Qualified Praise for George Osborne – The True State of Britain’s Economy
It’s true to say there are causes for optimism with regards to the British economy at the moment – unemployment is falling, consumer confidence is rising and the private sector is expanding. But this ‘recovery’ is fragile, and there is still a very long way to go before the nation’s balance sheet is back on a stable footing.
Let’s take a moment to remind ourselves how we got into this mess, and what the true causes were. Gordon Brown’s track record as Chancellor was largely to blame for the scale and severity of the recession. During his decade as Chancellor, he sold off much of Britain’s gold reserves when it was at the bottom of its economic cycle, he raided the private pension funds of working people who had saved and done the right thing by preparing for their old age, he introduced 157 new taxes, he borrowed more money than all previous British governments in history put together, and he paid for public sector ‘investment’ by private finance initiatives, a form of borrowing that was to land future governments with hefty bills that would need to be paid years after he was off the political scene.
Brown was fortunate that the chickens didn’t come home to roost a lot sooner than they did. He was lucky in that the global economy was largely stable for much of his tenure as Chancellor, and currencies weren’t as affected as they might have been by instability on Japan or the terrorist attacks of 9/11.
When the rain eventually came, there was nothing in reserves to help the country battle through a few hard years. Every responsible individual, and every responsible family puts some money to one side in case they lose their job or are unable to work due to circumstance. Mr Brown did not do the same with the nation’s money.
The banking crisis has its origins in legislation President Clinton brought in during the 1990s that effectively removed the boundaries between the day-to-day banking most of us use and the high-risk casino banking very few of us will ever encounter. The USA sneezed, and the world caught a cold, though it is worth remembering that during its 13 years in power, New Labour did absolutely nothing to stop ordinary people being exposed to the consequences of casino banking, nor did it do anything to prevent high street banks from merging, which led to them becoming too big and resulted in a lack of competition.
Then we have the elephant in the room, the big issue that doesn’t get talked about nearly enough – personal debt.
UK personal debt has doubled since the turn of the millennium. Our cultural attitudes need looking at if we are to address this problem. In Germany, the word for ‘debt’ is the same as the word for ‘guilt’. That, combined with looming memories from the financial ruin of the Weimar Republic in the early 1930s means that the German people have a completely different, and much healthier attitude to debt.
Most Germans pay for their weekly shopping in cash. Credit cards are rare. Most people, even middle class professionals, rent, rather than own their homes. We, as a country, need to learn lessons from this. In many cases, the debt burden of having a mortgage is too great, and people would be better off renting, which allows people to move house easily and at short notice as their jobs and personal circumstances change. You are only ‘throwing money away’ by renting if property prices rise indefinitely, if you are willing to gamble on what state your life will be in 25 years from the start date, and if you are willing to spend large sums on maintaining the property.
Then there is the issue of consumer debt. This will require a massive cultural shift. I hate consumer debt with a passion. I cannot imagine, at any time, or under any circumstance, taking out a loan or credit agreement to pay for a car, a new sofa, or a holiday. If I cannot afford something, I go without. I choose not to run a car because I wouldn’t use it anywhere near enough to justify the cost. It’s 10 years to the week exactly since I returned from my most recent foreign holiday (I have been abroad much more recently for work purposes). ‘Keeping up with the Jones’s’ is not one of my hobbies. Many people subtly try to outdo their friends by buying flash cars, building conservatories and holding fancy wedding days. They don’t fool me. I’m not impressed with any of that, because whenever I see it, my first question is: How did they pay for it?
This combination of factors means that George Osborne’s task wasn’t and isn’t one to be admired. Since he became Chancellor in 2010, his track record has been mixed. He deserves credit for raising the Personal Allowance, which has removed millions of low earners and part-time workers from income tax completely. He can take credit for the fall in unemployment and for creating the conditions that have allowed the private sector to grow.
The ‘tax cut for millionaires’ has been nothing of the sort – they’re actually paying more tax than before, and besides, Mr Osborne understands full well that raising taxes for the richest only leads to them taking their money, and their businesses, to other countries with a more competitive rate. That was a mistake Labour made during the 1970s and it would be even more disastrous in today’s globalised economy.
In today’s papers, we read that Mr Osborne is planning to merge income tax and National Insurance if the Conservatives win next year’s general election. It’s about time too – it’s a total myth that there is a separate pot of money set aside to help individuals in times of need, and it would be far more honest, and ultimately far more efficient, to make the two a single tax.
Yet Mr Osborne’s track record is far from perfect. Perhaps his biggest piece of good fortune is that most people don’t know the difference between the terms ‘debt’ and ‘deficit’. Understanding this point is crucial. ‘Debt’ refers to money owed historically, whereas ‘deficit’ refers to the amount the government borrows every year. Mr Osborne has indeed cut the ‘deficit’, but the ‘debt’ itself is still piling up year on year.
Government borrowing, namely the ‘deficit’ was £107.7 billion in 2013-14, down from £115.1 billion the previous year. That means that Mr Osborne has made up for an income tax shortfall to the tune of £107.7 billion this year by borrowing. There are two ways this figure can be reduced: 1. By increasing the amount of money the government receives from taxation. 2. By spending less.
Option one can be achieved by getting more people into work and paying tax, which, to his credit, he has helped to make happen. It’s important not to fall for the myth that the government could receive more tax revenue by raising taxes – this would lead to people having less money to spend on products and services, and therefore fewer jobs would be created, whilst business is lost to overseas markets.
Option two means accepting the cuts, making the public sector work more efficiently, and accepting that the government should do less, which means individuals and families would have to take far more personal responsibility for their lives.
Only once the deficit drops to zero, and the government receives more tax revenue than it spends (a surplus), can it start paying down the debt. And boy, does that mountain of debt need to be dealt with. It currently stands at around £1.3 TRILLION, but when we add in all government liabilities such as state and public sector pensions, the true figure is closer to £4.8 TRILLION. That works out at roughly £78,000 for every man, woman and child in the country. The interest alone currently amounts to £1 billion per week.
In conclusion, we are going to have to accept the ongoing cuts. There are numerous examples, especially among Labour-run councils in places like Sheffield, of pet projects continuing and the number of well-paid consultants increasing while frontline facilities like libraries and leisure centres are closing. The electorate needs to be vigilant in ensuring that their taxes are spent wisely, and that their council is run for the benefit of local people, rather than the people who work for it.
We should also fully acknowledge Labour’s role in creating the economic crisis. Gordon Brown’s closest adviser while he was playing hard and fast with the nation’s finances was Ed Balls, the current Shadow Chancellor.
There appears to be an inbuilt belief among the Labour hierarchy that all problems can be solved by throwing money at them, or by expanding the role of the state. Indeed, the public sector expanded by more than one million workers between 1997 and 2010. Good, efficient management and increasing productivity doesn’t seem to register with them. Of course, the fact that public sector union votes were the key to getting Ed Miliband elected as Labour leader, and that union donations are keeping the party afloat probably clouds their judgement somewhat. As far as Labour is concerned, all public sector cuts are bad and the current government is only making them to be nasty. They haven’t come close to grasping that these are necessary measures to clear up their mess.
The problems are many, and it’ll be a good while yet before the nation’s finances are back on an even footing. We are being kept afloat at present by the availability of cheap credit, which won’t last forever, so carrying on as we were before is not an option.
No matter how bad things are, and however much we may dislike the cuts, letting Labour back into office would lead to things being far, far worse.
Gordon Brown ruined this country’s economy. Don’t let his closest adviser do the same again.