The Liberal Democrats and the Conservatives were very concerned about growth in 2010. This is clear when you watch David Cameron’s opportunistic whingeing in the Budget debate for 24 March 2010, prior to the 2010 General Election (as recorded in Hansard). The context is some quibbling over the growth figures in David Cameron’s response:
And we all know what has happened to growth since May 2010. Some would say it’s due to throttling consumer demand through raising VAT, killing infrastructure projects such as “Building Schools for the Future”, and a cornucopia of other unintelligent measures taken collectively by George Osborne and Nick Clegg. Their bluster was indeed very strong, as was their personal hatred of Gordon Brown. But I’m saying nothing.
In April 2012, new figures revealed that Britain had plunged into the first double-dip recession since 1975 and is enduring its longest economic slump for a century. This was in fact the first double dip for 37 years and a nightmare scenario for Chancellor George Osborne, who predicted a rapid return to growth when he embarked on his austerity programme, and Mr Cameron, who had previously declared Britain ‘out of the danger zone’.
Source: tradingeconomics.com
It suited Nick Clegg and Vince Cable to defer as much blame onto Gordon Brown for the recession, rather than to blame global factors.
Indeed, Cable, Clegg and Osborne have been wishing for the Eurozone to implode much more than it has, in the same way that they have always hoped for the GDP figures to be ‘revised upwards’. Northern Rock, indeed in 2007, was one of many banks throughout the world to take on risky investments. Many of the assets that these banks had on their balance sheets started to lose their value (like ‘loans gone bad’ or securities derived from mortgages and other loans). The Bank of England became the last resort for the British banks as liquidity froze throughout the global market due to a lack of confidence. The global crash was predicted by Roubini (2010) who said: ‘As homeowners defaulted on their mortgages, the entire global financial system would shudder to a halt as trillions of dollars’ worth of mortgage-backed securities started to unravel’ but the United States and the United Kingdom refused to acknowledge sub-prime mortgages as a threat to the economy’ (N. Roubini and S. Mihm (2010), Crisis Economics: A crash course in the future of finance, Allen Lane, United Kingdom, 2010, p.15). At the time, Nick Clegg criticised the Labour government for not having done anything about getting banks to lend:
However, Clegg is being utterly disingenious about the UK government’s ability to lend money given the overall international climate. Firstly, banks are affected by Basel Capital rules that financiers keep complaining about; subtle reforms on, say, liquidity coverage ratios are also “biting hard”. This overall, it is argued, makes banks far more conservative about lending money and fearful about how they manage their balance sheets. Gillian Tett in the Financial Times in October 2011 gave a very elegant overview of the situation, as it was then. Nick Clegg appears now to have some sort of weird amnesia what had caused the deficit to balloon, but he was very clear about the bail-out at that time.
Clearly then, the “deficit” story is the one to base the entire credibility of the raison-d’être of the current Coalition, but the facts clearly state that prior to the global financial crash the deficit being run by Labour was comparable to that run by Norman Lamont and Ken Clarke, as clearly shown here:
The reason that the public generally mistrust all parties with the economy is that the majority of the general media have not conveyed the issues with sufficient accuracy or balance. The Conservatives, Andrew Neil and the Spectator, have been fixated on whether or not Ed Balls knew there was a structural deficit in 2008, whereas English law fundamentally relies on there being a presumption of innocence. Ed Balls is convinced that he, and the Bank of England, did not realise there was a structural deficit in 2008, and indeed the more relevant situation is what to do now. For example, in its twice-yearly fiscal monitor, the IMF said that for countries including the UK: “If growth should fall significantly below current projections, countries with room for manoeuvre should smooth their planned adjustment over 2013 and beyond.” This represents conditional support for Mr Osborne’s deficit reduction plan so long as growth does not disappoint again. Indeed, Andrew Neil and colleagues then curiously perseverate on how much Ed Balls knew then, whilst being completely oblivious to any of the arguments about why the GDP remains stagnant now, why the banks fail to lend, and how a failure in securitised mortgages caused a global recession.
“To summarise, both governments presided over a fiscal strengthening in their first three years in office followed by a weakening over the following eight. But we should note that Labour has used more of its borrowing to finance capital investment rather than current spending than the Conservatives did. Under the Conservatives, the structural budget deficit continued to deteriorate until year 14 (1992–93). It remains to be seen when it will reach its trough under Labour.”
This rather begs the question: what was Mervyn King actually worried about in 2008? King in a speech at a dinner hosted by the IoD South West and the CBI at the Ashton Gate Stadium, Bristol in 2008 provided the following:
“The low level of national saving is apparent from the current account deficit – our new net borrowing from overseas – which in the third quarter of last year was, relative to GDP, the biggest in the past fifty years and the largest in the G7. It is possible to run a current account deficit for a considerable period. Australia, for example, has done so in every year since 1974. But our own position is becoming more difficult. For some years we have been able to finance current account deficits by borrowing, often through banks, at unusually low interest rates on world capital markets.”
In other words, he appeared to be confident about our “paying off our deficit” due to “low interest rates on world capital markets”. Of course, one lie leads to another, and we’ll now be clearing up the mess that Clegg left in 2015. Clegg will probably defend successfully his seat in 2015, but, as the Liberal Democrat Party implodes, there’ll be nothing left for him to defend, and he will better off in the House of Lords or Europe. Meanwhile, it is quite likely that some sort of austerity plan will be mid-way until 2018, and the disappearance of our AAA coveted credit rating (as warned by Fitch recently) will be a tribute to Clegg and Cameron’s incompetent management of the economy.
