Tag: Fiscal stimulus

David Cameron promised a further £7.2 BILLION tax cuts to the rich at the expense of the poor

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I wrote an article last year – Follow the Money: Tory Ideology is all about handouts to the wealthy that are funded by the poor – which outlines Coalition policies that have widened inequalities and increased poverty by handing out public money to the wealthy that has been taken from the poorest. I pointed out that this Government have raided our tax-funded welfare provision and used it to provide handouts to the very wealthy – £107,000 EACH PER YEAR in the form of a tax break for millionaires, amongst other things.

And what does our imperturbable chancellor promise if this disgrace of a government is re-elected? True to Tory form, more of the same: austerity for the poor and public services cuts, and tax breaks for the wealthiest.

But further cuts to lifeline benefits and public services is surely untenable. Absolute poverty has risen dramatically, this past four years, heralding the return of Victorian illnesses that are associated with malnutrition. People have died as a consequence of the welfare “reforms”. Supporting the wealthy has already cost the poorest so very much, yet this callous, indifferent, morally nihilistic  government are casually discussing taking even more from those with the very least.

This isn’t anything to do with economic necessity: it’s all about Tory ideology. Under the guise of austerity, the Tory-led Coalition have stripped our welfare and public services down to the bare bones. Any further cuts will destroy what remains of our post-war settlement.

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 three years. UK citizens were sheltered very well from the worst 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 the consequences of cuts to services and welfare.

Osborne’s policy of imposing austerity and budget cuts on an economy that was actually recovering was a catastrophic error. The austerity 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, reduced to a struggle for survival.

And in these socio-economic circumstances, the Tories have pledged a further £7.2 BILLION tax cuts to the rich. The funding for the tax cuts will come from further catastrophic “savings” made at the expense of the poorest yet again – £25 billion more to be sliced from welfare, Local Authorities,  education, police and other vital services.

Three things are immediately clear. Firstly, without the ramping up of VAT in 2010, to 20%, Osborne would be in even more dire financial straits than he is.

Secondly, income tax has, despite allegedly rising employment, failed to increase.

Thirdly, corporation tax, targeted for cuts, year after year, has slumped. The tax system is increasingly veering toward very regressive – biased in favour of the wealthy – consumption taxes, which affects the poorest, most, and failing to deliver fairer taxes on income.

This is the result of government policy: increasing VAT but cutting corporation tax, and the engineered kind of “recovery” we have ended up with. The Office for Budgetary Responsibility (OBR) reminded us in October of the extent of the Coalition’s failure to reduce the deficit.

Public sector net borrowing in 2013-14 was originally expected to be £60 billion; the out-turn for borrowing was £108 billion (on a comparable basis). This amounts to a shortfall of nearly £50 billion, with borrowing approaching double the original predictions made when the government’s austerity policies were announced in 2010.

Much of this shortfall is accounted for by the current earnings crisis. UK workers are suffering the longest and most severe decline in real earnings since records began in Victorian times, according to an analysis published by the TUC. But Tories always lower wages, and hike up the cost of living. And whilst workers are struggling to make ends meet, private business owners/Tory donors are raking in millions of pounds. But this is exactly how Tories like to run society in a nutshell.

It’s their imposition of a feudalist schemata for social relationships. Cognitively, Tories are the equivalent of historical egocentric toddlers: they are stuck at this painful stage of arrested development.

“The deficit reduction programme takes precedence over any of the other measures in this agreement” – stated in the Coalition Agreement.

For a government whose raison d’etre is deficit reduction, the Coalition really isn’t very good at all. But austerity reflects the triumph of discriminatory Tory ideology over needs-led, evidenced-based policy making.

The OBR said the forecast from 2010 was over-optimistic because it did not take into consideration the effect of lower wages as well as a higher levels of tax-free personal allowance on the upper brackets of income tax. National Insurance contributions were also £7.4 billion below forecast.

Which brings us back to the issue of further tax cuts for the wealthy, with no mention of raising wages for the poorer work-force, and of course there is the promise of more cuts to come for those relying on lifeline benefits. I don’t think that the Coalition cares that their policies don’t balance the books, as it were, or mend the economy. Nor do they care what the consequences are for the wider public.

TUC General Secretary Frances O’Grady said:

The government’s failure to get wages growing again has not only left families far worse off than in 2010, it’s put the public finances in a mess too. The economy has become very good at creating low-paid jobs, but not the better paid work that brings in income tax. The Chancellor’s sums just don’t add up – he can’t make the tax cuts for the better off that he is promising and meet his deficit reduction target without making cuts to public services.

His cuts would be so deep that no government could deliver them without doing damage to both the economy and the fabric of our society. We can’t cut our way out of this problem any more than we can dig ourselves out of a hole. More austerity would only keep us stuck in a downward spiral. The Chancellor should use next week’s Autumn Statement to invest in growth and to put a wages recovery at the top of the agenda.

Shadow Chancellor Ed Balls said:

Nobody will be fooled by pie in the sky promises of tax cuts when David Cameron cannot tell us where the money is coming from. Even the Tories admit this is an unfunded commitment of over £7 billion, so how will they pay for it? Will they raise VAT on families and pensioners again?

Cameron has also announced the basic rate before we start paying tax would rise from £10,500 to £12,500. While a worker on £12,500 would save £500 a year, someone earning £50,000 would keep £1,900 extra.

Those earning up to £123,000 would be £484 richer. Someone on £12,500 would save £500 a year, while someone on up to £50,000 would keep £1,900 extra. And the £500 tax cut for basic rate earners will be almost wiped out by George Osborne’s raid on in-work benefits.

Paul Johnson of the Institute for Fiscal Studies think tank says it was:

very difficult to see how the £7billion tax giveaway could be paid for.

We’re looking at promises of £7billion of tax giveaways in the context of an overall plan to get the deficit down but even without tax giveaways that requires pretty extraordinary levels of spending cuts such that most government departments will see their spending cut by a third by 2020.

How are you going to afford this? Even more dramatic spending cuts?

At the Tory Conference, Cameron promised to expand the National Citizen Service youth project for every teenager in the country, have the lowest rate of corporation tax of any major economy.

There was also a pledge to abolish youth unemployment by the end of the decade. But the Tory faithful gave the loudest applause for his pledge to scrap the Human Rights Act.

This is a truly terrifying pledge, because human rights were originally formulated as an international response to the atrocities of the 2nd World war, and to ensure that citizens are protected from abuses of their government.

A Labour Party analysis found the proposed tax break would hand David Cameron and other Cabinet ministers an extra £132 a year. But a family with two children with one earner on £25,000 a year would lose £495 by 2017-17 due to the benefits freeze announced by Mr Osborne.

The Tory plan is based solely on spending cuts, mainly directed at the working age poor. And the Conservative plan to raise the higher rate threshold to £50,000 means that  working-age poor people are to fund a tax cut that is four times greater for higher rate tax payers than for basic rate taxpayers.

Ed Balls said in response:

David Cameron’s speech showed no recognition that working people are £1,600 a year worse off under the Tories nor that the NHS is going backwards on their watch. The only concrete pledge we’ve had from the Tories this week is a promise to cut tax credits by hundreds of pounds for millions of hard working people while keeping a £3 billion tax cut for the richest one per cent.

TUC general Secretary Frances O’Grady added:

No amount of dressing up can hide the fact that the policies in this speech pass by those who need the most help to reward richer voters.

Alison Garnham, Chief Executive of Child Poverty Action Group, said:

What was missing in the PM’s speech was any recognition that independent projections show that child poverty rates are set to soar. We know that raising the personal tax allowance is an ineffective way of supporting low paid families.Independent analysis shows that just 15% of the £12 billion required to raise the PTA to £12,500 would go to working families in the lowest-income half of the population.

Many simply don’t earn enough to benefit from this policy, and those that do just see their benefits and tax credits withdrawn as their incomes rise.

The Institute for Fiscal Studies showed in their Green Budget publication this year that just 15% of the gains from increasing the personal allowance would benefit the poorest half of Britons, concluding:

There are better ways to help the low paid via the tax and benefit system.

Ex-Treasury official James Meadway,  now a senior economist at the New Economics Foundation, said Cameron’s changes were:

irresponsible, expensive gimmicks that scarcely affect the poorest workers.

They imply swingeing public sector cuts and mean handing over more cash to the already rich.

Ed Miliband will respond tomorrow (Monday), declaring that the Tories’ failure to tackle the cost-of-living crisis has helped cost the Exchequer £116.5 billion – leading to higher borrowing and broken promises on the deficit. The price tag, equivalent to almost £4,000 for every taxpayer, is based on new research from the House of Commons Library being published by the Labour Party.

This shows that low pay and stagnant salaries, combined with soaring housing costs and the failure to tackle root causes of increased welfare bills, means that over the course of this Parliament:

  • Income tax receipts have fallen short of forecasts by more than £66 billion.
  • National Insurance Contributions are £25.5 billion lower than expected.
  • Spending on social security is £25 billion higher than planned [despite brutal cuts to lifeline benefits]

Mr Miliband is expected to say the test for George Osborne in this week’s Autumn Statement will be to set out a plan to build a recovery for working people – one which recognises the link between the living standards and Britain’s ability get the deficit down.

He is expected to say:

For a very long time, our country has worked well for a few people, but not for everyday people. “We live in a country where opportunities are too skewed to those at the top, where too many people work hard for little reward, where too many young people can’t find a job or apprenticeship worthy of their talents, and where families can’t afford to buy a home of their own.

For all the Government’s boasts about a belated economic recovery, there are millions of families still caught in the most prolonged cost-of-living crisis for a century.  For them this is a joy-less and pay-less recovery.

My priority as Prime Minister will be tackling that cost-of-living crisis so that hard work is properly rewarded again, so that our children can dream of a better future, so that our public services including the NHS are safe.

Building a recovery that works for everyday people is the real test of the Autumn Statement.

But that isn’t a different priority to tackling the deficit. Building a recovery that works for most people is an essential part of balancing the books.

The Government’s failure to build a recovery that works for every-day people and tackle the cost-of-living crisis isn’t just bad for every person affected, it also hampers our ability to pay down the deficit.

Britain’s public finances have been weakened by a Tory-led Government overseeing stagnant wages which keep tax revenues low.

Britain’s public finances have been weakened by Tory policies which focus on low paid, low skilled, insecure jobs – often part-time or temporary – because they do not raise as much revenue as the high skill, high wage opportunities we need to be creating.

And our public finances have been weakened by higher social security bills to subsidise low paid jobs and the chronic shortage of homes.   

The result has been David Cameron and George Osborne missing every single target they set themselves on clearing the deficit and balancing the books by the end of this parliament.

Their broken promises, their abject failure, are not an accident. They are the direct result of an outdated ideology which says all a Government has to do is look after a privileged few at the top and everyone else will follow.

That is why this Government has done a great job of squeezing the middle, but a bad job of squeezing the deficit.

The test this week for David Cameron and George Osborne is whether they recognise that Britain will only succeed and prosper for the long term by tackling the cost-of-living crisis and building a recovery which works for the many, not just for a few.

Or whether they will just offer more of the same old ideas that have failed them, failed everyday working people, and failed Britain over the past four years.

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Thanks to Robert Livingstone for the brilliant memes

The Great Debt Lie and the Myth of the Structural Deficit

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The case for austerity measures rests on the Great Debt Lie and the myth of the structural deficit.

The 2008-9 recession was the worst we have experienced globally for sixty years, and it was predicted by no-one. The Labour Government responded to the global crisis with fiscal stimulus. From the start of the financial crisis, Labour took decisive and clear action (including temporarily cutting VAT to boost demand), and it has become increasingly clear that it was this decisive action that brought about the green shoots of recovery by the last quarter of 2009. (Radeke, 2009).

This, combined with the usual effects on GDP of a recession, meant that the budget deficit rose. But without such swift action we simply would not have the signs of tentative recovery that we saw as a result. So what went wrong? What happened to the ‘green shoots of recovery’ that were carefully nurtured by the last Labour Government?

That would be the Tory-led Coaliton. The difference between the recession that happened under Labour and the one under the Tories is that the global banking crisis would have caused recession no matter which party was in office at the time, whereas the current recession is a ‘homegrown’ one that can be directly attributed to Conservative economic policy. Conservatives always cause recession, Margaret Thatcher did, John Major did, and now, David Cameron has.

This Government is cutting the very measures that would ensure not only growth in the short-term, but economic security in the future, too. They are portraying their cuts as ‘necessary’, eliminating ‘waste’,  and ‘efficient’, when in fact they are seriously jeopardising our future economic prosperity: cuts in funding for Regional Development Agencies; scrapping the Future Jobs Fund, which was a success and supported at least 200,000 people back into work through the recession; withdrawing industrial support, and the proposed and systematic cuts to public services, for example.

That is before we even begin to discuss the damning, detrimental economic and social implications of the welfare ‘reforms’ (CUTS), and the Localism Bill (more CUTS), and Legal Aid Bill (even more coordinated and carefully planned Tory CUTS that will serve to keep quiet and hide away subsequent evidence of the rising numbers of impoverished, destitute and starving victims of all of the other CUTS – and subsequent human rights abuses).

And there seems to be very little evidence to support their decisions. No facts, no consultation, no listening to expert advice. Just the ideology of the small state, propped up by notions of ‘self-reliance’ – but only for the poorest citizens of course –  being pursued by the Tory right and the Orange Book Liberals.

The Tory budget is highly regressive, hitting the poorest -people the hardest while asking for very little from those at the top.

Here are some facts which demolish the fallacy that the present economic crisis is the result of excessive spending, leading to unsustainable debt:

  •  Analysis by the Institute of Fiscal Studies (IFS) has concluded that on the eve of the financial crisis ‘the public finances were in a stronger position than they had been when Labour first came to power in 1997.
  •  Average annual spending and taxation were both lower as a proportion of GDP under the last 3 Labour Governments (38% and 35.4%) than under the 4 Conservative governments which preceded them (40% and 35.5%).
  •  National debt was lower as a proportion of GDP at the start of the financial crisis in 2008 (36%) than in 1997, the last year of John Major’s Conservative government (42%).  The national debt is forecast to hit 74.7% of GDP this year and peak at 79.9 per cent in 2015-16.
  • In 2010, the UK’s national debt as a proportion of GDP (52%) was the second lowest of the G7 countries.

The budget deficit is no more ‘structural’ than an overdraft in your bank account when you spend more than you earn. There is either a real deficit or not, and if there is, then it is due to either excessive spending or an inadequate tax take. The Conservatives like to reduce taxes for the wealthiest citizens.

Since it can easily be demonstrated that the problem is not the former, then it must be the latter – caused by the financial crisis and consequent recession and likely to be aggravated when taxes are cut later during this parliament to the benefit of high earners, corporations and banks.

As The Investors Chronicle states (15th February 2010): “The idea of a structural deficit serves a political rather than analytical function. It’s a pseudo-scientific concept which serves to legitimate what is in fact a pure judgement call – that borrowing needs cutting.”  

Osborne began to revive the myth of the structural deficit in June 2010, when it was becoming clear that the deficit would be under £155 billion, well below the Treasury’s £178 billion estimate made six months earlier.

In other words, the deficit was narrowing after Labour increased spending in 2009. The fact that the US, which has made no serious deficit reductions, has suffered almost the smallest recession of any major developed economy, whereas Ireland and Greece have suffered the worst because of drastic spending cuts further undermines the Government’s claim that radical austerity measures are needed – and shows that Osborne’s main aim is not to reduce the deficit but to accelerate the transfer of wealth to the already very rich.

And if anyone still wants to talk about a ‘structural’ deficit, then they should remember that the last 3 Labour Governments managed to earn enough to cover their spending for 4 of their 13 years in office, whereas Thatcher and Major only managed to balance the books for 2 out of 17 years.

The Coalition continue to deny that alternatives to austerity are viable. As a Tory lie repetition strategy, this is based on the idea Goebbels had –  repeated lies will somehow convince people that they are true. Cameron was busted when he repeatedly told the lie ‘We are paying down the debt.’ Despite being rumbled and rebuked, the Coalition have stuck with this lie doggedly.

The bonus of the lie is that it may undermine the Opposition’s economic credibility, and the Conservatives particularly delight in the lie that it’s all Labour’s fault because they ‘overspent’ as it further justifies austerity measures and starving public services of lifeline government funding with our paid taxes, as well as stripping our welfare provision away. There will be more cuts to come, too.

It was the Tories that lost the Moody’s Investors Service triple A grade, despite pledges to keep it secure. Moody’s credit ratings represent a rank-ordering of creditworthiness, or expected loss. The Fitch credit rating was also downgraded due to increased borrowing by the Tories, who have borrowed more in 4 years than Labour did in 13.

The Coalition have REALLY messed up the economy. We know it’s a big fat Tory lie that cutting spending at a time of economic recession will re-balance public finances. As many academics and economists have stated, cutting spending when the economy is flat is likely to cause further contraction to the economy, and that will negatively affect public finances, rather than help at all.

The Government will never confess to this because they are so tightly ideologically bound to an übertreiben Neoliberalism, no matter what the cost is in human terms, or even in economic terms. What we need is Labour’s expansionary fiscal policies, not contractionary ones.

Real, sensible economists (and not the token greedy businessmen the Conservatves trot out to address the public with neoliberal ideology) know that the only way to address a recession is to grow the economy, and that means more public spending in the short term to stimulate economic activity and cutting if needed when the economy is back on the up (which needn’t mean absolute cuts, but relative cuts because the economy is growing).

Related

The OBR rebukes Cameron for claiming that austerity has not hit growth

The Tories continue to blame the previous Labour Government for its own actions  – The Blame Game

Letter from Chair of the UK Statistics Authority, Andrew Dilnot to Labour’s Rachel Reeves – Public sector net debt and net borrowing

Cameron rebuked by the UK Statistics Agency chief Andrew Dilnot – Dear Prime Minister

Investors around the world are putting their trust in the only Labour government in the UK – Investors give thumbs up to Labour

Tory Coalition set to borrow more in five years than Labour in 13. Conservative Mark Field confirms.

A list of official rebukes for Tory lies .

Labour’s economic record given clean bill of health at home and abroad

“The economic situation explained in 3 minutes. Tory austerity has given us the slowest recovery since the South Sea Bubble. Professor David Blanchflower absolutely slaughters Cameron over his pre-excuse warning over the world economy, he blames Tory austerity for tanking Britain’s economy and preventing a recovery, and states that any recovery we do have is simply part of the cycle as long as you don’t wreck it with austerity, and confirms that our economy was on the RISE in 2009 / 2010.” From The World At One, Radio 4, 17th November, 2014.

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Many thanks to Robert Livingstone for translating my comment into a meme

All facts and figures used here have since been fact checked by Factcheck.


 

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