Austerity cuts, cutting the chances of recovery

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by Dan Paris

It’s worth reminding ourselves how we got here.  In the aftermath of the banking crisis, we approached a general election at a time when national debt was spiralling out of control.  The leader of the opposition, David Cameron, argued that in order to control the debt we needed to implement deeper cuts and to implement them more quickly than the cuts proposed by the Labour government. Labour and the Lib Dems argued that this approach risked jeopardising economic recovery.  Nick Clegg said, “There isn’t a serious economist in the world who agrees with the Conservatives … [that] we should pull the rug out from under the economy with immediate spending cuts.”

The economy was understandably by far the most important issue in the election.   Life was suddenly becoming more and more difficult for millions across Britain.   Unemployment was up.  After years of prosperity, many people were finding themselves sitting on an overpriced mortgage or credit card debt they couldn’t afford.  The public agreed that the national debt was too high, but the prospect of cuts to public services during already difficult times was difficult to deal with.

After years in the political wilderness, the Conservatives must have felt very optimistic.  They were against a hugely unpopular prime minister; a man who’d never faced election as party leader, lacked charisma, and who as former Chancellor could be blamed for the failure to regulate the banks.  They were in a prime position to regain their status as the natural party of government and sweep to power on a promise to undo the damage of years of mismanagement.

And yet, something interesting happened, the Conservatives lost the argument.  For the first time, televised debates brought the political arguments directly into voters’ homes.  It was as close to a single issue election as we’re ever likely to see.  Faced with the arguments a majority voted for parties that rejected the Conservative plans: Labour, Lib Dem, SNP, Plaid Cymru.  Only slightly over a third of the electorate voted Tory. They were the largest party, but could hardly herald this result as any sort of victory.

And let’s be clear, the Conservatives’ manifesto commitments were significantly more cautious than the policies implemented by the coalition government.  Cameron talked of protecting frontline services, and said there would be no ‘swingeing cuts’.  The policies which Clegg said no serious economist agreed with were not as harsh as the policies he helped implement once he got into government.  The justification?  Well, we didn’t know it was this bad.  Nobody said there was this much debt.  It’s just one of those horrible, unavoidable things.  After all, we’re all in this together.

The easiest way to justify any policy is to say there is no alternative.  It avoids the need for pesky public debate.  It’s the political equivalent of putting your fingers in your ears and screaming until you get your own way.  But it works, as long as your opposition lets you get away with it.

At the election, Labour only offered austerity-lite.  Vince Cable and Nick Clegg, the most eloquent Parliamentary critics of austerity measures, have been co-opted into delivering Conservative budgets.  Our public debate is now shaped by the belief that national debt is the most important economic issue, and as long as this is left unchallenged the government is free to prescribe austerity as a bitter but necessary medicine.

Of course, it would be foolish to ignore national debt.  Left to grow unchecked, the debt could have serious consequences for us all, and so challenging it is necessary. Non-renewal of Trident is just one area where we could save billions.  Asking our biggest corporations to pay a fair level of tax, not the 1% which Barclays was recently revealed as paying, would provide the Treasury with a massive amount of funds.  Yet rather than pursuing fair taxation, the government is making it easier for our wealthiest to contribute almost nothing in tax.  Business justifies this by pointing to their contributions in payroll tax.  I wonder how HMRC would react if I was to inform them I had no intention of paying income tax because my national insurance should be enough.

The slash-and-burn attacks on our public services are not only morally reprehensible but potentially economically dangerous.  As Ireland cut its public spending, Cameron pointed across the sea and hailed them as an example to follow.  We heard less of this praise as the Irish economy collapsed.

The New Deal policies which followed the Great Depression the US established the principle that when in recession the government should increase public spending in order to stimulate the economy.  This is based on a very simple economic idea.  Money has a multiplier effect, by spending we support businesses who in turn can pay their employees who then spend, and so on.  Each pound spent will multiply in value to the overall economy.  In times of economic difficulty, the public rein in their spending which then causes wider damage than the initial drop.

Consumers are in no position to spend us into wealth.  We face rising inflation, and as public sector cuts bite, a soon to be bulging dole queue.  Cutting government spending now and expecting economic growth is like having liposuction and expecting to put on weight.

The gamble the government is making is that the difficulties caused by austerity measures will be short-lived and the country will then, with debt under control, be in a stronger position to grow.  But imagine the outcome if this gamble doesn’t pay off.  Imagine if the billions in printed money cause the pound to suffer years of high inflation.  Imagine if cuts cause unemployment to soar, piling pressure on the benefits system.  Imagine if our most vulnerable are left helpless, abandoned by a hollowed-out public sector.  Imagine if the damage to the economy causes national debt to rise, not fall.

We’re in difficulty because our previous government followed the international example of reckless and short-sighted economic management.  Is it so hard to imagine it could be happening again?