Deficit Deceit

In today’s Times (£), Ed Miliband accuses the coalition government of ‘great deceit’ over public spending. It is clear by the time you reach the third paragraph that this is a case of the pot calling the kettle black. Says Ed:

[M]y concern is that a great deceit designed to damage Labour has led to profoundly misguided and dangerous economic decisions that I fear will cause deep damage to Britain’s future. What is this deceit? It is that the deficit was caused by chronic overspending…

Instead, Ed blames the financial crisis, the subsequent recession, and the consequent collapse in tax revenues that resulted. Well, let’s look at the numbers.

Source: HM Treasury (via Guardian Datablog)

As you can see, the Labour government ran significant deficits every year from 2002-3 onwards.

Remember that Northern Rock was not nationalized until February 2008, and that RBS and HBOS were not bailed out until October 2008. So while it is true that the financial crisis made the deficit much worse, you plainly cannot deny that chronic overspending played a major role too – an assertion borne out by the fact that the OECD puts the UK’s 2007 structural deficit at 3.9 percent of GDP.

Consider two other things. First, from 2000-01 and 2006-07, spending rose by 51 percent, while tax revenues only rose by 36 percent. Secondly, from 2006-07 to 2009-10 (which encompasses the crisis years), spending rose by 22 percent. Tax revenues rose and then fell back to where they’d started.

And if that isn’t evidence of chronic overspending, I don’t know what is.

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