Budget 2009 - debts passed to all of us

"Get ready for dirty hospitals and crumbling schools" warned a journalist following the government budget last week. This budget, together with last November's pre-budget report, will lead eventually to cuts and tax rises of £60 billion a year. But the Institute of Fiscal Studies estimates that a further £45 billion will be needed, ie a total of £105 billion; an amount higher than the entire present education or NHS budget.

Current public spending will rise by only 0.7% next year, which means in practice that a number of civil service departments face "efficiency savings" - read severe cuts. Even the NHS, although it will have more money next year than this year, will have £2.3 billion less than previously promised.

On top of these attacks, fuel duty is going up by 2p a litre and tobacco tax by 2%. Chancellor Alistair Darling also announced the privatisation of a further £16 billion of state assets, possibly including British Waterways, the Royal Mint and Land Registry (see page 3).

There will be a complete freeze on public spending in the next parliament. Spending on infrastructure will be particularly hard hit as it will be halved for three years from April 2011. Overall, this is the worst attack on the public sector for decades, worse even than that carried out by Margaret Thatcher in the 1980s.

Regarding taxation, national insurance has been increased by 0.5%, but it was the new 50% income tax on salaries over £150,000 that dominated headlines. Media barons and rich individuals screamed that it is an assault on 'wealth creation' (turning reality on its head, as their wealth has in fact been created by the workers they have exploited).

However, some media commentators noted with relief that the tax's effect will be mild: "No soaking, just a light drizzle for the rich" was a headline in the Financial Times. This is true. High earners will barely need to tighten their belts. In any case, many of them possess accumulated wealth from investments and inheritances, some massively so. Even after the recent housing and stock market falls, the combined wealth of Britain's richest 1,000 people is estimated to be £258 billion according to the latest Sunday Times rich list.

The tax hit on high earners is largely to assuage intense public anger at the greed and excess of bankers and speculators. Opinion polls vindicated it, as they showed majority support.

But round the corner, once the next general election is out of the way, such is the scale of government debt that further tax increases will surely be announced that will affect all workers. They will not be to improve public services, but to pay off the vast debts that the ruling class and government have run up - debts they now expect all of us to pay for.

Public debt soars

The national public debt is phenomenally high - the highest peace-time level ever. It was £350 billion when Labour came to power in 1997 and has since climbed to £743 billion. The government intends to borrow a further £700 billion over the next five years, bringing it to £1.4 trillion, £16,500 for every adult and child in the country.

This sum is staggering enough, but could turn out to be an underestimate, as the chancellor assumed levels of economic growth that are unlikely to be reached. After an estimated 3.5% decline in GDP this year, he predicts growth of 1.25% in 2010 and 3.5% in 2011, figures that are wildly optimistic. Just two days after the budget, it was reported that national output fell by 1.9% in the first quarter of 2009, a rate of decline that would amount to 7.6% if continued through the year.

Also, Darling assumes his bank bailouts will end up costing the public purse between £20 billion and £50 billion. But over £1,000 billion of public money has been made available to the banks since Northern Rock was nationalised, so the end loss could be substantially more; the IMF estimates it will be £135 billion.

A third major shortfall would arise if the costs of obtaining the necessary loans and of servicing the public debt turn out to be much greater than predicted. Buyers of government bonds are demanding higher rates of interest because the risk is seen as increasingly hazardous. The price being paid to insure UK debt against default is now more than the price of insuring Spain's debt, historically a weaker economy. Also the cost of unemployment benefits, tax credits etc, may be higher than Darling has budgeted for.

The government strenuously denies that it may have to run to the IMF for an emergency loan, and has this week itself promised to donate $15 billion extra to the IMF's emergency fund for 'poor countries'. But if investors suddenly withhold finance from government bonds, Gordon Brown and Darling may look to such desperate measures.

Devastating or catastrophic?

So where was the good news in the budget? Hardly in the meagre 2.5% increase in the basic state pension, the 38p a week extra tax credits for households with children and other small measures that will not make much difference to ordinary people. Unsurprisingly, few people believe Darling when he says Labour is "building a fairer society" and still fewer when he talks of the "underlying strength" of the economy.

Incredibly, Derek Simpson, joint general secretary of the trade union Unite, gushingly said that Darling "has positioned Labour as the party for jobs and social justice while exposing the Tories for being the party of cuts and inequality". The Tories may well go into the next election threatening greater cuts than Labour, which will be used as an excuse by union leaders like Simpson to continue to support Labour.

But it will be a choice between devastating cuts and catastrophic cuts. This is an intolerable choice. When a new workers' party is built, it can demand much higher, effective, income tax on the rich in its programme, and controls on the movement of capital. It can demand much greater taxation of the big corporations and an end to tax evasions and tax avoidance that are estimated to amount to £25 billion a year at present.

A new party that represents workers' interests should also stand for nationalisation under democratic workers' control and management of the largest companies that effectively control the economy. It is only in this way that the insecurity and poverty caused by the capitalist system can be ended once and for all, and the economy planned on a socialist basis in the interests of the overwhelming majority of people.