The austerity debate: A TUC perspective
We are now three days into the FT’s excellent series, ‘The austerity debate’, looking at the pros and cons of an early repayment of the fiscal deficit. The issue of deficit repayment is the main political divide of the moment and the FT has performed a valuable service, bringing together commentators from both sides of the argument to thrash out this question. It is time for a TUC comment and Kenneth Rogoff’s article, ‘No need for a panicked fiscal surge’, published today, provides me with a hook.
Rogoff speaks of a “growing chorus for indefinitely sustaining aggressive post-crisis fiscal stimulus”. He adds: “Governments that instead propose gradually reducing deficits and ultimately stabilising debt to income levels – such as both Germany and the UK – are accused of pig-headed fiscal conservatism.”
Hmm. I accept that Kenneth Rogoff is a professor at Harvard and this may be the way things look to a conservative across the Pond, but nobody in the UK is calling for “indefinitely” sustaining the stimulus, or against “gradually” reducing deficits. The issue is simply one of timing.
The previous Labour Government had argued for “gradually” reducing the deficit. Indeed, in the Budget of March 2010, that Government proposed to more than halve the deficit over four years. The TUC felt even this was too fast, but we have never argued for either an indefinite stimulus or an indefinite fiscal deficit.
Kenneth Rogoff admits that “huge uncertainty” remains and that output growth is likely to remain “tepid”. To be fair to him, he accepts that aggressive fiscal stimulus was “reasonable as part of an all-out battle to avoid slipping into a depression”. He doesn’t say whether, since a depression was avoided, he accepts that this strategy worked, but today, the panic having abated, “a more sober cost-benefit analysis is required”, he tells us.
In truth, as Martin Wolf said in the FT on Monday, we cannot be sure who is right in this debate. But we would be naive to lose sight of the fact that this is about politics, as well as economics. Many in the Conservative Party are sceptical about the size and role of the state and there are strong suspicions from some trade unionists that reducing the deficit is providing a convenient fig-leaf for undermining some of the state’s most visible and, to us, cherished institutions.
The TUC has also been keen to point out that reducing the deficit is not the only economic game in town. More important to us are policies designed to foster long-term economic growth, as issue that is arguable more urgent but is in danger of getting lost. We also believe that, when the deficit is reduced, it must be reduced fairly. In our Pre Budget Report submission last year, we identified six tax options that could bring in large amounts of revenue and would be much fairer than, say, freezing public sector pay for all those earning above £21,000, which is hardly a kings ransom, but is supposed to attract talent and commitment from workers to staff our schools and our hospitals.
As I said, this is about politics as well as economics and that applies to the TUC as well. We stand for a better deal for working people and a smaller gap between the haves and the have-nots. Our response to the deficit is defined by those principles, as well as our sincere belief that cuts of the magnitude announced by the Coalition Government could pull the rug from the recovery before it is established.