The Office for Budget Responsibility has issued a review of the period 2007-08 to 2018-19, saying:
I have not read the whole review as yet, but the summary does in itself provide some telling narratives. Take this for example:
So it wasn't all down to Labour's mismanagement that it all went wrong then? Has Robert Chote, the OBR director, been in to see George Osborne and Danny Alexander to tell them that, very loudly and very clearly? He should, because the world should also be told that the 2008 financial crisis was not the consequence of government mismanagement; it was the consequence of bank recklessness. At least the report makes it clear that is the case. I hope Labour trumpet the fact loud and clear because the data just does not support the claim made of their economic track record, as these tables show:
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Maybe you should read the whole report before commenting – which you have done rather selectively.
“The then Labour Government increased public spending significantly as a share of GDP in the mid 2000s, arguing that this would be paid for by an increase in tax receipts that thendid not fully materialise. External forecasters were consistently and rightly more pessimistic about the fiscal outlook than the Government. Public sector net debt increased during a period when it was being reduced significantly in most other industrial countries. And the OECD said at the time (and says more forcefully now) that the UK entered the financial crisis with one of the largest structural budget deficits in the industrial world. This
limited the Government’s perceived room for manoeuvre when the crisis hit.”
This paper definately doesn’t vindicate Labour’s economic policy – it punishes it.
I had read that
I do not agree with it
I think Labour quite deliberately invested in the economy and we are better off for it
OK, so what you are saying is that *YOU* think Labour are not responsible for the massive structural/budget deficit.
The OBR are not saying that Labour is definately responsible for the deficit and some serious financial mismanagement.
So your headline for this article, saying the OBR haven’t found Labour at fault, is simply a falsehood.
They say things did not turn out as Labour expected if you read the report properly. They say Labour expected bigger revenue yields from its spending than it got (and we now know tax abuse was a major explanation for that). But the story of expectations not being realised is a theme of the report. To suggest that this was the only occasion when it happened, let alone that it was the most serious is a gross misreading. Call it a fiction if you like. Because it is.
The OBR says that Labour consistently overestimated tax revenues, when external forecasters were continually more pessimistic – and indeed were correct. The OBR also say that the Labour government were running a large strucutural deficit and the UK was one of only 5 OECD countries where government debt was growing pre-crisis.
I’m not sure your tax abuse meme holds any water. There is certainly no evidence it grew significantly worse – other than your own overdramatic numbers – and it certainly will not have been the major contributor to the budget or structural deficit. As the OBR points out, the Labour government was simply spending too much money. Total managed expenditure (TME) grew in a pretty much straight line from 2000 to 2006, from 37% of GDP to 42% of GDP – as you show in chart 2.1 above.
This very clearly tells us that spending was increasing significantly faster than GDP growth and tax revenues. With the evidence above how is it possible to argue any differently?
It wasn’t only the OBR though – the OECD was also warning at the time:
“In another four European Union countries (Italy, the United Kingdom, Greece and France) the projected deficit, while remaining below 3 per cent of GDP, is well beyond the safe budget margins which might reasonably be expected to ensure that the 3 per cent deficit limit would be respected in the face of a major cyclical downturn.”(OECD Economic Outlook, June 2007)
It is mildly tedious to have to repeat what I’ve already said, but let me do so one last time (you will not be repeating your comments again).
Firstly, I reproduced OBR criticism of Labour. As I am not a Labour Party member and fairly objective on this issue, and can be as critical of what they do is anyone. In that case, almost everything about your argument indicates that you are fighting a strawman.
Second, I happen to not believe in the concept of a structural deficit: know what is adequately defined it and estimates of it very so widely that it is a meaningless concept. Labour chose, for good reasons, and based on estimates produced by the Treasury (please don’t be under any illusion that forecasts are prepared by ministers) to increase spending for two reasons. The first was to avert recession, which they did remarkably well. There was a crash in 2000, you might recall. Secondly, they quite deliberately decided to invest in the economy. I’m not quite sure why you have so many problems with that. It is the basis for prosperity.
Third, if you honestly think that borrowing at about 40% of GDP was a major issue in 2007 then respectfully you are so outside the economic mainstream at the time that I do not believe you, given the mainstream angle from which you come. The UK economy appeared to just about everyone strong, stable and sound in 2007, and I was in fact one of the few voices, along with the likes of Ann Pettifor, who suggested otherwise, and we all came from the left.
Fourth, increasing spending to cover investment is not an issue: is quite reasonable to expect returns to come later.
Fifth, the 3% target ratio is itself a fiction created by those who wish to limit the scope of government to intervene in economies to restrict the choices available to any government in accordance with its democratic mandate. I suspect that is your true agenda.
Sixth, I note you have yet to find any problem whatsoever with what has happened after 2010, or the gross errors in forecasting that happened at that time. How very strange.
Please do not waste my time with further comments of the sort that you’ve already posted
Sorry to butt in, Richard, I usually read, digest, and go away with my own conclusions, but…
Tony Robertson quotes in his answer to you: “The OBR also say that the Labour government were running a large strucutural deficit and the UK was one of only 5 OECD countries where government debt was growing pre-crisis.”
May I respectfully suggest that they (and possibly Mr. Robertson) be made to go back to primary school and learn to count…? I suppose that they’re probably using the same statisticians as Iain Duncan-Smith in his DWP feud. All very above board and especially trustworthy. In which case a basic research methods masters would probably do the trick.
Because within the EU alone… Of forget that. And please also choose to selectively forget about how “economies” are now so “globalised” it makes little sense to talk about “national economies” any more. Or national sovereignty… But here I maybe digress.
The fact shall forever remain: there are two schools of economic thought, and never the twain shall meet. At least not until it is vastly recognised that the ‘economic rules’ of back yonder (when classical economic theory and ‘science’ was ‘invented’) no longer apply to today’s world, and hanging on to a certain economic thought will only allow the cycle to self-perpetuate and the hole to deepen.
So I leave my threepenny worth here: it’s no longer governments making economic policy, nationally, regionally or globally – it’s the ‘markets’, knock knock. And the markets couldn’t care less about democratically elected governments, unless they can be used as props.
Oh, and by the way: Italy, France, Germany, Greece, Portugal and Spain cooked the books big time. At least them, but I suspect others. And the 3% GDP criteria has been proven the load of nonsensical mirage it always was. And funnily enough, not even by cooking the books has any nation escaped the downturn. *And* they were all, and still are, plus all the others, running massive structural debts, according to what I named, after visiting China in the 90s, “The Chinese Spend-It-All All The Way To Pseudo-Growth”, i.e. the seemingly popular principle of “spending your way out of recession” (it does not work, and China is living proof: just wait and see what’ll eventually happen with the Pearl Delta megalomania…)
You have to make your mind up: you either tax higher incomes and capital and amass and fill the public coffers, or you refuse to tax capital and depend on debt for everything, because taxation of the working and middle classes simply does not replenish the coffers enough. Of course, that’s the prestidigitation trick: get governments to not tax capital, so that they can then depend on borrowing so that…
Phew. Gets tiresome, after a while. Labour was no more responsible for the global economic chaos than I was. They were responsible for not reigning in the banksters, as a proper Labour government should have done. But the Tories are responsible for almost doubling the debt since 2010, and letting the financial sector get away with even more murder, mayhem and misery (thanks kitties Carney hasn’t been stupid enough to fall for the cooked unemployment figures, or England will finally see what a real crisis looks like, like Greece or Spain or Portugal).
And the latter two facts will be hard to refute, even if the Tories delete all and every single website, as they did with their own and the 2010 electoral manifesto.
Declaration of interests, just in case and for the sake of accuracy: ex-Labour. Very ex (this) Labour.
“OK, so what you are saying is that *YOU* think Labour are not responsible for the massive structural/budget deficit.”
No not just Richard, “I” and many others too also believe the same. You see Tony we’re not blinded by the neo-liberal offical narrative that downplays the banks culpability, in the same way we weren’t fooled by the Saddam’s “weapons of mass destruction” fable.
Please change the record….
“And the OECD said at the time (and says more forcefully now) that the UK entered the financial crisis with one of the largest structural budget deficits in the industrial world. This limited the Government’s perceived room for manoeuvre when the crisis hit.”
Ahh perhaps that is the old “perception is reality” meme…well it turned out the Government had plenty of scope to bail out RBS!
@ Richard
I will deal with your numbered points.
1. Where did you reproduce the OBR criticism of Labour? Your headline suggests the OBR have found no fault with Labour’s policy, and you selectively reference parts of the document favourable to Labour.
2. Just because you do not believe it exists, or it is hard to determine accurately doesn’t mean it doesn’t exist. Even the Labour government acknowledged they were running a structural deficit.
I’m not sure what crash you were talking about in 2000 (dotcom bubble was in 2001) but the UK didn’t suffer a recession in those years – YoY GD growth fell to a low of +1.8%.
As for investment – you do recall that to comply with Brown’s “Golden Rules” Labour had to dramatically slow down “investment” or capital spending. Much of the spending was simply on a larger public sector workforce and larger benefits.
4. See above.
5. I really don’t understand you here. The 3% level is a EU directive – with the aim of normalising very disparate european economies since the creation of the Euro. As we well know there are no punishments for breaching it. It doesn’t restrict the choices available to governments – though profligate governments soon find that the choices on debt financing are simply taken away from them as no-one is willing to borrow. I certainly don’t have an agenda – but equally reading through your other posts you do.
You assert that governments can simply borrow endlessly, print money (your wrongheaded understaning of QE) and run deficits endlessly – and indeed should do so to promote growth and reduce inequality. You invoke Keynes for this as justification.
Apart from your utter misrepresentation of Keynes monetarist theories, what does the reality say? Japan has been debt/deficit/QE financing itself for decades now, and all it has achieved is a massive pile of debt and little growth to show for it. Having low interests rates, driven there by QE does not mean people want the debt, and nor does it mean you can write the debt off or that it becomes cheap to finance. Japan’s Keynesian endpoint is more in focus now than ever thanks to Abenomics, and should serve as a lesson for all.
6. I have never commented on the post 2010 forecasts. You are just making stuff up now – building a straw man to try and attack me with.
@ Theremustbeanotherway
Most of the cost of bank bailouts was short term money – but regardless, the cost of the bailouts wasn’t added to the national debt (which is recored ex-bailouts and Royal Main etc) so the OBR’s points still stand.
I also don’t understand why people on the left keep going on about neo-liberalism. It seems to be some catch-all title for the latest conspiracy theory some have as to why public spending can’t keep climbing indefinately. It’s the bogeyman to stop the government buying everyone a unicorn. It’s the extension of a meme from parts of the hard left trying to obscure the clear failures of the last Labour governments policy by disavowing they were ever Labour, instead saying they had been taken over by “neo-liberals”.
There is nothing to reply to in these comments: I have addressed them all already
But I do note this:
“I have never commented on the post 2010 forecasts. You are just making stuff up now — building a straw man to try and attack me with.”
It was your absence of comment that I was drawing attention to.
Please try to keep up at the back
ED NOTE
This comment has been deleted
It may come as no surprise to find that the email supplied by the commentator is fake
I can assure you the email address is real – it does have a spam filter on it though. I’ve turned the filters off so you can try sending me another mail, or re-sending the earlier one.
One bounce back saying undeliverable is enough for me
You’re off here from now on
If one believes in Keynesianism, then one should have been arguing for the purple and blue lines in the first graph to swap around in 2001 Ie. They should have run a surplus in preparation for the turn in the cycle. But they didn’t because they thought boom and bust had been abolished. It doesn’t matter who is responsible for the bust, the job of a government (if you believe in fiscal macro management) is to temper aggregate demand and put the finances into shape to counter the cycle. If a coach driver is driving too fast, and has no seat belts installed, and no insurance, the fact that other drivers may cause the eventual crash doesn’t mean he was doing a good job.
I do not believe that
First you ignore the impact of a massive stock market crash in 2000 and the risk of recession it created – there was a downturn and a big one and Labour prevented it impacting
Second there was investment to make good – and it had been neglected
I think that by 2005 the argument could be made for too much spending
Before, no way
How does a dot com bubble bursting cause a recession in main street? The bubble bursting was a good thing – prices were brought back down to earth. Governments should have ignored it. Instead they lowered interest rates and helped create the housing market bubble.
But I’m still confused how you can claim to be a Keynesian and not accept budget surpluses at any point in the cycle.
Labour ran a surplus for 4 years
Haven’t you noticed?
It undermines your argument, but don’t let facts get in your way
Or what I have already said re post 2005
“Firstly, I reproduced OBR criticism of Labour. As I am not a Labour Party member and fairly objective on this issue, and can be as critical of what they do is anyone. In that case, almost everything about your argument indicates that you are fighting a strawman.”
The idea that you are objective on this issue simply because you are not a member of the Labour party is laughable. Yes, you do criticse the Labour Party at times but invariably this is because they have not (or are not proposing to) tax or spend enough for your liking.
“The UK economy appeared to just about everyone strong, stable and sound in 2007, and I was in fact one of the few voices, along with the likes of Ann Pettifor, who suggested otherwise, and we all came from the left.”
This is pure revisionism. There were indeed many voices who suggested otherwise, but they primarily came from the right. The Tories (and even some Lib Dems, notably Vince Cable, and journalists such as Roger Bootle and Liam Hannigan) had been warning for years that the economic boom was based on an unsustainable credit bubble. It got the Tories nowhere electorally, of course, because so long as the “good times” continued the public saw nothing wrong with the course the ship was taking. Name me one voice from the left who was raising concerns in 2007 about the state of the nation’s finances. None, because they were perfectly happy to see high government spending continue and to suggest that the country might be becoming dangerously indebted would be to imply that government spending must be cut.
Your entire economic policy Richard is just spend, spend, spend and to hell with the consequences. It is fantasy economics that has been tested to destruction.
Well, at least you have the decency to reduce your argument to diatribe
Yes I believe in spending, because it meets need
I think the aim of an economy should be to meet need
If spend and tax does that, it’s good news
You’d rather, I guess, mountains of cash be held offshore whilst people use foodbanks?
And the crisis in 2007 was not caused by government spending – very far from it. It was caused by debt and speculation. I said that. So too did Ann Pettifor. I notice you did not notice.
And that’s why what you say lacks any objectivity
“the 2008 financial crisis was not the consequence of government mismanagement; it was the consequence of bank recklessness.”
Think about what you have written for a moment before you continue to parrot this line.
This is only a valid, logical argument if you believe that the government should have no role to play in regulating the financial sector. Is that would you really believe?
If you accept that part of the role of goverment is to regulate the financial sector then it follows that you must also believe the government mismanaged that role. Therefore there was government mismanagement; it failed in its duties.
I argued for more regulation
The right – George Osborne for example – argued for less
Indeed, in many ways they still do
Think about what means
Wise people learn from their mistakes
Where does that leave the free market fanatics?
At least I have the comfort of knowing more regulation was needed all along. Labour at the time tried as hard as it could to push that line against a massive counter attack. It needed to have been more courageous. But it did try
“Labour at the time tried as hard as it could to push that line against a massive counter attack. It needed to have been more courageous. But it did try”
You are kidding, surely!
http://www.theguardian.com/business/2006/jun/22/politics.economicpolicy
No, not entirely
What Labour got was massively fought over – because of Tory opposition to all regulation of all forms
But you conveniently forget that
I am not excusing Labour
But I am saying you’re talking utter nonsense
Interesting you choose to delete my comment pointing out there’s no evidence that you ever said more regulation was needed. It seems by deletion you prove my point. Thanks.
Far from it
I argued this extensively – but you have chosen to ignore it and I have better things to do with my life than answer your tedious requests for bog references (which may surprise you, but not others)
What you have convincingly proven in the process is that you are simply another tedious little free marketeer who is intent on wasting my time with their spurious philosophy that has no relationship to reality except in its usefulness for oppressing people
So welcome to the list of those who are automatically deleted
Tony, we have been constantly told for the last twenty years that the way to greater prosperity is to de-regulate and cut taxes. I meet people who think it’s true, not a particular view. (South Korea may give an alternative model, or Singapore in some ways-20% state owned industries and 80% state housing).
It seems to me Labour fell for that as did most other people on almost all sides of politics. When the de-regulate principle was applied to the financial industry, it resulted in the worst economic crisis since the 1930s. A lot of people got it wrong (I’m not a Labour voter) and not excepting them) and there is scope for a thoughtful evaluation of alternative policies. The last few days this blog has seen a lot of name calling and tribal comments. OK people feel strongly but there is scope for a little humility.
as a PS i didn’t read much economic commentary before the Credit Crunch but I can recall people on the right calling for government cuts (they always do and there is a mirror effect on the other wing ) but few calling a closer regulation of the financial sector. Can you indicate any books or other sources for me to check out your contention?
Richard
It seems odd to me that you criticise banking reguation under Labour on the basis that “the right – George Osborne for example – argued for less [regulation]”.
It’s laughable to claim that Labour, with their huge parliamentary majority tried “as hard as it could to push that line against a massive counter attack” on banking regulation but were somehow forced to do things they didn’t want to do.
In what other areas of policy were poor Labour forced to go against what they wanted to do, ‘hamstrung’ by their 177 seat majority? Labour were able to do pretty much as they wanted. Gordon Brown wanted banking regulations dropped and so they were.
This seems to be the standard left-wing response to criticism of Labour on the banking crisis. Fine if that criticism is coming from George Osborne but a completely worthless defence if the criticism is coming from a neutral viewpoint. Labour were in charge, Labour made a mess of banking regulation. Citing George Osborne as a defence is like a drunk driver defending himself by saying his back seat passenger was also drunk.
If you really think that the City has no power to oppose what democracy wants you are very seriously deluded about the power structures in this country
I suggest you read Nick Shaxson’s ‘Treasure Islands’
“If you really think that the City has no power to oppose what democracy wants”
Then why is there any regulation at all? Why were there regulations that Gordon Brown wanted to get rid of? If ‘the city’ is all powerful and a 177 seat majority labour government powerless to oppose them, how come there were regulations in place under the previous Tory government that needed removing?
One of your refrains is how the Tories are in the pocket of the city. If the all powerful city has the Tories in their pocket, why did it wait until Labour got in power in 1997 before it exerted its influence?
How come we had a bankers’ bonus tax at all? Surely if the city were all powerful it wouldn’t allow that?
I don’t doubt the city has influence in the same way that the trades unions have influence but your elevation of the city to some all-powerful organism which poor Labour were unable to oppose suggests paranoia or a simple refusal to accept a simple fact; banking de-regulation happened under Gordon Brown because Gordon Brown thought he knew best and wanted it to happen.
Unions have been regulated to the point where they can hardly operate
The City continues unabated
But you ignore that fact
Why?
Because it’s not a ‘fact’ that the city continues unabated.
New regulations have been introduced which govern how the banks operate. they are aimed at ensuring the 2007 crisis is not repeated.
What has been ignored (by you) are my comments on your claim that poor Labour were powerless in the face of the all-powerfull ‘city’.
You claim the Tories are in the City’s pocket yet it was Labour who deregulated in 1997 and now the Tories who have tightened regulation with the 2012 changes.
Your claims that Labour were powerless whilst simultaneously it’s the Tories at the City’s beck and call simply doesn’t stack up.
Meanwhile to claim that unions can ‘hardly operate’ is equally flawed, unless you think the only purpose of a union is to go on strike and even that right still (rightly) exists. the firefighters, teachers and PCS have all had industrial action that I can recall this year.
Your post was just a soundbite without substance aimed at distracting from your failure to respond to my points.
I have referenced you to Nick Shaxson’s work
That was a substantive response
And I suggest you read this re unions http://touchstoneblog.org.uk/2014/09/keeping-wages-down-for-ever-a-new-slogan-for-the-conservatives/
I have answered all your points – as I do all of your ilks. You just a) don’t like the answers b) are here to waste my time repeating your own meaningless comments time and again
I dont know a lot about Finance but I do know that throughout the latter part of the 2000’s we lost a lot of tax revenue through foreign companies acquiring and re registering in tax havens. Boots immediately springs to mind !!!
Also there were many Tory faithful pulling their money out of the country, so loyal they are to money and not the country. Outsourced cheap Chinese goods dont help either. We appear to owe more now than in 2010 so how can we be in recovery when it appears to be built on Russian, Chinese property investments in London. More speculation? HMRC making more sweetheart deals ? More sell offs of the NHS, Mail to mask the true spending. Profligate waste in DWP? Labour havent been in power over the past 4 plus years and how did Brown manage to make all the other countries go bust?
As it happens I think Labour probably were undertaxing – slightly – by 2005-7. HMT overestimated tax revenues – largely because the extent of avoidance was underestimated. Much of this is due to the New Labour mindset which was scared stiff of frightening the City or the Tory press with tax increases or tough anti-avoidance legislation. In other words New Labour failed to tax enough because they were too much like the Tories.
Having said that, the 2008-09 recession was so large that even if Labour had been running a surplus in 2006/07 it would have still blown a massive hole in the public finances. So it really makes very little difference to the overall position. Debt/GDP might have spiked upwards to 70% instead of 80%…. so what? This whole “Labour overspent” argument is complete straw man trolling from the hard right.
Agreed, entirely
The whole idea that a debt to GDP ratio of just over 40% is excessive spending is laughable.
However, New Labour implemented City friendly policies and therefore, had some culpability for the 2008 crash.
But lets cut the crap! The banks were almost wholly responsible for the financial crisis.
Anyone who doubts this should watch the excellent Inside Job. This film nails the lie that the crisis was a total surprise that blindsided everyone.
I’m simply amazed that anyone buys the line that the crisis was caused by government over spending. Anyone looking at the actual figures would reveal this as total nonsense.
Tory Central Office out in force today.
From what I can gather, the root cause of the so called ‘credit crunch’ was deliberate ‘suicidal’ lending by the banks (creating bad debt to boost the balance sheets, share values & bonus payments).
The root cause of the governments structural debt is a reduction in taxation income, caused by the ability of large companies to ‘move’ money to areas with low corporation tax rates (Amazon, Apple, Boots….Vodafone – bloody hell! You could almost play the a,b,c.. game with that!).
These large companies are the same ones that fuel the most powerful lobby groups that drive so much government policy.
I think that 35 years of “Free market economy” & free movement of capital have been proved to be beneficial to a very small minority who seem to be immune from justice, whilst the vast majority suffer a loss of income, lifestyle & real political choice.
News yesterday that unemployment is down to “less than 1M” are to be taken with a pinch of salt, as we all know that the figures are massaged by Zero-hours contracts, Workfare, bogus self-employment & low paid, part-time work (income support is NOT recorded within the figures).
This is the reality for many under the last 35 years of government economic policy.
You are right on the sauce of the crisis and much else but wrong on the lack of tax
Tax avoidance did play a part but only a part. Tax evasion domestically has always been a bigger issue
The real problem tax been a lack of awareness of that issue and an unwillingness to tackle it
Plus a culture where tax abuse has been acceptable
And post 2008 declining incomes resulting in less tax paid