Tag Archives: Deficit

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.
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Is the EU Commission on the side of Farage?

It is difficult to believe that some senior members of the EU Commission are not secret Ukippers.   To demand that Britain hands over more than €2bn because its economy is doing relatively well compared with the rest of the Eurozone, which is doing appallingly badly, is beyond satire.   The idea that Germany, where the Merkel doctrine of unwavering austerity has brought the eurozone low, should now receive a rebate at Britain’s expense of £780m  is the kind of black comedy normally associated with farce.   The UK contribution to the EU budget is already large at £8.6bn last year, and this surcharge would now make the UK by far the biggest top-up contributor.   What adds salt into the wound is that this surcharge stems from the EU charging the way it calculates gross national income to include more hidden elements such as prostitution and illegal drugs!
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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.
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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.
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Osborne’s own policies are shrinking tax revenues, yet he demands even bigger spending cuts to compensate

There are now unmistakeable signs that Osborne’s so-called economic recovery is fading, despite all the right-wing think tanks and pro-Tory media to talk it up.   A survey of 7,000 businesses by the British Chambers of Commerce has just found that manufacturers have suffered a sharp slowdown in export orders, and even more significantly domestic sales and orders – the part of manufacturing that has been faring better due to household expenditure based on rising debt – are now also reported to be slowing.   The third quarter growth figures also show the UK economy losing steam, down from ).9% in the second quarter to 0.7%.   The TUC has just reported that not since 1865-7 has there been a comparable squeeze on earnings for British workers, with an 8% fall in real earnings between 2007-14, and the fall is still continuing with the latest figures this year showing annual wage growth of 0.7% against inflation at 1.5%, i.e. a further real wage fall of 0.8%.   There is then a serious knock-on adverse effect in a reduced tax take for the government which is actually this year increasing the deficit (from the current £100bn to around £105bn) when Osborne’s whole object is ostensibly above all else to cut the deficit.   His austerity programme is now beginning to eat itself.
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The lessons of Heywood & Middleton

The by-election result in Heywood & Middleton in the Manchester conurbation is deeply worrying for Labour.   It is true that people take liberties in by-elections that they would be unlikely to take in general elections, but it is designed to show their real underlying feelings which it would be unwise to discount or explain away.   It is also true that Labour’s proportionate share of the vote rose by 1%, but that was largely because the Tory vote fell dramatically and the LibDem vote plummeted, and it doesn’t explain why the UKIP vote rose by 35%.   The real reason for this disturbing result is the disillusionment felt by so many working class people in Labour’s northern strongholds that they have been neglected and that their interests have not been properly represented by the Westminster establishment (shades of the No vote in the Scottish referendum).   This was expressed poignantly on the doorstep as ‘the Tories are going to continue with cuts till 2020, and you’ve said you will do the same, so why should we vote for you?’

As we enter the eighth year of continuing austerity this is the first vote in a northern constituency that expresses the resistance bubbling up against a regime of endless cutbacks – average wages already fallen 9% in real terms and still falling, low-paid insecure jobs (even if you can get one) whether self-employment on pittance incomes or zer hours contracts, with benefit cuts forcing people to leave home or use food-banks, and with no sign of any change for the foreseeable future.   What people are crying out for, and want desperately to hear from Labour, is the alternative to austerity that would give them hope and inspire them to come out to vote.   That is a policy of public investment to kick-start the economy on a sustainable course (when the present so-called recovery is already fading before 90% of the population have even felt it), a policy of job creation in house-building, infrastructure and green economy, a policy of rising incomes which will increase government tax revenues which will pay down the deficit much faster (when it’s still £100bn and actually rising this year).

Of course immigrants are blamed for all this disillusionment by Farage, the con-man ex-investment banker posing as a man of the people behind two pints in a pub).   But immigrants are not the root of the problem – austerity is.   All the studies undertaken of the immigrant contribution to the British economy shows that they provide a net benefit, there are a higher proportion of them in work than in the white host community, and a smaller proportion of them are on benefits than in the white community.    There are undoubtedly problems of providing public services, particularly housing and education, in some areas, but that of course is exacerbated by Tory government cuts of 40% to local authority budgets.

Corporate welfare is vastly bigger than benefit fiddling & must be cut to paydown the deficit

Corporate welfare has been estimated in a University of York social policy study to cost British taxpayers nearly £85bn a year.   That is not far short of the current level of the entire budget deficit which is still £100bn.   If industrial-scale corporate tax avoidance were added in to the corporate welfare state, the cost to Britain would comfortably exceed the whole deficit.   So instead of focusing on £25bn (unspecified) further benefit cutbacks and a further huge squeeze on departmental public services bringing their cumulative cutbacks since 2010 to a staggering 40% or more, Osborne might be well advised to look at where money is truly wasted.   Instead of the government scrapping a £347m Crisis Fund which is the last remaining port of call for families on the edge of homelessness or starvation, he might well have cause to wonder whether doubling the public subsidy to £5bn a year for the owners of Britain’s privatised railways can conceivably be justified or whether he should now be ladling out government grants to Jeff Bezos, the billionaire boss of Amazon, which actually exceed the corporation tax he paid last year to Britain.

It speaks volumes that the totals of taxpayers’ subsidies lavished on corporate welfare are not systematically kept anywhere in government and certainly not published even fragmentarily except under duress.   Tony Benn insisted that the grants and subsidies paid to the top 100 companies under a range of Acts of Parliament should be published, which Whitehall did everything in its power to block, though eventually he overruled them.   However since that unique breakthrough, the figures have been very difficult to come by, and they have to be painstakingly assembled from a large set of different sources.   This is a scandal.   The public who provide the money are entitled to know how their money is spent.

Even what we do know shows how utterly prejudiced and lop-sided is the political discussion over the budget deficit.   It ignores the grants and subsidies paid directly to businesses, amounting to £14bn a year, almost three times the £5bn a year spent on income-based jobseeker’s allowance.   Then there are the insurance schemes run by government to protect exporters, the market job for British companies done by the Business Department, the cheap credit made available to banks and other businesses, and the gravy train rolls on.   Even that leaves aside the £25bn a year paid in tax credits, housing and council tax benefits to people in work because bad employers refuse to pay them a living wage.   Or the colossal public subsidies shelled out to the too-big-to-fail banks to protect the economy from their folly and recklessness.   So when is Channel 4 going to put on Corporate Benefits Street and invite on Osborne to defend it?

The fantasy of Osborne’s deficit cuts

The gap between Osborne’s swaggering rhetoric in his conference speech and the cold reality of the Tory public borrowing figures is almost unbridgeable.   The key point, though you would never guess it from Osborne’s bluster, is that public borrowing under his stewardship is now rising, not falling.   The ONS Public Sector Finances report for August 2014 show that the deficit (public sector net borrowing) from April-August this year was £45.4bn, an increase of £2.6bn compared with the same period for last year.   This 6% rise in public borrowing so far in this financial year could push the deficit, which last year was £99bn, up to around £105bn this year.   Moreover there are good grounds for expecting this trend of rising deficits to continue in future years.
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Stop austerity & cut deficit by printing money & sending cheque to every household (except rich)

Arnaud Montebourg, France’s economy minister who has just resigned, is quite right.   He denounced austerity policies as “absurd” because they had brought about “the most destructive crisis in Europe since 1929”   He rightly attacked the Eurozone’s fiscal stance as “the cause of the unnecessary prolongation of the economic crisis and the suffering of the European population”, and he correctly demanded a major change of policy away from “the extreme orthodoxy of the German right”.   Montebourg is not the only one who has been railing against the absurdity of counter-productive policies which are relentlessly dragging down the Eurozone into deflation.   Renzi, the young Italian prime minister, has rightly been demanding an easing of over-tight fiscal policies and a longer timescale to generate the growth to enable his country to overcome its excessive indebtedness.   Italy, like Japan before it, has now endured nearly two decades of falling living standards and in the absence of growth will soon find maintaining its interest payments unsustainable.
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