Dominic Lawson: Cameron can't blame it all on Labour

The Prime Minister is determined to make as much noise as he can to the effect that every unpleasant thing the coalition needs to do is the consequence of its predecessor

Tuesday 08 June 2010 00:00

How very useful Margaret Thatcher is to the new coalition Government. They will have to cut public expenditure, oh yes, but it will not be done in the nasty way she did it. These will be caring cuts. Thus Nick Clegg, the Deputy Prime Minister, declared at the weekend: "Our collective memory of difficult budget decisions all hark back to the harshness of the 1980s. That is our folk memory. We're going to do this differently. We're not going to do it the way we did in the 1980s."

Certainly not; it's going to be much worse. As the impeccably impartial Institute for Fiscal Studies pointed out last December after the then Chancellor Alistair Darling admitted that cuts in public spending would have to be "deeper and tougher" than those of the 1980s: "Total public spending increased by an average of 1.1 per cent a year in real terms over the Thatcher era, at a time when inflation was higher than it is today."

In nominal terms the figures are even more striking. In the last year of the Callaghan Labour government, public expenditure (including debt interest) was £71.2bn; in the first full year of the Thatcher administration (1980-81) it actually rose to £120.2 billion, and in 1981-82 it grew again to £130bn. Yet the new touchy-feely Con-Lib coalition will, by their own admission, need to cut public expenditure not just below the rate of inflation, but in nominal terms – something which has not happened in this country since the bleakest post-war austerity years of 1947-48.

This, admittedly, does not present the whole picture. The people of this country are vastly better off – even the poorest – than their equivalents 60 years ago; so a cut in living standards would still leave all of us – and I mean all of us – with a level of creature comforts, material possessions, and healthcare which would have seemed wonderful to our grandparents. Not that this argument will mean anything to the modern British public. We tend (as all generations do, in turn) to measure our prosperity by the level of what it was yesterday, or what we would like it to be tomorrow: and by those standards the next few years will indeed, as the Prime Minister pointed out yesterday, be "painful times".

In a speech designed to soften up the electorate for what lies ahead, Cameron seemed to adopt almost the opposite approach to Nick Clegg's. While the Deputy PM was like the doctor with the big needle who says "don't worry, this won't hurt", the gist of Cameron's remarks was "brace yourselves". To this end he reminded us that our national debt stands at £770bn and that "within nearly five years it is set to nearly double, to £1.4 trillion". He added that, "We knew this before". So we did. So what's new? The following, said Cameron: "Now we have looked at the figures. Based on the calculations of the last government, in five years' time the interest we are paying on our debt is predicted to be around £70bn. That is a simply staggering amount. No wonder the previous government refused to publish the information... Interest payments of £70bn means that for every single pound you pay in tax, 10 pence would be spent on interest."

Cameron is quite right to reduce the figures to a scale and proportion which means something to the ordinary taxpayer; but he's treating us like fools to pretend that this figure of £70bn is some sort of deep, dark secret which the last government was trying to hide. Since Darling had already fessed up to the fact that we were heading, if public expenditure were not cut, for a national debt of £1.4 trillion, all Cameron has produced as the great secret allegedly hidden from us by Labour during the election campaign, is the fact that we would be paying annual interest on it (of around five per cent). Did anyone suppose otherwise?

Actually, there are some people who seem to believe it is possible to maintain public expenditure indefinitely against the background of a structural deficit – the deficit in excess of that which might be eroded by future economic growth – running at over £100bn a year. The deputy general secretary of the Public and Commercial Services Union, Hugh Lanning, told the BBC it was the "banks and the financial crisis" that was behind the public sector debt; he described Cameron's remarks as "a bit of a smokescreen... the best way to cut public expenditure is to create new employment, not put people on the dole".

We will hear much more of this argument that the public debt is all the fault of the banks. For those who give this credence, please look at the raw data released by the Office for National Statistics; it tells us that "total public sector net debt excluding financial interventions was £772bn (equivalent to 53.8 per cent of GDP) at the end of March 2010". "Excluding financial interventions" is its way of telling us that that awesome figure does not include the cost of rescuing banks such as RBS and HBOS. It seems quite likely, in fact, that the Lib-Con Government will sell the shares acquired by its predecessor at a profit to the taxpayer.

Of course, there have been billions spent in propping up the banks, over the short term, and the dislocation caused by the credit crunch has been immensely damaging for many businesses; but what that whole episode revealed was that the Labour government had based its public expenditure plans on a financial services boom which it thought would last forever.

This is what the Prime Minister meant when he said yesterday that, "The truth about that economic growth – and the tragedy – was that it was based on things that could never go on forever." The other truth is that Cameron and the Conservatives had believed exactly the same. Remember "sharing the proceeds of growth"?

Still, Labour had supported, to the very bitter end, John Major's blind determination to stay in the European Exchange Rate Mechanism, no matter what the cost, no matter how punitive the interest rates required; yet when that experiment lay in ruins it was only the Conservative government which bore the public's obloquy – and Labour benefited from the total collapse of an economic policy it had backed to the echo. This is not rough justice. Governments like to take all the credit when things go well. They cannot, then, expect us to blame anyone but them when events move in the opposite direction – although Gordon Brown tried; how he tried.

David Cameron is determined to make as much noise as he can, and for as long as he can, to the effect that every unpleasant thing the coalition needs to do is solely the consequence of the criminal improvidence of its predecessor. No new prime minister, especially in these circumstances, would act any differently. I wonder how long this card will remain trumps, however. After all, when Margaret Thatcher's government cut the unsustainably vast subsidies to public sector industries – from coal-mining to car manufacturing – which her Labour predecessors had not dared to confront, it established her reputation among millions as a cruel and heartless prime minister.

It will be fascinating to see if the much more soothing rhetoric of a Conservative government in coalition with the Liberal Democrats can convince the electorate that they are caring cutters; how extraordinary it will be if they carry that off while reducing public expenditure on a scale which Margaret Thatcher never even attempted.

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