All parties have a mixture of deficit hawks and doves – those who believe in balanced budgets and those who aren’t too bothered. The Lib Dems are no exception, but I think we are different in the motivations underlying these positions.
Many Tories often seem to see deficit reduction as an end in and of itself, not even necessarily because they want to see a smaller state and lower taxes, but simply because their ideology teaches that budget deficits are Bad Things.
And in recent years, some Labour figures have begun to sound like their ideology teaches that budget deficits are inherently Good Things.
I’ve written before about the rather facile debate the country engages in over the deficit, but fortunately we in the Lib Dems conduct things on a slightly higher level.
In the debate we have had in the party those of differing views have made clear not just their positions on the deficit, but the motivations underlying them.
Here, for example, is Prateek Buch (one of the leading, and certainly the most articulate, of the party’s “doves”):
The government insists on balancing its own finances through a mixture of spending cuts and tax rises, ignoring the suppression of demand and therefore growth that this prolonged austerity creates. This balance-sheet approach to economic policy is not only self-defeating through Keynes’ famous ‘paradox of thrift,’ it distracts from the crucial work needed to fix the underlying economic problems that caused the budget deficit to balloon. A clear example is the piecemeal way in which the slashing of capital investment – acknowledged by Vince Cable and Nick Clegg as a grave mistake – is being reversed. Government guarantees have proven ineffective at a time of uncertainty and demand, so now we see a tiny bit of ‘extra’ capital spending, which is funded by further cuts elsewhere in a misguided attempt to remain fiscally neutral.
I am happy at this point to admit to agreeing with Vince, Nick and Prateek that continuing with Labour’s planned cuts to capital expenditure was an error. However, it’s easy to see why the decision was taken: cancelling future plans to invest is much simpler than cutting budgets that people are already enjoying. Beyond capital spending, there are few easy choices.
But I remain of the view that the coalition’s approach to fiscal policy is the right one.
Not because I have an ideological belief in a state of a certain size.
Not even because I think the overall tax burden is currently too great.
The primary reason I want to see the government balance its budget is because I want future generations to enjoy good quality public services. I want us to be able to improve schools and hospitals, to have a top quality public transport system, and to maintain a defence budget that allows us to play a role on the world stage.
And I want future generations to enjoy these things without paying a much higher proportion of their incomes in tax.
Yet the more we borrow today, the more we pay in the years to come to service the debts we are accruing now, and the less we have to spend on public services and social security. Because Vince Cable is correct when he says that:
Government borrowing ultimately has to be paid for—it is deferred taxation or inflation, and that is not a satisfactory way forward either.
We are already spending tens of billions every year to service the national debt: an amount that will continue to increase until we stop spending more than we raise in taxation.
And we will not start reducing the amount we spend servicing our debt until we start paying it off. And we won’t start paying it off until we start running a surplus.
So ultimately I agree with Danny Alexander, writing in today’s Independent:
As Chief Secretary, I have presided over the most sustained period of fiscal consolidation in modern times. But those cuts are necessary as a means to an end, not an end in themselves.
The review set out at the autumn statement is about ensuring the job the Liberal Democrats started, cleaning up Labour’s economic mess, is finished in the next Parliament. It is emphatically not about an ideological commitment to a smaller state.
The Coalition’s economic plan is about delivering a stronger economy in a fairer society where everyone can get on in life. We are making good progress, but the work won’t stop when our deficit goal is met. Endlessly shrinking the state would be a diversion from our plan, and we won’t sign up to it. Getting our debt down and fairer taxes to deliver the investment and public services we need is the right mix to secure Britain’s long term prosperity. It is the responsibility of Liberal Democrats to anchor British politics in the centre ground – economic responsibility matched with social fairness. That is why when the serious work of dealing with the deficit is done, we will not support a fiscal lurch to left or right.
We should aim for a budget surplus. Not by an arbitrary deadline, and not by abandoning the other measures we need to implement to build a liberal society. But aim for it we should, because that liberal society will be transient indeed if we don’t.
* Nick Thornsby is a day editor at Lib Dem Voice.