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”
Anon E Mouse
Mr.Sensible – And then Labour certainly didn’t win the election.
The economy has indeed turned round (I speak from personal experience) but everything changed when the coalition was formed.
As for “Condemnation” of please… next you’ll be calling the Tory backer Lord Cashcroft…
Fat Bloke on Tour
Mr Mouse
Still waiting for your collected thoughts on where we should go from here.
As always, you resort to your normal laundry list of Labour / GB failings.
You really do need to do better.
Some comments:
Middle class in their attitudes and their focus.
Very few of the candidates are middle class, they can be more properly described as middle income.
“True” Middle Class = Gramps / Great Gramps drove a tram during the General Strike.
Consensus = Tell that to Dave the Rave and Sniffy, don’t even mention Thatch.
Did Attlee strive for consensus, no he set out a plan and delivered it in the teeth of establishment opposition.
Gold = Non performing asset, does not generate any form of income, we were one of many countries to reduce our gold stock 10 yers ago.
Boom and bust = Normal business cycle not a total financial nervous breakdown. Remind me how did the 2001 global recession affect the UK?
G20 recovery table = A little too early to make a judgement, don’t you think. The only thing I will say is that we would be in a better position if GB / AD were still in charge than the “Gang of Four” currently running the show.
We would have been a good bet for pole position in that we would have had a floating exchange rate, an activist industrial policy and North Sea Oil. But of course the Coalition friendly media have us down as the next Greece. You really couldn’t make it up if you tried.
One thing I will say is that someone in the Coalition PR dept really knows how to set up a press friendly photograph.
GB was useless, aye right as they say in G1.
Need to talk sense into Angela Merkel, who you gonna call?
Dave the Rave and Cleggy, no thanks, they would not have stood a chance.
It would have been like the Graduate but with bigger tits.
Used and abused, sent home like a dry husk, two six formers ravished by Matron.
Mandy in the Lords = No big deal.
It is in the rules so no issue.
He does a good job so why not.
All he was doing was promising some of the savings AD was crowbarring out of other departments to high growth areas in the economy. Sounds like sense to me in the current climate where the private sector is running a huge surplus and all banks are being very cautious in their lending decisions.
Credit Crunch = Financial nervous breakdown = Banks are still in rehab.
So what is a dog boiler?
A dog boiler is a member of the upper middle class establishment or one of their media / gullible fellow travellers who if asked, would rather have the poor and the unemployed consume their family pet for sustenance than have the state offer a decent level of support in economically troubled times.
Viewpoint was very popular in the Great Depression where it was seen as a step forward compared to previous incantations from the rich which had asked the poor to eat their own children if they were hungry.
Fat Bloke on Tour
Mr Mouse @ 12.31
Crack shot sir, crack shot.
One bullet, both feet, superb.
Things on the up sine the ConDemNation took over, interesting!
What part of the public sector do you work for?
I fear you are overegging the pudding today.
After 6 months progress, Q2 is looking a bit more shaky.
Some very interesting stats coming from Tesco, Asda et al.
If times are tough in the grocery trade then we all should worry.
Add in the Coalition focus of scaring the public sector fartless.
Sniffy and Danny the Janny really are playing with fire.
Cuts just now would be like putting petrol on a barbie.
Ben Folley
Ken on the budget "There is a way to cut the deficit by boosting jobs through govt investment" http://bit.ly/cSpflC via @ken4london
Ben Folley
RT @leftfootfwd: A Thatcherite horror sequel: http://bit.ly/cSpflC