Labour governments don’t always go bust

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There are few things George Osborne enjoys more than lambasting Labour’s economic record. In his Tory conference speech last year, he declared “Every Labour Government runs out of money and brings this country to the brink of bankruptcy.” Solemnly, yet with a certain sense of glee, he added, “And once again we are going to have to clear up the mess.”

Is this really true? Or is Osborne’s take on post-war political history – Labour overspend and destroy the public finances, the Tories come in and sort things out – a tad simplistic? There are three Labour governments we can analyse since 1945 (it is far too soon gauge the most recent). Do they justify Osborne’s damning analysis?

The 1945-51 government is generally remembered for the formation of the NHS, but Osborne would rather remember it for devaluing the pound. Whilst it is undeniable that this wasn’t a particularly popular move, it would be ridiculous to solely apportion the blame to Labour. The root cause – that the pound was over valued compared to the dollar – was mainly because the U.S.A. had had a ‘good war’ and the UK was stretched to its financial breaking point, something the Attlee government that followed can hardly be blamed for.

Given the unemployment levels witnessed in the last 30 years, the post-war government must be recognised as extraordinarily successful in maintaining near full employment. This may not have been conducive to achieving the biggest possible rise in GDP, but there is more to economic performance than that: would you rather be unemployed in a country with a high GDP or employed in a country with slightly lower GDP?

The economic policies of Labour, far from ruining the country, enabled three consecutive budget surpluses, and paved the way for the ‘post-war consensus’ that lasted until the mid-1970s. The Economist famously coined the phrase ‘Butskellism’ to convey the continuity between the performance of the last Labour Chancellor in the 1945-51 government (Gaitskell) and the first Conservative Chancellor in the Tory one that followed (Butler). The 1945-51 government didn’t ruin the nation’s economy and, moreover, the Tories essentially continued with the same economic policies.

When Labour returned to power in 1964, the country’s economic state was worse than when they had left it 13 years previously. Tory Chancellor Reginald Maudling’s pre-election budget in 1963 was irresponsible; seeking short-term prosperity, he helped make sterling unstable – contributing to the need to devalue the pound. Best of all, upon losing the 1964 election he left a note to the new Labour Chancellor, reading, “Good luck, old cock … Sorry to leave it in such a mess.” It is not hard to imagine how the Conservatives would have exploited this had the situation been reversed. In his conference speech, Osborne quoted Liam Byrne, former Chief Secretary to the Treasury, whose note to the Conservatives after the 2010 election said, “I’m afraid to tell you there’s no money left”.

Labour have been castigated for being ‘the party of devaluation’. But the government’s mistake was not the 1967 devaluation, but rather stubbornly trying to avert it. The economy would have been better served had the government devalued in 1964. Whilst their economic performance can justifiably be criticised, it must be acknowledged the government’s economic inheritance was dire. And those who associate Labour with ‘boom and bust’ would do well to remember their 1970 pre-election budget, which was remarkably sensible, almost the antithesis to the desperate short-termism of Maudling’s.

By 1974, Great Britain had certainly not been ‘saved’. Its economic state was illustrated by the Tory government’s introduction of a three-day working week to prevent electricity supplies running out. Undeniably, the 74-79 Labour government struggled, as reflected in the decision to seek an emergency loan from the IMF in 1976. But unemployment and inflation, which reached new heights during this government, easily beat them during the Thatcher government that followed: unemployment reaching three million under Thatcher, double what it was under half that during the 74-79 Labour government.

This Labour government handled Britain’s problems more effectively than the previous Tory one had done: the number of days lost to strikes were halved, at least until the ‘Winter of Discontent’ in 1978/79, and inflation had trebled under the 1970-74 Tory government. Though no one can deny Labour had profound economic problems in the 70s, the case that theirs were any greater than the Tories before and immediately after is weak to non-existent.

Labour’s economic performance – significant problems and mistakes notwithstanding – has been better than they are often given credit for. The ‘conventional’ wisdom that Labour has governed with fiscal recklessness, and the Tories with exemplary responsibility, simply doesn’t stand up to scrutiny.

 

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