Sunday, July 18, 2010


In focusing on the Welsh economy over the last week, it is has been easy to forget the general debate on the economic approach at a UK level.

That is why it was worth reading a comment piece by Daniel Finkelstein of the Times from last month in which it is suggested the current Shadow Secretary of State for Wales is not quite up to speed with economics.

Anyway, I reproduce the article here for you to make your mind up but given the level of ignorance in this short piece alone, you have to seriously worry who is advising the MP for Neath on such matters.

Peter Hain's grasp of economics

On Saturday night, I caught an interview with Peter Hain in which he made what appeared to be an extraordinary claim

"I think we did make a big offer [in negotiations with the Lib Dems]...except in respect of the cuts agenda. Because what we found is that they wanted to do exactly what they've agreed to do with the Conservatives, which is to start cuts this year".

Now this is very striking. Peter Hain - who knows what went on in the talks - is saying that the Lib Dems did not move to cutting this year under pressure from the Tories. They were pushing for it themselves.

But it turns out that what is striking is not what went on in the talks. It is Peter Hain's grasp of economics.

When pressed by Andrew Neil, who says we had all assumed the Lib Dem position was one they had agreed to as a compromise, Hain says this:

"No. My understanding, and I am sure I am right on this, is that they were making demands for extra spending on the one hand, in terms of tax policy, and on the other hand the cuts that would fund it, this year."

"And we were always very clear, and I think history will prove us right as this year advances by the way, that if you start to mount the deep cuts that this Conservative and Liberal Democrat Government is already doing, that it will jeopardise the recovery, and send unemployment sky high".

Where to start?

First, he has muddled up spending and tax cuts. The Lib Dem tax policy does not require "extra spending".

And second, more seriously, he has confused spending reductions and fiscal tightening.

The Labour position (absurdly overblown in any case) is that £6bn less borrowing this year will send the economy into a nosedive. It is obvious from Hain's explanation that - in contradiction to his interpretation - the Lib Dems were not proposing such a tightening in negotiations with Labour.

Instead they were proposing a shift in which they spent less and also taxed less.

It shows a very cavalier approach to the argument about the impact of tightening this year, to suggest that there would be an impact even if the money were given back in tax cuts.

It's almost as if making the charge of increasing unemployment was more important to Peter Hain than the actual economic case.

Surely not."