The credit agency Moody’s has stripped Britain of its triple A credit rating, humiliating the coalition government. It comes on top of news that the UK’s economy shrank in the last quarter of 2012, whilst the other two main credit agencies have the UK on “negative watch”. All this increases fears of the British economy heading for a triple-dip recession. The austerity programme has failed and it has to be changed.
The credit agency Moody’s has stripped Britain of its triple A credit rating, humiliating the coalition government. It comes on top of news that the UK’s economy shrank in the last quarter of 2012, whilst the other two main credit agencies have the UK on “negative watch”. All this increases fears of the British economy heading for a triple-dip recession.
We have “entered a recessionary cycle that has no end in sight. The fiscal targets are unachievable. Social conditions are worsening and democracy is suffering. Worst of all, people have no reason to believe the future will be any better. The programme has failed and it has to be changed.” Sounds familiar? This is from Publico commenting about crisis-ridden Portugal but it could have been written about crisis-ridden Britain.
Mervyn King, the Governor of the Bank of England recently issued a grim warning to families that the unprecedented squeeze on living standards was set to continue for at least another three years, which comes as no surprise. The crisis, he said, has already sent living standards back to those last seen ten years ago in 2003. It was the first time on record that real wages have dropped so far.
However, the Governor admitted it was not possible to say for sure when the squeeze on incomes would finally end. “The prospect of a further prolonged period of above-target inflation must therefore be considered alongside the weakness of the real economy.”
Official inflation was forecast to rise by 3% this year, further eating into stagnant household budgets. With the value of sterling falling already by over 6% this year, inflation in the shops is bound to rise as costs are passed on. As a result, millions of workers will suffer a further year of effective wage cuts, as has occurred every year since 2008.
There has already been a fall in living standards unmatched since the 1920s, with the average worker losing around £4,000 in real terms over the last three years.
A study from the Resolution Foundation states that typical family earnings for those on low-to-middle incomes will not return to 2008 levels for another decade in 2023. But even this is guesswork. Others have suggested the austerity regime could go on for decades. “This has not been a normal recession and it will not be a normal recovery”, states Bank Of England Governor Mervyn King.
“This is a far chillier climate and we may as well adapt to it because the next decade will not, it seems, be much better”, adds the editorial in the London Evening Standard (13/2/13).
This represents a stark warning to British workers. It is a realization of what capitalist crisis really means. The influential “No Turning Back” group of Thatcherite backbenchers is planning to use the credit agency downgrade to force Gorge Osborne, the Chancellor who staked his whole reputation on maintaining the triple A rating, to carry through even greater austerity cuts than already planned. They see this as a way of stimulating the economy, but in reality, the “medicine” will merely serve to kill the patient.
Austerity isn’t working
Austerity regimes have not worked in Britain, Portugal, Greece, Spain, or anywhere else. Cuts in public expenditure and wages simply serve to cut demand and plunge the economy deeper into recession. This is even dawning on the big business strategists. “The chancellor is locked in”, writes Martin Wolf of the Financial Times. “He could tighten harder; but then he risks another recession. He can tighten more gently; but then he is open to the charge of abandoning his strategy. He will presumably stick doggedly to his plans and hope for the best. The best is, however, unlikely to be what he gets.” (FT, 25/2/13)
In fact, whatever he does will be wrong. Continuing with the austerity cuts will exacerbate the crisis, however to loosen things will not solve the crisis either. Even now, borrowing is greater than before, despite “front loading” the cuts.
Osborne has been forced to declare two more years of austerity measures and an extra £10bn “savings” in June. Public investment has now slumped by 25%, while new housing starts have fallen by 11%, the lowest level since the worst of the crisis in 2009. Despite this, with tax revenues falling, borrowing is increasing which will cause further downgrades and a likely run on the pound. The Coalition is caught between the devil and the deep blue sea. On a capitalist basis, there is no solution. Europe is in recession and Britain’s exports are falling, despite the devaluation.
Added to this is the deflation in the United States, which is about to make drastic cuts to public spending, which will force a contraction in the world’s biggest economy.
This is the slowest recovery on record. The British economy is still 3.6% smaller than in 2008, after nearly four year’s of “recovery”. This is no “normal” cyclical crisis, but a deep-seated organic crisis of capitalism, as in the 1930s. The productive forces (industry, technique, science, etc.) have outgrown the confines of capitalism, which explains the existence of massive “over-capacity” that the capitalists are attempting to destroy.
The working class is opposed to this austerity regime, as can be seen from the demonstrations up and down the country against closures of hospitals, libraries and other cuts. At the same time as 13,000 millionaires get tax cuts from the Budget, millions will see their Tax Credits cut. Meanwhile, firefighters in London are taking action over cuts to the fire service.
Even Labour councillors are beginning to vote against the cuts. With new measures against the unemployed, including the planned introduction of a “bedroom” tax, which will force people out of their houses, resentment and opposition can only grow.
The trade union leaders, instead of talking about a general strike, should put words into action to drive this rich man’s government out. The Labour Party leaders, instead of talking about “less painful” cuts, should be putting forward a real alternative to capitalist austerity, namely real socialist policies.
Instead of asking the working class to pay for the crisis created by capitalism, we should be advocating the taking over of the “commanding heights” of the economy (the big monopolies, banks and insurance companies) so that the economy can be planned and run in the interests of working people. The economy should be run not by unelected bureaucrats, but under democratic workers’ control and management.
Only then can we do away with the domination of Rent, Interest and Profit and use the resources built up by the labour of working people for everyone’s benefit. On that basis we can eliminate unemployment, cut the working week, give everyone a living wage, build millions of homes, look after our elderly, and guarantee a real prosperous future for our children.