“We can accept an analysis that nothing matters bar deficit reduction”, said Labour leader Ed Miliband in his speech at the CBI conference this week and that is absolutely correct.
However, the government is seeking to construct a narrative in which the answer to every question is that we must cut the deficit on its terms.
So any minister who appears on the media to be pressed on the appalling effects of their right-wing policies simply claims that they must be implemented because of the situation they inherited.
The idea that there is no alternative is no truer now than it was when Margaret Thatcher made the same claim in the 1980s. And the notion that the private sector will rush to fill the gap created by cuts in public spending that amount to £5,625 per person is a con.
The public sector is the private sector’s biggest single customer – directly in terms of contracts, but also indirectly in terms of spending by public sector workers. The Tory-led coalition is cutting both and so the private sector will also suffer.
The economic impact of these cuts is likely to be very severe. Even the latest International Monetary Fund research suggests that the Government’s cuts are magnified when other countries are also cutting spending, or when there is little room to cut interest rates further.
Since both these conditions now apply, the IMF calculates approximately that impact of spending cuts is doubled in the first year. In other words, every £1 billion cut in Government spending leads to a £2 billion decline in economic activity in the first year.
It snowballs, so that after five years a £6 billion decline in gross domestic product arising from a £1 billion cut in Government spending occurs. And a cut that reduces output by that degree will hit the public finances.
Because cutting public spending also damages the private sector, Government finances face a double-whammy – from lower tax receipts and increased welfare payments arising from job losses. The net result is not a saving at all, but a further widening of the deficit.
The Government’s cuts to public spending are far greater than Margaret Thatcher ever attempted, and rank alongside the largest ever cuts in British public spending.
In Ireland, policies just like this have been pursued for two years and a depression has followed. If Britain avoids a double-dip recession, it will be despite the Government’s economic policy, not because of it. I’m not betting that Britain will escape another recession. That is because spending cuts are wholly counter-productive.
Boris Johnson wasn’t in the House of Commons chamber to cheer Chancellor George Osborne’s unveiling of the Comprehensive Spending Review. But he was certainly there in spirit. Londoners already face a heavier burden of the cuts than the rest of the country and the cost of living in the capital means many cuts have a broader impact.
The Government talks about child benefit recipients earning between £40,000 and £50,000 a year being “high earners”. Try telling members of a household in London with just one breadwinner who earns £45,000 that they are high earners when they try to buy their own home.
Capping housing benefit and raising social housing rents to 80 per cent of market values will force people on modest incomes in inner London out of their homes – unable to afford the capital’s much higher rents.
The Observer’s report of the preparations being made in London to move people out of their homes is the latest sign that this policy will become a greater and greater scandal as its full consequences are understood.
In London, households with any more than two kids will struggle as total benefits are capped at £26,000. Students in London will suffer disproportionately from removing the cap on fees, with poorer students facing the double-whammy with the removal of the Education Maintenance Allowance.
All the welfare cuts, amounting to £18 billion this year alone – an average of £1,000 for 18 million households – will impoverish Londoners disproportionately because of higher costs here.
Not to be outdone, the London Mayor used the spending review to announce inflation-busting fare increases. It will mean that by the time this fare rise is implemented the price of a single bus fare will have risen by 44 per cent under Boris Johnson, while outer London commuters will face additional hardship as well as worse services – they will be obliged through what amounts to a stealth tax to buy a ticket covering inner zone travel even if their commute is to an outer zone destination.
The Tory administration in London is one big piece of a reactionary jigsaw attacking services and jobs with relish. Pulling that coalition apart means defeating Boris Johnson at the ballot box in less than two years time.
