Thursday, 9 February 2012
Tax and Spend
In all the words that have been spoken and written in recent times about public spending - one key issue is often lost - and that is there's nothing inherently wrong with borrowing money.
Everybody borrows money - governments as well as individuals - whether to prosper or just survive depends on people's circumstances.
But borrowing money in one form or another down the ages - has been the key to economic growth and rising living standards - no more so than in the last century.
Now that's the easy part - because the other side of that same coin is the that the borrower has to paying the money back - possibly over ten, twenty or thirty years.
And that is where the last Labour government got things so badly wrong.
Because under Gordon Brown Labour kept pretending that the answer to increasing debt - was to just keep piling on ever more debt - without ever explaining, credibly at least, how and when the public spending debt mountain would be paid back down.
Until the rest Labour cabinet - notably Alistair Darling and Peter Mandelson - finally said 'enough is enough' - we need to find a way of bringing our tax and spending plans back into reality and some kind of balance - looking forwards.
Because at that point the UK Government PLC was spending much more than the country was earning - and even to the most devout Keynsian economist things could not carry on - without a plan for Britain to start living within its means.
To my mind that is where the last general election was one and lost - and by the time Labour woke to the mess it was in - the party had lost the argument even though by that time it had a plan - of sorts anyway.
Labour's plan was to pay off half of the deficit - or historic debt - within the lifetime of the present Westminster parliament - by a mixture of raising taxes and reducing public spending.
But now the Institute for Fiscal Studies (IFS) says that Labour would have borrowed £200 billion more than the coalition government over this parliament - which would have broken its own Fiscal Responsibility Law on controlling the budget deficit.
Which seems to drive a coach and horses through Labour's claim that the Darling plan would have allowed the economy to grow more strongly - while at the same time still reducing public spending.
The IFS now says that a Labour government would have borrowed £14 billion more than the coalition government plans this year - rising to £52 billion by 2016-17 - and £201 billion over the 5-year lifetime of the Westminster Parliament.
Raising the spectre of higher interest rates - and even more taxes or spending cuts - to pay for the higher interest rates.
So they upshot of all of this is really quite simple.
Economists and politicians don't really know what they're talking about - they just guess, hope for the best and if things go wrong - they blame someone else.
Because if our politicians did really know what they're were talking about - the country wouldn't be in the mess it's in the first place.