Spending Review: A Comprehensive Austerity Attack That will lead to a Second Slump

Ralph Blake crunches the figures and explains how the Con Dems are attacking working people

The coalition government have announced the most severe cuts in public spending since the great depression of the thirties. The £81 billion (bn) of announced cuts and the £30 bn of tax increases for the next four fiscal years starting in April 2011 are on top of the already announced £8bn cuts for this fiscal year. Add in the hidden cuts (the NHS) and it all amounts to a rolling back of a large part of the gains that people have fought to establish since the end of the second world war. Scotland has fared slightly worse than the UK where a pro-rated cut on devolved spending would come in at £875 million (m) instead £900 m has been chopped off the budget for 2011/2012. Local spending and the poor on welfare will bear the brunt of the cuts with the NHS under attack through efficiency savings..

We will lose services, see wages frozen and our pensions come under attack by increasing the retirement age, increasing contributions to public pensions with no guaranteed pay out in the end. Pensions and benefits as well as being cut will be linked to the less generous consumer price index instead of the retail price index meaning further real cuts in our living standards. In addition public sector workers face a pay freeze.

The 30% cuts in local council grants will be devastating – this is what they mean by the big society with care and services being carried out voluntarily by the community. Extra cuts from the department of Work and Pensions are required above those detailed in the budget.

The most savage cut was an extra £7bn on welfare spending on top of the £11bn announced in June’s emergency budget.

The cuts outlined in comprehensive spending review are summarises as follows:

Capital Spending: fall in real terms over five years with the ring fencing of grants lifted;

Health

(White Paper): reorganised with tens o f thousands of redundancies,

Outsourcing of services to private sector and £20bn of efficiency savings by 2014, in addition £1bn taken per year to be given to shortfall in local councils’ social care budget; budget growth, before efficiency savings, increased by less than rate of inflation;

Pensions

State and public sector retirement ages to be raised, the state to 66 in 2020, for all – four years stated earlier phased in from 2018;

larger contributions (£1.8 bn cut) to public sector pensions and no guaranteed final income, linked to less generous consumer price index;

Welfare

An extra £7 bn of cuts on top of £11bn announced in the emergency budget by more severe means testing with incapacity benefits and housing benefit cut, scarping of some tax credits, all linked to less generous consumer price index, the extra £2bn promised for social care taken will be outstripped by inflation and an ageing population;

Communities & Local Government:

discretionary charges for swimming pools libraries etc, overall 7.1% to local councils per year totalling a near 30% cut over four years;

squeeze on statutory services that have to be provided by local

councils, eligibility to services tightened;

Transport Rise in fares no longer tied to inflation, no new rolling stock;

Home Office Likely 10,000 jobs losses in police departments through a cut of 16% of the budget over four years;

Justice

Legal aid bill cut and prison building programmed curtailed, 14,000 jobs to go;

Schools: cuts in sixth form education and curtailment of capital spending;

Universities: 80% reduction in teaching funds and cuts to research, students to pay for increased fees through higher interest charges;

Housing: End of tenancy for life pushing people into private sector, 270,000 fewer houses not build because of cuts leaving 1.8 million on waiting lists for social housing;

Defence: 8% budget cut by 2015 with 42,000 jobs lost.

Lies

The coalitions’ compressive spending review was accompanied by a corresponding comprehensive set of lies. Lie number one: the NHS will be ring fenced. Lie number two: the cuts are not ideologically based. Lie number three: Labour is solely to blame. Lie number four: the cuts will be made fairly. Lie number five: that the cuts will lay the foundation for economic growth. And finally lie number six: there is no alternative.

Ring Fencing the NHS

The NHS will not be protected. The coalition’s white paper “Liberating the NHS” clearly points out that the NHS will be fragmented and privatised by the outsourcing of services to private providers and that the NHS will have to achieve £20 billion of “efficiency savings” by 2014. These cuts will be reflected in a reduction in the Scottish central grant as Scotland will be expected to make similar savings and provide the same services.

Ideology

These cuts, the coalition claim, are being made to repair the public debt. But even by the government’s own estimates the debt will grow by £540 billion to £1.5 trillion over the next five years with in the same period £305 billion of existing debt having to be renewed and £250 billion of interest payments made. The cuts will only save £5bn interest payments over the four years while seeing them rise from £44bn to £60bn a year. The cuts are being carried out because the coalition does not believe in public services in public hands and providing a safety net for the poor and vulnerable. These cuts they claim will not be restored even if there is an economic recovery. They want a leaner state run by the private sector so that they can reduce the tax burden on business and pay the rich and wealthy more. As one Whitehall source said in the Financial Times there is no rationale to the planned cuts – they are simply taking a salami slice off each department’s budget.

Blame

They lay the blame on Labour for the debt and the deficit. We do not have a structural deficit; the debt and deficit has arisen out of bailing out the banking system and the recession that the credit crunch induced. It was a crisis of the economic system based on a private housing market bubble, consumer credit based on this bubble and a deregulated financial sector. This economy was given birth by Thatcher’s Tories as a replacement for our manufacturing economy which is almost destroyed. It was this model that was repeated in many major economies to varying degrees from the USA, to Ireland, to Spain, Greece and Iceland. All these bubble driven economies have collapsed and have had to be bailed out by the majority of us through cuts.

Fairness

Under the cover of taking child benefits from some middle and upper class families – also setting the doors open for means testing – they are saying the cuts will be shared equally. But as the Institute of Fiscal Studies and the Financial Times have shown it is the poorest with families who will suffer most by the cuts. The Financial Times estimates that poorest 10% of families will see a 6% reduction their living standards while at the other end the richest 10% of families will only see their living standards cut by just over 1%.

Foundation for Growth

The coalition says that the cuts will lay the foundations for growth. But all the economic numbers are indicating that the global economy is slowing down rapidly with unemployment starting to grow and the housing market beginning to fall again in most developed countries. Growth estimates are being revised down by governments and financial bodies worldwide. The Centre for Economics and Business Research is estimating that the UK economy will grow only by 0.1% in the first quarter of 2011. That is there is a 50 percept chance of a second recession even before the cuts have started to be implemented.

The estimates for the number of job losses in the public sector as a result of the cuts range from the government’s 490,000 to research bodies 1,000,000. With PWC estimating 500,000 to 650,000 job losses expected in the private sector as result of losing private sector contract tied to the public sector and reduced spending power in the economy from those public sector workers who lose their jobs because of the cuts. As the cuts start to bite in the second half of 2011 the economy will be stagnant or in a mild recession. Four years of cuts will drive the economy into a slump like they did in the 1930s. The idea that a structurally weak UK economy – with a bust housing sector, consumer credit and financial sector – with some of the lowest rates of profit in the developed world will attract investment and pull the UK into growth creating millions of jobs is dangerous fantasy.

There is an Alternative

The Tories say there is no alternative to the cuts. Labour can only advocate slightly smaller cuts and tax rises implemented more slowly. The SNP can only offer a wage and council tax freeze and wait for fiscal autonomy.

We say there are an alternative all these parties’ policies that reduce the debt immediately, reducing the interest we are paying annually which is set to rise to £60bn annually by 2015 – 10% of annual government revenues:

– 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 (£175bn indirect investment and £200bn through quantitative easing) that we have ploughed into them during the financial crisis and allow us to pay down a major part of our debt and 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 thousands of jobs and apprenticeships for our young and old;

– Rather than spend £4.5 billion on two socially useless aircraft carriers build new rolling stock for an integrated public transport system;

– We would introduce a progressive local income tax to replace the council tax; this would raise another £20bn across the UK and £1.5 bn in Scotland;

– We would reduce spending on defence by half and withdraw from the Afghanistan and Iraq saving up to £20 bn per year to spend on socially useful projects with no loss of jobs;

– Instead of raising indirect taxes or widening there scope we would raise taxes on corporations which have seen their tax rates halved under successive Conservative and Labour governments and a further 4% cut is planned in the budget. This could raise an additional £30 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 £30 billion a year;

– We would raise another £38bn a year for fifteen years by in taking North Sea Oil under full public ownership control

– 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.

An alternative world is not only possible but it is now necessary if we are to avoid paying for the crisis of their economic system and suffer years of austerity and slump.