From 1997 to 2007 the UK economy had appeared to run well. That was one reason
why Labour won three elections in a row. For several years the government actually
spent less than it generated in tax revenue and debt was repaid. Then, in the
aftermath of the dot.com crash the government invested in the economy, and ran a
deficit for a number of years that was almost exactly equivalent to the amount it
invested in new schools, hospitals roads and similar capital items, as indicated by the
blue line in Figure 1 running almost parallel, but slightly below, the red line. Despite
everything that has been said about Labour‟s economic management and reckless
borrowing this was an era when government finances looked to be under control.
The thing is, when you’re roaring ahead into the second decade of an economic boom you’re supposed to be running a budget surplus. As Keynes himself said.