When Labour were elected in 1997 they more or less stuck to Tory spending plans for an election. They did this to build up their reputation for fiscal responsibility with financial markets. Everything I’ve just written is wrong.
In reality from 1997-2001 Labour spent more than the Tories would have, just as they did subsequently, but they did it off balance sheet. You can see the explosion of PFI deals from 1998 onwards. That is how Labour kept to their spending plans and built and refurbished loads of hospitals.
When it comes to fiscal responsibility you paper balance sheet doesn’t really matter, it’s your real future liability and assets that matter. Or at least that’s true in finance. What really happened is that financiers knew that the British state needed to invest in infrastructure and were happy to lend Labour money.
Labour could have got this money on normal sovereign rates but they were restricted by the press and by public opinion. A similar thing is playing out with the difference between Labour and Tory spending plans for the 2015 election. Labour are promising to be fiscally responsible but to borrow for investment.
In reality there’s no clear line between current spending and investment spending. Would tens of billions of pounds spent on effective mental health care pay reduce days lost to work and pay for itself and more? Would improved child care allow more people into work and pay for itself and more? Is repairing roads that are heavily congested really a valuable investment?
Just like in 1997, 2015 Labour are dancing to a tune that only exists in the public and press’s heads. It will probably end up with things better than if the Tories were in but worse than if they didn’t have to pander to nonsense paranoia about the national credit card. I expect to be writing this post in 2035 too so don’t expect this to change any time soon.