Labour’s unique “peacetime deficits” and why they really do always run out of other people’s money

Lots gets said on the campaign trail of course, much of which never surfaces again. Amongst the most pernicious claims by Labour recently are the implication that the police would be safer under Jeremy Corbyn – a man who almost certainly spent his youth referring to them as “pigs” and for all we know, throwing bricks at them – than a Tory administration. That one doesn’t really pass the smell test, though the Tories seem to have had a tough time batting it away.

However another meme has featured of late, attempting to reverse the traditional narrative of Labour being poor managers of the country’s finances  – or as Thatcher famously put it, that “they always run out of other people’s money“. Corbyn himself took aim at the the Tories’ admittedly poor record during this last Parliament on fiscal hawkishness; and meanwhile social media has been awash with this pair of pieces, claiming that “the Conservatives have been the biggest borrowers over the last 70 years“, a feisty assertion indeed.

But let us examine what is actually being said here. In his post, Richard Murphy concludes his analysis with these two lessons:

First, Labour invariably borrows less than the Conservatives. The data always shows that. And second, Labour has always repaid debt more often than the Conservatives, and has always repaid more debt, on average. The trend does not vary however you do the data.

Or, to put it another way, the Conservatives are the party of high UK borrowing and low debt repayment contrary to all popular belief, including that of most radio presenters. Which means that the next time I am presented with that nonsense I will be very firmly rebutting it.

This is technically true, looking at his figures. What it does not tell us however, is the real narrative, which is that once we strip aside natural deficits which were ramped up to obviously combat recession, the story is one of clear Labour profligacy. Below, I have charted GDP growth vs the budget deficit as a % of GDP at the time to demonstrate what the real macro-economic picture is.


Far from Tom Kibasi’s recent claim that “the Conservatives remain stubbornly allergic to – or ignorant of – Keynesian macroeconomics“, the Tories have in fact been very mainstream in their use of the a cyclical deficit to offset the worst excesses of a downturn. These we might call “war deficits”. The most obvious case of this has been the deficits and increased debt incurred in the wake of the global financial crisis.

On the hand, Labour have had no problem with running up a deficit even when the economy is doing fine – in other words, refusing to make hay when the sun is shining. In particular, Gordon Brown’s second term as Chancellor saw a unique explosion of what we might call a “peacetime deficits”. This electoral extravagance was unprecedented in scale and duration, compared with previous dalliances with the same. And sure enough, when the crash came, the deficit left us with less room to manouvre than we might otherwise have had.

As an aside, Brown’s deficits also went on to limit the ability of the first Cameron administration to reduce the deficit as rapidly as they would have liked. Austerity is, after all, not merely a petty ideological point but a practical one – since the dry powder had been used up, the Coalition government could not borrow the amounts needed whilst preserving a reasonable credit rating. The whole sorry mess has been drawn out for much longer than anyone wanted or envisaged.

To be sure, the Conservative’s track record since 2010 has been nothing to write home about; but as with police funding, however bad you might think they are, it is difficult to imagine Corbyn’s to be anything other than significantly worse.

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