I have presented a version of this graph before. Now I have updated it for all data to February 2015 and generously estimated low March borrowing. So this is the track record of Labour over thirteen years and the Coalition over five:
Now, who was the more profligate?
And who incurred the overall bigger deficit as a legacy of their period in office?
Answers on the back of a £5 note please to George Osborne c/o the Treasury until 7 May, as he needs all the help he can get right now.
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And who left the bigger deficit as a legacy of their period in office?
That was Labour. When they left the deficit was over £150bn, and now it is down to around £100bn.
The data clearly says not
The deficit for 2009/10 was £159bn. For 2014/15 it will be somewhere around £90bn. QED going into the 2015 election the coalition has a smaller deficit than Labour had going into the 2010 election.
But who borrowed more?
Are you really obsessed with a day or performance over time?
The Tories failed on the latter measure – but their own definitions
So are the Coalition cutting wildly or spending profligately?
And the data does not ‘clearly’ say anything about the issue of the final deficit under Labour or the current deficit under the coaliton which is what James g has raised.
But thanks for that chart, very enlightening as it shows that 13 x 34.1 = c443 and that 5 x 111 = c555. Did it take you long?
If the chart does not say anything clearly to you then you clearly have nothing useful to say here
Please note when future comments are deleted
Richard, you posed a question about the deficit. The word deficit has a specific meaning. There is only one factually correct answer to your question, which is that Labour left a bigger deficit when they left office than the coalition are now leaving. If you don’t like the concept of annual deficits then you should have posed a different question using a different term.
My memory says that the collapse of the banks caused the deficit.None of the banks have behaved responsibly and they have been allowed to cause havoc due to their irresponsible behaviour. I dont see that this last bunch of politicians have done anything to protect the people of this country (unless they were rich supporters).
The profligate bonus system has been allowed to run completely unchecked while this rotten regime has allowed the weakest and most needy to starve and die. Some Government which allows Foodbanks to be a growth industry in one of the richest countries in the world.
The collapse of the banks increased the deficit dramatically I agree. It didn’t cause it though as Brown managed to run a (smaller) deficit between 2001 and 2006 during a credit boom.
It was a deficit I agree – but smaller than almost any in EU – including Germany
And endorsed by Tories, I should remind you, who committed to labour spending plans
Richard I think this analysis is fundamentally wrong, surely?
Yes the coalition has run up a larger stock of debt in 5 years than Labour did in 13 but at a macro level that’s not necessarily due to profligacy but the fact the defcit flow is going to be larger after a major recession – no Keynesian is suggesting the government should balance the books immediately after a crisis?
I see this argument often pop up on twitter from Labour supporters and it fills me with dismay. It simply begs the question doesn’t it? I recognise that the Tories have exposed themselves on this analysis by the way they’ve massively oversold the debt fear.
A better argument would have been to compare the expected cumulative stock of debt per June 2010 budget – £451bn – vs expected outturn now – £554.8bn per your estimate. Or the 2010 14/15 deficit target of £37bn as opposed to what we now expect to be around £90bn.
Paxman got close last week to asking these questions and Cameron was utterly flummoxed. As for the Opposition? Opportunity to ask these questions for 4 years now lost I feel, and only 5 weeks till the election. Oh well.
I am using the Tory definitions against them – I thought that would have been apparent but clearly is not
The problem was not that they ran a deficit – but that they said they would not. In that case the benefits of running a deficit were lost
The didn’t say they would not run a deficit – that would have been impossible given the deficit they inherited. They said they would eliminate the deficit by the end of the parliament. On that basis they have indeed failed miserably.
“no Keynesian is suggesting the government should balance the books immediately after a crisis?”
Which suggests you believe the books still need to balance eventually. If you do, then I’m afraid your grasp of ‘macro’ is at the kindergarten ‘Government budgets are like household budgets’ level.
And by the way there are plenty of Keynesian’s out there who think the deficit is nothing more than a number on a spreadsheet.
http://www.theguardian.com/commentisfree/2015/jan/09/repeat-after-me-the-australian-economy-is-not-like-a-household-budget
Oh! I’m with you on “balancing the books”!
It’s a wilfully ignorant phrase when used in context of government expenditure used by people who don’t understand macro, or by those intending to dupe people who don’t understand it.
I think we’ve all ended up in some impromptu circular firing squad because we’ve all missed each other’s point!
Ben,
Thanks for clarification and glad to hear we’re shooting in the same direction!
Indeed the very terminology – “deficit”, “debt”, “surplus”, “funding”, “finances” etc. – has no place in describing the capacity of a monetary sovereign (e.g. UK government) to create money.
The FA, for example, is a sovereign authority that has monopoly power to issue/deduct league points. Their position vis-a-vis points in no way compares to the football clubs, who live and die by them, ‘inside’ the system.
Only the stark raving mad would accuse the FA of forever running a huge annual ‘deficit’ of points (as it issues league points to winning teams over the course of a season). The same crazy people might then worry over the total FA ‘debt’ since the inception of the FA and go on to conclude that the debt is ‘unsustainable’. That would be truly laughable of course.
The tragedy of the political discourse of the UK government ‘deficit’ etc. is that it sits firmly on the side of the stark raving mad. Except the consequences this time are not quite so amusing.
Profligate has a general meaning of having too much money and being wasteful with it. If you believe that the coalition has been profligate, then by definition that means you believe they have spent more than they should have done. Can we therefore ask what cuts you would have made to spend less than the coalition?
You don’t mean profligate at all, do you? You mean “who borrowed more”.
I am using the Coalition’s language
That’s what they say Labour were
I don’t agree – but it is what they say and yet they spent more
Some people just can’t comprehend ironic reference… perhaps you should put everything in inverted commas, so that the Tories can understand that their ideological claptrap has been sprung… or maybe they’re merely trying to bring the discussion level down to that of the Murdoch Marketwatch comments pages.
This is probably the most ridiculous argument I have ever seen.
Labour left the Coalition with an enormous (over 10%) budget deficit. Unless you think they could cut the deficit they inherited on the drop of a hat, what you are looking at in the “total coalition borrowing” is Labour’s legacy.
You can argue that the coalition hasn’t cut the deficit fast enough, but to try and pin the massive total borrowing on them is entirely missing the point.
Besides, I though you were anti-austerity. Shouldn’t you be cheering the fact they have borrowed more? You can’t have it both ways and this post looks like nothing more than an ill-thought out attack on the coalition, while trying to cover Labour’s massive failures.
I am tackling the claim that Labour overspent
They clearly did not
And the deficit Labour left was very clearly not of their creation – unless you think they ran the world
Labour were running deficits in times of good growth. More importantly, they were running large structural deficits – which left the deficit vulnerable to any economic dip.
Of course Mr “no more boom and bust” Brown though that could never happen so kept accelerating government spending ahead of both growth and revenues from 2001 onwards. When the crash did happen the UK was left with the worst budget deficit in the western world.
So no, the crash wasn’t Labour’s fault, but leaving the country in a worse situation than almost every western country was.
There is no such thing as a structural deficit
Labour borrowed to finance investment
And so it should
No such thing as a structural deficit? I think any real economist would disagree with you there. But just by saying something like that it proves that you don’t have a clue about economics.
Labour didn’t borrow to finance investment. What “investment” they did was off balance sheet through PFI primarily. It borrowed to prop up a growing public sector wage and pension bill primarily, with more spending on benefits thrown in for good measure.
Hence a structural deficit. When the economy slowed, reducing tax returns, all that extra spending Labour left us with couldn’t slow, leaving the UK with an 11% budget deficit. A peacetime record and one of the biggest in the western world. Compare it with Germany, who at the height of the crisis had a deficit of 4%.
Respectfully, I read national accounts
It is very clear you don’t
Labour funded investment to make good the lack of investment in the Thatcher / Major years
Shall we deal in facts?
Tories use distorted line of argument to generate propaganda favourable to themselves.
Opponent, RM, uses same line of argument to discredit Tory claims, pretty conclusively.
Tory supporters cry foul for RM’s use of the same line of argument.
This isn’t about politics; it’s about rationality confronting hypocrisy. And the winner by KO is RM.
It’s also the Tories who say that they want to see surpluses to help the Government deal with a ‘future economic crises’ – indicating that it is OK to save money and cut services just so that you can bail out your mates in the City the next time they get too greedy and cause havoc.
Socialism for the rich; laissez faire for those that dare to be normal.
And if that doesn’t happen, you can do what Lawson did and bribe the voters with tax cuts from such surpluses.
That’s Tory fiscal policy in a nutshell.
There seems to be a misconception about how deficits work.
The facts are:
1) The deficit is lower now than in 2010.
2) Debt will increase every year until the deficit is zero.
The Tories have not made enough progress on the deficit but they have reduced it by 30% to 50% depending on whether you want to look at absolute or as a percentage of GDP.
Still struggling to understand this. Is not the deficit the difference between the value of stuff sold abroad and the value of stuff imported? According to NEF if we include investment abroad and borrowing our deficit has increased, it is only the trade deficit that has decreased largely due to people having less money to buy things.
From NEF http://www.neweconomics.org/blog/entry/why-were-not-talking-about-the-right-deficit
>>The most recent figures released just before Christmas show that the UK’s current account deficit grew from £24bn over May to June last year, to £27bn over July to September. This is despite an improvement in the trade deficit over the same time. At 6% of GDP, this is one of the worst deficits on record.
As the graph below shows, the UK’s net income from the rest of the world is now negative (shown here in red). We used to earn more from investments in the rest of the world than we, collectively paid out to the rest of the world for their investments here. But that situation no longer applies: we’re now paying more out to the rest of the world than we are getting back.<<
Our national debt has increased dramatically from borrowing. Isn't that what matters, not the deficit. I see little problem with the national debt increasing if it is borrowing to improve the infrastructure and wealth of the country eg by investing in jobs, green new deal etc , but it appears to me we are borrowing money to cover a gap in revenue from taxation, which the Tories want to reduce for the higher paid and essential spending eg on the NHS, benefits and infrastructure which the tories want to cut, imo the wrong way round.
The government deficit is the difference between gov’t income and spending
You are referring to the trade deficit
There are four elements to GDP deficit management – consumer spend, trade deficit, business investment and net gov’t spending. Investment is down. Trade is dire. Consumer spending is rising slowly because of borrowing. In that case continuing gov’t deficits are inevitable, whatever anyone says. They have to add to zero – it is impossible they do not
It would be better to say that the deficit has reduced during the latter part of the conservative term in office. Not due to their policies but largely independent of them.
The fall in the value of the pound, which has helped exports.
Lower demand for imported products.
Lower oil price (although the reducing amount from the North sea isn’t helping)(some of the reduction may be deliberate!)
Helped by them abandoning some of their policies
i can’t disagree with the graphs you have drawn, but I do disagree with some of your premises. Gordon Brown ran for years what he called a ‘borrowing requirement” which was required only because he needed to spend more than he was raising. Pudent it was not. In the year he left office, the nation borrowed £15 out of every £80 it spent. If any son of mine was earning £65k a year but spending £80k, and planned to do it again the next year, I’d be seriously concerned. Sure, borrowing Over the whole term averages out to be lower, but what was the rate in the last months of the Labour government, and what would the borrowing now be if they’d stayed in power? We have to start paying this back, and at the moment all I see is resistance to cuts and to raising taxes, both of which are absolutely necessary if we are to ever pay off the national debt, which I see as a much more pressing issue than worrying about who borrowed it and when. I am happy with what has been done so far, but I fear it is not yet enough.
Ken
Your son will never be able to print his own money
Government’s can
The rules are entirely different
And as a matter of fact if everyone else saves (as happened in 2009 and after) the government has no choice but run a deficit, whatever our politicians say
That is economic fact
Richard
Absolutely spot on Richard.
Almost all the comments above are based on the ‘common-sense’ delusion that ‘Government budgets are like household budgets’.
It is bordering on a crime that all political parties – even the Greens – think we need to ‘fix’ the deficit. As far as the right-wing parties are concerned it’s actually totally understandable;le as it very much suits their small state / predator capitalism ideology that ‘government is broke’. For the parties of the left, all that can be said is ‘How stupid are you?’.
The moment progressive parties accept the profound falsehood that governments have to balance their budgets ‘like a household’, is the moment they accept austerity and, even more importantly in the long run, the further delaying of action on climate change. All because they believe ‘we can’t afford it’.
Thanks
Mr Ferguson
You have saved the day and polarised the problem!! Spot on yourself and my compliments to the chef!!
Thanks Mark. If you’re interested in the mechanics of all this, then check out this excellent presentation from Aussie-based Brit economist Steven Hail…
https://vimeo.com/117137212
…what’s interesting is his direct attempt to engage with the Greens who, so far, have ignored his advances. Maybe one day they’ll twig and then tell their UK cousins.
Thanks once again and thanks to you Richard for enabling this.
Richard
I am more than happy to concede that I sometimes struggle with the complexities of macroeconomics, so I may be wrong here, but…
It strikes me that the figures here (and some of the arguments re debt/deficit) are somewhat limited in meaning without proper context. That context was, I think, provided in your recent post on the publication of the Whole of Government accounts. Doesn’t the increase (of 51%) in the deficit for the period 2009-10 to 2013-14 highlight the legerdemain at play here?
It seems to me that by reducing funding in real terms to local authorities, the NHS etc. the Coalition have simply created the appearance of deficit reduction.
I share the dislike of ‘family budget’ comparisons but given that it is the preferred model of the Government, I will use it here to illustrate my point. If I tackled my own household deficit by forcing my kids to each take out a £25k loan (which as A level students they would not be able to pay back) I could use that money to pay down my mortgage creating the impression of deficit reduction. Given, however, that in this model my family stands as a metaphor for the nation, by simply transferring my debts to my kids (read,national institutions) I am doing nothing to reduce my family (national) deficit, instead storing up problems for further down the road.
Those problems (in the real world) are already coming home to roost. A good example of this can be found in the state of our roads.
Here, in the West Midlands region our roads are in parlous condition. A recent industry report has stated that half a billion extra funding (and nine years work) will be required just to return our roads to an acceptable, serviceable condition. In the meantime the cost of not carrying out the work is borne by the road user in repairs to vehicles, accidents and even, in some cases, deaths.
Our transport infrastructure is, of course, just one example of many. The reduction in Local Authority grants, for instance, has led to a collapse in Social Care structures(particularly for the elderly) with catastrophic results for the NHS.
(see also ; tuition fees, flooding, climate change etc etc)
What this highlights in reality is that the Government have sought to create the impression of deficit reduction by ‘robbing Peter to pay Paul’.
In doing so they have simply turned a fiscal deficit into a physical one.
I think they have failed to address real issues
OR the financial ones
T could have been so much better. Debt could have been used creatively and that has not been the case
“It seems to me that by reducing funding in real terms to local authorities, the NHS etc. the Coalition have simply created the appearance of deficit reduction”
It seems to me that in creating an appearance of deficit reduction, they have merely shifted the deficit to the future.
NHS trusts are in the red, and getting more so.
Councils are closing services, many of which become nice little earners for others (or volunteer run) and are borrowing more. My local council is currently running a referendum on a council tax increase to the police funding (no hope of a yes vote though).
It’s always cake tomorrow.
“The thing to remember about sectoral balances is they must sum to zero. It is not possible to have a negative external balance, as the UK does, with concurrent surpluses in the public, household and corporate sectors. If the UK is a net borrower from the rest of the world because of its current account deficit, then somewhere in the domestic economy must be a balancing deficit”
http://coppolacomment.blogspot.co.uk/2015/03/repeat-after-me-sectoral-balances-must.html
Frances got it right