When George Osborne delivers his first Budget on Tuesday, the re-run will be of the Thatcherism of the early 1980s. And, with much bigger cuts to public spending and no North Sea oil bonanza, it will be much worse.
Our Guest writer is former Mayor of London Ken Livingstone
Sequels can often be much worse than the original. You know how it goes; bit-part actors elevated to the main characters, same old script, trailers advertising all the goriest sequences, and a lower budget.
When George Osborne delivers his first Budget on Tuesday, the re-run will be of the Thatcherism of the early 1980s. And, with much bigger cuts to public spending and no North Sea oil bonanza, it will be much worse.
Both the recently-reappointed Alan Budd at the Office of Budget Responsibility and David Cameron were economic advisers to the Tory administrations of the early 1990s, when Thatcherism had already failed and they were casting around for a more coherent strategy. Yet the new ConDem coalition now seem intent on a course which will produce the same devastation to economic growth, to public spending, services and jobs – but on a far bigger scale.
This is the political and economic situation now unfolding in Whitehall that will form the challenges Labour faces as a party in the next two or three years. We must show that we can speak for those who are under attack and that – where we can exercise power before the next general election – we are willing to work to protect people from the brunt of the damage that will be done.
The trailers began within days of the coalition being formed, and we have been repeatedly told ferocious cuts must come because either the national debt was too high or that the annual deficit of the public sector was too wide. But the level of the national debt at 62.2% of GDP in May is still one of the lowest in the European Union and the deficit is already declining under the impact of moderate economic recovery and Labour’s mildly stimulative 2009 Budget.
The Treasury originally expected the deficit in this financial year to be £178bn – that was lowered to £163bn at the time of the Budget and the OBR now expects it to be to be £155bn. The forecast deficits for further years have also been cut correspondingly.
This is an enormous improvement in the deficit projections already and highlights a key fact; that growth is the only remedy for the deficit.
The economy has limped out of recession, growing by just 0.7% in the first 6 months since the end of the recession. Yet billions have already been wiped off the deficit even with this meagre growth rate. This is not because of spending cuts, as these have not yet been implemented, although they are already taking their toll on private sector investment and jobs. The narrowing of the deficit has occurred because tax receipts have risen as the economy is no longer contracting, £2.6bn higher in May this year than in May 2009.
So, without a crisis level of debt to cling to and a deficit that is already narrowing even as growth recovers to some extent, George Osborne has identified a mythical beast in the form of the ‘structural deficit’, the deficit that he says will still persist even when the economy fully recovers. Even Investors’ Chronicle has exploded the myth of the ‘structural deficit’, not least because it is based on the idea of limited spare capacity in the economy, even with the Bank of England reporting exceptionally low capacity utilisation and 1 in 5 workers economically inactive. It wasn’t that long ago that received wisdom was that Britain had a structural surplus.
But the real focus of Osborne, Cameron, and Clegg is not to reduce the budget deficit at all. When Thatcher did this in the 1980s, having inherited a deficit of £8.7bn in 1978/79, the deficit actually rose and averaged £9bn over the next 5 years, while the debt level rose from £98bn to 157bn. Every time the deficit showed any sign of narrowing, taxes were cut. This is exactly what the ConDem coalition proposes, with the focus now on the regressive lifting of the income tax threshold to £10,000 (with the main beneficiaries being couples who both earn just under £100,000, according to the Institute of Fiscal Studies) and promises from Osborne that the level of corporation tax will be cut.
Meanwhile retailers are already planning for a VAT rise, which hits hardest those who spend most of their incomes, the poor. And a wholly spurious campaign against public sector pensions is conducted, even though teachers’ real pensions have fallen by 4% since 2000 and NHS pensions are unchanged.
The real aim is to cut the living standards of workers and the poor in order to raise the living standards of high earners and the rich. Ultimately the overwhelming majority will suffer from the planned reduction in government investment of one-third over the next 4 years. This is to repeat a fundamental error of the Thatcher years, one New Labour never corrected. The British economy has suffered from chronic underinvestment and the decline of business investment is the biggest single contributor to the recession – nearly half the total.
Investment is the key to future prosperity and the economy cannot make a sustained and robust recovery without it. Cutting public investment exacerbates this crucial economic deficit, and cuts to spending on areas like schools and hospitals leads to reduced private sector investment.
There is a way to cut the deficit, by boosting jobs through government investment.
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70 Responses to “A Thatcherite horror sequel”
Simon Fletcher
RT @leftfootfwd: A Thatcherite horror sequel: http://bit.ly/cSpflC
Ken Livingstone Team
RT @leftfootfwd: A Thatcherite horror sequel: http://bit.ly/cSpflC
joe derrett
RT @fletchersimon: RT @leftfootfwd: A Thatcherite horror sequel: http://bit.ly/cSpflC
Ken Livingstone Team
Ken on the budget "There is a way to cut the deficit by boosting jobs through govt investment" http://bit.ly/cSpflC via @leftfootfoward
Neil Scott
RT @ken4london: Ken on the budget "There is a way to cut the deficit by boosting jobs through govt investment" http://bit.ly/cSpflC via …