The activist Mr Brown
When it comes to the government’s budget plans, we know that Gordon Brown does not always tell it entirely straight. Remember last summer, when he was still refusing to utter the word “cut”? But listening to him today, you have to say he’s consistent.
In today’s interview with Nick Robinson, the prime minister once again clung to the thought that Labour was continuing the stimulus this year – even as retailers count the cost of the recent rise in VAT, accountants across the country lick their lips at the thought of the tax rises coming in a few weeks’ time. He said:
“We have got to decide whether to continue the stimulus until the recovery is fully sustained, or whether we go back to the old days of just letting things take their course.”
For an activist like Gordon Brown, to accuse someone of “letting things take their course” is a grave insult indeed. But in these still perilous times, he does think there is something worse than inaction.
“In a situation where growth is uncertain… you cannot afford to withdraw this stimulus and therefore return yourself to a position where you’re not able to say you’re fighting for growth…”
“Withdraw the stimulus now, withdraw it completely as the Conservatives would do, and then you would find yourself in a position not to be able to secure growth for the future.”
It’s stirring stuff – as Nick says, all designed to take us back to Gordon Brown’s “save the world” moments in the autumn of 2008 and the G20 Summit a year ago.
There’s just one problem. In just a few weeks’ time, Gordon Brown’s government will have withdrawn the stimulus as well. It is withdrawing it “completely”. To all intents and purposes, it is an ex-stimulus. It has ceased to be.
This will not be news to readers of Stephanomics. But let me quickly run through the facts.
Since the 2008 Budget, the government has announced several stimulus measures, on both tax and spending, designed to boost the economy. According to the IFS, these changes – the temporary VAT cut, for example – had the effect of raising borrowing by £9bn in fiscal year 2008-9, and £23bn in 2009/10.
You may or may not believe that these steps kept unemployment down, or limited the number the repossessions, or whatever else the government claims to have achieved with them. But they did constitute a bona fide economic stimulus, worth about 1.6% of GDP in 2009.
What is the stimulus in 2010, to “secure growth” in this fragile and uncertain year? The answer is zero. There is none. Almost alone among G20 economies, we have no discretionary stimulus planned for 2010 at all.
You might say the government was “letting things take their course”. Certainly, it is letting the other parts of spending take their course – like the higher cost of debt interest, and previously agreed pay rises in the public sector. That is why spending is still going up in 2010/11, and why the deficit may also rise, albeit very slightly.
But, when it comes to direct policy measures, the government is tightening fiscal policy by 1.6% of GDP. That’s VAT going back up. That’s the new 50p rate of income tax. That’s the £1.2bn rise in fuel duty coming in April.
Don’t expect the Conservatives to make too much of this. They’re got enough trouble on their hands explaining how, exactly, they would tighten further in 2010. But the next time you hear Gordon Brown or the chancellor talking about the folly of withdrawing the stimulus, it could be helpful to bear these figures in mind.
PS. Let me also point out that the “£3bn” that the prime minister claimed would be saved from the public sector pay freeze he re-announced today does not seem to allow for the fact that these workers will paying less income tax as a result. Taking those losses into account, the IFS has previously said the net savings would be more like £2.1bn.
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