Why Ed Miliband was being deceptive over debt

Tapestry

GDP is in any case a misleading figure. It would be better to measure government debts against government revenues, a figure which is pretty much a secret. In 2008, revenues topped at over GBP 600 billion. Now they are well under GBP 500 billion.

Nick

So I'm not going to get my state pension? Are you saying the government doesn't owe me that pension for all the NI that I've paid them?

What about my civil service pension? I've a contract saying that I'm going to retire at 60 on an inflation linked pension? They owe me that and that makes it a debt. Why isn't that in the figures?

Nick

I'm applying for a mortgage and this article and talk of GDP has got me interested.

Now, when the mortgage company asks for my income, I'm going to include my neighbours income. After all if I do that, the debt becomes more affordable.

That's the same as the government using GDP after all. By including their income (tax) and the bit they leave me, they can make any loan or liability look more affordable.

Or, they really are going to increase taxes to 100%

James Sproule

Let's make points, not simply be rude to one another.

Labour claims to have "invested", but by definition an investment provides a return, otherwise it is just spending, it may be necessary and good spending, but it is not an investment. The effectivness of the spending that was undertaken during the Labour reign is likely to be a point of contention for years to come. But running a deficit in a boom is hardly sensiable, and Brown knew it, hence the "Golden Rule" which he abandonded as soon as it became inconvienient.

j H Holloway

'Consequently we have taken on less debt than we have invested in the public realm.'

Is creating 1 million new public sector jobs an investment?

Moreover, the costs of building 'new-schools-n-hospitals' was put on the PFI mortgage, not paid for out of the rising tax take during the boom years.

Not to have invested the extra tax take directly into bricks and mortar is criminal.

Spending the cash on a million jobs - in order to buy votes - is evil.

Jon

Is a person who earns £100,000-a-year but has a credit card bill of £10,000, more or less in debt than someone earning £10,000-a-year with a debt of £5,000?

Braveheart

what hapened to fatblokeontour's comment? I thought it was eminently sensible...

Alex Gallagher

The rationof debt-to-GDP is the proper way to measure this parameter.

e.g if your GDP is £1billion and your debt is £2billion, you are in trouble.

But. If your debt is £2billion and your GDP is £20billion, you are not in trouble. QED.

Your graphs show that the economy grew strongly under Labour but debt stayed more or less the same.

That's what I call a result.

Alex R

You also need to add in (a point made so often, it is now almost tedious), all the off balance sheet liabilities created by PFI.

Fatbloke on tour

PH

Are we a little bit fragile today?
What exactly was wrong with my post?

Fergus Pickering

But Braveheart, I thought you WERE the fat bloke. Are there really two of you?

Barry Bilge

"When the credit crunch crunched, it was around 37 percent. It had fallen from the level that Labour inherited."

I seem to remember on here an article explaining the 37% was a fudge by Gordon Brown.

Ah yes, here it is: http://tinyurl.com/6ytl2q

Alex Gallagher

debt to GDP ratio is the right way to measure this.

Your graphs show that GDP grew under Labour but debt remained static.

Braveheart

Debt to GDP ratio is the correct measure.

If GDP grows and debt grows proportionately then that's no more of a problem than it was. Stasis.

If GDP grows and debt grows even more strongly than GDP, then debt will be greater as a proportion of GDP, that's "bad".

If GDP grows but debt remains the same, which is what happened under Labour, then that's "good".

And if GDP grows and debt shrinks then that is also good

(all above assumes other things (government performance, taxation, public service delivery, social cohesion) are not affected).

TGF UKIP

House mag a bit off message, isn't it Pete? I had assumed it was Cameron Tory policy never to mention debt.

Simon Stephenson

Braveheart : 6.05pm

"Debt to GDP ratio is the correct measure."

Well then why didn't Miliband Minor acknowledge that this was the measure he used, and not real or nominal debt? Is he so monumentally stupid as to believe that his audience would be aware that he was speaking only of the Debt/GDP ratio, or is this episode just a demonstration that he is just as prepared to play fast and loose with the truth as were his two disreputable predecessors as leader of the Labour Party?

andrew

They didn't pay down debt, they just got creative with the accounting.

Moving things off the balance sheet isn't paying down debt. It's hiding debt. And it's illegal if you're a limited company but fine if you're a government apparently.

Paul Owen

We also tend to forget that, in addition to following Tory spending plans for the first few years which explains these figures, Brown also benefited from the sale of 3G licences which brought in over £20 billion and reduced the debt. This was a policy inherited from the Tories too.

quadratus

Dear Jon (1700)
A £10,000 debt with an income of £100,000 is a debt of 10per cent.
A £5,000 debt with an income of £10,000 is a debt of 50per cent.Half of your income.
Which would you prefer?

quadratus

The growth of debt is not simple as you imply, it is compounded by having to pay interest on the debt,which is then added to the debt,of course.

Gary Williams

When Labour took power, PFI debt was £1b. By the end of '08, it was at least £65b, and even that number is too low, because of the Labour Government's dishonest contention that the discount rate should be a corporate borrowing rate, rather than the correct Bank of England borrowing rate. Use the correct rate and the real PFI debt was more than £100b. The actual Debt-to-GDP ratio was therefore higher in '08 - before Lehman - than it was when Labour took over 11 years previous.
Even this ignores the fact that unfunded public pension liability grew from roughly £200b in '97 to approximately $1,000b today, and also ignores the rule that every schoolchild knows - you pay down debt when times are good, to create a reserve for when times are bad. Labour did the opposite.
Labour - that is to say, Gordon Brown, Ed Balls, Yvette Cooper and Ed Miliband - mismanaged our national finances to a spectacular extent. For any of them now to argue that they rather did a good job shows what many of us have known all along - these people were either idiots or liars, or both.

HJ

Debt as a proportion of GDP is the correct way to measure it. Miliband used dodgy terminology (nothing was "paid down") but (if we ignore PFI and pension liabilities) debt was a smaller proportion of GDP before the recession than in 1997.

However, as Peter Hoskin points out, Labour inherited debt which was already on a falling trajectory as a percentage of GDP (from a highish level following the early 90s recession) and changed this to a growing percentage of GDP, well before the recession. The real point is that we should compare this with what happened before the previous recession in the early 90s under the Tories. This shows that the Tories reduced debt as a percentage of GDP to a much lower level (around 26%, from memory) and thus it did not grow to an excessive level during the recession - they were far more fiscally responsible than Labour. Labour were highly fiscally irresponsible because debt was increasing as a percentage of GDP at the height of a boom and this isa prime reason why it has got out of control during the recession.

TrevorsDen

Its nice to be 'hat-tipped'.

Debt to GDP is misleading because for instance no one questions what GDP is comprised of.
Allow 3 million immigrants to enter the country you will increase GDP. But will you increase wealth, will there be an increased ability to safely sustain increased debt? Increased numbers create a bogus illusion; they create more spending needs and we have seen deficits steadily rise. And one reason for the deficits is the amount we pay in interest repayments (as well of course as the benefits paid to workers displaced by the immigration).

Debt is real money and it hangs around us like an ever growing ball and chain.
Debt was certainly higher in the past, say after the war, but that is why we are so poor now. Now the strain of paying this newly minted debt will impoverish us all over again.

PS I duly note the lie Brown told about reducing 50% of 'debt' - when the reality was it was doubling.

TrevorsDen

quadratus - I would prefer an income of £100,000. And no debt.

But my contention is that the British 'income', its GDP, which is founded on us selling increasing numbers of cups of coffee to each other (usually served by someone from eastern europe) is totally bogus.

Will J

Come on people, don't be dense. Just before the crash the debt to GDP ratio reduced. Of course it did, because GDP was increasing quickly. But why was that? Because it was a BIG BUBBLE - not because of real growth in the economy!

That a bubble causes the debt ratio to slightly reduce because it artificially inflates GDP is hardly good grounds for claiming to have paid off debt. The false growth of bubbles really mustn't be credited with reducing debt levels in any sense at all. This deception needs to be ended now.

Gary Williams

Trevors Den:

Why would services (selling cups of coffee or whatever) be a less valid component of GDP than hard goods are?

Hugh

" Miliband said that Labour paid down the debt at the same time as investing in schools, hospitals and other infrastructure. That is certainly true from 1997 to 2001 but from then on the national debt, however you measure it, was rising, although it stayed lower than 1997 levels in GDP terms until the crisis began. "

Have the figures been adjusted to account for all the off-balance sheet finance from PFI sources