Cameron warned that every person is to be affected by the savage cuts over the next few years. The urgent task of all progressives today is to put in place the policies and alliances to create a counter consensus.
Our Guest writer is Labour MP for Hemsworth, Jon Trickett
Ronald Reagan famously once claimed that government is not the solution to our problem, it is the problem.
Tuesday’s budget suggests that this self-styled ‘progressive coalition’ is drawing its inspiration from the poster boy of the 1980’s right-wing.
Or maybe it’s Thatcher they are seeking to emulate? If so, their slash and burn plans for public sector will have exactly the same consequences as hers did in the early 1980’s. Rising unemployment, reduced economic activity and, in turn, a higher national debt will all follow as tax take plummets.
Osborne’s claim that cuts are the way to create growth is a discredited policy that failed in the US in the 1930’s before Roosevelt’s New Deal kicked in, prolonged Japan’s Great Depression of the 1990’s and is already failing today in Ireland.
He and his Danny Alexander know this. The budget is not about economics but politics. We are witnessing an ideologically driven policy to weaken the welfare state masquerading as a form of national economic salvation.
The economic case for ongoing state activity is being made across the board, from Obama’s letter to the G20, Guardian editorials and even a FT front page warning “Budget to cuts growth and jobs in the short term”. There is also clear evidence that fiscal stimulus has worked. Last week’s figures show national debt down as a result of income tax revenues, VAT receipts and Corporation Tax receipts all up year on year.
Labour now faces a clear choice.
Will it oppose the austerity budget with its own package of cuts – as Alistair Darling so fatefully promised in the run up to the election?
Or, will it side with the overwhelming majority of low and middle income families who face attacks on their living standards, with those private sector companies and 2 million private sector employee’s dependant on government contracts and with those sections of industry, such as Forgemasters, crying out for government help?
A packed eve-of-Budget parliamentary meeting I hosted on the progressive alternatives to the cuts showed that a bold approach could help Labour construct the kind of broad alliances it did so successfully in the late 1990’s.
There is certainly no mandate for these cuts. The Liberal Democrats misled their supporters about their economic polices in the run up to the election and the Coalition’s legitimacy will unravel further as cuts begin to bite. Calls to restrict strike action are a likely sign of things to come.
If Labour puts forward a positive alternative it can win over the millions who will be alienated by the Coalition’s agenda but have lost faith in the party over the past decade.
At its heart needs to be an investment-led recovery. All the economies that have suffered badly in this recession have witnessed a huge collapse in investment. In Britain it accounts for around £6 out of every £10 by which the economy has shrunk. In these times when the private sector will not invest, the government needs to step in.
Not only would this boost the economy from which all would benefit but it presents a great opportunity to reshape the economy away from its imbalance on the financial sector and onto a higher skill base.
The Guardian correctly stated: “What is needed now is a growth strategy”.
The Green New Deal should be central to it. HSBC has said that in some green industries every £1 invested can expand the economy by as much as £4. Much of this would then come back to the government in taxes. A £10 billion green investment would re-skill 1.5 million people, bring 120,000 people back into the workforce and increase the earnings of those on low incomes by more than £15 billion. Such investments would save the government billions of pounds in reduced benefits and increased taxes alone.
Government investment in transport would have a similar impact. Consultancy firm KPMG has said investment in high speed rail would “drive economic growth and ultimately bring substantial additional tax revenue to the exchequer.” It could “contribute between 25,000 and 42,000 additional jobs… [and] increase annual tax receipts by between £6bn and £10bn by 2040..”
The economic principle at work here is simple. Government investment pays for itself by creating employment, greater levels of economic activity and so increasing tax revenues that can pay off the debt. It could easily be applied to a programme of massive council house building – addressing a critical social need and employing the more than 300,000 construction workers who have lost their jobs in the recession.
In the face of the most reactionary assault on living standards in a generation, Labour must show the courage that the Atlee administration demonstrated in the aftermath of the Second World War when Britain’s national debt topped 250% of GDP. That great reforming government embarked on a massive infrastructure programme to get the economy back on track that included the creation of the NHS and greater levels of council housing. Debt subsequently tumbled.
Cameron has warned that every person is set to be affected by the savage cuts over the next few years. The budget shows we should take him at his word.
The urgent task of all progressives today, and Labour in particular, is to put in place the policies and alliances to create a counter consensus.
16 Responses to “Challenging the cuts agenda can boost the economy and Labour’s support”
David Taylor
RT @mcgregormt: RT @leftfootfwd: Challenging the cuts agenda can boost the economy and Labour’s support: http://bit.ly/cQVuyY <- well …
Michael Burke
Billy, Will
The cuts are not just immoral, and targeted at the poor. That alone would not be a sufficient argument against them, given the genuine crisis in government finances.
The decisive argument is that they will not work, because cuts do not equal savings. This is the experience of economies such as Greece and Ireland currently, Britain under Thatcher and of course the industrialised world in the 1930s.
In all cases the renewed deterioration of government finances after fiscal tightening was not unfortuante and incidental, but a direct consequence of the cuts.
This is because there are very sigificant multipliers attached to government spending. That is they also impact on private investment and demand. If government increases, say, spending on schools’ building, the private sector also increases its own output. The same is true in reverse: government spending cuts lead to cuts in investment, demand and jobs in the private sector.
Tax revenues are dependent on the output of both sectors, public and private. Likewise, government welfare spending rises when both sectors are shedding jobs or cutting pay. As a result of these two factors, the cuts in government spending actually lead to a deterioration in government finances.
Here is an example of how that has happened recently in Ireland http://www.tascnet.ie/upload/file/Rapid%20GrowthIreland_MB.pdf . Huge cuts have led to a wider deficit, from 7.3% of GDP to 14.3%.
Here too, David Begg general secretary of ICTU, has issued a clear call for investment, not cuts as the way out of the crisis.
http://www.irishtimes.com/newspaper/opinion/2010/0624/1224273171816.html
Those mulipliers alo work in reverse. Government investment can produce huge returns, just like business (only more efficiently, just ask Obama about which is more efficient , US private health care or the NHS). Investment by the government can rescue the economy and the the fiscal position.
Will Straw
Danny,
That’s not quite right. The deficit was caused by (i) declining tax receipts, (ii) the financial interventions, (iii) increased spending due to the recession. This graph outlines how receipts (now 36% GDP) and spending (now 48% GDP) have diverged.
https://www.leftfootforward.org/images/2010/06/Public-finances-1997-2010.jpg
Will
Evidence based? Really?
Will,
You forget the 80 odd billion that exsisted prior to the banking crisis. I hardly think that you can exclude that.
Further question, you say you like AD’s deficit plan. What was it? It was supposed to be £40 bill but we know barely any of it. It is v difficult for the left to argue that their cuts will be cuddly and progressive if they don’t spell any out!
neilrfoster
RT @leejamesbrown: RT @leftfootfwd Challenging cuts agenda can boost economy + Labour’s support: http://bit.ly/cQVuyY Gd piece by Jon Tr …