Does debt matter? Why the Tories are ‘sending a message’

8 10 2009

images1The British political classes are going through one of their occasional bouts of masochism, with party leaders vying with each other on the theme of who can cut public spending faster and more effectively. Spice is added by talk of leaks and secret plans; and ideology by arguing about the balance between tax increases and spending curbs. My own bottom line is that all this is in response to a largely imaginary budget crisis. If we have a normal economic recovery the red ink will diminish remarkably quickly.  Samuel Brittain

Samuel Brittain’s article hits the nail on the head when it comes to the debt question. The UK’s debt is only a problem if you do not believe that the economy can grow its way out of the present recession. Behind the current competition amongst the political parties to be the most bloodthirsty cutters of public expenditure lies the same fear, that the UK cannot become a serious growth economy again.

Tory Shadow Chancellor George Osborne has spoken of the need to regain the confidence of international investors and credit agencies, saying  ‘it was a “statement of facts” that three agencies, Moody’s, Fitch and Standard & Poor’s, had all voiced concerns about Britain’s ability to pay off its record debts.’ If Osborne’s intention is to really cut the UK’s debt then the measures announced so far will hardly affect it. They amount to a saving of only £23bn out of a deficit which will be closer to £200bn. While recognising that his proposals will not solve the debt problem Osborne claims it is necessary to show credit agencies  that the UK is ‘deadly serious ‘ about tackling its debt.

In other words Osborne is ‘sending a message’ to the world in classic New Labour fashion, rather than making efforts to tackle the real problem, which is the expected low growth economy we will have in the UK. In fact Osborne’s speech was almost entirely lacking in any proposed measures to create new areas of growth in the UK economy.

In the absence of plans for growth Osborne can only offer austerity. His way of expressing this  in his speech to the Tory Conference was to appeal to a shared need to accept cuts in living standards. Hence his repeated assertion that ‘we are all in this together’. The Tories have no doubt been encouraged by the lack of any social response to the recession. They must believe that people here are willing to accept real cuts in living standards over the next few years.

Yet there are reasons to think that they may be deluded if they believe that they can push through an austerity programme very easily. Firstly, for most people in the UK the recession has been so far relatively pain free. While those losing their jobs have been hit hard, many of those still working have benefited from zero inflation, low interest rates and cuts in prices of many essential goods. There is little evidence that people have so far embraced austerity.

Secondly most people feel deeply alienated from the political class. The MPs’ expenses affair was an expression of this. The Tories, if they form the next government, may find it very hard to mobilise support for unpopular measures.