“We are on course because we have turned the UK around from being a basket case, which it was four and a half years ago, to being one of the strongest growing economies in the world.” - George Osborne, The Andrew Marr Show, 30th November 2014.
The truth about the Tories’ economic recovery: As you can see by the chart above, by the time Cameron, Osborne and their chums took control of the economy in 2010, the recession was well over. Labour were delivering a strong recovery with healthy growth. As soon as Osborne introduced his austerity measures the economy stalled and they’ve failed to get us back to the level we were at when they took power, let alone grow beyond it!
As for their claim that Labour left us with unprecedented levels of debt. Well, yes, if you take the debt as an amount of money that’s unadjusted for inflation, you’ll see that pretty much every government since 1692 has left us with an “unprecedented” amount of debt:
Which is why debt is measured as a proportion of GDP (Gross Domestic Product - the total worth of everything we as a country produce). That effectively takes into account that the relative worth of the debt changes over time as money decreases in worth due to inflation.
So, when we look at the history of UK debt as a proportion of GDP we see a very different picture emerge:
The above chart goes up to 2010, when the last Labour government left power. As you can clearly see, when debt is viewed as a proportion of GDP, the level of debt owed by the UK government in 2010 was by no means unprecedented, and was actually, historically, fairly small. Certainly a lot smaller than it was during the latter half of the 1940s when, rather than embarking on a programme of austerity and cuts to the public sector, the government instead established both the NHS and the welfare state.
Also, let’s zoom in on the latter portion of that graph, shall we?
As you can see, I’ve slightly edited the chart so that you can see which party was in government at the time and to illustrate when the global financial crisis happened.
One of the central claims that Cameron and Osborne make is that the current UK debt is the result of wild and out of control spending on welfare by the last Labour government. However, what you can see here is that the Thatcher/Major government, having reduced the debt to around 25% of GDP during the boom years in the late eighties (not, of course, because they paid the debt off, but because of a sharp rise in GDP which meant that the debt shrank in comparison to GDP) then oversaw the debt rising again, as a proportion of GDP, due to the recession in the early nineties. This meant that the Blair administration inherited a fairly high level of debt. We then experienced a time of growth, which saw the debt fall as a percentage of GDP, and then slightly begin to rise again in the mid-2000s. Then, of course, in 2007/08 the global financial crisis hit and the debt rocketed as a proportion of GDP.
Why? There are several reasons. Firstly, GDP fell as we entered recession so, naturally, the existing debt rose as a proportion of GDP. Tax receipts fell, because we were in recession and people were making less money, so paying less tax, so the amount we had to borrow rose. And, of course, there was the bank bailout. The UK government bailed out UK banks to the tune of £500 billion. Of course, we didn’t happen to have that money lying around, so we had to borrow it. Should we have bailed out the banks? That’s debatable, but it’s generally regarded that it averted panic and rioting in the streets and a general break down of the fabric of Western society. Certainly the USA followed our lead and bailed out their banks to the tune of $700 billion. It should be noted that the USA is an economic super power and that their bank bailout cost them less, our bailout totalling £500 billion, which is the equivalent of $850 billion. A more salient question, of course, is would the Tories has bailed out the banks? The answer being: Of course they would!
That’s where that mountain of debt came from, not from out of control public spending on welfare.
So how do you reduce debt as a proportion of GDP? Well, as both the late 80s and late 90s/early 00s show us on the chart above, you reduce debt as a proportion of GDP by stimulating growth…by increasing GDP. Which takes us back to the chart at the beginning of this post, which demonstrates the lack of growth in GDP since Cameron and Osborne came to power. Which explains this:
In the above graph we now see what’s happened to the UK debt since Cameron and Osborne took over. As you can see, while Labour left office with the national debt at just over 50% of GDP, what Osborne calls “a basket case” economy, UK debt is now approaching 80% of GDP. And yet Osborne and Cameron claim to be “paying down the debt” and to have fixed our economy. On the contrary, their policy of austerity has actively worked against stimulating the economy, the low wage economy they’ve delivered has kept tax receipts low and left consumers with little to spend and their lack of investment in infrastructure, transport and schools has failed to stimulate growth. That’s why the debt continues to rise and why Osborne has failed to reduce borrowing to less than £100 billion a year.
So the next time you hear Cameron, Osborne or any of their Tory chums talk about the “unprecedented level of debt” left by the last Labour government, or blame the debt on Labour’s welfare spending, or claim to be “paying down the debt,” or to have “fixed” the economy that Labour “wrecked”…you’ll know that they’re lying.