Liam Byrne's famous valedictory note to David Laws ("there's no money left") must rank as one of the least helpful contributions by a New Labour cabinet minister. His quip perpetuated two myths: that Britain could not afford to borrow for growth and that the deficit was the result of overspending by the Brown government, rather than a dramatic fall in tax revenues caused by the financial crisis.
It's a line that George Osborne, under pressure from all sides to cut taxes, has now reprised. Today's stark Telegraph front page (Osborne: UK has run out of money) leads on the Chancellor's assertion on Sky News that "the British government has run out of money because all the money was spent in the good years". In other words, don't expect a big Budget giveaway. Any tax cuts will be paid for by tax rises or spending cuts elsewhere.
His stance is nothing new. Ever since his days as shadow chancellor, Osborne has opposed what he calls "unfunded tax cuts". But it's his rhetoric that's striking. Ahead of his third Budget as Chancellor, the claim that the "British government has run out of money" could hinder Osborne as much as it helps him. Labour and Tory MPs alike will note that the government is set to borrow around £158bn more than previously forecast. If the Chancellor can borrow to meet the cost of unemployment (in the form of higher welfare payments), why not borrow for growth? (Britain's bond yields remain at record lows).
The Institute for Fiscal Studies, for instance, has said that Osborne could cut taxes by £10bn without triggering a bond market revolt and a rise in interest rates.
As Tory MP David Ruffley said of a temporary VAT cut:
Even if we can't find the money for tax cuts from public spending savings, we could add it to the deficit and it is not going to send the markets into a tizzy, I don't think anyone really believes that. The markets will not go haywire if there was a modest loosening in borrowing in the short run if it was for the right reason.
From the Tory right, here's Roger Helmer MEP:
Memo to Osborne: We're not asking for "debt-fuelled tax cuts". We want modest pro-growth cuts (50% rate, NI holidays) that cd cost nothing.
Tory backbenchers, many of whom share Arthur Laffer's belief that tax cuts are self-financing, will have little time for the Chancellor's excuses.
Osborne's decision to blame Britain's economic woes on "the mess" left by Labour has served him well politically. But it is subject to diminishing returns. Conservative cabinet ministers who trot out this line on Question Time are now greeted with boos, not applause. After nearly two years at the helm, Osborne cannot avoid his share of responsibility for the economy. What was once a reminder of Labour's profligacy, is now a reminder of his failure.