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From The Socialist newspaper, 13 April 2011

Con-Dems' economic policy... austerity, austerity, austerity!

'The worst is yet to come'

The Con-Dem chancellor, George Osborne, claims his budget (24 March) is the "most pro-growth budget for a generation". But the British economy is barely crawling along, and the budget will do nothing to promote growth.

Lynn Walsh, Editor of Socialism Today

The government previously predicted 2.3% growth of gross domestic product (GDP - value of the total output of goods and services) for 2011. Now, the Office for Budget Responsibility (OBR) forecasts meagre growth of 1.7% of GDP for 2011. Even that may prove to be optimistic given the scale of spending cuts and tax increases.

Consumer spending, which has been the locomotive of the British economy over recent years, is falling. This is the chilling effect of job losses, escalating prices, and fear of what is to come. The former boss of Asda supermarket, Andy Bond, warns that worse is yet to come. "You're kidding yourself if you think the worst is over and we've had a consumer recession - it's ahead of us." The bosses of big supermarkets and high street stores, like Dixons and Mothercare, are warning of reduced sales and company profits.

"The economy," comments the Financial Times (6 April), "has been much weaker over the past six months than almost any economist expected." It was "practically stagnant over the past two quarters even before the impact of higher inflation and deeper spending cuts, according to a respected economics research group [National Institute of Economic and Social Research]."

As bad as they are, the Con-Dem cuts have so far merely been nibbling at public services: "The deeper cuts will bite with increased severity over the coming years." (Financial Times editorial, 25 March) Osborne's fraudulent 'expansionary austerity' is going to be austerity, austerity, austerity.

Squeezed incomes

Living standards have already been severely hit by inflation and squeezed wages. Prices are rising by 5.1% a year, according to the RPI (retail prices index, which includes housing costs).

At the same time, wages are only increasing by 2%, which means a 3% fall in real (inflation-adjusted) wages. Every 1% fall in real wages means a loss of 250 a year. This has resulted in the first fall in disposable income for over three decades, and there is likely to be a further fall in 2011.

The BBC Panorama programme recently carried out a survey of actual take-home pay (BBC News, 28 March). This showed that, on average, workers are taking home 1,088 less a year than two years ago. Their real pay has fallen by 5% since the beginning of 2009, which was half way through the recession.

The sharpest drop in real pay was in the construction industry, where it was 99 a month less. In the public sector, average pay was 45 a month less, while in the retail sector it was 41 a month less.

Privatising debt

One of the most alarming predictions for the next few years is for a huge rise in household debt. The Con-Dem government is aiming to cut public debt by 43 billion. At the same time, the OBR estimates that private-household debt (including mortgages and credit card debt) will rise by a staggering 245 billion. With increased unemployment, squeezed wages, higher prices and taxes, people will borrow more simply to survive.

In effect, this is the privatisation of the state debt, a huge share of which came from the nationalisation of bank losses. Now, spending cuts and tax increases will push millions deeper into debt, throwing a huge burden onto working class families.

By 2015, according to the OBR, debt as a percentage of household income will increase from the current 160% to 175%. In hard figures, this means a rise from an average of 58,000 debt to 66,291 by 2015.

Petrol tax

Faced with explosive public anger over the soaring price of petrol and diesel, Osborne cut fuel duty by 1p a litre and postponed a further 3p rise until January 2012. Undoubtedly, the government fears the possibility of another fuel price protest on the lines of September 2000, when lorry drivers and farmers blockaded oil refineries and jammed motorways. At that time, protests were encouraged by the Tory opposition, but new protests would now pose a threat to the Con-Dem government.

However, the 20% VAT on fuel will remain, and pump prices will no doubt continue to rise as a result of the rise in world oil prices, due to the crisis in the Middle East and North Africa.

To pay for the fuel duty cut, Osborne has raised taxes on oil production. The windfall profits tax on UK oil and gas production will increase from 20% to 32%, which is expected to bring in an additional 2 billion. Despite their increased profits from the 35% increase in oil prices over the last five months, the oil companies are screaming about this very limited tax increase, peanuts to these giant corporations. Malcolm Webb, chief executive of Oil and Gas UK, said: "This change in the tax regime will decrease investment, increase imports and drive UK jobs to other areas of the world."

This is a barely disguised threat of a 'strike of capital' if the government increases its tax on oil production. They are unlikely to carry this out, at this time, however, because of the immensely profitable reserves that remain in the North Sea, especially given the fact that oil has now risen to around $120 a barrel.

Nevertheless, it is an indication of the likely reaction of big business, like the banks, to the threat of a 'Robin Hood tax' proposed by the TUC. Without measures to take control of big business and mobilise mass support for such measures, big business will attempt to sabotage any such steps through withholding investment, etc.

Heading for disaster

The Con-Dem government's leading economic policy guru, Oliver Letwin, has revealed the private discussions of Con-Dem ministers. "Leading up to the recent budget, we took the view collectively in cabinet that we faced an immediate national crisis in the form of less growth and jobs than we needed." (The Guardian, 31 March) Nothing in Osborne's budget will overcome this crisis, which will deepen in the coming months.

In response to the budget's supposedly pro-growth measures, the 'independent' OBR concluded: "We do not believe there is sufficiently strong evidence to justify changing our trend growth assumption in light of policy measures announced in budget 2011."

It is predicting a mere 1.7% growth in GDP for 2011. At the same time, unemployment is projected to continue to an appalling 2.52 million or 8.2% of the workforce. This includes over a million unemployed young people.

The Con-Dem government's aim is to reduce the government's budget deficit to near zero by 2014-15. This is an unrealistic objective even from the point of view of big business and their system - and is likely to prove counter-productive. It is a doctrinaire policy dictated by the interests of the big banks and wealthy speculators, who manipulate bond markets in search of speculative profits.

Wiping out the budget deficit depends on faster economic growth, which is why Osborne continually claims he is promoting "expansionary austerity" through pro-growth measures.

His budget, however, did not impress the financial markets that much. The rating agency, Moodys, which assesses the credit status of borrowers, including governments, warned that "slower growth combined with weaker-than-expected fiscal consolidation could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a AAA rating."

Near zero growth or even a new recession would mean even higher unemployment and reduced tax revenues. The Con-Dems' savage austerity policy could then result in an increase in the deficit, the worst of all worlds.

The so-called 'expansionary austerity' cannot provide a way out for sickly British capitalism. The crisis referred to by Letwin can only deepen. The Con-Dem government has already been shaken by mass opposition, especially the mighty 26 March TUC demonstration in London. It has been forced to partially reverse the abolition of education maintenance allowance, and to announce a 'natural break' on the savaging of the NHS through accelerated privatisation.

The 26 March demonstration was only a beginning. It should be the prelude to further action, especially coordinated public sector strikes against cuts, a massive weekday demonstration, and a 24-hour general strike.

Black Wednesday budget

There are 44 changes in tax and benefits in Osborne's budget. With such a complex tax/benefit system it is very hard to calculate their exact effect. But one thing is certain: most of the changes will cut the incomes of working-class families. The government's claim that everyone - apart from the rich - will benefit is completely false.

One organisation, Credit Action, calculates that, on average, the changes will reduce household income by at least 200 a year. The Institute for Fiscal Studies (IFS) reckons that the average family income is expected to still be lower in 2013 than it was in 2008, making it the biggest five-year drop for more than 40 years. The IFS also calculates that the typical pensioner household has seen its real annual income fall by 2.4% (456) since 2008.

However, these estimates come before further price rises, job losses, squeezed pay levels, and benefit cuts. The Centre for Economic and Business Research reckons the higher cost of living in 2011 will mean that the average family will be 910 worse off this year - the tightest squeeze on finances since 1921.

This year's budget, moreover, is a supplement to last year's horrendous Con-Dem spending review which spelt out 81 billion cuts and 33 billion tax raises by 2013.

The basic personal tax allowance (the threshold below which no income tax is paid) is to rise by 1,000 to 7,475, which means around 500,000 workers will not pay income tax.

This small gain, however, will be wiped out for many by the loss of services through cuts and reduced benefits. In particular, changes in tax credits and a freezing of child allowances will mean a sharp cut for working parents.

Next step after 26 March demo: prepare for coordinated strike action

Following the TUC mass demonstration in London on 26 March against the government's spending cuts, the National Shop Stewards Network (NSSN) has produced a model resolution on the next step for the workers' movement.

The NSSN was established by shop stewards and workplace representatives in July 2007 to provide solidarity action to workers in struggle and to assist the rebuilding of the trade union movement. The Rail, Maritime and Transport (RMT) union played an essential role in founding the NSSN, which also has the support of several other trade unions including the CWU, PCS, POA and the NUM.

At a special NSSN conference on 22 January 2011 around 600 delegates and observers launched an anti-cuts campaign (www.stopcuts.net) to help bring trade unionists and community campaigners together to fight to save all jobs and services.

On the 26 March demo the NSSN organised a platform at Speakers' Corner, Hyde Park, to rally support for its position of opposition to all cuts and coordinated industrial action by the trade unions, including a 24-hour public sector general strike against the government's austerity measures.

www.shopstewards.net

Model motion

This [union branch/anti-cuts organisation etc] believes that the 26 March TUC demonstration of at least 500,000 trade unionists, young people, pensioners and community campaigners has sent a deafening message to the Con-Dem coalition that working class people will fight their 81 billion cuts package.

This [union branch/anti-cuts organisation etc] recognises that, while the march has given everyone a huge boost of confidence, it won't be enough to stop the cuts.

Already the new financial year has seen still more local authority workers losing their jobs, no matter which party leads the council.

Cameron and Clegg have public sector pensions in their sights and the announcement of the privatisation of HMP Birmingham is another sign of this government's desire to roll back all past gains of working people in this country to boost the profits of big business.

Therefore, this [union branch/anti-cuts organisation etc] believes that as soon as possible, the TUC General Council, in accordance with their policy, should:

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In The Socialist 13 April 2011:


Anti-cuts campaigning

NHS IN THE FIRING LINE

Vote socialist to fight the cuts

Fight the cuts by supporting TUSC

Fighting the cuts after 26 March demo

Hands off our services - Westminster

Hands off our Services - Leeds


Socialist Party editorial

Middle East and North Africa


Socialist Party feature

Con-Dems' economic policy... austerity, austerity, austerity!


Socialist Party workplace news

Jobcentre Plus call centre strike

Saltend lock-out

Unison health conference

NUJ conference calls for general strike

Striking against a Coventry academy

NSSN conference


International socialist news and analysis

Portugal:'We won't pay their debt!'

'Unions and socialism to blame for deficit' - rants Glenn Beck


Youth Fight for Jobs

Jarrow jobs march gains momentum


Socialist Party news and analysis

Coordinated strike action to defeat the cuts

Banking giants avoid punishment

No to nuclear power - nationalise the environment-unfriendly energy giants

News of the World admits it

Chauvinist 'thoughts' from David Willetts


 

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