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It is not just British politics that appear to be in meltdown, in the furnace of MPs' expenses. The British economy is in a mess as well.
And we suffer not from one disaster but two. The first is the hardship of a severe recession; the second the appalling state of the public finances, which have been allowed to get completely out of control.
With business and industry suffering, and unemployment on a sharply rising trend, it is understandable that the main focus of attention is on the recession.
But, in fact, it is the second disaster, the unprecedented scale of the budget deficit and the ever-rising size of government borrowing to levels beyond any in living memory, that is the more alarming and the more dangerous.
Moreover, the true scale of government indebtedness, massive as the official figures indicate, is even greater than it seems, thanks to the dodges the present government has adopted to shift much of it off its balance sheet.
The so-called business cycle is endemic. Everyone except Gordon Brown, who liked to boast that he had abolished boom and bust, always knew this. Recessions have always occurred from time to time, here as elsewhere in the world, and they always will.
It is true that the present recession is worse than usual, as a result of the banking collapse, caused jointly by the folly and greed of the bankers and Gordon Brown's wanton destruction of the traditional system of banking supervision, based on the Bank of England, which I greatly strengthened when I was Chancellor, and its replacement by a bureaucratic box-ticking system which is now recognised to have been completely dysfunctional.
But history shows us that recessions pass, as even this one will. And we should not overlook that there are some benefits, as well as great costs, from the business cycle.
It is during the optimistic upswing that innovation and entrepreneurial creativity flourish. It is during the downswing that close attention is paid to efficiency and costs.
We are seeing that today. Or, rather, we are seeing it in the hard-pressed private sector. In the bloated public sector it is different.
There, the long economic upswing has seen not innovation but a steady accretion of waste, extravagance, overmanning, inattention to costs, and unaffordable policy commitments.
And the necessary attack on all this will occur only if the government of the day has the will to do so.
That is what is lacking today. And that is why the problem of the public finances, unlike the recession, will not pass, unless there is a government with the will and the determination to take the inevitably unpopular measures needed to tackle it.
Otherwise, the problem will only grow, as the debt interest that has to be paid on that government's borrowing adds further to the total indebtedness, and the financial markets start to worry that the debt trap may be escaped only by the time-dishonoured way of allowing inflation to erode it - thus pushing up further the rate of interest that has to be paid to persuade the market, and particularly foreigners, to lend the government the money it has to borrow.
It is, of course, true that to some extent recovery from the recession will diminish that amount, as tax revenues start rising again.
But we will still be left with what the economists call a large structural deficit, leading inexorably - if it is not tackled - to a steadily growing and ultimately insupportable burden of public debt.
Fortunately, we know that it can be successfully tackled. For we have been here before. When the Thatcher government took office 30 years ago, Britain's public debt was the second highest, as a proportion of GDP, among the G7 leading industrial countries.
Only Italy's debt was higher (and then only very slightly so). By the time Margaret Thatcher left office in 1990, this country's public debt was the lowest in the G7.
This was achieved by a firm and relentless control of government and local government spending, year in, year out.
During my own six years as Chancellor, for example, government spending rose, in real (inflation-adjusted) terms by only some 0.6 per cent a year, as a result of which it fell as a proportion of GDP by eight per cent. And this is without taking any credit at all for privatisation receipts.
As a result, a budget deficit was converted into a budget surplus, despite lower tax rates.
The present government knows full well that this now, urgently, needs to be repeated. Indeed, in his recent Budget the Chancellor made it clear that, as he saw it, there would need to be four years of public spending growth (which so far under Labour has not only been rising at a wholly unaffordable rate but to remarkably little discernible benefit to those outside the public sector) of only 0.7 per cent a year.
But not only did he give no indication at all of how this might be achieved, but he insisted that this essential task must be deferred until the recession is well and truly over.
The Government's argument for delay is that to act now would exacerbate the recession.
Poppycock. In fact, it would, if anything, boost confidence. The truth is that a demoralised and paralysed government, fearful of massive defeat at an election in a year's time, lacks the guts to do what it knows is needed in the pressing national interest.
Gordon Brown consistently seeks to portray the Conservatives as the "do-nothing" party.
In fact, confronted with the greatest economic threat we face, it is he who insists on being the "do nothing" Prime Minister. To repeat, the time to act is now.
Reader views (11)
core of the money deception :
"thus pushing up further the rate of interest that has to be paid to persuade the market, and particularly foreigners, to lend the government the money it has to borrow."
- Luis, NZ, 29/10/2009 06:35
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Lawson's boom was followed by Lawson's bust for all the reasons William states, except low tax rates, which saw more people paying tax and more paid by those paying top rate. But Lawson is spot on about Borrowing Brown.
Last time Brown balanced a budget was before Blair got re-elected for the first time. That's right, 2000-01 was the last tax year when we had a surplus - and even that was only a few beans.
Every year for seven years, Brown's budgets bombed. The total he spent over what he got in wasn't far short of £200 BILLION! That might have come in handy about now, what with the £170 billion a year borrowing required to bail out Brown's discredited Government.
Lawson is right that we have to get a grip right now. Brown won't do it so we need a General Election. Now!
- John Moss, London, UK, 29/10/2009 05:35
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please will someone have the honesty to release the welfare spend figure graph over the last ten years and the projections into the future.
- Mark Armstrong, london. uk, 29/10/2009 05:35
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Pot calling Kettle black I guess!
- Pedro, Dubai UAE, 29/10/2009 05:35
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Britain's pre Thatcher industrial base was a nationalised plethora of overmanned, inefficient, obsolete labour run industries that by any standard of business measure should have been bankrupt years before they were. Chairman Wilsons wage and price controls and his economic plans exacerbated the situation for years, inflation was rampant, and government, totally run by unions, was out of control. That was passed on to yet another Labour govm't.
How anyone can look back at those days as a benchmark of greatness for Britain is hard to understand. When Mrs T got in the country was on the verge of bankruptcy.
I got out and came to Canada. What I see now is Deja Vu.
- W.Palmer, North Vancouver, Canada., 29/10/2009 05:35
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Don't see how anyone can argue with this analysis.
- Eduardo, N London, 29/10/2009 05:35
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Another pathetic self-justification from a man whose disastrous policies during the mid to late 1980s in shadowing the Deutchmark at the wrong rate, failure to control rampaging house prices, and destroying the tax base by lowering tax rates too far, set off an inflationary surge. This resulted in his successors having to raise interest rates steeply to control the inflation he had triggered, thereby causing a deep recession.
Combined with destruction of the tax base from his excessive and unneccessary reduction in tax rates, it led to one of the largest budget deficits in history. The words 'denouncing', 'sinners' and 'Satan' are the politest things one can say about this buffoon.
One had hoped that the authorities would have taken the precaution of ramming a stake through his heart after he had been buried (politically at least). Bring out the garlic and silver bullets - we need to finish the job properly this time!
- William, London, 29/10/2009 05:35
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You contradict yourself a little; Ex-Pat of Cape Town S.A.
Blair and Brown followed on in Thatcher’s footsteps; promising the middle classes no tax increases etc; leaving the financial sector free to do as it pleased; just as they have always done under the Tories; Nigel Lawson included.
As you say; under Wilson and Callaghan we still had an industrial base; which Wilson and Callaghan had tried to keep in full employment and fully working etc; this did cost money; but it was still there when her majesty Margaret Thatcher arrived in power etc.
It was the Tories that stole the nations assets and sold them all off cheap for tax cuts for the wealthy; don’t forget North Sea Oil as well; that went on tax cuts also; instead of rebuilding the infrastructure and industries of the UK etc.
So you see Ex-Pat; had the labour party never gained power at all; the Banks would have still gone broke without any regulation at all; and the nation would still not have an industrial base, because Thatcher had already sold it all to outsiders etc.
The only thing that is not contradictable is this; the Tories and the Labour Party are two of a kind; two peas in the same pod; and both the same colour etc.
Brown was just the patsy left holding the baby.
If the State had no control over the Banks; how could the State be blamed for the Banks stupidity etc.
If they were to blame for anything; it was letting the bankers roam free of any control etc.
The Tory’s always did the same
- Mickyinlondon, london, 29/10/2009 05:35
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A good analysis. What is necessary is a plan that shows markets that we're serious about paying our national debt. A debt that has been caused by Brown's profligate fiscal expenditure. What has Labour done with the hundreds of billions of pounds it's raised via stealth: stamp duty; 3g licenses; raids on Pension relief etc. All we have to show is de ja vue 1979 and a self-serving Labour govenment that wants to cling on to power for as long as possible for the fringe benefits that accompany power. Stop takiing us all for fools you unelected blind fool and call an election now!!!!
- Dominique, Islington, London, 29/10/2009 05:35
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I do laugh when people bleat about how the Thatcher years wasted the North Sea Oil money. How exactly did they do this?
And if they did what then has the Labour party done with all the revenue from said oil fields? I don't believe they stopped producing oil in 97 did they?
And what about the huge windfall taxes that Labour had when they came to power or the selling of the mobile 3G licences, where did all that money go?
So Labours had the North Sea oil revenue, plus the windfall taxes and the 3G licenses and a better performing economy and what do we have to show? A bloated public sector and an NHS that has seen it's budget virtually treble but no discernible increase in service or provision.
It's so typical that people are prepared to continue grumbling about the politics of 20 years ago yet ignore the things going on right underneath their noses.
Say Boom & Bust and people think of the Tories but not what’s happening now.
Say sleaze & corruption and they think of the Tories but conveniently forget the resignations, lies, bribes and lordship backhanders that have filled Labour's time in government.
- Simon, London, 29/10/2009 05:35
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Nigel Lawson is entirely correct in his analysis that public debt, incurred principally under Brown's Chancellorship, will cause major difficulties for years to come.
However the argument that the incoming government will be able to use tactics that were previously successful following the disasters of Wilson and Callaghan, is not valid.
In those days Britain had a manufacturing base; we still built and sold ships, we had an independent steel industry. Now shipyards are closed; dockyards that provided good, solid skilled employment for thousands are now museums. The entire world is awash with cars that no-one wants to buy; Britain's 'traditional' markets are all serviced by China, Japan, Taiwan.
Face the facts - for the past 12 years this thieving buffoon Brown has run Britain as a giant Ponzi scheme, encouraging banks to behave like betting shops with their customers' cash. Untold billions of debt lie hidden in the disastrous PPP contracts of yesteryear. Britain has very little left to offer - the family silver (and gold) is all gone, and youngsters leave university barely literate. Such are the politics of disaster. Such are the politics of the Labour Party.
The innumerable quangos will have to be closed down; the bloated town hall administrations must be cut down to size (along with Parliament itself, and the Civil Service). There really is no other way and it will take many years before recovery is achieved.
- Ex-Pat David, Cape Town, South Africa, 29/10/2009 05:35
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