Friday, 14 January 2011

Why Cuts are necessary

Look, I'm not going to beat about the bush. The cuts are unfair and they will hit some of the most vulnerable in our society. It's not right that ordinary people are being made to suffer for the greed and incompetence of a few but there's no alternative.

Labour mismanaged the economy, failed to regulate the banks and spent all our budget surplus without heed for tomorrow. To be fair to them, when things went bad, they did do a passable job of stopping us from going into a new Great Depression but that's about it. Labour abandoned their principles and let the banks get away with murder, now we're all saddled with debt as a result. And when I say debt, I mean a bloody enormous debt. We are currently paying £120 million per day just on the interest payments. That's not paying down the debt, that's just keeping us standing still. And the debt is growing. Interest is being accrued on it and the payments we need to make will keep on going up and up.

So that leaves us with two options. One option is what the coalition is doing. Cutting now, cutting deeply, raising some taxes such as VAT and spending a little bit to try and mitigate the worst effects of the cuts and to help kickstart more economic growth. This means that many people are going to suffer a hard few years - people who don't deserve it. I think that some of the cuts are the wrong ones to make and that other things should be cut but, unfortunately, I'm not the chancellor.

The second option is what Labour is advocating. Cut differently, cut later and cut less. Well, that certainly sounds attractive - after all, who wants to see their local library close, or find themselves struggling to find an extra couple of hundred pounds a year? There's no doubt about it, Labour's plan would mean less hardship over the next five years, less pain for the most vulnerable and generally a less uncomfortable time overall - in the short term. In the long term, their lighter cuts would mean that the debt would keep on rising, the interest payments would keep on rising. After 2015 they would still be spending a huge chunk of the budget on trying to stand still with the national debt and would still be trying to find a way to pay it off whilst we all struggled with public services that were gradually losing more and more money to the burden of servicing the debt. This would mean more hardship in the long term. Less money for schools, for hospitals. Forget a raise in the minimum wage or the pension, the government would be spending every spare penny just trying not to go backwards. Taxes would rise, services would be starved of money over time, unemployment would take longer to fall and everyone would suffer for far longer.

Contrast this with the coalition. Yes, we will all suffer over the next four years, yes some of us will suffer more than we should. People in the public sector will lose their jobs, we'll all be trying to find ways to live on less. But, in 2015, the debt will be gone, unemployment will be down, the economy will be growing and the government will have £120 million more a day to spend on schools, hospitals, pensions, more social housing and much more. You and your family will no longer be paying off someone else's debt. You'll have had a tough few years but at least you'll have a secure future, you'll be able to be confident that your grandchildren won't still be paying off the banker's debt and that you yourself won't face an impoverished retirement.

It's not fair that we have to face hardship, it's not fair that public services have to be cut to pay off the debt. But that's the situation we're in thanks to Labour's economic mismanagement. If Gordon Brown had been sensible and listened to the calls of people like Vince Cable to regulate the banks then we wouldn't be in this mess. But he didn't and we are. The only choice we have now is whether to tighten our belts and suffer through the next few years to get rid of the problem or to listen to Labour, behave irresponsibly and suffer for decades to come. I don't find either option particularly palatable but we have no choice. We have Gordon Brown to thank for that.

4 comments:

  1. George, while I agree with the thrust of your argument-that cuts need to be made, now, and deeper than Labour are saying-I will have to disagree on some points where I think the devil is very much in the detail.

    Firstly, I will have to challenge the assertion that this situation is all Labour's fault. Putting partisan politics aside, it really is not. The majority of European states are facing huge budget deficits (thought admitedly the UK's is bigger than most) and Gordon Brown was not Prime Minister of all those countries. The economic fault of the labour government comes from several things-the fact that they did not regulate the banks (though the Tories were often calling for even less regulation, so they would do well to shut up on this) is one example. Another Labour failing was that instead of borrowing on the markets to fund investment like most governments, they started borrowing to fund current spending. This was a grave error yes, and definitely contributed to the economic situation now, however had they not done that, there would still have been a big budget deficit due to having to bail out the banks (some of that would have happened regardless of regulation since the UK does not exist in an economic bubble and global shocks will have inevitably have had grave consequences). The point here is that while Labour made serious errors, the current state of the UK's finances is not their fault exclusively and it detracts from our arguments to continuously claim something which simply is not true.

    Furthermore, just to give one explanation why Labour failed to regulate the banks (apart from incompetence and neoliberalism)-the fact that the US under Bush repealed the Glass-steagall act. This freed American financial institutions from much regulation and lead to the crisis, however it also meant that if London regulated the banks too much more than the US was doing it would lag far behind in competitiveness. At the time, when the sub prime meltdown was not foreseen, allowing UK banks to lose competitiveness must have looked like a really bad idea. This is me playing devil's advocate, merely to point out that there would have been some rationale for deregulating the banks, which is very easy to dismiss with hindsight, but not at the time.

    Secondly, as I said the devil is truly in the detail. While I don’t think many people seriously believe that we don’t need cuts, it is the nature of the cuts that is the problem. The Tory driven cuts are clearly ideological and target the weakest members of society or at least those that will probably never vote Tory anyway. The cuts could and should have fallen in places other than disability benefit and on the shoulders of young people (in various forms).

    Furthermore, there are alternatives also to the size and rate of cuts. I will hold up Hungary and Viktor Orban as an example. So far (and I STRESS the "so far") his unorthodox plan is reaping benefit. Instead of imposing austerity measures, he imposed emergency taxes on big industries and big companies (including hitting banks hard) while cutting income tax and stimulating consumption. As I said, so far it seems to be working and Hungary has not needed to be bailed out. The UK's deficit is much larger I think so cuts would have to be made, however if the government had more spine and was not hell-bent on making the poorest in society shoulder the largest proportional burden (and busy pandering to the markets every whim) they could have implemented some similar measures to reduce the scale of the cuts necessary. We have to wait and see if the Hungary example continues to work and survive, but if it does I think that will be a damning indictment of this government (and others who take the same course). It is also worth noting that the Markets actually responded positively to Orban's tactics as even thought they hit big business, they were bold enough to introduce stability.

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  2. @george

    Your characterisation of the tory and Labour deficit reduction plans is simplistic nonsense to be blunt. And why are you swallowing the tory line about £120m per day in interest payments? Debt interest payments make up less than 5% of government spending, which is below what they were for most of the past 60 years. Just because its a big number doesn't mean it is unaffordable, it is all relative!

    @ellie

    At no point before the banking crisis did Labour borrow to fund day-to-day public spending. All the 2% deficit was used to invest in the infrastructure of this country.

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  3. I feel some of the cuts are being doled out unfairly - reducing benefits, while letting certain big businesses off their taxes for example. With the way disability benefits seem to be being slashed and withdrawn left, right and centre I think there will be many people who don't survive till 2015.
    I'm glad to blame Blair/Brown/Bush/banks for any problem, but blame doesn't make it easier to live with no money.
    As soon as this hell is over, you say in 2015, it will be time for a general election, just in time for stupid labour to get back in and wreck the country again.

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  4. That's utter rubbish. It's incredibly easy for you as you won't be affected by the cuts because you're not working class, disabled, mentally ill, a pensioner with no benefits or anyone who's not middle class or rich, so don't you dare go on about how we just have to grin and bear it because you will NOT be affected by them. Anyway,yes the national debt needs to go down and the correct way to do it is tax the banks and corporations that got us in this mess to begin with!

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