During the last Labour leadership election, it was Philip Collins, Tony Blair’s former chief speechwriter, who posed the question in The Times on 20 August 2010: what does it mean to be leftwing when there is ‘nothing left in the kitty’? Since 2010, there has not been a shortage of answers to this question. The problem has been the ‘economic assumptions’ promoted by the coalition government, and taken as a ‘given’ in any discussion. David Cameron and Clegg have sought to create a national debate in which ‘inherited debt’ has become the stock excuse for any Conservative or Liberal Democrat failing. Anyone who disagrees is a ‘deficit denier’.

This suits short-term political interests. During the coalition negotiations on May 2010, the Liberal Democrats used the protests in Greece as cover for accepting the entire Conservative economic strategy they had campaigned vigorously against in the 2010 general election. That the Greek and British economies are incomparable did not matter. Labour policies – such as a temporary cut in VAT – are derided as seeking to cure a borrowing problem by borrowing more money. But the coalition government’s favourite trick is to equate personal debt with the national debt. The attempt to take everyday finance and apply it to the nation’s economy is not new: Margaret Thatcher frequently tried it. As she put it in The Path to Power: ‘There is no better course for understanding free-market economics than life in a corner shop.’ Cameron is said to have considered asking families to make efforts to pay off their personal credit cards as if that would have a direct macroeconomic impact.

The comparison is totally misleading. Personal debt and national debt are two completely different concepts. The American economist Paul Krugman summed this up. Writing in The New York Times on 1 January 2012, Krugman criticised ‘deficit-worriers’ for comparing America to ‘a family that took out too large a mortgage, and will have a hard time making the monthly payments.’ As Krugman points out: ‘families have to pay back their debts, Governments don’t – all they need to do is ensure that debt grows more slowly than their tax base.’ This is not to suggest that that the deficit does not need to be lowered: it clearly must be dealt with. Ed Miliband was entirely correct to promise that, with George Osborne unable to achieve his own aim of eliminating the structural deficit by 2015, the debt would need to be paid down by a Labour government in the next parliament.  Yet, for the tax base to increase each year, there must be economic growth. Ed Balls has consistently – and correctly – argued that Osborne has no strategy for growth. Growth is – at best – sluggish. Two years into this coalition government, it is clear that the expectation of the private sector moving in to create jobs around a shrinking public sector has not been met. In addition, the government’s own austerity rhetoric is even contributing to the lack of consumer confidence.

Remarkably, as Osborne gears up for his third budget on 21 March 2012, the Conservative focus is entirely political: can the chancellor please his own backbenchers by abolishing the 50p income tax rate whilst maintaining a façade that ‘we are all in this together’? Should he accept Vince Cable’s proposed ‘mansion tax’ or will Conservative MPs revolt over a property tax on houses worth over £2m?  But Osborne can only run from his chronic failing to increase the tax base through growth for so long. The coalition government’s concept of ‘the nation’s credit card’ is an illusion. Some in the audience may be transfixed, but it is a matter of time before they see through it.

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Nick Thomas-Symonds is the author of Attlee: A Life in Politics published by IB Tauris (2010)

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Photo: innercity51