A bipartisan approach in a crisis is laudable. Yet after the immediate crisis is past, there must be an accounting for how we got here and who’s responsible. So I thought it might be worth a few posts to look at the how and who.
Let’s start with public sector debt. After the Northern Rock mess, it climbed to 43% of GDP. After the bank rescue plan it will be around 50% of GDP. By comparison, in the 1990s recession, public debt peaked at 43%. In the early 1980s downturn it peaked at 46%. In fact, the last time the public finances were in quite such a desperate state was 1977-78 at 49%. So yes, "New" Labour have taken us back to the 1970s - the decade of shame we’d all hoped to forget.
And its worse still than it seems at first sight. We are near the beginning of a possible downturn, not at the end. Take the case of the 1990s downturn. Before the downturn, public debt bottomed at 26% in 1990-91. Before the current economic problems began last year, public debt was some 37%. It’s higher still if you include all the PFI and other accounting fiddles.
We are therefore starting from a bad position. It would not be altogether surprising if public sector debt rises to 55% or higher of GDP if things get worse. The last time it was that high, the IMF was called in. Pray God that we don’t have that sort of humiliation again. Such a debt mountain will clearly take many years to pay off, leaving aside the wider economic risks. It would also be the worst ever inherited by an incoming Government after the election. That will be Gordon Brown’s legacy to us all. Labour have done it again.
