Monday, 31 January 2011

Labour enter deeper into opposition

There (apparently) was no structural deficit when Labour was in government and on Thursday night at the full Council Meeting we were told that they hadn't agreed a deficit reduction programme, nor would they have put up VAT (because Gordon Brown would let it happen-no doubt just like he stopped the abolition of the 10p income tax rate)etc. and what is more a good number actually believed that to be true.

Let us begin with the denial of structural deficit. Nick Thornsby has all the detail.

Ed Balls, speaking on The Andrew Marr Show on Sunday morning:

46.15 : “I don’t think we had a structural deficit at all in that period [i.e. leading up to the financial crisis]…”

47.14: “Was there a structural deficit? I don’t think so.”

The Institute for Fiscal Studies (page 6):

On the OECD measure, the UK had a structural budget deficit of 3.1% of national income in 2007. This is the 2nd biggest structural budget deficit among the G7 large economies (after the US) and the 4th highest of the 26 industrial countries for which the OECD has data.

So it no surprise that Labour Councillors should take their lead from Balls. When they were confronted with the deficit plan that the Labour Government had produced they simply denied it!  Alister Darling knows the problem

"Mr Darling seems to be almost agreeing with Mr Osborne that there are deficit deniers in the Labour party and the two main ones are Mr Brown and Mr Balls."

But Mr Darling has told Sky News that he has always accepted the need to cut Britain's record £155bn deficit.............

The outgoing Labour government was already planning a fiscal tightening of 1.5%of GDP in 2010/2011. The difference between its deficit reduction plans beyond 2010/2011 and that of the coalition amounts to roughly half a percent of GDP per annum: well with in the forecasting error.

The trouble is Labour Councillors simply cannot believe that would be the case. To them it is unthinkable.  Some of them would spend the entire gross national product before breakfast and still believe that more should be spent.   Each extra pound spent is one more brick in the wall of the New Jerusalem and must be defended. Suggestion of economy are offensive. The bigger the state the better, the wider its reach the happier they are, they have no vision of an independent self governing people. They still cling to the to the  ideas that capture the Labour party in the 70's and 80's and like Militant they seek to persuade folk that the council should not make these cuts but challenge Central government to pay up. I fully understand why such rhetoric is attractive if you are to loose your job but a moments sober thought leads people to recognise that is not a sensible path to travel. Labour controlled councils have rejected that path. How ever painful they are moving to set balanced budgets. It is only the luxury of being a minority in Sefton that allows them the chance of such statement.  Sir Ron Watson keeps pointing out the inconvenient truth to them that if they wish to persue that line they should withdraw from the administration.


  1. The point Balls was making is that while there was a deficit, it was not structural. The entire debate over whether the current deficit is structural and/or cyclic (and how much either way) is one the tories have managed to avoid. To actually calculate the "structural deficit" one has to make a huge guess as to how big the output gap between pre and post recession is. On immediately entering government Osborne got his tame economist to re-guess the size of the output gap, thus increasing the "structural deficit".

    By engaging in extremely large cuts, extremely quickly you reduce economic growth to below trend. This increases the output gap and therefore increases the size of the structural deficit. If you slowed the cuts, used public money to increase private sector growth (e.g. loaned Forgemasters a few quid) you would increase growth above trend, reducing the output gap and increase the cyclic deficit.

    Take the tribal blinkers off for a few minutes and you'd see that Osborne isn't doing this for economic reasons but for very political reasons.

  2. Evan Davis on Radio 4's Today programme carefully took Alan Johnson through the figures and they agreed that there was common ground on how big the structural deficit was-that is what is left over when growth returns to the 'trend'. Under Darling and Johnson Labour were facing up to it. Now it is easier just to shout, no cuts, no cuts.....

  3. @iain

    "Evan Davis on Radio 4's Today programme carefully took Alan Johnson through the figures and they agreed that there was common ground on how big the structural deficit was-that is what is left over when growth returns to the 'trend'."

    Johnson was agreeing to the size of the structural deficit calculated by the OBR taking Osborne's spending cuts into account. But the fact remains that economic forecasting is less reliable than astrology, we saw this in 09/10 as the original deficit estimate was £175bn but stronger economic growth reduced it to £155bn. If there were a worldwide economic boom all the cuts would be unnecessary as tax receipts would rocket reducing the deficit.

    "Under Darling and Johnson Labour were facing up to it."

    Balls is arguing for Darlings deficit reduction plan, how if they're advocating the same policy can one not be facing up to it and the other can?

    "Now it is easier just to shout, no cuts, no cuts....."

    Strangely enough the only people, other than the SWP, I've heard saying that are the LibDems on Somerset council. Balls is not arguing for no cuts, he like many economists believes that the speed and manner of Osborne's plans are over the top and potentially dangerous.

  4. I sense a little 'spin' here. Firstly the post is about Labour going into opposition mode. i.e. not thinking how a responsible government would behave but just shouting the odds.

    I pointed to a couple of examples:
    i)Ed Balls on the Andrew Marr Show which Nick Thornsby more than stands up and
    ii) our own dear Bootle Labour Party who,SWP like, have embraced the no cuts agenda despite being part of the administration.

    Now I fully accept the coalition has embarked on an economic strategy which has some clear vulnerability-and we have rehearsed some of those on this blog. But they do not include denying there is a structural deficit or refusing to face up even to the level of cuts outlined by Labour when in government.

    Finally as to the structural deficit-yes growth will eliminate a significant part of it but even when the economy has fully recovered the government will still be borrowing around


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