The Conservatives’ crude slash and burn policies are no solution to the downturn
Behind the Punch and Judy knockabout of party politics, there are serious issues about how the fallout from the global financial crisis needs to be managed. These have massive implications, especially for the majority of middle and lower-income earners in this country, and there is a grave danger that the way in which these things are being debated is almost calculatedly obscuring the truth.
It is obvious that the national debt has to be reduced in the longer term, by a combination of growth in the economy and controls on public spending. But this still leaves crucial questions to be answered: exactly when should paying down the national debt be prioritised over other priorities? To what extent should capital spending - building police stations, building schools, building hospitals – be brought forward to help kick-start the economy? What balance needs to be struck between increasing income and reducing spending? And, perhaps most importantly, upon whom should the burden fall heaviest?
One thing is certain. The answers from each party put forward in response to these very serious questions will be based on their respective values and priorities.
I know that what is important to me is that in our response to the biggest failure of the banking and financial sectors in almost 100 years we make sure that those who bore no responsibility for creating the crisis - young people, pensioners, and the low paid - do not end up bearing the brunt of its fallout, as they did in the 1980s and early 1990s.
The Conservative Party’s response has been the one-club policy of demanding huge public spending cuts now (bizarrely, at a local level, they are doing exactly the opposite, by demanding more public money for lots of pet projects, but I’ll leave that inconsistency for later). They are wrong to do so. We must be careful not to deepen the impact of the recession, or even provoke a second dip in economic activity, by knee-jerk cuts that will cost jobs and reduce the demand we need to stimulate now in order to help business out of the downturn.
This is exactly what happened in the early 1980s - a period of disastrous economic mismanagement from which we should learn lessons - which saw savage spending cuts and monetarist policies applied in an effort to curb inflation but which ended up doubling inflation and consigned an entire generation to the dole queue. A little later, when senior Conservatives believed unemployment was a ‘price worth paying’ to curb the inflation of the late 1980s we were tipped into a second recession and yet more job losses, business failures and repossession misery.
Contrary to the mythology now being peddled, Britain entered into the current crisis with relatively low levels of debt, especially by international standards. Even with an accumulated national debt of 75% of GDP we are still lower than powerful trading companies such as Germany (about 78%) and Japan (about 190%). Were it not for the colossal failure of the banks, the debt level would be far lower, and only just above the Government’s target figure of 40% of GDP. Taking on that debt, in turn, was necessary to restore public services that had been drained of investment. It has therefore helped support a long-overdue renewal, still underway, of health, education, transport and more.
We see the evidence right here in Westminster, in the form of the £150 million Building Schools of the Future programme, new health centres, a new College of Further Education, three new secondary schools, the London Underground upgrade and much more. Contrary to a second set of myths, public spending supports the private sector, generating business and jobs in numerous areas from construction to equipment supply, to say nothing of providing the public services and infrastructure that no flourishing economy can do without.
Tougher times lay ahead after fifteen years of growth. Any party will have to make difficult choices, but the crudity and immediacy of the ‘slash and burn’ approach to public spending being advocated by the Conservatives won’t only hit the most vulnerable hardest, it will likely severely damage economic recovery too.