Clegg “Not Going to Change Course” On Budget Policy

The deputy prime minister says Britain cannot return to the “bad old days” of borrowing.

Deputy Prime Minister Nick Clegg of the United Kingdom delivers a press conference in Whitehall, London, January 16, 2012
Deputy Prime Minister Nick Clegg of the United Kingdom delivers a press conference in Whitehall, London, January 16, 2012 (Cabinet Office)

British deputy prime minister Nick Clegg said on Sunday that the government was “absolutely not going to change course” on fiscal policy. At the same time, he argued that it had been much more “pragmatic” than critics of its austerity program would allow.

“When we saw that the economic situation was tougher than many people anticipated, that growth was going to take longer to recover in full,” he said in a BBC interview, “we didn’t dogmatically cut further,” rather extended the deadline for reducing Britain’s debt until after the next election.

Earlier in the week, the Liberal Democrat appeared to question the wisdom of fiscal consolidation when he told The House, a weekly political magazine, “If I’m going to be sort of self-critical, there was this reduction in capital spending when we came into the coalition government.”

We have all realized that you actually need, in order to foster a recovery, to try and mobilize as much public and private capital into infrastructure as possible.

On the BBC’s The Andrew Marr Show, the leader of Britain’s junior ruling party argued that the government was mobilizing such capital investment in infrastructure and housing construction to foster job growth.

First, you can encourage the private sector to do it. You can give them incentives to do it. Secondly, you can make savings elsewhere in government and divert that money to capital investment. And thirdly, you can borrow pots of money and do it that way. We’re doing two of the three. We’re doing the first two.

The latter, he added, “The idea that we can simply return to the bad old days of borrowing our way out of the crisis,” as the Labour Party attempted when it was in government, “is clearly not possible when we still have one of the largest deficits in the developed world.”

Because if you just shrug your shoulders and say, “I’m sorry, it’s too complicated,” we end up asking our children and our grandchildren to pay off this generation’s debts.

Even if, as Cregg pointed out, the coalition had reduced the deficit by a quarter, public-sector spending in terms terms hasn’t declined since it came to power after the 2010 election. Indeed, it was almost 4 percent higher in 2011 than in 2009, Labour’s final full year in power. Borrowing last year was higher than in the year before. By the time of the next election, scheduled for 2015, the Treasury expects to spend £756 billion compared with £683 billion in 2012.

Critics, among them Labour opposition members, nevertheless allege that spending cuts can force the British economy into another recession. Growth figures published on Friday revealed that gross domestic product had declined .3 percent in the fourth and final quarter of last year, more than the .1 percent contraction that had been forecast by analysts. Despite job growth, Britain’s economy is still 3.3 percent smaller than during the first quarter of 2008.

The coalition government, in which Prime Minister David Cameron’s Conservative Party is the senior partner, made reducing Britain’s budget shortfall, which hit a record 11.2 percent of GDP before the 2010 election, its priority. Disappointing economic output has forced it to set back its fiscal targets by two years. The national debt as a percentage of GDP is not expected to fall before the next election, rather by the 2016-2017 financial year.

Reductions in spending growth as well as education and health-care reforms have hit the popularity of Clegg’s centrist Liberal Democrat party especially hit. Opinion polls suggest that it is now smaller than the right-wing United Kingdom Independence Party, which advocates a British exit from the European Union, as leftist voters defected to Labour.

Cameron’s Conservatives, by contrast, appear on the rebound since the premier promised a referendum on Britain’s European Union membership on Wednesday. A Survation poll published in The Mail on Sunday had his party at 31 percent, up two points at UKIP’s expense. A ComRas poll, published in The Independent, had the Conservatives at 33 percent. Both surveys still showed Labour in the lead.

The Conservatives’ Euroskepticism could further test the coalition as Clegg’s Liberal Democrats favor deeper economic and political integration with the countries on the continent.

“I’ve no fear at all of a referendum,” said Clegg. “Where I do differ from David Cameron is the idea that it’s good for our economy, good for growth and good for jobs […] to then spend years and years flying around from one European capital to the next fiddling around with the terms of Britain’s membership of the European Union.” The job of reviving Britain’s economy is “made more difficult,” he argued, while the country is “having arcane debates about the precise terms of the membership.”

Given their poor performance in the polls, the Liberal Democrats are nevertheless unlikely to leave the coalition prematurely.