Budget 2010: A Very Tory Budget

June 24, 2010

Shamefully, Liberal Democrat Danny Alexander washed away any suggestion that he should be ashamed of himself for campaigning throughout the election months on the premise that the Lib Dems would DEFINITELY NOT have to rise VAT in order to fund their economic plan, only to announce jointly with George Osbourne, that VAT would have to rise. Alexander defended it by suggesting the economic situation, since he took office, had “dramatically changed”. The trouble is, none of us know how it has dramatically changed. In fact, for all intents and purposes, it’s safe to say the situation hasn’t changed at all. The smirking face of Clegg sitting behind Osbourne as he made his budget speech, was all I needed to see, to ensure that I would never vote Liberal Democrat Tory-lite again. Alexander then said that the budget was progressive in that the richest, contributed the most. He lied again. The Institute for Fiscal Studies said that the budget was “not progressive” in that the richest households did not pay more, the corporations who tax avoid were not being punished, and banking bonuses were not being taxed. Cutting benefits, raising regressive taxes, and then cutting corporation tax, can never ever be described as progressive, no matter how blinded you are by current Lib Dem rhetoric. We all know that Labour lied appallingly in their last manifesto, but Clegg and the Liberals have taken political deception and selling out their principles, to a whole new level.

Whilst in Australia, i’ve kept a close watch on George Osbourne’s “emergency” budget situation. The term “emergency” in that phrase, the Tories have used for the past few months, and it’s very tedious. Playing politics with the economy, which they largely have very little control over anyway, is a little unnerving.

Cameron and Osbourne have suggested that the economic figures for the last Parliament could have been ‘fiddled’ and pledged to make sure that kind of behaviour would never happen again. The problem is, the figures were not fiddled, as a report from the Office for Budget Responsibility pointed out recently. The same report rubbishes another Tory claim that the UK could become the next Greece. The report shows that Greek debt is double the UKs, Greece is still in recession and we’re not, and the debt maturity for Greece is 3 years, compared to ours which is 14. We, quite conclusively, are not Greece. The OBR report also revised figures for borrowing, showing that the situation had indeed improved. George Osbourne, having seen the Labour had not fiddled the figures, and that we were not the next Greece, and that borrowing had improved, responded quite ridiculously with:

“this is damning evidence that the mess the previous government left behind is even bigger than we thought.”

It is against this report that Osbourne made his first budget speech. The key points are:

  • VAT will rise from 17.5% to 20%
  • Council tax frozen for a year.
  • Capital Gains Tax will rise from 18% to 28% from midnight for higher rate taxpayers.
  • The “entrepreneurs relief” rate of 10% on the first £2m of gains will be extended to the first £5m.
  • Child benefit frozen for three years.
  • Tax credits reduced for families earning over £40,000 a year.
  • Housing benefit for longterm unemployed will be cut.
  • Sure Start maternity grant restricted to first child.
  • Single parents punished for not looking for work, when their child starts school.
  • Welfare in general, cut by £11bn over three years.
  • Pensions linked to earnings again.
  • Retirement age increased to 66.
  • NHS budget protected.
  • Corporation Tax cut by 5% over three years.
  • Small Companies tax rate cut to 20%.
  • No real commitment to tackling climate change.
  • 25% cut from every department.
  • All children under 15, will be punched in the face.

    Okay I made that last one up.

    How is this a progressive budget? It couldn’t be any more regressive unless one of the pledges was to reintroduce Feudalism. The NHS budget is protected, which is good. But departments like the Home Office (which means crime and education) will be slashed viciously. As will Climate Change financing. We are regressing, and not just by enough needed to ensure recovery, we are regressing for ideological reasons.
    No tax on banking bonuses. No punishing the banks. No tax avoidance loopholes closed. No punishing companies who have spent the past twenty years actively tax avoiding, costing us pretty much our entire budget deficit in lost revenues? No acknowledgement that it was not the Public Sector that failed, it was the Private Financial Sector that failed. Just an attack on people who have no political power. Same old Tories.

    The medical checks for Disability Living Allowance, along with 25% cuts for the department are massively harsh. The majority of those claiming this benefit, are the elderly, to help pay for their care. 25% cuts will not just hit those who are scrounging the benefit, it will hit the elderly who need it too. But it’s okay, because whilst they will now have to work an extra year anyway, the money that would have gone to providing care for the elderly, will now go to funding
    the “relief rate” of 10% on the first £5m a businessman earns. Thank God for that. The elderly should not be given any help, when the money could instead be used for more important social needs like buying a businessman a new yacht.
    The goal is to get us into budget surplus again, in six years time. Labour had pledged to halve the deficit over four years. There is no urgent need to create a budget surplus in six years. It is ideologically driven, rather than driven out of necessity.

    I have never understood the need to cut a deficit in the middle of a recovery. The budget was a Tory ideological budget. A glint in their eyes. As far as I knew, you prop up an economy when it’s falling. When it has recovered, and tax revenues increase, you then start to decrease spending.

    As far as i’m concerned, the Tories were wrong when they told us everything would be wonderful if they sold the railways, gas, and destroyed British industry; they were wrong when they told us minimum wage would drive companies out of Britain and leave us in a terrible position globally; and they are wrong now. To massively cut a deficit when recovery is underway, is like kicking away the walking stick from a man whose broken leg is still getting better.

    By calling it an ëmergency budget for the past few months, and by blaming Labour for the problems with the banks, rather than a mix of Tory banking deregulation and Labour lax oversight, they are merely indulging in a bit of ideological warfare. I guarantee unemployment rates will shoot up, and then they’ll blame Labour. Or the gays. Or muslims. But if/when double dip recession hits, they will no longer be able to blame Labour.

    The budget was a very neoliberal budget. It bases its entire existence within this new coalition, on the premise that budget deficits are necessarily awful things that must be cut immediately. There are many many economists who would tell you that that way of thinking, is not “actual knowledge of basic economic principles” and only serves as ideological Friedmanite warefare. Milton Friedman would have very different ideas about what constitutes basic economic principles, than John Keynes.

    Deregulating finance, in the 1980s led massively to fake booms economically, because credit became far too easy, and consumer debt went through the roof. And all of these new fake booms, fromt dotcom to subprime, failed miserably. That’s the legacy of right wing economics. And now, this budget, is a throw back to the days when deregulation, and cutting corporate tax whilst increasing regressive taxes and hitting those less fortunate, was considered a wondrous solution to stagnation. It didn’t work before, it wont work again.

    The Tories, on their quest to rubbish the N.I rise during the campaign also failed to mention that they whilst they said they’d scrap it completely, what they meant was they’d only scrap it for employers. Employees are still going to be hit with the rise. They said they had absolutely no plans to raise VAT, in fact, they made it part of their campaign. So in essence, they have no mandate to do this. Actually, they have no mandate to force deep cuts this year anyway, given that the majority of the country voted for cuts to come over a five year period.

    Attacking single parents, for not working is another harsh measure. As is cutting housing benefit for longterm unemployed. If the economy was flourishing and jobs were in abundance, it would be almost understandable; but that isn’t the case. There are very few jobs. Cutting benefits during a recovery from the biggest recession in decades, is simply throwing another generation onto the scrap heap. Forget any ambition you might have, you either get a job in McDonalds, or you go homeless. Professor Colin Talbot of Manchester Business School estimated that because of the cuts promised, one fifth of all public sector workers would lose their job. What about them? The Government will fire them, and then offer very little help? It is the lack of compassion that drives the Conservative Party, and now, the Liberal Democrat Party.

    The Liberal Democrats should be ashamed. They are now firmly placed on the right wing of the economic scale. They are not progressives. They are Tory-lite.

    Contrary to what Osbourne claims, we are not “all in this together”, because when 77% of savings comes from cuts rather than taxation, the poorest will always be hardest hit. When Tory friends in the City are rewarded with tax decreases, yet VAT rises and benefits are cut along with departmental spending, the wealthiest are not helping to cut the deficit, they are benefiting from it. This was not a budget for you and I, this was a Tory budget for the rich.

    The economic problem that we face, is not just figures and statistics, it is the philosophical base of the economy itself. Until we as a society take note that those on benefits take up such a small piece of the public purse, and those scrounging benefits even smaller in comparison to the corporations who actively tax avoid, we will never progress. We have just elected a government, who have no problem with corporate tax avoidance and private sector over-extravagance. Until we realise that neoliberalism got us into this mess, and so electing a neoliberalist government will not get us out of this mess, we will never progress.

    The whole notion of needing more, has been the base of our economy for the past thirty years. The idea that growth, on a national scale, has nothing to do with actually bettering society, and everything to do with owning more shit that none of us actually need is mirrored in the idea of growth in the individual, growth is not the idea of personal betterment, but how many holidays someone can go on in a year, or how much better your car is compared to your next door neighbour. That mindset is ingrained in our minds. Including mine. Our sense of self is based entirely on what we consume, and anyone who disagrees is an evil socialist. I completely 100% blame Thatcherism and Reaganomics for that idea. New Labour and today’s Tories are just an offshoot of the 1980s. Because before Reagan, even President Nixon, a Republican, would have been considered a socialist by their standards. I’d suggest that to combat this horrendously weak base for an economic system, we should be investing public money in new industry, we should be directing funds and encouraging investment toward the betterment of society and we certainly shouldn’t be redirecting money away from the poorest and toward the richest. There needs to be a fundamental move away from the failures of Neoliberalism and toward a far more progressive left direction. Otherwise, all we are doing now is laying the foundations for the next economic collapse, and the circle will continue for another generation.

    If anything, i’m pretty sure England can again produce some fantastic anti-Tory music. A new Clash please!


  • The USA & Greece

    May 13, 2010

    The above, shows (if you can make out the words, i know it looks ridiculously small) that the US is not going to be the next major economic casualty, after Greece. It just isn’t going to happen.

    My knowledge on economics is supremely limited. So please bare that in mind!

    Even the UK, which is in a far worse position than the US, is not even slightly as bad as Greece. We here in the UK have had two quarters of positive growth. I accept that given the bail out, and fiscal stimulus package, the growth figures are ridiculously low, but we are in a period of economic recovery. It is going to take a while to see the benefit.

    The Office of National Statistics report revised their original estimate for growth in the fourth quarter, to a much higher figure. We are actually in a much stronger economic position in the UK, than we first assumed. Government spending was needed to prop up the economy during recession. But, given that we are still only in recovery, I believe it’d be a massive mistake to withdraw that support as the new Conservative government plans to do shortly. In fact, i’m not entirely sure where the benefit of withdrawing support now, actually is? I accept in the future, we need to cut spending. I think though, forcing tax evading corporations to pay what they owe, should be the prime target. But cutting now, seems dangerous. Surely, when we are a growing economy, and the World itself is growing economically, that then would be a good time to cut. Not when people are struggling the most. I fear that it is just Tories being Tories. Cut spending, give people the option “Work where ever we say, or lose your home and starve to death…… and work twice as hard, for minimum wage…lower if we had our way!!! Whilst we give your boss a tax cut, so he can enjoy another game of golf a week“, and eventually the Nation’s money pot may improve, at the expense of social cohesion and morale.

    Fox News today asked if it were possible, that the U.S could become Greece economically. They all answered “yes“. Scare tactics.
    So I did some research, on the fundamental differences between the economy of Greece and the economy of the US.

    To fill the hole in the budget, both Greece and the US need to find around 6% of GDP, according to a report by economists Auerbach and Gale. My limited understanding of economics tells me that just because that number is true for both Nations, the measures needed to fill the gap, are nothing like one another.

    Greece’s budget deficit is 14% of it’s GDP. America’s is 9.3%. They are both pretty harsh figures, I accept.

    National debt in the US is apparently likely to hit 140% of GDP in the next twenty years. That doesn’t take into account policy changes, technology advancements, or any other sort of externality. It does not take into account growth as a result of investment in infrastructure etc. That figure simply goes by what it would be, if twenty years from now, were the same in every way, as today.

    Spending cuts, tax raises are obvious. But they do not need to be harsh as they do in Greece. Greece is in a far worse position. The US’s economy is growing, whilst Greece’s economy is shrinking. In order to protect itself from bankruptcy, by appealing to the IMF for a loan, Greece is being forced to reduce spending. Reducing spending during such a huge recession, is only likely to make that recession far worse. America is not in recession. It does not have to appeal to the IMF for a loan, it is not likely to fall back into recession any time soon. The growth will eventually provide the revenue to fill that 6% gap. When the US economy picks up, then spending cuts and higher taxation will further help the US bring down its cyclical deficit.

    The US dollar is still strong. Despite growing deficit and debt levels, the US is in a prime position to deal with its problems, because the dollar will be the leading currency for many many years. America is the largest economy in the World. Greece, is the 27the largest economy in the World. And whilst China is growing, it is not in a position to catch up to, or overtake America for quite some time. Investors simply do not trust the Chinese all that much, whilst at the same time, investors flee Greece. Whilst reserve currency status is not guaranteed to last, it certainly provides protection for the US, which provides 60% of the World’s reserve currency.

    Greece has to fill that gap within the next year. If they don’t, they risk pushing Greece into an even greater recession, which will inevitably lead to even greater structural deficits. Greece is in a mess. They ran up huge budget deficits during the good economic times. They inevitably ran up even larger budget deficits during the bad times. Greece’s structural deficit is horrendous. America’s, is not. The structural deficit in the USA is not perfect, true. And it is going to take some harsh measures over the next few years to help. But, the US can fill that 6% gap, over two entire decades. Greece has two years at the very most. It is also worth pointing out, that it was the Republican Party, the party of fiscal responsibility that spent away their budget surplus during the good times. And not in a positive way either. It was not Obama. America needs to simply slow down a little, not drastically cut.

    America obviously has to change over the long term, whereas Greece has to change immediately. The problem America has, is its particular brand of Capitalism; irresponsible consumerism. Growth for the benefit of growth. Wall Street offering no real social good. They simply exist to fatten their pockets. Your money, placed in banks, being used in dodgy dealings, rather than productive investments. Responsible Capitalism, in which the success of a Nation is in measuring how low the inequality gap and how low the poverty rate is, rather than the accumulated riches of the very wealthy. That is the only way the entire World will escape another preventable Global recession.