The UK Economy & Public Spending Cuts
By Phil McElhinney at Dec 22, 2011
On the 14th December it was announced that that UK unemployment had risen by 128,000 in the last three months to 2.64 million, the highest total for seventeen years. This should not come as a surprise to anybody, when George Osborne made his emergency budget speech in June 2010 he said he wanted
"A sustainable private sector recovery built on a new model of economic growth"
"It is my deeply held belief that a genuine and long-lasting economic recovery must have its foundations in the private sector"
and that the budget would offer
"a stable and consistent platform for a private sector recovery."
The message was clear; the defecit would be reduced by cutting government spending and the private sector would lead the recovery providing jobs to those public sector employees who are made redundant.
This has not happened and nor was it ever going to happen.
Richard Murphy (the director of tax analysts at Tax Research) argues that the private sector will remain depressed as long as the cuts regime stays in place and will not, as the government hopes, employ those people laid off by the public sector
"These newly redundant people will remain unemployed unless the state creates work opportunities for them. Doing so might prove cheaper in the long run than leaving them unemployed. If they are in work, they will.........generate tax revenue, which in turn will reduce the deficit and so the cost of borrowing. In other words, borrowing now will pay for itself."
He also says that the
"logic of cutting government spending now when we have no jobs for those we make unemployed makes no sense at all"
if government spending is increased
"more jobs are created, revenue flows to government, benefit spending falls and government debt goes down with it......The answer is simple: if we want to get out of the mess we’re in we spend. It’s the only way to reduce government debt at this stage in the economic cycle. It worked in the 30s. It will work now. Nothing else will.”
He was not the only one speaking out against cutbacks the union UNISON published an alternative budget in which they say that the way to cut the deficit
"is not by cutting jobs, benefits and services – but by tackling real waste and making tax fairer.....Significant sums could be raised without affecting the incomes of the majority if we made sure the financial sector and the super-rich paid a fairer share."
They predict that over £70 billion could be raised by making taxation fairer a Major Financials
Transactions Tax (or Robin Hood tax) could raise up to £30 billion alone. Money can also be raised by
"reforming tax havens and residence rules to reduce tax avoidance by corporations and non-domiciled residents"
(according to a Yougov poll "75% think it is too easy for very rich people to get out of paying a fair level of tax" - even among wealthy households - with an income of over £100,000 a year - over 50% agreed with the statement.). UNISON also quote a MORI poll which found that 53% of the public say "spending on public services should be maintained, even if it means increasing the income tax I pay"
The Green Party also advocated a Robin Hood tax and say that
"Cutting investment now could lead to a double-dip recession"
and also wanted to
"Raise taxation from its current very low level of only 36% of GDP – for example it exceeded 40% in all Mrs Thatcher’s years in office. The fiscal gap is not caused by too much public spending but by taxation dropping to unacceptably low levels."
The cuts introduced by the coalition were ideological, if the Conservatives had won the election in 2010 and there had been no defecit at all they would still have made cuts in government spending. That's what Conservative governments do.
All this with Nick Clegg and his party ditching anything decent they stood for before the election and becoming nodding donkeys in agreement with a Tory government.
On the 18th October 2010 The Daily Telegraph published a letter from 35 business leaders. The signatories included the chairman of Asda, the managing director of Microsoft UK, the chief executive of BT and the chairman of Carphone Warehouse
"They are joined by 12 chairmen or chief executives of FTSE 100 companies, a further 11 from FTSE 250 firms and the bosses of some of Britain’s leading private businesses."
The letter began
"It has been suggested that the deficit reduction programme set out by George Osborne in his emergency Budget should be watered down and spread over more than one parliament. We believe that this would be a mistake."
"each writing in our personal capacity, we would encourage George Osborne and the Government to press ahead with his plans to reduce the deficit. In the long run it will deliver a healthier and more stable economy."
'A healthier and more stable economy' yeah right. Maybe they could get out of their plush boardrooms and tell that to the 2.64 million unemployed.
The New Internationalist magazine gives a more accurate assesment:
"their intention in driving through public sector cuts is plainly political and ideological: to reduce the size of the state and to clear the way for a few private sector companies who will cherry-pick the bits that will make them rich and leave the rest. There will be profits for some, probably already wealthy, people – and considerable social and economic loss for many, many more."