Michael Chanan

Ed Miliband has come out fighting in today’s Times arguing that “a great deceit designed to damage Labour has led to profoundly misguided and dangerous economic decisions”. The truth is uncomfortable for the Government.

Ed Miliband writes (£):
“What is this deceit? It is that the deficit was caused by chronic overspending rather than a global financial crisis that resulted in recession and a calamitous collapse in tax revenues. One pound in every five of corporation tax disappeared in 2009-10. Their deceit ignores the evidence from around the world that a global credit crunch caused deficits to rise on every continent. The US and Japan face deficits of the same scale and for the same reason.

“Their deceit seeks to rewrite history, airbrushing out the fact that Britain’s debt at the outset of this crisis was the second-lowest in the G7; lower than it was under the Tories in 1997. And it forgets that neither of the two parties now in government called for lower spending at the time.”

How true. The Tories were committed to sticking to Labour’s spending plans until after the collapse of Lehman Brothers on September 15th, 2008. As the graph below shows, it was only as tax revenue fell through the floor and “automatic stabilisers” – like unemployment benefits and increased tax credits – kicked in that the deficit opened up. Prior to that point, the modest Public Sector Borrowing Requirement was due almost entirely to capital spending – entirely acceptable under the old fiscal rules.

See the Chart: Public spending and revenue (% GDP) at

http://www.leftfootforward.org/2011/01/ed-miliband-is-right-to-expose-the-tory-deceit-on-debt