A hopefully short but very necessary post. On Monday, in the House of Commons, David Cameron did it again. Challenged by Ed Miliband on his complete failure to secure any benefits for Britain or any progress for the global economy at last week’s G20 conference in Mexico (where he made his speeches in front of a backdrop to hide the fact that it was a very nice junket to a tropical idyll), Cameron fell back on a subtle variation of one of the most persistent Tory mantras.
Blaming Labour for Britain’s poor standing, Cameron stated that Labour left the Tories (see ‘the myth of the inherited mess‘) with a national deficit ‘bigger than Greece, bigger than Portugal, bigger than Spain!”. Deficit and debt confuse a lot of people, but if you’re not sure, think of ‘deficit’ as the amount you spend on your credit card in a year, while ‘debt’ is the balance as it builds up. The Tories began by criticising the debt Labour left as being bigger (as a percentage of earnings – to use the credit card analogy again, it doesn’t matter what the cash figure is, just how big the bill is relative to what you earn) than a host of other countries, which was demonstrably untrue, but now they’ve switched tack.
The statement on national deficit is a more subtle version of the national-debt Big Lie, as the statement is true at face value but ignores the context that would give it it’s proper – and very different – significance. Let’s take a quick look at it.
In the 2009/10 fiscal year – the last of the last Labour government – UK public spending ran at a deficit of £145bn, around 10% of GDP of c. £1.44 trillion.
The deficits for the other countries Cameron mentioned, in descending order, at the point when the coalition came to government, were as follows:
Doesn’t look good. Cameron’s accusation looks true. However, when understanding something, context is key. So, what’s the missing context?
Well, in the fiscal years 2008/9 and 2009/10, Labour had invested massive amounts of the country’s finances into shoring up the banking system after the banking crisis. In 2008/9 and 2009/10 Gordon Brown had to borrow around £124 billion to buy large portions of RBS, Northern Rock etc. The total cost of the rescue was estimated at somewhere between £800bn and £900bn, but not all of that was financed by borrowing, and so didn’t all impact on the deficit. So we’ll stick with the £124bn figure (some estimates say £143bn, which would only make my point stronger).
In the last two fiscal years of its term in office, the Labour government ran a total deficit of about £235bn (see here and here, but you’ll have to do the sums to get the total amounts if you want to verify it for yourself), which averages out to about 8% of GDP over those two years (Labour’s deficit was only worse than any of the countries Cameron mentioned in that one, final year of its government). However, if you subtract the amount of £143bn borrowed to bail out the banks, the cumulative ‘business as usual deficit’ for those two years of £111bn was about 5% – hardly a picture of fiscal irresponsibility.
So, while Cameron’s accusation was strictly true in a very precisely limited context, the wider picture doesn’t say anything like what he wants us to think it does. It’s very clear that David Cameron’s jibe was disingenuous as best, and more realistically, it was deliberately deceptive. Here’s why:
1) In 2008 and 2009, GDP fell sharply as a result of the banking crisis. Because the deficit is expressed (and only really meaningful) as a percentage of GDP (what the country ‘earns’), the fall in GDP inflates the deficit percentage in 2 ways. First, because lower GDP means lower tax takes, even if spending stays unchanged, the deficit in cash terms will rise. Second, because the deficit is measured as a percentage of a lower total GDP figure, the percentage is automatically inflated. So even the figures Cameron was referring to don’t indicate any mismanagement of the economy by Labour. Cameron must be well aware of this – the same factors are hitting him (correctly!) at the moment because of the Tory failure to achieve any growth in the economy.
2) Because of the financial crash and the resulting downturn in the economy, unemployment went up (for example in 2008/9, by 177,000). This means fewer people earning, so once again less tax-take – and more people needing unemployment benefit, which inevitably pushes up government spending. Again, Cameron will be well aware of this.
3) Third, and most importantly – David Cameron approved of the Brown government’s spending on the bank rescue, which is what pushed up the deficit. If you want to hear him say explicitly ‘which we all approved of’, listen here at about the 20-second mark.
Cameron is without question a slippery operator – although even his teflon-coating can’t protect him from the ongoing omnishambles of his excuse for a government. So on Monday, in an attempt to score cheap points and deflect attention from the woeful mess he and his ministers are constantly worsening, he managed to state a fact – and still to so completely misuse it as to achieve the net effect of a lie.
It should really come as no surprise to anyone who keeps an eye on what the man does. But a lot of people don’t – so if you hear anyone parroting or endorsing his accusations against the Labour party, remember this article and put them right. Oh, and if you want to pre-emptively get the truth out there by quoting from or point to this post, then by all means feel free!