Occasionally Nick Clegg, or his speechwriters create a phrase which deserves to live on in the political lexicon long after the rest of the speech has been confined to the political dustbin. The pre-2010 General Election debates were transformed by Nick referring to the “two old parties” and asking voters to “do something different this time”.
While the phrases were memorable, they were hardly that effective. Voters did what they did the last time they faced a Labour government mired in staggering incompetence and a Tory party leadership tacking to the centre while the grassroots howled. That was in the 1970’s when voters gave Labour a kicking and the Tories the mandate of largest party in parliament but no overall majority. In 2010 the outcome was the same with Labour weakened and the Tories becoming the largest party, except that on this occasion, the Liberal Democrats, from MPs to ordinary members, voted by a huge majority for a coalition. But while the phrases used in the debates were clever and eye catching, it was another of Nick’s phrases which should help set the tone for the party in the future. Nick said there would be “savage cuts”, while Vince Cable joined his Tory and Labour colleagues in saying that post-election there would, under a Liberal Democrat government, be “cuts faster and deeper than Thatcher”.
Labour are not naturally a party which enjoy reducing the size of the state, or its reach so for that party to embrace cuts shows how vital they are to the future of the economy. Liberals, should not need to measure ourselves by what the other two parties think. We have a proud and robust intellectual movement underpinning our ideals, a tradition older than Labours (in fact the ‘left’ historically is one of the intellectual offspring of Liberal thinkers, and not, as many believe, liberalism just a watered down version of 1970’s labour theory). So when justifying the cuts, we should look to Keynes, a Liberal party activist and peer, who advocated that the best way out of recession was a massive spending program followed by cuts to achieve balanced budgets over the longer term.
In one of the few genuinely smart economic moves of his premiership, Gordon Brown delivered the stimulus, so in the liberal tradition, it behoves us to deliver the cuts. So Liberal Democrats should not apologise for being part of a government which cut, because we said we would cut (and in the aftermath of that first debate I didn’t hear many Lib Dem candidates shouting from the rooftops of their prospective constituencies that they didn’t agree with Nick). Nor should we apologise for cutting because we historically we are the party of Keynes.
But the most important reason why we shouldn’t apologise is that it would be bad for the economy. There are signs that sterling is becoming a safe haven for foreign investors fleeing Eurozone uncertainty, while the US is in election year and anything could happen to Obama’s cuts program. In France a President elected on an ‘anti-austerity ticket’ is busily announcing cuts. This means market participants in France don’t know how to tailor their behaviour, reducing economic activity over the longer term, compounding the reduction in demand actually caused by the cuts being delivered.
In Britain, there is enough flexibility to adjust to circumstances (such as the bringing forward of previously announced infrastructure spending to deliver a medium term boost to demand) but the fact that the markets are certain that the UK will cut, means our borrowing costs are the lowest they have ever been, so fewer cuts will be necessary down the line, while more can be spent on infrastructure to manage demand as appropriate.
Liberals have long been portrayed by our enemies as weak. But for us to promise cuts, deliver cuts and then apologise for them as something a bigger boy made us do, would not only make us look weak, it would make us look stupid, mendacious and unfit to govern, all of the things which we must move away from if we are to genuinely aspire to government on our own in future.
So to borrow another of Nick Clegg’s rhetorical flourishes, cuts are not popular. It isn’t easy for the first set of Liberal ministers since the World War II to take control of departments of state and immediately begin by reducing their fiefdoms, but it is the right thing to do.
* David Thorpe was the Liberal Democrat Prospective Parliamentary Candidate for East Ham in the 2015 General Election
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38 Comments
Macro-economic policy is not a matter of ideology, it is a matter of pragmatism, it is doing what is best for the country and its economy at the moment, having considered the evidence and best solutions available – when the economy started to slow down in the second half of 2010, the cuts should have been quickly jettisoned, the banks should have been brought properly to heel and a proper programme of stimulus should have been implemented, sadly George Osborne doesn’t have the wit to see that, and, even more tragically, the Lib-Dems in government became equally blind to the problem .
As an aside – I’ve been musing over what might have happened if, in May 2010, the Lib-Dems had gone into coalition with a post-Brown Labour party – would things have been very different? Possibly. Follow the link for my take: http://www.allthatsleft.co.uk/2012/07/how-would-a-lib-lab-pact-have-worked-out-after-may-2010/
If you are not going to apologise for cuts, are you going to apologise for the fact that Lansley will today announce the abolition of the 49% cap on private work in NHS hospitals ?
A New Statesman article concludes that the Liberal Democrat leadership, either signed off on it, or did not know about it.None of this is good.
Keynes advocated reducing spending, IIRC, after the slump had passed. This has not taken place. As such, we are not adhering to what the great Liberal said.
I am deeply apologetic and embarrassed by the cuts; this is not just to do with promises made and broken, nor solely to do with breaking faith with Keynes – in many instances the cuts are very short sighted. For example, our economy cannot move up the value chain and thus create the high paying jobs which will engender prosperity if education is made more difficult to obtain. I understand that the loans are structured in such a way that one only pays back after one is earning a sufficient amount: nevertheless, heavy university debts are perceived as a millstone around the neck of students and they are subsequently discouraged by this prospect. There needs to be honesty about this. We need to face the truth and do something about it. Similarly, many of the cuts have fallen on capital expenditure, which is precisely the wrong place for them to go – Keynes would say the same.
@Ray North – “Macro-economic policy is not a matter of ideology”!!! It has everything to do with ideology, because politics is ultimately about making moral choices.
If political choices were purely a matter of “pragmatism”, we would have no need of democratic politics but could replace it with technocratic government.
Of course governments should not pursue policies that plainly don’t work or have no evidential basis, so I agree with Ray that the government’s austerity policy is counter-productive. But there is still an argument about competing values – that’s why we have politics.
Clause 164 on page 161 of the Health and Social Care Act 2012 states (page 176 of the pdf):
“An NHS foundation trust does not fulfil its principal purpose unless, in each financial year, its total income from the provision of goods and services for the purposes of the health service in England is greater than its total income from the provision of goods and services for any other purposes”.
This is law, not part of a statutory instrument, so is it really possible for a Secretary of State to arbitrarily abolish the 49% cap? http://www.legislation.gov.uk/ukpga/2012/7/pdfs/ukpga_20120007_en.pdf
I think this article is fundamentally wrong.
Although the author is right to credit Brown for the economic stimulus that we supported to get the UK out of recession, it is obvious now that when we got into office we applied cuts far too soon. It is surely a measure of the failure of the policy that since then the British economy has consistently failed to meet the growth expectations of the OBR, because both the OBR and the British believed for ideological reasons that the depressant effects of the cuts would be more than cancelled out by a private sector liberated from state interference. Apart from banking of course which is the only sector of the economy where light touch regulation is no longer considered appropriate.
When there is enough growth in the economy then there should be cuts, but to continue whilst we are in recession is the worst thing we can do. Even the ratings agencies have put us on negative watch despite us following their advice almost to the letter. You can’t win with ratings agencies.
The Liberal party I joined was vehemently opposed to the cuts of the Thatcher era, a time when our public services were crippled and to this day compare badly with those of France and Germany. The magic formula of better public services at less cost continues not to be discovered despite the best efforts of successive governments from 1978 onwards.
Today what we need is massive expenditure in the Green New Deal and infrastructure spending to get growth back into the economy. There is no point in saying we are proud of any policy unless there are signs it is working.
“In one of the few genuinely smart economic moves of his premiership, Gordon Brown delivered the stimulus, so in the liberal tradition, it behoves us to deliver the cuts.”
What a strange reading of Keynes.
“Gets in car with David, “David we are going the wrong direction!”, “In liberal tradition I am going to slow down and turn the steering wheel…. I have now slowed down so we are behoved to turn the wheel” “David there are oncoming cars!” ” WE ARE BEHOVED!” *sound of screeching tyres and explosions*
Cuts were supposed to take place in times of a growing economy not one that is in a deep recession.
This is a bubdle of contradictions. Keynes said we should use massive stimulus in recession, but that was cut off and we are back in recession. You need to analyse the situation in terms of how the economy is changing, not along timeframes of what Brown did until he got kicked out, and what Osborne did afterwards. It nowlooks like the timing was very, very wrong.
You say that the cuts have supported our ‘safe haven’ status regarding our borrowing rate, but then also refer to the far more important factor that we have our own currency independent of the Euro – this is not any kind of validation for the cuts (it’s not like we were ever at risk of default, as is a continuing possibility for a eurozone country). Is anyone (except Osborne) still arguing that we are an attractive option for foreign investment as a result of the cuts and ‘credibility’? Not least when we now own about a third of our own gilts through the Bank of England. I don’t think investors such as pension funds are choosing our gilts because of Osborne’s economic plan, and they’ve said as much.
Simon, economics is not a pure science – those who treat as if it is a pancea, those who become slaves to it (and I’m talking about those who espouse pure Marxism or the Reaganomics of Friedman) are less able to make the moral decisions that are necessary for good governance . Macro-conomic policy is simply a tool to ensure fairness, liberty and equality.
I have no intention of apologising for the disastrous cuts that are taking place. It is hard to apologise at the same time as attacking them.
Tony Greaves
@margaret
The NS have just put up a couple of Updates, it would seem that they may have been wrong.
@Ray North – I never said that economics is a pure science and do not believe it to be so. What I said is that you cannot reduce economic policy to a matter of ‘pragmatism’ or extract it from the context of values.
For example, your claim that “Macro-conomic policy is simply a tool to ensure fairness, liberty and equality” is itself a value judgement that is not universally shared and, even if it were, there would still be fundamental disagreement about what fairness, liberty and equality mean and how they might be achieved.
Rather than adopting ideologically entrenched positions, can we just look at the FACTS first, rather than afterwards?
They show that it is not government cuts that have caused the economy to go into reverse, rather other factors like the lack of consumer spending, lack of private investment and our export performance tailing off. These are things that have changed since the deficit reduction policy was set in place, could not have been predicted and are largely not related to fiscal policy.
The following link to Ben Chu’s piece in the Independent does not endorse his argument, which I think is a misinterpretation of the data. The figures clearly show that government spending (orange line) has recently been SUPPORTING growth, not detracting from it. And please don’t come back to me by saying “but there have been cuts”. Of course there have in individual areas, but in terms of overall spending, it is still going up.
http://blogs.independent.co.uk/2012/06/11/is-the-eurozone-killing-the-uk-recovery/
Anyone reading some of the comments above would not think that we are already having a massive keynsian stimulus by borrowing £120bn a year. If the bond markets lose faith in the Coalition’s ability to cut the deficit then we will have to pay more to borrow – which will more than cancel out the effects of any stimulus.
If the last Government has run a balanced budget ove r the economic cyscle then we would not have gone into a recession running a huge deficit and could borrow more now.
@ Ray North
I was amused by your rosy portrayal of a Lib-Lab coalition. No mention whatsoever about the virtually impossible parliamentary arithmetic which would have led to continual blackmail by the smaller groups like the nationalists. Nothing about the impossibility of forming a coalition with a party that had just been kicked out of power with 29% of the vote. Nothing about breaking our promise to seek to form a government with the party that won the most support.
Under such a coalition, if indeed it had been possible, there would have been similar cuts, simply because our 11.4% of GDP deficit demanded a very severe cuts package at the time, a fact agreed by all parties before the election in 2010.
Given that was the case, the same factors would have intervened since then, notably high oil, food and commodity prices hitting consumer real disposable incomes, massive consumer indebtedness, the Euro crisis, the same weak UK industrial base, poor skills, deteriorating education and rocketing benefits payments.
Basically, whichever government was in power, the underlying fundamentals of the situation we face now would have been exactly the same.
I don’t measure the cuts by what the other two parties think – I judge each on its own merits with the overarching knowledge that the deficit was out of control. Some are good, some are bad. Some will enable Tory Donors to line their own pockets. One thing is for certain, the cuts have not led to the growth Tories promised, except perhaps in pay for top executives. The Big Society was a dirty lie. The Establishment is getting ever increasingly kleptocratic and the Tories are driving it.
Thanks, Chris, for the update.In the general atmosphere of distrust, it is hard not to panic, sometimes.
Sorry to divert from the main theme of the thread.Apologies.
RC- the facts do not support your interpretation of the impact of cuts on economic performance. Other EU countries have returned to growth well ahead of us despite the Euro troubles- see Germany and France. Also, you list falling consumer spending as a cause of the slowdown without mentioning the connection between cuts, job losses and consumer confidence. It is simply not true that the UK is doing as well as it could given external circumstances. It could and should be doing far better if competently managed. Not to mention the other government policies that are putting a brake on the economy, such as the blunt instrument immigration cap (which will not be achieved, but nevertheless prevents British business from hiring who they need, and is crippling our overseas higher education market).
I will never apologise for making cuts but only an idiot would fail to apologise for those occasions where we’ve cut the wrong things – I’m thinking of the cuts to DLA, for example, which will cost more than they save and which will increase hardship immensely for disabled people. That is a completely idiotic cut to make and only an idiot would insist on refusing to apologise for it instead of doing the sensible thing and apologising and then attempting to fix it.
Some cuts had to be made, but a lot of them have been badly targeted and counterproductive. More importantly they are not actually working. Borrowing is up, but it’s not really going anywhere useful. Some of the alleged cuts are not even really cuts, they’re simply transferring public money into private control under the belief that the Private Sector always delivers greater efficiency. You can see the inherent flaw in the assumption in the current Olympic security fiasco and out sourcing funds to organisations such as A4 E.
But apologizing is not productive either. Making changes to the economic policy is not a sign of weakness, but the pragmatic response to changing circumstances.
@ Massles
“RC- the facts do not support your interpretation of the impact of cuts on economic performance”
Please click on the link and look at the charts showing what has contributed to growth or the lack of it in the last two years. They DO support my arguments. How many times to I have to repeat this? Look at the FACTS.
To reply to your point about Germany and France, they have very different economic situations from our own. Firstly Germany has a strong industrial and export sector. We don’t.
Secondly, their consumers are not nearly as burdened with debt as ours. If you look at the chart, you will see that consumption hasn’t been growing. This is mainly because consumers are paying off debts accumulated in the run up to 2008. The weakness of the UK economy is all about deleveraging, much of it by households, meaning consumption can’t grow.
“It could and should be doing far better if competently managed.”
How on earth could even the most competent management possible make up for the fact that our households are struggling with an historic legacy of £1.5 trillion of debt, our export sector too small and our businesspeople worried about the collapse of the Euro? It simply is not realistic to assume that someone could have magicked away all those problems and escaped into the sunlit uplands of debt free economic boom in the space of two years.
Panorame featured a program this week titled ‘Britain on the Brink: Back to the 70s?’ that asks whether Britain is able to cope with a new age of austerity.
The focus was on the move to free market Thatchesim at the end of that decade; the rise in inequality since the 1980’s;falling living standards in recent years;the general unaffordability of housing today; the lack of career prospects for a growing swathe of the younger generation and the growing pensions crisis that will see millions more older people living below the poverty line in the coming decade.
It underlines the long term nature of our current malaise. I am unconvinved that cyclical macro-economic remedies can do much more than paper over the cracks of what is a rapidly splintering society.
Nothing short of a major structural realingment of the UK economy, funded by massive investment in economic infrastructure, green energy develoment, skills training and manufacturing capacity can turn around the UK’s flloundering ship of state in the 21st century.
We are one of the few developed European economies that have the capacity and wherewithal to embark on such a program of change. We have political leaders, like Vince Cable, that can articulate the case for such a long-term strategy. Bringing the British public on board with what is required is a challenge for all political parties – the Liberal Democrats should be at the forefront of both delivering the message and instituting the policies that set us on this long path to a national renaissance.
RC- your link undermines your own arguemnt. As you point out, public spending is holding up GDP, which is why cutting it at a time when the private sector is so weak is a mistake. Keynes 101. Your point about manufacturing applies only to Germany, and you also ignore the impact of cuts on consumer spending once again. Finally, no-one expects an instant return to growth and ‘no debt’- merely that we should not have slipped back into recession while comparable economies have been back in growth for some time. It’s easy to blame the prevailing winds but it’s poor decision-making that is holding us back.
Of course all cuts are not always wrong, although there is plenty of space for effective, fair and economically sound public spending in this country, now. No, the reason why we should apologise, and take appropriate action (because I think it would be difficult for the same leadership group to carry on after a massive about-turn), is because economically and socially, and ideologically from a mainstream Lib Dem viewpoint, these cuts, and this economic policy were wrong.
LibDems should not apologize for the cuts provided you believe that wealth is distributed in society evenly. That is the fundamental premise which is wrong because the year on year share of the economic pie (the gdp) is not going down but up which to me suggests that the proportion or percentage of wealth being allocated to public spending is artificially being lowered through cuts. This is the big lie and that is the rich have got richer, the corporate profits even bigger through tax cuts and now a cost accounting method being placed while ignoring the actual growth in wealth. I am afraid it is because this the LibDems not only own an apology for the cuts but are also unashamedly trying to spin their position while ignoring the real facts!
Will you apologise for the hundreds of thousands of sick and disabled abd their carers who will reduced to penury though welfare reform and cuts to services? no I thought not
Thank you George the only lib dem I’ve come across who has integrity
@David Thorpe
“In 2010………the Liberal Democrats, from MPs to ordinary members, voted by a huge majority for a coalition.”
Are you being serious? It was a psephological quirk.
As for “cuts are not popular” being another of Nick Clegg’s rhetorical flourishes, now I know you’re joking.
Thanks to all for the comments.
Firstly, Im not saying we should cut because ideoliogcally its the pure thing to do, that would be nonsensical and illiberal, but my reason for highlighting the ideoligcval roots is to respond to those in the party who say tghat we are betryaing our traditions by endorsing cuts.
I highlight the pre election statements of the party leadership highlighting the need for cuts to emphasises that the advent of coalition has not changed our stance on this policy area, and that anyone who stood as a lib dem parlaimentray candidate in 2010 was committed to a manifesto endorsing cuts.
Thats not to say that I dont see room for debate about timing and pace of cuts, but that where the debate should start..
Persoanlly Im of the view that delaying cuts is piointless, it does more hamr than good. Because market particpants do not make decisions merely on what has actually happened, but on what they anticipate will happen, so telling the world that you will cut in future-simply results in market participants reining in their spending/investment now, in anticipation that they must hoarde their resources now in anticipation of cuts-this means aggregate demand gets reduced immeidateluy but wihtout cuts, then is reduced further by the actual occurance of cuts at a later stage-meanwhile with the fiscal situation unresolved for longer-the cost of bowwrrowing rises-pushing inflation up and thus reducing further the spending power people enjoy int he economy-which is again the equivalent fo a furtheer round of cuts.
The alternative pursued byu the coaltion is to cut now-then increase demand later-so one round of cuts rather than severakl and graeter levels of economci certainty.
I work for an economics publication where on a dialy basis I read and wirte about the economic situations in economies all over the world-and I read about how the Australian central bank believe the eurozone crisis will reduce their growth rates,t the same with HOng kKong, Singapore and Sweden, if countries at one step removed like those are impacted to such a noteworthy extent then there can be little doubt about the impact on thwe UK, we are fortunate(and I mean fortunate ITS NOT ATTRIBUTABLE TO JUSDGEMNT) THAT we did begin cutting at the time we did, as it allows us to be a safe haven and to borrow at a cheaper rate) historically all sovereign debt is a safe haven in a recession=-allowing countries rto borrow cheaper than the private sector-thus meaning itsd inherently logical for the government to borrow its way out of recession-when the borriwng is used for economic gain-however thisis perhaps the first economic crisis in hisotry where sovereign debt is not treated as a safe haven-there are fears of a eurozoen defauklt, and the ‘contagion’ effect this could have on the ability of other countries to repay their debt-this means the soveriegnd ebt makret is not a safe haven-but Britain is considered qwuite safe because of the decsiive cuts policy. The practical consequence of this is that Britian is borriwing at the cheapest rate in its hisotry(cheaper than Germany) and thus the upcoming stmulus package can be funded mroe cheaply making the money go further-and with fewer longer term consequences.
@ james moore
of course wealth isnt distributed evenly-and nor should irt be-Im not aware of anyone who has ever advoacetd syuch a thing-even marx didntOpportunity must be distributed evenly-not wealth-and some of the current government policies are doing that-the pupil premium for example and the tuition fee policy which the National Union of Studensta and the Institute of Discal Studies both say is “more progressive” than the previous policy because it means poorer students pay less.
There is a longw ay to go tio make equality of opportunity a reality however-but it shouldnt be mistaken for equality fo outcome-and cuts should not impact on equality of opportunity if they are delivered corrcetly. Apart from anything else if you dont gave cuts you have inflaiton-which hits the poor far harder than the rich
but always, always, always refer to ‘the two old parties’, it will eventually click with people that if they want things to change they have to do something different..
……………………………….it will eventually click with people that if they want things to change they have to do something different………………..
They did do something different and things remain exactly the same!
@ jason
they didnt do anything difefrently..as I point out..the reuslt in 2010 was exactl;y what happened in similar circumstances in the 1970s, and giveing the most votes and most seats to the tories has happened numerous times beforw
@david thorpe
You’ve now repeated the claim that what happened in 2010 was exactly the same as what happened in the 1970s — in the words of your article, “voters gave Labour a kicking and the Tories the mandate of largest party in parliament but no overall majority”. Are you not aware that that’s the exact reverse of what happened in Feb. 1974 (the only election between 1929 and 2010 that failed to give one party an overall majority)?
Malcolm Todd16th Jul ’12 – 12:30pm.
Agreed. The Wilson/Heath election gave Labour a minority government.
It was our ‘finest hour’; we polled over 25% of Labour/Tory combined and ended up with 14 seats against 300. I was involved and felt like crying.
@Simon McGrath
“If the last Government has run a balanced budget ove r the economic cyscle then we would not have gone into a recession running a huge deficit and could borrow more now.”
I’m sorry but that’s nonsense. Even if the national debt had been 30% of GDP in 2008 rather than 40% then all that would have been different is that the current national debt would be ~10% (or maybe marginally more) lower now. The recession would have happened slightly sooner, given the lack of stimulus during the boom, and the recession would have been slightly smaller, but to say that government borrowing caused the recession is profoundly ignorant. Did you actually read anything about the private sector credit bubble/crunch at the time or has that all slipped from your memory because you work in the City?
@Steve — “to say that government borrowing caused the recession is profoundly ignorant” — but that’s not what Simon said at all! And it’s not whether the debt was 30% or 40% when the recession hit that’s at issue. The point is that the deficit was already something like 5% of GDP when the economy was still (apparently) flying along, so that any stimulus deficit spending had to be on top of that — which makes it at least arguable that it wasn’t sustainable as long as a modern Keynesian might otherwise want. It also means that we had an underlying deficit problem that would have had to be sorted out sooner or later anyway. (You may say “Why not later?” — and you may be right — but it’s not an easy judgement.)
@Malcolm Todd (& Simon McGrath)
Fair enough. I think I mis-read the comment as “then we would not have gone into a recession, running a huge deficit and could borrow more now” rather than “then we would not have gone into a recession running a huge deficit and could borrow more now”.
Apologies. I didn’t pay as much attention as I should have.
However, the use of the word ‘huge’ is a bit of a distortion, in my opinion. The budget deficit for 2007 was ~0.5% (excluding financial interventions). Not good, considering the economy was in growth, but hardly ‘huge’.