Throughout the recent election campaign Labour politicians were seen in the media claiming the Conservatives had not just frittered away a good economy, but built a debt bigger than all past Labour governments combined. That’s what they said. Why is it important to bring this up? Isn’t it history? While ever Labour politicians try to rewrite history it will be necessary to remind and educate voters.
Thank goodness for record keeping. David Davies MP for Monmouthshire examined House of Commons Library and published an explanation of the economic situation the Coalition inherited. Liam Byrne, Labour’s Chief Secretary to the Treasury, left his famous note saying, “I’m afraid there’s no money.” He actually understated the situation. When the Coalition took over government the national debt stood at £952billion and that had been rising at an accelerated rate since 2007. Many commentators, at the time, thought the true figure was much higher because the official figures took no account of liabilities for PFI projects, Northern Rock or public sector pensions. At that time the official national debt was about 65% of the nation’s GDP. On top of this the private sector had a debt of around £3trillion.
It’s been entertaining, during the recent election campaign, listening to Labour politicians demonstrate their inept understanding of the national economy. Their continual misuse of debt and deficit should have been more robustly challenged, but perhaps there was too much laughter over Diane Abbott’s £30 per annum police officers, just one example from Labour’s leadership. Corbyn or McDonnell was going to nationalise Rail, Power Generating, Water and anything else they could think of; oh and they were going to tax the rich. They always avoid defining ‘rich’.
The Deficit is the difference between what the government receives each year in revenue and what it spends. In 2010 the government received around £520billion and was committed to spending £680billion each year, so the deficit was £160billion. Each year the deficit adds to the national debt. Since 2000 – long before the banking crisis, we have been living beyond our means.
Debt interest; like any other borrower, Britain has to pay interest on its debt. In 2010, the interest cost the country around £40billion every year. In the twelve months following the 2010 election the cost of servicing that debt was £41.4billion. More than we spent on defence. We lost our “AAA” credit rating; therefore we pay a higher interest on the national debt. Labour argued that it was all the banks fault but Gordon Brown was borrowing £30billion a year more than they were getting in tax from 2000. The debt had already reached £650billion before the financial crisis struck in 2008. Given that the previous Labour government in 1997 inherited an extremely healthy economy; the national debt was 43%. This was the lowest level since World War 2. At the time of the 2010 election the national debt was 64.6% of GDP.
Governments since have had a policy to reduce the ‘deficit’ and they have succeeded, current deficit is down from £168billion to around £69billion. From 1989 to 2000 the UK was running a surplus and paying down our national debt. Then we trusted a Labour government and they did what every Labour government since Ramsay MacDonald’s government 1924 they left the country in debt and with high levels of unemployment. The Callaghan government had a tax rate of 98%; Mrs Thatcher’s government reduced that to 40% and collected many times more revenue. Basic rate of tax went from 33% under Callaghan to 23% with John Major’s government.
Without Labour’s past fiscal incontinence (not a mistake) we could pay nurses, teachers and others more and we could have lower taxes, possibly much lower university fees. If you wish to find Labour’s money forest I can tell you, it’s made of all of the people who pay UK taxes and Labour always rediscover the law of diminishing returns and then we all discover the big mistake of allowing socialists to run our economy.
Thornbury and Yate Conservative Association