Con Dems will create new slump

The butchers’ coalition’s emergency budget cuts and spending plans will push Britain into a decade long economic slump argues Ralph Blake

The list of projects, services and support for the community that will be lost just from the announced spending cuts and suspended future programmes reach down into the very fabric of our society. The cancelled projects of the last Labour government and the further cuts from this financial year amount to £8 billion. The increase in the personal tax allowances is roughly in line with inflation and the are offset by Labour’s planned 1% increase in national insurance for employees which the coalition have not rescinded. We are faced with a further tax rise through the plan to raise VAT to 20% from the start of 2011. This tax rise hits the poorest hardest as a larger proportion of their income goes on purchasing goods than the better off. The £2 billion levy expected to be raised annually on banks is short change for the £375 billion of public funds that has been pumped into them over the last three years. In a vicious attack on the poorest in our society, the unemployed and the hundreds of thousands who will find themselves unemployed as a result of the cuts and the millions of others dependent on social security will see their already meagre benefits cut severely in real terms.

Those who keep their jobs in the public sector are being asked to take an effective pay cut with the freeze in wages and inflation (RPI) running at just over 5% a year and the increase in pension contributions while there will be a corresponding reduction in pension provision. This unfortunately is only a taster of what is to come. The Institute of Fiscal Studies (IFS) estimates that cuts and tax rises of £34billion a year for four years are needed to meet the Coalition’s targets. These will mainly come through future cuts, as Osborne indicated in the budget speech, and they would be in addition to the cuts of £51 billion announced by the previous Labour government. The cost to the average family estimated by the IFS is £1,000 year. The scale of these cuts is unimaginable to visualise.

750 000 Job Losses

The forecast for economic growth put forward by the previous Labour government’s last budget were derided in the City – Darling forecast growth of 3.25 for 2011 while the consensus of City economists had the figure at 2.1%. The new Office for Budget Responsibility (OFR) estimate is 2.3% still above the optimistic City figure which was made prior to the size of the cuts were known while their long-term growth is 2.8% and 2.9% for 2012 and 2013. These are completely unrealistically figures. Average annual growth in the new millennium prior to the credit crunch was 0.6%. For the fifty years of the last century the average was 1%. As real growth comes in way below the OFR’s figures, even the revised down post budget ones, the government will have to cut by even more to maintain the targets deficit levels.

In fact the cuts in public spending and tax rises will likely lead to a decade long slump in the economy. The Capital Economics group estimates that 750,000 public sector workers will loose their jobs over the next five years as result of the cuts. The Oxford Economics consultancy estimates that 2.23. Million private sector jobs are at risk from the cuts in outsourcing of services and goods – in 2007/08 the public sector spent £220 billion on services and goods from the private sector. Research by Manchester University has shown that over 60% of new jobs created in the last ten years are connected directly or indirectly to the public sector. Even US President Obama warned ahead of the G20 finance ministers meeting that what Europe needs and the UK in particular needs is stimulus spending, not cuts, to pull economies out of recession and a avoid a possible slump. Leading economists are warning the government that at a time of weak demand and limited credit, an austerity programme will push the economy back into recession.

Of course the coalition government are made up of free market economists. David Cameron was Norman Lamont’s treasury adviser during Black Wednesday’s Sterling collapse which helped lay the basis for Britain’s credit bubble. Clegg, Cable and Laws wrote a pamphlet in 2004 urging New Labour to be even more free market and bring in less legislation to let the “markets flourish”.

Cuts based economy will fail

They believe that the private sector can thrive once again and pull the UK out of recession. This flies in the face of reality where the Thatcher government destroyed our ability to produce goods and services and made us reliant on a speculative financial system which caused the current crisis. In this recession our productive capacity has been further permanently damaged. Investments do follow the law of the market; they flow from the least profitable parts of the global economy to the more profitable areas. That is what we have seen over the last 35 years; a flow of investments from the mature economies, with higher levels of automation and better working conditions and levels of pay of the West to the lower automated and paid economies of the East.

An economy based on cuts and the free market is doomed to fail. We need an economy capable of meeting peoples’ needs and providing services and jobs and that is what an emergency budget should begin to deliver.

· Rather than cut future projects that provide services we would cut Trident’s replacement saving £80 billion of future spending.

· We would reduce spending on defence by half and withdraw from the Afghanistan and Iraq saving up to £40 billion per year on expenditure.

· Rather than raise national insurance we would introduce a minimum wage of £8 per hour.

· Instead of raising indirect taxes or widening there scope we would raise taxes on corporations which have seen there tax rates halved under successive Conservative and Labour governments and a further 4% cut is planned in the budget. This could raise an additional £50 billion a year in revenues.

· Instead of the cuts in services we would close the loop holes in tax avoidance schemes – this would save £20 billion a year.

· We would tax the rich and wealthy. A one off 10% tax on Britain’s richest people would raise £35 billion. This would be used to provide millions of much needed houses through building conversion, building renovation and housing insulation and all the jobs that would be needed to achieve that.

· We would shift the burden of taxation from the poor and middle earners to the wealthiest 20% in society who earn 16 times more than the poorest 20% of society. Per head of the population the UK is the third richest country in the world but the second most unequal. This could generate up to an extra £70 billion a year.

· We would take the banks under full social ownership and control – they have £560 billion in liquid cash and £5 trillion of assets. This would not only allow us to recoup the £375 billion that we have ploughed into them during the financial crisis but allow us to fund socially useful projects. An example of this would be a renewable energy programme. The design, administration, construction, maintenance, running, assembly, commissioning and servicing of the programme would create hundreds of thousand of jobs and apprenticeships for our young and old.

· Instead of cutting pensions and demanding people pay more towards their pensions we would look to provide an alternative retirement provision that is not dependent on the whims of the financial markets. We would provide for all people over 60 free rented housing, electricity and gas, public transport and free access to cultural and sports facilities.

The reasons for opposing the cuts are clear: why should we pay for a crisis and resultant recession created by governments, banks and capitalism itself?

This is a rational alternative of hope compared to the austerity and economic slump that the coalition is offering. It is one that we should campaign for as we resist the cuts in years ahead.


  1. A very similar article, written by Raphie too, appeared in the budget response special issue of the Scottish Socialist Voice (paper of the Scottish Socialist Party). I created the following note at Facebook, to put forward my views on the transitional programme, in opposition to the 25/40% cuts, contained within it:

    The text of the note is as follows:

    I’ve just read the budget special of the Scottish Socialist Voice (paper of the Scottish Socialist Party). Particularly good was the article “Defy the cuts budget” written by Raphie de Santos. It is downloadable from That is not available as HTML but a bit of googling found a similar article, also acredited to Raphie, at Both articles contain an alternative to the coalition’s budget, with the following key point:

    “We would take the banks under full social ownership and control – they have £560 billion in liquid cash and £5 trillion of assets. This would not only allow us to recoup the £375 billion that we have ploughed into them during the financial crisis but allow us to fund socially useful projects. An example of this would be a renewable energy programme. The design, administration, construction, maintenance, running, assembly, commissioning and servicing of the programme would create hundreds of thousand of jobs and apprenticeships for our young and old.”

    This is basically what I’ve been arguing, for quite a while (in addition to another point saying “close the loop holes in tax avoidance schemes – this would save £20 billion a year” which virtually if not all the left has picked up on, and even the Greens and LibDems in their general eleciton manifestos, with various estimates). Indeed, I’ve put out Foundation for Proportional Representation-based Socialism newsletters (see urging the left to make such points.

    I was going to suggest that the Socialist Workers Party and Socialist Party have failed to adopt such a programme because they are revolutionary socialist parties (both identifying themselves as Trotskyist although the SWP has rejected Trotsky’s idea of “the transitional programme” and just went along with what the SP and others concoted for the Trade Unionist and Socialist Coalition at the general election) and don’t want reforms to succeed, but Socialist Resistance (who published it as well as the SSP) are Trotskyists too (in the Fourth International). It is my contention, also as a revolutionary socialist although I don’t identify myself as a Trotskyist or even a Marxist any more, that these are ideal “transitional demands” that would lead on to a socialist revolution if attempted to be carried out!

    Some additional points about what Raphie put forward:

    He wrote: “full social ownership and control” – not just “workers’ control” as some revolutionary socialists, including the SP, suggest. It is clearly absurd to suggest that people who borrow or save money should have no say in the decisions made by the bank, as well as workers – a point I’ve made.

    The figures Raphie gave, “£560 billion in liquid cash and £5 trillion of assets” and £375 billion already “ploughed into them during the financial crisis” suggest that he’s done his homework. It is vital to make the point, as Raphie has done, that nationalising the banks can actually save money by recouping what has been spent on the bank bailout, rather than it seeming that you want to spend even more money that the government doesn’t have, as is unfortunately implied by much left-wing propaganda. I gave the figure of £1.3 trillion for the bailout, because it was given by Paul Mason on Newsnight (one of my Facebook friends so I’m including him in the list of people I’m distributing this note to), but it did seem so high to not seem credible – but I guess guarantees of further money that would be available should the banks need it may explain the discrepancy.

    That and the conservative (with a small C) estimate of £20 billion saved through clamping down on tax avoidance are wise in my opinion. If you give too large figures, and rely on making a small number of suggestions (there are 9 bulllet points in Raphie’s articles), as some of the left has done, the arguments appear weak, especially when the big business-controlled mass media wheels out commentators deriding such arguments.

    However, one point of criticism from a revolutionary standpoint – Raphie says nothing about what to do if rich people or corporations flood overseas as a result of attacking the rich. The answer to that is call their bluff – and confiscate their assets in this country if they do so – and to spread the revolution around the world so they have nowhere to run to!

  2. Raphie the independent says the cost of the bank bailouts was £850billion. Where does your £375 billion public funds figure you refer to come from and how does it fit in what that?

  3. Yes, the Con-Lib policies will provoke a new slump– a possible “double-dip” recession. But that recession will destroy many of the less competitive capitals and raise the rate of profit. Put simply, there is not “solution” to the crisis that benefits BOTH workers and capitalists. If the state “pumps up” the economy and maintains employment and incomes for workers, inefficient firms survive and profits remain low. Only by attacking employment and wages– and the least competitive firms– can capital restore profitability, on our backs!

  4. The 375 bn is 175bn spent on direct bailouts and 200bn on quántitaive easing. The independent figure refelcts underwriting of future losses on RBS debt and loans which are about 500bn. This is money we have not spenet yet and is only a potential future liability

  5. Steve Wallis suggests that the failure of the SOCIALIST Party the
    the SOCIALIST Workers Party and for that matter SOCIALIST Resistance
    (whatever that may be)to call for the nationalisation of the UK banks, is linked to their `revolutionary strategies’ I would suggest its more to do with their closet support for the E.U. whose rules make such an act illegal. Naionalisation of the Banks is the policy of the COMMUNIST Party of Britain.

  6. Dave, What you have written is not true. We, the SP and SWP all oppose the EU. Socialist Resistance does call for the nationalisation of the banks, and I am pretty sure the SP and SWP do as well. That is in our first statement on the banking crisis [ ] and many statements since then. Just search our website for nationalise and bank. However, we normally talk about public ownership and public control, just to be clearer.


  7. Yes found it – from 14.10.2008! So where’s the campaign, where’s the debate & discussion of the immense consequences of such a step for the UK and the World economy, including its absolute incompatability with E.U. membership? As it stands your conference motion has as much value as a BP Health & Saftey document.

  8. Hi Dave. Not to worry: no need to apologise. You said we did not call for nationalisation but, as you can see, we have been doing that time after time. Read through our articles on the crisis and you can see that we’ve called many times for the nationalising of the banks. Our campaigning is done through broader organisations, like Respect. Here’s a Respect leaflet on the crisis, which also calls for the nationalisation of the banks:

    Pointing out the incompatibility of any demand with the current capitalist set-up isn’t an agitational, campaigning demand. We don’t need to discuss that on leaflets.

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