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  • Published in Analysis

One word can summarise George Osborne’s first budget. Brutal. £11bn off welfare spending, from child benefits to Disability Living Allowance. VAT up to 20 per cent. And an average 25 per cent cut for most departmental budgets.

George OsborneHundreds of thousands of public sector workers face bleak prospects. And the millions who rely on them will fare little better.

Yet at the same time Osborne is reducing Corporation Tax, every year, for four years.

Be in no doubt about this: the battle lines have been drawn.

Osborne is throwing ordinary people to the wolves in the City. Lib Dem bleating about “fairness” is no disguise for this.

Nick Clegg stood by while £105m cuts were imposed on the city he is supposed to represent. Jobs in Sheffield will disappear because Clegg wants to play at being a Cabinet Minister.

He seems to fancy himself as a grand bourgeois statesman of some sort, able to make tough choices. Alas, it’s less like Churchill the Prime Minister, and more like Churchill from the insurance adverts. Nod nod, woof woof, all the way through Osborne’s slash-and-burn speech.

No “fairness” here

Sure, there’s a new Bank Levy. After pocketing our cash for the last year or more, the bonus junkies in the Square Mile are facing a - wait for it - 0.04 per cent tax on their liabilities.

This will rise to the giddying, near-confiscatory heights of 0.07 per cent next year.

A 0.07 per cent tax. That’s all the punishment the bankers get, after gambling the world economy to near-destruction - and then snaffling £850bn to pay for the clean-up. No wonder shares in British banks leapt after the news. They simply can’t believe their luck.

And the threshold for income tax is being slightly raised. The Lib Dems claim this will help the low paid.

But its limited impact on their incomes will be zapped by the VAT increase. VAT rises are regressive: they hit the poorest, hardest.

The richest 10 per cent of society currently pay one pound in every 25 they earn as VAT. The poorest 10 per cent pay one pound in every seven.

The richer you are, the less VAT matters. The Lib Dems used to oppose raising it because of this. Then they got into government.

So much for their “progressive” credentials.

Let’s hope the voters remember the Lib Dem betrayals at the next election. But really they are sideshow - a joke in poor taste.

A budget for the rich

The real intent of this Budget is crystal clear.

The reduction in corporation tax tells you all you need to know about this government. They are rewarding the rich while they clobber the poor.

Cuts on an unprecedented scale, alongside tax breaks for corporations. All to pay for a crisis the bankers caused.

You’d have to be, well, George Osborne not to see the elementary injustice in that. This is a government of millionaires, for millionaires.

Double-dipping

There is no economic case for these cuts. Since the 1930s, the most dyed-in-the-wool free-market economists have recognised that cutting government spending during a recession is deeply unwise.

The logic is simple. Demand matters. Firms must sell their goods and services. If they do not, they cut wages, lay off workers, or even close down. But in a recession, people have less money, and so spend less. Firms then sell less. The recession is prolonged.

Government spending can help make good the difference between demand and supply. Its own spending boosts demand in the economy. Identifying this was John Maynard Keynes’ biggest contribution to economics. His argument is now widely-accepted.

One-time Thatcherites Samuel Brittain and Martin Wolf have argued that cuts on the scale Osborne is proposing are counter-productive.

They fear Osborne’s cuts will drive the economy towards a “double-dip” - a second, and worse, recession. Public spending is needed to support the whole economy.

Forecasting

But these commentators still accept the need for cuts. They just believe they should be brought in more slowly. Against them, the government and the new Office for Budget Responsibility think dramatic cuts now will have limited economic consequences.

Osborne and the OBR think the private sector will recover so rapidly, all by itself, that it will compensate for falling demand from government.

The OBR’s “independent” forecasts expect investment by businesses, in particular, to recover even faster than it did after the recessions of the 1990s and 1980s. But with bank lending still restricted, and with recession elsewhere in the world, this is not credible.

Mainstream commentators are right to argue that Osborne’s cuts are likely to push the economy back into recession. But we must go further than this.

Beyond the cuts consensus

Osborne has announced a Spending Review for 20 October. This will contain more precise details of the cuts. Before then, he is staging a “consultation” on where the axe should fall.

This is divide and rule: the Tories want us to fight amongst ourselves as we scrabble for our patch of public services to avoid the chop. He wants to pit public sector against private sector, region against region, students against pensioners as preparation for his attack on spending.

We need to challenge this logic. Anti-cuts campaigns are already springing up across the country. A united, national movement can turn those local campaigns into a new political force.

Making ordinary people pay for the bankers’ crisis is not acceptable. At the same time, that crisis is still producing convulsions across the globe. States across the globe are struggling to cope. The euro is weakened - perhaps fatally.

Opposing the brute injustice of the cuts and mitigating economic chaos are linked. Addressing both will require breaking the overweening power of the City of London, and posing a plausible alternative. It will mean a serious tax on wealth. It will mean no more bonuses. It will mean using the nationalised banks to create green jobs, through investment.

Only a mass movement, drawing in all those who oppose the Coalition’s cuts, is capable of addressing these questions politically. Time is short, but that movement must now be built.

James Meadway

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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