The Lib Dems need to complete their economic story

All parties strive to have a narrative that makes sense to the voters and gets across the key messages the party wants the voters to hear.

The Lib Dems have a narrative – a story – about the economy, but it’s not being heard by enough of the people the party needs to win back. One reason is that the story has a beginning and a middle but lacks a proper ending.

The three main parties all have their economic stories for voters.

The beginning of each is a tale of financial woe. In Labour’s version (at least until now) the economic problems are down to the bankers and the international recession. The Lib Dems and Conservatives additionally suggest the then-Labour Government wasn’t wholly blameless.

At the moment, it’s the middle of those stories that’s defining the public mood – the cuts. Cutting public sector employment back to 2002 levels, deep cuts to public spending to take it back to 2006 levels.

The middle of the Labour story – “wrong cuts, wrong time” is clearly finding resonance with many voters, willing not to ask what the right cuts and the right time might be and concerned about the effects of such big public spending reductions.

The middle of the Conservative story is also holding up well with the majority of Tory voters.

The problem for the Lib Dems is the middle of our story is a lot of pain and not enough gain which, as the opinion polls make clear, is not going down well with many of the people who voted Lib Dem in May.

But what of the end of the story – of where all this is taking us? The Lib Dems are making the cuts for a reason and it’s not that hard to find, but we’ve not yet made it part of the story and got it across to voters.

The aim, as we reach the next election, is to have successfully rebalanced employment between the public and private sectors, with many more people in work overall than there are today. Because the deficit will be low or zero, the extra tax receipts coming in as the economy grows can be used to invest in public services and start paying off the national debt, reducing the massive interest payments we’ve been left with (£120 million a day and rising).

That ending can be contrasted with Labour’s approach.

Labour want to cut the deficit more slowly, meaning hundreds of billions more piling onto the national debt than under the Coalition plans. All that extra debt has to be serviced. If we were to go down Labour’s route, we would be left paying tens of millions more in interest than under the Coalition every day – money that would then not be available for schools, hospitals and all the other things Lib Dems want to invest in. Labour’s plan reduces the pain a little today, but increases it a lot down the road.

Back in September 2009, Nick Clegg was telling his party conference – and the country – of the need for “savage cuts” in public spending to sort out the expanding deficit and rein-in the national debt. At the General Election the Lib Dems identified more cuts than either of the other two parties.

That talk in Opposition was followed through by action in Government. Whereas Labour ducked the tough decisions and prevaricated, the Lib Dems have taken them.

But we need to complete our story – our narrative and vision – of where this is all going.

We need to tell people what each path means for their and their children’s lives and find a simple way to get our message across as to why the Lib Dem story has a much happier ending than the one being pushed by Labour.

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  • Mike(The Labour one) 14th Jan '11 - 10:14am

    Before anything else, remember that ‘Labour’s route’ was broadly the route that the Lib Dems stole their votes promising to go down.

    If these cuts damage growth to a decent extent, like we’ve had three Nobel prize winners and plenty of think tanks saying, it will harm tax intake more than servicing a slight amount more of debt. Additionally, it is much cheaper to sustain services as best as possible than to slash at them and then seek to start them up again from scratch (though I gather these cuts are intended to be permanent so it’s less of a problem… for the Treasury. For the people who rely on those services, I guess they can swing).

    If we’re talking pure economic utilitarianism- do everything to get the deficit down as cheaply as possible- your approach is wrong, as the NIESR have said, as Joseph Stiglitz has said, as Will Hutton has said, as David Blanchflower has said, etc. You don’t get brownie points for making tough decisions if you make the decision to take the route that will hurt the most vulnerable.

  • I think you will find, Iain, that the talk by NC of “savage cuts” in 2009 was dropped very smartly, when it was realised that the party almost wholly rejected it. He got himself in quite a lot of hot water over it. Our problem as a party is probably that we have not analysed sufficiently how our original higher spending plans (yes, higher) should be funded, and how fundamental a reorganisation to economic, and geopolitical thinking was required.

  • With respect Iain, your analysis is flawed. How? Your assertion that:
    The problem for the Lib Dems is the middle of our story is a lot of pain and not enough gain

    The middle of the Lib Dem story is a complete reversal in their position from “cut slow and steady” pre-election to “cut hard + fast” before the Coalition negotiations. In other words – a reversal from a Labour supporting position to a Tory supporting one.

    The facts didn’t change. No member of the Party can tell us what specific economic facts or conditions changed between May 5th and May 12th. They can only tell us that Mervyn King changed their mind – and their interpretation changed with it. I for one find this risible.

    That is what has turned people away from you. Voters don’t like hypocrites.

  • Surely, the problem is that the middle part of the Labour story is largely what the Lib Dems were selling during the election campaign? Substantial cuts but a slower pace. Certainly the rhetortic about the pace of cuts from Clegg was closer to the Labour position of a slower pace of cuts than to the current coalition position of deep initial cuts. Remember the economic masochism of deep early cuts. I appreciate the manifesto was a little more aggressive in its wording in regards to cuts than perhaps came across to the public on the campaign trail, but the basic premise that people have been mis-sold as to the pace of the current cuts remains.

    It harks back to the same problem which comes up time and again, one thing was said at the general election and now another position has been adopted. That’s the difficult sell. At the moment, the two lines to support that the need for change 1. The financial position was far worse than expected and 2. It’s the byproduct of being in coalition with a larger party who is determined to cut quicker.

    The first position doesn’t really work because it’s frankly untrue, and the second position doesn’t hold water with the public due the constant support for the Conservative position from Lib Dem ministers, the occasional glee from Danny Alexander et al with which such support is given doesn’t help either.

  • Matthew Huntbach 14th Jan '11 - 10:48am

    The problem is that this story seems to be exactly the same as the Conservatives’.

    You (Iain) are even repeating the old Tory lines about “same level of spending as in 2002/6” or whatever, to try and make it sound as if there cuts aren’t going to cause any real suffering.

    There are reasons which ought to be obvious to any intelligent person why public sector spending has to rise while appearing to keep steady. The most obvious is health advances, expensive in themselves, but also leading to many more still alive in their advanced years, which involves huge amounts of public spending. But others just come from the fact that a more complex technical society requires a more complex infrastructure, both physical and abstract. The average distance people travel is steadily growing, for example, meaning more costs to keep roads in good repair – more costs which seem entirely invisible, because the state of the roads are no better than they were. The tuition fee issue is really about abstract infrastructure – a more complex technical society requires a more educated population, so higher education is no longer something for less than 10% of the population.

    If we suppose the state is the admin and infrastructure part of the nation which serves the productive part, what is happening is no different than in businesses. In nay business now you will find a far higher proportion of the staff involved in admin and infrastructure tasks. Indeed, Tory types complain about “more bureaucracy” in the public sector, but what is the whole banking industry but bureaucracy, doing admin tasks shuffling money around to try and make it productive?

    What we really need is a narrative which is honest about all this, which accepts the strains caused by the way society is developing and puts the sometimes harsh choices that have to be made direct to the people. The Tories have not done this at all, which is why they can get away with all this bland talk along the lines of, … well the sort of story Iain is telling us above. It’s a Tory story. It’s a story put about by the wealthy elite who don’t want to face up to the damage their politics – the politics we have had since 1979 in this country – has done to people in this country in terms of misery and social breakdown at the lower levels.

  • @kmag – unfortunately the truth hurts. On reflection, and it’s been a tough time for all Lib Dems, There are really two different things: Deficit and non-deficit politics.

    We’re coming from an era of `painless politics` – a fantasy land peddled with no financial consequences. No hard decisions had to be made and the Government could wave a magic wand and everything would be painlessly `cuddly wuddly` again.

    It’s a transition period from the `politics of me` to the `politics of connectivity`. I often ask people who are Labour `what would you do?` Answer (even from very intelligent people): `I don’t know I’m not in Government/an economic expert/I hate the Tories because my Mum did` type of answers. Simply not good enough.

    The coalition need to decide the following:

    1. Who will be `winners` and who `losers` in post-deficit politics?

    2. How to simply put the economic facts to the public.

    3. Which reforms are necessary for this post-deficit world to come about (political, economic, benefits and banking)

    4. Which reforms would have been done anyway (political, economic, benefits and banking)

  • Iain:
    Cuse – I think you overstate the change.

    Whether you, or the leadership or the electorate believe that isn’t the issue.

    The issue is – as Keynes would no doubt approve…

    What facts changed to make you change your mind?

    This is the bit that riles people. This is the bit that colours you in public. The facts didn’t change (or rather they did – the OBR confirmed the economy was better than was thought), your ideology did. It links to the Tuition fees reversal narrative also.

    I still can’t get a straight answer from the Party, activists or LDV as to what specific economic conditions changed the party’s mind.

  • @John

    That’s a logical position, but it doesn’t change the perception that one thing was said during the election campaign and very different position taken once in coalition. People simply do not like being mislead, and frankly that’s what has happened across the board since the election. From Tuition fees to the pace of cuts, they voted for the party to support specific positions which they have reversed. Essentially, the lines in the sand the leadership chose did not reflect the will of the people who voted for the party. I’m not sure how the loss of trust can be overcome.

  • @Andrew Tennant. The rhetoric from Nick Clegg was much much more measured, and deeply critical of the pace of a Tory cuts program he’s now adopted wholesale. That’s the problem the party has, you can argue about semantics and detail and you might be right, but you’ll lose the argument with the public because they took Nick at his word (as he asked them to) and he’s been deemed to have changed position. Now do I believe there are compelling arguments for an actual, both economically and terms of coalition politics, of course, although I remain worried about the depth of the initial cuts. I think it would have been difficult to start the coalition with a series of public disagreements, but perhaps that’s what needed to happen.

  • @Andrew Tennant. I’m sorry I must have dreamed up Nick Clegg on the Today program saying “We think that merrily slashing now is an act of economic masochism. If anyone had to rely on our support, and we were involved in government, of course we would say no.”

  • Ian – I’m afraid that I don’t agree with your take on why the LibDems are making the cuts and it appears that my view is shared by the majority of the population according to independent polls. Public perception is that the LibDems hitched their wagon to the Tory one, with all the ideological cuts that entailed, to take power. A few people might believe this was justifiable so that fragments of Liberal Policy could be enacted but I think most go for the power trip.

    It’s too late for Clegg to do anything to reverse this perception as he is a busted-flush. That move IMHO can only come from the LibDem party being seen to impose its will on the Parliamentary Party and to ensure LibDem policies are fought for much harder and, more importantly, that Tory ideology isn’t so enthusiastically embraced.

    Of course, these issues are part of the wider argument as to what direction the LibDem Party is actually going to go in – is it going to stay in the centre or will it move centre-right with an eventual anschluss with the Tories.

    And the public have lost interest in what you think of Labour – you have to realise that Labour reached its core vote level at the last election. They will get back the voters they had temporarily lost to the LibDems and I predict they will also pick up a lot of former ‘left’ LibDem voters as well as party activists which is very good news for fighting elections in terms of their experience and strength on local issue politics – appears to be a lot of anecdotal evidence of this in O&S btw.

    So the LP will hold course and under Milliband they will poll a higher percentage at the next election but we have to wait for the AV referendum to see where that leads to in terms of power as with the Tories and LibDems. But you should never make the assumption that the electorate will reward the Coalition even if they guide us into the somewhat mythical land of economic stability.

  • “The Lib Dems and Conservatives additionally suggest the then-Labour Government wasn’t wholly blameless.”

    Actually every time a Govt minister (Lib Dem or Tory) speaks on TV they say ‘the mess Labour left us with’ and try to make out it was all entirely down to Labour mismanagement. This doesn’t play well with people who vote Lib Dem because it is seen as disingenuous and representative of the ‘old politics’ the party promised to banish. Lets start treating the voters with more intelligence and honesty.

    Secondly the problem for the party is that it has been seen to be the Conservative stooge rather than having the ‘tempering’ influence that was used to placate those fearful of coalition with the Tories. Whilst the story of cuts for Labour and the Lib Dems may be about how best to deal with the deficit for the Conservatives it is not only about the economy but also ideology. The lib Dems should disassociate themselves from this drive to marketisation if it wants to keep its core vote. I teach in a school which is considering Academy status. The staff oppose the move but the management/governors say that it makes financial sense as the additional money available will be the only way to plug the shortfall in future funding. When asked what the benfits beyond finance would be our head publically said’ ‘there will be none’. The government is restricting money so that schools will have no option but to become Academies.

    For the Tories the cuts are ideological and the Lib Dems are being tainted by this.

  • Hove Howard 14th Jan '11 - 1:25pm

    Winston Churchill wrote ‘Socialism attacks capital; Liberalism attacks monopoly’

    Trouble is with that, haven’t the hundred years or so since showed us that the natural tendancy of capitalism is towards monopoly? And isn’t the only way to counter such private monopolies either to regulate them strongly, which will inevitably mean a fairly large state apparatus (at a national and super-national level), or to simply take them into public ownership?

    To nail that down to a clear example, what possible justifcation is there for organising our water providers as private monopolies? Given that competition cannot be introduced in this area, is there any better solution than simply renationalising this industry?

    To me there is a wealth of difference between this kind of state intervention and, say, ID cards.

    Closer to original topic, the Tories commited themselves to Labour’s levels of spending until late 2008. Which means that either Labour was, by and large, not particularly economically irresponsible – or that the Tories are a bunch of unprincipled sh*ts. Which is it?

  • @Andrew Tennant
    OK fine you don’t oppose marketisation per se. Has the party clearly articulated this to the core vote? Have you told the public that the cuts are not just about the economic deficit but also about ideology?

    Those of a Modern as oppossed to Classical Liberal persuassion – such as myself – would like to see more emphasis on positive freedoms that alleviate the structural problems that limit people’s potential. The marketisation of public services will have the opposite effect. Running services on the basis of marketised incentives will not help to achieve this. Lets stay with the example of Academies – Academies have the provision to select 10% of admissions. Great news if you’re one of those whose ‘aptitude’ helps you to get into one of the better schools but tough luck if you aren’t.

  • Depressed Ex Lib Dem 14th Jan '11 - 2:25pm

    “Did he say it today? Or back when we were still in recession?”

    Has it never occurred to you that some familiarity with the facts might be useful when trying to discuss these issues?

    As anyone who paid any attention at all to the election campaign knows, the Lib Dems projected this as a crucial difference between their economic policy and that of the Conservatives. Clegg carried on criticising the Tory proposals for the timing of cuts very forcefully, right up until polling day. A few days later he agreed to the policy he had been criticising. As has already been pointed out to you, Clegg was later contemptuous enough of the electorate to claim that he had agreed with it all along, but kept quiet about that during the campaign!

  • @Cuse
    I still can’t get a straight answer from the Party, activists or LDV as to what specific economic conditions changed the party’s mind.

    Well, people here should know that Vince Cable has now written in New Statesman, defending the coalition’s deficit-cutting plans. So, this is not a Tory plan any more. It is a coalition plan. It was online here,, but it is probably behind a paywall now.

    1. Cable says that he wrote in September 2009 in a “Reform pamphlet” that the next Government should try to eliminate the deficit over five years. “Now we are in government, that is exactly what we plan to do.” So, I don’t know why we believe that there has been a change of mind.

    2. He says that the Labour government already planned for a budget cut of 1.5% of the GDP in 2010/11. The coalition plans are something like 1.4% of the GDP for four years. The boundaries of the debate are “narrow”, he says.

    3. He says there is now plenty of empirical evidence (more than 40 examples since the mid-1970’s), that says that “decisive rather than gradual budgetary adjustments” are more successful in correcting budget imbalances. He points out, without citing, a recent IMF study that determines that ‘fiscal consolidation’ does indeed boost growth and employment, but “only in the long term (five years or more)”. Admitting that the conclusion is “non-Keynesian”, he goes on to construct an explanation of why this might be the case.

    4. He mentions five reasons why the Government has chosen the present course, which invalidate the Keynesian view point in his opinion:

    (a) The economy is in a recovery, not a slump any more.
    (b) By balancing the budget, the Government keeps the cost of capital (interest rates) down.
    (c) Again by balancing the budget, the Government boosts investor confidence and unleashes “animal spirits” of the entrepreneurs.
    (d) If the growth were to be derailed due to the fiscal policy, he says that the Bank of England is standing by to offset it by monetary policy.

    5. The main overall point is that the growth is expected to come from a large increase in private-sector investment, after decades in which ever-increasing consumption has borne too much of the burden of fuelling growth.
    Well, I think the whole thing is a hogwash. The annual spending cuts are 27 bn, whereas the private-sector investment is at best 12 bn per year, according to the OBR estimates. So, 15 bn per year of aggregate demand will be taken out of the economy continuously for 3 years, and the economy will take a serious hit. This may not mean that there will be a second dip recession, but it will certainly mean that the growth with anaemic.

  • @Uday Reddy

    Thanks for that – utterly fascinating…and yet more evidence of the curious revisionist history that the Party uses to justify it’s utterly indefensible U-Turns.

    According to the Lib Dems – Gordo caused the entire worldwide economic u-turn and Saint Vince forecast it all…day by day…penny by penny…

  • I don’t know whether Liberal Democrats are right or wrong in their current policy, what I do know is that it is not what you campaigned to do, Liberal Democrats made certain pledges and promises in their election campaign which they failed to keep, not just failed to keep but now we know had no intention of keeping…

    So much for better politics, no more broken promises, no more lies…

    Can you not understand yet… it will not matter how well the government does by the next election, it does not matter who the party leader will be… Liberal Democrats failed the electorate by breaking those promises, how you can expect those same electorate to forgive you I have no idea… sorry I don’t think it is going to happen, and every 1 added to the unemployment queue will be 7 that could vote against you they will not forget, the electorate will not forget for a generation or two, that is what I think the reality is for Liberal Democrats

  • “The Lib Dems and Conservatives additionally suggest the then-Labour Government wasn’t wholly blameless.”

    If this was what they were saying they would be entirely correct. In fact they state it was all Labours problem something that is now costing them as anyone can see that a significant proportion of the problem would have happened irrespective of who was in government.

    Labour made some howlers and these should be highlighted, trying to blame the lot on them will eventually let them get away with taling responsibility for the bits they did cause…

  • @Andrew Tennant
    “To the commenters, I don’t know how many times it needs to be said; pre-election the Lib Dems were very critical of wasteful government spending and highlighted the need to cancel big programmes of government activity which were no longer affordable. ”

    To a point I agree. However if we take the school building programme as an example Clegg actually told Cameron it would be just “silly” to cancel it. Yet post election instead of saying he disagreed with cancelling it he made it sound like Lib Dem policy…

  • Hove Howard 14th Jan '11 - 4:59pm

    That was then…

    matt quoted:
    “Osborne has expressed an interest in the ideas of “tax simplification” (including the idea of flat tax). He set up a “Tax Reform Commission” in October 2005 to investigate ideas for how to create a “flatter, simpler” tax system. The system then proposed would reduce the income tax rate to a flat 22%, and increase personal allowance from £4,435 to £10,000-£15,500″

    So the increase in personal allowance is another much-vaunted Lib Dem coalition concession that is in fact Tory policy (and admittedly not a bad one in itself, though not when tied in to the abolition of higher rates). I genuinely didn’t know that – assuming wikipedia is correct, of course.

    I am a former activist, not a Labour stooge.

  • Here is a little table that shows how much the deficit will reduce (expressed as a percentage of the current GDP), if the economy grows by 2% and 3% respectively:

    2011 0.8% 1.2%
    2012 1.6% 2.4%
    2013 2.4% 3.7%
    2014 3.3% 5.0%
    2015 4.2% 6.3%
    2016 5.0% 7.8%
    2017 5.9% 9.1%

    This is purely from the revenue growth. As the economy improves, the unemployment falls and the Government’s benefit payments would go down too. That is not represented in these figures.

    The OBR’s June forecast had growth figures of 2.6%, 2.8%, 2.8%, 2.6% for the four years from 2011. So, they are closer to 3% than 2%.

    So, the Government could have chosen growth-oriented policies instead of budget-cutting and still reduced a substantial part of the deficit by the next election. The accusation that this was an ideological exercise rather than a necessity, sticks.

  • A few things, Labour do not oppose all spending cuts, cuts were happening before the election.

    The Lib Dem/Tory mantra of “it’s all Labour’s fault” isn’t working and won’t work, yes Labour made mistakes but the Lib Dems supported Labour on the idea of growth rather than savage cuts prior to the election, the Tories were promising to match Labour’s spending until 2008, so for either of them to criticise Labour’s general stance, is, for want of a better phrase, a bit rich.

    That the other parties would have spent money differently, or in the Lib Dems case, listened to Vince Cable about wreckless spending, is a matter of detail, Vince was definitely talking of the risks of savage cuts prior to the election, the Tories did this in the thirties and it didn’t work then, I don’t know why they think it’s going to work now, we need growth.

  • Paul Kennedy 14th Jan '11 - 11:31pm

    Tim Farron is right: Labour are in la-la-land in denying the need for cuts.

    The deficit is still growing alarmingly, the economy is overheating particularly in the South-East, and (as has largely been forgotten in the rose-tinted discussion above) inflation is getting out of control. The (relative) cuts in the current high level of spending which the Coalition is having to make are exactly what Gordon Brown would have been forced to do if Labour had won the election.

    Personally, I don’t like it. I think the Coalition should be braver (like Steve Webb who is helping develop universal benefits and restore dignity for pensioners) and resist the extension of means-testing to subsidised university tuition and child benefits. But our policies at the last election of higher taxes on polluters and megalandowners, and closing loopholes for high-earners, were rejected by the electorate, as Mandelson pointed out when we tried to negotiate a deal with Labour, and we have to protect the most disadvantaged in society.

    And what is Mr Spinniband up to now? Apologising perhaps for his role in the mismanagement of the economy and the banks? No, he’s busy writing to the BBC and other broadcasters telling them to airbrush the Lib Dems out of the Coalition. Labour’s arrogance and hypocrisy are breath-taking.

  • @ Andrew Tenant Vince argues in that pamphlet about cutting too quickly, as did Labour pre-election, the only major party who disagreed with this were the Tories.

    Vince highlghts the issues of falling tax revenues, as did Ed Millband, where Vince differs from Labour is that he suggests it was a temporary bubble, the tories didn’t agree with this, they were promising to match Labour’s spending.

    I’m not sure what you’re seeing in this pamphlet that makes you believe the Lib Dems didn’t belive in averting draconian cuts until we were quite clearly on the road to growth.

  • Andrew Tennant Many in the party, and quite a few long and medium term members who have now left the party DO oppose “marketisation” (privatisation by any other name). We fought hard against it in the 80s under Thatcher, and as was expressed above, we believe “the new politics” to explicitly include more democratic approaches to the use of finance – whether that be through cooperatives or through the public sector, with an increased emphasis on localism. What this does NOT mean is the progressive reduction in public expenditure. It probably means more in the long term, as Matthew Huntbach’s earlier post seemed to imply. We should be about preparing the public for this, more international cooperation and democracy, and a genuine and rapid drive towards greenness. I fear that our Janus face on this will not allow such an approach any time soon, as we may not be believed (as so many people have said here and elsewhere).

    I did notice your answer to my point about the dropping of the rhetoric on “savage cuts”, Iain, and if you are indeed correct, that the leadership dropped the talk, but maintained the policy approach, surely that is an example of exactly the same problem, of fighting an election strongly implying you are going to do something when you are planning something close to the opposite. How would / do we react when Labour or another party do this?

  • @Paul Kennedy “Tim Farron is right: Labour are in la-la-land in denying the need for cuts.”

    Labour have not denied the need for cuts, cuts were happening before the election.

  • Paul Kennedy Why select just the odd policy which you say “were rejected by the electorate”. Surely we don’t know what was rejected – it may well be that some of the policies we claim as Lib Dem “successes” were actually rejected?

  • @ANthony – can you provide me with the website with the full detail’s of Labour’s response to the CSR – only I can’t find it.

  • @John, I can tell you now as a public sector worker that we went through a jobs cut round that started in January 2010, that’s a fact.

  • Also just heard vox pops from ordinary people `Oh I don’t like these cuts they’re terrible` etc etc – `oh, would you vote Labour then?` Answer: `you’re having a laugh ain’t ya`

  • Hove Howard @4.59pm – “assuming wikipedia is correct” – four words of infinite wriggle room!

    Of course, there’s a huge gulf between a think tank noodling over an idea and it being the policy of a related party, but I think you know that and are just playing with us for the lulz.

  • @Andrew Tennent
    Taking your figures as wrote, and the most generous growth assumption, which is 3% a year; looking at the cumulative reduction in the deficit does it not amount to a total of about 35.5%? Given that’s the deficit, and not the debt you’re talking about, is that not still an overspend, each year, of about £100Bn? Over the course of the seven years to which you refer, with no further action to reduce it, an extra £700Bn on our national debt?

    Let us keep to the percentage GDP measure, if you don’t mind. The current deficit is 10% of the GDP. If the economy didn’t grow, you would accumulate a debt equal to 70% of the GDP in 7 years. But, the growth of the economy reduces it by at least 35%. So, the net debt, which is currently 60% of the GDP will rise by another 35% of the GDP, making it 95% of today’s GDP. But note that it is today’s GDP. In 7 years, the economy would have grown by some 9%. So, it would only be 79% of the GDP in 2017.

    Doesn’t look like it fixes much on that basis! Without cuts we get a larger deficit, more debt, more spent on interest repayments, and less opportunity for manoeuvre or investment in public services in the future. Borrowing now from the country of tomorrow; I’d rather be leaving a positive legacy than a poisoned chalice.

    That is exactly what I mean by an ideological exercise. If your ideology says “I shouldn’t pay for interest”, then you shouldn’t pay interest no matter how much people get hurt. But if you sit back and think, this is the cost of paying for the worst economic crisis since the Great Depression, moving from 60% GDP debt to 79% GDP debt, then it might look to you as being rather cheap. In fact, if you generate the right kind of growth, it will be a lot less than 79% GDP in 2017, because as you put people back to work, you don’t have to pay for their unemployment benefits. So, it could be as low as 70% GDP. That looks even more cheap.

    By following the cuts strategy, you won’t necessarily do any better. The economy would grow at a slower pace, perhaps 2%. (Actually, the 15 billion shortfall coming from the budget cuts would translate into twice or thrice the amount in lost demand. So, it would seem to me that the difference between the two growth rates would be more than 1%. But let us ignore that.) Totalling up the deficit reduction from growth, 23.3%, and that from budget cuts, 25.2%, you have a total of 48.5% debt saved out of the 70% GDP. So, in 2017 you would have an accumulated debt amounting to 81.5% of today’s GNP. Recalibrating it to 2017 GDP, it would be 72%.

    So, the difference between the cuts strategy and the growth strategy is a debt of 7% GDP. Is it worth the pain that is being dished out?

    This is assuming that the difference in growth rate between the two strategies is 1%. If it is higher than that, the growth strategy will actually turn out to be better than the cuts strategy.

    These are theoretical calculations. But, check out how it worked in practice, the example of the US budget between 1950 and 1960, explained here.

  • @Anthony – were those cuts due to the local council or the cuts?

    You may think the Lib Dems are `treacherous` – I think it’s even worse to just oppose things and not put forward an alternative when you are the main opposition.

    In the end it doesn’t work. Sure, you can win by-elections and local elections `attacking vat rise` or `attacking the cuts` – the Lib Dems made a whole industry of it for years. I’m struck by the similarities between this by-election and those of the 80s or 90s. The Lib Dems would get 20-25% swings only to add on a few seats, if at all, at the next election. In OES LD to Lab swing was 5%.

    That’s because these votes were protest votes secure in the knowledge that they could go back to Labour at the next GE. If they were lucky the Lib Dems would flag up ideas for other parties to take up `more bobbies on the beat` which is really `cut back on the paperwork and get more efficient` which is really what will happen in 2011 if the chief can be bothered to stop cow-towing to Labour. One by-election I went to 20 years ago there where the Lib Dems came third there was a big issue about the local hospital for people to signal their opposition to. All fine and dandy – yet it’s never enough to win the seat next time.

    The acceptance speech was also a rather anodyne `lib dem by-election victor` affair. `send a message, will work hard, never let you down, opposition to xxx tax or yyy cuts` – I could have written it myself.

    At the end of it all Labour will have to put forward a coherent economic argument more than `less deep, less fast` – they will have to also go further than saying `these are the downsides of the Condems, these are the upsides of Labour`.

    There are a vast amount of people out there who pay their way, save for a rainy day, work hard for a living who are locked out of the benefits system and want to know where their futures lie. Until Labour can answer the question `I’m on 14k, don’t pay tax on much of my money (after tax threshold rises) and don’t want to pay for those that choose not to work – what will you do and how will you differ from how you acted before?` they haven’t a hope.

    And if you think OES is an average place for the UK think again.

  • Jen wrote:

    Hove Howard @4.59pm – “assuming wikipedia is correct” – four words of infinite wriggle room!

    Of course, there’s a huge gulf between a think tank noodling over an idea and it being the policy of a related party, but I think you know that and are just playing with us for the lulz.
    I think there’s also a pretty big gulf between ‘think tank noodling’ and a policy that was, it seems, advocated by the current Conservative Chancellor.

    I am not playing with you (what’s lulz?!). Rather, I think have hit a raw nerve. The Lib Dems really have got eff all out of this coalition – apart from the liberal vision types, whose ‘vision’ is very close the Conservatives’ anyway.

    Arguing about what St Vince said in some text that about 0.00001% of the electorate will have read rather avoids the main point, to my mind – the media coverage and the mood music all pointed the other way, and what he said is, in any case, arguable. Just like all sacred texts.

    The main point is that many people feel themselves to have been deceived, are angry and have deserted the party. Like latter day trots, the liberal voice tendancy doubtless believe this to be some kind of catharsis. They are wrong – there is no room for a purist right wing continental liberal party in this country, as we shall see.

  • @Andrew Tenant I did read it, which is why I can see that Vince was saying cutting too hard before we see real growth is a dangerous path to tread, it’s a point that both Labour and The Lib Dems agreed upon prior to the election. Both Labour and The Lib Dems were saying cuts would have to happen but they had to be balanced with growth, even economists who support the quicker cuts point out they will hit growth, growth is still fragile.

    @John they were due to forthcoming cuts in budgets, people get wind and a rough idea of what’s coming and a programme of 15% job cuts was started in January 2010.

  • ohn they were due to forthcoming cuts in budgets, people get wind and a rough idea of what’s coming and a programme of 15% job cuts was started in January 2010.

    What, BEFORE the election result – so basically the town hall bosses decided that whoever won there would have to be these cuts. Got yer.

  • @John the government may change, a lot of people behind the scenes and funding bodies do not, you don’t just get a new government and get told the very next day, here’s your new budget, these things are done months in advance and yes, you’re pretty close, whomever won the election was going to cut, that’s why cuts were taking place before the election.

  • @Andrew Tennant
    In a decade of loose spending and plenty, the UK’s GDP growth rate has been near 3% on one of the last ten years; your assumption that we can outperform that in the next decade is thus perhaps a little too optimistic. Debt accrues debt interest, which reduces spending power in the economy; those who think we can grow out of our problems without painful correction are idealists, not realists.

    If you look at the history of UK’s GDP growth rate, e.g., here, I don’t see how you can say that growth rate of 3% is unrealistic. If you want to make a comparison with what happened in last 10 years, then you would need to analyse what went wrong during those years. I would say excessive reliance on the financial sector, over-valued currency and the neglect of manufacturing and exports were the causes of the sluggish growth. If you look at the trends in exports, you can see that. Plot it against our two capitalist neighbours, Germany and Ireland, and you will see the difference very starkly! It is not unrealistic to expect that the UK should be able to do at least half as well as our neighbours, given its technical expertise and capitalist institutions.

    To quote Vince again (page 5):
    “The current Government’s plans for a correction of 6.4 per cent of GDP over 8 years are optimistic. They underestimate the size of the structural deficit, assuming a brisk economic growth rate of over 3 per cent per annum after 2011-12….”

    I haven’t seen the Government’s plans. So, I can’t comment on them in any detail. But I hard put to find any vision for the country’s economic growth in this document, except to dismiss the Government plans.

    The Figure 9 in the document looks quite scandalous to me. The US had a much bigger financial crisis and housing crisis than the UK, did stimulus spending rather than budget-cutting, and is now coming out ahead of the UK. Doesn’t this show the folly of the cuts strategy as opposed to the growth strategy?

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