Writing in the New York Times, Paul Krugman said Britain’s performance since 2010, after the global financial crisis struck, has been “startlingly bad,” with a tentative recovery that began in 2009, which was stalled in the last quarter of 2010. In his article entitled This Snookered Isle, Krugman provides an indictment of the Coalition’s claims and their methods of managing the UK economy. Mr Krugman echoes many leading economists in Britain.
Krugman says: “Unfortunately, economic discourse in Britain is dominated by a misleading fixation on budget deficits. Worse, this bogus narrative has infected supposedly objective reporting; media organizations routinely present as fact propositions that are contentious if not just plain wrong.”
Simon Wren-Lewis of Oxford University has dubbed this narrative “mediamacro.” As his coinage suggests, this is what you hear all the time on TV and read in British newspapers, presented not as the view of one side of the political debate, but as simple fact.
Yet none of it is true.
Krugman goes on to ask: “Was the Labour government that ruled Britain before the crisis profligate? [As so often claimed by the Conservatives.] Nobody thought so at the time.”
In 2007, government debt as a percentage of G.D.P. was close to its lowest level in a century (and well below the level in the United States), while the budget deficit was quite small. The only way to make those numbers look bad is to claim that the British economy in 2007 was operating far above capacity, inflating tax receipts. But if that had been true, Britain should have been experiencing high inflation, which it wasn’t.
What about growth? When the current British government came to power in 2010, it imposed harsh austerity — and the British economy, which had been recovering from the 2008 global slump, soon began slumping again. In response, Prime Minister David Cameron’s government backed off, putting plans for further austerity on hold (but without admitting that it was doing any such thing). And growth resumed.” (See also: The Return of Expansionary Austerity.)
He adds: “If this counts as a policy success, why not try repeatedly hitting yourself in the face for a few minutes? After all, it will feel great when you stop.
Given all this, you might wonder how mediamacro gained such a hold on British discourse. Don’t blame economists. As Mr. Wren-Lewis points out, very few British academics (as opposed to economists employed by the financial industry) accept the proposition that austerity has been vindicated. This media orthodoxy has become entrenched despite, not because of, what serious economists had to say.”
Cameron has misled the public by making Government debt analogous with personal debt. It isn’t. If a person misses a mortgage payment, for example, they may risk damaging their credit rating, and possibly even losing their home. So if we owe money, we need to find a way to pay it back as soon as possible. But government debt does not need to be paid back overnight – in fact, it’s widely recognised to be potentially damaging to do so.
In an economy, one person’s spending is another person’s income. So when the government cuts spending, it reduces people’s income, leading to less business, more unemployment, and a vicious spiral of slowing down the economy.
Osborne’s austerity measures have achieved nothing, except deepening poverty, widening economic inequality, and suffering for the poorest and most vulnerable communities – and Osborne announced in his Autumn statement that we face at least four more years of it, should the Tories gain office again.
Austerity is not an economic necessity, nor is it temporary measure to balance the books, but rather, it reflects the Conservative’s long-standing ideological commitment to dismantle the gains and achievements of the post war settlement: public services, the welfare state and the National Health Service. This is where most of the cuts have been aimed.
With a shortfall in tax receipts set to increase the size of the deficit by at least £25 billion during the next parliament, the Office for Budget Responsibility have said the only way Osborne could balance the books would be through shrinking the state to a level not seen since before the Second World War: “Total public spending is now projected to fall to 35.2 percent of GDP by 2019-20, taking it below the previous post-war lows reached in 1957-8 and 1999-2000 to what would probably be its lowest level in 80 years”. Robert Chote.
Despite facing a global recession, the Labour Government invested in our public services, and borrowed substantially less in thirteen years than the Coalition have in just five years. UK citizens were sheltered very well from the worst consequences of the global bank-induced crash.
Gordon Brown got it right in his championing of the G20 fiscal stimulus, agreed at the London summit of early April 2010, which was a continuation of his policies that had served to steer the UK economy out of the consequences of a global recession, and to protect citizens from those consequences.
Osborne’s policy of imposing austerity and budget cuts on an economy that was actually recovering was a catastrophic error. The austerity cuts propelled the economy backwards and into depression; and, far from using public spending as a countervailing force against the cutbacks in private sector investment, the Coalition’s budget cuts served to aggravate the crisis. Many people are suffering terribly as a consequence, many have been reduced to a struggle for basic survival.
The Conservatives have been engaged in a significant transfer of income from the least well-off half of the population to the more affluent in the past five years. Those with the lowest incomes have been hit hardest by austerity. Deliberately so.
It’s inconceivable that Coalition policies were formulated for anything other than profiting the wealthy at the expense of the poorest.
The following cuts came into force in April 2013:
- 1 April – Housing benefit cut, including the introduction of the bedroom tax
- 1 April – Council tax benefit cut
- 1 April – Legal Aid savagely cut
- 6 April – Tax credit and child benefit cut
- 7 April – Maternity and paternity pay cut
- 8 April – 1% cap on the rise of in working-age benefits (for the next three years)
- 8 April – Disability living allowance replaced by personal independence payment (PIP)
- 15 April – Cap on the total amount of benefit working-age people can receive.
Here are some of the Tory “incentives” and consquences for the wealthy:
- Rising wealth – 50 richest people from the Midlands region increased their wealth by £3.46 billion in 2010 to a record £28.5 billion.
- Falling taxes – top rate of tax cut from 50% to 45% for those earning over £150,000 a year. This is 1% of the population who earn 13% of the income.
- Benefited most from Quantitative Easing (QE) – the Bank of England say that as 50% of households have little or no financial assets, almost all the financial benefit of QE was for the wealthiest 50% of households, with the wealthiest 10% taking the lions share
- Tax free living – extremely wealthy individuals can access tax avoidance schemes which contribute to the £25bn of tax which is avoided every year, as profits are shifted offshore to join the estimated £13 trillion of assets siphoned off from our economy.
- £107,000 each per year awarded to millionaires as a tax cut.(From: Follow the Money: Tory Ideology is all about handouts to the wealthy that are funded by the poor (2013).)
In November last year, my proposition was also verified in a study of the cumulative impact of tax and welfare changes, from in-work benefits to council tax support, to the cut in the top rate of income tax and an increase in tax-free personal allowances, the report concluded that Coalition policy has been regressive across the income spectrum.
Its authors, Paola De Agostini and Professor Holly Sutherland at the university of Essex, and Professor John Hills at the LSE, wrote: “Whether we have all been ‘in it together’, making equivalent sacrifices through the period of austerity, is a central question in understanding the record of the coalition government … It is clear that the changes did not lead to uniform changes in people’s incomes. The reforms had the effect of making an income transfer from the poorer half of households (and some of the very richest) to most of the richer half, with no net effect on the public finances.
“In effect, the reductions in benefits and tax credits financed the cuts in taxes. Some groups were clear losers on average – including lone-parent families, large families, children, and middle-aged people (at the age when many are parents).”
Last year, the scale of Britain’s growing inequality was revealed by a report from the leading charity, Oxfam, showing that the country’s five richest families now own more wealth than the poorest 20% of the population.
Oxfam urged the chancellor to use the 2014 spring budget to make an assault on tax avoidance and introduce a living wage, in a report highlighting how a handful of the super-rich, headed by the Duke of Westminster, have more money and financial assets than 12.6 million Britons put together.
In the report, A Tale of Two Britains, Oxfam said the poorest 20% in the UK had wealth totalling £28.1bn – an average of £2,230 each. The latest rich list from Forbes magazine showed that the five top UK entries – the family of the Duke of Westminster, David and Simon Reuben, the Hinduja brothers, the Cadogan family, and Sports Direct retail boss Mike Ashley – between them had property, savings and other assets worth £28.2bn.
Increasing inequality is a sign of economic failure rather than success. It’s far from inevitable – a result of political choices that can be reversed.
The Labour Party have announced this week that tackling tax avoidance and evasion is a priority, and they plan to push emergency laws through parliament designed to impose far higher fines and close tax loopholes. This move alone will raise more than £7.5bn a year in revenue for the Treasury. It’s a measure that sends out a clear message: the poorest people should not have to pay more to compensate for tax abuses by the rich.
Also announced this week was Labour’s intention to abolish archaic rules that allow wealthy “non-domiciles”, who live in the UK but claim to be domiciled overseas, to avoid paying tax in this country on what they earn outside of Britain.
Labour’s careful, costed and evidence-based policies also include: a Bankers’ Bonus Tax; a Mansion Tax; repeal of the Bedroom Tax; a reversal of the Pension Tax relief that the Tories gifted to millionaires; a reversal of the Tory Tax cut for Hedge Funds; freezing gas and electricity bills for every home a the UK for at least 20 months; the big energy firms will be split up and governed by a new tougher regulator to end overcharging; banning exploitative zero hour contracts; introduction of a living wage (already introduced by some Labour councils); a reversal of the £107,000 tax break that the Tories have given to the millionaires; reintroduction of the 50p tax; scrapping George Osborne’s “Shares for Rights” scheme that has opened up a tax loophole of £1 billion; ensuring Water Companies place the poorest households on a Social Tariff that makes it easier for them to pay their Water Bills; breaking up the banks and separating retail banking from investment banking; introduction of measures to prevent corporate tax avoidance, scrapping the Profit Tax Cut (Corporation Tax) that George Osborne has already announced for 2015 and many more.
These are not austerity measures. They are much needed, strongly redistributive policies.
The Organisation for Economic Co-operation and Development (OECD) has recently found what most of us already knew: that income inequality actually stifles economic growth in some of the world’s wealthiest countries, whilst the redistribution of wealth via taxes and benefits encourages growth.
Will the super-rich leave the UK, bag, baggage and all, as the right-wing scaremongers bleat, if we have a fair government that expects tax contributions from the cosseted rich? I seriously doubt it. They could start an exodus to New York I suppose, a city with a currently heavier tax regime, yet curiously not short of thousands of super-rich residents.
Ask yourself this: what are these tax-evading, hoarding and loudly complaining people actually contributing to our society? As far as I can see, they are supported by enormous state handouts, at everyone elses’ expense. They are propped up in their greed for ever-increasing profits,
Tax avoidance is costing us at least £70bn each year.
The most costly benefit payments in the UK are Tax Credits, Housing Benefit and Child Benefit, totalling £56.4bn a year. These are not out of work benefits. Some 65% of the total spent on working age benefits, is paid to people in work, whose wages are below subsistence levels.
Add to that the corporate tax benefits, such as the value of the cheap credit made available to banks and other business, the insurance schemes run by the government to protect exporters, the marketing for British business laid on by Vince Cable’s ministry, the public procurement from the private sector … a recent study conducted by Kevin Farnsworth, a senior lecturer in social policy at the University of York, concludes that direct corporate welfare costs British taxpayers just short of £85bn a year.
The Tory’s justification for allowing exploitative tax avoiders to have all of their own way is the mythological “trickle down effect.” Or “voodoo economics” to Keynsians. It was also known as the “horse and sparrow theory” a couple of centuries back. The idea being that if you feed a horse plenty of oats, the sparrows in it’s wake will also be fed .
And we are most certainly being fed horsesh*t.
It’s time to put an end to corporate welfare, and state handouts to the wealthy. We can do that by voting for a Labour government.
And if some thieving, hoarding, greedy misers threaten to leave the UK, why, I think I’ll offer to help them pack.
Big thanks to Robert Livingstone for his excellent memes.
4 thoughts on “This unsnookered isle”
One way to cut the deficit – and “at a stroke” – would be to scrap Trident.
That would, of course, depend on politicians telling the truth which they are understandably reluctant to do.
Lie #1: Trident is essential for the defence of the UK or of UK interests.
This is obviously nonsense, as having loads of nuclear missiles did not deter the invasion of the Falkland Isles, nor did the USA nuclear arsenal prevent the attack on the World Trade Center (sic) or the Pentagon.
Lie #2. Trident is needed to stop Russia invading.
Nonsense; Russia has problems enough of her own without adding to them.
Lie #3: Trident is own own, independent nuclear deterrent.
As it depends on the USA enabling its military GPS satellites for the targetting computers in Trident to work, it is not exactly “independent”. As for it being a deterrent, whom is it supposed to deter – the Germans, the French, the Spanish or the Dutch? Or is it supposed to deter a largely non-existent foe, such as the mice against whom the White Knight in Alice Through the Looking Glass set traps to keep them from his saddle-bag?
The thing you didn’t mention is public wishes, and this is, after all, a democracy. Labour have always had very close ties with the CND of course, and were unilateralists. It lost them 2 elections, the public overwhelmingly prefering a multilateral approach.
Our current situation with US control of our weapons is also more complex than mentioned.
Reblogged this on Britain Isn't Eating.
There was no need for austerity at all; most economists agree. We need to bail out the people not the banks. If we did this, money only meant to pay off debt, the banks would still get their ‘easing’, and then people who formerly had monthly monies tied up loans would now be free to spend their money in the economy – especially the poor who tend to spend more of their income in local economies. This would also increase tax receipts and lead to job creation.
Coupled with a strong economic plan so that we stop selling off our income generating companies like the Royal Mail, nationalising where possible, so that our ‘current account’ deficit – which is extremely high at present due to the fire sales – is back in the black. Along with of course massive house building and the renegotiating the PFIs that are killing the NHS.
We need a fair increase of benefits each year and a reinstating of an appropriate pension age.
We need an end to the self serving government and ‘money for the boys’ attitude. All outside associations for M.P.s should be banned so that they do not vote on something they will personally benefit from as did the Lords regarding the NHS.
I think that if Labour do not deliver this time we are in desperate trouble. I sense this is their last chance. I truly hope that they deliver.