Duncan’s Economic Blog

Nick Clegg’s Little Noticed Change in Rhetoric on the Deficit

Posted in Uncategorized by duncanseconomicblog on March 14, 2011

A little noted, but I think important, Nick Clegg u-turn in his speech to Lib Dem Spring Conference. Speaking about the Government’s actions to close the deficit he said: 

By cutting the deficit decisively we have restored confidence in Britain.

Essential – because without confidence there can be no growth.

We have helped keep interest rates lower for longer, helping families, helping businesses.

It has meant making difficult choices.

But at least they have been our choices…

Not forced on us by the bond markets as they have been in Greece and Ireland.

And the risks of delay far outweigh the risks of swift action.

(My emphasis)

Two interesting things here – first the admission that the speed of deficit reduction is a ‘choice’, in contrast to the Government’s usual ‘no alternative’ line.

Second the admission that the cuts were ‘not forced on us by the bond markets’ as in Greece and Ireland.

This is quite a change from his claims, as recently as January, that Britain, back in May last year, was in a Greek-style crisis and on the ‘brink of banktuptcy’.

No shift in policy, but certainly a change in argument – and a welcome one at that. Clegg is right that Osborne’s plans were not imposed by the bond market but were instead a political choice. I doubt he’ll stick to this argument for long.

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10 Responses

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  1. Neil Wilson said, on March 14, 2011 at 7:24 pm

    “Clegg is right that Osborne’s plans were not imposed by the bond market but were instead a political choice.”

    They can’t be anything else. The UK hasn’t sold its soul to the Germans like the Irish and Greeks have. The bond market can bluster all it likes but ultimately the UK government can offer to buy all the Sterling bonds in existence back at parity (or below!) whenever it feels like it.

    The UK can never go bankrupt because it owns the bank.

    However it can be run into the ground by bad economic policy – and we’re seeing that now.

  2. pablopatito said, on March 15, 2011 at 9:18 am

    You’re being a bit pedantic aren’t you? I mean if Lamont had predicted the attack on Sterling before Black Wednesday and thus had chosen to exit the ERM earlier, he could argue that it was his “choice” and not “forced” upon him, but the result is the same.

    Its just a question of timing. He could still argue that he didn’t have a choice to do it, but merely had a choice of the timing of it, which I think may be Clegg’s point. Who knows with Clegg though.

    • duncanseconomicblog said, on March 15, 2011 at 10:01 am

      Economically I’m being a bit pedantic, I agree. But politically these small shifts matter.

  3. Newmania said, on March 15, 2011 at 1:27 pm

    So the Duncan line is that we should wait until they come for the furniture because anything you do before that point is a choice ?
    Well sort of, pretty childish way of looking at it though

    • duncanseconomicblog said, on March 15, 2011 at 1:53 pm

      There was no sign that any one was coming for the furniture…

      • Newmania said, on March 16, 2011 at 1:50 pm

        Never is

  4. Dave Holden said, on March 15, 2011 at 2:24 pm

    I think your reading a little too much into that statement. Governments always have a choice.

    The coalition’s gamble is that they can achieve a sustainable GDP/Debt ratio via budget cuts – reduced borrowing allowing it to maintain a loose monetary policy with a view to facilitating both private sector growth and the prevention of a further house price crash that increased interest rates would provoke.

    The oppositions policy is still nebulous but one assumes their approach will be either less cuts or an actual increase in borrowing/spending with a view of achieving the same – a sustainable GDP/Debt by the government sponsored increase in aggregate demand – their gamble being that markets would allow this without precipitous increases in interest rates and its associated effects.

    I still remain of the view that neither approach will work and that debt restructuring is the only long-term solution.

  5. Sean said, on March 15, 2011 at 10:28 pm

    Yeah, I agree with Dave Holden that you are reading way too much in that statement. Firstly, the choice is not to cut or not to cut, but rather what to cut, how long, what reforms need to go hand in hand etc Secondly, the imposition of the bond market wipes out time for reflection and ideas for genuine reform.

    Also, saying that Britain is so illdisciplined that we can just buy back our own bonds sounds a lot like what banana republics do. Do you really want us to be associated with third world countries?

  6. BenM said, on March 16, 2011 at 11:30 am

    @Dave Holden

    Debt restructuring? Eh? What?

    At average maturity of 14 years and interest rates of around 3% how else can the debt be restructured?


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