Poverty and inequality are at record levels according to a new report. The redistribution of wealth from poor to rich overseen by Thatcher and continued under Labour will be accelerated by the massive ConDem cuts - unless we stop them.
The Institute of Fiscal Studies’ annual Poverty and Inequality in the UK report makes for bleak reading. Incomes for most households had stagnated for the last seven years under New Labour.
Poverty remains statistically significantly higher than in 2004-5, despite some improvements for pensioners and children. For working-age adults without children, it is the highest since comparable records began in 1961.
It is quite different for the very richest in society - the 42,000 people who earn more than £149,000 a year. Of course, nearly a third of this top 0.1 per cent work in “financial intermediation”, so as the financial crisis hit the poor darlings suffered a slight loss.
Yet their already vast incomes have swollen by anything up to 15 per cent a year under New Labour. Inequality is now at the highest level since 1961. Although the redistribution from poorest to richest that Thatcher oversaw was slowed down, it was not reversed. New Labour failed to undo the historic damage of the 1980s.
Peering into the gloom
That damage will now worsen. Leaked Treasury documents have exposed the devastating consequences of George Osborne’s cuts. Their own forecasts show a loss of around 1.3m jobs by 2015 as a direct result.
Workers in the public and private sector will be hammered. Up to 600,000 redundancies are expected in the public sector, as government departments ditch staff.
The rest will come from the private sector. Many businesses depend on government spending, either directly or because those paid by the government buy their goods. When governments chop their spending, these businesses are also hit.
Combined with the cuts in welfare spending, the consequences for poverty and inequality in the UK are appalling to contemplate.
Hiding from the consequences
Osborne and David Cameron are trying to hide this grim vista behind another rosy report from the “independent” Office for Budget Responsibility (OBR).
The OBR was set up by George Osborne under the guise of improving government economic forecasts. It has this week released new figures claiming that the private sector will provide around 2m extra jobs over the next 5 years.
This is in line with its forecasts for the Budget, which helpfully claimed Osborne’s swingeing cuts would not drive the economy into a new recession. George Osborne and the OBR think investment by businesses will grow so fast that it will compensate for jobs lost elsewhere.
This is a fantasy scenario. Business investment is not going to recover substantially when consumer spending is wobbly, Europe is in deep recession, and there are fears even for China’s economic health. Banks are still not lending properly to businesses.
The UK economy is in a feeble state. And the spending cuts arrive on top of that.
Businesses out to make profits will not invest under these conditions. That means no significant recovery in jobs.
The “independent” OBR, headed by bankers including RBS’ former chief UK economist, is a sham. Its implausible forecasts are the mask behind which a weak, but vicious, government hides the real consequences of its actions.
The Con Dem slash-and-burn plot is not accepted by everyone.
Economists from one-time Thatcher supporter Samuel Brittain to liberal Paul Krugman have declared the enthusiasm for cuts to be, in Krugman’s words, “utter folly”. They are concerned that sharp, immediate cuts to spending will drive economies back into recession.
Speculators on the financial markets, whom Osborne and Cameron claim are baying for immediate cuts, are now jittery about this “double-dip” recession. Share prices seem to have fallen partly as a result.
The ruling class internationally is divided. Major European governments are committed to continent-wide austerity.
But Obama’s administration is far more cautious about immediate cuts. These divisions have led to an awkward fudge at the recent G20 meeting in Toronto.
The consensus of last year’s meeting has faded. And these divisions could widen if the recession worsens.
Osborne, Cameron and their Lib Dem mascots are committed to cuts for three reasons.
First, but perhaps least important, they believe in it. Nick Clegg, Vince Cable and the unlamented David Laws all contributed to the Lib Dems’ free-market manifesto, the Orange Book. Osborne and Cameron are Tory leaders. They would all be strongly inclined to cut state spending whatever else happened.
Second, they believe that state spending imposes too high a cost on businesses in the UK, whether through higher taxes or through supporting higher wages. By cutting those costs they believe that the UK will become more competitive internationally. So state spending is slashed alongside corporation tax, and millions more unemployed help pull wages downwards.
But the third reason is perhaps most telling. UK public debt has risen because of the financial crisis. Bailing out the collapsed financial system was colossally expensive - around £850bn in total, according to the National Audit Office.
We are being made to carry the costs of cleaning up the banks’ mess. But the bad debts and hidden risks of the banking system have not gone away. The European debt crisis is a serious headache for governments. If Greece or another country defaults on its debt, the major banks who loaned this money will be crippled.
We might, then, soon be made to pay for another banking bailout. But the major economies will be in no shape to do so. They simply will not be able to afford it.
The crisis deepens
The Bank for International Settlements (BIS), the central banks’ club, has warned of precisely this. Its annual report says that “events coming out of Greece highlight the possibility that highly indebted governments may not be able to act as a buyer of last resort to save banks in a crisis.” Balance sheets in France, Germany, Spain and the UK may all be too “fragile” to cope.
That helps explain why the deficits are being treated with such urgency in Europe. European ruling classes fear another banking crisis may soon be upon them. They know that, with their current indebtedness, they cannot borrow the funds needed to deal with it. Squeezing public spending now can improve their chances of borrowing more later.
There is a process at work. What started as a financial crisis, back in 2007-8, has turned into a sovereign debt crisis. That debt crisis now threatens a further banking crisis, in calamitous combination.
In some disarray, European governments are responding by ditching their other spending commitments, as far and as quickly as they can get away with.
The emerging programme is brutally simple. Smash up much of the welfare state. Let the free market rip through the economy. And keep bailing out the banks.
Stopping the screw
But this may do little more than produce a further turn on the screw downwards. The chances of avoiding a further recession appear dismally small. The inequality and poverty that is Thatcher’s legacy in the UK will worsen.
One handle of the screw is being pushed by this government. The other by the financial markets. Stopping the screw will require opposing both.
That raises political questions. It means opposing both the Con Dem cuts, and bailouts for the banks. It will mean taxing wealth, and stopping bonuses. It will mean using the nationalised banks to invest in new, green jobs. Only a mass, political movement can credibly address these issues, drawing in all those who oppose the cuts. That political movement must now be built.
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).