Chancellor’s book of doom
George Osborne’s autumn statement promises continued austerity and increased attacks on the working class, writes Eddie Ford. But what is the left’s alternative?
Surprising no-one, George Osborne’s autumn statement on December 3 was very much an election budget. In an obvious bid to parry Labour’s mansion tax, he announced a scheme to take place with immediate effect that will replace the previous ‘slab’ rate on stamp duty - claiming it will curb house prices and “help 98% of homebuyers”, who will pay a graduated tax on properties costing more than £125,000, rising to 12% on those over £1.5 million.1
Spouses will now be able to inherit ISAs tax free, said the chancellor, and fuel duty will remain frozen until September next year. Little bribes here and there can do no harm. As for the personal tax allowance, that will rise to £10,600 - instead of £10,500, as previously announced - and air passenger duty for children under 12 will be abolished. Just as David Cameron in his November 28 immigration speech tried to out-Labour Labour, Osborne’s statement also had the opposition in mind. Hence his plans to impose a tax of 25% on the profits that transnational companies divert offshore (higher than the standard 20% UK corporation tax) - not to mention his proposals to use the proceeds from recent bank fines to upgrade GP services in England. Who could object to that? The overall idea was to generate a feel-good factor before the next general election.
Needless to say, Osborne kept up the story that the UK - just like the United States - was enjoying roaring economic success because it has the right free-market economic model: hence Britain was on track, he insisted, to grow at a stronger pace than its sickly European partners - and with “meaningful real wage growth”, lower inflation and lower unemployment. A Tory government once again delivering the economic goodies.
However, all you have to do is think about it for two seconds to realise that this is nonsense on stilts. The main point about supposed roaraway economic successes is that they normally depend upon the depth of the previous recession: the only way is up, so to speak. That is certainly the case with the UK. Compared to previous downturns, it has taken Britain longer to crawl back to the starting post. Somewhat perversely, showing what they are worth, Osborne’s projections are predicated on a stagnating Europe - ditto Japan, China, Latin America, Russia, South Africa. The idea that Britain and the US are somehow detached from what is going on elsewhere does not add up. In fact, it is a fairy tale. If the world economy, especially Europe, continues to stagnate then the UK will be pulled down with it.
Even Osborne was forced to half-admit this, saying the “warning lights are flashing over the global economy”. Once the figures in the statement - stamped and approved by the Office for Budget Responsibility - are stripped of Osborne’s rather cynical hype, the economy is forecast to grow by 3% in 2014, 2.4% in 2015, 2.2% for 2016, 2.4% for 2017 and 2.3% in 2018-19 - unless, that is, there is another global downturn. But even with this more or less steady growth the age of austerity is set to continue.
There is no disguising the fact - though, of course, Osborne makes every effort to do so - that plan A has been a failure even in its own terms. Far from ‘balancing the books’ by 2015, which now looks like a piece of economic science fiction, borrowing by one measurement is forecast to be £219 billion more than originally planned in November 2010.2 Accordingly, borrowing figures have been revised up by £4.9 billion this year and £7.6 billion next year: the upshot being that net borrowing this year alone, as Osborne conceded, will reach £91.3 billion - greater than the £86.6 billion predicted at the time of the March budget, and more than double the forecast of almost £40 billion made in 2010, when he became chancellor. Not something to write home about.
The main explanation for this dismal performance has been weak income tax receipts due to the fact that wages have stagnated (gone down in real terms) and much of the rise in employment has taken the form of either low-paid jobs of various descriptions or ‘self-employment’ (ie, self-unemployment). Thus only one in 40 of the ‘new’ jobs created was actually a full-time position - 24 in every 40 have been self-employed and 26 in every 40 have been part-time.3 TUC statistics reveal that the proportion of full-time employee jobs fell during the recession and has failed to recover since. They decreased from 64% in 2008 to 62% in 2014 - the equivalent to a shortfall of 669,000 full-time workers. No wonder productivity is tanking. But Osborne would have us believe that Britain will have an outright budget surplus of £4 billion by 2018-19 and £23 billion by 2019-20.
Naturally, Ed Balls was not slow to point out that the OBR is still forecasting that real wages will fall by four percent over this parliament, meaning that people will be worse off in 2015 than when David Cameron came to office in 2010 - definitely not part of plan A. Rather, by now, we should see little green shoots of recovery sprouting up everywhere - enabling Osborne to become Santa Claus and dish out tasty pre-election sweeteners. The pain was worth it - austerity worked. Now all he can say is that the pain will continue and get worse - here we have the real story of the autumn statement.
Which brings us to the real bombshell. Buried in the statistics, there is an OBR warning that there will be a “very tight further squeeze” on public spending ahead in order to eliminate the deficit, with public expenditure falling to just 35.2% of GDP by 2019-20 - taking it below the previous post-war lows reached in 1957-58 and 1999-2000. Or, to put it another way, public spending as a percentage of GDP will be the lowest since the 1930s on current projections and the number of people employed by the state will fall by a further one million by the start of 2020 - taking the total decrease to 1.3 million. A jobs massacre.
Looking at the autumn statement in the light of the OBR report, BBC commentator Norman Smith described it as an “utterly terrifying” book of doom - a “hulking great mountain of pain” that will take Britain “back to the land of Road to Wigan Pier” (a reference, of course, to George Orwell’s 1937 depiction of the extreme economic hardship endured by the working class in Lancashire and Yorkshire4). Osborne immediately hit back, accusing the BBC and other critics of being “totally hyperbolic”. Unfortunately for the chancellor, however, the Institute for Fiscal Studies added weight to Smith’s fears - pointing out that only £35 billion of cuts had already happened, meaning there was at least £55 billion yet to come. In which case, seeing that education, health and international aid is ring-fenced, many government departments could suffer budget reductions amounting to more than 40% - “colossal” cuts that could force a “fundamental re-imagining” of the state, to use the words of the IFS.
Whether cuts of such a magnitude are sustainable, politically or economically, is a different question. But if you are a teacher, nurse, local government worker or civil servant, the chances are that your living standards will keep going down. Osborne, after all, plans to slice billions off the tax credits bill paid as a top-up to five million families on low incomes - which could reduce the income of a working-poor family with one child by £350 a year, while a lone parent with two children could see a £500 drop (the precise picture is complicated by the phasing out of tax credits and their replacement by universal credit).
What has been the response of the left to the autumn statement? Basically, to lecture us about how bad, wicked and terrible the Tories are - and how we need a different agenda. Thanks for teaching us to suck eggs, comrades. But what are they proposing that is actually different? Very little, it seems.
The general response is more or less summed up by the creaking Morning Star, which on December 3 informed us on its front page that it had “teamed up” with “top economist” James Meadway, to draw up an “alternative” autumn statement “exclusively” for the Star.5 Meadway is a former Socialist Workers Party member and now a supporter of Counterfire, as well as being a senior economist for the New Economics Foundation - something that hardly inspires confidence.
Anyway, what exactly is Meadway’s alternative and doubtlessly fairer way of overcoming the deficit? Yes, you guessed - the same stale, clapped-out, utopian programme of Keynesianism that we have heard a thousand times before. Osborne’s polices have been “disastrous”, we read, - indeed, the chancellor’s entire strategy of shrinking the deficit by imposing cuts has been “misguided” and the “social consequences have already been dire”. Yes, we can agree, it has been appalling.
Instead, “setting out the alternative”, our top economist calls upon Osborne to “create jobs” by borrowing at low interest rates to invest in “renewable industry” across Britain. How come nobody thought of this before? Meadway also believes that some “30,000 new jobs” could be created if the government made the living wage the legal minimum, hence “boosting” the spending power of 4.6 million by £1,400 a year. Given that the government (despite record company profits) will fail to meet its borrowing targets because of lower than expected tax revenues, the autumn statement should have set out how to make the rich pay their way - obviously a stupid oversight on Osborne’s part. “We need to tax the wealthy and clamp down on avoidance,” explained Meadway in the article - though he admitted that “pro-growth measures” cannot “immediately” undo Osborne’s damage because it is built on decades of debt-driven growth and rising inequality. But, if “delivered today”, Meadway optimistically argued, such an alternative statement would “make a start on delivering an economy for the 99%”.
Meadway’s recycled social democratic recipes would be laughable if they were not so pathetic - and dangerous. OK, just imagine that the government (whether under David Cameron or Ed Miliband) quadrupled borrowing - building hundreds of thousands of council houses, two or three HS2s, gleaming motorways, state opera houses, etc. What would happen? As sure as night follows day, interest rates would spiral upwards. Look at what happened to the countries that accumulated big debts - Spain, Portugal, Greece. The yields on their government bonds shot to danger point, potentially facing them with a catastrophic default. Are we supposed to imagine that this could not happen to Britain - the queen would forbid it or something?
In the 1930s radical bookshops were stuffed with literature, whether by ‘official communists’ or Trotskyists, mocking the ideas of Keynes - arguing, quite correctly, that they were neither sustainable nor in the interests of the working class: you could never have crisis-free capitalism. The straightforward truth of the matter is that Keynesianism only worked for real during and immediately after World War II, when there were apocalyptic conditions following the death of millions, Europe was in ruins and the world economy was being totally reorganised by the US. Then, not least for political reasons, US imperialism encouraged the rebuilding of western Europe as part of its cold war offensive against the Soviet Union and its satellites (the ‘communist threat’).
But the chances of such a moment being repeated is, to put it mildly, highly unlikely. Keynesianism simply does not work in national isolation: a country like Britain is embedded into the very fabric of the international capitalist finance system. It is not a viable project and to suggest otherwise is to lie to the working class.
2. The Guardian December 3.
3. The Guardian November 12.
4. The Daily Telegraph December 4.
5. ‘Enough of austerity - here’s our alternative’ Morning Star December 3.