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.
70 Responses to “A Thatcherite horror sequel”
Taking a look at how public spending will change « The UK Media Pundit's Blog
[…] massive debate. Ken Livingstone, in typical understated form, has called the planned cuts a ‘thatcherite horror sequel“. Draw any conclusions you wish. John Keynes will also be turning in his grave at the […]
Fat Bloke on Tour
Mr Mouse
Blow it out your arse.
All you offer is the typical Daily Mail kitchen sink job of moans and groans about the last Labour government.
Add in a lack of consistency that would make a hypocrite blush and what have we got?Consequently stop moaning and try to move the debate on by telling us what you do like and what you want to happen now.
Your carping at GB and his performance over the pst two years suggests that you are like the person who calls the Fire Brigade to stop their house burning down and when it is all over and disaster has been averted you moan that they have used too much water.
I have put my thoughts on record over the past couple of months.
New Labour = Too middle class, had limited managerial competence.
New Labour = Lacked confidence and aimed too much for consensus.
GB = Limited political persona, led the 2008 financial recovery.
AD = Typical Edinburgh lawyer, didn’t ask enough questions of Treasury forecasts.
GB / AD = Built the foundations of a recovery.
Mandy = Redeemed himself with his stint at the “DTI”.
Consequently things were looking not too bad until Sniffy and the Poisoned Dwarf sorry Danny the Janny turned up and started to play the “Dog Boiler” mood music. I fear that their cuts will be so severe as to guarantee a double dip recession.
As always only time will tell but things are not looking good.
Sniffy doesn’t want to cut public spending to lower the deficit, he wants to cut because he thinks the poor have it too easy today.
I fear that many in the media have the same viewpoint.
Jacquie Martin
Fat Bloke
Agree wholeheartedly especially where Labour went wrong.
I read in the FT yesterday that the OBR admit their figures are largely guesses. Only 70% chance of being within 1% of their forecasts this year and reduced down to 30% down the line. With the armageddon that’s expected, I’d like better odds than a long range weather forecast. If they’re that off and everything’s pure guesswork anyway, why have the ConDems created a non-department?
The ConDems are a bunch of two-bit gamblers. Gambling with other people’s lives.
Anon E Mouse
Jacquie Martin – What’s not to get on Hutton? Frank Field as well – decent non partisan MP’s who put the country before party politics. “prols” – get a grip, the 1970’s have long gone.
Fat Bloke on Tour – Inconsistent and “Daily Mail” insults – typical New Labour smearing because you have no answer to the truth before you. I have been totally consistent…
New Labour too middle class? And the current MP’s in Labour aren’t? Based on that it’s doomed for Labour since they can’t change their education or background. Abbott aside tell me the difference between the leadership candidates.
Lacking confidence I agree but aiming for consensus is how parties win power.
Gordon Brown allowed a financial disaster to occur with deregulation of the banks, selling the gold off and encouraging people to believe he had “ended boom and bust” – don’t tell me about leading a recovery – he said we were “best placed in the G20 to lead the way out”. Yeah right – he was useless and why you slavishly keep supporting the reason Labour lost the last election is beyond me. Who’s side are you actually on?
Mandy most certainly did not “redeem” himself as you put it. I presumed you had socialist leanings FBoT. Are you saying it is ok for unelected members of the House of Lords to be in the cabinet where they can’t be challenged in the commons? And go around the county promising other peoples money that they don’t have access to? Is telling lies your means of “redeeming” oneself?
Who’s side are you actually on or do you just like seeing your words on a blog? And what is a bloody “dog boiler” for goodness sake?
Mr. Sensible
Mr Mouse, the Con Dem Nation didn’t exactly win the election.
And I seem to remember Clegg saying before the Election that there would be trouble if a coalition or small majority Tory Government tried to embark on cuts.
And the fact is that the deficit is falling due to economic growth as a result of investment.