Gavin McCrone: Gordon Brown should not have to take all the blame

• Why me? Gordon Brown would have some justification for wondering if anyone else could have handled things better Picture: Getty Images

Statements such as "it's Gordon Brown's recession", "the country was on the point of bankruptcy", "the deficit is the biggest in the developed world" and "the previous government were not taking action to deal with the crisis" all fall into this category.

I am not now, and never have been, a member of a political party. In my years as a government official, I worked for both Conservative and Labour secretaries of state and I have often seen ministers try to blame their predecessors for the unpopular measures they were forced to implement. Frequently it is easier to put the reasons for unpopular action in simple terms than try to be fair and even-handed. But the present crisis is a serious one and it is only right that people should understand how it arose and where the responsibility for it lies.

The last government cannot avoid some responsibility for the financial crisis and the consequent recession. But it was a worldwide crisis caused by problems in the financial sector. The countries worst affected tended to be those where personal debt, mainly mortgages and credit cards, was exceptionally high. This included the United States, Ireland and Spain as well as the UK. Iceland was in a special category with banks having balance sheets many times the size of the whole economy and both people and institutions in other countries holding debt with Icelandic banks. When the crisis in so called sub-prime mortgages started in the United States, banks the world over were affected and those countries where spending was most fuelled by bank borrowing were the ones that suffered most.

Gordon Brown has frequently been blamed for allowing public expenditure to rise too fast, resulting in a deficit before the crisis struck. This is a valid criticism. Before 2008 the deficit was less than 3 per cent of GDP, before rising sharply thereafter as the crisis took effect. But public expenditure was rising too fast before the crisis and given that the economy was in boom, the budget should arguably have been in surplus. This makes getting public expenditure back under control now more difficult, but it would not have saved us from the crisis. Spain and Ireland were both in surplus before the crisis and that has not prevented them from having to take draconian action now.

Could the UK government have done more to prevent the effects being so serious? Yes.But this would have involved much tighter bank regulation, in effect undoing much of the "Big Bang" deregulation introduced by the Thatcher government, and perhaps imposing limits on loan to value and loan to income mortgages, as appears to be done in other countries. Would the Opposition have done this if they had been in power? I doubt it. For a start it would have been unpopular and no opposition politician, except Vince Cable, saw the crisis coming. It has been suggested that interest rates should have been raised. This might have slowed the housing boom, but UK interest rates were already higher than those in the US or the EU. To have increased them unilaterally would have raised the value of an already overvalued pound, thereby strangling exports and making manufacturing industry even less competitive.

How serious is the situation now? Talk of national bankruptcy seems to me absurd. The government's budget deficit is, of course, too large and needs to be reduced. But to say it is the largest in the developed world is misleading. In 2009 it was 0.1 per cent higher as a proportion of GDP than in the US, similar to that of Spain and lower than Ireland or, of course, Greece. This year, according to the independent National Institute of Social and Economic Research, it is expected to be slightly lower than in the US, Spain or Ireland. Furthermore, a country's solvency depends not just on its annual budget deficit but on the level of outstanding national debt. On European definitions the UK national debt as a proportion of GDP is middle of the range. For 2010 it is estimated to be lower as a proportion on GDP than in the United States or France, very slightly higher than in Germany and much lower than in Italy or Japan. It is also lower than the average of UK outstanding national debt over the last 200 years. It will of course rise as a result of the annual budget deficits, which is why they must be brought under control, but national debt is rising also in other countries and, thankfully, the cost of government borrowing, as shown by the interest rate on long-term bonds, is at an all-time low.

As to the measures needed to tackle the deficit, Carl Emmerson of the independent Institute of Fiscal Studies recently gave an interesting presentation to the David Hume Institute in which he showed that there was much less difference than is generally supposed between the measures announced by George Osborne and those in Alistair Darling's last Budget. Osborne's cuts start this year whereas Darling's would have been postponed until next year, when he assumed the economy would be stronger. Osborne's cuts are intended to eliminate, whereas Darling's were intended to halve, the structural deficit in the lifetime of this parliament.

What actually happens, however, cannot be forecast with accuracy. Much depends on the rate of economic growth achieved by the economy, and this is very likely to be affected by the cuts themselves.The faster output grows, the more tax revenue will rise and the more unemployment, and likewise expenditure on benefits, will fall. If the rate of economic growth is feeble, there is a danger of the economy stagnating. In that event the targets for deficit reduction are likely to be missed.

Are there lessons for Scotland to be learnt? The example of Ireland is salutary. Ireland achieved remarkable economic progress over the last quarter century, but latterly its boom, like the UK's, was fuelled by ever-rising private-sector debt, especially in housing. The result has been a crisis of greater severity than in the UK. The Irish banks have had to be supported by the taxpayer to an even greater extent than ours, unemployment has risen and draconian cuts have been imposed on public expenditure, including public-sector pay.

Some voices have been heard to say that an independent Scotland, supported by North Sea oil, could have avoided all this. The SNP has rightly praised the Norwegians for putting their oil revenues into a special fund. The UK should have done the same. But Scotland's oil revenues could not be both used to balance the Budget and put into a special fund for the future benefit of the economy and the Scottish people. In any case, to avoid the world financial and economic crisis would have required a very different regulatory regime for the financial sector, less scope for increasing personal debt and a housing policy that relied less on owner occupation. That would have needed remarkable foresight on the part of our politicians. Politicians in other countries did not see the crisis coming, so on that score ah hae ma doots.

• Gavin McCrone was formerly chief economist at the Scottish Office