the tough decisions now or we can allow the Tories to hide their agenda under the veil of fiscal responsibility. Either way, it’s going to painful.

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1 comment:

R0b said...

good article! Time for the bitter medicine!