What George Osborne, the shadow chancellor, is really saying is: ‘It’s not fair.’ Look at it from his point of view.
Gordon Brown won the past two elections for Labour by borrowing heavily in order to spend. The consumer boom roared on without painful tax increases to upset the voters.
Now comes the day of reckoning. Britain is plunging into what promises to be a deep recession. Surely Brown and Chancellor Alistair Darling can borrow no more? Surely ruin must stalk the land, with factories and construction sites silent, shops boarded up, millions thrown out of their homes and the poor starving in the streets? Surely a landslide Tory election victory must follow?
Yet Brown and Darling intend — or so we have been led to believe; we shall soon find out for sure in the Pre-Budget Report — to continue gaily borrowing, showering the population with cash, building railway and tram lines up and down the country.
It gets worse — for Osborne and his party, that is. Suppose the Tories win the election and Osborne (or maybe William Hague), on his way into Number 11, meets the departing Darling, who echoes what the Tory chancellor Reginald Maudling is supposed to have said to his Labour successor in 1964: ‘Sorry to leave everything in such a mess, old cock.’ (No, I can’t quite imagine it either, but Osborne probably can.)
Who then has to repay the debts Brown incurred? Who has to raise taxes or cut deeply into public spending or both? Who faces renewed inflationary pressures, prompting the Bank of England to jack up interest rates again? It adds up to a recipe for an unpopular chancellor and a one-term government.
Or suppose Brown goes to the country next summer, as he would like to do, maintaining the conventional rhythm of four-year Parliaments. Suppose the Tories still win, largely because it is becoming evident that Brown’s rescue packages haven’t worked and Britain is heading towards deflation. Who then has to cut index-linked pensions, benefits and public sector wages? And who has to tell a furious electorate the cupboard is bare and there’s nothing more he can do?
But let us, for a moment, leave Osborne and his nightmares and try to deconstruct the debate over Labour’s borrow and spend policies.
First, was Brown right to spend heavily during the boom years or should he, to use the Tories’ homely metaphor, have fixed the roof while the sun was shining? That depends on your political standpoint. Public services had suffered from 20 years of Tory underspending: the 18 years the Tories were actually in power and the two years from 1997 when Brown, as promised, stuck to Tory spending plans. The health service was being compared (unfavourably) to Poland’s, schoolchildren had rainwater dripping on to their desks, and public transport was grinding to a halt.
The aim of Thatcherism was to run down the public sector so that it could never be revived because no government would dare raise taxes sufficiently to put it back on its feet. The project very nearly succeeded; at the turn of the millennium, only three newspapers still favoured a tax-financed health service.
Borrowing allowed Brown to make up for the shortfalls of two decades and to rescue a state welfare system that was otherwise doomed.
Secondly, would Labour risk a run on sterling by further increasing its borrowing, as Osborne suggests? There is very little evidence that it would. Although current budget deficits are high by international standards, accumulated debt is relatively low. As a proportion of gross domestic product, it stands at about two-thirds of the debt levels in, for example, France and Germany.
Moreover, the latest auction of government bonds (gilts) this month was over-subscribed by 136%. The money flowing out of the country — hot money originally attracted by high interest rates — belongs to the corporate sector, not the government. It is the banks’ profligacy that worries foreign investors, not Brown’s or Darling’s.
The pound, so far, has merely returned to its average range against the dollar and Eurozone currencies during the past 20 years. Its fall is part of the cure, not the disease. A lower pound, following our withdrawal from the European Exchange Rate Mechanism, brought the UK out of recession in the early 1990s and could do so again.
Which leads us to Osborne’s worst nightmare. What if Labour’s rescue package works? What if the economy recovers towards the end of next year, nicely in time for an election in 2010?
What if revenues then flow to the Treasury again, enabling Brown and his chancellor to repay the debts without more than a little trimming of public spending and a slight, stealthy upward adjustment of tax rates?
What if the Tories don’t even get one term? That really would be terribly unfair, wouldn’t it?
