Chancellor George Osborne presented the Autumn Statement. Like all his predecessors, he has little idea what causes economic crises or what to do about them...
The Coalition declared in 2010 that the answer to recession was to reduce the public spending deficit. The idea was dodgy at best, even in capitalist economic terms. At worst it risked a spiral downwards through reduced employment leading to higher benefit spending, lower tax revenue and failing businesses. And that is exactly what’s happened. The date for the recovery recedes, like a mirage. Government debt interest payments this year are about twice that for 2009, and will rise further when Britain’s credit rating drops.
The Bank of England – like everything else in Britain, soon to be handed over to foreign control (in this case a Canadian).
Without conviction, Chancellor George Osborne used his Autumn Statement on 5 December to blame the previous Labour government or the eurozone crisis or both for the failure. The laughable claim that the government is on the right track belies the reality. We are in another great depression, comparable with that between the two world wars.
The symptoms are clear. The banking and debt crash in 2008 shows no sign of abating in Britain or worldwide. There are occasional improvements in some places for short periods, and then fresh problems emerge.
In Britain there is now little or no overall growth in production and a drop in industrial output to a 20-year low. Services and construction sectors are weak. Exports are declining, despite some minor spikes.
Economic growth between 2010 and now was predicted to be around 5.7 per cent. It’s turned out to be less than 1 per cent, and mainly at the beginning of the period. The budget deficit (the difference between government spending and income through tax) was expected to be £60 billion for the coming year. The forecast now is near to twice that, barring one-off receipts. Even the forecast that “austerity” will end after 2018 is based on predictions without evidence to support them.
The number of workers employed is up, but those figures mask deep structural problems. There is increasing under-employment through reduced hours, part-time and temporary work. The number of young workers without jobs is rising fast. Short-term training, even where it is available, will not guarantee future work either.
Inflation is not high in historical terms, but is running well ahead of wage increases. Savings rates are minimal, yet capital to build businesses is scarce. Taxes are increasing for individuals, though not for businesses. Tax seems to be voluntary for multinational companies. There’s a flash of publicity about tax avoidance but no sign that this government can do anything about it, or wants to.
Local authorities are cutting services; progress in education and the health services has quickly fallen away. There is sustained pressure from government to introduce market-driven provision for public services, despite the evidence that PFI contracts and similar arrangements are an expensive failure.
Annual expenditure for the Department of Work & Pensions is up to £160 billion, compared to £135 billion in 2009. That’s mainly on state pensions and working age benefits excluding tax credits. Amounts paid are being held down through stricter qualifying conditions; nominal rates will rise by less than inflation. This continues a trend set by the last government, and will get worse with the introduction of universal credit from October 2013.
Despite the obvious connection that increased welfare spending follows falling incomes and reduced employment, Osborne claims that there is scope for significant cuts to this expenditure. That prediction will be as inaccurate as the rest. Changes to benefits will cause hardship for all the workers affected by them, but it will be to no avail. The number of people qualifying and needing support is out of control until more return to work, or start work for the first time.
The government’s approach to the economic crisis is primarily to cut back. It has announced some plans to build infrastructure such as roads. The amounts promised are a few billion pounds – completely inadequate relative to the need. They come with vague wishes that this will open the way for private investment. That hasn’t materialised and the government schemes are barely under way, if at all.
Private investment generally has been strangled too. Banks are reluctant to lend for investment, despite massive subsidy from the government. Businesses with a cash surplus (there are many) won’t invest in development, despite low interest rates. Visible results include empty shops, low levels of house building and increased rents both domestic and commercial.
Public sector wages and occupational pensions have been held down since 2010. That’s set to continue for the life of this parliament and beyond. Osborne carried this further by extending the attack on wages and conditions to teachers’ national salaries. That follows on in the same vein as plans for civil service reform to introduce regional pay. Legalisation to fragment the NHS will threaten health care, and will also undermine pay and conditions.
Driving down pay
The effect of public sector pay policy is to drive down wages and conditions generally across the whole country. Osborne wants to push this further. Last year’s idea was for public sector workers to set up companies to run what the state does now. It did not grow, though like a persistent weed it keeps springing up in places with disastrous results. This year Osborne announced to his party conference an equally barren scheme. He proposed giving shares to workers who give up employment rights. Few businesses supported him, seeing it as irrelevant.
One feature of the depression in the 1920s and 1930s was the belief that the gold standard (in effect the currency exchange rate) was the mark of economic stability and without it ruin would follow. Yet it was not until that view changed that the crisis began to diminish – though it took a war to end it.
Today we see similar thinking in the eurozone – that countries must be fixed in their relationship to the euro. This is causing hardship and growing tensions across Europe. Although, thankfully,
Britain is outside the eurozone, our own government is fixated on the international markets and Britain’s credit rating. That’s about the only reason it can offer for making debt reduction the priority, yet that policy will almost certainly create the same damage as holding to the gold standard. ■