It's funny how claims fall apart so easily when they are held together by the usual old tricks. Following on from part one, which reveals the four tricks employed to mislead the country; below are three of the five fallacious claims promoted by thesetricks. Including the finale part three, the evidence put into context comes from The Treasury, ONS, OBR, IMF, OECD and IFS. Below are the three fallacious claims.
Aaaawwww! Mummy, Ed Balls was running a structural deficit even in the run up to the recession; watch him deny it and he doesn't even apologise. - trick one. For a quick recap watch:
By cherry picking and only highlighting the stats prior to the recession; Cameron, Osborne, Clegg et al would have people believe that having a structural deficit during a growth period or any other time is in violation of some strict economic rule. Hence, Ed Balls has done something seriously wrong, for which he should apologise. The aim is to alarm and lead people to assume that in the past we never or rarely ran structural deficits.
However, they fail to mention that having structural deficit or even a budget deficit is nothing new; as they occur in most years and even during growth periods. Hence, there isn't anything unusual, rare or alarming about having a structural deficit in the run up to the recession. In fact, the ONS and HM Treasury data as collected by the OBR (table C15 page 104) shows the last time we were in office during 1979 - 1997 we had 13 structural deficits and 16 budget deficits in 18 years. More importantly, it is worth everyone noting:
Mummy! Ed Balls had a structural deficit! But Shhh no one mention the IMF said we Tories had 18 structural deficits in 18 years 1979 -1997 RT
Labour were overspending before the recession because they were running a structural deficit even in the run up to the recession - Tricktwo.
Andrew Marr sums up the coalition's narrative by asking Ed Balls:
"going back, if I may, to this whole question about whether you in particular, Labour in general, have been ready enough to apologise for and to explain a period of overspending in power because last time we talked you said there hadn't been a structural deficit. I mean the OECD, the IMF; all these international bodies say oh yes there was?" Marr June 19th 2011
Contrary to what George Osborne et al would have people believe, simply having a structural deficit does not equate to overspending because if it did then the UK have been overspending since records began in 1974 - OBR2010 page 104. Furthermore, if we include the budget deficit then we have been overspending for two centuries out of three. In other words, we never had any money in the first place (Liam Byrne's joke note) as chart 13 illustrates below with the actual fiscal surplus from the Bank of England quarterly bulletin. Hence, the infantile term of overspending is simply to scare and lead people to assume it has never happened before.
Moreover, according to Treasury and ONS data collected by the OBR (page 104) the structural deficit, which is a more a precise measure of government expenditure, was greatly cut from the time Labour entered office from 1996/7 to the start of the recession 2006/7. Their data shows:
- 1996/7 Labour inherited a structural deficit of - 2.2% & prior to the recession 2007 it was cut to - 0.4%, which is a huge cut of 82% Wow! RT
- 1996/7 Labour inherited a budget deficit of - 2.7% & by time of the recession 2007 it was cut to - 0.4%, which is a huge cut of 85% Impressive! RT
- 1996/7 Labour inherited a PSNB Borrowings of 3.4% & prior to the recession 2007 it was cut to 2.3% which is a cut of 32% RT
- 1996/7 Labour inherited a Debt of 42.5% & before 2007 it was cut to 36% which is a cut of 16% RT
It is clear all four key indicators show a downward trend in expenditure and not upwards as the coalition would have people believe.
If Labour were not running the biggest structural deficit in the run up to the recession, we would not have inherited the mess they created - trick two.
There are three basic economic reasons why the UK ended up with a structural deficit of -5.3% and a current budget deficit of - 7.6% in 2010 (OBR March 2011 Page 141) and the reasons are:
- Firstly, increases in expenditure do not cause recessions because in a downturn income GDP falls sharply whereas an increase in expenditure ceteris paribus increases income; reduces expenditure as employment falls and so reduces the deficit via themultipliereffect.
- The budget deficit between 2007 - 2010 increased not because of a - 0.4% structural deficit or a - 0.4% current budget deficit (OBR page 104) in 2007 but due to a sharp fall in GDP and output as confirmed by the IMF. Put simply, every time an economy goes into recession it always automatically produces a higher budget deficit and conversely it produces a lower deficit or sometimes rarely even a surplus during a growth or boom period. The budget deficit worsens because as GDP declines; tax revenues decline too; consequentially expenditure automatically increases as the unemployment rate rises and as a result the budget deficit increases. The latter is the case with every recession and was the case around the world in 2008 triggered off by the global banking crises; it's basic schoolboy economics. Secondly, it increased because the part of budget deficit, which measures government expenditure, also increased - the structural deficit.
- The structural deficit increased from - 0.4% (OBR Page 104) to - 5.3% (OBRPage 141) between 2007 and 2010 because of an increase in discretionary government expenditure such as the financial inventions to save the banking sector. Furthermore, as is the case with all downturns the rise in long-term unemployment between 2007 and 2010 contributed to its increase.
So there you have it, next it's the finale part three. Finally, as you now know the truth I urge you to share this via Facebook, Twitter, Google +, WhatsApp, email, and blog it to give others the opportunity to also discover the truth or else people will never know it.