Are the cuts a necessary response to an economic crisis? Is there a crisis, and if so what is it? Is there an alternative approach? The answers to these questions are “No”; “Not Really, There’s A Crisis of Capital – But There Soon Will Be An Economic Crisis”; and “Yes”.
The Tory led government is playing on peoples’ fear of the economic uncertainty to pursue its cuts agenda through a con trick built on endlessly repeating a big lie – which is; “we have to do this because of the biggest mess in history we inherited from the last government”.
It’s very important we understand the economics and the “how we got here”;- if we just fall into the trick of saying “we are where we are” then we are actually surrendering the fundamental point of debate. Yes, the cuts are here, yes the cuts are hurting, yes we have to face the present and the future – but if we fail to understand the lies behind the cuts then we are permanently one step behind. So, let’s look at how this lie is constructed and show the TRUTH behind it.
Which means looking at what is “the deficit”, what is “the debt” and what is the cost of “servicing the debt”.
“An Unprecedented Deficit due to Government Overspending” – A Big Lie
The “deficit” is simply a snapshot that shows the difference between government spending and government income from tax receipts at a given time. The global recession created by the banking crisis caused job losses and reduced company profits, so the UK tax take fell dramatically in 2008/9 – £100 billion less than it would have been without the recession. The Government had to borrow more to make up the difference, although the rate of spending increase remained the same, so the deficit and the public debt increased. That’s what caused the deficit – not government overspending. It’s a Big Lie.
“The National Public Debt is Out of Control” – A Big Lie
To look at what debt really means it has to be assessed as a proportion of Gross Domestic Product (GDP, the national income) and the cost of repayment. UK GDP in 2010 was £1.435 trillion – the 6th highest GDP in the world. The total debt within the UK is made up largely of private, corporate and personal debt through mortgages, mortgage equity and easy credit granted by the banks during 2000 to 2009 (before they took £15 billion out of the economy last year). The important debt to consider is the national public debt – which was £952 billion in 2010. That’s a debt ratio of 64.6% of GDP, and if we exclude the bank debt taken on through the bailout it’s 57.1% of GDP.
Bit of an interesting history lesson:- From 1691 to the present that debt-GDP ratio has only been lower in around 60 of those years. It was higher throughout most of the 20th century; peaking at 261% at the end of WWII, falling to 133% by 1960 – during which time public spending built the Welfare State, rebuilt the country and the economy, through putting people in work.
The UK debt-income ratio is currently lower than the major economies of France, Germany, Japan and the US – lower than the G20 average and the EU average. It’s a Big Lie.
“Debt Repayments Are Higher Than Ever” – A Big Lie
Government ministers and their cheerleaders often trot out that interest payments are costing us £120 million each day. It’s a scary figure – but, again, let’s look at it in context. That represents 2.84% of GDP income in 2010. In 1981, during the Thatcher government’s onslaught, debt repayment was 5.15% of GDP income, or the equivalent of £174 million each day at today’s value. Another way to look at this – In 2010 just 6p in every £1 of government spending went on servicing debt. As recently as 1996 it was 8p in every £1. It’s another Big Lie.
“Cuts are Inevitable and Necessary” – A Big Lie
In 2010 the deficit was forecast to rise to £167 billion but turned out to be £145 billion, mainly because the economy had already returned to slow growth in the first quarter (before the election) so the tax take began to rise again. That has now stopped following the emergency budget – and even before these massive spending cuts take effect. The CSR will take about £81 billion of public spending a year out of the economy by 2015 – £6.1 billion from grant funding to local government alone. This will have disastrous consequences.
Very recent history supports this. Canada’s austerity programme in the 1990’s is held up as a model of “progressive Conservatism”. Education spending was cut by 12%, health by 18%, social services by 20%, benefits by 21%. At the time the deficit was halved but economists put that down to the global economic growth of the time – ie Canada placed half its debt as a bet on buoyant world markets. Canada’s debt-GDP income ratio was and is still higher than the UK. And our spending cuts average 25% over the next 4 years – and there is no buoyant world market to ‘cover the bet’.
Ireland is also held up as an example of early intervention when they introduced an austerity programme having moved into recession in September 2008. What followed – well, unemployment nearly doubled, the economy shrank by 10%, the tax take fell and the deficit has not improved. As we know, Ireland recently needed an IMF bail-out.
“There Is NO Alternative To Cuts” – A Big Lie
Measured, steady economic growth is the only sustainable way to reduce the deficit and the national debt – including improved technologies, rebalancing the economy away from an over-reliance on finance in favour of increased manufacturing and production and investing in a low carbon base. This increases the tax take by maintaining and creating jobs and through trade revenues. That reduces deficits and debts. Public spending is a key component of growth to stimulate employment and responsible private sector growth, support the community and voluntary sector and through its beneficial multiplier effect on local economies.
There are 13 years to repay government borrowing (longer in some cases) so there is no need to try and ‘pay off’ the deficit in just 4 years by austerity spending cuts – at a time when, as the FACTS show, our debt is low in both real and historical terms, and low in comparison to other countries, as is the cost of repaying that debt. Even under the current tax regime £100+ billion is lost each year through tax avoidance and tax evasion, yet the Government is cutting the tax collecting service. UK tax take accounts for 36.6% of GDP income, the EU16 average is 40.4%.
And over 70% of the UK public debt is held WITHIN the UK (including in our pension fund investments) and not in offshore or overseas holdings. So we are NOT Greece, or Portugal, or Ireland. There is little risk of what is called “sovereign risk” – where offshore and overseas holdings first refuse the UK government credit, then pull the plug on the existing debts, causing the kind of meltdown spiral that leads to IMF intervention. That is simply not a risk to the UK.
The world’s leading economists, including Nobel Prize winners, agree that you don’t cut your way out of recession. Because the one thing it is highly unlikely to do is reduce the deficit at all – the supposed reason for this – which could actually grow as well as create a double-dip recession and possibly a depression. “There is no alternative” is yet another Big Lie.
The Impact of the Cuts – Dismantling Local Government – North West Position – Inequalities
As a proportion of its government grant funding local government is taking one of the biggest hits of all public services. Government ministers glibly talk about back office efficiencies and profligate waste yet the local government sector has delivered 24% of efficiency savings in the last 8 years. It is just impossible to make cuts of this magnitude, together with halving capital funding, without affecting all services in some way.
Different analyses have concluded the North West of England will feel the impact more severely than anywhere else. The major population centres of Liverpool and Manchester are in the worst affected authorities nationally. Across the Region we are seeing huge cutbacks to services.
As well as job losses we are increasingly faced with councils and associated employers putting branches under intense pressure to agree reductions in pay and terms and conditions – such proposals will not save any more jobs and cannot be temporary until the Government changes direction, because these massive funding cuts are year-on-year budget reductions not a blip. Employers are expecting our members to subsidise their political budget choices or to provide them with a guaranteed ‘contingency fund’ through reduced conditions, and in doing so masking the real nature and impact of these Government imposed cuts. We are in the middle of a 3 year pay freeze and 7 out of the previous 9 pay settlements were beneath inflation. A huge number of additional hours are worked by our members without pay or other remuneration. Our members are ALREADY subsidising services and have been for years!
And what of the social impact of the cuts – how will they impact on people out in our communities:- The Institute for Fiscal Studies (IFS) researched the combined effects of public service cuts, tax credit reform and welfare reform:-
They concluded that the 10% lowest income households will be hit 15 TIMES GREATER than the 10% highest income households.
Which puts paid to the Biggest Lie of all – that “we are all in this together”.