A little over a year ago I was out on a protest against the welfare reform bill. I was doing one of several interviews of that day, explaining exactly how the welfare reform bill was going to cause serious harm to a great deal of people.
“But you do accept that we need cuts?” said the interviewer.
The interviewer was lost for words. Of course we need cuts. We have massive debt! There’s no money left!
I said something about the debt being caused by banks and about corporate tax avoidance but I wasn’t prepared for the question and my answer was not convincing enough. The interviewer had clearly decided I was mad and he moved on.
A year later, as then, the opposition from Labour to the Tory / LibDem austerity appears to be a simple statement that we do need cuts, and lots of them, but that the government are cutting too far and too fast. The Labour alternative is simply to cut a little less and to take longer to do it so as not to dump it all on the people at once. I think they are wrong.
So how can I justify that? As Liam Byrne said in his famous note to his successor at the Treasury in 2010, “There’s no money left.” The national debt is at £1.15 trillion. That’s £1,146,732,208,608 right this instant as I write. The deficit – the difference between the UK’s income and expenses – is running at well over ten billion pounds per month. That is, we borrowed an extra £13bn in January. The government have been making cuts, desperately slashing expenditure on public services, welfare and the military, and yet the debt continues to rocket upwards. Even the deficit is still growing, despite what the prime minister claims. Andrew Dilnot of the UK Statistics Authority had to point out to the prime minister that our debt has risen from £811bn in 2010 when the coalition took office to £1.1tn at the end of last year.
Why then, if cuts are being made, is our debt still going up? There are several answers to this.
- We are in recession and income from tax is falling because money isn’t being spent to tax.
- Cutting expenditure causes a further shrinking of the economy and a drop in tax income. The Office for Budget Responsibility says that in 2011-12 austerity reduced GDP by around 1.4%.
- Cutting costs money. Cutting services means that we simply have to spend elsewhere to undo the damage of those cuts. For example, the cuts to care at home and the Independent Living Fund results in people being forced to move into care homes which easily costs ten times as much. Ditto for the bedroom tax, which sends disabled people into care homes and makes whole families homeless who then get put up in a “bed and breakfast” (with no breakfast) at many times the cost.
- The government aren’t actually spending less despite cutting spending on services. Among other things they are spending money saved by those cuts on administration of welfare reform in more complex testing of benefits and in administration of outsourcing most NHS services. (I prefer to call it privatisation but technically it is outsourcing even if the result either way is a private hospital.)
Cutting doesn’t work, and “cutting” the way the government are doing it isn’t cutting at all, it’s moving money around into administration of private companies to run public services and then claiming that actually more is being invested in the NHS and more benefits money is available for “the most vulnerable” and “those who need it most”.
Assuming that we accept the current growth-obsessed financial system at all then these are the solutions to recession that we need to aim for:
- Government must borrow more to smooth over the deficit until the economy picks up and tax income rises again, so that our income matches our outgoings.
- We need to make tax avoidance illegal and recruit more staff at HMRC to collect those taxes. Closing the loopholes and clamping down on the tax gap would raise tens of billions of pounds.
- We need to invest in doctors, nurses and facilities for the NHS and in care for sick and disabled people, thus creating jobs and providing for our needs at the same time.
- We need to build social housing, creating jobs in the building industry while simultaneously bringing down rents and reducing the housing benefit bill.
- We need to bring welfare benefits back above poverty levels, which not only provides for those who need it most, the mark of a civilised society, but would also put money back into the economy when spent. For a really radical solution we could consider some form of Basic Income.
Doing all of the above would create jobs and reduce expenses elsewhere, and result in money being spent by the people and going back into the economy rather than disappearing off as a banker’s bonus sitting in an offshore account.