The draconian budget rolled out in June is only the first instalment in a five year programme of austerity to be inflicted upon the British people. The Tory-dominated government is telling us that the economy is in a hole. This is true. They are softening us up for drastic cuts in public spending, saying we can’t afford it and (in the words of Thatcher) that there is no alternative. This is a lie.
At present the government is running a deficit of about 14%. It is certainly true that a person or a country can’t keep on spending £114 for every £100 it earns. State debt is piling up. Before the recession it was 36% of what we produce in a year. In 2014-15 it’s likely to be 75% of national income.
This is not because of our insatiable appetite for schools and hospitals. The reason the government is running a deficit and piling up debts is two-fold. In the first place the government hurled huge sums of our money at the banks in a desperate attempt to bail them out as they collapsed during the financial crisis after 2007. Secondly the recession has caused a fall in income and a permanent loss in output. As we reported last month Andrew Haldane worked the total loss out as anywhere between one and five years’ in output – £1.8 to £7.4 trillion. This is a staggering sum. The government deficit is a direct result of the recession, since tax receipts took a dive as income declined while state outgoings increased.
So what does the coalition government propose to do now that we are all poorer? They want to cut the deficit and make ordinary working class people poorer still. And make no mistake. It’s not just public sector workers who will take the hit. The standard of public services we receive is bound to decline.
In addition the Con Dems propose to get rid of hundreds of thousands of workers in local government, health and other services. Those workers will not be going out spending their wages and stimulating the economy. That consumption demand for goods and services that workers in the private sector provide will disappear. Cuts will slow the economy down. Already building firms are raising their voices against proposed cuts in the school building programme. As a result of this austerity programme, there is a serious possibility that the fragile recovery in the economy will be aborted and we might endure a double dip recession.
The government is in a dilemma. Their austerity budget is taking a huge gamble with the future of the economy. In the wake of the Greek crisis they fear that the financial markets may turn on the UK. All the main countries have ballooning deficits and monster state debts in consequence of the economic crisis. Speculators laid siege to the Greek economy, betting the government might default on its debts. They forced the Greek government to bow the knee and introduce a vicious austerity programme instead. In other words the burden of the crisis has been foisted on the working class once again.
All the weaker members of the eurozone – Spain, Portugal and Italy – are in fear of a similar speculative attack.
Since most Greek state debt is foreign owned, a sovereign default would be a body blow to the European banks that hold most of the Greek government paper. The same is true of Portugal. The rescue package that the Europeans have thrown together is not intended at all to save the livelihoods of the Greek working class. It is intended to bail out the banks in Germany and the other heartlands of the eurozone.
And Britain is in not much a healthier position than Greece or Portugal. As one commentator put it, “Gilts (government debt) are resting on a bed of nitroglycerine.” If ‘the markets’ refuse to buy gilts outright or demand a higher rate of interest the government could end up paying more and more on the public debt.
If debts spiral then so do interest payments, as the Greek people have discovered to their cost. If Britain’s public debt soars to 75% of GDP then we will be paying £30bn or 2% of national income just as interest payments, before paying off a penny of the actual debts. The debt burden would become insupportable, and it is all imposed on the common people.
The recent meeting of the G20 confirmed that all the main capitalist powers are determined on austerity measures in order to placate the markets. Under capitalism markets rule, not elected governments. The only way to forestall a financial crisis, we are told, is to cut back on government debt.. The crisis of capitalism, that began as a banking crisis in 2007-8 now manifests itself as a crisis of government finance and as a sovereign debt crisis.
None the less many economists have their doubts as to the wisdom of slashing state spending now. The British government is on a tightrope. Austerity, intended to cut the government deficit, will slow the recovery and could force it to stall. Capitalist nations intend to cut and grow by exporting. But if all countries cut, where are the export markets that will fuel growth to come from?
As the Tory-led National government found in the 1930s, and Thatcher in the 1980s, cutting government spending in a recession can lead to a downward spiral of output, putting still more cuts on the agenda and leading to economic stagnation.
We have been here before. After the Second World War Britain was virtually bankrupt. The national debt was more than twice annual output at the time. But all the conditions existed for a huge boom in capitalism existed (See Ted Grant – Will there be a slump? ). The economy grew and the debt shrank, with a little help from inflation. At present the world capitalist economy seems to be in recovery, though the situation is fragile and could go into reverse as a result of government austerity But the recovery is very slow and seems unlikely to return us to full employment any time in the near future. Therefore the debts will overhang the economy for as far ahead as the eye can see and could be the source of the next economic downturn. As Marx said, under capitalism “the only part of the so-called national wealth that actually enters into the possession of the modern nation is – the national debt.”
There is an alternative. What is happening is madness, but it is the logic of capitalism. Capitalism means production for profit, not human need. For workers who just want a job that pays the bills and the protection of a decent level of public services it is insane that our public facilities are being destroyed because ‘we can’t afford it’ while human and material resources lie unused. A planned socialist economy would provide full employment, rising living standards for all and a much more comprehensive provision of public services. A huge movement against the cuts needs to be built now, and the firm basis of a socialist programme adopted as the alternative by the labour movement.