IN THIS week’s pre-Budget statement, Chancellor Gordon Brown was
forced to admit that economic growth would be far lower than he
predicted in his April Budget. He said that the economy would grow by 3%
– 3.5% in 2005, he has now revised that figure to 1.75%. That would be
the lowest growth for 12 years.
Steve Score
The Labour government has been fortunate in that since they have been
in power, Britain has seen a relative boom in the economy. It has been
sustained by high levels of consumer spending based on credit (i.e.
record levels of personal debt) and the house price boom.
However, there are now signs that these are about to run out of
steam. High oil prices are contributing to this growing economic crisis.
A downturn in the world economy would cause devastation to the British
economy.
This boom is very lopsided, going alongside a massive collapse in
manufacturing – a 30% fall in manufacturing’s share of the economy since
Labour came to power in 1997. High levels of profit have been the result
of low pay, cutting the share going to the working class.
Lower levels of growth have a long-term effect on the government’s
plans for public spending because they reduce the amount of tax the
government harvests at the same time as increasing the amount it has to
spend in welfare payments. There is an estimated £10 billion – £11
billion "black hole" in the government’s finances. This inevitably means
they will attempt to further cut public spending and also look for ways
to increase tax.
Brown built his reputation by claiming he is the one responsible for
Britain’s relatively stable economy. This is, of course, a factor making
him the almost inevitable heir to Blair’s Labour party leadership. But
he could take over at a period when the economy is beginning to go into
a downswing and when public spending cuts are really beginning to bite.
He has already had to stretch the time period for his own rules on
government borrowing over the economic cycle. What growth there has been
in public spending in the last few years does not replace that lost in
cuts made by the Tories and by himself in the first three years of the
Labour government.
Much of the money has gone into the pockets of private companies as
privatisation of public services has accelerated – a policy that he has
made clear he will continue. Public sector workers get little – Brown
told health workers that their pay will only rise in line with his
inflation target of 2%, at a time of spiralling prices for fuel etc.
Big business policies
Brown expects to get some money from a windfall tax on oil companies.
These companies have yet again made huge profits out of the high oil
prices. This is only a temporary measure, and as Britain’s North Sea oil
begins to run out will not sustain the Treasury in the long run.
He also announced measures to increase the supply of housing
including promoting "shared equity housing" schemes with banks and
building societies. But this does not solve the massive housing crisis
that exists.
Many working-class people cannot afford to buy their own homes and
local councils, because of government policies, no longer build houses
for rent with 1.5 million people on the waiting list. And although there
is some extra money for councils, it is not enough. So, high council tax
bills and cuts in services will continue.
Brown told the Financial Times: "The Britain I want is one of
enterprise and aspiration". Translated, that means he wants to continue
to carry out policies in favour of big business. Against a background of
threatening economic problems in capitalism, whether as chancellor or
potentially prime minister, he will try to make working-class people pay
for them.
