Editorial of the Socialist

Dismal prospects for Britain’s economy

A few weeks ago the Bank of England was still insisting that the UK economy would not go into a ‘double dip’ recession. Then came the news that the much feared second dip has happened, with two successive quarters of falling GDP between October 2011 and March 2012.

More recently, the Office for National Statistics has increased its estimate of the decline in the first quarter of 2012, from 0.2% to 0.3%. The biggest part of this decline has been in the construction sector, as big, publicly funded projects (eg the Olympic site) have been completed.

Making matters worse, nearly all the economic indicators of what is to come are gloomy. This applies to recent figures or estimates on factory output, order books, retail sales, overall demand and much more. Household debt is still very high, suppressing consumer demand on an ongoing basis and small businesses are still unable to get enough credit. Some economists are now writing off the entire year – predicting a fall in GDP throughout 2012.

Sterling has increased in value as money flees from the euro, but the Con-Dem government has over-played blaming the eurozone for Britain’s economic problems. Will Hutton pointed out in the Observer on 29 April that exports from the UK to Europe are 8.1% up on a year ago. It is exports to non-EU countries that are down. However there can be no doubt that the escalating eurozone crisis will hit Britain’s economy hard, with “unquantifiable” consequences to use the words of Bank of England chiefs.

It is with this background that the head of the International Monetary Fund (IMF), Christine Lagarde, arrived in London to pat chancellor George Osborne on the back for his ‘deficit-cutting’ austerity measures, but also to issue a dire warning about the state of the UK economy.

Despite the phenomenal £325 billion stimulus already injected into financial institutions, she argued for more of this Quantitative Easing (QE). She also called for a further reduction in interest rates, from their present low rate of 0.5% (though this certainly isn’t the rate offered to mortgage holders, many of whom are suffering a sharp increase imposed by a number of banks this month).

Government floundering

The Con-Dem coalition has no strategy to deal with this renewed onset of crisis, which is threatening its remaining credibility.

As public sector workers know well, it has pursued a rabidly anti-working class path, blatantly increasing the share of wealth that goes to the richest in society, through holding down public sector wages, increasing pension contributions, etc, while the rich have had corporation and income tax cuts.

After living through 24 years of near 3% growth during the 25 years up to 2007, it isn’t an overnight process for everyone to recognise that we’re now in an entirely different period – one of acute crises amidst prolonged stagnation.

However, for all those who have been tolerating a decline in living standards during the recession in the expectation that better times are just around the corner, the present economic prognosis will come as a painful and shocking realisation.

The vicious Con-Dems are determined to drive on with their austerity measures, despite the stifling effect on growth. However, they will feel compelled to vary the pace and depth of the cuts as the opposition movement develops, which has the potential to force the Con-Dems out altogether when enough steam is built up through protest action – especially strikes.

This week’s partial reversals of the pasty tax and static caravan tax are further indications of the weakness, ineptitude and instability of the government and will give more impetus to the struggle against it.

What other government manoeuvres are coming? There could be more QE as pushed by the IMF, but this hasn’t so far benefited ordinary people.

Also, Lib Dem leader Nick Clegg has hinted that the government may issue ‘guarantees’ to underwrite private sector investment into housing and infrastructure projects to stimulate the economy without increasing public debt.

But clearly this does place more taxpayers’ money at risk of being sucked into private pockets, and in any case much of big business already has over £700 billion stashed away that could be invested if only it judged there to be profitable enough outlets.

Such measures could temporarily stimulate some specific sections of the economy, but wouldn’t be sufficient to fill the empty chasm that is the lack of demand overall -ie the lack of workers’ ability to purchase the houses built, goods produced, etc.

When Business Secretary Vince Cable was interviewed by the Independent last Sunday he pleaded: “People are quite angry and obviously their living standards have fallen because of this crisis, but at the same time I don’t think anybody has got any real alternatives”.

However, that is precisely what the Socialist is putting forward: a real alternative. But it isn’t one that the three main political parties want to see raised, because it contains demands that would seriously challenge the wealth-hoarding of their capitalist masters, together with their entire decaying system. For instance, we demand a higher income tax rate for the super-rich; a 50% levy on idle, stashed away company cash; and a real clampdown on the massive tax avoidance by the wealthy.

More feared by them still, we raise the need for a socialist government to take into public ownership the top companies and banks that dominate the British economy, so that they can be run under democratic working class control and management.

It would then be possible – when combined with other socialist measures – to rapidly reverse the increased insecurity and decline in living standards that working and middle class people are presently enduring, instead introducing a democratic socialist plan of production based on the interests of the overwhelming majority.