What we think

Budget cuts hitting the poorest hardest

The new government hasn’t stopped cutting during its first seven weeks in power. First came £6.2 billion of cuts, followed by more, suddenly-announced cuts of £12.5 billion just a few days before the 22 June budget. Then came the budget with its VAT increase, housing benefit cuts, attacks on lone parents and disabled people who claim benefits, and so on.

This catalogue of horror is far from complete as far as the government is concerned. More is coming in its Comprehensive Spending Review in October; a further £17 billion a year will be cut from government departments by 2014/15, taking the total combined amount of spending cuts and tax rises to around £80 billion a year before the government has finished. Most departments are targeted for cuts of around 25% over the next four years, with the hardest hit to include schools, transport and housing. Up to one million public sector jobs are being lined up for the axe out of the present six million, and public sector pensions are particularly in the government’s firing line.

The chancellor, George Osborne, claimed that the rich have been hit proportionately harder than the poor in the budget. This is a farcical assertion. It will badly affect working class and middle class people, but the super-rich layer at the top of society will suffer almost unnoticeably in comparison. They have plenty of amassed wealth to fall back on.

Two year pay freeze

Most public sector workers on the other hand, who are already very hard-pressed financially, face a two year pay freeze, which means a pay cut when inflation is taken into account. Those earning under £21,000 will receive a flat rate increase of £250 a year and all workers will gain from a £1,000 increase in the tax free allowance, but these small concessions will quickly become outweighed by the extra costs of the VAT increase and other government attacks. The VAT increase will have a major impact on all working and middle class people – it is a regressive tax that affects the poorest the most.

Poorer areas of the country are being hit hardest by the government. Many of these areas rely heavily on the public sector for jobs. A recent study by the Work Foundation showed that over three quarters of net new jobs in the north of England over the last decade were in the public sector.

New Labour hypocrisy

As well as using leading Liberal Democrats to help execute the cuts, Tory prime minister Cameron has given government roles to two Labour Party ministers, helping him to spread the blame further. John Hutton, former Work and Pensions secretary, is to find ways to cut public sector pensions and Frank Field is helping the government to cut state benefits.

John Prescott – the Labour former deputy prime minister – attacked these two for becoming “human shields for the most savage and heartless Tory policies for 20 years”. But Prescott’s own actions, and Labour’s as a whole, were no different when in power; New Labour carried out huge cuts and planned to make £51 billion of cuts and tax increases by 2014/15 if re-elected. They paved the way for the cuts of this Tory/Lib Dem government. It was a Labour chancellor who said his cuts would be “tougher than Thatcher” and they have raised no alternative to making working class people pay the price of the capitalist economic crisis.

There are great fears among capitalists worldwide and in Britain that the vast austerity drives being carried out will finish off the feeble economic growth that is only just emerging. In Britain, government money accounts for 50% of all spending in the economy and 20% of jobs, so clearly the cuts will damage the prospects for growth.

In Lithuania, government attempts to cut the budget deficit from 8% of GDP to 3% over three years helped to send the economy into a 15% contraction last year.

Driven by this fear, US president Obama has warned governments against withdrawing stimulus packages too quickly. Even the neoliberal fanzine, the Financial Times, in an editorial on 21 June, called for Osborne to have “an emergency plan of action to be followed were the UK to fall into a deep recession … from tax rebates to infrastructure projects, to expand demand temporarily with extra public spending”.

In the event of renewed recession, the Bank of England will not be able to help the government manoeuvre economically by reducing interest rates further, as they are already near zero. Further recession would pile even greater suffering onto ordinary people, through higher unemployment, wage cuts etc.

Fat cats divided

So although the capitalists and their economists are united on demanding cuts, they are divided on how fast and far the government should be going. At 11% of national income, the UK’s budget deficit is the highest among the G20 leading world economies. But those who urge a slower pace of cuts, point out that at present the government is having no problems in ‘selling’ its debt. On the contrary, the pound has recently been seen as relatively safe by investors, compared to the euro for instance.

The Socialist, however, while completely rejecting the idea that the national debt should be passed on as a burden to future generations, has explained that no cuts in workers’ jobs, terms, services and benefits should be made today in order to reduce it. It is the capitalist class who should pay, as they have the wealth to do so, and the economic crisis is a consequence of their system, not the fault of ordinary people.

Whose mess?

In all Osborne’s screaming about an “out of control” welfare state and a “truly awful” mess he has inherited, nothing is said about the massive bailouts that were given to the bankers. These bailouts added £134 billion to the national debt – and could add hundreds of billions more if some of the government’s guarantees and liquidity bailouts eventually become bad debts. In an attempt to appease the widespread anger that exists on this issue, Osborne brought in a levy on the banks. But it will only raise £2 billion a year – peanuts compared to the amount the banks have received and the profits they can rake in.

Also, billions of pounds in corporation tax have been handed by successive governments over decades back to the owners of industry. Now, in this budget, Osborne is reducing corporation tax further still, down to the unprecedented level of 24% by 2014/15. All the reductions in corporation tax and income tax for the rich should be reversed!

But also, the case for taking the major companies and finance institutions into public ownership is overwhelming. Then, all their assets and potential wealth can be ploughed into new productive investment for the benefit of society as a whole, and into the public sector to rebuild and strengthen it.

The Socialist will continue to shout loud on the burning need for such bold socialist measures and will explain that nationalisations must be carried out on the basis of genuine workers’ democracy and socialist planning, with compensation to shareholders only paid when the need for it can be proven.