Poverty and inequality are at record levels according to a new report. The redistribution of wealth from poor to rich overseen by former prime minister Margaret Thatcher, and continued under Labour, will be accelerated by the huge public spending cuts proposed by the Conservative-Liberal Democrat coalition — unless they are stopped.
The Institute of Fiscal Studies’ annual Poverty and Inequality in the UK report released in May makes for bleak reading. Incomes for most households had stagnated for the last seven years under Labour.
Poverty remains significantly higher than in 2004-5, despite some improvements for pensioners and children. Working-age adults without children have the highest poverty rate since comparable records began in 1961.
It is quite different for the very richest in society — the 42,000 people who earn more than £149,000 (about $257,000) a year. Nearly a third of this top 0.1% work in “financial intermediation”, so as the financial crisis hit the poor darlings suffered a slight loss.
Yet their already vast incomes swelled by up to 15% a year under Labour. Like poverty, inequality is now at the highest level since 1961.
The redistribution from poorest to richest that Thatcher oversaw was slowed down, but not reversed. Labour failed to undo the historic damage of the 1980s.
That damage will now worsen. Leaked Treasury documents have exposed the devastating consequences of Chancellor of the Exchequer George Osborne’s cuts. Its own forecasts show a loss of about 1.3 million jobs by 2015.
Workers in the public and private sector will be hammered. Up to 600,000 redundancies are expected in the public sector, as government departments ditch staff.
The rest will come from the private sector. Many businesses depend on government spending, either directly or because those paid by the government buy their goods.
Combined with the cuts in welfare spending, the consequences for poverty and inequality are appalling to contemplate.
Osborne and Prime Minister David Cameron are trying to hide this grim vista behind another rosy report in June from the “independent” Office for Budget Responsibility (OBR).
The OBR was set up by Osborne under the guise of improving government economic forecasts. It has released new figures claiming the private sector will provide around 2 million extra jobs over the next five years.
This is in line with its forecasts for the budget, which helpfully claimed Osborne’s cuts would not drive the economy into a new recession. Osborne and the OBR think investment by businesses will grow so fast that it will compensate for jobs lost elsewhere.
This is fantasy. Business investment is not going to recover substantially when consumer spending is wobbly, Europe is in deep recession, and there are fears for China’s economic health. Banks are still not lending properly to businesses.
The spending cuts arrive on top of a British economy in a feeble state.
Businesses out to make profits will not invest under these conditions. That means no significant recovery in jobs.
The “independent” OBR, headed by bankers including Royal Bank of Scotland’s former chief Britsh economist, is a sham. Its implausible forecasts are the mask behind which a weak, but vicious, government hides the real consequences of its actions.
The Conservative/Liberal Democrat slash-and-burn plot is not accepted by everyone.
Economists from one-time Thatcher supporter Samuel Brittain to liberal New York Times columnist Paul Krugman have declared the enthusiasm for cuts to be, in Krugman’s words, “utter folly”.
They are concerned that sharp cuts to public spending will drive economies back into recession.
Speculators on the financial markets, whom Osborne and Cameron claim are baying for immediate cuts, are now jittery about this “double-dip” recession.
Share prices seem to have fallen partly as a result.
The ruling class internationally is divided. Major European governments are committed to continent-wide austerity.
But the US administration of President Barack Obama is far more cautious about immediate cuts. A June 29 British Independent comment piece by Andrew Grice said these divisions led to an awkward fudge at the June 26-27 G20 meeting in Toronto.
These divisions could widen if the recession worsens.
Osborne, Cameron and their Lib Dem mascots are committed to cuts for three reasons.
First, but perhaps least important, they believe in it. Lib Dem leaders all contributed to the party’s free-market manifesto, the Orange Book.
Osborne and Cameron are Tory leaders — they would be strongly inclined to cut state spending regardless.
Second, they believe state spending imposes too high a cost on businesses, whether through higher taxes or through supporting higher wages. By cutting those costs they believe Britain will become more competitive internationally.
So state spending is slashed alongside corporation tax, and millions more unemployed help pull wages downwards.
But the third reason is perhaps most telling. British public debt has risen because of the financial crisis.
Bailing out the collapsed financial system cost about £850 billion (about $1.47 trillion) in total, the National Audit Office said.
We are being made to carry the costs of cleaning up the banks’ mess. But the bad debts and hidden risks of the banking system have not gone away.
The European debt crisis is a serious headache for governments. If Greece or another country defaults on its debt, the major banks that loaned this money will be crippled.
We might, then, soon be made to pay for another banking bailout. But the major economies will be in no shape to do so. They simply will not be able to afford it.
The Bank for International Settlements (BIS), the central banks’ club, has warned of precisely this. Its annual report, released on June 28, said “events coming out of Greece highlight the possibility that highly indebted governments may not be able to act as a buyer of last resort to save banks in a crisis”.
Balance sheets in France, Germany, Spain and Britain may all be too “fragile” to cope.
That helps explain why the deficits are being treated with such urgency. European ruling classes fear another banking crisis may soon be upon them.
They know that, with their current indebtedness, they cannot borrow the funds needed to deal with it. Squeezing public spending now can improve their chances of borrowing more later.
What started as a financial crisis in 2007-08 has turned into a sovereign debt crisis. That debt crisis now threatens a further banking crisis — in calamitous combination.
In some disarray, European governments are responding by ditching their other spending commitments, as widely and quickly as they can get away with.
The emerging program is brutally simple. Smash up much of the welfare state. Let the free market rip through the economy.
And keep bailing out the banks.
But this may do little more than produce a further turn on the screw downwards. The chances of avoiding a further recession appear dismally small. Inequality and poverty will worsen.
One handle of the screw is being pushed by the government, the other by the financial markets. Stopping the screw will require opposing both.
It will mean opposing both the Con-Dem cuts and bank bailouts. It will mean taxing wealth and stopping bonuses. It will mean using the nationalised banks to invest in new, green jobs.
Only a mass, political movement can credibly address these issues, drawing in all those who oppose the cuts. That political movement must now be built.
[Reprinted from Counterfire.org.]