25th June 2010

Britain Must Avoid the Fate of Spain

£155 billion.

That is the difference between what the government spends and what it receives in tax.

It’s a truly staggering figure.  The trouble with such big numbers is that they cease to mean anything.  So how about this: for every one of us in this country, the government will borrow over £2,500 this year alone.  And that’s £2,500 on top of the £15,000 already owed on our behalf.

Clearly we cannot carry on borrowing like this for ever.  The question is how quickly we stop.

Labour’s plans meant that we would still be massively overspending in five years time, giving us an annual interest bill of £67 billion – more than we spend on transport and defence combined.

The Coalition’s Budget on Tuesday ensures that by 2015 we’ll have balanced the books.

Why not take it easy, as Labour suggests?

First, because it’s not fair.  It means making future generations pay for our failure to control what we spend.

Secondly, because the more we spend now the less we’ll have in years to come.

Most importantly, if we don’t act fast, interest rates will go up, the economic recovery will stall and millions of people will see their mortgages go up.

So although this budget is tough, the alternative would be a whole lot worse.

If you want to know what that alternative looks like, look at Spain.  The Spanish government’s deficit is not that different from our own.  After a firm nudge from the IMF – the international money policeman – Spanish public sector workers are having their pay reduced by 5% followed by a two year freeze, child benefits have been scrapped and budget cuts are being pushed through that make ours look tame.  In the meantime, unemployment has shot up to 20%.

By acting now we can avoid cuts and joblessness like that.

So the choice is clear: either we take concerted action ourselves, over time, or we have them forced on us and then all at once.

Those Spanish men and women out of a job would have preferred our approach, I am sure.

Why Not the Bankers?

As the Chancellor said on Tuesday, the crisis started with the banks.  But that does not mean that the banks were responsible for all of the crisis.

The reason our recession was worse than almost anywhere else is that even in the good years the Labour government was borrowing more than it earned.  Baby trust funds, increased housing benefits, all those shiny new public buildings – nice to have but paid for on the nation’s credit card, well before the crisis broke.  So there were no reserves to fall back on when the banks collapsed – just one hell of a big bill.

The cost of all that overspending runs to hundreds of billions of pounds: big numbers – and far bigger than any supertax on the banks would ever collect.  That is, if you could keep them in the country long enough to pay the bill.

The simple fact is that we were overspending before the banks blew the system up.  So although we’ve introduced a levy on the banks and made banking regulation more tough, there is no substitute for curing our national addiction to debt.

Building a Recovery

It would be a mistake, however, to stop the investment our economy needs to grow – something the Chancellor acknowledged previous Tory governments have got wrong.

That is why I have already lobbied ministers hard, pressing them to approve upgrades of the A14 and the London to Norwich mainline, and fund badly-needed renovation of some Ipswich schools.  I’ll keep on pressing – and will keep you posted on what I get.