Kevin Ovenden looks at the growing crisis facing the government over the soaring deficit and the debate on taxation
The Tory government already staggering from one U-turn to the next faces a schism this autumn about taxation, spending and what to do with the ballooning deficit.
The Labour frontbench position on what is going to be a major national argument appears to rest on this proposition:
Increases in taxation (of whatever form, upon whichever class) will choke off any prospect of recovery by taking money "out of the economy". Superficially, it can appear to have some Keynesian legitimacy. And in today’s world that is still taken to have something to do with the left.
The general position citing the economist John Maynard Keynes is that governments should not cut spending or raise taxes in a recession. Instead they should borrow, spend, stimulate economic growth and then recoup the money through taxation and curbing future spending (through falling costs as employment returns and so on) when growth "picks up".
But this is superficial. It depends on what is done with extra tax revenues. If they are used to pay down debt – given to the banks and bondholders – that does indeed mean taking money out of circulation in the real economy and reducing economic activity.
That has been the decade-long problem in Greece, where the austerity memoranda mean the government must draw in 3.5 percent more than it spends, with the primary budget surplus going to debt repayment. It is why the anti-capitalist left argued that the critical issue was the repudiation of the debt, with all the socialist measures following upon the rupture that would cause. That included breaking from the euro.
Syriza’s initial argument – until 2011 – was to “tax the rich to pay the debt”. That is clearly preferable to taxing the working and middle classes to pay the banks. But it ran up against the fact that, as all serious economists said, the debt was actually unpayable, and even if taken from the rich the policy still meant sucking vast sums out of the national economy and killing economic activity.
That reality and the pressure of a movement that strongly raised rupturing from the debt led to a shift in position by Syriza in 2011 towards repudiating the debt (or at least the “odious”, illegitimate portion of it) in order to get out of the austerity debt-trap.
British conditions of today are not the same, but the fundamental points for the left of 2008-2013 are – in fact they are intensified.
The UK budget deficit is soaring. It was already predicted in May to be £200 billion this year. It is going to be much higher, obviously on account of the emergency measures in the face of the pandemic and slump.
Hence the major row developing in the British government as it tries both to carry through its promise to its new voters and to be a responsible capitalist government. Those who say it is simply not an issue because the government can print money and borrow at ultra-low interest rates ignore the fact that Britain is part of a global system of financial markets and complex exchanges. Those will turn against any government that is held not to be “credible” in keeping debt under control.
At the same time, ending the furlough scheme, pulling back the varied economic support mechanisms and raising taxes on working people (more on that in a moment) will hit what economic activity there is and is likely to mean a further sudden collapse.
It is absolutely right to make these arguments. If not, then we risk falling into the discredited old Thatcherite fallacy that the national economy is like household finances, where you have to balance the books and there is no impact of less spending beyond the hardship of the person spending less not being able to buy more.
That isn’t the problem with Labour’s position on taxation. There are other and much bigger problems.
First, it makes no differentiation in opposing rising taxation between, say, raising corporation tax on company profits and hitting working people through rises in VAT, National Insurance (which if it happened would be sold as investing in the NHS – an old Lib Dem policy), and any of the myriad ways of raking in tax.
So there is no recognition of the huge wealth disparities in Britain and the way the tax system is already skewed in favour of capital and the wealthy – the wealthiest of whom have got richer in this crisis.
Thus there is no sense that taxation (and spending) policy can be used to redistribute to address those inequalities.
Second, it relies on an underlying assumption that we can exit this crisis by prolonging emergency measures so that “the economy” picks up, returns to “normal” and in that way automatically the ship rights itself.
The huge flaw in this is that the economy was sinking before the pandemic shock and mired in deep, long-term structural crises.
One of them is investment. It has been at chronically low levels since before the last crisis in 2008. If Labour’s argument is that taxing more of profits will lower business investment, then it ignores the reality that cuts to corporate taxation over 20 years have not produced investment in the first place.
Instead – and exacerbated by the bank bailouts of 2008 – they have produced one financial or property bubble after another. A large amount of that has been commercial real estate – look at shopping malls and office blocks in London, Manchester and (some) other cities. These now face a monumental crisis with a historic cycle of oversupply every 20 years or so coinciding with both the pandemic shock and changes to shopping and the organisation of office work that were already underway.
Maintaining low corporate tax or slashing local business rates is not going to bring large investment or even keep some big retailers in business. Household names have closed or, like Debenhams, are in administration. Stores are closing across the country. One in ten shop fronts are already shuttered. In some town centres it is nearly three in ten. Some 200,000 jobs are set to go this year in the retail sector alone.
The third problem is spending. It took until 2018 for average hourly wages in Britain to return to the level of 2008. Most people were not spending much money before this crisis because they didn’t have any.
At the same time, while extra money for the wealthy does not go into productive investment or higher consumer spending, but into property and financial bubbles, any increase for the working class and much of the middle class does go into spending on goods and services.
Taking money via taxation from the wealthy and giving it to the rest to spend does produce economic activity.
All of this is ruled out, it seems, by the Labour Party’s approach.
To be clear, even doing that – say cutting VAT but raising corporation tax – would only be a modest, palliative measure in the face of this crisis and the underlying malaise in the British economy it has exposed.
But at least it would point to the fundamental issues of class and class power. At the heart of those are ownership and control.
And this is the biggest problem of all in Labour’s position. It is a flight from any kind of transformation of the structure of ownership, control and power in Britain. Instead, it posits leaving that intact, with the state stepping in just to prop up demand and stave off the worst of the impact of profound economic shocks.
I’m sure Labour will talk of some kind of tinkering dressed up as transformation for the future. But at the moment when it is really called for it is out the window in favour of one or other version of conventionality. It is like being passionately for a policy of peace… except when a war is on.
Within conventional bounds – though wider than in 2008 – stands Tory policy also, both wings of it. That will be true even if a bit of the expected tax rises do fall on sections of business and the rich in order to project a curve of “getting on top of the deficit” – projections that will not be worth the graph paper they are written on.
What is wrong with Labour’s approach is not the part that warns of sucking money out of the economy. And Tory tax rises to satisfy the bond markets and deficit reduction do not become socialist even if some of them also fall on some rich people.
What is wrong with Labour’s response is that it comes across as opposed to any redistributive let alone anti-capitalist state intervention into the economy at all.
It leaves a political vulnerability also. So how will you reduce the debt and deficit? The anti-capitalist answer is ultimately to rupture from that via pursuing a fundamental reorganisation of society and economy, not just keeping a life-support system going in the hope it will work itself out.
But Labour’s answer? Just that future economic growth will do it as it did from the mid-1990s to 2008. But those years are not returning and we still have the consequences in social and economic inequality from those “good” times. In the narrow compass of what passes for official political debate Labour will stand accused of not having an answer.
All of this poses the need for the left coming together to put its own radical programme of measures that provide relief for working people by cutting into and against capitalism. That is instead of relying upon it, under various types of tinkering, to recover. All in the context of the spiralling environmental crises, to which the Covid pandemic is connected.
Naturally, we are for taxing the rich and capital. But the issues at stake go way deeper. And we are not for using such tax revenue to pay the bondholders. That is merely redistribution within the capitalist class, leaving the exploitative structure intact while indeed sinking useful economic activity to propitiate the financial gods.
Such a radical programme is not some dusting off of something written nearly a century ago as if it were in every jot and tittle the voice of Moses and the prophets. Nor is it some forensically elaborate set of policies, into micro-detail, as if it were to be implemented by an incoming left Chancellor of the Exchequer. There is not one imminent – or distant.
Rather, something is needed that in a plain way points to the radical approach that has to be fought for, in all arenas from popular agitation to arguments about policy. That is with a view both to imposing its direction politically and linking together all the many struggles that are unfolding – from evictions to job losses.
Why should firms that have received furlough subsidies be allowed to sack people over the next year? Or sack anyone if making a profit?
The Tory government has instituted a Tory version of nationalisation of the rail companies – one that keeps profiteering intact and looks to getting “back to normal” as soon as possible. Why can’t other major industries be nationalised, but to public not private benefit and under democratic and worker control?
Some projections talk of four million unemployed by Christmas. Whatever the figure is, what about the state taking on the assets of bankrupted outfits and marrying them up with workers on the dole?
And why not raise demands such as these in the battle to stop job losses, which the union movement has to step up to or face a crisis of its own?
Scrapping Trident would free vast sums and the skilled workers involved to engage in socially useful, productive activity.
For five years the left discussion about these kinds of issues was framed by the possibility of a radically reforming Labour government being elected. So they necessarily looked from the standpoint of a future cabinet and ministries of state downwards.
There is not going to be such a government. It’s time to reframe all this from the bottom upwards. And it is that that also, if part of big social and class struggles, can force the hand of even a Tory government, as it did in 1972.
That is just not going to happen from the Labour Party under a “new management” that will not raise even taxing the rich, let alone taking the levers of power from them. The radical left of whatever affiliations is going to have to come together and press this itself.
Before you go...we need your help
Kevin Ovenden is a progressive journalist who has followed politics and social movements for 25 years. He is a leading activist in solidarity with the Palestinian struggle, led five successful aid convoys to break the siege on Gaza, and was aboard the Mavi Marmara aid ship when Israeli commandoes boarded it killing 10 people in May 2010. He is author of Syriza: Inside the Labyrinth.
More articles from this author
- The struggles are fusing: Greece protests rage against authoritarianism
- Starmer's flag fetish: win the middle ground, don’t chase it
- Vaccine nationalism: a plague on all our houses
- Impeachment will not defeat Trumpism
- We need to learn from the mistakes of Brexit past
- Keir Starmer's Brexit opportunism
- Why is the US election so close? - video