Letter from Westminster

Governments get blamed for things. It is what happens and whether it is being blamed for the quality of television programmes, the weather or the incidence of childhood obesity, it is part of our relationship with government and will almost certainly never change.

Even making allowance for that fundamental truth, last week’s editorial in this paper which sought to lay the blame for cuts in the council budget at the door of the Treasury in London and the coalition government was a little less than the full picture.

Apart from a recognition in the last sentence of the “connivance of the previous government with greedy bankers” there seemed to be little account taken of how we came to be in this position in the first place. It is undeniably true that reckless decision-making by banks which had grown to be too large to fail was the catalyst for much of the economic woes which the current government is having to challenge. It is not, however, the whole story and it is misleading in its simplicity. In years gone by we have been able to grow ourselves out of reces­sion by re-growing the economy that has contracted. This time we have to do more than that – we have to grow a different sort of economy. Over the last 20 years (but most especially under the last government) we have neglected the manufacturing base to our economy and have relied instead on economic growth fuelled by consumer spending (predominantly on imported goods). This was finan­ced by enormous amounts of per­sonal credit which in turn was under­pinned by a booming housing market. It was never sustainable. It is to achieve a re-balancing of our economy that the current public spending cuts are necessary. That much is something on which there is a broad consensus in politics today. Drill down beneath the rhet­oric and you find that what the Labour Party proposes is not enor­mously different. They propose a 20 per cent cut to eliminate the deficit in seven years instead of the 25 per cent cut to eliminate it in five which is the government’s position. The dif­ference in terms of public spend­ing cuts would not be enormous but it is significant in other ways.

Governments borrow money by issuing bonds. At the point where the coalition took over last year the UK position in the bond market was perilously close to that of Ireland, Greece and Spain (and see what has happened to them). Had we not acted to reduce the deficit more quickly then that position would have worsened. The result of that would have been higher long term interest rates and the difficult task of re-growing our economy through private sector jobs and export would have been next to impossible.

I wish there was an easy way out of this and that the problems the coalition inherited could be wished away. In the absence of that the cur­rent measures, however unpleasant and unpopular, remain necessary.

Alistair Carmichael MP


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