Labour’s fine economic record

John Rentoul

ukdgp Labours fine economic recordI was looking at data on the New Labour governments’ record on the economy, when I came across this excellent presentation, UK Economic Performance since 1997, by Dan Corry, Anna Valero and John Van Reenen, at the LSE Centre for Economic Performance, 15 November 2011 (pdf).

Real GDP per adult grew by 22 per cent between 1997 and 2007 and then fell back by 2010 to 17 per cent higher than it had been in 1997. I was surprised to discover that this record was not as good as the 13 years before 1997: GDP per head rose by about 40 per cent between 1984 and 1997.

Which goes to show the importance of using the right comparators. What was significant about the UK record 1997-2010 is that it was better than that of most comparable economies. The annual growth of real GDP per adult in the UK over that period, 1.2 per cent, was faster than that of Germany, US, France, Japan, and Italy. (See pages 7-11; the graph above is from page 9.) So of course living standards have fallen back: we have had a recession. But so has everyone else. What matters is how we compare with them, which is not badly at all.

Real GDP per head is probably the most solid test of a country’s economic record, but it is also worth noting that it fails to capture the contribution to quality of life of public services. On a measure called Actual Individual Consumption (AIC) per head, which includes “all goods and services that a household consumes regardless of whether they pay for them”, the the UK standard of living is higher than anywhere in the EU apart from Luxembourg.

Unfortunately, I don’t think Eurostat has this data going back to 1997, which I imagine would further flatter Labour’s record because of the huge investment in health and education.

Which ought to put some of the more ridiculous coalition propaganda (and Labour self-flagellation) about leaving the country in a mess into historical perspective.

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  • Pacificweather

    What a conceit politicians have. The graph clearly shows that politicians have either no effect whatsoever on the economy (my judgement) or you can’t get a fag paper between their policies. The graph shows a slice through the economic cycle unaffected by which party is in power. Although, from our knowledge of recent history, we know politicians can make the circumstances of individuals better or worse.

    We know, whilst the Norweigians were using their oil bonanza to tunnel roads and build bridges, Margaret Thatcher was using our oil bonanza to keep 3 million people unemployed.

    We know that Norman Lamont and John Major gave 7 £billion to George Sorus and his friends.

    We know that Gordon Brown (the only man in Britain who could borrow money at 2.75%) chose to borrow it for us at interest rates between 30-70%. We know he sold the nation’s gold at the bottom of the market an taxed our pension funds so that they could no longer support final salary schemes.

    There is no question that politicians are self selecting from the most stupid and venal in society. What is actually more amazing is that, despite this, some of the laws they create actually benefit society. One day I will create a similar graph of good and bad laws over time. My intuition says the number of bad laws is increasing but that may not be true. To fall stall comments from UKIP supporters (vain hope) most European Directives have beneficial affects on society generally.

  • pilsden

    I took the time to look at this report,I was struck by two factors firstly the assertion early on that there was
    “– Not a “bubble” in finance (or public sector, property or oil).”
    I struggle to see how that conclusion was reached given lending ratios doubling
    and toxic assets by definition were a bubble.Equally with a rise in Gdp of 17% the public sector grew by 53%.Tax revenues were as a consequence inflated by asset valuations.
    Secondly there is a complete failure to take account of the effects of a financial
    crisis in respect of debt levels and leverage.GDP growth of every £1 was accompanied by borrowing of £2.18 prior to the crash

    I assume one of the authors Dan Corry is the same person as the head of the policy unit at No 10 and advisor to the PM on economic policy ?(2007-2010 )

  • johnclever

    Informative article. Labour made a serious strategic error by not doing more to defend their economic record just after the last election. They invested the money in the under-invested public services and achieved significant improvements that were badly needed. But this investment which frequently makes life better for the most disadvantaged is frequently referred to as “largesse” or “splurge” by the Right. As ever the Tories seek to help those with money keep as much of it as possible, they have no other purpose.

  • Mutafe

    Obviously when you have a growth from 1992 then zero it at 1997 you end up with negative numbers before the zero year and positive after. The economic legacy of Labour is how much of the growth and GDP change is based on borrowing and thus higher interest payments and how much is an import in the balance of payments, or circular and not exporting. Their legacy is less manufacturing, over-reliance on finance (though it’s expansion should be praised as a positive legacy) and the growth of the public sector at the expense of the private and thus beign unsustainable. It’s this that damns the Labour party, not pretty statistics.

  • David Hill

    No-one with any brains in their head would ever vote for Labour again.For when we look back we see that Labour had us all believe that utopia was being created with all the vast building programmes in health and schools etc and where people with no security were buying houses at will (Bradford and Bingley’s 130% mortgages etc as just one example), increasing personal debt at an unprecedented rate. The truth is, as we know today, is that due to Labour not having control of the financial system we are in the dire state of affairs that we find ourselves, having bailed out the banks and the system to the tune of over £1 trillion. But the truth is according to the chief economist of PricewaterhouseCoopers (PwC) the UK’s total debt (private, public and government) owed to the world will be a staggering $16.4 trillion by 2015, mostly caused by Labour. Added to this the off balance sheet PPP and PFI schemes that Labour built our hospitals and school with, have created a debt of over £257 billion that our young again will have to pay off in the future. People will say that it was a global financial crisis and not Labour’s fault that created this. But it was Labour who persisted in allowing the UK’s financial system to run amok on their watch and labour cannot get away from that fact. For in 2003 Alan Greenspan, the most powerful central banker in the world, told all western leaders (including Blair and Brown), that if the financial system was not reined in, it would go into meltdown. That was 5 years before the global collapse and the reason why the vast majority of us find ourselves in the near bankrupt situation that we are today. But the bitter pill is that between 2003 and 2008 the UK increased its debt by 49% according to some of the world leading economists as everything went mad over that period. Therefore if Labour had acted on Greenspan’s grim economic warning in 2003 (a clear five years before the collapse) they may have stopped at least 50% of the debt accumulated. Therefore whatever way you look at it, the last Labour government is responsible for the collapse of our economy. The reason, Brown was not really the ‘prudent’ gone forever ‘boom and bust’ chancellor and PM that he purported to be. Far from it and nearer to a casino croupier I would say with hindsight.Added to the above there are other salient recent and old points why Labour should never win another election – for labour is bad for our health in three ways, medically, mentally and financially.The last Labour Government through Gordon Brown only increased pensions by 75p in one of his unforgettable Budgets, for the wrong reasons – fact not fiction. Through the 1997 Labour Budget, Gordon Brown raided private pension funds and according to leading Actuaries, up to the value of £150 billion and possibly more. In doing so he made many private company pensioners relatively poor in retirement and they will never get the true value back that they should have received – fact not fiction.Throughout the whole of the last labour Government’s administration, except for one month, the highest rate of income tax was 40%. That remained until the 2009 Darling Budget that kicked in on 6 April 2010, just a month before the 2010 General Election. It marked the end of an era begun by Tony Blair in which the Labour Government ruled out increasing tax for the wealthiest in successive election manifestos. Therefore the Labour Party was the Party for the wealthy, keeping the 40% low tax for the rich for 13 years whilst in power. That is why during the Blair/Brown years the rich got richer – fact not fiction! Labour axed the 10% tax rate that affected the poorest families – fact not fiction.Over 50% of the last Labour Government now sit on the ‘Opposition Front Benches’. Do we really want these people running the country again so that they can cripple the nation once more – I think not. Pensioners in the latest Budget had the greatest ‘cash’ increase in state pensions ever – fact not fiction. The recent Budget protects key pensioner benefits such as winter fuel payments, free prescriptions, eye tests, bus travel and free tv licences for older pensioners – fact not fiction.Because of warm homes discount in the recent Budget this means more than 600,000 of the most vulnerable pensioners will benefit from a £120 discount to their fuel bills – fact not fiction. Even after the changes in the Budget, remembering that the last Labour Government kept the 40% low tax rate for the rich for 13 years, half of those over 65 will not pay tax in 2013/14. That is over 5 million of the poorest pensioners unaffected and everyone is still better off as a result of the increase in the basic state pension – fact not fiction.Because of the recent Budget, nobody will pay more tax 2013/14 than 2012/13 as a result of the new tax measures and there are no cash losers as a result of the changes – fact not fiction.

  • humourme

    You cannot believe something as crass as this? Labour’s economic record is terrible. The period up until 2001 represents competent Tory economic management. The next five years of pain after Labour’s sorry incompetents were kicked out are all Gordon’s legacy. In reality, Labour will have flatlined GDP per capita from the period when they took the economic decisions (2001) through to about 2015. 

    On this basis, Obama is the most economically incompetent president for some time – yet no one would blame him for coming to power as the economy blew up. 

    Labour the party of gross economic incompetence. Anyone believing anything else is a moron.

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