Labour leadership candidates say that spending was not the problem, it was taxes. Nonsense. ... Spending went from 44p in every pound generated by our economy in 2007 to 51p in 2009. Taxes went down by 1p in the pound.
First, an economist such as Huhne should know better. Another Lib Dem economist, former blogger and now government adviser Giles Wilkes, could set him straight. Giles, in his superb paper A Balancing Act, broke down the elements of the deficit and found that the loss of tax revenues accounted for far more of the increased borrowing than did the rise in government spending.
I looked [long-ish piece – a look at the third and fourth graphs should do it] at the Treasury figures and came to the same conclusion: while tax may have fallen by less than spending rose as a share of GDP, the sharp drop in GDP means that this disguises the fact that real spending rose by less than real tax receipts fell.
Second, as is well known, the Lib Dems have found themselves changing some of their pre-election positions (VAT rise, spending cuts this year), but now it seems that the Tories have persuaded them to change their views of the past as well. Because during the recession, the Lib Dems were in favour of more deficit-based spending to stimulate the economy. They disagreed with Labour on the details, but not on the principle.
In November 2008, Vince Cable said: “I hope the fiscal stimulus will work... it needs to be tried. Levers have to be pulled. … There would be massive civil disobedience if the government simply let the recession run its course.” And in March 2009, Nick Clegg said: “We accept that borrowing goes up automatically in a recession. Tax receipts go down; benefit costs go up. But we also accept that you should borrow sensibly on top of that, to try to help. A so-called fiscal stimulus.”
So really the Lib Dems should be demanding apologies from themselves for having supported a bigger deficit. Maybe punishment for this is why the Tories are making them squirm so much.