ALEX BRUMMER: Labour’s legacy of red numbers
Voice of wisdom: former Prime Minister Tony Blair
Hindsight is a wonderful thing. Looking at the trajectory of public finances, former Prime Minister Tony Blair maintains that, if elected. Keir Starmer would face a much worse financial situation than the one he inherited from John Major in 1997.
Deficits and debts mean that even the last leftist forces in Starmer’s shadow cabinet are under control.
Labor deputy leader Angela Rayner refused to defend the state pension “triple lock”, arguing her party would not make “unfunded” promises. You know what she means, but as the UK’s state pension system isn’t funded anyway, her response was blather.
Similarly, Labour’s energy overlord Ed Miliband has been returned to his box by shadow chancellor Rachel Reeves over his promise to invest/spend £28bn a year to turn the UK into a superpower of green energy. Budget constraints mean the investment will not be implemented until the middle of the next parliament, if at all.
Labor is wise to refrain from delivering on fiscal promises, given that the UK’s net debt-to-output or GDP ratio, as measured by the IMF, is projected at 95.1 per cent this year. The opposition blames the conservatives for this.
However, a closer look at the public finances since 2007 shows that the crisis began after the Great Financial Crisis, when Gordon Brown was Prime Minister and Alistair Darling Chancellor. In 2007, before the bank bailout, Britain’s net debt-to-GDP ratio was 37.19 percent, similar to Germany’s. By 2010, when the coalition took power, it had risen to 66.9 percent.
The combination of bank bailouts and the ferocious downtown that followed sent public finances into a frenzy. The boom turned into a bust.
Opposition parties love to talk about the bad things about George Osborne’s austerity and “fixing the roof”. However, it was Labour’s mismanagement of the financial system that put Britain on the path to ruin. Austerity was about steadying the ship.
The great increase in national debt began with Covid. As the Office of Budget Responsibility opined during the crisis, in times of war public finances must be there to withstand the pressure. Sure, some money was wasted on PPE contracts and fraudulent loans. However, despite Keir Starmer’s constant attacks and demands for tougher lockdowns, the result, as we now know, is that the UK was not the worst for Covid deaths, as claimed, but rather is in the middle of the European group. Money well spent.
Just when the Government was trying to stabilize public finances came President Putin’s war against Ukraine. Rising energy prices and a hit to consumers led Labor and special interest groups to demand bailouts to help with the cost of living crisis.
The workers not only managed to make it impossible for the money not to be spent, but they would have done more.
The inevitable result is huge debt, although it is still well below most of our G7 partners, except Germany.
Unfortunately, there is an act of self-harm that made things worse. The Treasury, together with the Bank of England, overloaded debt issuance with inflation-linked bonds, sending interest rates soaring. Both Labor and Conservative ministers bear some responsibility for this. However, it is time to be honest and recognize that the black hole in public finances is the consequence of three unrelated shocks.