Cuts: that’s what all the major parties – Labour, SNP, Conservatives and Liberal Democrats – are arguing about. But not if there is an alternative to the cuts but who would be the best at making the cuts. But let’s be clear we are bailing them out of the complete mismanagement of their economic and financial systems, writes Ralph Blake.
Bring on the Clowns
Governments led by Thatcher, Blair, Brown, McConnell and Salmond have supported the changes to the running of the financial and economic system that have led to the greatest crisis since the 1930s. They have overseen the deregulation of financial markets and institutions and the liberal use of interest rates that created a huge speculative bubble in every type of debt and a mountain of 700 trillion US dollars of unregulated derivatives. They bailed these systems out with hundreds of billions of pounds of borrowed money which they are asking us to pay back through cuts.
Having all cheered from the sidelines patting each other on the back for their wonderful creation they now blame everyone but themselves for the mess and are asking us to pick up the bill for their reckless folly.
The shortfall in money has come from a bailout of the crisis ridden financial system and a deep UK recession caused by the resultant collapse of consumer credit. So far the government has spent about £150 billion (bn) bailing out the banks and another £150bn on quantitative easing (QE) – where they print money and buy back government and other debt from financial institutions. They are going to spend another £25bn on QE and are prepared to underwrite another £700bn of the banks bad debts. Practically none of the money spent so far has found its way into the real economy – about £2bn has gone into mortgage lending helping to temporarily stop the fall in house prices. Most of the bailout money is being horded by the banks to pay off losses and to have for any future potential losses. So far the money spent amounts to 25% of what we produce (gross domestic product) annually.
At the same time central government revenues are falling because of the recession they have caused. Rising unemployment has a double edged sword of reducing tax revenues and increasing benefits payments for central and local government. In August of this year there was a £17bn deficit in the UK budget from this trend.
One way to pay for the shortfalls is borrow money on the international financial markets through issuing UK government debt – called gilts. Then pay it back over several years with increased revenues from a growing economy. The average that was raised in the five years prior to 2009 by the UK government in this way was £47 bn per year. In 2009 the estimate is £146bn and in 2010 the forecast is £180bn. The problem with this model is two fold: one the economy will not recover (if at all) sufficiently to create extra tax revenue to make these payments; second the UK economy is so fundamentally weak that Bank of England interest rates will have to remain at very low levels which means a weak currency and therefore nobody – domestic or international – will want to buy these UK government bonds.
That is why all the plans put forward to make cuts by the major parties are so vague: nobody knows how much will have to be cut to cover the unknown developing black hole in the UK’s finances. That is why there is a general message of we are all going to have “bear the pain over several years” to sort out their mess.
But if we are correct about the prospects for the UK economy – years of stagnation or decline – then the cuts will be on a massive scale year after year with the dire social consequences that will bring for the majority of the working class.
These cuts will affect central and local spending. Local spending by councils is financed by a block grant from central government making up about 75% of the local budget – the rest comes from council tax. Similarly the Scottish government receives a block payment from central government to finance services such as heath and education. The SNP minority government are in effect administering the cuts from London whether Tory or Labour. They have made matters worse for local councils by freezing council tax and refusing to implement a progressive local or national income tax. Even if such a proposal was defeated by the other parties in Holyrood it would have the effect of galvanising a campaign amongst Scottish voters for a commitment for such future tax changes from the next Holyrood election. It would also have strengthened the argument for independence for Scotland.
But the SNP did not want to rock capitalism’s boat and instead be quite happy to implement the cuts and makes some noises that it is all London’s fault.
There is an alternative to the bank bailouts and cuts.
* take all the banks under full ownership and control turning their toxic loans into social rents and social projects and cancelling their destructive derivative contracts;
* a redistributive tax – a one off greed tax would repair the damage already done to our public services and a permanent progressive tax could generate an extra 33% to the total Scottish budget; and
* scrap the expenditure on nuclear weapons, withdraw from the wars in Afghanistan and Iraq and reduce our armed forces to one for defence not invasion.
This is the alternative the Scottish Socialist Party is fighting for in the Glasgow North-East by election and the forthcoming UK and Scottish elections. It is the rationale alternatives to what the major parties are offering us – that we pay for their crisis. It is the start of the building of a society that operates in the interests of the majority instead of the few.