The austerity auction

‘I have said there will need to be cuts, cuts that are savage and bold. But we will make those cuts so that we can be equally fierce – equally savage – about protecting the services that matter most, just as we put the nation’s finances back in order.’

The UK Liberal Democrat leader Nick Clegg used his conference speech this week to place his latest bid in what is quickly becoming an austerity auction. In October 2008, Conservative leader David Cameron talked about a new ‘Age of Austerity’, but he has been fairly unspecific about what kind of spending should be cut. The Labour government has already said that we will need to trim 10 per cent from state budgets over the next few years, but until recently has been desperately trying to avoid calling these savings ‘cuts’. Indeed, it was only last week that the Labour prime minister, Gordon Brown, was finally persuaded to use the c-word.

The point that all the parties are now trying to get across is the need to be honest with the electorate. Well, it’s about time. Back in June, I wrote on spiked about how the major parties were skirting around the issue of the huge and growing public sector deficit (see The new c-word in British politics: cuts, by Rob Lyons). Britain has been living beyond its means in both the public and private sector for years and, at some point, the unpleasant reality was bound to assert itself.

However, there is something equally unpleasant about the current bidding war over cuts. Having avoided the issue in a cowardly way for reasons of electoral advantage, our politicians are now piling in to woo us with ever-more fevered language about just how mean they can be… again for electoral advantage. Their flattery about how we can ‘handle the truth’ disguises the fact that there is nothing principled about their sudden desire to get the nation’s finances in order, and nor is it part of any wider vision for the economy.

Because our politicians display a herd instinct that is more than a match for our bankers and share traders, we will also be left with much the same kind of choice at the upcoming election that we have had for the past few polls: that is, none at all. So much for democracy, when all we have on offer is three flavours of austerity.

It is all rather reminiscent of Monty Python’s ‘Four Yorkshiremen’ sketch, in which a group of well-to-do older men trade stories about how tough life was growing up, to the point where truth and logic fly out the window. The sketch reaches a crescendo when one of the men, determined to make absolutely sure that his tale of woe cannot be topped, says: ‘Right! I used to have to get up in the morning at 10 o’clock at night, half an hour before I went to bed, eat a lump of cold poison, work 29 hours a day down at t’mill – and pay mill owner for permission to come to work – and when we got home our dad used to murder us in cold blood each night and dance about on our graves singing “‘Allelujah”.’ To which one of his friends replies: ‘And you try to tell that to young people today, and they won’t believe you.’

For all this talk of honesty, the narrowing down of the options presented to us in political debate is extremely troubling. Cuts may be necessary, but are they really inevitable? A few other ideas need serious consideration.

The first and most obvious one is that taxes should rise to meet the deficit shortfall. Unfortunately, the deficit is already so huge that the necessary tax rises would be enormous. The reality is that some combination of cuts and tax increases will be the order of the day. For example, Vince Cable, Nick Clegg’s deputy and officially The Most Trusted Man in British Politics (for no other reason than that he seems to have some clue about the workings of the economy), has proposed a ‘mansion tax’ of 0.5 per cent on the value of homes priced above £1million – meaning that about 250,000 people would pay an extra £4,000 per year to the exchequer.

But others have suggested that Western countries simply live with their deficits for a few years and pay them off as economies start to recover. In an article in the Guardian the former US labour secretary, Robert Reich, appovingly quotes the nineteenth-century British historian, Lord Macaulay: ‘At every stage in the growth of the debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt went on growing, and still bankruptcy and ruin were as remote as ever.’

In solidly Keynesian fashion, Reich continues: ‘Consumers are still deep in debt and incapable of buying. Unemployment continues to soar. Businesses are still not purchasing or investing, for lack of customers. Exports are still dead, because much of the global economy remains weak. So the purchaser of last resort – the government – has to create larger deficits if the economy is to get anywhere near full capacity and start to grow again.’

The ability of governments to cope with huge deficits is illustrated by the experience of Japan and Italy, two countries that have both accumulated government debt well over 100 per cent of gross domestic product (GDP). Whether, as Reich suggests, running such huge deficits makes sense, given the waste they imply and the servicing costs in interest to maintain them, is another matter. What is problematic is that no leading politician in the UK seems capable of seriously suggesting an alternative to austerity.

The truth is that the British state could almost certainly do with some serious pruning. There are great chunks of spending, from the much-mentioned Trident missile renewal to the new identity card system, that serve no meaningful social purpose. The multifarious ways in which the welfare benefit system helps to trap people in a situation of state dependence should be targeted, too, which could be done without removing the specific ‘safety net’ that some people rely upon during periods of recession.

But what should also be looked at is spending as investment, something that Gordon Brown liked to talk about a lot, but hasn’t tended to pursue. The benefits might only appear in the long term, but the government should be looking seriously at how money could be used to promote innovation and new forms of production.

That this is merely an understated coda to the discussion about cuts only illustrates once more that none of the major parties has any vision for the future of the UK. They would not be able to provide a sensible answer to the question ‘What should the economy look like in 10 years time?’, because the grand principles of political discussion have been replaced by endless arguments about housekeeping.

This ‘Age of Austerity’ should be unacceptable. We shouldn’t be forced to put up with ever-crappier schools, hospitals, transport and other services. Public sector workers shouldn’t be forced to put up with pay cuts and slashed pension entitlements. We can no longer live off financial services and easy credit, so we need a renewed and productive economy – and we need political leaders with the vision to help create one.

Rob Lyons is deputy editor at spiked.