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Despite those fabled green shoots, the reality is we have a decade of high taxes and low spending ahead...
Of the Prime Minister's various weaknesses, the most damaging is his tendency to treat the voters as if they are idiots. Everyone now knows that his 10-year boom as Chancellor was built on an orgy of debt, in which we all spent 110 per cent of our income and treated our houses like cash machines. We also now realise that money has to be paid back, so as a rule of thumb we can expect that for the next 10 years we will be able to spend just 90 per cent of our income, with the rest being used to put the nation's and our own finances back on an even keel. But not Prime Minister Gordon Brown.
He seems to want to convince us that life can go on much as before. Indeed his entire political strategy for winning the next election seems to be based on persuading us to believe that the biggest financial shock the world has ever seen will not really have any lasting impact.
This is the logic of the intensifying row over future public-spending cuts. Thus today his protégé Ed Balls, the schools secretary, rages that "the Tories are committed to cutting spending" and portrays the next election as a battle over "Labour investment versus Tory cuts". Mr Brown said the same thing last week when the Tory shadow health minister Andrew Lansley predicted cuts of up to 10 per cent in the NHS budget over the next few years. Doubtless Mr Brown's attack dogs will react similarly to shadow chancellor George Osborne's frankness today on future cuts. Whom does the PM think he is kidding?
For most people expect cuts whoever wins. This is not because the public is way ahead of the politicians in accepting the need to change their ways, though they are; it is because Alistair Darling's most recent budget said Labour would cut, too. Do a bit of work with a calculator, make the tricky adjustments between real spending and that which is made to appear higher only because of inflation, and what you find is that the forecasts published at Budget time seven weeks ago spell out clearly that Labour will make cuts, too.
It's not rocket science. You can't get as deep into debt as we have and expect people to continue to lend you money to stay afloat unless you also appear to make some effort to mend your ways. The Treasury and the Government have obviously recognised this - even if they are reluctant to make the admission in public.
The Budget small print shows that Labour is planning to cut real public spending by 0.3 per cent a year between April 2011 and April 2013. But given that the Prime Minister's favoured way of making these savings is by savage cuts in capital projects such as transport infrastructure, hospital and school building and military equipment, while leaving other favoured areas of spending untouched, where the axe does fall it will be really brutal. The reality is likely to be a 40 per cent cut in capital spending over those three years.
We as a nation are going to have to make some genuinely tough choices. We are going to have to rethink what we want from public services, how much we are prepared to pay for them and what we are prepared to sacrifice. Many things we do now we just will not be able to do in future - and it would be in everyone's interest if the Government would admit it.
There are chunks of government spending over which it has little or no control, so the other bits get hit out of all proportion. Government has, for example, to meet interest payments on the billions of new debt - and indeed the old - and it has no choice but to pay.
It also has to pay unemployment and other benefits to the millions who are likely to be thrown out of work - and the history of past recessions is that things appear to get much worse for at least a year after the first green shoots appear. Those payments are going to soar.
To get a feel for the pain to come and an estimate of how spending on unemployment will soar, just look at the looming job cuts in the car industry, in steel, in airlines, in the media. Over the past week, one economic forecaster after another has queued up to report a sighting of green shoots - a confirmation that the bitter economic winter is gradually giving way to spring. But we in this country, of all places, should know that a warm spring is not a guarantee of a hot summer. The worst part of any recession comes after the growth numbers have turned up but the effects of the earlier slowdown are still working through.
There is chronic overcapacity in so many industries and it is going to have to be dealt with. Then it will be the turn of services. Coming soon to a high street near you is the question of how many coffee shops, mobile phone stores, women's fashion outlets, fast food restaurant, sports retailers or health clubs does one town need? And who is going to be calling all those call centres? Most people have not really felt much pain from this recession yet and may think the worst is over now the economy has stopped falling. They are in for a rude awakening.
The Governor of the Bank of England knows this full well and that is why he keeps upsetting the Government with his warnings that we are nowhere near out of the woods. But it is not just Mervyn King. Last week Andrew Sentance, a member of the Monetary Policy Committee, said quite clearly in a speech that the country faces 10 years of what he called tight fiscal policies - which is economist-speak for higher taxes and lower spending. The same message has come in the past few days from the deputy governors Paul Tucker and Charles Bean and almost every independent economist, trade association and lobbying group in the country and a few international bodies into the bargain. Indeed, no one believes it is going to get any easier soon.
Surely they can't all be out of step while Brown is right.
Reader views (23)
Have you ever seen somebody lick the chutney spoon in an Indian Restaurant and put it back? This would never have happened under the Tories.
- Cyberman, Berkshire
Great article and I agree with most. Not blaming a single head of state as one person can't carry so much economic error. Do blame the cowboys running the big finance industries and similar. Cowboys make money and boy do they make money but they always go bust, it's just a matter of time. It always happens. Seen this too many times.
- Tony, Cape Town
Gary, London: re P Krugman, the Nobel laureate and Brown
in 1994, Long Term Capital Management was founded by two Nobel laureates in economics (1997), M Scholes and R Merton. Four years later they lost almost $5 billion and had to be bailed out by investment banks. In 2000 the company was folded.
What does it tell you about Nobel laureates in economics?
Now, go and take a random walk
- Antonia H, Newcastle
Those used to a cosy lifestyle will suffer more than the equivalent of the 1970`s - people were tougher, more resilient then, used to hardship.
Now we are in an air fresh - dishwasher clean society - expectations are higher, pampered decadence of fashionable tat and electronic gimmickry are accepted as basic items!
The real hardship is for those addicted to the likes of the mobile phone, Internet, online gambling is to realise these are NOT necessities - and to give them up.
Easy to say, difficult to give up tour "fix" of 24/7 entertainment, 4x4`s, foreign holidays - but these are the things we must sacrifice first, before spending on important things like engineering education are cut.
And this means reducing benefits, higher taxes on lifestyle choice "luxessities".
No, this is not the same as the 1970`s hardship - many decadent households will still feel the pain, however - 10 or more years of dull dishwasher output, or, heaven forbid, using their arms and hands to the same end - that’s what’ll really hurt!
You’ve never had it so good - but the more you’ve had, the more you’ve got to lose.
- Darius Midwinter, London UK
Gary, your comments are worrying, because they reflect a delusion held by a significant number of voters, namely that Gordon Browns economic prowess has saved the worlds economy.
As other more enlightened voices here have pointed out the opposite is true, he has presided over the biggest asset bubble the UK has ever seen, for years he arrogantly ignored warnings from financial institutions, the IMF, Vince Cable et all while he basked in the glory of an economy based on cheap money and debt. It's a pathetic sight to behold Brown/Mandelson/Balls attempt to lie and spin there way out. I just pray that enough of the electorate see through it to kick them out.
- Al, london
Adrian, Dorking
What part of the Labour party do you work for, Adrian? Must be inetresting work right now.
You are either very young or still very naive. The '90's recession was brought about by an inflationary boom - too much money pumped into an already booming economy back in the last '80's by Lawson. And compounded by Major deciding the ERM was more importnat than the sinking economy. Bad moves.
This is a deflationary bust through too much borrowing. There's a major difference. You think this recession is over? It hasn't even begun to take hold, not even remotely. Unfortunately, Brown and New Labour has bust the country. Period.
- Twizzle, Isle of Wight
The next, greatest and final bubble: government debt.
Fun for all when this one bursts.
- Dan, Norwich
Excellent article.
Finally a concious and intelligent commentator. As a previous Labour supporter I have watched in abject horror as the Labour Government has slowly eroded the UK's fiscal heritage and standing with the world. We are teetering on the abyss of financial armageddon and yet Brown and his cabinet continue to spin his web of deceit and lies. The leaders of the Labour party are truly odious and should be judged by history as one of the worst serving Governments in British history.
- Dk, London, UK
If before 2007 Brown, or anyone from the Treasury had had a look at the mathematical models banks used for leveraged debt they should have realised that it was fine as long as there was a reasonable money supply by investors. But one of the initial conditions of these models was that this money supply could never dry up, ever.
'No boom and bust' shows that Brown , as Chancellor, believed in this never ending recycling of debts. Maths and economics are a total mystery to him. A diversion. An irrelevance. I's all about presentation.
That is why we, as a nation, are more than bankrupt. We are now witness to otherwise bankrupt nations, #UK, US, Japan# with contracting economies re-spend themselves back into prosperity on borrowed money — money to be borrowed from themselves, i.e quantitative easing, printing money.
This mess is entirely due to Brown. Hanging on with his fingernails for another year means even a bigger mess.
He keeps sending out his attack dogs saying how intelligent he is #PhD in history of the labour party in Scotland between 1921 and 1928 - and it shows#, how hard working he is, etc.,.
Brown is a socialist and by definiton socialists are deluded.
'socialism is a philosophy of failure, the creed of ignorance and the gospel of envy, its inherent virtue is the equal sharing of misery'
- Antonia H, Newcastle
Brown reminds me of a child who has done wrong but has lied so vehemently that he's convinced himself he has done no wrong. The woeful mismanagement of the UK economy during his years as Chancellor when he actively encouraged house prices to spiral out of control despite his 'no more boom & bust' proclamation in addition to selling off our gold on the cheap, pillaging pensions, etc. has now come back to haunt him.
And now of course, to make matters worse, he's trying to re-inflate the bubble with tax-payers money simply in order to get re-elected, when the more rational, sane thing to do would be to let the markets re-calibrate during what is sure to be a painful recession.
Green shoots? Don't believe it. The worst is indeed yet to come.
- Neil, london, UK
Nobody was 'forced';the word is 'conned'.
- Jim, London, UK
Why Keynes is wrong:
http://www.youtube.com/watch?v=VoxDyC7y7PM
The reasons why Brown is wrong are even more obvious. A debtor can't ever spend their way out of debt because they have no money with which to do so. All they can do by increasing spending is accumulate more debt, meaning they will need more money to service the debt and the interest on the debt.
To pay off debt you need to generate new money and cut back on spending, which in the case of countries means a stronger private sector and a weaker public sector.
This isn't rocket science - except to Gordon Brown, perhaps.
- Elliot Kane, London, England
Our biggest, and so far unmentioned, economic problem is the collapse of one business model after another, thanks to the Internet and related info technologies. One example is the rapid collapse of the retail music business, thanks to itunes, ipod, and unauthorized music downloads. I just bought some compact disks and I'm being told they will soon be obsolete.
This is no individual or group's wrongdoing, it's the integral accident of our technological development. As Paul Virilio said, when you invent the train, you invent the derailment.
- Tikhon Gilson, Lakewood, WA USA
It's becoming clear that Gordon Brown has handled the recession exceptionally well, minimising the impact with his world leading fiscal policies. How the Tories hate to hear this, because they know comparisons will be made with the long drawn out mess they created in the late eighties/early nineties. As illustrated by some of the more hysterical comments appearing on this site.
- Adrian, Dorking
I wonder if anyone has seen the interview in the Observer with Paul Krugman, who won the 2008 Nobel prize for economics,where he was praising the Governments approach to tackle the economic problems. He predicted that the UK would come out of the recession before any of our European neighbours and that we had the best economic solution. I think it’s still on the BBC business website.
But hey what does he know ?
- Gary, West London
Gary, London UK
Ha ha! Clearly you've been living in cloud cuckoo land.
Brown knows nothing about economics and is an absolute buffoon. Haven't you noticed he's totally screwed the economy?? Perhaps you've been asleep for 12 years!
Oh well, at least you made me laugh amidst all the doom and gloom created by nulabour and their incompetent sycophants!
- Margy, London
"False boom" or not - was it Gordon Brown who spent 110% of our salaries? Was it Gordon Brown who forced us to take mortgages well in excess of our ability to pay?
The answer to this is no. He may have mis-managed the economy, but he cannot be held responsible for peoples greed and stupidity.
- Barry Chapman, Welwyn England
Gary, London UK - You are just plain wrong. This is the man who thought he had "abolished boom and bust" whilst he created the biggest asset boom in our history. Eddie Goerge warned Mr Brown of the asset boom, but he was ignored. Next, he creates the biggest seed for stagflation through the huge borrowings and the fiscal easing.
SO much for sound economics.
- Dave Davies, Basingstoke, Hants
From what I see of the Public Sector 10% is nowhere near enough. I'd aim for 50% with education, healthcare, policing etc. retaining 100% and the many other useless things being cut 100%.
- Alan In London, London
@ Garry - Keynes said spend what you have saved in the good times in the bad times. Not spend what you don't have in the bad times because you have spent it all and more in the good times.
Brown is an idiot who got lucky for a number of years and it went ot his head. His reputation much like Blair's is now in the gutter.
Cuts will have to be made to the vast government machine created by Labour to sustain Labour and I welcome any party honest enough to admit this.
Brown and his biatch Balls still think that the general public is too stupid to see through their continual spinning. Well despite ten years of Labour education policy I do believe the vast majority now see them for the useless wasters they are.
- Bruce, London
Dear Gary, Brown's economics are not sound. Who built the false boom, and got us to pay for it? Who is going to have to pay for artificial growth in a global recession at a time when everyone is going to try to borrow their way out? We are. This means higher inflated borrowing costs which WE are going to have to pay for in the long run. Our UK credit card is maxed out.
- Jamal Akhbar, Edinburgh
The main reason for Gordon Brown wanting to promote Ed Balls to be Chancellor is clear - both want to attack the Tories with the 10% apending cuts mantra or similar jibes. Darling and the Treasury take the more realistic - some would say factual - line, that spending cuts will be needed whoever wins the next general election, thus blunting Gordon Brown's strategy.
Clearly no amount of reasoned arguement will change the Brown and Balls approach - they know it is a slogan to try and play on people's fears in order to win a general election, and not an economic argument.
The best the Tories can do is to go on the attack by raising fears about Labour's future tax plans. In this the Tories have been given a gift by the Brown introduction of the 50p income tax rate on top earners, despite a pledge in the Labour manifesto not to raise income tax. So you can't trust Labour on tax. Who knows what future rises Labour are planning?
- Richard, Swansea, Wales
For all your derision of the PM it must still be said his economics are sound. He got it RIGHT with his pro Keynsian approach to the recession, and as a result we will see growth soon. Growth opens up the options when it comes to dealing with the debt facing the country. It is not half as dangerous as a lingering recession which cutting spending too early would have done. I fully support the PM for his economics.
- Gary, London UK
