They’re at it again. Labour cuts versus Tory cuts. No, it’s Labour investment versus Tory cuts. Or at least Tory cuts will be savage while Labour cuts will be positive. The truth is that both parties are embarked on a huge programme of cuts – the Tories because the huge budget deficit gives them the perfect excuse to mightily shrink which they have always wanted to do, and which Osborne let the cat out of the bag with his Texas chain-saw massacre speech at the Tory Party conference and Cameron confirmed with his Age of Austerity menu speech. New Labour is making the truth even clearer formally with its Fiscal Responsibility Bill being laid before the House tomorrow, which is designed to reassure the financial markets that enormous cuts are going to be made in the deficit, namely halving it within 4 years. Since the Chancellor says the deficit will be £178bn next year, that means £20bn new cuts each successive year till 2014. The truth is unequivocal: both parties stand for huge public expenditure cuts, though maybe mitigated slightly by some tax increases. The real question that should be asked, but isn’t being asked, is:is this inevitable, or is there some alternative way? There is.
There are two ways to respond to a budget deficit. One is to cut back spending drastically until the gap between revenue and expenditure becomes manageable. That is the path chosen by both the main political parties – unsurprisingly since both New Labour and the Tories have basically the same Thatcheite ideology. But the alternative, which is a far far better option, is not to spend £680bn increasing the national debt to protect the banks from their own extreme folly, nor to engage in an orgasm of printing money in the form of £200bn of quantitative easing (hardly any of which has actually reached struggling businesses or homeowners), but rather to spend only a fraction of that in funding a major job creation programme. That would switch a million or more people away from claiming benefits off the State to becoming instead workers who would pay income tax, national insurance and VAT into the State’s coffers. The jobs would come from a massive housebuilding programme which the country desperately needs, the repair of the nation’s creaking infrastructure, and the generation of a green economy in energy saving, energy saving measures, and a huge development of renewable sources of energy.
The Tories won’t do that because they actually want to cut public expenditure to ribbons, to privatise the State. But why doesn’t New Labour do it? Because this neo-liberal variant of Labour came into office promising, as Brown (or rather Balls) laughingly called it, neo-classical endogenous growth theory – though in fact it’s no laughing matter. What it means, shorn of its pompous verbiage, is an extension of Thatcherite economic policy which professes that supply produces its own demand (a version of Say’s law) and that increases in the money supply would simply increase prices. That’s why the Government has spent £5bn on improving training and increasing apprenticeships (i.e. supply-side solutions), but virtually nothing on direct investment in jobs (i.e. demand-side solutions) though that is what the current slump in the real economy overwhelmingly cries out for.