Conservative MP John Redwood has said that he no longer worries about the state deficit
JOHN REDWOOD, the Conservative MP for Wokingham and former Secretary of State for Wales under John Major, has contradicted the long-standing Tory rationale for the austerity measures applied to the UK economy since 2010.
Writing on his personal blog, Redwood admits: “I have not been worried about the state deficit for sometime [sic], ever since Mr [Gordon] Brown found out that the UK state can literally print money to pay its bills. Mr [George] Osborne, originally a critic of this in opposition, then discovered its charms in office as well.”
Pointing out that common concerns from advocates of harsh austerity did not come to pass following the employment of Quantitative Easing (QE) - the monetary policy employed by the Bank of England and the UK Government to stimulate the economy by introducing new money into the national supply - Redwood writes: “It turned out to have no adverse consequences on shop price inflation, though of course it caused massive price inflation in government bonds, because it was accompanied by severe pressure against bank lending to the private sector to avoid an inflationary blow off. I always adjust the outstanding debt by the £435 bn the state has bought up, as this is in no sense a debt we owe.
“I have not been worried about the state deficit for sometime.” Conservative MP John Redwood
“So our government borrowing level (excluding future state pensions which some here worry about and which have always been pay as you go out of taxation) is modest by world standards at around 65% of GDP, and at current interest rates is affordable.
Redwood continues: “Most of the state debt we owe to each other anyway. The government owes it to taxpayers who own the debt in their pension funds and insurance policies. The state can always raise enough money to pay the domestic bills backed by the huge powers to tax, and as we have just seen when credit expansion and inflation are low it can also use liquidity created by the monetary authorities.”
Responding to Redwood’s conclusions, the economist Richard Murphy commented: “What he [Redwood] has done is let an enormous cat out of the bag.
“He has admitted there is no need for a government to balance its books.
“What he has done is make clear that if this is economically unnecessary then it can only be driven by incompetence, or a hatred of government, or class warfare, or all three.” Economist Richard Murphy
“He has admitted QE cancels debt.
“He has then admitted the whole ‘passing debt to the next generation’ phobia is wrong.
“And he has admitted as a result that there was no reason for austerity, the imposition of which served no economic purpose.
“As a result, he has, in two paragraphs, shredded the whole economic rationale on which he has been elected to Parliament.
“And in so doing he has driven coach and horses through all those who still say that austerity must continue because what he has done is make clear that if this is economically unnecessary then it can only be driven by incompetence, or a hatred of government, or class warfare, or all three.”
Redwood’s comments follow a bout of self-congratulation from former prime minister David Cameron and former chancellor of the exchequer George Osborne, after the austerity measures they planned and implemented belatedly achieved their deficit reduction target two years later than originally planned in 2010.
During Osborne’s time as Chancellor, Tory-mandated austerity, total managed expenditure was cut in real terms by £14bn in 2016-17 prices. Between 2010 and 2016, Public sector net investment fell from £60bn to £35bn. Opponents of austerity consistently argued that these cuts fell disproportionately on the poorest and most vulnerable in British society.
Real spend per head of population fell, and the real spend per head was particularly felt by the vulnerable citizen, as the population grew older and more fragile. Under his watch, total managed expenditure was cut in real terms by £14bn (2016-17 prices). These cuts were made worse by a 3-4% rise in population, and by the increasing needs of an ageing population.
Reacting to news of this ‘success’, Osborne – now the editor of the Evening Standard newspaper - wrote on Twitter: "We got there in the end - a remarkable national effort." Cameron replied: "It was the right thing to do.
"Let's also not forget that when George Osborne entered Downing Street he promised to eliminate the deficit by 2015, and failed to deliver on his central economic goal.” Labour shadow chancellor John McDonnell
Shadow chancellor John McDonnell responded to Osborne’s remark by saying: "This is truly shameless opportunism by the former chancellor who missed every target he ever set himself and is now trying to rewrite history and distract from his record of failure while editing a newspaper.
"He is also insulting the millions of people in our country who have suffered these last eight years due to this Tory austerity agenda he devised."
McDonnell continued: "Let's also not forget that when George Osborne entered Downing Street he promised to eliminate the deficit by 2015, and failed to deliver on his central economic goal.
"Now his successor and Cabinet colleague Philip Hammond still cannot achieve this, yet continues with the same failed economic policy."
Picture courtesy of Funk Dooby
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