Tag Archives: Austerity

Osborne checkmated by his own austerity

Politics has a curious way of coming back to haunt politicians in a way they never intended or expected.   Osborne is a case in point.   The whole thrust of his austerity strategy, as he repeatedly told us, was to eliminate the structural deficit in this Parliament.   On that basis he predicted in 2010 that the deficit would be down to £40bn this year.   It is actually around £100bn.   Worse, the deficit is no longer shrinking at all, it is rising.   Alasdair Darling’s two expansionary budgets in 2009-10 set in motion economic stimulus which reduced the budget deficit from its peak of £165bn (at 2013-4 prices) to £115bn, a cut of no less than £50bn in two years.   Osborne’s austerity budgets then kicked in  and the deficit actually increased to £121bn in 2012-3, before falling to £98bn last year.   This year it is set to rise again to either just below or just above £100bn.   The whole deficit reduction programme, after all the impoverishment and pain it has inflicted, has gone pear-shaped.   It is worth asking why.
Read more   “Osborne checkmated by his own austerity” »

Govt no more has a ‘long-term economic plan’ than my cat

Yesterday we had a debate on the floor of the House on economic policy in the run-up to Osborne’s Autumn Statement (i.e. mini-budget) in a week’s time.   Here us what I said:

2:29 pm

Photo of Michael Meacher

Michael Meacher (Oldham West and Royton, Labour)

On 3 December, the Chancellor will be confronted with a whole array of facts and statistics that he never intended or expected to see. Like an echolaliac obsessive, he has constantly repeated on every available occasion—it has been the same today—that the Government have a long-term economic plan.

So was it the Government’s long-term economic plan that average wages should fall by an average of 9% in real terms—the biggest fall since the depression of Victorian times in the 1870s—and that in the past year the rise in the average wage should be a pitiful £1 a year, which, after adjusting for inflation, is a chunky fall of 1.6%? Was it the Government’s long-term economic plan that UK productivity should now be the worst in the G7 leading high-income countries, and that while output per hour between 2007 and 2013 rose by 8% in the United States, by 5% in Japan, by 3% in Canada, by 2% in Germany, and by 1% in France, in the UK, uniquely, it fell by 3% and shows no sign of improving in the future?

Was it the Government’s long-term economic plan—this really is important—that six years after the crash, business investment should still be flat, at a level 10% below pre-crash, or that the FTSE 100 companies should still now be sitting on cash stockpiles of over £500 billion and not investing because they do not believe the Chancellor’s so-called recovery is sustainable? Was it the Government’s long-term economic plan that net exports in traded goods—that is, manufactured imports less exports—should now be chalking up the biggest deficit in British history, perhaps as much as £110 billion this year? To cap it all, was it the Government’s long-term economic plan that after nearly five years of austerity, the budget deficit should not be falling at all but rising again this year, when it is still a whopping £100 billion?

That then leads to the central question in this debate: what is the rationale for continuing with austerity when the consequences of austerity—the draining of demand out of the economy, as I have explained—are actually increasing the deficit, not reducing it? What is the answer to that central question? The Minister, in an exceedingly shrill, partisan and strident speech, made no attempt at all to answer it.

Nor is the situation just a glitch this year. With economic growth now slipping from 0.9% in the second quarter to 0.7% in the third quarter, and predicted to be 0.5% in the current quarter, and with household incomes continuing to fall—indeed, the 1.6% real-terms fall in the past year is the largest since records began—the Government’s tax take, which is crucial to the deficit, is likely to drop still further in future years. The only way the Chancellor can then start to get the budget down again is by even more draconian cuts in public expenditure and benefits than in his first five years—perhaps by even double the £25 billion that he has already announced, as the Financial Times is predicting. Even if that were politically possible—that is highly doubtful, as polling evidence is clearly showing a public rapidly cooling towards any further austerity ravaging their livelihoods—it would only worsen the basic problem for the Government of making even deeper inroads into their tax income. The Government are finally ending up eating their own tail.

The truth is that the Government have only ever been able to point to two positive elements in their economic policy. One is the much-vaunted recovery, but that has always been over-dependent on a housing asset bubble. It has never rebalanced the economy from finance to manufacturing. It has never gained any legs because, as I have explained, all the potential sources of demand are now pointing firmly south and all the economic indicators show that it is beginning to fizzle out. The other is the unexpected increase in employment, which has been regularly mentioned in this debate, but there too the surface picture is very deceptive. Overwhelmingly, the jobs have come from self-employment, where the average wage has fallen by a massive 13%, or from part-time work.

But those are the details: what really matters about this awful episode of the past five years is that the Government have been pursuing a slash-and-burn policy that is ultimately self-destructive, as we are now seeing all too clearly. They are doing this because their primary motive is not to eliminate the structural deficit but to use the deficit as once-in-a-lifetime leverage to overthrow the post-war social democratic settlement and to shrink the state so that the public sector is transformed into a fully privatised market system.

It need not be like this. The Chancellor has handled the deficit appallingly badly, with maximum pain and minimum benefit, and it could have been so different. By comparison, the previous Labour Chancellor brought in two expansionary Budgets in 2009 and 2010 to counter the monetary collapse caused by the bankers. That cut the deficit from the peak of £157 billion to £118 billion—a reduction of nearly £40 billion in two years. The current Chancellor’s austerity Budgets then kicked in, and the rate of deficit reduction halved over the next three years. He had said that by this year the deficit would be £40 billion, yet it is actually about £100 billion.

What does the record show is the best way to cut the deficit? Is it by stimulating the economy to produce real jobs and boost incomes, as Labour did, or by slashing expenditure, degrading the foundations of our society, and delivering the biggest fall in average real incomes since Victorian times, as this Government have done? Frankly, it is a no-brainer. Continuing with austerity when it has ravaged the livelihoods of millions, destroyed so much of the social fabric of our society and is not now even cutting the deficit, which is supposed to be the whole object of the exercise, can only be described as a certifiable condition.

There is a better way of doing this. It can be funded, with no increase at all in public borrowing, by instructing the publicly owned banks—the Royal Bank of Scotland and Lloyds—to prioritise lending to British industry rather than financial speculation overseas, by having a modest further tranche of quantitative easing targeted directly on key industrial projects rather than wasted on the banks as hitherto, or by taxing the ultra-rich. That is the way we should go.

Why haven’t there been riots about endless austerity? That may be about to happen

One of the most remarkable facts about the British public’s attitude to prolonged austerity is the lack of the kind of open revolt which has been seen in so many other countries.   In Greece it has led to the dramatic rise of Syriza under the dynamic leadership of the radical Tsipras who now has a poll rating ahead of all the other parties, including the government.   In Spain the resistance led by originally the indignados has crystallised into a new party named Podemos which was formed only 10 months ago, but now is equally challenging the government.   In Italy the prime minister Renzi has achieved the highest rating for his Democratic Party (39%), but second is the party of the comedian Beppe Grillo in the mid-20s%, well ahead of Berlusconi’s Forza Italian on 15%.   So where is the equivalent in the UK?   UKIP hardly counts as a serious alternative to government, though both the SNP in Scotland and the Greens in England could be seen as in the initial stages of a challenge to the main parties, significantly both from the Left like Die Linke in Germany.   The dramatic rise of almost all these movements have been sparked by deep public resistance to austerity.   So why not in the UK?  It may be about to happen.
Read more   “Why haven’t there been riots about endless austerity? That may be about to happen” »

The case for abandoning austerity is a no-brainer, mathematically, financially and politically

Labour needs a game-changer to settle the result of the next election once and for all.   As it happens it has the perfect opportunity ready to hand.   Osborne is foolhardy enough to announce 6 months before the election that he intends to impose further cuts of £25bn to get on track to eliminate the structural deficit by 2019, which an FT analysis suggests may have to be nearly double that, or around £48bn.   This is an utterly reckless pledge which Labour should be exploiting for all its worth – as opposed to the actual silence with which it greeted this faux pas.   There are 4 powerful reasons for Labour to go on the attack.
Read more   “The case for abandoning austerity is a no-brainer, mathematically, financially and politically” »

People need hope, not more of the Tory austerity fairytale

This is the text of my letter to the Guardian published this morning.

Ha-Joon Chang (in the Guardian on 20 October) is right that “the country is in desperate need of a counter narrative” to the Tory story on the economy. I believe it should go like this.

First, Labour did not leave behind an economic mess; the bankers did. Labour was not profligate: the biggest Labour deficit in the pre-crash years was 3.3% of GDP; the Thatcher-Major governments racked up deficits bigger than that in 10 of their 18 years. So who was the profligate? It’s a no-brainer.

Second, the Tories have claimed that the reason for enforced austerity is to pay down the deficit. Yet, after six years of falling wages, private investment flat, productivity on the floor, and fast-rising trade deficits, the deficit is £100bn, when Osborne promised in 2010 it would now be next to zero. To cap it all, the deficit will almost certainly rise this year because income from taxes has sharply fallen as wages are increasingly squeezed. Austerity is now a busted policy that has turned toxic. It should be dropped.
Read more   “People need hope, not more of the Tory austerity fairytale” »

Deficit rise this year destroys case for austerity

The latest ONS Quarterly National Accounts tell a very significant story.   For the media it was immediately a matter of Osborne likely not being able to provide a pre-election giveaway in a big new tax break to be announced in his Autumn Statement on 3 December.  But that isn’t the real point at all.   A far more significant issue is that it spells the end of Osborne’s case that austerity is necessary to cut the deficit.   If the deficit starts to rise rather than fall, the case for continuing with austerity and perpetual spending cuts collapses.  That is exactly where we now are, although no-one, including the Labour Party, is saying so.   This is now the opportunity for Labour to say loud and clear that Osborne’s policy has hit the buffers and is now intellectually and politically bankrupt and that the alternative policy of expanding the economy, as opposed to endlessly contracting it, is now the only viable game in town.
Read more   “Deficit rise this year destroys case for austerity” »

Why austerity can’t eliminate the deficit

As Osborne has yet again pronounced, the Tory mantra repeated like a broken record is that spending cuts will continue throughout the next Parliament until the structural budget deficit is eliminated by 2019.   Labour, to its shame, follows exactly the same line.   Yet the ONS Quarterly National Accounts published by the government demonstrate that this objective is fantasy and on current policies will never happen.   The reason for this is that the government deficit is only one component of the borrowing and lending by the 4 major sectors which takes place every year in the economy.   The other 3 are all the businesses operating in the UK, all the households or consumers, and the UK’s trade transactions with foreigners.   All the borrowing and lending done by all these 4 sectors has to sum to zero, because all borrowing has to be matched in accounting terms by exactly equivalent lending.   The ONS National Accounts figures show all too clearly the key problems in cutting the deficit and why on current policies they’re insuperable.
Read more   “Why austerity can’t eliminate the deficit” »

Investment, jobs, growth must be Labour’s policy, not austerity

Labour has had a successful party conference, Ed Miliband made a powerful speech with a strong commanding narrative of Labour’s objectives for government, but the only let-down was in the crucial area of economic policy.   Ed Balls’ embrace of the the right-wing Tory orthodoxy of prolonged austerity until at least 2020 is as unbelievable as it is indefensible.   He clearly must believe that the voters don’t trust Labour because it’s profligate so we must at all costs prove to the electorate that we’re fiscally sound and hence be at least as tough as Osborne in pursuing austerity to cut the deficit.   But the record shows that Labour has not been reckless with public expenditure.   The last Labour Government’s biggest deficit in the pre-crash years was 3% of GDP, yet the Thatcher-Major governments ran deficits bigger than this in 10 or their 18 years.   So who was the more profligate?   But anyway from my personal experience what disgruntled voters complain about isn’t that Labour is profligate, but rather: why should I vote for Labour when it’s no different from the Tories in pursuing endless spending cuts? – exactly what Ed Balls is committing to.
Read more   “Investment, jobs, growth must be Labour’s policy, not austerity” »