When Jacob Rees-Mogg MP spoke in Prime Minister’s Questions in January, he may as well have stepped out of a time machine and metaphorically donned a leopard-skin tabard as he banged the drum to that old Maggie favourite, of TINA – There Is No Alternative. Strange that at least 50 independent economists agreed with Labour’s leadership, that the UK cuts programme should be slower and less deep than that prescribed by the Conservative-led Government. The alternative being: less butchering and more lateral thinking in creating economic growth.
Deficits are part of the economic cycle of recession, to be reduced in times of growth not in hardship, when the economy is not so fragile. Public spending should be seen as part and parcel of fair government, not an irresponsible carelessness of the Labour Party’s over-indulgence. The way George Osborne and Nick Clegg talk, they would have people believe them the sensible, thrifty parents, come home to take control after their wayward teenagers have blown the house-keeping.
Recollections of TINA induce shudders down centre-left spines, who remember all too well the last time TINA entered political parlance in the dark, recessionary years of the 80s and 90s, when huge swathes of industry were decimated, home repossession rife and unemployment sky-high.
The Sons of Thatcher and their post-Global Financial Crisis (GFC) recipe for savage cuts is nothing more than a return to Thatcherite or even laissez-faire, do nothing government, with the public left to the mercy of the free market, for healthcare, housing and university education.
British politics has been plunged back to the days of the haves and the have-nots, by a group of millionaires presiding over Cabinet. It is as if the social reforms since the 1830s mean nothing to them, the current global recession conveniently playing nicely into an agenda to roll back the state, nothing less than manna from heaven to the antiquated lovers of the free-market.
Professor David Blanchflower agrees in the New Statesman: “The British government’s austerity package is based entirely on ideology, not on any economic rationale,” (September 2010). The Chancellor and Prime Minister seem to be glaringly economically illiterate if they think their prescription of cuts, cuts and more cuts will stimulate the economy. It will do the opposite. As WikiLeaks revealed, even Bank of England Governor Mervyn King has little confidence in the PM and Chancellor’s grasp of economic management.
We are facing a crisis of debt. Sadly, the public largely seem to have bought into the line that blames Labour for the economic crisis. Labour must take bold ownership of the truth, over the economic narrative to counter this, otherwise how will the electorate think any differently? Which of course is where campaigning on the doorstep comes-in.
There is many a policy alternative to lazily slashing the very fabric of our society.
It is high time we did something about tax havens, evasion of taxation and brought an end to secret, offshore accounts for companies and wealthy individuals, all of which results in the rest of us paying more. Switzerland, the Caymans and Jersey etc, need to be told we have had enough. The bottom line is we need that ‘missing’ revenue, to run our country, without having to strip our vital public services and to have any hope of reducing the deficit in the long term.
Is it laziness, incompetence or purely a political steer that has historically allowed Revenue and Customs (HMRC) officials to effectively turn a blind eye to the true tax levels owed by the mega rich? Apparently these public servants accept ‘guesstimates’ in the form of token payments, rather than wealthy individuals paying water-tight, accurately calculated figures of exact money owed.
Based on HMRC figures, the potential gap could amount to as much as £102 billion. Other commentators have suggested the figure may be as high as £120 billion. The bulk of this gap arises from evasion and avoidance. Anti-avoidance principles should be introduced into legislation, along with increasing disclosure requirements of tax havens within British protectorates, the introduction of new tax residency rules and crucially increasing resources for HMRC Inspectors. These changes could increase revenue by £20 billion per annum, according to Richard Murphy of Tax Research UK.
There are other fairer means of conducting fiscal policy. The introduction of a 0.05 per cent Financial Transaction Tax (Tobin Tax) in the UK could raise £20 billion by taxing City dealings, including trade in stocks, shares, currencies and derivatives. Government policy should be to campaign for this tax to be extended globally.
It is important to note that before the GFC, despite Tory rhetoric to the contrary, the UK had the second lowest debt of G7 members. Labour did not push the country into the current financial mess through incompetence. Also note that the national deficit was smaller pre the 07/08 crash at 2.3 per cent of GDP than that of 3.4 per cent in 96/97, with total debt down from 42.5 per cent to 36.5 per cent.
The GFC provides camouflage for the cut-thirsty in government, carte blanche almost to take the fiscal chain-saw to public spending budgets. Hardly the way to stimulate the economy, keep people in work, able to contribute to the economy by spending and paying taxes. The gung-ho cuts are carried out with callous impunity but promote a false economy, policies which will actually stall growth rather than stimulate.
Without healthy retail spending levels and sustained consumer confidence the economy may regress into a double-dip recession. Our economic strategy needs to focus on getting money into the Exchequer through taxation and investment, not frightening the public into holding on to every penny and not spending through fear of job loss, mortgage increases and high prices.
The economy needs rebalancing, not lacerating, stagnating and starving of taxes as job cuts in the public sector kick-in. As most thinking people suspected, the much-talked of replacement jobs in the private sector have not materialised.
In April, changes to tax and benefits commenced that will make many citizens, especially families, worse off. As the pound in our pockets buys less and less and our work is worth less and less, a responsible government should be thinking creatively and outside the box, to make life-changing legislation to stimulate the economy, create jobs and empower young people through affordable training and apprenticeship schemes.
If the Government insists on cutting public sector pay, unions should be pushed to re-negotiate new terms and conditions, cut deals with employers to give back something in return for their cheaper labour, such as flexi-time for time off in lieu of pay cuts, or to compensate for the diminishment in their ability to meet the costs of living. So pay freezes and cuts to earnings might, for example, be negated with a four day week, allowing people a three day weekend.
The Government could levy a one per cent football transactions tax on transfer fees to fund school playing fields. Councils could earn revenue from recycling by offering discounts on council tax for those who process their waste efficiently.
Then there is the banking system. Having saved them from total collapse after the knock-on effect post-meltdown in the sub-prime US market, Labour wisely nationalised banks like Lloyds, Royal Bank of Scotland and Northern Rock. In what way does Joe Public benefit from the banks, now that they effectively own them?
The Confederation of British Industry (CBI) identifies these priorities for growth: “releasing pent-up demand for domestic investment needs and the renewal of our infrastructure.” It is vital for our banking system to pay its part in our recovery, especially as they are at the core of the cause. Government needs to extract help for small businesses with bridging loans and business development funding, to help individuals trying to avoid bankruptcy, losing homes and to support small and medium sized businesses (SMEs). It is a matter of will and negotiation.
Witnessing the worst squeeze in living standards in 20 years, people are getting less and less bang for their buck. 2011 pay levels are at the same rate as those of 2005. Mervyn King has pointed out: “One has to go back to the 1920s to find a time when real wages fell over a six year period”.
There are more practical reforms to the benefits system still glaringly absent. Practical change is needed, to encourage people into work, by allowing pragmatic flexibility for the first month of new employment, with payments of income support carrying on into that first four weeks, to encourage people off benefits and into work. Similarly, a month’s grace with housing benefit would be offered, to allow a new worker back on their feet without fear of missing their rent or mortgage payment in that first month, when having to find travel costs, lunch away from home, and the costs of clothing can weigh on new employees.
Meanwhile, this Conservative-led Government exhibits a glaring lack of any real growth plan to stimulate the economy and create jobs. Cameron has repeatedly cited the private sector as ready and waiting to generate new jobs, to compensate for those lost in the public sector post-cuts. But there has yet been any evidence of this to date.
On top of all of this, recent figures from the National Office of Statistics show Gross Domestic Product (GDP) all but flat-lining. The additional increases in inflation, to more than double the Bank of England’s 2 per cent target, mean that the danger of a double-dip recession has not fully receded. After an incredible 11 months, the Government published a Growth Review with the Budget in March, but it singularly fails to match the activism of the previous Labour Government on stimulating growth. The Darling Plan also sought to reduce the deficit, but Labour understood the importance of taking action to stimulate job creation.
As part of a programme to provide economic stimulus, government could invest to build 100,000 new, affordable homes, estimated at creating up to 750,000 new jobs, directly in the construction industry and indirectly in the supply chain, including thousands of apprenticeships for young people. Even the Conservative-led Government moved hesitantly in this direction in the Budget, with £250 million of support for first-time buyers to purchase a new-build property paid for by the bank levy. If they can do this, we can and should be far bolder.
These projections are based on figures from the National Housing Federation, an extra £6 billion investment – together with matched funding from housing associations – would see an additional 100,000 homes built. The Home Builders Federation state that each home built creates 1.5 full-time jobs, plus up to four times that number in the supply chain. So, increasing the output of homes by 100,000 would also generate up to 750,000 jobs.
Critical actions needed by the Government to stimulate growth include galvanising UK Plc’s export performance, particularly to the faster-growing areas of the world. The Government must focus efforts to boost exports, to ensure Free Trade Agreements are concluded with as many target export markets as possible. The CBI advises thus: “removing constraints to trade such as cumbersome customs procedures, ineffective internet protocol (IP) legislation and protectionism in public procurement.”
UK Trade and Investment (UKTI) must be organised and managed in a way that expands its specialist support capability and fully exploits the opportunities of new markets. The Government must play a central role in all aspects of export support, providing world class information, contacts and perhaps even contemplating financial/risk backing. UK export performance needs to be extended fully across Whitehall and the efforts of UKTI fully supported by all major departments.
The CBI also points to the need to: “exploit pent-up demand for investment in domestic infrastructure projects. To facilitate investment in projects in such areas as energy, waste and flood management, decisions are needed in the regulatory and policy framework to reduce uncertainty and encourage investment. Reforms of the planning system must be completed quickly, and urgent clarity is needed about measures to encourage private-sector investment.”
If re-elected in 2010, Labour would have had serious cuts to consider, but surely would not have delivered as swingeing a programme as that put forward by the Conservative Chancellor, Prime Minister and their Lib Dem henchmen. Now is the time to reject Thatcherite TINA and There is no Alternative; it’s up to Labour to speak-up with a defiant: “oh yes there is.”
Article image by Charles Hope
 Financial Times, Economists reject calls for budget cuts, 19 February 2010, http://www.ft.com/cms/s/0/9fe18c22-1cdc-11df-8d8e-00144feab49a.html#axzz1Me73Sz00