Last night Darling buried the fiscal rules, telling us:
"To apply the fiscal rules in a rigid manner today would be perverse. We would have to take money out of the economy, exacerbating an already difficult situation."
Of course, he's attacking Labour's usual straw man - nobody is actually suggesting taking money out of the economy now. The real issue - the one he didn't address - is how a reckless government like his is proposing to establish at least some modicum of fiscal discipline over the medium term. On that he was silent. It was a case of "trust me".
The IFS chart above shows the record of previous governments since WW2. Last year Labour borrowed £35.8bn, or 2.5% of GDP, so you might argue they were still broadly in the range.
But the question is how much are they now going to borrow?
As we know, they themselves haven't the faintest idea. They are being blown by the wind, all pretence at fiscal discipline out the window. But thanks to BOM's super-computing fag packet, we can exclusively reveal the ghastly truth - these clowns are going to borrow more than any previous peacetime government has ever done.
Based on HM Treasury's most recent borrowing forecast - the one they published in March - and using HMT's own ready-reckoner (see this blog for details), we've crunched the horrible numbers.
The key unknown is how much GDP is going to shrink. Nobody knows, but we do know we're in A Real Hole, so a reasonable sighting shot might be the worst recession we've had since WW2 - the one we had in the early 80s. Then, GDP fell by 4.6%. So we've assumed that GDP falls by a total of 4.6% by the next Election (ie April 2010).
But the HMT budget projection assumed continuing growth in GDP, so factoring in a decline means that the shortfall relative to the Budget forecast is much bigger. In fact by 2011-12, the GDP shortfall realtive to the last Budget is 14%.
According to the HMT ready reckoner, if GDP is lower by 14%, borrowing is higher by a staggering 9.8 percentage points of GDP, or well over £140bn in today's money.
So firing up the fag packet, and assuming a couple of years of stagnation post the fall, we get the following borrowing projection (rounded):
Which as a percentage of GDP looks like this:
Just pause to take that in: on the government's current spending and tax plans, borrowing is set to soar far above the previous post-WW2 record - the 7.8% reached in 1993-94 under those hopelessboomnbustTories. A new record will be set in 2010-11, and by 2012-13, public borrowing will be running at a banana republic style 11-12% of GDP.
And also understand this: our projection is a "best case". It takes no account of all the billions being poured into the banks. It takes no account of the forthcoming Keynesian spending splurge. And it takes no account of the very real risk that bond investors will rack up our borrowing costs (see this blog). Taking account of any of those increases the borrowing estimates by further tens of billions.
Of course, it won't happen.
It won't happen because the markets won't let it. Borrowing on anything like that scale would smash sterling through the floor, ramp up inflation, ramp up borrowing costs for everyone, and might even lead to that old favourite from the 70s, a buyers strike, in which bond investors simply refuse to take any more UK government bonds.
So what's the alternative?
Yup. That's right. It's back to the 1970s - tax rises and spending cuts. Big ones.
The staggering economic ineptitude of Labour has screwed us once again.
I really do wish you people would learn from experience and stop electing them.
Have a good evening.