It seems like only yesterday that Cameron and Osborne were telling us that cutting the deficit was an absolute priority, and that we really had no choice. The rest of the Cabinet duly fell into line, parroting the same phrases on a daily basis. I don’t remember this imperative being predicated on any particular set of economic or political circumstances; indeed, they even wanted to make it a legally binding requirement on future governments.
Within days of the referendum, the date by which this absolute imperative has to be achieved had been postponed, and now we learn that the Chancellor is planning to cut the government’s income by slashing Corporation Tax (although who knows whether he’ll still be in post long enough to implement the change?).
In the meantime, Stephen Crabb, one of those colleagues who have sat around the Cabinet table with him and duly repeated the mantra about needing to reduce the deficit, has proposed borrowing an extra £20 billion a year for five years – increasing the national debt by £100 billion – to fund infrastructure projects if he is elected as party leader and prime minister.
I don’t actually disagree with the Crabb proposal at all; and in principle, I don’t disagree with cutting Corporation Tax either (my reservations are to do with whether there are adequate controls to make sure that the monies saved are reinvested in expansion and job creation rather than taken out as higher salaries and dividends; something which isn’t at all straightforward to achieve). The point is, though, that the way in which they can so easily backtrack confirms what some of us have said all along – deficit reduction is an ideological imperative, not an economic one.There is not, and never has been, a problem with government borrowing, and there is not, and never has been, a magic number at which point borrowing becomes unsustainable. Sensible pragmatic economic policy borrows when rates are low; it is ideology which dictates that borrowing is inherently bad. National budgets are not like household budgets. I’d like to believe that they’ll stop spouting nonsense about repairing roofs while the sun shines or maxing out the national credit card, but that might be a bit too much to expect. We’ll have to settle for the tacit admission that they were just plain wrong all along.