Time for Plan B
I’m giving a lecture at Liverpool University this evening, this is a slightly edited version of what I’m saying:
Tonight, I simply say to the Chancellor: Plan A isn’t working. We can’t go on like this. We need an alternative. And we need it now.
Let me set out the TUC’s vision for an alternative, a five-point plan to help get our economy on track and help get Britain back to work.
First, we need a more sensible timetable for deficit reduction. Not a kamikaze four-year plan as at present – but a more realistic and achievable 10-year plan. That way we wouldn’t choke off growth, and we’d still have a credible strategy to put to the bond markets – meaning yields on our debt would remain low.
Let’s remember that economic opinion is firmly against fiscal consolidation of the speed practised by our government. Not just among the usual suspects like Keynes biographer Lord Skidelsky, former Monetary Policy Committee member Danny Blanchflower and Nobel prize winners Paul Krugman and Joseph Stiglitz – but also pro-market voices such as FT commentators Martin Wolf and Sam Brittan, Anatole Kaletsky at the Times and even London Mayor Boris Johnson.
There’s no rule that says we need clear our deficit in a single parliament – indeed the impression I get that policy is being driven not by necessity but by ideology and by the electoral timetable. And that’s just bad economics.
Second, we need to prioritise fair taxation. Rather than cuts that disproportionately hit the poorest and most vulnerable, we need a fairer balance between spending reductions and tax rises – so that those with the broadest shoulders, the people who did best from the long boom, pay a fair share.
Let me read you a quote: ‘If, in the short term, a case was made for me to pay more than 50 per cent tax, which would help UK plc, I personally would be prepared to pay more tax.’ The words not of a Labour politician or union leader, but former Marks & Spencer chief executive Stuart Rose.
So when City traders or hedge fund managers warn they will leave Britain if taxes rise, I say: let’s call their bluff. On tax, it’s time for radical thinking. Let’s have a permanent tax on bankers’ bonuses. Let’s have a stronger banking levy. Let’s clamp down on the tax havens and avoidance scams that cost us £25 billion a year. And let’s end the scandal of £10 billion of pensions tax relief for the richest one per cent of the population who earn over £150,000 a year.
Above all, let’s have a Robin Hood Tax on financial transactions. A simple sales tax on the vast capital flows in the markets that could yield tens of billions of pounds if implemented here in the UK and many times more if implemented internationally.
It’s great news that the European Commission has now proposed such a tax at EU level – and the UK government needs to look beyond the inevitable special interest pleading from the City and focus on the potentially huge revenues such a levy could generate for the Treasury.
Third, we need a proper strategy for growth. The Chancellor has argued that ‘unless we deal with our debts, there will be no growth’. But it’s the reverse that is surely true. Without growth, we won’t be able to deal with our debts.
Let’s give demand a spurt by giving a helping hand to people on low incomes most likely to spend, whether it’s a temporary cut in VAT or an increase in tax credits.
Let’s fast track infrastructure projects that would have an immediate economic benefit, like house-building, road improvements and better public transport.
Let’s follow the example of our competitors and develop an intelligent industrial strategy to help nurture success stories like aerospace and pharmaceuticals and aid our transition to a low-carbon economy.
“Let’s have a smarter procurement strategy so that the vast sums the government spends on private sector goods and services deliver the maximum economic and social benefit, so scandals like Bombardier never happen again.
Let’s create a new state investment bank that can provide the capital for small and medium-sized businesses for projects to green our economy, and for transport, energy and housing schemes. And we could explore the potential to capitalise such a bank through a new round of quantitative easing.
And let’s go beyond the Vickers agenda and reform the existing banks so they act as utilities that serve us rather casinos that enrich themselves. And let’s begin by making sure the banks part-owned by us the taxpayer start lending to people and businesses who need credit.
Fourth, as we focus on growth, we also need policies to get Britain back to work. Following the crash of 2008, our labour market performed better than expected, with job losses kept in check. But the employment situation is now deteriorating fast as growth disappears and confidence plummets.
If the government was serious about preventing mass unemployment, the obvious place to start would be to rethink the public sector job cuts that are now coming thick and fast. As official figures show, for every job created by the private sector, we are losing nearly three in the public sector. So it was no surprise earlier this month when the Chartered Institute of Personnel and Development warned the coalition its public sector job cuts – in education, the NHS and local authorities – were doing immense harm and called for a halt.
Just as urgently, we need measures to tackle the terrible scourge of youth unemployment, which threatens to create another 1980s-style lost generation – with all the attendant social costs.
So let’s think about a proper replacement for the Future Jobs Fund which helped find four in ten people work. Let’s reinstate the EMA which allowed young people to spend time in college rather than on the dole. Let’s increase university places because the capacity is already there. And let’s introduce intelligent, well-funded welfare-to-work schemes – open to people of any age – that would pay for themselves many times over.
And fifth – perhaps most fundamentally – we need a more even distribution of wealth. It’s abundantly clear that the free-market financial capitalism of the past three decades has enriched too few and failed far too many – and this inequality came to have catastrophic consequences.
Since the late 1970s, the share of GDP going to workers’ wages has fallen from 65 to 53 per cent, with those in the middle and at the bottom hit hardest. At the same time, the proportion going to profits and to the wealthy has risen sharply.
As wages have stagnated, debt has soared. As incomes are squeezed further, the Office for Budget Responsibility expects household debt in this country to reach over £2 trillion by 2015 – an albatross around the neck of our economic future. Unless workers see their pay packets growing, we won’t be able to build sustainable consumer demand.
It’s absolutely true that a tiny elite have creamed off the spoils of growth. According to a study by the Credit Suisse Research Institute last October, the richest half per cent of global adults now own over one third of the world’s wealth. And this has created a vast pool of footloose global capital looking for the quickest returns – a factor behind the explosive growth of financial markets, securitisation, and speculative trading over the past few decades.
So we need action to address these destabilising inequalities of wealth. Whether it’s a living wage, worker representatives on company boards, new models of corporate governance, greater shareholder activism, new systems of ownership or a bigger role for unions and collective bargaining, we are not powerless to act.
One thing’s for sure: we cannot continue as we are. The current model of capitalism – deregulated, unequal, unstable – is facing a crisis of legitimacy. The economic predicament we face is dire and people are rightly getting angry. Unless we get to grips with some of the root causes of the current turmoil – debt-fuelled growth; stagnant wages for the majority; financial speculation – then who knows what the future may hold. These really are profoundly volatile and turbulent times.
And the most urgent task we face is surely to avoid the perils of austerity. This is the trap we must avoid at all costs. Britain really is at a historically important turning point. The decisions the government is taking now will shape our lives for a generation to come. But it’s clear that austerity is failing us all. I hope ministers find the courage to admit they’ve got it wrong and change course before it’s too late. Because in place of austerity, we urgently need something better, fairer and more effective in delivering a real recovery.