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
Fat Bloke on Tour – I most certainly do not hate public servants – I just REALLY dislike the nature of the way the left conducts itself in open forums like this.
Instead of accepting that we are in a new era it seems that people here are interested only in carping about the government and refusing to accept that Labour, conclusively, lost the recent general election. And deservedly so.
This country is in a mess and if the PLP had had the guts to ditch Gordon Brown things may be very much different. I particularly dislike the support for stupid Labour projects using our money – especially as the cheques were written by an unelected dishonest person – Peter Mandelson.
Why is it just me that is outraged when that champagne socialist spends our money on his pet projects? Does no one here care about the future of the Labour Party?
Before the election I assumed that once Labour had lost then a sense of realism would be adopted by left/centre left supporters. To a degree people like Medhi Hassan and Will Straw have done that but the remainder seem to be locked in the past with quite frankly stupid, ill thought out comments.
No disrespect dude but your posting elsewhere claims a double dip recession MAY happen which is fine but then you assume it HAS happened and off you go with the consequences as if it had been true – which it isn’t.
I believe that public services need sorting and have done for a long time – when the last government rewards GP’s with a huge wage rise AND allows them to no longer serve the public at weekends I have problems with that.
What worries me is that instead of having open philosophical debate between the left and right we get idiots on this site and elsewhere claiming black is white, night is day and no one seems to care about the truth, just Labour spin.
Then the tribalism really annoys me. A person who posts regularly on this blog has elsewhere effectively claimed that Martin McGuiness was better than a democratically elected PM – Maggie Thatcher.
Leaving aside the fact that Gordon Brown is a huge Maggie fan and in fairness he always was, to allow that type of disgraceful comment to go unchallenged in a free society is unacceptable.
That useless hypocrite, John Prescott yesterday called Frank Field and Will Hutton “collaborators” because they are advising the government. Collaborators? I know the guy comes across as pretty thick but that really takes the biscuit.
The left needs to radically change to make itself electable again and I would just like some grown up HONEST debate for the future…
Cogito Dexter
Raising the income tax threshold to £10k is regressive?
How is taking lots and lots of people out of tax altogether (and thereby leaving them with more money) somehow regressive? How on Earth does that make poor people poorer???
Jacquie Martin
Josh
Governments do not rely solely on borrowed money, there’s tax too. Sadly, since the 70s governments have treated tax as taboo. This has pervaded the public conciousness and it’s regarded as a four letter word. If we’d been prepared to broach the subject earlier, then we could have got some in when times were good and it wouldn’t be so painful now. The tax take noticeably dropped in the recession, and with unemployment a certainty with the cut of public sector jobs, PFI contracts and the general fallout of massively reducing public sector spending, it’s going to plummet. Then what?
One answer, as an ex HMIT investigator, there’s plenty out there to be collected from evasion, avoidance and fraudulent claims. But the resources aren’t there. There’s been a long running programme of redundancy in HMRC, including highly trained investigators. I’m waiting to see how many more when the full extent of public sector lossess is realised.
The prols don’t get a chance to sidestep their obligations, but company directors and high net worth individuals have tax planners to arrange their affairs so they get away with paying so little. Remember the CEO who admitted it was wrong for him to pay less tax than his cleaner? So much for private good, public bad.
Anon
Prescott was talking about John Hutton, not Will.
And as for carping on about the past, you constantly litter posts with GB jibes. Move on yourself.
Anon E Mouse
Jacquie Martin – If you care to read my other posts on this blog you’ll see I am consistent regarding Gordon Brown and the bullies and thugs he surrounded himself with – Derek Draper anyone?
He was a disgrace to the Labour Party and after I voted for “Full Third Term Blair” myself, I was gutted that people on the left wing blogs saw nothing wrong with his taking the Labour leadership without even an internal election – well I did and do.
Will Hutton/John Hutton – just a mistake – you seem however to have completely missed the point.
As an ex Tax Inspector please remind me what’s progressive about removing the 10p tax band from the poorest in our society…
Jacquie Martin
Anon
I missed the point because you didn’t make one.
I don’t think think the 10p withdrawal was right, certainly not progressive. HMRC just enforce the rules – parliament agreed it. Just…
It’s not your lack of consistency I’m challenging, it’s your refusal to accept GB is past tense. You claim to want honest open debate about the future electabilility of the Labour party and that people are not accepting the election was lost, but you’re not encouraging this by harping on about the past.