The real alternative to the cuts myths
I’ve been at the EEF in London today, to give this year’s Warwick-ACAS Lowry lecture. I wanted to use the opportunity to talk about some of the myths underpinning the government’s programme of fast, deep spending cuts. Here’s some of what I said.
The TUC is no deficit denier. We know that borrowing one pound in every four we spend is unsustainable, and we agree that spending more on servicing debt interest than on educating our children is just plain wrong. What we need is a Plan B.
My concern is that the government’s answer – to slash public spending with reckless speed – is based not on a sound reading of the evidence, but on an ideological zeal to shrink the size of the state. The so-called reforms in the NHS and education threaten the fundamental character of our public realm.
This brutal austerity is being implemented on the back of a series of myths – half truths and distortions that have poisoned our public debate:
Myth one: the deficit was caused by out of control public spending.
Not true. Now I accept that after 2001, Labour began running larger deficits – though these fell during 2006 and 2007. Indeed when the credit crunch began in 2007, overall UK debt as a proportion of GDP was 37%, the lowest of any G7 country.
Myth two: without drastic cuts, Britain would become the next Greece.
This is a familiar ministerial refrain, often heard just after the coalition came to power, and it is completely wrong. Britain can finance its debt at affordable rates: 10-year bold yields are around 3.5%, compared to over 12% in Greece. With two-thirds of our sovereign debt underwritten by UK investors and an average maturation period of 14 years, refinancing is far less of a problem than even for the likes of France or Germany.
Overall, we spend just over 3% of our annual GDP servicing our debt – compared to 12% in Greece. To quote the distinguished FT columnist Sir Sam Brittan: “Don’t talk to me about Greece or Ireland. We can disregard the bogey of the government not being able to sell its securities at an acceptable price”.
Myth three: Britain is like a household that has “maxed out” on its credit card.
It’s a great soundbite, and one that the public can easily relate to. But again, it has one simple flaw: it is just not accurate. Unlike households, sovereign nations can print money, raise taxes and fund debt over many decades. Had they been in power in 1945, coalition ministers would have doubtless used their credit card analogy – yet within a decade we had got the economy back on track, built the NHS, extended the welfare state, and constructed millions of council homes. And through growth and full employment, Britain also got its deficit down.
Myth four: there is no alternative.
Once again, that is playing hard and fast with the truth, because there is a different way forward. A more sustainable, more gradual, more robust deficit reduction plan based on jobs, growth and tax justice. And in four days’ time the TUC will be taking this message to the people of Britain as we stage our national demonstration against the cuts: what we have dubbed the March for the Alternative.
So what does our alternative look like?
Well, I’ve mentioned the need to make jobs and growth the priority, keeping people in work, keeping tax revenues flowing, limiting the huge social costs of unemployment. And rather than swingeing cuts, we need a much more prominent role for progressive taxes – not least on the City and the bankers who caused this mess. The TUC believes this is the fairest and most sustainable way of tackling the deficit.
So far, so good, you might say: but where’s the evidence to support this argument?
Well, the case for jobs and growth is overwhelming. The lesson of economic history is clear: this is the best way of getting the public finances under control in the long run. Massive cuts are a false economy. As we saw in the 1930s, austerity begets more austerity – more unemployment, more misery for working people, and yes, more national debt.
Just as the case for pro-growth policies is compelling, so too are the arguments for fair tax. The coalition government has made the decision to make £4 of spending cuts for every £1 of tax rises – the bulk of which is coming from higher VAT, the most regressive tax of all. We believe this balance needs to change, with the tax burden falling on those most responsible for the crisis we now face. That’s why we’re calling for a determined clamp down on the £25 billion of tax avoidance committed by the City, UK plc and the super rich, why we want to see a much bolder banking levy and more robust taxes on bankers’ bonuses, and why we want to see a Robin Hood Tax on financial transactions, which would raise tens of billions if implemented unilaterally in the UK and much more if introduced either at EU or global level. Encouragingly, the European Parliament voted in favour of such a tax earlier this month.
So there is a genuine alternative with fair tax, growth and jobs at its heart. And these arguments are increasingly resonating with the public. After the election, a majority of voters said they were in favour of spending cuts, at least in principle. Now, a majority are against cuts of the speed and scale being proposed by the government. And with bankers paying themselves £7 billion in bonuses this spring, there is a growing public clamour for change – as I think we will see in London this Saturday. I hope you’ll join us.