Posts tagged Tax and spending

This is territory long colonised by Thatcherite Tories, and would really draw blood among women and the low-paid

A collective delusion seems to have taken grip. Turn a radio on and the politicians are indistinguishable. All the talk is cuts, cuts, cuts. Listen to people talking and it’s already an assumption – “when the cuts hit” is a given, no longer up for discussion. It’s all done and dusted, then: the biggest spending cuts this country has ever experienced – which will put even those of the early 80s in the shade – have all been agreed. Have I been snoozing or did I miss it? This great political debate has happened by stealth, its conclusions passported into the stock of accepted wisdom with astonishing acquiescence.

Local authorities are planning for cuts of between 10% and 30%, we were told last week; the Treasury is drawing up plans for £11bn in cuts. The apocalyptic terms have slipped into the background of people’s lives. You can hear the shiver of anxiety – job insecurity is rocketing in parts of the jobs market like universities, where the axe is already falling. It is as if the country is bracing itself for a nasty course of chemotherapy; the rhetoric of necessary pain doled out by the politicians is working. It beggars belief that we can be so gullible.

Meanwhile, bring the subject up with a Tory politician and it’s clear that most of them simply cannot believe their luck. For the first time in their political lives, they can talk frankly and happily about the pressing need to cut back state spending as quickly and as drastically as possible. Once, the Tory penchant for public spending cuts earned them the title of the nasty party, now they swiftly deflect any criticism by pointing out that their political opponents are just as eager to cut. Unbelievably, their case is being made for them by a Labour government. We are drifting into an election dominated by a daft competition in macho rhetoric – slashing, savage, deep, swingeing etc. This is territory long colonised by the Thatcherite Tories, hardly a programme to stir Labour’s dwindling activists into election canvassing.

The swiftly assembled political consensus on cuts is based on a series of assertions that can all be challenged – and is being, vigorously, by economists – which makes the politicians’ meek acceptance all the more bewildering. A group of economic historians argue that the public debt is not historically high, or even particularly high compared with other developed nations. They even got support from a very unlikely quarter when two Goldman Sachs economists argued in a report that the public debt is not as “cataclysmic as some commentators suggest”.

Second, even if the public debt is high, it’s for good reason – and there’s no need for panic. September 2008 saw the biggest economic crisis in 60 years, perhaps a century, and it has – and will – cost a lot of money to weather. No one expected the British government to start to clear its huge public debts in the immediate aftermath of the second world war, with its cities as bombed ruins. In fact, the last of the wartime debts were cleared only a few years ago. Big crises are very expensive, and it takes time to get back on an even keel.

Third, Japan has a proportionately bigger public debt – and it is one of the cheapest, as interest on debt remains low. So the argument that huge public debt is a recipe for catastrophe doesn’t quite wash. An auction of UK government bonds last week was oversubscribed. Investors’ appetite for lending to the British government is holding up, so is the panic about punitive action from financial markets warranted?

Cambridge political historian David Runciman admits to being baffled by the enthusiasm for public spending cuts; he called his radio programme on the subject Turkeys Voting for Christmas. Disturbingly, he points out that elections in 1931 in the UK election and in 1933 and 1937 in the US were similarly dominated by demands for austerity – with infamous results; bring cuts in too early and you risk a double dip recession. That’s the concern of the economist David Blanchflower (former member of the Monetary Policy Committee), who admits that slasher George Osborne is really scaring him.

Blanchflower points out that the dire state of our public finances is not due to excessive spending growth but the collapse of revenues. So the most effective way to tackle the deficit is to stimulate revenue. Private sector investment has collapsed, so what’s needed are government subsidies on investment and job hires. Instead of cuts, we need to be talking about how to get the economy growing again, and how to create jobs.

France has set up a huge investment fund to stimulate the growth that can bring jobs, the TUC points out, urging a similar response here – instead of Peter Mandelson’s paltry sums designated for the task. Already there are nearly a million 18- to 24-year-olds unemployed, yet there is little serious consideration about where jobs for them are going to come from. Youth unemployment of 20% could easily march north as another batch of graduates emerges this summer to a bleak jobs market. Yet, bizarrely, rather than discuss how to create jobs, all the parties are thinking of how to create more unemployment.

There was a fascinating analysis in a Compass report last autumn, In Place of Cuts, on how much money the government saves by axing a £25,000 public sector employee. After you’ve calculated for all the lost income tax and national insurance contributions, and then factored in all the benefits this sacked employee would receive on jobseeker’s allowance, guess the grand total saved? Less than £2,000. And that is before one tries to put a figure on the wider social costs of unemployment – depression, rise in illness, risk of long-term withdrawal from the labour market. It’s a no-brainer.

And beware, public sector job cuts – reports of local authority cuts of a minimum of 10% last week would mean the loss of 500,000 jobs – are likely to have a disproportionate impact on women, warns Professor Prem Sikka. Of the 1.1m new jobs taken up by women between 1997 and 2007, 80% were in the public sector.

Among these statistics are teaching assistants, community support workers, nurses, teachers, youth workers – all doing useful jobs and paying taxes. Why deprive us of their needed labour and push them into the demoralising idleness of jobseeking for non-existent jobs?

Already the recession is hitting certain groups hard; the Resolution Foundation report shows that low earners are bearing a disproportionate cost of this recession; they make up a third of the electorate, 9.4 million people with average household earnings of £15,800, and many are seeing a loss of income and a cut in working hours. With no capacity to save – they spend 41% of their income on essentials – they have little to fall back on in hard times. Cuts in public sector employment could tip many of these vulnerable families over the edge, out of jobs and on to benefits: these are exactly the “hard-working families” championed in innumerable Labour speeches, yet this is where the “slashing” and the “savagery” of spending cuts would really draw blood. This election should be fought on how to save their jobs and create new ones for their children, instead of being hijacked by an old Thatcherite small-state agenda.