16 January 2011

Pennies from Heaven at IPPR

The key issue in UK politics is how to deal with the deficit. Labour says that the cuts in government expenditure are too much and too soon. The Coalition never tires of accusing Labour of being in denial about the scale of the problem they left behind last May. Labour knows that by the time of the next general election it will have to be regarded as trustworthy on the economy if it is to return to government. Andrew Rawnsley makes this point in today's Observer.  One aspect of the required rehabilitation is to convince the electorate that the situation was not of Labour’s making, but stemmed from its need to respond to the global economic crisis.

The Institute for Public Policy Research (ippr) describes itself as the UK’s leading progressive think tank and has just produced a briefing, ‘Debts and Deficits: How much is Labour to blame?’, which it summarises thus:
The Coalition government has sought to blame its Labour predecessor for Britain’s current fiscal position. There have also been accusations that the deficit was, at least in part, due to excessive spending by the last Labour government even before the recession of 2008 and 2009.
This note looks at the numbers on debt, deficits and spending (relative to GDP) – over time in the UK and comparing the UK with other developed economies.
On the basis of these numbers, Labour’s ‘fiscal profligacy’ just ahead of the recession would seem to have been on a very limited scale, and charges that the Coalition is tackling ‘Labour’s debt’ and ‘Labour’s deficits’, or that Labour let spending run out of control before the recession, do not stack up.
However, reading the report does uncover the following in the Summary:
Labour’s mistakes ahead of the financial crisis were to underestimate the risk of a recession and not to realise how much reliance it was placing on revenues from sources associated with rampant lending.
And in the Conclusion:
[Labour] appears to have been blind to the reliance it was placing on revenues from sources associated with rampant lending, such the City and the housing market. ... greater awareness might have suggested more caution.
Well, I never realised that governments didn’t know where their money was coming from. But presumably any Chancellor could put ‘uk tax revenues’ into Google, select (if it were today) ‘uk tax revenues 2009’ and hit on the first suggestion, a very helpful breakdown of HM Revenue and Customs (HMRC) annual receipts from 2001-2 onwards.

This shows that between 2001-02 and 2007-08 stamp duty (mostly tax on property sales) doubled and corporation tax increased by over 40% – a combined uplift of about £B22 which has since vanished! But Labour was “blind” to this happening apparently, tax receipts arriving like Pennies from Heaven. Surely ippr does not expect us to believe that Chancellors are not briefed frequently on the state of the HMRC collection?

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