Document on Britain agreed at the Socialist Party National Congress February 2007
Introduction
This is not an exhaustive document. It should be read in conjunction with previous British Perspectives documents, articles on different aspects of Britain in Socialism Today and The Socialist, and with the draft documents produced for the World Congress. As the EC has had to produce this under severe pressure of time we may choose to produce additional material closer to the Congress. However, we felt that our most important task was to make sure the branches had a document dealing with the central issues as soon as possible.
Recession and Brown the Blairite
In his pre-budget speech Chancellor Gordon Brown boasted of a 60% increase in ‘average personal wealth’ since New Labour came to power. Even if this highly dubious figure was accurate it ignores the most striking feature of Britain today: the enormous gulf between the unprecedented and conspicuous wealth of a small minority at the top of society, and the low-paid, indebted nature of life for those at the bottom. Even former New Labour loyalist Polly Toynbee commented: “Brown’s comment of a 60% growth in ‘average’ personal wealth is meaningless: 30% have none and many more have very little, making ‘averages’ empty in this house price boom.” House prices increased by an average of £15,046 in 2006. Domestic fuel prices rose at the fastest rate for 25 years. On average, pay rose by 2.8% which, given that the official annual level of inflation was 2.7% in November, means wage stagnation for many, and wage cuts in real terms for a significant section of workers. The share of income owned by the top 1% of the population in the UK is back to enormous pre-second world war levels. Meanwhile, 60% of people earn less than £20,000 a year, 80% less than £30,000. For millions the minimum wage has become a maximum wage; a glass ceiling that they cannot rise above. Officially, twelve million Britons live below the poverty line, the majority of whom are the working poor.
The Financial Times was correct when it commented: “The bogeyman that is the Ugly Capitalist, with his cigar, top hat and astrakhan collar, is reviving in popular perceptions.” No wonder. The CEOs of top public companies paid themselves an increase of 28% last year, ten times the average. Christmas bonuses in the City reached an incredible £19 billion, more than the UK’s annual transport budget. It was rumoured that the ‘top men’ at Goldman Sachs received bonuses as high as £50 million apiece.
Inevitably, a deep-seated elemental class anger is building up against the elite at the top of society. The relentless attacks on public services, combined with the increasing struggle to make ends meet will, at a certain stage, result in explosive struggles. This is likely to be the case even if the economic situation remains the same as it is now for another two or three years. However, this is not the most likely scenario. Globalisation in general, and the ‘rentier’ nature of British capitalism in particular, make it impossible to disentangle the prospects for the British economy from that of the world, especially the US. Britain’s economy is a ‘mini-US’ with the same enormous imbalances. It is ‘accelerating on empty’, fuelled by a vast consumer debt of £212.2 billion, largely kept afloat by the bubble in the housing market and a current account deficit of 2.2% of GDP. The stock markets are at a six-year high and are also a major bubble in the British economy, largely fuelled by an orgy of takeovers.
Timing of a recession
This could continue to be the case for a few years. However, it will not last indefinitely, and could come to an end in the very short term. Most economic commentators are now suggesting that the British housing market is not showing ‘irrational exuberance’ but is growing on a sustainable basis. They argue that it is only the increased demand for housing caused by increased immigration that is forcing prices through the roof. While the shortage of supply is one factor, caused more by the woeful number of houses being built than by immigration, although the latter has had some effect, supply is not the only reason. There is also a ‘housing bubble’, which means that prices remain enormously overvalued by historical standards – at more than six times average salaries, compared to a historical average of three-and-a-half times. This leaves millions excluded from the housing market and is pushing millions more to the brink of bankruptcy as they try and claw their way onto the bottom rung of the housing market. Abbey National is now offering mortgages at five times salary and other banks are expected to follow suit. Although interest rates are still low by historical standards, they are creeping up and, against the background of the enormous levels of debt, this has already meant that the number of people being declared bankrupt has reached record levels; hitting 100,000 in 2006 for the first time as people find themselves unable to service their debt. Fear of inflation means that the Bank of England is likely to increase interest rates further at some point. However, the consequences at a certain stage will be a deflation of the housing bubble. Particularly if this takes place rapidly, rather than gradually, it would push the economy into recession as consumer spending dropped markedly.
However, it is likely that developments in the US economy will be the most important factor in pushing Britain into recession. The US Federal Reserve is predicting a soft landing for the US economy. This is possible but is by no means guaranteed. The consequences of a US recession – a falling dollar, a fall in equity prices, and the fall in the profits of multinational companies – means that it would also have negative consequences for the rest of the world, possibly including pulling the Eurozone into recession. Britain remains particularly vulnerable. It is true that today, 60% of UK exports go to the Eurozone, compared with only 15% to the US. However, that does not alter the fact that the US is holding up the world economy, and Britain is especially vulnerable to global economic winds.
It is the underlying weakness of the British economy that is fundamentally responsible for its vulnerability. Manufacturing remains central to the underlying strength of an economy. The economies of all the advanced capitalist countries are being ‘hollowed out’, but Britain is leading the way. The number of workers employed in manufacturing has fallen by a quarter since New Labour came to power. Now just over three million workers are employed in manufacturing, the lowest level since 1841. Manufacturing by 1900 accounted for 28% of economic output and supplied a quarter of the working population. A century later, manufacturing’s share of employment has fallen to 14%. The sector’s contribution to output is higher at 22%, but is still at the lowest level for more than a century. It is true that the value of manufacturing output has risen by more than 18% in real terms since 1978, and by almost 90% since the employment peak in 1957. However, the huge growth in global output means that, in comparison to other countries, Britain is a manufacturing minnow. As a result, the balance of trade in goods deficit with the rest of the European Union is the highest ever recorded. While manufacturing is a relatively small part of the British economy – which, ironically, allowed it to escape recession in 2001 – that does not mean that recession in manufacturing has no effect on the economy as a whole. Sterling today follows the euro to a greater extent than in the past. As a result, a slide in the dollar will undoubtedly negatively affect all British exports – and would result particularly in the further ravaging of manufacturing. This would be a reversal of the relatively favourable situation New Labour inherited as a result of the devaulation of sterling following its crashing out of the ERM in 1992.
Even the industry that exists is increasingly owned by foreign companies. Britain is now second only to the US in terms of the amount of foreign direct investment it receives. The Guardian described 2006 as, “the year UK PLC went up for sale”. Not only manufacturing companies but the Heathrow and Gatwick operator BAA, Gallaher (the makers of Silk Cut), Associated British Ports, the industrial gas group, BOC, and Scottish Power were among the companies bought up by foreign firms. Compare the approach of British capitalism to that of the French, where Chirac recently vetoed the takeover of the yoghurt company, Danone, saying it was a ‘national champion’ and so should remain French owned. New Labour, like the Tories before, takes neo-liberalism to extremes, taking pride in allowing market forces virtually a completely free rein when it comes to the takeover of British companies, and never intervening in defence of the ‘national interest’ in the way that even the Tories did in the past – for example, stepping in to nationalise Rolls Royce. The British ruling class today is incredibly short-sighted and will suffer the consequences – when the underlying weakness of British capitalism is fully revealed.
Even the City of London’s status as an international finance centre disguises the fact that it is actually dominated by the American banks. As the frenzy of gambling on the stock markets intensifies so does the danger of a catastrophic collapse of a major bank or hedge fund along the lines of the 1998 Long Term Capital Management collapse. London is at least as vulnerable as other international centres. The Financial Services Authority has recognised that investment banks based in London are not prepared for a recession, and have ‘considerably relaxed the criteria’ on which they decide if a hedge fund represents a good investment. However, such is the inter-connectedness of the world that such a collapse, taking place anywhere but particularly in the US, if (as is likely) it triggered a world financial crisis, would mean crisis in London. Given the dominance of the City in the British economy that would almost certainly trigger a recession.
Brown the Blairite
Gordon Brown has been a very lucky Chancellor, but is likely to be an equally unlucky prime minister. He is almost certain to take over from Tony Blair this year, either shortly before or just after the May elections, which could be when the underlying economic trends begin to be played out. Even if this isn’t the case, Brown will come to power intending to carry out a continuation of New Labour’s neo-liberal policies. This will include a vicious tightening of the public purse strings. Over the last few years Brown did expand spending in the public sector to a limited extent, albeit linked to privatisation, which has helped to keep the economy afloat. Public spending is still at an historically low level; lower than it was, for example, under John Major’s government. However, the extremely low levels of taxation of corporations and the super-rich mean that even this extremely modest increase in public spending has been done on the basis of increased borrowing. In 2001, Brown predicted that the public sector’s net borrowing would be £12 billion by 2006. In fact, it is £136 billion and climbing. However, the government is now attempting to claw back public spending. Brown intends to continue this trend. Over the last five years public spending has increased by 3.4% per year. Even on the basis of continued economic growth, if Brown was to meet his own fiscal rules, it would have to go down to 1.9% in the next three years. The ‘fiscal rules’ will inevitably be breached, but this will not prevent a Brown government carrying out major cuts in public services to try and meet them.
However, in order to try and win the next general election Brown will be forced to try and differentiate himself from Blair, but he will retain fundamentally the same policies. The occupation of Iraq, which remains the ‘elephant in the living room’ and is now more unpopular than at any time since the invasion, is the area where he is most anxious to differentiate himself. His recent comments on the execution of Saddam Hussein, prior to Blair making his mealy-mouthed statement, are an indication of how he will try to adopt a different approach. It is most likely that he will move to establish a more definite timetable for the withdrawal of troops from Iraq, and could even move very quickly to pulling the troops out. If he does this he will be acting in accordance with the views of large sections of the British ruling class, including the tops of the military. It is incredible that Richard Dannatt, Chief of the Army, has condemned the whole basis of the invasion: “As a foreigner you can be welcomed by being invited in a country but… the military campaign we fought in 2003 effectively kicked the door in.” It is virtually unprecedented for the military to publicly break ranks with the government and is an indication that the military wing of the ruling class feels it is crucial to get the troops out of Iraq as soon as possible.
However, Dannatt has not, as the leaders of the Stop the War Coalition have suggested, “joined the anti-war movement”! On the contrary, he is in favour of the continuation of the occupation of Afghanistan, which is resulting in more British soldiers dying than has been the case in Iraq. And if Brown acts to withdraw the troops from Iraq it will not alter his general position as an Atlanticist who wants the closest possible links with the US. Although it is possible that he will distance himself from Bush more than Blair ‘the poodle’ does, in essence, he will continue to support US imperialism’s brutal foreign policy and may well increase the number of troops taking part in the occupation of Afghanistan. He will also tend to intervene in Europe to lecture them on the importance of adopting the ‘Anglo-Saxon’ model – i.e. carry out brutal neo-liberal cuts. In fact, the ruling classes of Europe are all doing their utmost to step up neo-liberal attacks on the working class, but to varying degrees they are hindered by the mass opposition of the working class. At a certain stage, Brown will end up with egg on his face when the British working class ‘takes the French road’ and enters struggle.
Despite his determination to tighten the public purse strings, it also cannot be ruled out that Brown will reverse some of Blair’s most extreme cuts and privatisation policies, particularly as regards the NHS. Blair, anxious to carry out as much of the ruling class’s programme as possible, and as part of an attempt to establish his legacy, is presiding over a major acceleration of privatisation and cuts. This includes an acceleration of the rolling out of academies in education. Brown is trying to suggest that as prime minister he will qualitatively increase funding to education, but this will not be the case. His pre-budget report actually only increased funding to schools by 0.2%! More importantly, any minor increases in funding will be offset by the accelerating destruction of what remains of the comprehensive system. Cuts in the NHS are also escalating. A leaked document from the Department of Health revealed that New Labour is planning to axe a further 37,000 health service jobs and also attempt to break up national pay bargaining so as to force down NHS wages in ‘low wage areas’. No wonder that, for the first time since the NHS was founded in 1945, the Tories are seen as having better policies on healthcare than Labour.
