Despite his best attempts, George Osborne, the British Chancellor, could not hide the doom and gloom of the UK economy from his annual Budget, given on Wednesday 20th March. Figure after figure highlighted the dire straits that the economy is in, and Osborne’s announcements only added further misery for working people and the poor.
Despite his best attempts, George Osborne, the British Chancellor, could not hide the doom and gloom of the UK economy from his annual Budget, given on Wednesday 20th March. Figure after figure highlighted the dire straits that the economy is in, and Osborne’s announcements only added further misery for working people and the poor.
After the recent downgrade of the UK credit rating by Moody’s, the latest reports from the Bank of England, and figures elsewhere, it is clear that the British economy is in the doldrums. Vince Cable, the Lib Dem Business Secretary, admitted on Wednesday that the economy was “flat-lining”, claiming that he did not know when the “age of austerity” would end. Indeed, this is now officially the longest period of economic recession and stagnation in British history.
Above all, Osborne’s Budget announcement showed that the coalition government’s policies of austerity are not working, and are in fact making the public finances worse. Despite the vicious cuts that have already been implemented and further cuts that have been announced, UK debt is predicted to increase from 75.9% of GDP in 2012-13 to 85.6% in 2016-17, compared to previous estimates of 79.9% by 2016-17 in last year’s budget.
Meanwhile, the budget deficit – the difference between government spending and government income from taxes, which must be balanced through government borrowing – has barely shifted from last year, hovering at around £120bn. Even this figure disguises the truth of the situation: the real deficit would have been higher if it had not been for fiddling of the numbers by the Treasury, pushing spending from one year to another.
Importantly, figures from the Office for Budget Responsibility (OBR) showed that predictions for growth have been reduced from earlier estimates of 1.2% for 2013 to only 0.6%. As Stephanie Flanders, the BBC economics editor pointed out, “The government’s deficit was in triple figures when he came into the Treasury, and it’s still in triple figures today… Britain’s national output has risen by just over 1% since the election, instead of the 7% George Osborne was hoping for in his first Budget.”
Even these estimates should be taken with a heavy dose of salt, since the government has failed to meet all previous estimates for economic growth, with the economy instead bobbing in and out of recession. Indeed the OBR’s estimates for future growth beyond 2013 – predicted to be 1.8% in 2014; 2.3% in 2015; 2.7% in 2016 and 2.8% in 2017 – are clearly a pipe dream. Such estimates have become completely discredited by previous failures to achieve even such meagre targets as these, and the numbers increasingly seem to be simply sucked from the thumbs of analysts who are divorced from all reality.
The latest Budget figures are a damning indictment of the Coalition’s economic policies of austerity. Martin Wolf of the Financial Times (20th March 2013) stated it bluntly:
“The chancellor cannot disguise the brutal fact that outcomes for economic activity and public finances are slipping still further from the expectations with which he launched the government’s programme in the emergency Budget of June 2010.”
Alongside the stark news of the Budget, the latest figures, announced on the same day by the Office for National Statistics, showed that unemployment has increased by 7,000 to 2.52 million, with the youth unemployment rate rising to 21.2%. At the same time, real wages have seen a fall of 1.5% in the last year, largely due to high inflation.
Indeed, Osborne also indicated in his latest Budget that high inflation would become the new normality, with the Bank of England given a remit to “look through” – i.e. ignore – inflation rates above the 2% target and pursue more ‘unorthodox’ policies. As Paul Mason, the BBC Newsnight economics editor, highlights, such high inflation is, in combination with low interest rates, diluting the real value of people’s savings:
“If, say, the Bank were to tolerate 4% inflation for several years, while the policy of quantitative easing (QE) held interest on savings at below 2%, the impact on savings would be eventually the same as the impact of the Cypriot government’s grab.”
Despite the obvious failure of the Tory’s austerity, Osborne used the Budget to plough on with more cuts, announcing a further £2.5bn in cuts including: a 1% cut to government department budgets for the next two years; and an extension of the 1% cap on public sector pay increases – at a time when inflation is consistently over 2%. The public sector trade unions were prepared with a response, with PCS taking strike action on the day of the Budget.
Whilst conditions for ordinary people are set to get worse, big business was rewarded with a further 1% cut in corporation tax, with the Chancellor boasting that the UK now has “the lowest business tax of any major economy in the world”. Such overtures to the capitalists come as no surprise from this Coalition of millionaires.
The Labour leadership of Miliband and Balls used the Budget figures to promote their ‘alternative’: for the government to borrow more and ‘stimulate’ growth. Indeed, even Vince Cable – a member of the coalition Cabinet – has advocated greater government spending on infrastructure in order to artificially boost the economy, and Osborne threw a small morsel in his direction by promising an additional £3bn in spending on infrastructure projects – albeit funded through cuts to public spending elsewhere. The effect of this spending, however, will be negligible at best, with the TUC estimating that it would “boost growth by a measly 0.06%”.
But one must ask Miliband and Balls a simple question: with the financial markets already worried about such high public debts and deficits – hence the downgrading of the government’s credit rating by Moody’s – how can one talk of borrowing more? Indeed, as the Labour leaders have already tacitly acknowledged, and as Francois Hollande – the French President and Socialist Party leader – has now found out, within the confines of capitalism there is no alternative but austerity.
In any case, there is plenty of money already available for spending and investment; as has been pointed out on several occasions, the biggest private firms in the UK are sitting on between £700-800 billion in cash. However, these firms are unwilling to use this money to expand production and create jobs when there is already tremendous ‘excess capacity’ – i.e. overproduction – in the system. In other words, why would the capitalists invest and produce more when they cannot sell what they already produce?
Now is the time for a Labour leadership with a clear socialist alternative to austerity; with a programme to oppose all cuts, and to make the rich pay by nationalising the banks, the financial institutions, and the major monopolies, in order to address the needs in society: for housing; for jobs; and for decent public services. Capitalism and its production for profit are no longer able to meet these basic needs. It is time to demand a system that can – socialism.
