The Straightjacket of Economics & the Wriggle-room left for Politicians

With Ed Miliband and Ed Balls constantly telling us that by cutting the budgetary deficit as hard and as fast as it is doing, the UK government is stifling growth and plunging the country back into a recession, I thought it might be worth looking at the actual numbers involved to see how much wriggle-room any new incoming Chancellor of the Exchequer might have to adjust the strategy. Unfortunately, the answer does is not particularly comforting.

Table 1 presents UK GDP, the annual deficit and the cumulative national debt for the last 25 years, as recorded and tabulated by www.ukpublicspending.co.uk, with a further five years projected forward in accordance with George Osborne’s 2010 budget.

Year	UK GDP (£billion)	Annual % Growth in GDP	Public Debt (£billion)	Debt as % GDP	Annual Increase in Debt	Annual Increase in %Debt
1985	361.76		157.20	43.45%
1986	389.15	7.57%	162.70	41.81%	5.50	-1.65%
1987	428.67	10.15%	167.80	39.14%	5.10	-2.66%
1988	478.51	11.63%	167.40	34.98%	-0.40	-4.16%
1989	525.27	9.77%	153.90	29.30%	-13.50	-5.68%
1990	570.28	8.57%	152.20	26.69%	-1.70	-2.61%
1991	598.66	4.98%	151.30	25.27%	-0.90	-1.42%
1992	622.08	3.91%	166.10	26.70%	14.80	1.43%
1993	654.20	5.16%	202.60	30.97%	36.50	4.27%
1994	692.99	5.93%	249.80	36.05%	47.20	5.08%
1995	733.27	5.81%	290.00	39.55%	40.20	3.50%
1996	781.73	6.61%	322.10	41.20%	32.10	1.65%
1997	830.09	6.19%	348.00	41.92%	25.90	0.72%
1998	879.10	5.90%	352.90	40.14%	4.90	-1.78%
1999	928.73	5.65%	351.60	37.86%	-1.30	-2.29%
2000	976.53	5.15%	345.40	35.37%	-6.20	-2.49%
2001	1,021.83	4.64%	312.40	30.57%	-33.00	-4.80%
2002	1,075.56	5.26%	315.50	29.33%	3.10	-1.24%
2003	1,139.75	5.97%	347.10	30.45%	31.60	1.12%
2004	1,202.96	5.55%	382.80	31.82%	35.70	1.37%
2005	1,254.06	4.25%	424.00	33.81%	41.20	1.99%
2006	1,325.80	5.72%	463.00	34.92%	39.00	1.11%
2007	1,398.88	5.51%	500.00	35.74%	37.00	0.82%
2008	1,448.39	3.54%	525.00	36.25%	25.00	0.50%
2009	1,395.87	-3.63%	616.90	44.19%	91.90	7.95%
2010	1,453.62	4.14%	759.50	52.25%	142.60	8.05%
2011	1,526.50	5.01%	909.20	59.56%	149.70	7.31%
2012	1,602.80	5.00%	1,046.00	65.26%	136.80	5.70%
2013	1,693.70	5.67%	1,164.00	68.73%	118.00	3.46%
2014	1,789.00	5.63%	1,251.00	69.93%	87.00	1.20%
2015	1,889.10	5.60%	1,314.00	69.56%	63.00	-0.37%

Table 1: National Debt in Relation to GDP

The good news is that at £1,314 billion the total national debt – in terms of issued treasury bonds – is only expected to be 69.56% of GDP by the end of 2015, which is nowhere near the 186% which Greece was thought likely to experience some time next year, or even the 120% currently burdening Italy. Government ministers will also probably point out that it is also significantly lower than the slightly worrying 98.91% that would have been the case had Labour won the last election and chosen to implement Alistair Darling’s less draconian deficit reductions plan.

The bad news is that George Osborne’s forecast is based on a projected annual rate of growth of over 5%. If we replace these figures with the Bank of England most recent forecast of only 1% for both this year and next, rising slowly to perhaps 2.5% in 2015, the picture, as shown in Table 2, is nowhere near as rosy.

Year	UK GDP (£billion)	Annual % Growth in GDP	Public Debt (£billion)	Debt as % GDP	Annual Increase in Debt	Annual Increase in %Debt
2010	1,453.62	4.14%	759.50	52.25%	142.60	8.05%
2011	1,526.50	1.00%	909.20	59.56%	149.70	7.31%
2012	1,541.77	1.00%	1,046.00	67.84%	136.80	8.28%
2013	1,564.89	1.50%	1,164.00	74.38%	118.00	6.54%
2014	1,596.19	2.00%	1,251.00	78.37%	87.00	3.99%
2015	1,636.09	2.50%	1,314.00	80.31%	63.00	1.94%

Table 2: Nation Debt as a Percentage of GDP given Revised Growth Forecast

Of course, Government ministers will say that a national debt of 80.31% of GDP in 2015 is still considerably less than the figure of 98.91% under the Darling plan. They might also point out that, under the Darling plan, with this new projected rate of growth, the figure would actually reach 114.20%, which would take us into Italian territory. Ed Miliband and Ed Balls, however, would say that by not cutting public expenditure so fast, growth would be higher, and the cumulative national debt as a percentage of GDP would therefore be lower. So who is right?

Part of the problem in answering this question, of course, is that it is impossible to say now what things would be like today if decisions taken in 2010 had been different. All we can therefore look at are the options available to any Chancellor as things currently stand. To do this, however, we need to bring two further factors into the equation: public expenditure and taxation. In particular, we need to see how public expenditure is paid for out of mixture of taxation and borrowing. This is therefore presented in Table 3. Again the last five years are in accordance with George Osborne’s 2010 budget.

Year	UK GDP (£billion)	UK Public Expenditure (£billion)	Annual % increase in Public Expenditure	UK Public Expenditure as % of GDP	Expenditure paid for by taxation	Expenditure paid for by borrowing	Taxation as % of GDP
1985	361.76	150.89		41.71%
1986	389.15	158.62	5.12%	40.76%	153.12	5.50	39.35%
1987	428.67	164.61	3.78%	38.40%	159.51	5.10	37.21%
1988	478.51	173.60	5.47%	36.28%	174.00	-0.40	36.36%
1989	525.27	179.91	3.63%	34.25%	193.41	-13.50	36.82%
1990	570.28	200.91	11.68%	35.23%	202.61	-1.70	35.53%
1991	598.66	218.21	8.61%	36.45%	219.11	-0.90	36.60%
1992	622.08	236.20	8.24%	37.97%	221.40	14.80	35.59%
1993	654.20	259.72	9.95%	39.70%	223.22	36.50	34.12%
1994	692.99	266.66	2.67%	38.48%	219.46	47.20	31.67%
1995	733.27	283.99	6.50%	38.73%	243.79	40.20	33.25%
1996	781.73	304.33	7.16%	38.93%	272.23	32.10	34.82%
1997	830.09	312.36	2.64%	37.63%	286.46	25.90	34.51%
1998	879.10	318.41	1.94%	36.22%	313.51	4.90	35.66%
1999	928.73	328.12	3.05%	35.33%	329.42	-1.30	35.47%
2000	976.53	338.08	3.03%	34.62%	344.28	-6.20	35.25%
2001	1,021.83	362.55	7.24%	35.48%	395.55	-33.00	38.71%
2002	1,075.56	384.94	6.18%	35.79%	381.84	3.10	35.50%
2003	1,139.75	415.21	7.86%	36.43%	383.61	31.60	33.66%
2004	1,202.96	451.47	8.73%	37.53%	415.77	35.70	34.56%
2005	1,254.06	488.33	8.16%	38.94%	447.13	41.20	35.65%
2006	1,325.80	502.61	2.92%	37.91%	463.61	39.00	34.97%
2007	1,398.88	544.02	8.24%	38.89%	507.02	37.00	36.25%
2008	1,448.39	575.74	5.83%	39.75%	550.74	25.00	38.02%
2009	1,395.87	621.58	7.96%	44.53%	529.68	91.90	37.95%
2010	1,453.62	660.67	6.29%	45.45%	518.07	142.60	35.64%
2011	1,526.50	683.41	3.44%	44.77%	533.71	149.70	34.96%
2012	1,602.80	703.31	2.91%	43.88%	566.51	136.80	35.34%
2013	1,693.70	722.19	2.69%	42.64%	604.19	118.00	35.67%
2014	1,789.00	740.29	2.51%	41.38%	653.29	87.00	36.52%
2015	1,889.10	760.55	2.74%	40.26%	697.55	63.00	36.93%

Table 3: Public Expenditure as paid for by Taxation & Borrowing

The first thing one ought to notice from the above figures is that far from being cut, public expenditure is actually set to rise throughout the period of this government, albeit by a smaller percentage than in recent years. This is something on which I commented in a previous blog, The Decline of the BBC and the Deception of Modern Poilitics, where I pointed out that the current government’s cuts in public expenditure, are cuts to the previous government’s planned expenditure rather than to expenditure itself.

That is not to say, of course, that the cuts being implemented are not real. The number of policemen on the street is clearly being reduced; local authorities are receiving small grants; and some government departments are certainly having their budgets pared down. Other departments, however, are still growing, principally the Departments of Health and Work and Pensions. Nor, in the case of the latter, is this purely down to the expected rise in unemployment, which the opposition will claim is a self-inflicted wound brought about by the government’s rush to cut the deficit. The biggest increase, in fact, is due to pensions. In 2011, the first of the post war baby-boomers turned 65, and with more and more of us retiring over the next two decades, and all of us living longer, the cost of pensions is set to rise quite steeply.

This is particularly alarming with respect to public sector pensions. After the war, the public sector grew faster than any other part of the economy, particularly in the area of health, with the founding of the National Health Service. There are now 6.27 million people working in the public sector, 21.5% of the working population, and our collective liability with respect to their pensions currently stands at £1.13 trillion, for which no provision has been made, and which will therefore have to come out of general taxation. Indeed, it could be said that this is actually a far bigger problem for the country than the official national debt, measured purely in terms of treasury bonds. What it also means is that, even having made all the high profile cuts to public services it thought it could get away with – without causing the kind of riots we have seen in Greece and are soon, I believe, to see in Italy – the government still hasn’t solved the underlying structural problem. Indeed, it has hardly scratched the surface, and with lower than expected growth, it is now going to have real problems achieving its deficit reductions targets. In fact, Labour are currently saying that due to the lower rate of growth, the government is going to have borrow an extra £100 billion parliament. If my calculations are correct, however, this estimate may even be optimistic. For if we assume that public expenditure and taxation remain the same, the borrowing requirement could actually be as high as shown in Table 4.

Year	UK GDP (£billion)	UK Public Expenditure (£billion)	Annual % increase in Public Expenditure	UK Public Expenditure as % of GDP	Expenditure paid for by taxation	Expenditure paid for by borrowing	Taxation as % of GDP
2010	1,453.62	660.67	6.29%	45.45%	518.07	142.60	35.64%
2011	1,526.50	683.41	3.44%	44.77%	533.71	149.70	34.96%
2012	1,541.77	703.31	2.91%	45.62%	544.94	158.37	35.34%
2013	1,564.89	722.19	2.69%	46.15%	558.24	163.95	35.67%
2014	1,596.19	740.29	2.51%	46.38%	582.88	157.41	36.52%
2015	1,636.09	760.55	2.74%	46.49%	604.13	156.42	36.93%

Table 4: Increased Borrowing Required as a Result of Lower Growth

Over five years this would amount to a total increase in borrowing of £231 billion, with the result that the deficit would remain virtually constant.

Not, of course, that this could actually happen. For if the government failed to meet its deficit reduction targets, the bond markets would almost certainly respond by increasing the cost of the £12 billion we currently have to borrow each month. Indeed, yields would very quickly reach Italian levels and the whole house of cards would then come crashing down.

The question one has to ask, however, is whether Ed Miliband’s plan is any more credible. For with the bond markets forcing ever more severe austerity measures on Italy and Greece, do we really believe that under similar circumstances they would allow the UK to borrow additional money in order to provide a fiscal stimulus? Dream on!

So what is the alternative. One option, of course, would be to increase taxation. The result of this, however, is shown in Table 5.

Year	UK GDP (£billion)	UK Public Expenditure (£billion)	Annual % increase in Public Expenditure	UK Public Expenditure as % of GDP	Expenditure paid for by taxation	Expenditure paid for by borrowing	Taxation as % of GDP
2010	1,453.62	660.67	6.29%	45.45%	518.07	142.60	35.64%
2011	1,526.50	683.41	3.44%	44.77%	533.71	149.70	34.96%
2012	1,541.77	703.31	2.91%	45.62%	566.51	136.80	36.74%
2013	1,564.89	722.19	2.69%	46.15%	604.19	118.00	38.61%
2014	1,596.19	740.29	2.51%	46.38%	653.29	87.00	40.93%
2015	1,636.09	760.55	2.74%	46.49%	697.55	63.00	42.64%

Table 5: Increased Taxation Required to Avoid Further Borrowing

At first glance, this may not seem an unworkable solution. But if one looks more closely, one will see that to make up the entire additional deficit through taxation would require an overall rise of more than 20% in tax rates. This would mean an extra 5p on the basic rate of income tax, another 4% on VAT, and equivalent rises to all other taxes. Not only would this have even more depressing effect on the economy, however, it is also likely to be counter-productive in terms of tax revenues. For as is well known, the relationship between tax rates and tax revenues is a bell curve. As the rate goes up, revenues also initially rise until a certain tipping point is reached. Then they start to decline. If one examines Table 3, one will see that the normal range of overall taxation in the UK is between 34% and 37%. One of the reason for this is that anything significantly above this has such a depressing effect upon the economy that less revenues are produced. To raise overall taxation to 42%, therefore, would be economic suicide.

If we cannot plug the additional deficit either with additional borrowing or additional taxation, this means, therefore, that if George Osborne cannot find alternative, non-fiscal ways to stimulate growth, such as his much trailed ‘credit easing’, he will have no choice but to cut public expenditure even further, as shown in Table 6.

Year	UK GDP (£billion)	UK Public Expenditure (£billion)	Annual % increase in Public Expenditure	UK Public Expenditure as % of GDP	Expenditure paid for by taxation	Expenditure paid for by borrowing	Taxation as % of GDP
2010	1,453.62	660.67	6.29%	45.45%	518.07	142.60	35.64%
2011	1,526.50	683.41	3.44%	44.77%	533.71	149.70	34.96%
2012	1,541.77	681.74	-0.25%	44.22%	544.94	136.80	35.34%
2013	1,564.89	676.24	-0.81%	43.21%	558.24	118.00	35.67%
2014	1,596.19	669.88	-0.94%	41.97%	582.88	87.00	36.52%
2015	1,636.09	667.13	-0.41%	40.78%	604.13	63.00	36.93%

Table 6: Required Additional Cuts in Public Expenditure

Of course, this will be enormously unpopular; and the opposition is bound to make a lot of political capital out of it. They will say that this is all the fault of the government, for rashly attempting to cut the deficit so fast. The fact that it was they who, when in government, arguably got us into this situation in the first place, will of course be conveniently over looked, as will the even more important fact that any government in this position would have to do exactly the same thing. For if we kept on spending money at the same rate, while unable borrow more or raise more in taxation, the unavoidable truth is that one day the treasury would simply run out of money, the country would be bankrupt, and all hell would break loose.

Not that it would ever actually come to that of course. Before then, the government would naturally ask the IMF for a help. As a condition of any loan, however, the IMF would impose a strict austerity programme. One way or the other, therefore, public expenditure would be cut. The only real question is whether we would be forced into, like Italy and Greece, or would do it of our own accord.

Of course, George Osborne’s non-fiscal stimulus, which he is going to announce on 29^th November, may yet work. Moreover, the government will almost certainly take other steps to close the gap such as selling off assets, like Northern Rock. At £0.75 billion, however, it will take a lot of Northern Rocks to make up the addition £50 billion per year the government is likely to need. This is not to say, that one way or the other, it still might not be able to muddle through. After all, we are nowhere near as close to the brink as Greece. The one thing that is certain, however, is that for the present 2012 is going to a difficult year.

The Decline of the BBC & the Deception of Modern Politics

Apart from last year’s expenses scandal, one of the things which most brings British politicians into disrepute, I believe, is their general refusal to answer a direct question, and to launch instead into clearly rehearsed collections of loosely bolted together phrases and slogans, which are virtually meaningless in their generality and ambiguity, and have already been used ad infinitum by most of their party colleagues. Not only do they consequently present themselves as evasive dissemblers, who would thus appear to have something to hide, it also makes them seem like mere mouthpieces for their party machines, without the wit to maintain a conversation on their own. As a result, it always takes me slightly by surprise when, once out of office, promoting their memoirs on late night culture shows, the same politicians suddenly start talking freely, candidly, and with a great deal of both intelligence and humour on a whole range of subjects about which I would never have imagined them to have been interested. Why, I always want to ask, if they were real human beings all along, didn’t they reveal this to us when, as a consequence, I might actually have voted for them?

The answer, of course, is that it is fairly hard to speak one’s mind or say anything even remotely original while staying ‘on-message’, and that while, in attempting to do so, a more naïve politician – if such a things exists – might have entertained us for a while, eventually, of course, he would have put his foot in it, not by saying anything inherently objectionable, but by voicing  a view sufficiently different from his party’s official policy for some predatory interviewer to have immediately pounced on the error, picking away at the exposed seam, until what was initially just a slip of the tongue had become a ‘Rift in the Party’, for which the errant individual would ultimately have been required to fall on his sword. Indeed, picking up on the careless phrase, and continually returning to it until the interviewee has either said something else he is going to regret, or has thoroughly tied himself up in knots trying to escape his entanglement, would now seem to be one of the most common tactics employed by TV journalists on most news and current affairs programmes. Moreover, the communications departments of all the main political parties are well aware of it, and make sure that all their spokesmen and women are well rehearsed before they appear in front of the cameras. In a very real sense, therefore, we get the politicians we allow our media to create for us. 

Nor is dogged adherence to the pre-prepared answer, regardless of the question, the only way in which the media and our politicians have colluded to render both politics and the media’s current affairs offerings progressively more empty. For not wanting to answer any real questions also means, of course, not wanting to get into any real debate. One can trade satirical jibes, point fingers at the government for going back on its promises, or accuse the opposition of having no answers of its own; but carefully reasoned arguments on the specifics of particular policies would not only bore the average viewer – or so the TV companies seem to believe – it would also require both the politicians and the TV presenters to have some grasp of the detail one suspects they now largely leave to their backroom staff. 

Even this wouldn’t be so bad if those backroom staff – or at least those working for the media – were occasionally allowed to produce and broadcast some in-depth analyses of their own. But this too seems to be a thing of the past. Even the BBC’s flagship current affairs programme, Newsnight, now clearly devotes more time to politicians talking at each other across a table than it does to the analysis presented beforehand by one of its own staff. 

This, I suspect, is largely due to the BBC’s twenty-four hour news coverage, which requires even some of the corporation’s most senior journalists to do their daily two-hour stint in front of the cameras, continuously reading from a looped autocue, when they could be far better employed properly preparing the evening’s broadcasts. More importantly, the need to fill these endless hours with something – usually by going across to the network’s correspondent at Heathrow airport, who is standing in front of an empty stretch of tarmac, still awaiting the arrival of some important person’s plane and hasn’t had anything interesting to say for the full three and a half hours he has already been there – has clearly been responsible for a steady erosion of even the most basic journalistic standards. Assembling a fifteen or thirty minute news bulletin requires clarity and concision, a disciplined approach which both hones a journalist’s analytical skills and forces him or her to focus on what is really important. Filling twenty-four hours with the same material requires only a flare for the inane and the kind of visceral terror of ‘dead air’ which can drive even seasoned broadcasters to ask people ‘what it’s like’ to be stranded at an airport terminal for four days due to snow, strikes or volcanic ash.

The worst of it is that most of the latest generation of news broadcasters actually seem to believe that being photogenic and maintaining continuity between items is not only all that the job requires of them, but that fulfilling this gruelling task is more than enough to merit their sizable salaries. As a result, the news just wafts past them, without it seeming to occur to them that, just for once, they might look below the surface or open up the story to further scrutiny. 

To take some recent examples, consider, for instance, the current regulations with regard to control orders for suspected terrorists, which, at the last election, both parties now in government promised to address, and which the Liberal Democrats promised to scrap altogether, introducing instead the use of intercept evidence in court, so that terror suspects could be charged and put on trial, instead of simply being detained under house arrest. It was to the dismay of many, therefore, that in January this year the government announced that although it was relaxing some of the rules, for reasons of security, control orders would certainly not be abolished in anything like the near future. 

Of course, the opposition were delighted. They immediately accused the Liberal Democrats, in particular, of abandoning their principles in favour of their ministerial positions, a jibe which, for a while at least, threatened to undermine the collation, and which naturally became the one part of the story which the news media therefore covered. No one asked whether control orders actually achieved anything other than tarnishing Britain’s reputation for upholding civil liberties. No one asked what the threat to national security might be in using intercept evidence in court, or how it was that other countries managed to do this without it undermining ongoing security operations. No one even hinted that it might be because the production of such evidence would alert people to how routinely MI5 listen to our telephone conversations and read our emails without even the pretence of justification. Indeed, were I a conspiracy theorist, I might regard this silence as suspicious. As it is, I merely think it symptomatic of a fourth estate which now regards itself more a part of the entertainment industry than a seeker of truth and guardian of our freedoms.  

Nor is this the only example of a political news story flashing across our television screens to be instantly forgotten without even the most basic questions being asked. In fact, I could cite almost any of the initiatives introduced by the present government since it came to power, and the same pattern would apply. To take just one more example, consider the recently announced reforms of the National Health Service, which centre on the abolition of Strategic Health Authorities and Primary Care Trusts, thus reducing NHS bureaucracy by 24,000 posts. Naturally, the opposition declared that such an upheaval would lead to chaos, cost more money, worsen the service, and result in people needlessly dying. The government then defended the measures by pointing out that expenditure on the NHS is one of the few areas that is not being cut in the general effort to reduce the budgetary deficit, and that the main aim of the reforms is to put more decision-making powers into the hands of GPs, to whom many of the responsibilities of the abolished bodies will now be effectively reallocated. And that was it. End of discussion. Not only did no one think it worthwhile rehearsing the reasons why reform of the NHS might be a good idea, or look again at the problems in order to consider whether the proposed measures stood any chance of being a success, they didn’t even bother to note that, superficially at least, something very like this was tried by Mrs. Thatcher in 1990, when she introduced the ‘internal market’ into the NHS by having GPs ‘purchase’ services on behalf of their patients, an initiative, which, if I remember correctly, failed quite miserably. Once again, therefore, the trivial political sniping was headlined, while the real issues of substance were completely ignored.

The problem, however, is not simply that in constantly trying to catch politicians out on the little things, while at the same time allowing them to get away with empty rhetoric on anything of substance, the media are failing to provide the kind of news and current affairs service a modern democracy needs. In reducing political debate to the trading of emotive sound bites, and in thus allowing politicians to appeal to the audience’s prejudices rather than its reason, they also encourage one of politics’ very worst aspects, its irrational tribalism. Anyone who has watched Prime Minister’s Questions, broadcast each Wednesday from the House of Commons, for instance, will be aware of what a gladiatorial circus it is, with each side of the house baying for their man. This is not about political debate; it is about the alpha males of two opposing clans going head to head and rousing their supporters in the process. Indeed, there is now a slot on the BBC’s programme which accompanies PMQs, in which viewers’ emails and text messages are read out giving their opinions as to which of the two party leaders, David Cameron or Ed Miliband, won that particular round.

Of course, it can be argued that it was ever thus. Since the Glorious Revolution of 1689, when parliament effectively became sovereign, the House of Commons has seen a good many robust and highly personal battles. But few, I suspect, were ever as hollow or as meaningless as today’s stage-managed confrontations. One of the reasons for this, I believe, is that, in a very important sense, politics in Britain – or, at least, politics as we knew it in the 20^th century – actually came to an end in November 1990, when Margaret Thatcher finally resigned, exactly one year after the fall of the Berlin wall. Even the Iron Lady’s eleven years in office, however were more of a postscript to the political century than the main event, which probably occurred some time during the Attlee government of 1945 to 1951, when the Labour Party actually fulfilled its original purpose and, in doing so, effectively made itself obsolete.

The idea that a political party might only have one purpose, and that it could accomplish that purpose to such extent that it was no longer required, may, of course, sound slightly odd. But created to secure a fairer slice of the national cake for ordinary working men and women, it can be argued that with state pensions and universal suffrage having already been secured, in creating both the National Health Service and a universal social security system, and in providing a better system of state education and more affordable social housing, the Attlee government did all it needed to do in order to fulfil the Labour Party’s mission. It certainly seemed that way to many who witnessed the post-war transformation. I know because I, myself, was brought up on a local council estate in the 1950s. What it is important to realise, however, is that a 1950s council estate was nothing like the high-rise ghettos subsequent Labour governments built in the 1960s. Nor was it even remotely comparable to the ‘sink’ estates one now finds in most inner cities, where over two million people live on social security benefits without ever having a job. In the 1950s there was very little unemployment; Britain was actually recruiting workers from the Commonwealth; and the affordable homes which local authorities were building to house this workforce – or, at least, the indigenous part of it – consisted very largely of three-bedroom, semi-detached houses, which now retail at a price somewhere around the national average. A highly significant characteristic of the estate on which I grew up, for instance, was that the houses all came with what would now be regarded as enormous gardens, which were all, for the most part, lovingly and sometimes quite competitively maintained, with fruit trees, vegetable plots and immaculately mown lawns, fringed with flower beds. Being social housing, most of the occupants, of course, were married couples with two or three children. Most of the men had served in the war, and were then in their mid-thirties. They were hard-working, neighbourly and quietly aspirational. They had lived through the hard times, fought in North Africa, Italy, France and Burma, and were now enjoying the good life. Some families even owned cars. They still voted Labour, of course – the party that had made all this possible – but there was nothing ideological in their stance. If anything, they were apolitical and were generally suspicious of anyone who wasn’t. 

They were certainly different from the new wave of Labour MPs who entered parliament in 1945 and who went on to lead the Labour Party in the 1960s and 70s: men like Michael Foot and Tony Benn, who saw the end of the war as the beginning of a new international era of social justice, and who regarded the centrally planned economy, which had won Britain the war – or so Tony Benn often claimed – as an appropriate model for helping us ‘win the peace’. What followed in the Wilson and Callaghan governments of the 1960s and 70s was consequently far more of an ideologically inspired attempt to change the social and economic structure of Britain than it was a programme of measures directly intended to improve the lot of working people. Indeed, in the latter regard, it was a complete and utter failure. For as I pointed out in my essay, ‘Economic Misunderstanding: The Keynesian Legacy’, Labour’s economic and industrial policies during those two decades twice took the country to the brink of economic collapse, from which working people certainly didn’t benefit, and were probably the most to suffer. Its programme of nationalisation led to a steady decline in blue-collar jobs, for instance – particularly in manufacturing – while its increases in public expenditure, paid for out of borrowing and printing money, led to devaluation, spiralling inflation, and financial hardship for those with the least reserves to fall back on. It was only when the economy was in ruins and the working class couldn’t stand it any more, in fact, that the insanity of this country’s fifteen year experiment with state socialism was finally brought to an end. 

With this in mind, the claim that in returning the country to economic prosperity, and thus demonstrating that a free market economy was of greater benefit to working people, Margaret Thatcher also brought an end to politics as we had known it, should now, I hope, seem a little less fanciful. After all, it is clearly something which Tony Blair also recognised. In re-branding the Labour Party as New Labour, and changing the wording of Clause IV of the party’s constitution, so that future Labour governments would no longer be bound to a policy of ‘public ownership’ of ‘the means of production, distribution and exchange’, he clearly understood that the old fashioned socialism which had defined so much of the politics of the 20^th century was now an anachronism which had no place in modern Britain. It also explains why Ed Miliband, in particular, should have so little of substance to add to the current debate. For with the Labour having fulfilled its original mission in the 1940s, experimented with state socialism in the 60s and 70s, and repackaged itself as a slightly more caring version of the Conservative Party in the 90s, the question its new leader now has to ask is where he takes the party from here. It is little wonder, therefore, that, while he ponders this, he should prefer to simply repeat such pithy observations as that the government is gambling with the country’s future, than that he should launch a whole raft of new policies without first establishing an overall direction.

What is far more significant, therefore, is the fact that he is not the only one who currently prefers rhetoric to substance. For, at present, the government seems equally determined to gloss over reality while it diverts our attention with political slapstick. Take, for instance, the main ongoing argument over the budgetary deficit, which the government wants us to believe it is tackling with a rigour necessitated by the previous administration’s fiscal indiscipline, and which the opposition naturally claims is rash, doctrinaire and potentially ruinous. With so much vehemence on both sides, the one thing one would imagine was certain, therefore, is that the cuts to public expenditure, which the government is currently implementing, have got to be fairly substantial. It may take some readers by surprise, therefore, to discover that according to the government’s own figures, published in its comprehensive spending review of 2010, public expenditure is actually budgeted to rise over the next five years, from £662 billion in 2010 to £740 billion in 2015, a total percentage increase of 11.95%, at an average annual growth rate of 2.39% as shown in Table 1.

 Table 1: Forecast Public Expenditure 2010 - 2015

How is this possible, you ask. After all, in September, we all listened in hushed expectation while George Osborne listed a whole raft of expenditure reductions to the House of Commons. The announced cuts, however, were not cuts to actual expenditure, but cuts to the planned or projected expenditure of the previous government, forecast at a time when it believed that the property boom which was then driving growth would go on forever. All the present government has done, therefore, is restore some sense of reality. Far from taking radical action to reverse the policies of the previous government, in fact, its 2015 target for public expenditure as a percentage of GDP – 40% – is exactly what it was in 2008, before the recession: a long way from the 33% rigorously maintained by Ken Clarke, Chancellor of the Exchequer during the last Conservative government. Indeed, given the sluggishness of current growth – nowhere near 2.39% per annum – it is unlikely that it will even achieve this very modest target.

What this means, therefore, is that both the government and the opposition have been claiming that current measures aimed at reducing public expenditure are far more radical than is actually the case. Why? Quite honestly, I don’t know. The opposition, of course, would have claimed that any cuts were too severe and potentially disastrous no matter how small they were. The government, on the other hand, needed to send a message to the credit rating agencies, and possibly thought it better to oversell the bad news at the beginning, when it was expected, so as to deliver better news later on, when things don’t actually turn out to be as painful as people are now fearing. Too cynical? Maybe. But it is typical of the smoke and mirrors which characterises  much of modern politics, and which results, in part, I believe, from career politicians having less of a personal – and more of a professional – relationship with the policies they espouse.

In this regard, they are a bit like lawyers who could, theoretically, argue either side of a case. They don’t need to believe that what they are saying is true; they are paid to convince others that it is, or, at the very least, to cast doubt on the case being presented by the other side. It is thus a professional skill in which most of our politicians are now trained from a fairly early age. Indeed, it is actually quite illuminating to compare the educational backgrounds and early careers of politicians on both sides of the house, which in many cases, are remarkably similar. Take for example the Prime Minister and the Chancellor of the Exchequer on the one hand, and the Leader of the Opposition and Shadow Chancellor on the other. David Cameron, as is well known, went to Eton, and then to Brasenose College Oxford, where he studied Philosophy, Politics and Economics or PPE, a course only offered by Oxford University and designed specifically for future politicians. George Osborne, the Chancellor of the Exchequer, also went to Eton, and then to Magdelen College Oxford, where he studied Modern History. Admittedly, Ed Miliband went to a far less famous and fairly unremarkable state school; but he also went to Oxford – Corpus Christi – where he also studied PPE. Finally, to round out the front bench pairings, there is Ed Balls, the Shadow Chancellor, who after attending a rather exclusive private school in Nottingham, went to Keble College Oxford, where he also studied – yes, you guessed it – PPE. What is even more significant is the fact that all four of them went fairly quickly from Oxford into party political jobs in or around Westminster: David Cameron and George Osborne at the Conservative Research Department, Ed Miliband and Ed Balls at the Treasury, under Gordon Brown. None of them, that is, had much of a career outside politics before joining the Westminster village. They are all simply career politicians, as, indeed, are nearly all the rest of the front bench teams on both sides of the house.

Having chosen to study PPE, in fact, many of them will have actually chosen a career in politics even before they left school. What this also means, therefore, is that unlike the men and women who entered the House of Commons in 1945, desperate to change the world, few of those going into politics today can realistically be said to do so out of any burning conviction. I do not say this to impugn anyone’s character. Indeed, it might have been better if some of the 1945 intake had had a little less conviction. But it is clear that, for many of today’s politicians, it is a career in politics, rather than the substance of politics, that is the main attraction. What’s more, the political establishment seems quite happy to embrace this, eagerly taking those with talent and ambition under its wing and preparing them for their later roles. The problem is that this easy graduation from Oxford to Westminster, without tasting much of real life on the way, seems almost to make the latter an extension of the former. It is why one sometimes gets the impression that both David Cameron and Ed Miliband are merely playing at politics, and why, too, I believe, David Cameron was never going to be as radical and unflinching as Margaret Thatcher in facing our current economic problems. For it not only takes considerable courage – or considerable foolhardiness – for a career politician to adopt a position well outside the margins of the prevailing consensus, it also requires a sense that this is about something more than just politics, a sense which I do not believe that either David Cameron or Ed Miliband have yet grasped.

My worry is that, in the case of David Cameron, having failed to face this greater reality from the outset of his government, reality may yet come back and bite not just him, but the rest of us as well. For with the current instability in North Africa and the Middle East forcing up commodity prices, and the effect this is likely to have on the world-wide economic recovery, there is a real chance, I believe, of another recession this year, not because, as Ed Miliband keeps telling us, the government is cutting public expenditure too much and too quickly, but because it is not cutting enough, and is not doing what Margaret Thatcher did when she came to power in a similar situation, which was to also cut taxation. For as I pointed out in ‘Economic Misunderstanding: The Keynesian Legacy’, there is an inverse correlation between public expenditure and taxation on the one hand, and private sector employment on the other. That is to say that by raising public expenditure, and raising taxation to pay for it, one effectively destroys jobs in industry. Equally, however, by cutting public expenditure, one can also stimulate jobs in the private sector. But only if one cuts taxes at the same time, thus reducing the public sector overhead on businesses and, in particular, the cost of employing people. Just as importantly, if one cuts income tax, one also takes the pressure off wage inflation. Indeed, had the government implemented the Liberal Democrat’s plan of raising the income tax threshold to £10,000, all lower paid workers would now be £600 per annum better off, which, for those on a salary of £15,000, would have been an effective pay rise of 4%, which is currently, more or less, the annual rate of inflation. This, therefore, would have allowed all employers to keep pay rises to a minimum, thus maintaining and even increasing employment in the private sector. As it is, instead of cutting taxes, the government has actually increased them by putting up VAT, effectively adding to inflation.  With domestic demand still flat and an export-led recovery still a far-off dream, if the Bank of England raises interest rates in the near future, as is expected, in order stop inflation getting out of hand, another recession is, therefore, a distinct possibility.

What will make it worse is the fact that, with Ed Miliband saying ‘I told you so,’ and no one there to contradict him, least of all the media, it is going to be very difficult for the government to do what it should have done in the first place by making real cuts to public expenditure and cutting taxation in order to boost growth. Margaret Thatcher would do so. But then she didn’t seem to mind the visceral hatred taking tough decisions earned her in some quarters. For her it was more important to do the right thing than be liked. I’m not so sure, however, that David Cameron feels the same way. Nor will the media help him. Indeed, they will love the circus created by another crisis. Nor, during the political slanging match that will ensue, will anyone attempt to analyse the real structural problems in our economy which have brought us to this point. Even less will they realise that we now have a political system, which, designed for a two dimensional clash of ideologies, left and right, is no longer fit for purpose, and is probably incapable of solving the problems. For with both sides playing to the crowd, and the media simply egging them on, no one will see past the ratings, or care that it is you an I that are going to have to pay the price.