Fraser Nelson’s voodoo economics

The claim that the cuts are neither "deep" nor "harsh" does not bear scrutiny.

Spectator editor, Fraser Nelson, set sail for his summer holiday in Sweden yesterday with an extraordinary piece for his Coffee House blog. His article claims to show that the coalition's cuts are neither "deep" nor "harsh" and that they are nearly identical to those proposed by Alistair Darling. It could not be further from the truth.

Nelson's key conceit is to base all his figures on Total Managed Expenditure (TME), which include automatic stabilisers such as unemployment benefits and debt interest. In the long run, everyone should want these to come down but there is no easy way to do this in the short run while unemployment hovers around 7.7 per cent and debt is increasing.

A far better measure of the pace and scale of the cuts is to look at Departmental Expenditure Limits where the bulk of the cuts are taking place. This is the government's discretionary spending and includes a real terms squeeze for the education budget and crippling cuts for many departments such as the 25 per cent facing the Home Office or 27 per cent for local government spending. As we all know, this has resulted in cuts to Education Maintenance Allowances, police numbers, affordable housing and many other local services.

The Treasury's own figures show that the government is planning £95 billion of spending cuts between now and 2015-16. This pain has only just started with £22 billion planned in 2011-12 and much more to come in future years. The impact of these cuts is profound. The Chartered Institute for Personnel and Development have said that the cuts will result in 1.6 million lost jobs across the economy. While it is true that Alistair Darling's cuts would have caused plenty of their own pain Labour was proposing a more modest £51 billion by 2014-15. In other words, for every £8 of coalition cuts, Labour would have cut £5.

Nelson goes on to claim that Osborne's cuts are less severe than those of Denis Healey in the 1970s. Again, he does this using TME figures rather than looking at DELs. Thankfully, the independent Institute for Fiscal Studies made precisely this distinction in their post-Budget analysis. The graph below shows what public spending looks like when those non-discretionary items are taken out.

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The IFS analysis shows in their own words the "longest, and deepest sustained, period of cuts to public service spending since (at least) WW2"". It is also worth noting that under Denis Healey in 1977-78, inflation was rampant and volatile meaning that the public spending settlement (which was set in cash terms) could result in either a real terms cut or rise depending on the level of inflation that year.

In a later point, Nelson seeks to show that Britain's fiscal consolidation is small by comparison to a range of international comparisons. His examples simply don't stack up since they are either from mid-1990s when small open economies like Sweden, Finland and Ireland were able to offset their spending cuts with export-led growth due to global buoyant demand. Or they are countries from the box marked "basket case". Does even Nelson really want us to emulate Ireland or Greece in cutting until the pips squeak, the eyes bulge, and the country stands on the brink of economic collapse?

Nelson goes on to claim that inflation is the "real villain". Again, there is a contrast with the 1970s. At that time, there was a wage-price spiral meaning that - although bad for the macroeconomy and something we should be avoided at all costs - living standards were keeping pace with inflation. This time around, as Nelson's own graph shows, the squeeze on living standards is due primarily to stagnant wages. Indeed, the squeeze long precedes 2010 and - according to research released by the Resolution Foundation this week - goes back as far as 2003.

Core inflation - stripping out the impact of food and energy prices - actually dropped from 3.3 per cent to 2.8 per cent last month. And economists such as Gavyn Davies as well as politicians like Vince Cable are starting to call for additional quantitative easing. Nelson doesn't call explicitly for an interest rate hike to halt inflation but it would be madness if he did so. As Adam Posen of the Bank of England has said:

"The recent consumer price inflation rates above 4 per cent result from this year's value added tax increase and the recent energy price shock. Removing those factors, UK inflation has averaged 1.5 per cent over the past year - including any remaining effects of sterling's past decline. Of course, higher taxes and energy prices shrink British real incomes, but the monetary policy committee was right not to respond to them, and should not do so now."

As an adherent of "voodoo economics", Nelson, in his sixth point, seeks to lay blame for our economic woes on the 50p rate of tax, which affects only those earning over £12,500 per month. The experience of his favourite holiday destination, Sweden, alongside Denmark - where the tax take has risen since the 1960s with no impact on growth - shows that there is little evidence for this theory as Lane Kenworthy has shown in an exhaustive blog on the topic.

Today's growth figures are a wake up call and show that growth has been anaemic since September. Indeed, 2011 growth is likely to come in at less than half the level originally predicted by the Office of Budget Responsibility in June 2010. Fraser Nelson and his friend's remedy of tax cuts, more spending cuts, and interest rate hikes are a recipe from the discredited text books of the 1980s. Only a sensible approach which makes proper use of the available data can lead us out of this mess.

Will Straw is Associate Director at IPPR

Will Straw is Director of Britain Stronger In Europe, the cross-party campaign to keep Britain in the European Union. 

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The joy of only winning once: why England should be proud of 1966

We feel the glory of that triumphant moment, 50 years ago, all the more because of all the other occasions when we have failed to win.

There’s a phrase in football that I really hate. It used to be “Thirty years of hurt”. Each time the England team crashes out of a major tournament it gets regurgitated with extra years added. Rather predictably, when England lost to Iceland in Euro 2016, it became “Fifty years of hurt”. We’ve never won the European Championship and in 17 attempts to win the World Cup we have only won once. I’m going to tell you why that’s a record to cherish.

I was seven in 1966. Our telly was broken so I had to watch the World Cup final with a neighbour. I sat squeezed on my friend Colin’s settee as his dad cheered on England with phrases like “Sock it to them Bobby”, as old fashioned now as a football rattle. When England took the lead for the second time I remember thinking, what will it feel like, when we English are actually Champions of the World. Not long after I knew. It felt good.

Wembley Stadium, 30 July 1966, was our only ever World Cup win. But let’s imagine what it would be like if, as with our rivals, we’d won it many times? Brazil have been World Champions on five occasions, Germany four, and Italy four. Most England fans would be “over the moon” if they could boast a similarly glorious record. They’re wrong. I believe it’s wonderful that we’ve only triumphed once. We all share that one single powerful memory. Sometimes in life less is definitely more.

Something extraordinary has happened. Few of us are even old enough to remember, but somehow, we all know everything that happened that day. Even if you care little about the beautiful game, I’m going to bet that you can recall as many as five iconic moments from 50 years ago. You will have clearly in your mind the BBC commentator Kenneth Wolstenholme’s famous lines, as Geoff Hurst tore down the pitch to score his hat-trick: “Some people are on the pitch. They think it’s all over. It is now”. And it was. 4 - 2 to England against West Germany. Thirty minutes earlier the Germans had equalised in the dying moments of the second half to take the game to extra time.

More drama we all share: Geoff Hurst’s second goal. Or the goal that wasn’t, as technology has since, I think, conclusively proved. The shot that crashed off the cross bar and did or didn’t cross the line. Of course, even if you weren’t alive at the time, you will know that the linesman, one Tofiq Bakhramov, from Azerbaijan (often incorrectly referred to as “Russian”) could speak not a word of English, signalled it as a goal.

Then there’s the England Captain, the oh-so-young and handsome Bobby Moore. The very embodiment of the era. You can picture him now wiping his muddy hands on his white shorts before he shakes hands with a youthful Queen Elizabeth. Later you see him lifted aloft by his team mates holding the small golden Jules Rimet trophy.

How incredible, how simply marvellous that as a nation we share such golden memories. How sad for the Brazilians and Germans. Their more numerous triumphs are dissipated through the generations. In those countries each generation will remember each victory but not with the intensity with which we English still celebrate 1966. It’s as if sex was best the first time. The first cut is the deepest.

On Colin’s dad’s TV the pictures were black and white and so were the flags. Recently I looked at the full colour Pathe newsreel of the game. It’s the red, white and blue of the Union Jack that dominates. The red cross of Saint George didn’t really come into prominence until the Nineties. The left don’t like flags much, unless they’re “deepest red”. Certainly not the Union Flag. It smacks of imperialism perhaps. In 1966 we didn’t seem to know if we were English or British. Maybe there was, and still is, something admirable and casual about not knowing who we are or what is our proper flag. 

Twelve years later I’m in Cuba at the “World Festival of Youth” – the only occasion I’ve represented my country. It was my chance to march into a stadium under my nation’s flag. Sadly, it never happened as my fellow delegates argued for hours over what, if any, flag we British should walk behind. The delegation leaders – you will have heard of them now, but they were young and unknown then – Peter Mandelson, Trevor Phillips and Charles Clarke, had to find a way out of this impasse. In the end, each delegation walked into the stadium behind their flag, except the British. Poor Mandelson stood alone for hours holding Union Jack, sweltering in the tropical sun. No other country seemed to have a problem with their flag. I guess theirs speak of revolution; ours of colonialism.

On Saturday 30 July BBC Radio 2 will commemorate the 50th anniversary of the 1966 World Cup Final, live from Wembley Arena. Such a celebration is only possible because on 16 occasions we failed to win that trophy. Let’s banish this idea of “Fifty years of hurt” once and for all and embrace the joy of only winning once.

Phil Jones edits the Jeremy Vine Show on BBC Radio 2. On Saturday 30 July the station celebrates the 50th anniversary of the 1966 World Cup Final live from Wembley Arena, telling the story of football’s most famous match, minute by minuteTickets are available from: www.wc66.org