Budget cuts will push UK into decade long slump
by Raphie De Santos - 22-06-2010
Read the SSP's Alternative UK Budget here...
The list of projects, services and support for the community that will be lost just from the announced spending cuts and suspended future programmes reach down into the very fabric of our society.
The cancelled projects of the last Labour government and the further cuts from this financial year amount to £8 billion.
The increase in the personal tax allowances is roughly in line with inflation and the are offset by Labour’s planned 1% increase in national insurance for employees which the coalition have not rescinded.
We are faced with a further tax rise through the plan to raise VAT to 20% from the start of 2011. This tax rise hits the poorest hardest as a larger proportion of their income goes on purchasing goods than the better off.
The £2 billion levy expected to be raised annually on banks is short change for the £375 billion of public funds that has been pumped into them over the last three years.
In a vicious attack on the poorest in our society, the unemployed and the hundreds of thousands who will find themselves unemployed as a result of the cuts and the millions of others dependent on social security will see their already meagre benefits cut severely in real terms.
Those who keep their jobs in the public sector are being asked to take an effective pay cut with the freeze in wages and inflation (RPI) running at just over 5% a year and the increase in pension contributions while there will be a corresponding reduction in pension provision. This unfortunately is only a taster of what is to come.
The Institute of Fiscal Studies (IFS) estimates that cuts and tax rises of £34billion a year for four years are needed to meet the Coalition’s targets. These will mainly come through future cuts, as Osborne indicated in the budget speech, and they would be in addition to the cuts of £51 billion announced by the previous Labour government. The cost to the average family estimated by the IFS is £1,000 year. The scale of these cuts is unimaginable to visualise.
The forecast for economic growth put forward by the previous Labour government’s last budget were derided in the City – Darling forecast growth of 3.25 for 2011 while the consensus of City economists had the figure at 2.1%. The new Office for Budget Responsibility (OFR) estimate is 2.3% still above the optimistic City figure which was made prior to the size of the cuts were known while their long-term growth is 2.8% and 2.9% for 2012 and 2013. These are completely unrealistically figures.
Average annual growth in the new millennium prior to the credit crunch was 0.6%. For the fifty years of the last century the average was 1%. As real growth comes in way below the OFR’s figures, even the revised down post budget ones, the government will have to cut by even more to maintain the targets deficit levels.
In fact the cuts in public spending and tax rises will likely lead to a decade long slump in the economy. The Capital Economics group estimates that 750,000 public sector workers will loose their jobs over the next five years as result of the cuts. The Oxford Economics consultancy estimates that 2.23 Million private sector jobs are at risk from the cuts in outsourcing of services and goods – in 2007/08 the public sector spent £220 billion on services and goods from the private sector.
Research by Manchester University has shown that over 60% of new jobs created in the last ten years are connected directly or indirectly to the public sector. Even US President Obama warned ahead of the G20 finance ministers meeting that what Europe needs and the UK in particular needs is stimulus spending, not cuts, to pull economies out of recession and a avoid a possible slump. Leading economists are warning the government that at a time of weak demand and limited credit, an austerity programme will push the economy back into recession.
Of course the coalition government are made up of free market economists. David Cameron was Norman Lamont’s treasury adviser during Black Wednesday’s Sterling collapse which helped lay the basis for Britain’s credit bubble. Clegg, Cable and Laws wrote a pamphlet in 2004 urging New Labour to be even more free market and bring in less legislation to let the “markets flourish”.
They believe that the private sector can thrive once again and pull the UK out of recession. This flies in the face of reality where the Thatcher government destroyed our ability to produce goods and services and made us reliant on a speculative financial system which caused the current crisis.
In this recession our productive capacity has been further permanently damaged. Investments do follow the law of the market; they flow from the least profitable parts of the global economy to the more profitable areas. That is what we have seen over the last 35 years; a flow of investments from the mature economies, with higher levels of automation and better working conditions and levels of pay of the West to the lower automated and paid economies of the East.
An economy based on cuts and the free market is doomed to fail. We need an economy capable of meeting peoples' needs and providing services and jobs and that is what an emergency budget should begin to deliver.
The reasons for opposing the cuts are clear: why should we pay for a crisis and resultant recession created by governments, banks and capitalism itself?
There is a rationale alternative of hope compared to the austerity and economic slump that the coalition is offering. It is one that we should campaign for as we resist the cuts in years ahead.