Tories must learn to speculate in order for UK to accumulate
Chief Reporter Martin Shipton asks why the Conservatives have a reputation for financial competence despite cuts to public services and a rocketing national debt
LAST week an Opinium poll for the Observer showed the Conservatives leading Labour by 50% to 19% when voters were asked which party they trusted more on the economy.
In Wales the Tory lead was even higher: 54% to 15%.
Yet one insufficiently quoted statistic suggests how undeserved the party’s reputation for economic competence is.
In May 2010, when Labour left office and the Conservative-led coalition came to power, the national debt stood at £979.8bn – 65% of GDP.
By March 2017 the debt had risen to £1.73 trillion, or 89.3% of GDP.
In 2010 the incoming Chancellor, George Osborne, said the country’s deficit – the difference between what it raises in taxes and what it spends – would be eliminated by 2015. That didn’t happen, and the target date for deficit elimination has been put back to 2025.
Over the seven years since the Conservatives took office, the public sector has endured massive cuts as a result of the austerity measures which have been imposed. We are told that the cuts are necessary in order to reduce, and then get rid of, the deficit.
Huge numbers have suffered because of spending cuts. Disabled people have had their benefits reduced and people living on the breadline have been forced to pay the so-called bedroom tax, even when there were no smaller homes available for them to move into.
Public amenities like libraries and leisure centres have been shut down or have had their opening hours reduced.
An uncountable number of publicly funded schemes aimed at enriching the lives of ordinary people, often children, have been shut down because public bodies have had their budgets cut.
Some employees have been made compulsorily redundant. Many more have opted for voluntary redundancy, perhaps happy to leave a workplace where fewer workers are expected to do more – or maybe because a lump sum seems attractive, possibly as retirement comes into view. But whenever a publicsector job is made redundant, one more job opportunity for a schoolleaver or graduate is removed.
And meanwhile the national debt is still rising, leading one to conclude that the pain simply hasn’t been worth it.
The fact that the argument for austerity policies still has such traction is a mark of how influential proponents of such a philosophy have been in popularising the belief that a nation state’s economy should be treated like a household budget.
Margaret Thatcher, when justifying the cuts her government imposed in the 1980s, repeatedly made public statements along those lines.
Later, after Gordon Brown’s government bailed out the banks, he was accused by the Conservative opposition of “maxing out the country’s credit card”.
Such a simplistic view of a nation’s economy is misleading. Unlike household budgets, national economies are complex. The great John Maynard Keynes demonstrated how it was economically illiterate to cut one’s way out of a recession, yet that is exactly what George Osborne as Chancellor sought to do. Even his efforts at “quantitative easing” – that absurd euphemism for printing money – didn’t help ordinary people.
By imposing year-on-year cuts on the public sector, he reduced the spending power of poorer people, who tend to spend what money they have in their local economies.
But, as Plaid Cymru’s Treasury spokesman Jonathan Edwards, who is seeking re-election as MP for Carmarthen East & Dinefwr, argues, it goes deeper than that: “The Tories have a political and ideological commitment to reducing the size of the state. Every time there is a recession, they seize the opportunity to cut back the State further.”
So far, argues Edwards, they have relied on consumer spending fuelled by personal debt to create the impression of a successful economy. But latest figures show that consumer spending is declining as wages fall behind inflation. The devaluation of the pound is making goods more expensive, and the prospect of a hard Brexit is making investors nervous.
Yet still the Conservatives maintain their credibility with the electorate over the handling of the economy, and despite a recent blip they remain on course for a big victory on June 8.
How can this be? According to Edwards, the comparison of a State’s budget with a household budget is easy to grasp, fallacious though it may be.
Keynesian economic theory is a bit more difficult. But understanding its basic precept – that investing in a community will create revenue that can later be used to pay off debt, while funding cuts will create a downward spiral – is easy enough.
With Brexit looming, it’s vital that the government elected on June 8 has a good grasp of economic theory as well as practice. Sadly, the chance of that happening is not that great.