The Labour Party hasn't faced up to its huge overspending in office, but neither has the Coalition any appetite to get to grips with Britain's ever-growing national debt.
Elections used to be about who could cut taxes the most. Now they seem to be about who can be trusted to cut spending most effectively. Promising not to squander quite so much has taken over as an electoral message from attempting to bribe voters with their own money, which I suppose ought to be counted as progress of sorts.
In any case, with speeches by both Ed Miliband and Ed Balls this week, Labour has completed its ideological transition from party of fiscal profligacy, in bloody-minded opposition to virtually every spending cut that’s announced, to one of apparent fiscal responsibility.
In a half-hearted sort of way, the two Eds are promising to stick to the Coalition’s spending plans. Labour finally seems to be buying into the austerity agenda.
There is no doubt what has caused this supposed Damascene conversion. Far from being condemned as acts of characteristic Tory nastiness, the Government’s welfare reforms have proved widely popular. When it comes to working-age benefits, the public cannot get enough of the Coalition’s cuts.
Persuading voters that health and pension spending should get the same treatment would be more of a challenge; but on subsidising people not to work, the prevailing view is that, if anything, the Coalition is being too kind. Labour has been forced to shift its ground accordingly. In promising a three-year cap on “structural welfare spending”, Mr Miliband hopes to shoot the Government’s fox, though quite what he means is anyone’s guess. As ever, he was long on rhetoric, but almost entirely devoid of substance.
If you think all this looks vaguely familiar, that’s because it’s what Tony Blair promised in the run-up to the 1997 election – “hand-ups rather than handouts”. In the event, there was no serious attempt under New Labour to tackle welfare reform, just as there hadn’t been under the previous Major and Thatcher governments.
Quite the reverse; the system of tax credits spiralled out of control under Gordon Brown, and housing benefit went through the roof. Frank Field’s welfare reforms were quickly ditched, and despite an increasingly globalised economy, virtually no thought was given to the way the benefits system was incentivising mass immigration.
For the first five years, Labour broadly stuck to outline Tory plans, completing the fiscal consolidation begun under Norman Lamont. But having won the trust of markets, it proceeded to take the lid off public spending in its second term, buying itself a third election victory it scarcely deserved. Even now, there is dogged denial about the extent of the overspending. To the shadow chancellor, Ed Balls, the subsequent collapse in the public finances was all the fault of the global banking crisis, and was then made worse by the Coalition’s austerity programme.
He still refuses to accept that running a substantial structural deficit at the end of the longest period of uninterrupted growth in British history, as Labour did, might have been just a tiny bit reckless. In the make-believe of Labour thinking, the world can still be returned to the way it was at the height of Gordon Brown’s pomp.
Until the Labour leadership accepts at least a degree of responsibility for what went wrong, its pledges for the future will be seen as just hollow, political posturing. The fact is that it always has been, and always will be, the party of welfare and high state spending. If it wasn’t, there wouldn’t be much point to it. The credit boom allowed it to delude itself that it was possible to have both high spending and relatively moderate levels of tax, but the outcome was predictable; Labour governments nearly always end in self-inflicted fiscal and economic crisis.
But it is not just the Eds that have their heads buried in the sand. The Coalition partners have no real appetite for the actions necessary to get a grip on Britain’s debts, still less the courage for the supply-side reforms required to return the economy to sustainable, long-term growth.
Instead, they tinker at the edges of welfare and departmental spending, while relying on the financial repression of “quantitative easing” to inflate away the debt overhang. The mysteries of monetary manipulation have become a substitute for substantive direct action on the deficit and the national debt. That’s not to deny the undoubted pain for some departments of the austerity programme. The problem is that by ring-fencing the biggest areas of spending – health, pensions and education – the Coalition has concentrated the squeeze on relatively small parts of the state. As a consequence, there are very audible squeals of pain for very little overall gain.
Besides the burgeoning entitlements bill, the other major challenge is rising debt-servicing costs. As the stock of national debt climbs, relentlessly, towards 100 per cent of GDP, these are projected to increase from £46.5 billion last year to £71.3 billion by 2017-18, or from 6.9 per cent of total managed expenditure to 9.3 per cent. By then, debt interest costs will be bigger than the entire schools budget. Any return to more normal interest rates would further swell the amounts being washed down the drain to pay bond-holders their due. Once public debt gets to around 130 per cent of GDP, it basically becomes unsustainable.
The only way out is through inflation or default. Inability to face the truth about Britain’s predicament is unfortunately not just a Labour failing. Great swathes of the established political class are afflicted by it. A bigger crisis yet may be required before they wake up and smell the coffee.