For years now, we’ve been told, “you can’t trust Labour with the economy”. And that message has hit home. Poll after poll shows that voters trust the Tories over Labour on economic performance. But what is the truth?
The deficit
The deficit is the gap between what the government spends and what it receives – the amount it has to borrow each year to cover its spending commitments.
After the financial crisis, the deficit skyrocketed and the Tories have used this as a stick to beat Labour with ever since. Deficit reduction has been George Osborne’s mantra. Last year he went as far as banning deficits in law, forcing future governments to run a budget surplus in “normal” economic times. The implication, of course, is that the fiscally savvy Conservatives will cruise through this economic test while reckless Labour will fail.
But the facts reveal a very different story.
Here is the UK’s public sector net borrowing since just after World War 2 (for the sake of simplicity, I have shown the 2010-2015 coalition government as Conservative), based on data from the Office for Budget Responsibility. Anything below the zero line is a surplus and anything above it is a deficit:
The chart shows that the first two post-war Labour governments inherited deficits and left surpluses. (Clement Attlee’s Labour government inherited a war deficit in 1945, just before the chart begins.) The third Labour government reduced the deficit it had inherited. In fact, the only Labour government to increase it was Gordon Brown’s, whose deficit skyrocketed when the 2008 financial crisis hit.
Of the four post-war Conservative governments, on the other hand, two have inherited surpluses and left deficits. The Cameron government, of course, has repeatedly missed its own deficit reduction targets.
It is also worth noting, for this chart and subsequent charts, that the deficit may well have been worse had the Tories been in power when the financial crisis hit. In 2007, just before the crash, the Conservatives pledged to match New Labour’s spending plans – and endorsed further deregulation of the banking sector.
National debt
National Debt is the total amount of debt owed by our government.
This chart shows the UK’s national debt as a percentage of GDP (a measure of our total economic activity) since the end of the second world war. The data comes from ukpublicspending.co.uk.
Every government since 1945, whether Labour or Conservative, has reduced the national debt as a percentage of GDP, apart from the two in power during and after the financial crisis (Blair/Brown and Cameron). In fact, under New Labour, the national debt (as a percentage of GDP) was always lower than the debt it had inherited from Thatcher/Major – until the financial crisis hit.
Over the last six years, on the other hand, the Conservatives have created more debt than every Labour government in history combined.
It is also worth looking closely at the first six years of the chart. It shows that Clement Attlee reduced the national debt as a proportion of GDP at the same time as he rebuilt the country after the second world war. During that period, he also created the welfare state including the NHS, and built over a million new homes, mostly social housing. In other words, investment-based growth can work to reduce the national debt – or at least increase GDP to levels that make the debt more manageable.
In terms of public debt management alone, it does not look safe to trust the Tories.
Growth
Instead of investing in the country, Osborne has given us austerity. But, even on its own terms, austerity has failed.
Stalled growth has wiped out any savings made through spending cuts (leaving aside the fact that many of those cuts are false economies). Or, as the International Monetary Fund (IMF) puts it, the “multiplier effect” has been massively underestimated; when the government shuts down its own spending, the economy shrinks so much that feedbacks such as tax receipts decline. The harder governments try to cut away deficits, the further ‘balanced books’ move out of reach.
This graph from The Guardian compares the rate of GDP growth to the level of austerity inflicted upon a number of countries after the financial crisis:
In short, austerity is bad for growth. As a result, as this graph from the National Institute of Economic and Social Research (NIESR) shows, Osborne has overseen an extraordinarily slow recovery from recession – some say the UK’s slowest since records began:
Credit ratings
It was the prospect of continued sluggish growth that prompted credit ratings agency Moody’s to downgrade the UK’s credit rating in 2013. A second agency, Fitch, quickly followed suit. Under the Conservatives, the UK lost its AAA credit rating for the first time since the country was first rated in 1978.
Credit ratings evaluate a government’s credit-worthiness – and two out of three of the big credit ratings agencies thought the UK was a less reliable debtor under Cameron than it had been under Brown.
Unfortunately for Osborne, he had staked his party’s reputation on safeguarding the UK’s credit rating. Three months before the 2010 election, Osborne said safeguarding Britain’s credit rating would be the Conservatives’ “first benchmark” and “a measure of success”. By his own benchmark, the Conservatives have failed economically. There’s no chart needed for this one, but I’ve created one anyway:
In 2015, the only big agency not to have downgraded Britain, Standard and Poor’s, put the UK on “outlook negative“, increasing the likelihood of a downgrade from them too.
Unemployment
Between the second world war and 1970, the unemployment rate sat at a fairly steady 1-3% regardless of who was in power. Since 1970, it has been more volatile. Prime Economics has calculated the average annual employment rate for each government since 1970 using Office for National Statistics data. It found that, despite the Conservative party’s claim to be “the party of working people”, the two worst performing governments were both Conservative-led. The first was the Thatcher/Major government of 1979-97, which had an average unemployment rate of 9.3%. The second was the 2010-2015 coalition, which averaged 7.6%:
Selling off our assets at a loss
Much has been made of the fact that Gordon Brown sold more than half of Britain’s gold reserves between 1999 and 2002, just before gold values rallied for a decade. David Cameron has said that sale cost the taxpayer £9bn – a figure he apparently reached by subtracting the sale price (£2bn) from the price Britain would have got for the gold in 2012 (£11bn). Here’s a gold price chart from BullionByPost to prove Brown’s folly:
But look again at the chart. With the benefit of hindsight, Brown clearly made a very bad decision. But you could equally argue that George Osborne has lost the UK billions by not selling the UK’s remaining gold reserves in 2011. According to the Treasury, £2.3bn was wiped off the value of our gold reserves in just five months during 2013.
It’s a ridiculous argument of course. Gold prices fluctuate, and it’s impossible to accurately predict the top or bottom of a market. Governments may have a whole host of reasons for wanting to sell or hold onto gold (in Brown’s case, he wanted to invest in interest-bearing foreign currencies). But it is no more ridiculous than the argument that Brown ‘lost the country £9bn’ by selling gold 12 years before the market reached a peak no one could have confidently predicted, after gold prices had been fairly stable for well over fifteen years.
Osborne, of course, has form when it comes to selling off Britain’s assets at knockdown prices. He made a loss of £1.1bn on RBS, £1bn on Royal Mail and £400m on Northern Rock – for starters. And the winners in Osborne’s selloff have been those running the private investment firms that picked them up on the cheap, including the Chancellor’s close friends.
The Conservatives’ mismanagement of the economy has cost the country dearly. Cameron has cheerfully overseen the biggest increase in death rates amongst the elderly in almost 50 years, rising child poverty, a worsening housing crisis, a cost of living crisis and the most dramatic decline in real wages since Victorian times. But all of that is just collateral damage. What matters to them is that the profits have been successfully privatised, and Britain’s wealthiest have doubled their net worth in six years.
There’s a simple reason why you can’t trust the Tories with the economy: unless you’re very wealthy, they don’t run the economy for you.
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Featured image via Youtube.
