Tag Archives: deficit reduction

Was Vince Cable proved right on austerity?

When the histories of the coalition government come to be written, those chapters focussing on the role of Vince Cable will be some of the most fascinating. Vince’s fierce intelligence combined with a (perhaps deliberate) flair for the enigmatic meant he was involved in some of the most interesting of the coalition’s key moments.

One area of particular significance is likely to be the analysis of his views on austerity. Throughout the coalition Vince was often portrayed in the media — and by some Liberal Democrats — as a brave warrior fighting an axe-wielding Tory-Lib-Dem cabal of ideological austerians. Yet this seems to me to be precisely wrong.

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When is the right time to reduce the deficit?

Liberal Democrats and Social Democrats have a very wide range of opinions, including economics. However, despite our differences, it’s possible to discuss them in a good-natured, honest way, without polemic.

The time to reduce the deficit has been a matter of huge controversy over the last six years. Paul Krugman is, perhaps, the best known advocate of continuing stimulus. In 2012, he attacked the UK deficit reduction programme as ‘deeply destructive’. He said, “Give me a stronger economy and I’ll turn into a fiscal hawk. But not now”.

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Opinion: Deficit reduction: between a rock and a hard place

In recent discussions of deficit reduction  my ear was caught by a survey or economists, organised by the Centre for Macroeconomics and the a press release from the National Institute for Economics and Social Research, both suggesting that austerity had not helped growth, and the Office for Budget Responsibility being quoted as saying that cuts reduced growth by one percentage point in each of the first two years of the coalition and by five percentage points over its lifetime.

The subtlety lies in a quote from Charlie Bean, former Deputy Governor of the Bank of England, that the main purpose of the austerity programme was to stabilise the banking system.

The banking system is vital to any country. Soon after Syriza was elected in Greece and announced an end to austerity I heard a rumour that some Greek government bonds had hit 15% interest: as government bonds are usually the at the bottom end of the range of interest rates in an economy that would point to scarily high borrowing costs for everyone. Banking is a major part of the British economy, which makes us even more vulnerable to the effects of an excessive deficit. That means it clearly makes sense to balance the budget.

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Opinion: Fiscal consolidation and the Liberal Democrats

Newly minted coins by James Cridland james.cridland.net
Over the past few days, questions have emerged about the Liberal Democrats’ proposals for fiscal consolidation. Liberal Reform felt it would therefore be helpful to clarify what the challenges are, to explain how some of the figures are derived and to help people understand what the scale of the problem is.

Which deficit are we cutting and how much does it cost?

All three political parties have committed to eliminating the budget deficit over the next parliament. There are two things that divide the parties, however:

  • The speed of the consolidation – in what year will the budget be balanced
  • The definition of the “budget deficit.”

The Liberal Democrats have committed to eliminate the budget deficit by 2018-19. The Labour Party have postponed consolidation to 2020 and the Conservatives are being vague about when in the next parliament the budget will balance. The Lib Dems position reflects current government plans.

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Nick Clegg on the “utter nonsense” of Tory spending plans

In another strong demonstration of the differences between the Liberal Democrats and the Conservatives, Nick Clegg went on the Today programme yesterday to talk about deficit reduction and fiscal policy in the next parliament. While the Tories want to reduce the deficit by cutting spending alone, Liberal Democrats want to raise taxes on the wealthy.

From the Guardian:

Nick Clegg insisted taxes would have to rise in the next parliament. Speaking on Radio 4’s Today programme, he said: “What the Conservatives are saying is a complete and utter nonsense. There is not a single developed economy anywhere in the world that has balanced the books and only done so on the backs of the working-age poor, which Osborne has now confirmed several times he wants to do.”

As he set out his party’s plans to remove tax breaks for wealthy pensioners, Clegg also accepted that the public finances were not improving as fast as planned due to tax receipts failing to match forecasts, but he refused to say if this would require the coalition to put back its deficit plans.

He said: “If tax receipts are not as buoyant as predicted then of course that has an effect. Time will tell if that is a semi-permanent effect or a temporary blip, but it means it comes down a little less than predicted.”

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Could it really not be any clearer than this?

Ed Balls MP, Denton - (Labour Leadership Campaign) - 2010Defending the clarity of his party’s position on the deficit after forgetting to mention it in his speech, Ed Miliband said

Ed Balls talked this week about our approach on the deficit. I have talked about our approach on the deficit. No one should be in any doubt about my approach on the deficit.

My approach is clear – we are going to get the deficit down, we are going to get the debt falling and we could not be clearer about that.

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Uncomfortable truths from the IFS on public spending and tax cuts but cautious optimism on economic growth

Last week, the highly-respected Institute for Fiscal Studies produced its annual “Green Budget”: its attempt to inject some realism into the national debate on the economy ahead of the chancellor’s actual budget in March.

The document makes for uncomfortable reading in parts, particularly as we head towards another general election in which the complicity of silence on deficit reduction is likely to be as deafening as it was in 2010.

IFS borrowingDeficit reduction: significant progress, but some way to go

Starting with the deficit, the IFS’s conclusions are stark. Had the government not taken steps to increase taxes and cut spending in the years since 2008, they estimate that the deficit would have reached 10% of national income by 2018-19. Because of the estimated 16.7% permanent reduction in economic capacity caused by the crash of 2008, 98% of that deficit would be “structural” – i.e. would not be expected to reduce naturally once growth picked up:

For an economy such as the UK, this level of borrowing would have been unsustainable on an ongoing basis. Public sector net debt would have increased markedly year-on-year, likely surpassing 100% of national income before the end of the current decade, and 200% within the next two decades.

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Recent Comments

  • User AvatarStevan Rose 26th Sep - 11:09pm
    My apologies Katharine. If you read my posts you will know that I was making a comparison between the rotten boroughs that existed pre-1832 and...
  • User AvatarRebecca Hanson 26th Sep - 10:21pm
    It's worth also watching Tim's speech at 28 minutes :-) https://www.youtube.com/watch?v=aIhazFpBp0Y
  • User AvatarRebecca Hanson 26th Sep - 10:19pm
    The webinar on the report is here: https://www.youtube.com/watch?v=MEws-0YGj8M
  • User AvatarTim Hill 26th Sep - 10:01pm
    TonyH - I joined the SDP when it was formed in 1981. I am proud to be a member of the Liberal Democrats and proud...
  • User AvatarKatharine Pindar 26th Sep - 9:46pm
    Stevan, it's a minor point, but I always spell your name with an 'a' correctly and you continue to spell mine with an 'e' in...
  • User AvatarRoland 26th Sep - 9:33pm
    Perhaps I'm looking at it wrong, but from a quick scan through the recent OECD "Education at a Glance" report 2016 (available here: http://www.oecd-ilibrary.org/education/education-at-a-glance_19991487 )...