Saturday, 26 September 2009

Breaking the consensus on cuts

At the Labour Party conference, LEAP and the LRC will be handing out a flyer-briefing 'Cutting our way to defeat? There is an alternative'. Read more about this and download the flyer from the LRC website.

On Sunday, as Labour Party conference (well, rally) kicks off, so does the Jobs, Education, Peace demo supported by PCS, NUT, UCU, NUJ, Stop the War, Right to Work and Unite Against Fascism. Mark Serwotka, PCS General Secretary, will tell the rally:

"The main political parties have forged a damaging consensus on public sector cuts when it was the greed of the City that caused the financial crisis."

Quite right. The demo is also on the front page of today's Morning Star under the heading 'Lobby Labour to save our public services'.

Friday, 25 September 2009

Convention of the Left

LEAP is backing the Convention of the Left in Brighton which takes place tomorrow, Saturday 26th September. The morning plenary kicks off with a discussion on the economy 'The Economic Situation - and Our Response'. Among those contributing are LEAP Chair John McDonnell MP, Prem Sikka and Gordon Nardell.

The Labour Land Campaign is also hosting a lunchtime discussion on Land Value Tax led by Heather Wetzel (Labour Land Campaign Trade Union Liaison Officer) and Jerry Jones (author of LLC pamphlet, 'Land Value … for public benefit') at 1:15pm.

It all takes place at the Brighthelm Community Centre, North Road, Brighton, BN1 1YD. See map here. It's just a 5 minute walk from Brighton station.

Tuesday, 22 September 2009

ILO G20 report, and the UK

The ILO has published a report in advance of the G20 summit in Pittsburgh later this week. The report, Protecting people, promoting jobs: A survey of country employment and social protection policy responses to the global economic crisis, compares measures taken by 54 countries in the wake of the global recession. It makes interesting reading.

Apologies for being a bit nationalistic, but here in short is what it shows about the UK:
  • UK unemployment is slightly below the G20 average of 8.5%
  • However, UK unemployment has risen more quickly in the last year than on average: up 38% here, compared to the average of 29.6%
  • We are one of the select few countries where manufacturing has fallen more than 10% in the last year - alongside the US, Spain and Canada
  • Of the countries that have had similar declines in GDP to the UK (i.e. more than 4%) only Spain has also had such a "sharp" increase in unemployment. Germany, Italy and Japan have all managed to stop job losses rising so quickly with comparable GDP drops.
The report also shows that many countries have done more to expand welfare programmes: for instance France, Germany, Italy, Netherlands, Hungary, Japan and Canada have all increased the coverage of unemployment benefits - Canada, the US and the Czech Republic have all increased the value of unemployment benefit; Japan and the Netherlands have introduced measures to protect migrant workers.

My favourite graph though is on page 20 of the report about comparable fiscal stimulus packages for 2008-10. Here the UK is well below the average, committing only 1% of GDP, compared with over 1.5% in Denmark, Germany, Finland, Sweden, New Zealand and Spain; and over 2% in Canada, Japan, Australia, the US and South Korea.

Why is it, despite Brown's modest press briefings at the G20 in London, that the UK cannot do more? It might be to do with the massive debt from our dodgy banks which were deregulated under Brown's chancellorship, and bailed out at huge cost under his Premiership.

Sunday, 20 September 2009

The Credit Crunch – Who Pays?

Graham Turner

The sharp rally in stock markets since March has put a spring in the step of bankers. But unemployment continues to grind higher and the spectre of a full frontal assault on public sector workers looms. The question of who pays for the credit crunch now dominates the headlines.

In essence, all three major political parties believe that public sector workers should bear the price for a huge rise in the government's borrowing. The economy may have been stabilised, but the hit to the public purse has been unprecedented outside of war.

On current projections, the Chancellor may have been too optimistic when he rocked the House of Commons in April, announcing a projected deficit of £175 billion or 12.4% of GDP for the current financial year. The latest data for August show the moving annual total has already risen to £127.3bn. The public sector finances for July were particularly dire.

The best approach to evaluating the data is to consider the annual change in £ terms. July showed a rise in the deficit of £13.0 billion compared with a year earlier. The previous record decline was set in January this year, but that showed a comparatively modest increase in the deficit of £8.5bn on an annual basis.

The deterioration in July was significant because this is seasonally an important month for tax revenues. If the 15.8% y/y drop in tax revenues is repeated in January next year – another big month for the government coffers, the Treasury may be forced to revise its forecast for the deficit higher, to 13.0% or 14.0% of GDP.

With Gordon Brown's reputation for prudence in tatters, the door is wide open for the Conservatives – and the Liberals should they join in a coalition government – to launch savage cuts on public services far beyond those seen under Thatcher, or following the IMF bailout of 1976.

The public sector deficit is unquestionably out of control. But the right wing media and its political allies have been very successful in convincing the wider electorate that public spending is the culprit.

An objective assessment of the data suggests otherwise. During the first five months of the current financial year, tax receipts have fallen by an average of 11.4% y/y (in £ terms). That is significantly worse than the 6.5% y/y decline expected by the Treasury for the full year, set out in the April budget.

By contrast government spending is rising by less than expected. So far, its has climbed by an average of 5.3% y/y (again, in £ terms) compared with a Treasury forecast of 7.7% y/y for the full year.

And it is hard to equate this increase in spending with the media image of waste and profligacy in the public sector. In real terms, it represents a rise of 3.3% y/y, a remarkably low increase given the inevitable pressures on social security payments, in response to rising unemployment.

Indeed, it is quite possible that the ratio of public spending to GDP will be less than the 43.1% projected by the Treasury, and may only be a touch above the 42.3% recorded under Thatcher, during the early 1980s' recession.

Furthermore, it is worth comparing the Tory years from 1979 onwards, with the record under New Labour. The ratio of public spending to GDP has been exactly the same - 37.1%, even with the Treasury's forecast for a rise to 43.1% included.

Much of the onslaught on public sector workers reflects a belief among the right wing press that the UK has become a high tax country. Again, the hard evidence suggests otherwise. Between 1979 and 1997, the ratio of tax revenues to GDP averaged 40.2%. Since then, it has averaged 37.5%.

Unequivocally, the Tories are the party of high taxes. Indeed, the Treasury’s projected tax revenues for this year - just 35.1% of GDP - will be lower than under any year between 1979 and 1997. Furthermore, if the data for the first five months is any guide, the final figure could be around 33.4%. The credit crunch will have indeed turned the UK into a low tax economy.

But we should not expect the public sector deficit to fall quickly even if the economy were to recover. The collapse of corporation tax receipts in particular is not a one-off or a temporary response to the credit crunch. The ability of banks and companies to roll forward their losses implies there may be a structural gap in tax revenues that persists for many years.

US investment bank Merrill Lynch provided a rare insight into this problem in August last year, before it was subsumed by Bank of America in the panic that followed the collapse of Lehman Brothers. In a regulatory filing last year, it admitted that $29bn of losses sustained on subprime mortgages in the US were being routed through its London office. According to the Financial Times, the bank was therefore "unlikely to pay corporation tax for 60 years" - even if it returned to profit levels reached at the height of the boom.

It is clear from any objective assessment of the data that new sources of tax revenue need to be found to fill the gaping hole in the public sector accounts spawned by the credit crunch. Higher income taxes are not the only answer. Companies need to be taxed if they want to do business in the UK. They can try and relocate their headquarters to Ireland, Switzerland or the Cayman Islands. But they cannot physically remove their entire operations. So they need to be taxed on the level of business or turnover. Companies need access to the UK market to sell their goods, and they should not be allowed to operate here if they are not prepared to pay their way. Economically and morally, it is wrong for public sector workers to pick up the tab for a crisis they did not create.

* Graham Turner's new book No Way To Run An Economy, published by Pluto Press is available from Bookmarks Book Shop, price £12.99

Wednesday, 16 September 2009

Brown presents the bill

A year and a day ago the Federal Reserve, the US central bank, took the decision to instruct Lehman Brothers to file for bankruptcy after 158 years of trading. It was a case of too big to fail and too big to save. Within days, the world economy fell off a cliff and has never recovered.

With its roots in barter, exchanging manufactured goods for raw cotton, Lehman’s history is inextricably a part of the history of capitalism. The company began its diversification into financial services in the 1880s (around the time of Marx’s death). In the 20th century, Lehman was instrumental in enabling the explosive growth of profitable commodity production and exchange, notably through finding the capital for retail giants like Woolworths, then television and later computer manufacture. It also helped finance Halliburton, the oil company at the heart of the Bush administration’s war on Iraq.

At its pinnacle it was among the elite of the world’s financial services companies, actively spinning the web of debt that enmeshed the world. As the credit crunch took hold in August 2007, it closed its sub-prime mortgage lender with the loss of 1,200 jobs.

But it was all too late. A year later, its liabilities exceeded its assets to such an extent that not even the American government could bail Lehman Brothers out and it went to the wall. Today, like much of the global capitalist economy, Lehman Brothers is bankrupt but still trading. So many dead men walking.

As the world was considering the significance of the passing of Lehman yesterday, prime minister Gordon Brown was opening a new chapter in the rapidly worsening global economic crisis that went hand-in-hand with the decline of banking and finance. Brown was a key figure in ensuring the subordination of the British economy to financial interests, announcing a new “golden age” for the City just weeks before it all went pear shaped. Now he’d come to present the bill for the damage, not to the bankers, but to the assembled ranks of the representatives of the organised working class at the TUC in Liverpool. They listened with protest messages raised while for the first time he talked of public spending cuts to come after the next election.

Attempts to restore the flow of credit have failed. Global stimulus packages have concentrated on eliminating huge swathes of the global car industry, dumping hundreds of thousands of workers on the streets. Unemployment is soaring. Tens of millions around the world are already without work, soon to be homeless if they aren’t already, without healthcare or pensions. And now Brown talks of cuts.

Politicians of all parties are competing to prepare voters for the devastation to come, the price to be paid for keeping the capitalist system in existence. This bidding process finds parties competing for the right to inflict the impact of the crisis on the majority of the world’s population, forcibly if necessary.

Commentators may delude themselves with good news, but the majority will see no sign or possibility of a “recovery”. They will not benefit from an illusory “return to growth” that is in essence the prelude to a further lurch towards outright slump. Lehman Brothers was broken by fantasy financing that in the form of debt fuelled the economic boom.

And there are mountains of debt still out there with claims on real assets and future earnings. In the absence of a recovery, these assets – in the shape of jobs, pensions and homes – are likely to be wiped out by capitalist bankers and corporations.

So this is no time to be caught up in discussions about ending “unbridled free market capitalism”, nor speculating on “a realignment of world capitalism”, nor even pushing for the kind of change that would “renew capitalism in a fairer form”. These are mere palliatives that leave the basic cause untouched and untreated.

What we must now do is to acquire the power to switch from a credit-dependent system of for-profit production based on legalised exploitation of labour to production for need guided by democratic decisions based on collective ownership. That’s how to fight the cuts as well as create a sustainable future.

Gerry Gold
Economics editor
A World to Win
reposted from

Monday, 14 September 2009

LEAP publishes Inflation report at TUC

LEAP has today published a major new research report on inflation.

Inflation Report 2009: why inflation is a class issue (free download) shows how in the past year inflation has disproportionately hit the poorest hardest.

The report, commissioned by the Trade Union Co-ordinating Group (TUCG) of eight trade unions, also argues that trades unions must fight for above inflation pay increases, especially for the lowest paid workers who have been hit hardest by inflation - as it is essential goods (which cost the poorest a higher proportion of their expenditure) that have had the highest rate of inflation in the last year.

The paper also proposes a new inflation measure: 'Essential Inflation', based on the inflation rate for the essential items that people are unable to cut back on.

Bob Crow, RMT General Secretary, said:

"It is clear from this important piece of research that the working class have taken by far and away the biggest hit in this recession.

"While pundits talk about falls in inflation, out there in the real world it's a day to day struggle for people to make ends meet as the cost of essentials continues to rise.

"Meanwhile, it's bonus time again in the casinos of the City of London. Those who got us into this mess have come out smiling while the workers who really make the economy tick have been hammered.

"RMT fights day after day against exactly this kind of injustice."

John McDonnell MP, TUCG Parliamentary Convenor, said:

"This paper demonstrates who has been hardest hit by the recession - and it's the lowest paid.

"This evidence will now shape trade unions' strategy in coming pay negotiations. Trade unions cannot be expected to stand back and allow the living standards of their members to be eroded when they've witnessed the return of the bankers' bonus culture."

Mark Serwotka, PCS General Secretary, said:

"Low paid workers in both the private and public sector are bearing the brunt of the recession. Hundreds of thousands of civil and public servants have experienced pay freezes leading to their pay being cut in real terms.

"PCS members who keep this country running know the true cost of inflation with 40% of staff who are helping people deal with recession getting no pay rise at all last year. This report lays bare the fact that it is the poorest in society who are hit by essential inflation."

The report's conclusions are:
  • In current pay negotiations, where pay freezes are being proposed across organisations (e.g. British Airways) it is important to understand that a pay freeze is a real terms cut of nearly 2% in living standards for the poor, but a real terms increase for the richest. Unions are therefore correct to argue that low paid workers should not be treated the same in pay negotiations as senior management grades (even ignoring arguments about reducing existing pay differentials).

  • It also means that unions representing the lowest paid workers should be calling for pay increases of at least 2% just to maintain living standards.

  • Government must ensure that in areas it regulates – many of which are covered in the Essential Inflation measure – that rises are kept down so as not to disproportionately affect the poorest.

  • The Government must also ask the Low Pay Commission to reconsider its recommendations that the National Minimum Wage (NMW) rates rise by only 1.1% in October 2009 – less than the rate of inflation for the second consecutive year. This would represent a decline in relative living standards for low paid workers, if there pay is increased only in line with the NMW uprating. Likewise upratings to social security benefits and the basic state pension this year must also be more generous.

Performance-related pay? Hypocrisy rules in UK plc

The Guardian reports that UK executive pay has risen by 10% in the last year - this is a year in which the share values of these companies had a record decline. Many of the finance companies would not even be in existence today were it not for the public bailouts and liquidity injections.

These companies have laid off hundreds of thousands of workers in the last year to make savings and many more workers are suffering short-term working.

With the Government and private sector employers calling for pay freezes for low paid workers, this should be a wake-up call to trade unions and workers who once again are being forced to pay for a recession not of their making.

The TUC is meeting in Liverpool this week - let's hope some militancy and unity will emerge.

Friday, 11 September 2009

Public pensions - the myth

In the ongoing saga of which party can cut most, public sector pensions have come under the attack from both the Tories and the Lib Dems.

Of course the whole terms of the debate are nonsense. The budgetary deficit has been caused by the bank bailout rather than runaway public spending - let alone alleged 'feather-bedded' public sector pensions. This argument was comprehensively dismantled by LEAP's Graham Turner* in an article earlier this year. Public spending has only increased by 1.9% in the last year.

Looking at public sector pensions, the myth that somehow public sector workers are retiring into luxury is somewhat punctured by the fact that over 100,000 retired civil servants are on pensions of less than £2,000 per year. A further 100,000 are on less than £4,000 per year - hardly munching their morning muesli with Moet are they?

TUC research published on Wednesday also shows that 2.5 times as much of public sector money is spent subsidising private sector pensions through tax relief - and that 60% of this tax relief is for higher rate earners.

So yet again, the Tories and the Lib Dems are scapegoating the poorest - without any evidence base. Unusually New Labour has not jumped on this bandwagon yet.

Today's Morning Star highlights where the fat cat pensions really are.

*Graham Turner also has a new book 'No Way to Run an Economy' out now.

Wednesday, 2 September 2009

Summer's greenshoots, autumnal rain ahead

Forecasting the economy can be as unpredictable as forecasting the weather. Just ask Gordon Brown. In 2007 he told the City of London it was on the verge of "a new golden age".

Statistics released over the summer revealed the UK economy shrank by 0.7% in the second quarter - far less than the 2.4% drop in the first quarter of the year. Throughout the summer too, the stock market (both here and in the US) steadily rose, and the housing market rose.

However, there was bad news in the latest UK manufacturing figures and unemployment continues to rise - to nearly 2.5 million on the ILO measure.

One comforting statistic over the summer was the decline in the personal debt mountain which was responsible for a massive rise in personal bankruptcies, insolvencies and repossessions over the last few years. Oh yes, and such irresponsible lending by the banks also led to their collapse - nearly dragging the entire economy with it.

So how did the Bank of England and BBC react to people paying off their debts? With joy or just a prudent encouragement? No, the BBC's Hugh Pym stated "in theory, paying off some of the £1.4 trillion mountain of consumer debt is desirable. But a tendency for people to reduce debts rather than spending may not be helpful to an economy still in recession."

Quite right Hugh, more debt for the proles, that's the solution! Sadly the BBC doesn't say it's unhelpful when workers' pay, benefit levels, or pensions are cut in a recession . . .