Some thoughts on Labour’s economic policy ahead of Ed Miliband’s speech on Thursday

He may have been banished to the backbenches two years ago but Gordon Brown still casts a long shadow over those sitting in front of him.

The latest ICM poll shows 29% voters still blame Labour’s legacy for the current performance of the economy as opposed to 23% blaming the Coalition’s record in government.

So far Labour have been attempting to sell the idea that if they had been re-elected in 2010 the extra £6 billion they had planned to spend in the first year of this parliamentary term would have prevented a double dip recession.

This is implausible.  £6 billion amounts to approximately 0.4% of GDP.  If that spending had been directed towards a well-designed stimulus package then the most that an economist would expect is that it would result in roughly 0.4% of additional growth.

Since Labour was not planning to spend that money on measures exclusively aimed at stimulating the economy it’s reasonable to assume that at best the effect on growth would have been less than 0.4%.  Furthermore, there’s actually reason to believe that the effect on growth from implementing Labour’s plans could have been negative.

This author argues that Gordon Brown’s large stimulus package in 2008/9 reduced growth.  He bases his case on comparison with Sweden which, unlike Britain, had run a budget surplus in the years prior to the credit crunch and was able to bounce out of recession with a much smaller stimulus than the UK.

This brings us to the least defensible aspect of Brown’s term as Chancellor – his decision to run a budget deficit in every year between 2002 and 2007 in spite of the fact that the economy was growing.  That flew in the face of conventional wisdom on what amounts to good economic policy and almost certainly eroded the government’s ability to stimulate the economy when the downturn arrived.

Even if there is a case for a renewed package of fiscal stimulus in the UK, the record of the last Labour government and the stance adopted by Ed’s Miliband and Balls in opposition hamper their credibility in making it.

Ed Miliband should use his speech on Thursday not to praise Gordon Brown but to bury him.

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About problemofleisure

Freelance journalist and retired councillor.
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