Today’s growth figures vindicate Labour’s economic stimulus

Borrowing figures published today: £123.5bn borrowed April to February 2010-11 versus £136.6bn April to February 2009-10.

As we head into tomorrow’s budget, there is clear evidence of the effect of growth on reducing borrowing. Last year, predictions were ratcheted higher on growth, and that on borrowing ratcheted lower as we went through the year. The supply side of the economy in particular surprised, with the result that the highest quarterly growth this century in Q2 2010 and the highest half year growth of the past 10 years allowed the supply side to respond and generate tax receipts that will grow over the financial year by 7.7%.

This has meant that the primary budget deficit has been slashed by a massive 33%.  From last year’s 9.1% of GDP to 6.2% GDP, the growth in the economy has closed the gap in the deficit, supported by the government’s focus on growth-supportive spending. Getting the primary deficit down is the first step to paying off the deficit. The reason the budget deficit itself has not fallen by the same amount is that the interest on the government’s inflation-linked debt has risen considerably, because the Bank of England has failed to keep inflation under control.

As we head into a period of retrenchment and possibly another recession as a result of the cuts, it is instructive to look at the effects of the stimulus from research published by the OBR’s counterpart in the US, the Congressional budget office.  It has published estimates of how the stimulus package has created growth in the USA:

Full time equivalent is a better measure of maintenance of living standards – estimating both the maintenance of jobs together with the maintenance of full time employment that would have become part time. Clearly, the stimulus kept things going both over in the US and here in the UK. The rise in tax receipts is probably the best evidence we have for how much UK productive capacity the stimulus kept alive.

Alas, as we look at where the current government is cutting taxes in their neo-Ricardian view on growth over the rest of the parliament, it’s useful to see what the CBO estimates are of the growth multipliers on different policy effects:

Tags: ,

3 Responses to “Today’s growth figures vindicate Labour’s economic stimulus”

  1. taffarel says:

    I can’t believe it, someone from Labour is actually looking at the figures of our deficit!

    Finally, head in the sand mentality may be waining, at least from one of you.

    The problem is that even if growth from Labour would be higher than under the coalition, the cost of keeping the deficit would be much higher. So you would be happy at blowing say 3-4% more GDP than the tories in order to gain approx 0.5-1.5% growth?

    This is the problem you face. The cause and effect of your policies dont add up.

    I dont think lookin gat the USA can justify your cause. They have the world’s reserve currency, we dont. Likewise following a country that is leaving the next generation with massives of debt (600% plus) if you add in the unfunded liabilities [how your Labour party loves them ;-)] is not a good path to follow.

    You wrote ‘Getting the primary deficit down is the first step to paying off the deficit’.

    You don’t pay off a deficit. Cutting the deficit does not equal a reduction in debt. Every year we run a deficit our debt is rising.

    You pay off the debt. Even after the co-alition solve your criminally negligent deficit we then need to sort the problem out and cut the debt.

    Perhaps the Labour party should send a memorandum around their members explaining the difference between a debt and a deficit.

    Likewise have a read of Reinhart and Rogoff and see what they say about debt exceeding 90% and what it does to growth.

    Even the co-alition’s plans of cutting the deficit in a parliamentary term will lead to 80-100% debt to gdp.

    Labour’s halving of the deficit will lead to 110-120%+ debt to gdp. Game over.

    You havent a clue. Accept the damage you caused this nation.

  2. Richard says:

    “You don’t pay off a deficit.”

    Oh yeah, then in all your wisdom, you better tell someone at CCHQ they’ve got it all wrong, that they’re barking up the wrong tree, that they were sadly mistaken to cover the country with posters proclaiming: “We will cut the deficit”.

  3. Richard says:

    “Labour’s halving of the deficit will lead to 110-120%+ debt to gdp. Game over.”

    Got any solid evidence for that. I very much doubt it, mere armchair economics. Not even the so-called independent OBR has been allowed by Osborne to map out Labour’s plans for the economy. No doubt afraid the figures would be unflattering to him.

Leave a Reply