Mehdi Hasan: Borrowing is bad - unless Gideon's doing it

Not only has growth stalled and austerity failed but the Tories can't even win the economic argument.

As I watched the Chancellor deliver his Autumn Statement to MPs yesterday, I couldn't help but remember his 2010 conference speech in Birmingham and, in particular, this bit of the speech:

Imagine, if I were to stand up in the House of Commons in two weeks time and say: I'm cancelling the deficit plan.

I agree with Ed Miliband.

Let's delay the tough decisions.

Let's borrow more.

Let's go on adding to our debt.

Imagine if I said that.

Now imagine what would follow.

The market turmoil.

The flight of investors.

The dismay of business.

The loss of confidence.

The credit downgrade.

The sharp rise in real interest rates.

The extra debt interest.

The lost jobs. The cancelled investment. The businesses destroyed. The recovery halted.

The return of crippling economic instability.

Britain back on the brink.

Hmm. Yesterday, George Osborne stood up in the Commons to reluctantly reveal that he would indeed be borrowing more - an astonishing £158bn more than he had planned to in last October's Spending Review and an embarrassing £37bn more than the much-mocked Labour plan (or "Darling plan") to cut the deficit in half over the lifetime of this parliament (as outlined in the March 2010 budget).

The Opposition has put together these two tables below, based on yesterday's OBR figures:

OBR's forecasts for public sector net borrowing (£bn)
  2011/12 2012/13 2013/14 2014/15 2015/16
November 2010 117 91 60 35 18
November 2011 127 120 100 79 53
Change since Nov 2010 +10 +29 +40 +44 +35






OBR's forecasts for public sector net borrowing (£ bn)
  2011/12 2012/13 2013/14 2014/15 2015/16
June 2010 (pre-Emergency Budget) 127 106 85 71 n/a
November 2011 127 120 100 79 53
Change since before Emergency Budget 0 +14 +15 +8 n/a

 

Then there is the graph (number 2) put together by our friends at the Spectator which shows that public sector net debt, as a percentage of GPD, will be higher in 2014/2015 than it was forecast to have been under - yep, you guessed it! - the afore-mentioned Darling plan. ("We are sinking in a sea of debt," shrieked the Chancellor in his conference speech in 2009. Now we know that, despite his savage cuts, we'll still be "sinking" in an ever-greater "sea of debt" at the next election.)

So what I'm wondering is: why isn't "Britain back on the brink"? If the country was on the verge of defaulting on its debts and being downgraded by the credit rating agencies when borrowing was forecast to be lower and growth higher - under the Darling plan - back in 2009 and 2010, why don't the latest OBR figures - which also downgrade growth for the fourth (!) time since Osborne took over at the Treasury - presage financial and economic armageddon? Isn't this the best evidence for the claim by Joseph Stiglitz, the Nobel Prize-winning economist, that the then shadow chancellor was guilty of "scaremongering" about borrowing and debt in an interview in the New Statesman in February 2010?

Referring to Cameron and Osborne as modern-day "Hooverites", Stiglitz said:

I say you're crazy -- economically you clearly have the capacity to pay. The debt situation has been worse in other countries at other times. This is all scaremongering, perhaps linked to politics, perhaps rigged to an economic agenda, but it's out of touch with reality.

Before the Tory trolls arrive below the line to shout about bond markets, confidence and low interest rates, I don't deny Osborne's contention that "debt interest payments over the Parliament are forecast to be £22 billion less than predicted". But I do dispute his description of Britain as a "safe haven". And I ask the deficit fetishists: if low rates are a sign of economic success and market confidence, why then did Japan enjoy such low rates in the mid-90s, during its "lost decade"? Why have borrowing costs in the United States, in the aftermath of its fiscal stimulus, the failure to sign off on spending cuts and its credit-downgrade by Standard & Poors, plummeted to historic lows?

Sticking with the subject of "confidence, the eminent economist, former Tory frontbencher and biographer of Keynes, Robert Skidelsky, writes in today's Guardian:

We come to the question of confidence. The chancellor has repeatedly claimed the deficit reduction programme was, and is, necessary to maintain investor confidence in government finances. Confidence is very important, but also mysterious: the bond markets can believe a dozen contradictory things before breakfast. The main point is that confidence cannot be separated from the economy's performance. As it stalls, the creditworthiness of governments declines as their debt increases, raising the likelihood of default.

A year ago bond traders, having forgotten what little economic theory they knew, were inclined to believe that deficit reduction would in itself generate recovery. For several months the Osbornites fed them the fantasy of "expansionary fiscal contraction", the idea that as the deficit falls the economy would expand. This story is now exploded. It's the economy that determines the size of the deficit, not the deficit that determines the size of the economy.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

Getty
Show Hide image

Who is responsible for an austerity violating human rights? Look to New Labour

Labour's record had started to improve under Jeremy Corbyn and John McDonnell. 

The UN has made it clear the Government’s austerity programme breaches human rights. This is not because of spending cuts - it is because because those spending cuts target women and disadvantaged groups, particularly disabled people and asylum seekers.

The degree of injustice is staggering. The Coalition Government used a combination of tax increases and benefit cuts to reduce the net income of the poorest tenth of families by 9 per cent. The cuts faced by disabled people are even more extreme. For instance, more than half a million people have lost social care in England (a cut of over 30 per cent). Asylum seekers are now deprived of basic services.

The injustice is also extremely regional, with the deepest cuts falling on Labour heartlands. Today’s austerity comes after decades of decline and neglect by Westminster. Two places that will be most harmed by the next round of cuts are Blackpool (pictured) and Blackburn. These are also places where Labour saw its voters turn to UKIP in 2015, and where the Leave vote was strong.

Unscrupulous leaders don’t confront real problems, instead they offer people scapegoats. Today’s scapegoats are immigrants, asylum seekers, people from ethnic minorities and disabled people. It takes real courage, the kind of courage the late MP Jo Cox showed, not to appease this prejudice, but to challenge it.

The harm caused by austerity is no surprise to Labour MPs. The Centre for Welfare Reform, and many others, have been publishing reports describing the severity and unfairness of the cuts since 2010. Yet, during the Coalition Government, it felt as if Labour’s desire to appear "responsible" led  Labour to distance itself from disadvantaged groups. This austerity-lite strategy was an electoral disaster.

Even more worrying, many of the policies criticised by the UN were created by New Labour or supported by Labour in opposition. The loathed Work Capability Assessment, which is now linked to an increase in suicides, was first developed under New Labour. Only a minority of Labour MPs voted against many of the Government’s so-called "welfare reforms". 

Recently things appeared to improve. For instance, John McDonnell, always an effective ally of disabled people, had begun to take the Government to task for its attacks on the income’s of disabled people. Not only did the media get interested, but even some Tories started to rebel. This is what moral leadership looks like.

Now it looks like Labour is going to lose the plot again. Certainly, to be electable, Labour needs coherent policies, good communication and a degree of self-discipline. But more than this Labour needs to be worth voting for. Without a clear commitment to justice and the courage to speak out on behalf of those most disadvantaged, then Labour is worthless. Its support will disappear, either to the extreme Right or to parties that are prepared to defend human rights.

Dr Simon Duffy is the director of the Centre for Welfare Reform