The reality of Gordon Brown’s spending: Black Labour can’t re-write history

7th December, 2011 10:00 am

Did Gordon Brown leave the economy in a mess? This question niggles at me since even sensible people within the Labour Party seem unsure of the answer, when it should be fairly straightforward.

Yesterday, I attended the launch discussion of “Black Labour”, where they argued for ‘fiscal conservatism’ to be brought back in fashion within Labour. Co-author Adam Lent explains it here.

The authors want to ‘throw a grenade’ (to borrow a phrase from another practioner Maurice Glasman) in discussions within Labour – so I’d like to take an opportunity to throw a grenade back.

In theory ‘fiscal conservatism’ makes logical sense – every government has to eventually balance its books and look capable of managing the economy well. It’s the practical application that authors of Black Labour want to avoid.

To be specific, fiscal conservatives believe Gordon Brown should not have run a spending deficit before the crash of 2008. He should have ‘fixed the roof while the sun was shining,’ as the Conservatives like to say. But this theory ignores the reality.

1. Making up for falling investment
From around 2001, British businesses had started hoarding their cash rather than investing it domestically. The UK wasn’t alone in this, even Ben Bernanke said that:

“many advanced economies… face an apparent dearth of domestic investment opportunities”.

Labour ministers worried that the economy was heading for a ‘soft landing’ or maybe worse. Given that the UK’s debt level was at historic lows, a decision was made to invest money in public services to make up for the drop in business investment, and increase the UK’s long-term growth potential (investing in schools).

If Labour hadn’t spent that money, unemployment would have edged up and tax revenues down – so they would have faced a deficit anyway. Had Labour tried to be ‘fiscally responsible’ then, by cutting spending, unemployment would have inched higher anyway.

In fact, Adam Lent himself argued last year that the UK had been in good shape before the crash hit. So what would our fiscally conservative friends have done instead?

2. Brown spending versus the crash
Here’s the other obvious point: even if Gordon Brown hadn’t spent that money from 2002, the impact would have been minimal. Debt as a % of GDP went from 29% to 36% or so, but was still well below western average.

The impact of the crash and credit crunch was unprecedented: unemployment shot up and tax revenues collapsed and debt levels shot up. There is very little any government could have done to prevent that.

Labour should admit mistakes
Nevertheless, it’s clear that Osborne’s narrative (even though Conservatives planned to match Labour spending until 2009) prevailed with the public, thanks to a compliant media. The Lib Dems also developed collective amnesia about their deficit reduction plans (much closer to Labour than Conservative plans) and started castigating Brown after they signed the Coalition agreement.

So, Labour cannot politically escape without a mea culpa. I would say this: Labour did fail to regulate and rein in the banks properly. Labour also failed to create a balanced economy that didn’t rely so heavily on the City. Labour did not spend all its money wisely and made plenty of costly mistakes (IT projects, PFI projects).

The leadership should admit mistakes on these fronts and apologise until the public is sick of hearing it.

But if the authors of Black Labour want the party to admit mistakes on deficit spending, they should at least offer an alternative.

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