The austerity black hole

Britain’s future after austerity was the main topic of a major conference hosted by the TUC during the last week of June, but exactly how austere is the austerity age? David Cameron and George Osborne – two men who have never been unfortunate enough to know what it’s like struggling to pay their utility bills – have been developing a dogmatic political narrative over the last two years emphasising the necessity of public expenditure reductions accompanied by personal ascetiscism despite cheerfully slashing corporate tax to please their obscenely wealthy pals. Apparently we have all been living beyond our means which is a bit rich coming from them.

The integral issue at hand however is that the government has not been strong enough to bet on its own economic strategy; an administration which genuinely believes in reducing personal debt would have to undertake a radically different path to deficit reduction and an unpopular cuts agenda. Austerity ultimately relies upon instrumental private consumption bolstering growth, and therefore increased private indebtedness on current trends. This blatant fault first caught the prime minister out back in 2011, when he blustered to the Conservative Party annual conference that households were paying off their credit card debts, in an apparent demonstration of national commitment to austerity.

The prime minister was of course embarrassingly misguided; the government’s own Office of Budget Responsibility actually predicted an increase in household indebtedness earlier that year. The media circus reaction, however, concentrated on what Cameron had originally intended to tell the conference which is that households should begin to pay off their credit card debts. He contradicted the OBR once again, as they expected consumption to rise at a more rapid pace than income, accounting for roughly half of GDP growth by 2015.

Such a situation will inevitably precipitate increased indebtedness, despite Osborne’s missive against private sector debt during his 2010 emergency budgetary speech – and given that real wages are in continuous freefall, private debt must now increase even further if OBR consumption forecasts are to be attained. This is more than a mere rhetorical sleight of hand; various critical areas of policy have followed this very same approach despite gaping logical flaws. The coalition’s abject failure to curb the aggressive acceleration of ‘payday lenders’ is only a solitary example, and arguably a direct consequence of governmental failure to ensure the aversion of a secondary credit crunch whilst simultaneously increasing economic reliance on private debt.

It is naturally unclear whether the government is eager for payday lending to form a dominant area of a consumer-led recovery, but given that it has publicly opposed measures to cap credit charges offered by these parasitical providers, it can only be assumed that our clueless leaders have determined there is no alternative but to welcome them into the mainstream financial services sector. Despite constantly maintaining the fantasy that public austerity is compatible with private saving, the government essentially still needs us to spend; with real incomes declining this will mean even more debt. The chilling news in May that Wonga is now offering credit to businesses was therefore rather predictable in itself.

In the words of Guardian columnist Deborah Orr: “This is yet another sick symptom of the continuing bind that the economy is in.“ Obstinately unwilling to admit the contradictions of its economic approach, the ignorant government is still proletysing the importance of saving. Speaking at the simple financial products steering group in February, Treasury Minister Mark Hoban said: “Everyone here has a critical role to play in rebalancing our economy towards secure and sustainable recovery. That means supporting individuals on a path to financial security. Ensuring that families build savings that ensure that they have the resilience to withstand unexpected shocks.“

Sitting alongside an economic strategy predicated on the likelihood of rising private indebtedness, the previous administration’s measures to promote saving have also been shelved. Labour’s commendable Saving Gateway scheme, which would have incentivised routine saving in low-income households, was abandoned within hours of the coalition government coming to office. Only a singular justification was offered by Osborne (who walked into a £30 million trust fund at the age of 21) in his emergency budget; the scheme was apparently a “benefit our country cannot afford.“

Improvements in pension savings have arguably been more forthcoming with the introduction of automatic enrolment into a workplace pension scheme from this year onwards, although this is not about building financial resilience but deferring consumption from working age to retirement. Consumer demand will inevitably derive from older people in the future, so automatic enrolment can be perceived as pro-spending in preference to a typical pro-saving policy. In any case the government’s ambitions on pension savings do have limitations; the phasing-in period has now been extended to 2017.

The absolute minimum threshold for contributions – 3% from employers and a tax relief of 1% on the condition that employees commit to 4% on a restricted band of earnings – has been set at a low level, and there are few clear signals that this government is prepared to undertake decisive action in order to significantly increase contribution rates in the immediate term. Credit should be given to the government in attempting to address such a complex dilemma which needs significant long-term reforms in the way our economy works; it is ultimately soaring household incomes, a fairer way of distributing wealth and an improved, balanced economy that will create conditions for growth accompanied by increased private saving. The harsh reality however is that for the government’s current strategy to yield progress it requires increased private consumption and indebtedness at a household level. It is their own unscrupulous public austerity agenda prohibiting them from taking a transparent approach, and proving that its exclusionist representatives don’t care about Britain.

Osbornomics is hurting not working

The public sector cuts being imposed by George Osborne are inflicting irreparable damage on our nation. The Institute for Fiscal Studies says that 2012 budget cuts were ‘twice as big’ as those inflicted on the public sector between 1975-1982 and their extension to 2017 would mean ‘the longest sustained cuts in public spending since the Second World War’. Since the present government took office well over 200,000 jobs have been lost in local government alone – and this is only the beginning of a spiralling situation. Osborne’s cuts are scheduled to continue at a real rate of 3.7% annually for five more years. For the economy as a whole these ruthless reductions are insane; the only gainers are Osborne’s plutocratic pals in the City who want spare state to cash to bail them out. The cuts are killing the productive economy and increasing long-term debt. Britain’s economy is now over 4% smaller than it was back in 2007 – the only major economy to have contracted to such an extent apart from Spain. It is still contracting. This is why alternative economic policies, based on active state intervention, are needed.

The last couple of years have seen a transformation in attitudes to such intervention. In 2010 the TUC backed the People’s Charter. In 2011 it additionally called for alternative economic policies based on expanding the public sector. What we need now are specific demands that can unite trade unions and communities to campaign politically and add up to a coherent strategy that can rescue our economy. The first demand is obvious: stop the cuts. This is the quickest way of restoring consumer demand: end the insecurity of imminent job loss, halt the new pensions levy, reverse the benefit cuts and end a wage freeze that is currently cutting real incomes by up to 3% a year. The second is for the government to create real, well-paid jobs and hence boost tax income as well as demand for goods. Council housing is one obvious area. There is desperate need and the private sector has failed – house building has collapsed from 180,000 in 2006 to 120,000 last year, the lowest since the 1920s. Building houses under local democratic control also makes it possible to introduce comprehensive energy saving with green technology – another key area for investment. Equally essential is the demand to take water, energy and transport back into public ownership, end extortionate pricing and stop the state subsidies to monopolist owners.

There must be action to stop closures in the productive economy, to take over failing manufacturing enterprises and to penalise companies that shift production overseas – even if this means defying the EU directives. Can this be paid for? Yes, easily – by imposing a tax on the City’s financial transactions, reclaiming the £100 billion lost through tax evasion, closing down Britain’s many tax havens and reversing Osborne’s tax cuts for the rich and on company profits. What we can’t afford is austerity. This is actively destroying national wealth by shrinking the economy – with between £50 billion to £100 billion lost every year compared to 2007. What’s needed is a mass movement that can remove this government of financial speculators and ensure a party which genuinely stands up for workers adopts the alternative policies needed to save our productive economy – in the interests of the vast majority of the population.

Daniel Pitt

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