Tag Archives: Deficit

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” »

Cameron tries to blame foreigners for UK ‘recovery’ fizzling out

It’s a bit rich for Cameron, in his statement toriseday from Brisbane, blaming the world out there, particularly the eurozone, for the fading UK recovery when those countries are pursuing almost exactly the same economic policies as he is.   That is relentless and unending austerity, which he conspicuously failed even to mention.   Now that the blip in UK economic growth between Q2 2013 and Q4 2014 is manifestly deflating (was this part of the long-term economic plan that Cameron-Osborne continually talk about?), the prime minister needs an alibi.   It’s easy to pick on the eurozone which has indeed only avoided falling back into recession because of a surge in the French government’s public spending (please note, Mr. Cameron), but the reason the eurozone is in such a bad way is that Merkel has enforced unrelenting fiscal austerity – exactly the Osborne programme.   That euro-austerity has crippled the euro southern periphery and has now undermined the German economy itself which depended on that same euro periphery for its export-led growth.
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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” »

The Osborne forked tongue is already cranking up for the Autumn Statement

The Chancellor’s response to the £1.1bn windfall handed to him by the fine on the banks is a classic in Osborne double-speak.   We’re told the money will be “used for the wider public good”.   He means tax cuts as an electoral bribe.   He says “today we take action to clean up corruption by a few so that we have a financial system that works for everyone”.   Today?   Why not when the corrupt manipulation of the £3.5 trillion a day foreign exchange markets was uncovered years ago?   “Taken action to clean up corruption”? – almost nothing has been done to prevent another banking crash and the foreign exchange market remains, breathtakingly, unregulated.   “Corruption by a few”? – the truth is the whole industry was (and still largely is) rotten to the core as the chatroom exchanges between the traders of all the main banks clearly reveal.   “A financial system that works for everyone”? – one can only wonder at Osborne’s gall in spitting out a lie with such bravado, which he knows is a lie, and probably knows too that everyone else knows it’s a lie.   The bankers’ bonuses, overseas speculation, contrived tax avoidance, and mortgaging of prime property in central London works works in no-one’s interests except their own.
Read more   “The Osborne forked tongue is already cranking up for the Autumn Statement” »

Osborne’s 3 Big Lies

In the last week Osborne has staked out three positions which show the character of the man – duplicitous, machiavellian, dishonest.    First he claimed that he had turned the £1.7bn EU budget bill into a triumph by factoring in Britain’s budget rebates in Europe which halved the amount due.   This canard unravelled almost as soon as Osborne uttered it.   Several other ministers at the EU meeting insisted that no-one, including Osborne, had actually contested the £1.7bn charge and that no discount had been awarded.   What actually happened is that Osborne rushed out of the meeting, immediately made his statement to the press (which the BBC sycophantically, but wrongly, repeated almost verbatim) , and then left to return to the UK without taking any questions.   The truth is that Britain’s automatic rebate on gross contributions to the EU budget, which have operated since 1980, would have been granted anyway and had nothing to do with Osborne’s arguments – or rather non-arguments since he never raised any objections anyway.   The whole exercise was simply an Osborne ploy to pretend that he had fought and thwarted the dire plans of the EU.

Second, he made a disingenuous announcement that he was improving tax transparency by letting taxpayers at different income levels know what the tax they paid was spent on.   It looked like an innocent attempt to extend useful and relevant information to the public.   He would issue an ‘annual tax statement’ to every household showing where their taxes went.   Thus someone earning £30,000 a year will be told that £1,663 goes on ‘welfare’ and £892 on ‘health’, i.e. nearly twice as much on ‘scroungers’ as on health.   What Osborne does not say is that welfare lumps together expenditures of a wholly different kind.   No less than 46% of it goes on pensions which pensioners have earned by paying national insurance contributions throughout their working lives.   Only 3% goes to the unemployed.   Osborne’s vaunted ‘transparency’ is in reality a cynical pre-election ploy to win support for further cuts and to turn voters against Labour.

Third, he reiterated yet again the need for still deeper cuts to pay down the deficit.   What he didn’t say is that as a result of the very deep cuts he’s already made the deficit this year is not falling at all, but actually going up because falling household incomes have meant that the government’s tax take is now being eroded.   What he also didn’t say is that if the rationale for austerity is to pay down the deficit, there’s no point in continuing with austerity if it’s now causing the deficit to go up.

Never take anything Osborne says at face value.

 

Why has the recovery from the crash 6 years ago been so slow and feeble?

The ‘new mediocre’, as the response from the deepest recession in post-war history is now often called, is an anomaly that cannot be accounted for by the factors that mainstream economic models normally consider important.   One explanation which is gaining currency is that excessive inequality is to blame.   Even Lagarde, IMF Director, admits that inequality is casting a ‘dark shadow’ over the world economy, on the reasonable grounds that the rich and particularly the super-rich tend to save a larger proportion of their income than the poor, so that the huge increase in inequality, at least in the G20 and OECD countries in the last 30 years, is not just a source of social tension but also a major drag on demand.   That then invites the further question: why has inequality increased so much in the last 3 decades?   Probably the most powerful underlying factor is the rise of the neoliberal Thatcher-Reagan ideology which via untrammelled markets, deregulation of finance, widespread privatisations, and deep limitations on trade union rights which then allowed the rise of excessive corporate power to dramatically expand its share of national income.
Read more   “Why has the recovery from the crash 6 years ago been so slow and feeble?” »

SNP makes it imperative Labour produces commanding narrative to separate it from Westminster establishment

The Westminster establishment, to which all the three main political parties are seen to sign up, is the most toxic brew in modern British politics.   It has led to UKIP which robbed the Tories of Clacton and likely Rochester as well as almost certainly several Tory seats at the next election, and which came within an ace of robbing Labour of Heywood and Middleton.   It has now led to the SNP where the some polls suggest that, of the 59 constituencies in Scotland where Labour currently holds 41 and the Tories 1, it will capture between 47-54 of these seats and leave Labour with only 5-10 seats.   Less dramatic polls indicate the SNP might take 23-26 seats, but that could still have severe reverberations for Labour.   Next May’s election could well hang on whether UKIP does more damage to the Tories than the SNP does to Labour in Scotland.   However the 6 months still to go is a long time in politics, and for both the two main parties the counter-argument will be spread relentlessly: for the Tories, vote Miliband and wake up with Farage, and for Labour, vote SNP and you deliver yet another London-based Tory government at Westminster.   Those arguments may yet get some considerable play.


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Labour should make inhumanity of Tories a key electoral issue

The Tory government’s decision to withdraw from the search and rescue missions in the Mediterranean where tens of thousands of refugees are fleeing their war-savaged homelands is an act of pitiless inhumanity.   Already this year alone some 25,000 people have arrived in Italy, and similar numbers from Eritrea, with thousands more from Iraq, Nigeria and Somalia.   The numbers who never got there and drowned on the way are not known, but they certainly run into thousands.   To back out of this humanitarian mission is callous and despicable, especially when the motive is plainly to compete with Ukip in being hostile and harsh to migrants.   It is made even worse when the Home Secretary hides behind the disingenuous pretext that saving lives only encourages more persons to risk this treacherous escape route.   It is a shameful indictment to Britain’s reputation as a haven to the persecuted that the UK has resettled less than a tenth of the number of Syrians taken by Germany and Sweden and is now washing its hands of a fundamental humanitarian duty.
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