The phoney war is over. George Osborne’s Spending Review is the beginning of the real campaign. The battle-lines have been drawn. This is about more than economics. It is about values.

Do we live in a society that places some value on solidarity and justice?

Or do we live in a society where the law of the market – to those that have, more will be given – rules all?

The Spending Review is the Coalition’s answer to that question.

It represents nothing less than a slow-motion catastrophe for the majority of working people in Britain.


Not that Osborne would say this, of course. But “spin” is too polite a word for Wednesday’s verbal chicanery.

His speech was dishonest from beginning to end.

Osborne claimed first that British taxes were disappearing as interest payments to “foreign creditors”. This is seriously misleading.

On the government’s own figures, around 70 per cent of the UK national debt is held by wealthy individuals and institutions in this country.

He claimed that the Spending Review was fair. Yet on the government’s own analysis, buried away on page 98 of the Review document, the very poorest households will be amongst the hardest hit.

The reputable Institute of Fiscal Studies agrees. The poorest will suffer most.

He claimed that it was reckless spending by the Labour government that led the country to crisis.

This is the biggest lie of all – repeated endlessly by ministers and their apologists in the press.

Figures from George Osborne’s own Office for Budget Responsibility expose it. Their last report showed the Labour governments from 1997-2007 spent, on average, 38 per cent of GDP.

The Tory governments from 1979-1997 spent, on average, 43 per cent. So much for New Labour’s alleged “profligacy”. And anyone who has had to rely on benefits will know the current welfare state is not some land flowing with milk and honey.


The rise in the national debt, and the increase in the deficit, is due entirely and completely to the financial crisis that began in 2007-8.

The bankruptcy of Lehman Brothers brought the world economy to the brink.

Like other banks, it had borrowed hugely to place increasingly complex bets on US property prices. When those gambles turned bad, it was sunk. The failure of the world’s third largest bank opened up a black hole in the middle of the system, pulling the global economy in behind it. Governments around the world were peering into the abyss.

By the end of the same week, major banks in the UK like RBS were telling the government that they could not open on Monday morning. They would have run out of money.

The government, in panic, mobilised the resources of the state to bail out the banks. It borrowed on an immense scale to prop up the banks. The cost was astronomical. The Bank of England estimates that the UK bailout cost £1.3trillion. And the recession that followed the crisis hit revenues from taxes, while pushing up benefits spending.

This has nothing to do with the actions of ordinary people, or with spending on public services. It is the direct product of a rotten financial system. And it is producing a revolting injustice.

The assault on welfare

Because of the bankers’ crisis the rest of us are expected to suffer.

Welfare payments are being slashed by an extra £7bn. Housing benefit is being chopped. Social house-building will slow to a virtual standstill, and exorbitant “market rents” charged to tenants.

Council Tax benefit will be cut 10 per cent. A family depending on benefits will lose an average of £1,000 a year.1.5m children will miss out on child benefits. Sure Start is being cut.

The Education Maintenance Allowance, £30 a week paid to the poorest 16 year olds to help with the costs of attending college, has been axed.

The university system will be hammered by £4.3bn cuts, backed up by the introduction of unlimited fees.

Local councils will see their budgets fall over 7 per cent every year, for four years. Local authority care for the impoverished elderly is facing 30 per cent cuts.

The replacement of Incapacity Benefit, the Employment and Support Allowance, will only be paid for a year. Disability Living Allowance will be cut for those in care.

Women will suffer disproportionately. A House of Commons audit of June’s emergency budget found 70 per cent of the cuts would be borne by women. Over the next ten years, men’s retirement age will rise one year – women’s by six years.

The message should be clear. If you must live in Coalition Britain, try to avoid being poor. Or young. Or old. Or disabled. Or unemployed. Or female.

Try, in fact, to be more like George Osborne: a millionaire, born to millionaire parents.

And this is only the beginning.

The descent

Osborne, ominously, promised more “reforms” to welfare in his statement. He awaits delivery of a report by turncoat Labour MP, Frank Field, before making his next move.

It would be foolhardy to try and second-guess the fevered mind of Mr Field.

But we can see the economic impact of the Spending Review.

The Treasury thinks 490,000 public sector jobs will go.

This will devastate whole regions, like the north-east, where private capital has failed to replace the jobs lost during the 1980s. Public sector employment has sustained the local economy.

But even in the supposedly prosperous south east, London boroughs like Lewisham have 40 per cent public sector employment – a tribute to the feeble state of private capital in Britain.

The Coalition believes that by shrinking the public sector, a space will be cleared for private initiative. Bureaucrats will be swapped for entrepreneurs. Official forecasts by the Office for Budget Responsibility predict that the private sector will now grow so rapidly, it will replace the public sector jobs lost.

This is dangerous, delusional nonsense.

According to the OBR, demand for exports and investment by businesses would have to recover faster than they did from much shallower recessions in the 1980s and 1990s.

But exports will not grow if the UK’s biggest markets, Europe and the US, are still in recession. Businesses will not invest if consumer demand is weak and banks are not lending properly.

The forecasts are hopelessly implausible.

By cutting government spending at this time, the Coalition is driving the economy further down. Cutting government spending reduces demand in the economy. When there is reduced demand, businesses sell less. They cut wages and make redundancies – hitting demand still further.

This is the demand death-spiral that helped prolong the Great Depression of the 1930s.

Economists from the one-time Thatcherite Samuel Brittain to the liberal Paul Krugman have declared spending cuts to be, in Krugman’s words, “utter folly”.

Even the International Monetary Fund agrees. Their new research says that for every £1 of government spending cut in current circumstances, £6 is lost from the economy.


There is a further twist.

If the economy does not grow, the government will not receive the tax revenue it expected – and it may have to pay more in benefits.

It will then have to cut public spending still further if it still wants to meet its deficit target.

Cuts now can mean more cuts later as demand collapses. The more the Coalition commits to reducing the deficit, the worse the situation will become.

This is the insanity that lurks behind the spending cuts.

But this weak, divided Coalition government is trapped.

There is more to Osborne’s slash-and-burn economics than ideology. The Tory-Liberals are committed to the free market, all right, as the whoops and cheers in Parliament yesterday made clear.

That commitment is not enough to explain the ferocity of Osborne’s attack, however.

This is a deep, structural crisis of capitalism. It has already required us to pay for one banking bailout.

But the financial system is totally unreformed.

It is bonuses as usual in the City. The same amount as Osborne is taking from the poorest in welfare cuts – £7bn – has been set aside as top-ups for the richest.

The status quo has been restored. The financial system is unreformed. The feeble new “Basel III” agreement, supposedly restricting gambling, will not be in place until 2019.

And because it is unreformed, all the poison is still there. The same gambles are being made. The financiers got away with it last time – so why change? The hedge funds – gambling dens for the elite – are booming.

Another financial crisis is likely. But paying for the last one virtually bankrupted the economy. As the Bank of International Settlement warned in its annual report, economies like Britain are too “fragile” to cope with another one.

This is already happening in Ireland. The bailouts are continuing to decimate an already weak economy. The IMF has called the financial system the “Achilles heel” of the recovery.

The fear of another financial crash is driving the Tory-Liberal cuts. They are clearing a space for another bailout.

British capitalism is too weak to afford both an unregulated financial system, and a welfare state. Both require public spending.


So we face a choice. The Coalition has chosen finance over public services. In doing so, it is launching a fundamental attack on the welfare state itself.

We must force the choice in the other direction.

That will mean building a mass movement of all those opposing cuts.

That will give us the political weight to take on the Coalition.

A mass movement saw off the Poll Tax. A mass movement against war drove Blair from office.

Putting 200 or 300 thousand on the streets would start to fundamentally shift politics in Britain. That would open the way to the sort of inspirational movement we can see in France.

But doing that will mean winning the argument that such a movement must be built.

The protests on the day of the Spending Review were an excellent first step. It is vital now that we start to tie together all the separate local campaigns, across the country, into a united movement.

The Coalition of Resistance has called a conference of all those resisting the Tory-Liberal cuts for 27 November. Every campaigner and activist should try and get there.

It is time for all those who value people’s lives ahead of markets to unite.

James Meadway

Radical economist James Meadway has been an important critic of austerity economics and at the forefront of efforts to promulgate an alternative. James is co-author of Crisis in the Eurozone (2012) and Marx for Today (2014).

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