How do Labour plans of 2010 compare with George Osborne’s results?


10:55 am - December 6th 2012

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by Dave

In the aftermath of Osborne’s Autumn Statement, I am interested in the predictions made alongside all of this by the Office of Budget Responsibility (an independent arm of HM Treasury), which releases its predictions about the economy.

And what’s interesting is if we compare these predictions with those made in 2010 – when our current government first took power, and launched us on our path towards seemingly inescapable austerity.

Net National Debt
An important thing to clear up right at the start is what our national debt actually is: it’s the amount of money we have actually borrowed from other nations, pension schemes or private investors. It’s expressed here as a percentage of our GDP (the amount our nation is worth) in order to give it a sense of scale.

Treasury projection of Labour’s final budget (March 2010) was fairly pessimistic: expecting the national debt to continue to rise fairly sharply until 2012, before beginning to level off in 2015. Projection of the first Coalition budget (June 2010) were much more optimistic, in contrast.

When we look at the actual figures (black dotted line up until 2012), it initially appears that both Labour and Tory Chancellors were far too pessimistic – the national debt is climbing less quickly than anticipated.

However, the OBR projection post-2012 is much starker (particularly following the Autumn statement – note the difference between the two dotted lines); the national debt is projected to climb beyond even Labour government’s worst Treasury projections, and to continue to climb beyond 2015.

Spending and the Deficit
The difference between the amount of revenue our government generates (through taxation) and the amount it spends (on public works) is either a surplus, when we have money left over, or a deficit – when we spend more than we have received in taxes.

A build up of deficit year after year can require a government to borrow money, and that creates a national debt – but the deficit on its own isn’t directly responsible.

Noticeably, George Osborne’s spending budget is almost exactly the same as it was in 2010 when he first came to power, but every other projection has changed dramatically.

So despite seeing tax receipts fall (instead of rising quite sharply), which is causing the national debt to rise ever more sharply – the Chancellor has no plans to change the amount of money he is spending. Even though his plan was predicated on tax revenues increasing to match – and ultimately overtake – his spending.

Labour’s 2010 Treasury projections:
We can see straight away that Labour are guilty-as-charged regarding any accusations that they would spend more – their 2010 budget clearly shows more spending than the current Chancellor’s plan.

But we can also immediately see that Labour’s projections seem rather more realistic than either of the Conservative Budget’s we’ve just looked at.

At no point are they predicting sudden or massive increases in tax revenue, or for this to rapidly overtake spending – they are predicting a gradual increase (but Labour’s plan was also to spend more money on public services so it’s possible this would actually happen).

Final Thoughts
The important thing here isn’t that Labour’s Treasury projections are better, it’s that they’re no worse than Osborne’s. The projections made following Labour’s March 2010 budget match up almost exactly with what actually happened to the economic performance of the UK over the following two years.

Even if you don’t believe that Labour’s economic plan (spending more so as to stimulate the economy with public money) would work, George Osborne’s Conservative plan clearly isn’t working either.

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Cross-posted from Dave’s blog

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Reader comments


1. Cherub

I thought the big issue was the structural deficit rather than the debts one might normally expect during a recession.

2. BenM

1. The “structural deficit” is a hoary political construct, not economic.

3. Cherub

When did that change then?

4. Soylent Dave

The idea of Structural Deficit is really just an abstract concept – the economy is generally built to withstand deficit spending when it’s doing well (there’s a lot the government can do to prevent deficit turning into debt when the economy is working properly).

To use the tired old householder analogy, it’s a bit like using a credit card when you’re gainfully employed and all your bills are being paid – you’re in debt, but you’re not REALLY in debt, because you can jiggle your finances next month and pay it off whenever you choose.

Although with a government, you generally run a ‘structural deficit’ one year because your plan is for the increased spending to generate increased tax revenues in upcoming years.

Running a deficit for a year or two isn’t actually that much of a problem for a nation (especially not one as rich as the UK); it’s when you find yourself running a deficit for the foreseeable future that debt starts to mount up.

5. Man on Clapham Omnibus

The important thing here isn’t that Labour’s Treasury projections are better, it’s that they’re no worse than Osborne’s.

That sounds like a great Election poster in the making!
Might it not be that we have reached an economic event horizon for which neither party has a solution?

6. Keith

“Might it not be that we have reached an economic event horizon for which neither party has a solution?”

Dunno – is it not likely that this far in, if things were as bad under a Labour government as they clearly are under the (mis)management of Gideon, Labour would at least countenance a variance from unrelenting and ineffectual austerity?

7. Soylent Dave

The point is twofold really –

Firstly that Labour’s projections are two years older than Osborne’s, which shows how little progress has been made by the incumbent government.

But secondly that Labour’s projections assume considerably less austerity – the national economy would be in largely the same position, but our individual circumstances wouldn’t (and public sector services would be more available for those of us hit by the recession).

But even on face value, the idea that Labour are “no worse than the Tories on the economy” puts the lie to the oft-repeated idea that Labour are weak on the economy.

(unless you think that the Conservatives are weak on the economy as well, I suppose!)


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