Daily Mail

Myth of austerity

The Left is howling for an end to cuts that never went far enough

- PETER OBORNE

AFTER her shattering disappoint­ment in the General Election, Mrs May is no longer the all-powerful figure we saw in the first six months of her premiershi­p.

Neverthele­ss, her prospects for survival have greatly improved. Wednesday’s Queen’s Speech was not the unmitigate­d disaster some have claimed. For one thing, it contains eight Bills designed to put Britain firmly on the road to Brexit.

Some have claimed the obsession with Brexit prevents the British Government making vital reforms in other areas. I disagree. British membership of the European Union was an impediment to good government. Once Brexit is out of the way, Mrs May or her successor can set out on a programme of national renewal.

However, I accept that this week’s Queen’s Speech does contain one very serious flaw: it marks the moment when the British Government abandoned any serious attempt to control spending.

In many ways, Mrs May’s much-maligned election manifesto was a brave and admirable document, because it set out a series of measures to bring the nation’s finances back into balance. Unfortunat­ely, too many voters did not enjoy being confronted with financial reality.

The most important proposed measures concerned the elderly. Mrs May pledged to reduce pension provision, and also promised to force homeowners to cough up for the costs of social care — a move cynically labelled the ‘dementia tax’ by Jeremy Corbyn’s opportunis­tic Labour Party.

There was no mention of any of these measures in the Queen’s Speech. That is no surprise. Mrs May has no chance at all of pushing them through, thanks to the delicate new parliament­ary arithmetic.

More damaging even than this, though, is that both Labour and the Scottish National Party have interprete­d the election result as a rebellion against so-called austerity.

THEY want more money spent on schools, hospitals, police forces, universiti­es and roads. There is, in fact, no limit to the proposals for public spending put forward by Jeremy Corbyn and his front bench, who are clearly basing their economics on the existence of ‘ magic money trees’.

Suddenly, the dominating narrative in public life is that, instead of trying to live within our means as a nation, we should cast off ‘austerity’.

Thus every national tragedy is interprete­d as a consequenc­e of the hated ‘cuts’.

Jeremy Corbyn used the terrorist attack at London Bridge to call for more police officers, even though the force performed faultlessl­y and were at the scene within eight minutes.

The Grenfell Tower disaster was, according to Labour, another consequenc­e of austerity, even though £10 million was recently spent on the building. We cannot yet rule that austerity was indeed to blame, and we will not know for sure until we have the findings of the Government’s public inquiry.

Paradoxica­lly, however, there is some evidence that spending money on Grenfell Tower made matters worse.

It is a bitter irony, but the decision by Kensington and Chelsea council to refurbish the tower block by adding new cladding increased the risk of fire in a way that didn’t exist before.

That aside, now that Britain’s so- called austerity has become the focus of intense debate, it is important to expose the myth that the nation’s finances have been cut to the bone under the Tories. That suggestion is nonsense — for the simple reason that there has been very little austerity at all.

Last week, Sir Nicholas Macpherson, Permanent Secretary at the Treasury from 2005-2016, wrote an exceptiona­lly important article for the Financial Times. He noted that gross public debt actually rose as a proportion of national income between 2010 and 2016, from 76 per cent to 89 per cent.

As Sir Nicholas wrote: ‘Britain never experience­d austerity.’ As someone who ran Britain’s most important financial institutio­n for 11 years, he is in a position to know.

Sir Nicholas also noted that our profligacy distinguis­hed us from other countries such as Ireland, which reduced its indebtedne­ss from 86 per cent to 75 per cent of national income during the same period. (Spain is another telling example of a nation that really did cut its spending.)

This, I believe, is a devastatin­g indictment of George Osborne, who was Chancellor of the Exchequer throughout this period.

In 2010, he took office promising to rein back public spending significan­tly and improve national finances. Because of the crash, the British people understood the need for financial belt-tightening.

But the truth is Osborne never did actually make the cuts he promised. Under his aegis, national debt nearly doubled to a terrifying £1.7 trillion, and public spending barely fell. It’s easy to forget that spending on the NHS is higher in real terms than it has ever been before. Britain spends (or, many would say, wastes) an astonishin­g £13 billion a year on overseas aid projects.

Meanwhile, Britain’s debt as a percentage of national income is higher than it has been for more than 50 years. The budget deficit is an eye-watering £50 billion, and that is after seven years of socalled Tory austerity.

Now, with Jeremy Corbyn gaining in confidence every day, we are about to set out on a new splurge — sparked by a panicky response to Labour’s wild promises of huge increases in public spending.

This is monstrousl­y irresponsi­ble. All talk of balancing the books has now been abandoned and I shudder to think what this means for the future of Britain.

The deficit, which has never been tamed, will again rise inexorably. It can’t be long before the national debt surges beyond £2 trillion. This will force up interest rates as the financial markets lose faith in the ability of the British Government to repay what it owes.

In truth, there are only three ways a government can deal with the kind of soaring debt we have now.

ONE is by reducing the value of the national debt in real terms by unleashing a period of high inflation. This was the solution tried by Sir Edward Heath’s Conservati­ve government in the Seventies, with disastrous consequenc­es for Britain’s credit rating on the internatio­nal markets.

The second method is by defaulting — when government­s fail to pay what they owe. Though this looks more and more like where we could end up, the reality is that the City of London would not permit this to happen.

The third is to pay off the debt. But there is no chance of that.

In the wake of the election, both parties appear to have collective­ly decided to put off debt repayment into the distant future. I believe this course of action is morally wrong, for it is desperatel­y unfair on future generation­s.

Successive past British government­s, Conservati­ve and Labour, have behaved with reckless financial irresponsi­bility. It is the younger generation of today who will be forced to deal with that recklessne­ss.

Which makes it all the more mystifying that so many of those youngsters are slavish adherents of Jeremy Corbyn — the man who, in the pursuit of la- la- land economics, promises to spend even more than we already are.

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