How it was: Labour Profligacy & UK Debt (Part 1)

By | August 15, 2017

It is old news that Labour ran up debt and so ran the economy poorly during the 2000’s. The Conservative Party view of events is described quite well in this telegraph article – essentially it was all Labour’s fault, a result of Labour Profligacy,  “they spent too much, borrowed too much and left the Coalition with a structural deficit that will take at least two parliaments to wipe out.”

The public seemed to accept this description of events. For example.

This appears to be due to Labour’s poor, ineffectual response to criticisms and the need for the public to have someone to blame who they could have an effect on. It was clear that no one was going to do anything about the bankers and the public had no power over them. Although it was accepted that the bankers caused the crisis/credit crunch, it was Labour’s fault through lax regulation, profligate spending, etc.

However, it was and is the Bank of England’s responsibility to ensure that banks have sufficient capital reserves to weather economic problems which they have subsequently ensured is the case by forcing banks to keep larger cash reserves and generated ‘stress tests’ to identify problems. See leverage ratio and stress testing.

Very few in the financial industry identified the pre-crash problem because no one understood the nature of the securities and derivatives that contained and hid US sub-prime mortgages. The ‘light touch’ regulation of banks introduced by Margaret Thatcher here and Regan in the USA was by then considered economic orthodoxy for generating growth and a dynamic economy and was fully supported by the Conservative Party. There is a discussion here and here of some points on bank regulation.

However, as others1 others2 have pointed out, Labour Profligacy was not the case.

Next I will look at the evidence for Labour Profligacy.


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