Saturday, July 13, 2024

Labour is spreading the biggest lie in British politics

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Now safely ensconced in the Treasury, Reeves is picking up where the campaign left off. In her first speech as chancellor, earlier this week she claimed to have inherited the “worst set of circumstances since the Second World War”, and warned that she had ordered “Treasury officials to provide an assessment of the state of our spending inheritance so that I can understand the scale of the challenge”.

This is obviously nonsense. As Institute for Fiscal Studies director Paul Johnson pointed out last month, the Government’s books are “wide open, fully transparent”. Everyone – you, me, and most certainly the bond markets – can see exactly what’s going on at any given point in time. It would be a very brave lender who chose to fund the UK’s debt if this weren’t the case.

Equally nonsensical is the idea that this is the worst economic inheritance in 79 years and counting of British economic history. You don’t have to look back to the Second World War to find a more challenging set of circumstances for an incoming government. You don’t even have to look back to the last millennium. 

The deficit today stands at around 4.5pc of GDP. In 2010, the coalition government took over a country running a deficit more than twice that ratio at a whopping 10.3pc. It took years of work to bring it back down under control. 

In contrast, the deficit inherited by Labour is already due to fall substantially. By 2028-29, the Office for Budget Responsibility estimates that it will be around 1.2pc of GDP. Some of this fall is based on spending assumptions that are, charitably, challenging to meet.

But a good 1.5 percentage points is due to come from increases in revenue and falls in interest rates that are, in the absence of any further bad news, pretty much baked in. Many of the hard decisions in terms of tax rises and frozen thresholds have already been taken. 

It’s true that the debt burden is larger than it was in 2010, standing at a little under 100pc of GDP. But it’s worth remembering that a good deal of this rise was the result of pandemic measures enthusiastically supported by the Labour Party, which called for extensions to the furlough scheme and bigger pay rises for NHS “heroes”. 

It is also true that the Labour Party had itself overseen a rise in debt to 65pc of GDP in 2010 from a starting point of 38pc, without the excuse of having put the economy into deep freeze for a year. 

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