The Irish Bailout highlights the urgent need for the UK to get to grips with the national debt. Any financial package agreed with Ireland will come with stringent demands on cuts to the Irish budget to ensure that the country can meet its debt obligations. We cannot afford for a similar situation to arise in the UK.
That is why the Coalition Government’s plans for dealing with the budget deficit and the public finances are so critical. By criticising every single reduction in spending proposed by the Government, Labour and the SNP are burying their heads in the sand. It is vital that the UK Government remain in charge of the deficit reduction programme, rather than have it imposed by national creditors as part of a financial rescue package. It cannot be appropriate for Germany, France, the US and China to impose decisions on cuts on us.
If Labour want to regain some credibility on economic issues, they need to be open about what cuts they would make. They need to be honest that the scale and scope of their plans would need to be broadly in line with Coalition proposals. That way all parties can have an honest, open discussion about how to ensure that reduced spending is as fair as possible, and ensures growth in the economy. If Labour actually suggest constructive alternatives to any decisions they oppose, their opposition could be taken far more seriously.
When Greece faced its budget crisis before the election, there were fears that the problems would spread. The countries expected to have issues were in order of concern, Spain, Ireland, Portugal and the UK. That was a reflection of the relative scale of each country’s debt compared to their GDP and their ability to manage their debt. Prior to the Comprehensive Spending Review, there were very real concerns that the UK could have gone the same way as Ireland has done. That is precisely the prospect we would face if Labour’s suggestions in opposition were taken seriously.
There is also a lesson for Scotland’s economy in the Irish crisis. If Scotland were independent and RBS and HBOS were headquartered here, then the crisis facing Scotland would make the Irish situation look like a missed mortgage payment. Scotland cannot be independent and also support a financial services sector the size it currently has. Without those businesses in Scotland, the loss of jobs and corporate taxation receipts would be equally devastating to the Scottish economy.
Labour started racking up the UK’s national debt a long time before the credit crisis, spending more than they received in tax receipts in every year since 2001. We now have a legacy of debt that genuinely threatens independence and democracy in our economic decisions making. It is time that Labour take responsibility for their mistakes and engage genuinely and constructively to try and get our debt under control.
A couple of things here; severe cuts are the last thing to do in a recession and the Irish have cut deep already and yet this has had the opposite effect and has actually increased the deficit. At what point do you stop cutting? You deflate the economy and make the debt harder to repay which undermines confidence, it becomes a circle of despair. The second point is that it is not only Labour Govts that run with deficits, over the history of govts since WWII most ran a deficit on the current account, it is the total debt that really matters and this was pretty stable until the banking crisis.
@dessie
Firstly, apologies, I didn’t get an email asking me to approve your comments, so sorry for the delay.
There is clearly a need to balance government investment with reducing the deficit. That is why it is crucial that our government be in charge of that decision making, and the deficit not be allowed to get so large that we need to be bailed out by Europe, the US and China and have them impose cuts on us. Prior to the spending review, particularly around the time of the Greece collapse, this was a very real threat.
Yes, all governments run up deficits, and clearly to keep the total debt stable, you need to also run a tax surplus for a period. That is why Gordon Brown’s Golden Rule of being in balance over an economic cycle was a sound one. It is a profound shame that he broke his own Golden rule.
Sensibly, Labour ran up a deficit after the internet bubble crash in the early part of the decade. Unfortunately they continued to run at deficit when the economy had returned to strong growth.
There is also another vicious cycle, whereby if a country is perceived to be in trouble making its debt repayments, investors will demand higher interest rates. This makes it harder to meet repayments until eventually investors stop buying government debt. That is precisely what happened to Greece and Ireland. The only way to avoid that cycle is to demonstrate you can meet debt repayments by cutting other spending.
It is a fine balancing act, and Labour’s pre and post election position would not have found the right balance. By spreading cuts over a 5 year period, the Coalition will, I believe, get the balance right.