We’ll match or even better the Tories on fiscal discipline, Labour’s high command repeatedly pledges, which is easy enough to commit to in opposition, but a good sight more difficult to deliver once in government.
As a party that likes to tax, spend and borrow, the fact is that Labour is peculiarly unsuited for the task that lies ahead. As things stand, neither the Government’s fiscal rules nor the very similar ones proposed by Labour – both of them supposed to impose a degree of constraint on tax and spend – look equal to the task of getting the debt-to-GDP trajectory back onto a sustainable path.
To the contrary, by providing the illusion of constraint, they merely serve to reduce the market and political pressures for the degree of fiscal discipline that is required, and thereby give cover for persistent deficit spending.
Both of them are a pretence, or a fig leaf that allows St Augustine’s principle of “please make me chaste, but not yet” to reign supreme. Every time the going gets tough, the rules are adjusted to accommodate a softer approach.
As Ethan Ilzetzki, associate professor at the London School of Economics, observed in a paper last week for “UK in a Changing Europe”, the reality is that governments have repeatedly changed the fiscal rules in order to make room for rising debt-to-GDP ratios.
He said: “When times are bad and the economy is hit by a shock, the government relaxes the target; but when things get better the government declares victory and loosens policy.”
The idea that deficits should be restricted to no more than 3pc of GDP originally came from the EU’s Maastricht Treaty to bring about further European integration. It’s a fairly arbitrary number, which the UK is in any case under no obligation to apply now it’s outside the EU.
Yet today it means almost nothing at all, either in the UK or the EU, having been manipulated or otherwise suspended to death.
After repeated economic shocks, 3pc of GDP has “become the effective floor, rather than the ceiling”, Ilzetzki points out. The UK’s fiscal rules are these days easily capable of accommodating much larger ongoing deficits, while the EU has struggled to reimpose one time fiscal constraints.
