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.

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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.