Ed Milliband and the Caucasian Kettle

January 6, 2011

It’s clear that Ed Milliband has decided to take Coalition accusations of Labour’s economic incompetence head-on. He’s recognised this incompetence (sorry, perceived incompetence) is his party’s biggest challenge. And so, he’s claimed that the Coalition is promulgating a deceit:

“What is this deceit? It is that the deficit was caused by chronic overspending rather than a global financial crisis that resulted in recession and a calamitous collapse in tax revenues. One pound in every five of corporation tax disappeared in 2009-10. Their deceit ignores the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason.”

There’s so much deceit in this paragraph that it’s difficult to know where to begin. For example, the argument that there’s only one cause to the deficit is not one that anyone’s making. Secondly, the magnitude of the deficit would be significantly less if Labour had not been running a deficit before the recession. Here’s a graph, courtesy of the ONS, with the deficit on the left and debt on the right:

Even this conceals the true picture, as it’s in percentage rather than absolute terms – and the economy shrunk over this period. The deficit in 2006 was a record £8.7bn, before the financial crisis. By November 2009, this had climbed to £14bn. The growth in percentage terms was more driven by the relative decline of the economy than the Government’s response to the financial crisis. Labour left us in a terrible state to weather the financial storm – and fully deserve their reputation for economic incompetence. Don’t forget that they were predicting in 2006 that by this year we’d have a surplus of £14bn.

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3 Responses to “Ed Milliband and the Caucasian Kettle”

  1. Hans Castorp said

    Oh dear.

    First off, this quote:

    “the argument that there’s only one cause to the deficit is not one that anyone’s making. ”

    Is flat out disingenuous. The Coalition front benchers have added a Labour-caused-the-deficit addendum to almost every statement to the house since May, with no further explanation offered.

    Second, Ed M says the deficit was caused by “a global financial crisis that resulted in (1) recession and (2) a calamitous collapse in tax revenues.”

    You say: “the economy shrunk over this period […] The growth in percentage terms was more driven by the relative decline of the economy than the Government’s response to the financial crisis.”

    An economy shrinking is called a recession. So you and Ed agree that (1) a recession happened and (2) the fact that it did increased the deficit because receipts relative to spending collapsed. I invite you to look at the graph misused by the Spectator (http://www.spectator.co.uk/coffeehouse/6593458/unpicking-milibands-deceits.thtml) today which proves that point, and to compare the gap between spending and receipts in 2007-8 (before the crisi hit) to that today. Compared to the trough after 2007-2008 the deficit in that year is miniscule.

    You baldly assert that “Labour left us in a terrible state to weather the financial storm” – a complete non sequitur unrelated to any evidence in this post, contrary to fact, and made nonsesnce by the graph to which I have linked.

    This country had the lowest deficit of any major industrialised nation before Lehman went down. You don’t seem to like that fact, but it is a fact.

    And let’s not forget, Osborne who have let the whole thing burn. What would our tax receipts look like then? Ireland’s, I expect.

    Must do better.

  2. […] to the global financial crisis than to Labour’s over-spending has met with a – ahem – sceptical […]

    • declineofthelogos said

      Ah, my dear Hans. There’s a difference between ‘one cause for the deficit’ and ‘Labour caused the deficit’. The first is an economic point, the second political. On your second point, you must be looking at a different graph to me, because the one I can see indicates that Labour ran a significant deficit for a long time before the recession. Going into a recession while running a deficit is something you should avoid, because tax receipts decrease. Are you honestly claiming that this was a clever thing to do? Chris Dillow’s response on this matter has already been eviscerated over on LibCon.

      Having said that, I did like your attempt at a ‘Well, everyone else was doing it’ defence.

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