Showing posts with label New Labour. Show all posts
Showing posts with label New Labour. Show all posts
Wednesday, 13 November 2013
The great unemployment disappearing act
Today's unemployment figures revealed that the internationally recognised measure of UK unemployment fell by 48,000 and the claimant count (i.e. the number of people claiming jobseeker's allowance) fell by 41,700.
These two figures were remarkably close. To the uninitiated naively logical this might seem to corroborate that there are roughly 40-50,000 fewer unemployed people in the last 3 months.
However, with those subtractions ILO unemployment stood at 2.47 million, while the claimant count was only 1.31 million. So in relative terms the fall in the claimant count was nearly twice as sharp.
As the graph below shows - this is not a one-off occurence but part of a 20-year trend that has seen the ILO unemployment measure part company with claimant count.
Whereas the claimant count accounted for 96.6% of ILO unemployment 20 years ago in 1993, three years later the claimant count was only 83.2%. Five years on again - or twelve years ago - in 2001, the claimant count was just 64.5%.
Today, the claimant count was just under 53% of the ILO measure.
It is not entirely clear why this has happened. Certainly a part of the reason is the increased conditionality, and reduced eligibility that has applied to claiming unemployment benefit since the 1995 Jobseekers Act - and toughened by successive welfare reform acts under successive governments.
The recent sharp downturn in the claimant count - and sharp relative to ILO unemployment - is no doubt partially explained by the increase in sanctions (see LEAP analysis 6 November 2013).
But the rut set in slightly earlier. Under the Major government the claimant count averaged 93.3% of the ILO measure. In the Blair/Brown New Labour years, the claimant count averaged just 63.1%, and under Cameron's coalition government to date that has already dropped again to 59.9% (and was 53% in today's figures).
It means that the claimant count is becoming a less reliable indicator of true unemployment. With an increased sanctions regime, and extra conditionality generally (including workfare), and the demonisation of claimants as 'scroungers' and 'skivers', jobseeker's allowance has become a daunting benefit to claim.
As PCS research has found (see infographic here) the real value of unemployment benefit has fallen from 18% of average wages in 1990 to just 13% today.
With increasingly greater sanctions, more conditionality, less eligibility, more stigma and less value - is it any wonder the claimant count now represents barely half the true level of unemployment.
Saturday, 8 October 2011
In defence of Gordon Brown (well, partially)
Last Thursday night I spoke about the economic crisis at a meeting of St Albans Labour Party, which seems in good health: a good attendance and a lively debate followed my presentation. Below I've integrated the first half my speech with some of the excellent points made in discussion.
Labour did not overspend
Despite the claims of Cameron and Osborne (and that rather politically naive and economically illiterate note left by Liam Byrne) the last Labour government was not profligate, it did not over-spend. In fact, as this graph shows, Labour actually spent less as a proportion of GDP than either the governments of Thatcher and Major.
Labour stuck to Tory spending plans from 1997-99 meaning that public spending did not start increasing in real terms until 2000. The UK had also embarked on an unprecdented period of seemingly stable economic growth that would last until late 2008.
Labour also had two decades of underinvestment in public services to make up for. The proportion of GDP spent on education, health and pensions lagged far behind the rest of Europe. Too many pensioners and children were in poverty, and Labour set ambitious targets to reduce (and even eradicate) poverty among these groups.
Labour's aim then, to increase public spending, was correct. It was necessary to build new schools and hospitals and to employ more and improve the wages of dedicated public servants.
But it was not just this period of economic growth that allowed New Labour to spend more: they also hit the utilities with a windfall tax to (partially) compensate for the fact they were undersold by the Tories' cheap sell-offs. Introduced in the emergency budget in 1997 it raised £5.2bn. Brown also sold off about half the UK gold reserves in 1999, raising over £2bn.
The decision to sell-off that gold has been heavily criticised - the price of gold has shot up since - but the question is what was it spent on? At that point our public services were in desperate need of investment - and Labour had manifesto commitments to bring down hospital waiting lists and reduce class sizes. At the time it seemed the right priority, and most people would agree.
Labour reduced the debt
So Labour spent, as Brown himself would often say, prudently throughout its term in office. It also managed to reduce the national debt - as this graph shows.
When Labour came to power in 1997, the national debt was 42% of GDP. By 2002 it was below 30%. It increased very slowly between 2002 and 2008 to 36% (still lower than any year under Margaret Thatcher or John Major). Then, as the chart shows, the banking crisis hit and Labour left office in 2010 with the national debt at around 52% - lower than in Japan, the US, France or Germany.
Despite this George Osborne came to the Despatch Box for his emergency budget in June 2010 and told us Britain was on 'the brink of bankruptcy'. Where Brown had put a windfall tax on big business privateers, Osborne delivered an unprecedented cut in corporation tax and other business tax breaks, with welfare cuts.
But Labour did make massive mistakes
Having said that some criticism must be levelled at Gordon Brown and New Labour for the mistakes they did make. Their light-touch and continued deregulation of the banking sector meant that Britain was harder hit by the global financial crisis that many other countries. Our over-dependence on the finance sector and failure to have any strategy for manufacturing left us particularly exposed.
The Tories however cannot make any headway on this because they actually called for further deregulation of the banking sector, finance and mortgage markets. They too offered no industrial strategy.
Likewise Labour should also be criticised for their national accounts-fiddling approach to investment: PFI. This has dumped about £300bn of debt on public sector bodies for assets worth about £50bn. But, bad news again for the Tories, PFI was the brainchild of the Major government and Labour's only opposition to PFI came from rebellious backbench MPs like John McDonnell and Kelvin Hopkins.
Another colossal waste of money (though more pertinently of human life) was New Labour's wars in Afghanistan and Iraq, but again the only opposition was found on Labour's own benches. Likewise for the commitment to replace Trident.
Conclusion
Labour made huge economic mistakes - it relied too heavily on the finance sector and the growth of personal debt - but none of the Tories' attack lines that Labour spent too much or left Britain on the brink of bankruptcy are tenable.
The bank bailout was also a disaster - less the nationalisation of the banks and more the privatisation of public money. Intervention was needed and although botched it was better than the Tory frontbench which dithered between bailout support and letting banks fail (and along with them would have gone jobs, savings and much more of the UK banking system) - which in turn allowed Vince Cable to appear credible.
In opposition Labour needs to assess where it went wrong. The simple formula for 1997-2010 was 'if the Tories agree it's probably a mistake', as they were on banking regulation, PFI, wars and (eventually) the bank bailout.
Thursday, 19 May 2011
NHS £12 bn IT programme 'vision will not be realised' - NAO
Connecting for Health, the £12 billion national IT programme for the NHS launched in 2002, is in serious trouble according to the National Audit Office, and might have to be scrapped.
Billed as the world’s largest civilian IT infrastructure project, its primary objective was to provide an electronic care record for every patient. Since patients could find themselves being treated in a wide variety of different settings, by a growing number of clinical specialists, it was becoming increasingly important to ensure that they all had access to the record of care.
This would reduce the costs of repetitive examinations, and enable a much more effective collaboration between generalists and specialists. To those involved in population medicine, and public health specialists dealing with epidemics, access to an entire population’s health records promised a rich seam for research. Drug companies were hovering like vultures, awaiting new data on prescribing patterns and disease trends.
But now comes the NAO’s a stark conclusion: "The original vision for the national programme for IT in the NHS will not be realised. The NHS is now getting far fewer systems than planned despite the Department [of Health] paying contractors almost the same amount of money. This is yet another example of a department fundamentally underestimating the scale and complexity of a major IT-enabled change programme.”
But there’s a lot more to it than that. Before the programme was launched, hundreds of people across Europe and the USA, including clinicians and information specialists - those close enough to unravel the complexity of the project - had been working on the project for years. They were developing the standards needed to provide the development path that would ensure information could be shared across the multiplicity of systems that had been already installed in health care and those yet to be developed.
What the NAO doesn’t do is to judge the consequences of the decision by the New Labour government to hand the entire programme over to the private sector. Decades of work on standards were thrown away.
In 2003-04, the health department awarded five 10-year contracts totalling some £5 billion to four suppliers for the delivery of local care records systems: Accenture in the East and in the North East; BT in London; Computer Sciences Corporation (CSC) in the North West, and West Midlands; and Fujitsu in the South. The aim was for detailed care records systems to be delivered to all NHS trusts and GP practices (excluding GP practices in the south) by the end of 2007, with increased functionality and integration added until full implementation was complete in 2010.
The naïve expectation from the new project leaders was that the competing suppliers, with little or no knowledge of health care systems, would talk amongst themselves to develop the standards needed to enable records to be shared across all systems.
Now only BT and CSC remain in the game. Whilst the broadband communications infrastructure is up and working, and x-ray and other images are routinely transmitted, and many patients are offered a choice of where they go for hospital treatment, as the NAO says, the care record is unachievable.
After years of missed deadlines, incomplete and inadequate systems and adjustments to the specifications and contracts, the outcome is an indictment of both New Labour’s cosy relationship with the business sector and the failure of market-led solutions.
New Labour effectively gave IT contractors a licence to print money as part of the introduction of the market into health care. Next came foundation hospitals that were run like commercial organisations. You don’t have to be a genius to see where the ConDem government got its inspiration for NHS competition from.
Gerry Gold
Economics editor
www.aworldtowin.net
Billed as the world’s largest civilian IT infrastructure project, its primary objective was to provide an electronic care record for every patient. Since patients could find themselves being treated in a wide variety of different settings, by a growing number of clinical specialists, it was becoming increasingly important to ensure that they all had access to the record of care.
This would reduce the costs of repetitive examinations, and enable a much more effective collaboration between generalists and specialists. To those involved in population medicine, and public health specialists dealing with epidemics, access to an entire population’s health records promised a rich seam for research. Drug companies were hovering like vultures, awaiting new data on prescribing patterns and disease trends.
But now comes the NAO’s a stark conclusion: "The original vision for the national programme for IT in the NHS will not be realised. The NHS is now getting far fewer systems than planned despite the Department [of Health] paying contractors almost the same amount of money. This is yet another example of a department fundamentally underestimating the scale and complexity of a major IT-enabled change programme.”
But there’s a lot more to it than that. Before the programme was launched, hundreds of people across Europe and the USA, including clinicians and information specialists - those close enough to unravel the complexity of the project - had been working on the project for years. They were developing the standards needed to provide the development path that would ensure information could be shared across the multiplicity of systems that had been already installed in health care and those yet to be developed.
What the NAO doesn’t do is to judge the consequences of the decision by the New Labour government to hand the entire programme over to the private sector. Decades of work on standards were thrown away.
In 2003-04, the health department awarded five 10-year contracts totalling some £5 billion to four suppliers for the delivery of local care records systems: Accenture in the East and in the North East; BT in London; Computer Sciences Corporation (CSC) in the North West, and West Midlands; and Fujitsu in the South. The aim was for detailed care records systems to be delivered to all NHS trusts and GP practices (excluding GP practices in the south) by the end of 2007, with increased functionality and integration added until full implementation was complete in 2010.
The naïve expectation from the new project leaders was that the competing suppliers, with little or no knowledge of health care systems, would talk amongst themselves to develop the standards needed to enable records to be shared across all systems.
Now only BT and CSC remain in the game. Whilst the broadband communications infrastructure is up and working, and x-ray and other images are routinely transmitted, and many patients are offered a choice of where they go for hospital treatment, as the NAO says, the care record is unachievable.
After years of missed deadlines, incomplete and inadequate systems and adjustments to the specifications and contracts, the outcome is an indictment of both New Labour’s cosy relationship with the business sector and the failure of market-led solutions.
New Labour effectively gave IT contractors a licence to print money as part of the introduction of the market into health care. Next came foundation hospitals that were run like commercial organisations. You don’t have to be a genius to see where the ConDem government got its inspiration for NHS competition from.
Gerry Gold
Economics editor
www.aworldtowin.net
Friday, 1 October 2010
Is the cuts consensus crumbling?
Since the story switched from 'bad banks' to 'bloated public sector', at some point in 2009, there has been a political consensus in the UK which included the three main political parties and the mainstream media. This consensus was that cuts on an unprecedented scale where necessary to avoid economic oblivion, caused primarily by lavish public spending.
The consensus was economic nonsense, but ideological cover for attacking the last vestiges of public ownership (e.g. Royal Mail, the NHS and education) and the welfare state.
Finally, this consensus seems to be crumbling. The TUC in September highlighted the unions' opposition to cuts, and the pamphlet published by the PCS union 'There is an Alternative' probably the most articulate destruction of the cuts consensus. Tens of thousands of copies have been distributed at the TUC and party conferences, to PCS activists, and to the wider movement. Tax justice campaigner Richard Murphy said of it "This is very good, from PCS. I know because people in the Treasury told me so."
Following on from the TUC, the Labour Party's new leader Ed Miliband used his first speech to chart a different course from the Darling-Brown axis (which was championed by the defeated David Miliband). The excerpts are below - it's not quite earned him an invite to LEAP, but it does represent a shift in direction:
Ed Balls, who to be fair was heading in this direction earlier, used his speech to Labour Party conference to say we had to "put growth and jobs first" and he reminded delegates that Ramsay MacDonald had said there was no alternative to cuts (he didn't add that much of the previous new Labour government said that too and many of them have joined: Hutton, Milburn; and Mandelson offered to).
This shift in Labour policy will also be bolstered by the Guardian/ICM poll published today, which shows that "43% now saying the cuts have gone too far compared with the 37% who think the balance is right. By contrast, in July 39% thought the balance right, and 38% said too far".
Given the cuts have yet to be outlined in full until 20 October, and many of those announced have yet to impact, this should be a worrying trend for the coalition government.
It's up to all of us to kill off this consensus, and build the opposition. Today, there are reasons for optimism.
The consensus was economic nonsense, but ideological cover for attacking the last vestiges of public ownership (e.g. Royal Mail, the NHS and education) and the welfare state.
Finally, this consensus seems to be crumbling. The TUC in September highlighted the unions' opposition to cuts, and the pamphlet published by the PCS union 'There is an Alternative' probably the most articulate destruction of the cuts consensus. Tens of thousands of copies have been distributed at the TUC and party conferences, to PCS activists, and to the wider movement. Tax justice campaigner Richard Murphy said of it "This is very good, from PCS. I know because people in the Treasury told me so."
Following on from the TUC, the Labour Party's new leader Ed Miliband used his first speech to chart a different course from the Darling-Brown axis (which was championed by the defeated David Miliband). The excerpts are below - it's not quite earned him an invite to LEAP, but it does represent a shift in direction:
Economics teaches us that at a time of recession governments run up deficits.
We were too exposed to financial services as an economy so the impact of the crash on the public finances was deeper on us than on others.
We should take responsibility for not building a more resilient economy.
But what we should not do as a country is make a bad situation worse by embarking on deficit reduction at a pace and in a way that endangers our recovery.
The starting point for a responsible plan is to halve the deficit over four years, but growth is our priority and we must remain vigilant against a downturn.
You see, it's obvious really, when you cancel thousands of new school buildings at a stroke, it isn't just bad for our kids, it's bad for construction companies at a time when their order books are empty.
It's not responsible, it's irresponsible.
When you deprive Sheffield Forgemasters of a loan, a loan from which government would be paid back, you deprive Britain of the ability to lead the world in new technology.
It's not responsible, it's irresponsible. And we should say so.
And when you reduce your economic policy simply to deficit reduction alone, you leave Britain without a plan for growth, which is what this government has done.
No plan for growth means no credible plan for deficit reduction.
Ed Balls, who to be fair was heading in this direction earlier, used his speech to Labour Party conference to say we had to "put growth and jobs first" and he reminded delegates that Ramsay MacDonald had said there was no alternative to cuts (he didn't add that much of the previous new Labour government said that too and many of them have joined: Hutton, Milburn; and Mandelson offered to).
This shift in Labour policy will also be bolstered by the Guardian/ICM poll published today, which shows that "43% now saying the cuts have gone too far compared with the 37% who think the balance is right. By contrast, in July 39% thought the balance right, and 38% said too far".
Given the cuts have yet to be outlined in full until 20 October, and many of those announced have yet to impact, this should be a worrying trend for the coalition government.
It's up to all of us to kill off this consensus, and build the opposition. Today, there are reasons for optimism.
Tuesday, 13 April 2010
Labour Manifesto: A future fair for all?
Lord Mandelson promised it would be a "pro-business" manifesto, and described it yesterday as a "Blair-plus" manifesto. It certainly looked that way with promises to cut £6 billion of regulation on business by 2015 and keep business taxes "competitive".
Considering New Labour has already cut corporation tax from 33% to 28%, which over 13 years has cost the Exchequer £50 billion in lost revenue, it makes it galling that business is bleating about an extra 1% of national insurance.
The Manifesto refers to "the recession created by the financial crisis" but it seems to be mainly public sector workers who will be paying for it. The manifesto refers to "tough choices" (i.e. cuts) on public services, and commits to £15bn efficiency savings (i.e. cuts) in 2010-11, and a further £11bn by 2012-13.
There will also be a 1% cap on public sector pay in 2011-12 and 2012-13. Bearing in mind inflation is currently 3.5%, public sector workers are being promised a real terms pay cut for another two years.
The manifesto also promises a £20 billion programme of asset sales (i.e. privatisation) by 2020.
There will also be more outsourcing in the running of services, with "greater support for third-sector organisations in competing for public-sector contracts" and "if the local school is underperforming it will be taken over" (hinting at more City Academies).
There is of course the same rhetoric about protecting frontline services, but the "tougher than Thatcher" cuts that Darling talked about, and the scale of cuts to halve the deficit, are still hidden it seems . . .
There were however some good things in the manifesto: the National Minimum Wage will rise at least in line with average earnings in the future, which is very welcome given that the last 3 years it has risen below inflation.
Also the Government will implement the living wage (£7.60 per hour) across all government departments - which will be good news for National Gallery workers who have recently been on strike.
The manifesto also promises to keep the Royal Mail in the public sector, re-link pensions to earnings, and double paternity leave to four weeks.
The only mention of the tax gap comes under section on 'global future': "Further action will be taken to strengthen developing countries’ tax systems, reduce tax evasion, improve reporting, and crack down on tax havens."
Tax evasion, avoidance and non-collection costs over £120bn here in UK – now that really could tackle the deficit and be 'fair for all'
Tuesday, 6 April 2010
Know Your Enemy
With the General Election to be called for 6th May, the dividing lines are becoming increasingly clear.
Business is clearly backing the Tories to deliver the attacks it wants. The traditional Tory allies are backing their people again, with an attack on the moderate increase in National Insurance over the bank hoiday weekend. It was the usual suspects: the BCC, CBI and a ragtag of non-dom, billionaire executives who avoid tax as if as of right, and then complain about the tax burden.
Just as the Sun decided it would back the Tories, when they were leagues ahead in the opinion polls, big business likes to back winners.
As LEAP has pointed out, New Labour has embraced the neoliberal economic orthodoxy in its 13 years. Even now, it is not talking about making the rich pay.
However, Labour has increased the top rate of tax to 50% and is proposing to raise NI (a progressive tax). The fact that the Tories are unashamedly lining up with the bosses against even these moderate measures - and with the Murdoch press - has not served them well in the latest opinion poll in today's Guardian, with their lead reduced to just 4 points.
Does this show that Tory support for big business is damaging them (down to 37%)? If so, it should tell New Labour that being Labour might be popular. If Labour is to win it needs a decisive break and to start putting people before its rapidly deserting wealthy friends.
Friday, 26 February 2010
To Big Business, £50bn with love, New Labour
Since New Labour came to power in 1997 corporation tax has been reduced from 33%, to 31%, then to 30% and two years ago to 28%. LEAP estimates that these tax cuts have given an extra £50bn to big business in the last 13 years.
This of course excludes the lovely donations that New Labour made on all our behalfs to the banking sector. £50bn over 13 years may not seem much in the context of a £178bn annual deficit, but the difference last year between 33% and 28% would have doubled the higher education budget.
This of course excludes the lovely donations that New Labour made on all our behalfs to the banking sector. £50bn over 13 years may not seem much in the context of a £178bn annual deficit, but the difference last year between 33% and 28% would have doubled the higher education budget.
Saturday, 30 January 2010
Is the recession over in time for the election?
Andrew Fisher, LEAP Co-ordinator, assesses the economic picture in 2010.
By the time this issue of Labour Briefing adorns your doormat, Alistair Darling and Gordon Brown may be basking in the reflection of newspaper headlines declaring the recession over.
The figures released at the end of January 2010 are expected to show a moderate level of economic growth in the final quarter of 2009. If so, it will bring to an end to six quarters of decline (the longest UK recession on record) during which UK GDP shrunk by 6.1%.
As LEAP has regularly pointed out, the definition of a recession is woefully inadequate – especially for those on the left. But leaving aside the politics (very briefly), does 0.1% or even 0.5% growth really mean salvation if preceded by 6% of decline?
For those of us on the left however, the fact of more economic activity (i.e. the economy is growing) is not a central question. We are rightly more concerned about what is happening to poverty levels, inequality, and unemployment.
As we know, unemployment growth often lags a year to eighteen months behind the return of GDP growth – as it did in the recessions of the 1980s and early 1990s – and if the ‘recovery’ stutters or is slow then unemployment is likely to remain high for some time.
Unemployment is a central concern since both major parties are advocating programmes of sweeping cuts across the public sector. These cuts would be accompanied by a pay freeze, and a decline in public sector capital investment.
We have been here before and we know to what such measures lead. In the late 1970s, the Callaghan Government chose this path – they ultimately failed on all fronts: they froze pay, privatised and cut. The economy didn’t improve and Callaghan’s policies lost the election.
Nevertheless Brown – now apparently being pushed further by Darling – is going full throttle down the Callaghan route. Then, in 1979, the Tories took over, implemented a package of cuts, privatisation and anti-union laws, which is precisely what they are offering today – and with precisely the same economic misery in store: unemployment, inequality and further recession.
There is no doubt the Tory prescription for the economy and for working people is worse, but the problem for Labour is to the electorate it sounds like being asked whether they’d preferr to be stabbed or shot. Neither is palatable so the plurality of the electorate will no doubt do what it did in the last two elections: vote for neither.
The point of all this is to say that whatever the 2009 Q4 GDP figures bring, they will probably only be a false dawn, since the economic policy of all major parties seems determined to exacerbate the crisis.
But even without the economic incompetence of the political elite damaging the economy, UK capitalism is very much at risk due to its own internal problems.
The UK banks remain the most exposed in the world to US liabilities. Many US banks remain are vulnerable to the ongoing housing crisis, with delinquencies rising to unprecedented levels – one in eight US householders were either in arrears or being foreclosed at the end of 2009. This is driven by the high levels of unemployment in the States, with the U6 rate (which also includes involuntary part-time workers and marginally attached workers) still above 17%. Long-term unemployment is also at a record high with 4% of the US workforce out of work for more than 6 months.
If a further downturn in the US occurs then the risk of further UK banking collapse could not be excluded – and could any future Government possibly afford the sort of bailout needed? Politically, could it survive while cutting public expenditure?
But the housing crisis is not just of concern across the Atlantic. Here in the UK the chronic housing shortage has meant that prices have not declined as far as some predicted and many first time buyers might have hoped. Meanwhile all political parties are keen to freeze public sector wages, in a year when inflation is likely to top 4%. This contradiction cannot be sustained, and there will inevitably be calls for industrial action as living costs shoot ahead of pay settlements.
Whichever Government is elected will defend this madness in the name of cutting the deficit. By attempting to defend pay and jobs, workers and unions will be labelled unrealistic, and even greedy.
Yet the reality is the deficit is not actually a problem . . . relatively. Despite the fact that the Tory press screams ‘crisis’ preceded by ‘deficit’ on a regular basis, a massively unreported fact is that the UK has the smallest deficit of any G7 nation.
This is because New Labour has sought to fund so much of its public sector investment off the books – through PFI schemes and the like. The problem of New Labour’s economic alchemy – investment with no debt – is that, like regular alchemy, it doesn’t work.
When the PFI company collapses, all that debt suddenly transfers to the public finances, as happened with Brown’s PPP on the London Underground. As the last 12 years of PFI unravel so the UK debt will balloon or deep cuts will have to be made.
So what is a socialist response to the deficit? Firstly there is the £125bn of tax going uncollected through non-collection, evasion and avoidance. If only the Government would invest in HM Revenue & Customs, and legislate to close the loopholes then a fair chunk of this annual loss could be reclaimed.
If only one-sixth of this total could be reclaimed each year then that would halve the deficit within four years – without a single job or programme cut or a single salary frozen.
If a socialist government then wanted to make investments then some simple reprioritisation would free billions: cutting Trident, ID cards, ending the inefficiency of rail franchising, and scrapping the FireControl Project. It would also use public ownership of banking and other industries to generate a surplus to the Exchequer.
Since there is no short-term prospect of such a Government, this crisis is only going to deepen. The probably temporary emergence from recession will be a false dawn before a renewed and deep economic and political crisis takes hold.
*This article appears in the February 2010 issue of Labour Briefing
By the time this issue of Labour Briefing adorns your doormat, Alistair Darling and Gordon Brown may be basking in the reflection of newspaper headlines declaring the recession over.
The figures released at the end of January 2010 are expected to show a moderate level of economic growth in the final quarter of 2009. If so, it will bring to an end to six quarters of decline (the longest UK recession on record) during which UK GDP shrunk by 6.1%.
As LEAP has regularly pointed out, the definition of a recession is woefully inadequate – especially for those on the left. But leaving aside the politics (very briefly), does 0.1% or even 0.5% growth really mean salvation if preceded by 6% of decline?
For those of us on the left however, the fact of more economic activity (i.e. the economy is growing) is not a central question. We are rightly more concerned about what is happening to poverty levels, inequality, and unemployment.
As we know, unemployment growth often lags a year to eighteen months behind the return of GDP growth – as it did in the recessions of the 1980s and early 1990s – and if the ‘recovery’ stutters or is slow then unemployment is likely to remain high for some time.
Unemployment is a central concern since both major parties are advocating programmes of sweeping cuts across the public sector. These cuts would be accompanied by a pay freeze, and a decline in public sector capital investment.
We have been here before and we know to what such measures lead. In the late 1970s, the Callaghan Government chose this path – they ultimately failed on all fronts: they froze pay, privatised and cut. The economy didn’t improve and Callaghan’s policies lost the election.
Nevertheless Brown – now apparently being pushed further by Darling – is going full throttle down the Callaghan route. Then, in 1979, the Tories took over, implemented a package of cuts, privatisation and anti-union laws, which is precisely what they are offering today – and with precisely the same economic misery in store: unemployment, inequality and further recession.
There is no doubt the Tory prescription for the economy and for working people is worse, but the problem for Labour is to the electorate it sounds like being asked whether they’d preferr to be stabbed or shot. Neither is palatable so the plurality of the electorate will no doubt do what it did in the last two elections: vote for neither.
The point of all this is to say that whatever the 2009 Q4 GDP figures bring, they will probably only be a false dawn, since the economic policy of all major parties seems determined to exacerbate the crisis.
But even without the economic incompetence of the political elite damaging the economy, UK capitalism is very much at risk due to its own internal problems.
The UK banks remain the most exposed in the world to US liabilities. Many US banks remain are vulnerable to the ongoing housing crisis, with delinquencies rising to unprecedented levels – one in eight US householders were either in arrears or being foreclosed at the end of 2009. This is driven by the high levels of unemployment in the States, with the U6 rate (which also includes involuntary part-time workers and marginally attached workers) still above 17%. Long-term unemployment is also at a record high with 4% of the US workforce out of work for more than 6 months.
If a further downturn in the US occurs then the risk of further UK banking collapse could not be excluded – and could any future Government possibly afford the sort of bailout needed? Politically, could it survive while cutting public expenditure?
But the housing crisis is not just of concern across the Atlantic. Here in the UK the chronic housing shortage has meant that prices have not declined as far as some predicted and many first time buyers might have hoped. Meanwhile all political parties are keen to freeze public sector wages, in a year when inflation is likely to top 4%. This contradiction cannot be sustained, and there will inevitably be calls for industrial action as living costs shoot ahead of pay settlements.
Whichever Government is elected will defend this madness in the name of cutting the deficit. By attempting to defend pay and jobs, workers and unions will be labelled unrealistic, and even greedy.
Yet the reality is the deficit is not actually a problem . . . relatively. Despite the fact that the Tory press screams ‘crisis’ preceded by ‘deficit’ on a regular basis, a massively unreported fact is that the UK has the smallest deficit of any G7 nation.
This is because New Labour has sought to fund so much of its public sector investment off the books – through PFI schemes and the like. The problem of New Labour’s economic alchemy – investment with no debt – is that, like regular alchemy, it doesn’t work.
When the PFI company collapses, all that debt suddenly transfers to the public finances, as happened with Brown’s PPP on the London Underground. As the last 12 years of PFI unravel so the UK debt will balloon or deep cuts will have to be made.
So what is a socialist response to the deficit? Firstly there is the £125bn of tax going uncollected through non-collection, evasion and avoidance. If only the Government would invest in HM Revenue & Customs, and legislate to close the loopholes then a fair chunk of this annual loss could be reclaimed.
If only one-sixth of this total could be reclaimed each year then that would halve the deficit within four years – without a single job or programme cut or a single salary frozen.
If a socialist government then wanted to make investments then some simple reprioritisation would free billions: cutting Trident, ID cards, ending the inefficiency of rail franchising, and scrapping the FireControl Project. It would also use public ownership of banking and other industries to generate a surplus to the Exchequer.
Since there is no short-term prospect of such a Government, this crisis is only going to deepen. The probably temporary emergence from recession will be a false dawn before a renewed and deep economic and political crisis takes hold.
*This article appears in the February 2010 issue of Labour Briefing
Thursday, 21 January 2010
Fiscal Irrelevance Bill
Yesterday MPs voted through the Fiscal Responsibility Bill which pledges to halve the budget deficit within four years.
Aside from the anti-Keynesian nonsense of the concept (cutting investment during a recession), and the brutal nature of the cuts envisaged by all three main parties, the most relevant aspect of the Bill is it's irrelevance.
Clauses 1 and 2 of the Bill set out targets for cutting the deficit. Clause 3 states that if an objective set by Clause 1 or 2 of the Bill is not met then the Government must come to Parliament and explain why not.
Very simple: a sensible government would report annually saying it was ignoring the objectives set under Clauses 1 and 2 as they would damage the economy, and public services. Job done. Forget about the Fiscal Irrelevance Bill. There's not even a need to repeal it.
Nevertheless, Bill or not, the political cuts consensus continues unabated, and it's good that LEAP Chair John McDonnell has tabled EDM 681 'Public Expenditure and the Deficit':
That this House notes that in his interview in the Financial Times of 19 January 2010 the Chancellor of the Exchequer has admitted to a planned policy of 17 per cent. cuts in expenditure across Government departments other than schools, health and the police force, the early withdrawal of the 50 pence tax rate and an end to the tax on bonuses; and therefore judges that this will mean that the ordinary people of the UK will be the ones who are to pay for the economic crisis, not of their making, and that many of those who, through their reckless greed caused the crisis, will walk away unscathed, receiving new bonuses and playing once again in the casino economy.
So far also signed by MPs Katy Clark, Jeremy Corbyn and David Drew - all of whom are supported in the LRC General Election Campaign.
Aside from the anti-Keynesian nonsense of the concept (cutting investment during a recession), and the brutal nature of the cuts envisaged by all three main parties, the most relevant aspect of the Bill is it's irrelevance.
Clauses 1 and 2 of the Bill set out targets for cutting the deficit. Clause 3 states that if an objective set by Clause 1 or 2 of the Bill is not met then the Government must come to Parliament and explain why not.
Very simple: a sensible government would report annually saying it was ignoring the objectives set under Clauses 1 and 2 as they would damage the economy, and public services. Job done. Forget about the Fiscal Irrelevance Bill. There's not even a need to repeal it.
Nevertheless, Bill or not, the political cuts consensus continues unabated, and it's good that LEAP Chair John McDonnell has tabled EDM 681 'Public Expenditure and the Deficit':
That this House notes that in his interview in the Financial Times of 19 January 2010 the Chancellor of the Exchequer has admitted to a planned policy of 17 per cent. cuts in expenditure across Government departments other than schools, health and the police force, the early withdrawal of the 50 pence tax rate and an end to the tax on bonuses; and therefore judges that this will mean that the ordinary people of the UK will be the ones who are to pay for the economic crisis, not of their making, and that many of those who, through their reckless greed caused the crisis, will walk away unscathed, receiving new bonuses and playing once again in the casino economy.
So far also signed by MPs Katy Clark, Jeremy Corbyn and David Drew - all of whom are supported in the LRC General Election Campaign.
Tuesday, 6 October 2009
The Tories - but where's the opposition?
Over the last few days David Cameron and George Osborne have finally elucidated the nightmare vision of what a Tory Government will look like: attacks on welfare, public sector pay freezes, raising of the state retirement age. The Morning Star spells it out in stark detail on its front page 'Tories aim to hit the poor hardest'
. . . and yet. Where have we heard all this before? The Tories say they will move 500,000 off incapacity benefit, but New Labour's stated aim is to move 1 million off incapacity benefit. They both say they will privatise welfare delivery and introduce workfare schemes - which is why the Tories supported New Labour's Welfare Reform Bill through the Commons earlier this year.
Darling and Osborne made almost identical statements on public sector pay freezes, and the Tories, who supported New Labour's Pensions Act to raise the state retirement age to 66, now say it should happen in 2016 rather than 2026.
It all reminds me of what Tony Benn - a dissident prisoner in the Callaghan (IMF cuts) Cabinet - wrote in his diary on 24th June 1977, "we have provided a blueprint . . . and we will have no argument against it". New Labour has provided a blueprint for the Tories and can have no argument against it. Tony Benn continued, "it is an outrage". Indeed.
It's also economically incompetent:
1) On its own terms, raising the state retirement age in 2016 won't save a single penny for another seven years, so it does not make sense as Osborne presented it as a solution to the deficit. It's also incredibly regressive, DoH figures suggest that someone in Social Class V has a life expectancy of 72; while social class I averages 79. This means the poorest will get 6 years of pension, the richest 13 years. Any raising of the state retirement age is regressive.
2) Cuts in pay and benefits will mean less being spent in the economy and undermine attempts to reflate. In a recession you need to put money in the hands of those who will spend - not take it away.
3) The deficit is not a problem (immediately) - the UK has less deficit then many other countries (as % of GDP) and should be investing in jobs and industry to give the economy a shot in the arm - and if cuts need to be made (or funds diverted from elsewhere) then Trident, ID cards, and the war in Afghanistan would be almost universally popular choices. This is basic Keynesianism, but instead we seem to have a austere monetarist consensus now for cuts towards a balanced budget.
There is now a massive gulf opening up on the left - and yet New Labour continues to move to the right . . .
Since Osborne and Darling want to talk up 'crisis' - while painting themselves as the saviours - then perhaps we need really drastic solutions: the appropriation of the 200 largest companies and their profits used to pay off the national debt?
For an alternative to cuts, see the LRC / LEAP briefing 'Cutting our way to defeat?'
. . . and yet. Where have we heard all this before? The Tories say they will move 500,000 off incapacity benefit, but New Labour's stated aim is to move 1 million off incapacity benefit. They both say they will privatise welfare delivery and introduce workfare schemes - which is why the Tories supported New Labour's Welfare Reform Bill through the Commons earlier this year.
Darling and Osborne made almost identical statements on public sector pay freezes, and the Tories, who supported New Labour's Pensions Act to raise the state retirement age to 66, now say it should happen in 2016 rather than 2026.
It all reminds me of what Tony Benn - a dissident prisoner in the Callaghan (IMF cuts) Cabinet - wrote in his diary on 24th June 1977, "we have provided a blueprint . . . and we will have no argument against it". New Labour has provided a blueprint for the Tories and can have no argument against it. Tony Benn continued, "it is an outrage". Indeed.
It's also economically incompetent:
1) On its own terms, raising the state retirement age in 2016 won't save a single penny for another seven years, so it does not make sense as Osborne presented it as a solution to the deficit. It's also incredibly regressive, DoH figures suggest that someone in Social Class V has a life expectancy of 72; while social class I averages 79. This means the poorest will get 6 years of pension, the richest 13 years. Any raising of the state retirement age is regressive.
2) Cuts in pay and benefits will mean less being spent in the economy and undermine attempts to reflate. In a recession you need to put money in the hands of those who will spend - not take it away.
3) The deficit is not a problem (immediately) - the UK has less deficit then many other countries (as % of GDP) and should be investing in jobs and industry to give the economy a shot in the arm - and if cuts need to be made (or funds diverted from elsewhere) then Trident, ID cards, and the war in Afghanistan would be almost universally popular choices. This is basic Keynesianism, but instead we seem to have a austere monetarist consensus now for cuts towards a balanced budget.
There is now a massive gulf opening up on the left - and yet New Labour continues to move to the right . . .
Since Osborne and Darling want to talk up 'crisis' - while painting themselves as the saviours - then perhaps we need really drastic solutions: the appropriation of the 200 largest companies and their profits used to pay off the national debt?
For an alternative to cuts, see the LRC / LEAP briefing 'Cutting our way to defeat?'
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:
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.
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.
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.
Thursday, 25 June 2009
Child Poverty in the UK
A report by the Office for National Statistics showed yesterday what we all know: the Government's attempts to tackle child poverty are failing.
And they're failing for a very simple reason: New Labour has failed to tackle child poverty because it has refused to address inequality and the distribution of wealth.
As a spokesperson from the ONS said: "the data suggests that the most significant influence on children's experiences growing up is likely to be income deprivation".
There's some very simple things the Government could do: raise the minimum wage, make the tax system more progressive, increase JSA and other benefits, restore trade union rights to increase bargaining power and stop undercutting through agencies.
The Morning Star rightly prioritises this story on its front page today.
According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". The OECD also reveals that "child poverty rates are still above the levels recorded in the mid-1980s".
That is shocking - children in the UK are more likely to be in poverty today than at the height of Thatcherism
And they're failing for a very simple reason: New Labour has failed to tackle child poverty because it has refused to address inequality and the distribution of wealth.
As a spokesperson from the ONS said: "the data suggests that the most significant influence on children's experiences growing up is likely to be income deprivation".
There's some very simple things the Government could do: raise the minimum wage, make the tax system more progressive, increase JSA and other benefits, restore trade union rights to increase bargaining power and stop undercutting through agencies.
The Morning Star rightly prioritises this story on its front page today.
According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". The OECD also reveals that "child poverty rates are still above the levels recorded in the mid-1980s".
That is shocking - children in the UK are more likely to be in poverty today than at the height of Thatcherism
Sunday, 7 June 2009
The economy: its worse than you think
With all the media attention focused on the infighting within New Labour, you'd be forgiven for missing the news that UK GDP fell further than initially thought in the first quarter of 2009.
Although announced as the worst fall in GDP since 1979 at 1.9%, in fact is now estimated by the ONS to have been 2.2%, as the construction industry contracted more severely - 9%.
Maybe, while removing the knives from his back (and passing them to Nick Brown to stab back), Gordon Brown has noticed this, and that's why he's appointed Alan Sugar - a man who's Amstrad company employed an imperial 85 people before collapsing into BSkyB, and who turned Tottenham from mid-table also rans into mid-table also rans in his time as chairman. This feature on his media ego trip (aka The Apprentice) I think raises questions about his merits.
Alan also asked a female interviewee how she planned to look after her children if he gave her a job. Gordon obviously keen to combat the sexism slurs . . .
Tuesday, 12 May 2009
Derisory increase in National Minimum Wage
Fresh from lambasting the Tories policy vacuum - and their backbench MPs' attempts to remove the national minimum wage in our previous blog, the Government has now showed what value it attaches to the minimum wage . . . as little as 4p.
The Government has announced the National Minimum Wage rates that will apply from October 2009. The adult minimum wage will go up by 7p, for 18-21s up by 6p and for under 18s just 4p.
John McDonnell rightly condemned this as "derisory". John, LEAP Chair, said:
"This is a derisory increase which will leave many in poverty and do nothing to address the grotesque inequalities in our society.
"Bankers are still walking off with massive bonuses and salaries, while low paid workers remain on the edge of poverty."
As Dave Prentis, Unison General Secretary, said: "It is hardly going to help low-paid workers pay the bills".
Indeed, based on a 37.5 hour week, the new NMW rates equate to just £11,310 (over 21); £9,418.50 (18-21); or a paltry £6,961.50. They are a disgrace.
By contrast, the London living wage introduced by Ken Livingstone and supported by Boris Johnson equates to £14,527.50.
Thu 14 May update: John McDonnell MP, and other Campaign Group MPs have tabled EDM 1482 'National Minimum Wage Uprating' calling for an end to age discrimination in the NMW and for future increases to be above inflation and average earnings increases.
The Government has announced the National Minimum Wage rates that will apply from October 2009. The adult minimum wage will go up by 7p, for 18-21s up by 6p and for under 18s just 4p.
John McDonnell rightly condemned this as "derisory". John, LEAP Chair, said:
"This is a derisory increase which will leave many in poverty and do nothing to address the grotesque inequalities in our society.
"Bankers are still walking off with massive bonuses and salaries, while low paid workers remain on the edge of poverty."
As Dave Prentis, Unison General Secretary, said: "It is hardly going to help low-paid workers pay the bills".
Indeed, based on a 37.5 hour week, the new NMW rates equate to just £11,310 (over 21); £9,418.50 (18-21); or a paltry £6,961.50. They are a disgrace.
By contrast, the London living wage introduced by Ken Livingstone and supported by Boris Johnson equates to £14,527.50.
Thu 14 May update: John McDonnell MP, and other Campaign Group MPs have tabled EDM 1482 'National Minimum Wage Uprating' calling for an end to age discrimination in the NMW and for future increases to be above inflation and average earnings increases.
Tuesday, 2 December 2008
Welfare for All
PCS has issued a statement 'Welfare for All' to support the campaign to keep a fair and just welfare state, and to oppose the government's welfare reform proposals - which the BBC reports today are about to get even worse.
Mark Serwotka said: "The government needs to pay heed to the growing chorus of opposition to its plans for welfare reform. The plans are regressive and will lead to the removal of the state safety net and the introduction of the free market, where the only motive is profit for the few and not help for the many. As recession bites these are the wrong proposals at the wrong time."
The welfare state is one of the UK's greatest achievements and supports us all especially vulnerable and unemployed people and their families.
In July the government published the green paper 'No one written off: reforming welfare to reward responsibility' announcing plans to change the current provision of support.
Many of the plans were unacceptable when they were first published and the worsening economic situation should lead to a fundamental rethink. However the government is pressing ahead despite the current global economic downturn which is leading to increasing levels of unemployment. As a result we have come together.
The government's proposals remove entitlements and fail to value the important work of parents and carers. Parents with young children, carers, sick, disabled, people with mental health problems and other vulnerable groups face tougher tests to qualify for benefits. If they fail they could be cut off with no support.
We are opposed to the abolition of Income Support which ends the principle that those in need deserve help. We are opposed to compulsory work for benefits. People should be paid the rate for the job or at the very least be paid the national minimum wage.
Jobseekers Allowance is shockingly low at less than £10 a day, if it had increased in line with earnings over the past 30 years the rate for a single person over the age of 25 would be more than £100 a week.
The government wants more of the welfare state to be handed over to the private sector. It is wrong to profit from the sick and unemployed. There is also the intention to share information with the police which raises real concerns about civil liberties.
We want voluntary skills training and life long learning opportunities for unemployed people. The government should focus on ensuring that there is more support to access jobs that have fair pay and decent conditions with a guarantee that when people cannot seek work they will not face poverty.
The government should introduce positive measures to challenge discriminatory attitudes held by employers, encourage flexible working practices and expand the provision of affordable childcare.
We want the government to rethink its plans. Support our campaign to help create a better welfare state and society.
See the PCS website for a full list of supporters, which includes LEAP.
Tuesday, 25 November 2008
Darling deludes no-one except himself
The measures set out in the New Labour government’s emergency budget yesterday were designed to set pulses racing and induce a collective sigh of relief across the country. Instead, the record amounts of borrowing required will not only reinforce the economic and financial crisis but also point towards the possibility of state bankruptcy in the not too distant future.
At any other moment, the unprecedented scale of government borrowing, mostly aimed at stimulating consumption, would have seemed beyond imagination. But, even with £20 billion more now and £118 billion by end of next year, the best that Chancellor Darling said he could hope for was to lessen the severity of the downturn!
To put it bluntly, the emergency budget will not stop the avalanche of company failures, job and pension losses, personal bankruptcies and house repossessions. Initial reactions from the high streets and businesses to a 2.5% cut in VAT were dismissive and rightly so.
As Jeremy Warner, business editor of The Independent put it:
“The … reduction in VAT, which accounts for the bulk of the giveaway, will make no difference at all to low and moderately earning households, virtually all of whose disposable income is being eaten up by essentials unaffected by the VAT tax changes. Even on petrol, alcohol and cigarettes, the VAT concession is all clawed back again through a compensating rise in excise duty.”
The real problem that New Labour is incapable of tackling is that the global production overcapacity induced by 30 years of credit-led investment generated tsunamis of consumer goods which overwhelmed the market. Inevitably, consumers reached the limits of their ability to repay the debts they’d amassed under intense pressure to buy. Consumers eventually had to stop buying ever more products. Under capitalism, if people don’t buy, companies can’t sell. So the global corporations that were the result of the growth hysteria needed to sustain profits are tumbling one by one. And with the promise of future profits disappearing over the horizon, the whole house of cards is crashing to the ground. Neither Darling’s emergency measures, nor US President-elect Barack Obama’s massive stimulus package to be financed by very large deficit spending announced virtually simultaneously, can put Humpty back together again. The previous packages have failed and so must these. Remember those bank bail-outs that were supposed to get lending going again?
There is worse, far worse to come. In a research report published last week, the International Monetary Fund warned that the failure of a single major financial institution could result in losses to the derivatives market of $300-$400 billion. “What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion." That’s a big number by anyone’s standards.
Darling is predicting – gambling is a better word – that the record borrowing can be repaid in seven years through higher taxes derived from an economy that has returned to buoyant growth. This is delusional behaviour because a) there is a global recession in place and b) the future tax increases and public expenditure cuts needed to repay the borrowing will stop any hint of recovery dead.
The Financial Times was dismissive: “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear. The government’s belief that output will contract by just 0.75-1.25 per cent next year will, therefore, prove too optimistic.”
What the paper doesn’t say is that restarting the economy after every previous crash has required the destruction of productive capacity – factories, offices, transport infrastructure, employees. It’s in the nature of the capitalist system. It’s what “boom” and “bust” means. But this time the scale and severity of the crash will be far greater than at any previous time in history. New Labour’s policies of promoting free-for-all, corporate driven globalisation and the fantasy financiers of the City have made certain of that.
Gerry Gold
Economics editor
A WORLD TO WIN
At any other moment, the unprecedented scale of government borrowing, mostly aimed at stimulating consumption, would have seemed beyond imagination. But, even with £20 billion more now and £118 billion by end of next year, the best that Chancellor Darling said he could hope for was to lessen the severity of the downturn!
To put it bluntly, the emergency budget will not stop the avalanche of company failures, job and pension losses, personal bankruptcies and house repossessions. Initial reactions from the high streets and businesses to a 2.5% cut in VAT were dismissive and rightly so.
As Jeremy Warner, business editor of The Independent put it:
“The … reduction in VAT, which accounts for the bulk of the giveaway, will make no difference at all to low and moderately earning households, virtually all of whose disposable income is being eaten up by essentials unaffected by the VAT tax changes. Even on petrol, alcohol and cigarettes, the VAT concession is all clawed back again through a compensating rise in excise duty.”
The real problem that New Labour is incapable of tackling is that the global production overcapacity induced by 30 years of credit-led investment generated tsunamis of consumer goods which overwhelmed the market. Inevitably, consumers reached the limits of their ability to repay the debts they’d amassed under intense pressure to buy. Consumers eventually had to stop buying ever more products. Under capitalism, if people don’t buy, companies can’t sell. So the global corporations that were the result of the growth hysteria needed to sustain profits are tumbling one by one. And with the promise of future profits disappearing over the horizon, the whole house of cards is crashing to the ground. Neither Darling’s emergency measures, nor US President-elect Barack Obama’s massive stimulus package to be financed by very large deficit spending announced virtually simultaneously, can put Humpty back together again. The previous packages have failed and so must these. Remember those bank bail-outs that were supposed to get lending going again?
There is worse, far worse to come. In a research report published last week, the International Monetary Fund warned that the failure of a single major financial institution could result in losses to the derivatives market of $300-$400 billion. “What’s more, since such a failure would likely cause cascading failures of other institutions, the total global financial system losses could exceed $1,500 billion." That’s a big number by anyone’s standards.
Darling is predicting – gambling is a better word – that the record borrowing can be repaid in seven years through higher taxes derived from an economy that has returned to buoyant growth. This is delusional behaviour because a) there is a global recession in place and b) the future tax increases and public expenditure cuts needed to repay the borrowing will stop any hint of recovery dead.
The Financial Times was dismissive: “The UK consumer is now too stunned by the housing crash, stagnant wages and fears of unemployment to be coaxed into resuming the insane credit-fuelled binge of yesteryear. The government’s belief that output will contract by just 0.75-1.25 per cent next year will, therefore, prove too optimistic.”
What the paper doesn’t say is that restarting the economy after every previous crash has required the destruction of productive capacity – factories, offices, transport infrastructure, employees. It’s in the nature of the capitalist system. It’s what “boom” and “bust” means. But this time the scale and severity of the crash will be far greater than at any previous time in history. New Labour’s policies of promoting free-for-all, corporate driven globalisation and the fantasy financiers of the City have made certain of that.
Gerry Gold
Economics editor
A WORLD TO WIN
Friday, 24 October 2008
The Real Story of UK Inequality
The Organisation for Economic Co-operation and Development (OECD) Growing Unequal? report published on 21st October 2008 found that "since 2000, income inequality and poverty have fallen faster in the UK than in any other OECD country" and the head of OECD's social policy division, describes it as "remarkable".
This conflicts with the report Poverty and inequality in the UK: 2008 by the Institute for Fiscal Studies (IFS) published in June this year, which found that in the UK "income inequality has risen for its second successive year and is now equal to its highest-ever level (at least since comparable records began in 1961)".
According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". It also states that "the wage gap has widened by 20% since 1985", and that "child poverty rates are still above the levels recorded in the mid-1980s".
Poverty and inequality is still yet to be tackled by New Labour. Even on the terms of the OECD report there is a real inequality problem which the Government needs to address. However, neither the IFS nor OECD reports look at wealth – which has been increasingly concentrated in the hands of the richest. Wealth inequality has risen massively in the last twenty years.
Unless there is a substantial shift in policy, this will be the first Labour government to leave office with society more unequal than when it came to power. Its legacy will also be the most unequal society in living memory.
Download the LEAP report: The Real Story of UK Inequality for a full evaluation of UK inequality, and policy solutions to reduce it.
Friday, 17 October 2008
Time to cut the losses
In the last week, stock markets the world over have been showing the classic signs of bipolar disorder, but in the most concentrated form. Euphoric, manic, hysterical highs followed by the deepest depression. Much of it, say some of the commentators, is internally generated, the result of speculators feeding off each other’s panic.
But as everyone else knows, there are clear external causes. The soaring highs are the direct result of a renewed series of injections, by governments and central banks, of credit – the same stuff that the world’s financial system became addicted to and wholly dependent on during the “long boom”. It doesn’t help. Yesterday, the two largest Swiss banks UBS and Credit Suisse were obliged to seek new capital in a further attempt to prevent them turning into non-banks, ceasing to exist, becoming, as Monty Python had it, dead parrots. When the Swiss banks fall, there’s nowhere safe left for your money.
The stock market lows – a five-year retreat reached in the UK and back to the 1980s in Japan – are the result of an avalanche of indications that the recession is not only with us, but will last for years. Giant corporations are bankrupt, jobs falling off a cliff, house prices dropping like a stone. Even the price of oil has fallen back, as the speculators move their money elsewhere. China, which has powered the global economy, is cutting back and shutting down factories.
The Brown-led government, which has taken on the role of street-level pushers, are looking to raise the money that they are guaranteeing to the banks by issuing more debt to the investment markets. But there’s a limit to what can be raised. The rest will come from an assault on government spending, public services, the elimination of the legal guarantee for public sector pensions, and last but not least, any measures to deal with climate change – irrespective of Miliband the Younger’s pronouncement on an 80% emissions reduction by 2050.
Early signs of the brutal reality that will result came from the news that under Brown and Darling’s control, Northern Rock has been foreclosing, repossessing and evicting at double the rate of the rest of the industry, as detailed in Andrew's post on Wednesday. So much for the benefits of “nationalisation”.
Brown knows that the bankers’ bail-out won’t stop the rot, so he’s promoting a restructuring of the world’s economy, along the lines of the Bretton Woods arrangements that laid the basis for the post-war recovery and the boom years. The Financial Times says this is premature, adding:“Lest we forget, Mr Brown himself was in charge of the IMF’s ministerial steering committee for a large part of the past decade and yet signally failed to implement the ideas he is parading. During this time, it was repeatedly explained to him that every early warning system devised by the finest minds in international economics, including those at the fund, either predicts crises that never arrive or misses those that do.”
The paper of business is correct. The basis for restoring stability after a decade and a half of the Great Depression wasn’t Keynes’s proposals, but the massive destruction of surplus productive capacity and human lives during the second world war.
A much easier, less destructive way out of the mess would be to cut the losses, admit the capitalist system is bankrupt and make the transition to a new kind of economy altogether. One based on not-for-profit production, social ownership, self-management, planned production for need, distributed via an intelligent market informed by democratic processes and expressed preferences. That’s what we will be discussing tomorrow at the Stand Up for Your Rights festival. Be there!
adapted from www.aworldtowin.net
But as everyone else knows, there are clear external causes. The soaring highs are the direct result of a renewed series of injections, by governments and central banks, of credit – the same stuff that the world’s financial system became addicted to and wholly dependent on during the “long boom”. It doesn’t help. Yesterday, the two largest Swiss banks UBS and Credit Suisse were obliged to seek new capital in a further attempt to prevent them turning into non-banks, ceasing to exist, becoming, as Monty Python had it, dead parrots. When the Swiss banks fall, there’s nowhere safe left for your money.
The stock market lows – a five-year retreat reached in the UK and back to the 1980s in Japan – are the result of an avalanche of indications that the recession is not only with us, but will last for years. Giant corporations are bankrupt, jobs falling off a cliff, house prices dropping like a stone. Even the price of oil has fallen back, as the speculators move their money elsewhere. China, which has powered the global economy, is cutting back and shutting down factories.
The Brown-led government, which has taken on the role of street-level pushers, are looking to raise the money that they are guaranteeing to the banks by issuing more debt to the investment markets. But there’s a limit to what can be raised. The rest will come from an assault on government spending, public services, the elimination of the legal guarantee for public sector pensions, and last but not least, any measures to deal with climate change – irrespective of Miliband the Younger’s pronouncement on an 80% emissions reduction by 2050.
Early signs of the brutal reality that will result came from the news that under Brown and Darling’s control, Northern Rock has been foreclosing, repossessing and evicting at double the rate of the rest of the industry, as detailed in Andrew's post on Wednesday. So much for the benefits of “nationalisation”.
Brown knows that the bankers’ bail-out won’t stop the rot, so he’s promoting a restructuring of the world’s economy, along the lines of the Bretton Woods arrangements that laid the basis for the post-war recovery and the boom years. The Financial Times says this is premature, adding:“Lest we forget, Mr Brown himself was in charge of the IMF’s ministerial steering committee for a large part of the past decade and yet signally failed to implement the ideas he is parading. During this time, it was repeatedly explained to him that every early warning system devised by the finest minds in international economics, including those at the fund, either predicts crises that never arrive or misses those that do.”
The paper of business is correct. The basis for restoring stability after a decade and a half of the Great Depression wasn’t Keynes’s proposals, but the massive destruction of surplus productive capacity and human lives during the second world war.
A much easier, less destructive way out of the mess would be to cut the losses, admit the capitalist system is bankrupt and make the transition to a new kind of economy altogether. One based on not-for-profit production, social ownership, self-management, planned production for need, distributed via an intelligent market informed by democratic processes and expressed preferences. That’s what we will be discussing tomorrow at the Stand Up for Your Rights festival. Be there!
adapted from www.aworldtowin.net
Sunday, 29 June 2008
Child poverty increases for second year running
Last week it was announced that child poverty increased by 100,000 in the last year. In the past two years, according to the Government's own figures, child poverty has increased by 300,000. When Labour came to power it promised to "end child poverty within a generation" – by 2020 - and to halve it by 2010.
After 11 years of New Labour, there are still 3.9 million children living in poverty. The Government is still to succeed in making a one-quarter cut in child poverty, which it had aimed to do by 2005. Three years on and things are going into reverse.
The LEAP Red Papers of March 2008 contain a feature on child poverty (page 16) written in advance of the latest release of figures.
It shows how just by increasing child benefit by £14 per week for the eldest child, child poverty would be reduced by 400,000 - meeting the Government's one-quarter cut target immediately. This is the equivalent of raising corporation tax by just 3.5% - which would still be a lower rate than it was in 1997, since New Labour has cut corporation tax from 33% in 1997 to 28% this year.
Of course there are others way too - increasing the minimum wage by more than inflation being one. The other feature in the LEAP March 2008 Red Papers was on inflation and pay (page 12). It showed that this year's increase in the National Minimum Wage (to come into force in October 2008) was just 3.8% - when inflation is 4.3%.
The public sector pay cap - affecting many low paid workers in local government and the civil service - will also hinder future child poverty targets. And as we know, public sector pay has no effect on inflation - so it won't solve our economic problems either.
If New Labour wants to have any chance of saving itself, it should look to these two flagship policies from its first term: the national minimum wage and cutting child poverty. Re-concentrating on those policies might be a good idea for a party floundering at the moment.
Meanwhile, new London Mayor Boris Johnson has his first RMT industrial action on the London Underground as cleaners paid just over £5.50 per hour campaign the London living wage of £7.20 - which Ken promised to introduce as he brought contracts back when Metronet collapsed. Find out how you can support their campaign. Bear in mind that the minimum wage of £5.52 equates to just £10,764 per year full-time. Try living on that in London.
After 11 years of New Labour, there are still 3.9 million children living in poverty. The Government is still to succeed in making a one-quarter cut in child poverty, which it had aimed to do by 2005. Three years on and things are going into reverse.
The LEAP Red Papers of March 2008 contain a feature on child poverty (page 16) written in advance of the latest release of figures.
It shows how just by increasing child benefit by £14 per week for the eldest child, child poverty would be reduced by 400,000 - meeting the Government's one-quarter cut target immediately. This is the equivalent of raising corporation tax by just 3.5% - which would still be a lower rate than it was in 1997, since New Labour has cut corporation tax from 33% in 1997 to 28% this year.
Of course there are others way too - increasing the minimum wage by more than inflation being one. The other feature in the LEAP March 2008 Red Papers was on inflation and pay (page 12). It showed that this year's increase in the National Minimum Wage (to come into force in October 2008) was just 3.8% - when inflation is 4.3%.
The public sector pay cap - affecting many low paid workers in local government and the civil service - will also hinder future child poverty targets. And as we know, public sector pay has no effect on inflation - so it won't solve our economic problems either.
If New Labour wants to have any chance of saving itself, it should look to these two flagship policies from its first term: the national minimum wage and cutting child poverty. Re-concentrating on those policies might be a good idea for a party floundering at the moment.
Meanwhile, new London Mayor Boris Johnson has his first RMT industrial action on the London Underground as cleaners paid just over £5.50 per hour campaign the London living wage of £7.20 - which Ken promised to introduce as he brought contracts back when Metronet collapsed. Find out how you can support their campaign. Bear in mind that the minimum wage of £5.52 equates to just £10,764 per year full-time. Try living on that in London.
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