The Commons debate yesterday on the Spending Review, arguably the most important debate of the whole current 5-year Parliament, was a classic example of everything that’s wrong with the parliamentary process. Both the Government and Opposition front-bench speakers went on far too long (50 minutes in each case) as a result of which the 50 back-benchers who put down their names to speak were squeezed into 5 minutes each if they were lucky enough to be called, which a dozen were not. The tone of the debate was tribalistic, rowdy, and a repetitive re-statement of entrenched positions (in many cases largely following Whips’ hand-outs), without any real cross-examination of economic strategy.
The Government case for massive spending cuts was built on 4 assertions – that the UK debt to GDP ratio is unsustainably high, that the UK budget deficit is the highest in the G20 because of chronic over-spending, that public spending as a result is out of control making it inevitable that it be cut fast and deeply, and that a private sector recovery would emerge from the ashes. All 4 of these assertions are simply wrong.
First, the UK debt to GDP ratio at 69% this year is in the lowest band of the G7, with the US at 66%, France at 75%, Italy at 99% and Japan at 121%. Moreover, for much of the last century our debt ratio has been far higher: between 1917 and 1960 it was never less than 100% OF GDP and at the end of the Second World War it was 250%. It didn’t justify panic spending cuts then, and it doesn’t now.
Second, our budget deficit is indeed slightly higher than other G20 countries, but for a reason that the Chancellor has omitted to mention. That is that our banking sector relative to the size of our economy is twice the size of other countries’ finance sectors, and hence bailing it out has been disproportionately costly to the UK. The answer to the parliamentary question that I got on 13 October indicated it has cost the Exchequer £68bn over the last 3 years. That is nearly half of the total budget deficit this year of £155bn. The deficit has not been caused by over-spending.
Third, public expenditure is not out of control, when actually the deficit has been caused by a major collapse in tax revenues. In the last fiscal year Government spending rose a modest 7%, but Government income, which had been forecast by the Treasury to reach £608bn, fell hugely short at £496bn. That £112bn gap, caused by the collapse of the banking sector, is the root of the problem.
Fourth, to achieve the 1.6 million increase in jobs in the private sector would require the biggest increase in job creation for 40 years plus the biggest increase in private investment ever, and all this cumulatively over a 5-year period. It is almost incredible that this fantasy mirage is being advanced as a serious policy when there is not a shred of evidence as to how it will be delivered.
