Progressive should unite to help Simon Hughes make the Budget fairer. Progressive taxation and a slower reduction plan are the way ahead.
The Government’s claims that the Budget was “tough but fair” and “progressive” have quickly unravelled following analysis by the Institute for Fiscal Studies, Financial Times, and by Tim Horton and Howard Reed on this blog. Despite Nick Clegg’s nonsensical protestations that the the IFS analysis did not include as yet undefined “future changes”, Lib Dem deputy leader Simon Hughes has conceded the point and is now urging Lib Dems to “come forward with amendments … [to the Budget that] improve fairness and make for a fairer Britain”.
Progressives of all stripes should help Mr Hughes with his mission. Lib Dem policies like a Mansion Tax and Capital Gains Tax would relieve pressure for the regressive policies in the Budget. But we should also work to challenge another Coalition myth which continues to have traction.
While the post-Budget analysis has focused on distributional elements, the broad left has been unable to win the argument that the scale and speed of Osborne’s Budget was a matter of choice. Instead the public and media appear to have accepted the Tory line that the total package of cuts worth £128 billion by 2015-16 was “unavoidable” because of “Labour’s debt crisis“.
This reflects considerable political skill by George Osborne and David Cameron in talking relentlessly about the risk of a Greek-style “sovereign debt crisis” and encouraging their Lib Dem colleagues to use the same language. But blame also lies with the Labour party, which refused to hold a comprehensive spending review before the election.
In the March Budget, Labour set out plans to “halve the deficit over four years.” They announced costed plans to increase taxes by £18 billion by 2013-14 and set out a desire to cut spending by £39 billion over the same period. But they failed to detail where the money would come from allowing George Osborne to say in his Budget speech, “What we have not inherited from our predecessor is a credible plan to reduce their record deficit.” Osborne is right and yet this does not necessitate the additional £32 billion in pain by 2013-14, rising to £40 billion by 2104-15, and up to £55 billion in 2015-16.
As outlined on Left Foot Forward on Tuesday, the decision to raise VAT was only necessary to pay for tax cuts for businesses including banks, the Lib Dems’ regressive tax threshold pet project, and to meet Tory promises on national insurance. The additional cuts have been made out of an ideological desire to erode the “structural deficit” in its entirety by 2015-16 putting growth and employment at tremendous risk. Three points are worth making.
First, until the financial crash Labour had succeeded in keeping national debt below the 40 per cent of GDP target that it set itself. In 2006/07, public sector net debt was 36.0 per cent of GDP. It rose rapidly primarily because of “financial interventions” to help the banking sector and because of the unemployment benefits and lost tax receipts caused by the recession. It currently stands at 62.2 per cent and under Labour plans was projected to peak at 74.9 per cent in 2014-15. As this graphic using data from the OECD shows, even at that level, the UK will be below a number of countries including Italy, Japan, and indeed Greece. Under the Tory plans net debt will now peak only marginally below Labour’s 70.3 per cent in 2013-14 – although if the Budget causes the economy to slow down by more than predicted
Second, the “structural deficit” was caused primarily by the recession not by Labour’s pre-crash spending plans. Left Foot Forward has been fond of showing this graph. Although Gordon Brown should have closed the gap earlier, it shows how in 2008, current spending and tax receipts were virtually in balance. The deficit was due to the Government’s capital spending programme which was perfectly sustainable while the economy grew. Crucially, it was only in November 2008 – in the midst of the banking crisis – that the Tories dropped their pledge to match Labour’s spending plans. At the time, Nick Clegg said, “David Cameron has learned nothing. It’s exactly what the Conservatives did in the 1980s.”
Third, markets were satisfied with Labour’s approach. There was much guff during the election campaign about what impact a hung parliament would have on markets. Similarly there was never any evidence that a Labour victory would result in Britain losing its AAA credit rating. Not least because markets knew the truth about debt levels and the deficit. Indeed, the yield on British Government Securities have been at historically low levels since the financial chaos of autumn 2008. Yields remained around 4 per cent through both the November 2009 pre-Budget report and the March 2010 Budget when Labour set out their deficit reduction plans.
During his Budget statement, George Osborne admitted that, “this was a crisis that started in the banking sector.” Indeed it was. But because of Cameron, Osborne – and now Clegg, Alexander and Cable’s – ideological position to cut deeply and rapidly, the next crisis may be caused by the government. The alternative is a fairer and slower deficit reduction plan.
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20 Responses to “Progressives should unite for a fairer, slower reduction plan”
Politics Summary: Friday, June 25th | Left Foot Forward
[…] time to destroy it. Are [Lib Dems] still the party of Keynes, Beveridge and Lloyd George?” Left Foot Forward last night urged “progressives of all stripes … [to] help Mr Hughes with his […]
Billy Blofeld
By the time Progressives even get around to uniting to outline a fairer and slower deficit reduction plan it will be too late………
…. the silence is deafening. The complaints about the people who have got their fingers out and are actually delivering the cuts is also deafening.
What are Progressives / Labour for? Just complaining? Is Labour a pressure group or a party of government?
Arthur Bough
Capital does not need to make these cuts, and some sections of Capital, in particular US Capital, is saying so very loudly. Ideologists like Roubini are also saying that such cuts at the present time are a lunacy. I continue to beleive that the real representatives of Capital within the permanent State Bureaucracy will stifle theri implementation. Even Norman Lamont has called the 25% figure “an ambition”.
But, that does not mean we should look to the Capitalist State to fight our battles here any more than anywhere else. We need to mobilise against the Cuts ourselves. But, for the same reason such mobilisation should not simply be a defensive, negativist struggle. Our aim is not to protect the Capitalist Status Quo, but to put forward socialist alternatives, socialist solutions to workers problems here and now. As Marx and Engels put it to look after the needs of today, whilst taking care of the Movement of tomorrow. That’s why the reformist, Economistic struggles of the Trades Unions against cuts will always be inadequate.
The Liberal-Tories have said that they want US to have a say on the Cuts, and how the Deficit is dealt with. That is good even if we know they don’t mean it. We should take them at their word in putting forward positive alternatives not just opposing cuts. To the extent that the Tories proposals on Co-operatives (with all of the limitations they want to place on them) allow us to open up that narrative about the desirability of a society in which Workers themselves own and control the means of production, and facilitate beginning that process here and now as a practical solution, all the better.
In fact, the Liberal-Tory invitation to discuss the Cuts should be taken up warmly in order to promote such positive discussion, and direct demcoracy on every street, in every neighbourhood, and on every factory floor. As socialists I am sure there are a whole series of Cuts that we could put forward as an alterntive to cutting services or benefits. We have every opportunity to draw up such a programme, and to get it discussed and taken up by a wide section of society, not just by workers but in the middle class too.
But, I also have a very simple proposal that I have put forward in my blog http://boffyblog.blogspot.com/2010/06/how-to-pay-for-deficit.html that could be used to symbolise such a set of alterntive proposals. I propose that every limited company be required to create new shares equal to 10% of its issued share Capital, and to hand them over to the government. They could be then sold by the arms length agency the government set up to handle the Bank shares that were similarly created and handed to the government. By taking payment in shares not cash it would mean that these companies suffered no loss of profits, or cash flow from which to pay wages, suppliers or to make investments. It means no withdrawal of demand from the economy. After all the creation of those vast amounts of Bank Shares didn’t bring the world to an end, and ever since the Banks have been once again making huge profits.
As the total value of shares listed on the Stock exchange comes to well over a trillion pounds, these new shares would be worth more than 100 billion pounds. It would raise sufficient funds to pay off the debt overnight without having any impact on economic activity – indeed it would if anything stimulate growth.
Of course, the Liberal-Tory Party will not adopt such a measure because unlike every otehr tax which falls on income or wealth – and which, therefore, the rich can avoid – this tax falls directly on Capital itself. It is not an attempt to redistribute income, but redistributes Wealth away from Capital, and towards Labour. Not only does it not have any economic downsides – even the fall in share prices when these shares came to market would be limited – and because it meets all the requirements of fairness etc. that the Liberal-Tory Party claim to subscribe to it is hard for them to argue against. That is precisely why the Labour Movement should put it forward as a solution.
Cuts won't reduce the deficit - investment will | Left Foot Forward
[…] the 1930s. Some on the Left have put forward the argument that the cuts shold be implemented more slowly and more fairly while others have argued for investment not cuts as the way out for the […]
George Kendall
It’s refreshing to read a Labour supporter willing to acknowledge some past mistakes.
I think the present Labour leadership are missing the zeitgeist. Public opinion has shifted – http://www.ipsos-mori.com/researchpublications/researcharchive/poll.aspx?oItemId=2628 . What Alistair Darling said a year ago has been forgotten and the Labour leadership’s rhetoric gives the impression they are in denial. The country needs an effective opposition, so I hope your suggestions are taken up.
While I like some of your article, I didn’t like: “The deficit was due to the Government’s capital spending programme which was perfectly sustainable while the economy grew”. Hmm. How’s that different from saying: “The deficit was due to the Government’s non-capital spending programme which was perfectly sustainable while the economy grew”? True. But not sustainable if the economy were to stop growing…