National politics

Labour’s disavowed austerity – how the last Labour government planned £94 billion of cuts

Wednesday 6th May will be the 10th anniversary of the 2010 general election which saw the formation of the coalition government by the Conservative and Liberal Democrat parties. It went on to govern the UK for five years. Most on the left would ignore the LibDem involvement in the coalition, not least most LibDems, and blame “the Tories” for 10 years of “austerity”. Take your pick of adjectives to tag on the front:

These left wing voices refuse to acknowledge that the Labour party, under prime minister Gordon Brown and chancellor Alistair Darling, had already put in place a comprehensive austerity regime almost as tough as that carried through by the coalition. This piece lays out the details of that regime.

The Labour party has done a very good job of whitewashing its own record and I have to say that the Conservatives have consistently failed to nail Labour on its own policies. For ten years we have heard about austerity being a uniquely Tory vice and not the consensus response to the 2008 financial crisis that it was at the time.

There were three main planks to the Labour austerity regime:

  • Labour cut £28 billion a year out of the capital programme (eg roads, railways, schools, etc). Net public net investment peaked at £50 billion in 2009/10. In his December 2009 pre-budget report Alistair Darling savaged the capital spending programme reducing it to £22 billion in 2013/14. £28 billion a year of spending was taken out of the economy. This was the capital programme that Labour went to the country with at the 2010 general election.
  • At that election Labour promised to carry out the Nicholson Challenge, a programme to find £20 billion a year of “savings” in the NHS by 2014. This programme was in the Labour 2010 election manifesto on page 4:3.
  • Finally, in his March 2010 budget Alistair Darling promised “we will cut deeper than Margaret Thatcher”. The Institue of Financial Studies calculated that the fiscal envelope set out in the budget implied real terms cuts of £46 billion a year by 2014.

Added together these three programmes aimed to cut around £94 billion a year from government spending, the equivalent of 14% of all government spending in 2010 or 6% of 2010 GDP.

In 2010 there was little to choose between the fiscal programmes offered by the three main parties, indeed the Institute of Fiscal Sudies quantified the difference as £10 billion (more tax for Labour, more spending cuts for the Conservatives):

The overall picture is that, ultimately, Labour looks set to implement the largest discretionary net tax rise (1.7% of national income, or £24 billion in 2010–11 terms) and the smallest discretionary net spending cut (3.2% of national income, or £47 billion). The Conservatives look set to do the smallest discretionary net tax rise (0.9% of national income, or £14 billion) and the largest discretionary net spending cut (3.9% of national income, or £57 billion). The Liberal Democrats’ plans are in the middle: a net tax rise of 1.4% of national income and a net spending cut of 3.5% of national income (£20 billion and £51 billion, respectively).

In the context of Labour already planning £94 billion of cuts £10 billion is not a lot. All three parties were broadly in the same place as this IFS chart shows.

Labour’s 10 years of moral indignation is based on the notion that £94 billion of cuts is fine but if you go £10 billion further you are a monster. It is nonsense.

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