Why the Lib-Cons are so keen on austerity

Unable to remake or reboot Britain’s economy for the twenty-first century, our leaders can only cut – and even then, they’re too timid.

Rob Lyons
Columnist

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Topics Politics UK

On Monday, Britain’s new coalition government announced a first wave of cuts in public spending. But for all the talk of being ‘tough’, what really underpins this first stab at austerity is timidity – towards decisive political action, the financial markets and the idea of economic growth.

The £6.2billion in cuts announced by the Conservative chancellor of the exchequer, George Osborne, and the Liberal Democrat chief secretary to the Treasury, David Laws, might sound like a mindboggling amount of money. But in fact it represents just one per cent of total UK public spending. Such cuts are, as Larry Elliott described them in the Guardian, ‘Whitehall’s low hanging fruit – taking the axe to consultancy fees, IT projects, travel perks, quangos and projects deemed poor value for money – but no more than that’.

This burst of belt-tightening is, quite explicitly, symbolic – a sop to the financial markets to declare that this government is ‘serious’ about tackling the budget deficit. As Elliott notes, once allowance is made for the fact that some of the savings will actually be redistributed within government, the net cuts are less than 10 per cent of what Osborne’s predecessor, Alistair Darling, announced in his March budget (although Darling would have delayed the cuts until the next financial year).

One of the ironies of these cuts is that they have been overtaken by events. When the Conservatives announced their policy, public sector borrowing for 2009-2010 was expected to be £178billion. It turns out it was £22billion lower than that – £156billion – which rather undermines the case for making the cuts so quickly.

Many have criticised the cuts. Darling has repeated his argument from the General Election campaign that any cuts now would be disastrous for the economy. However, this seems ridiculous. The UK’s total gross domestic product (GDP) is somewhere in the region of £1,500billion. These cuts will be barely noticeable in the wider economy. Others point to the number of jobs that will be lost as a result. How many extra people will join the dole queues is unclear, but some have estimated that 50,000 public sector jobs will go, with perhaps as many again being made redundant in the private sector due to cuts in spending. That might add up to 100,000 pieces of bad news – but it is still only adds an extra four per cent to the 2.5million already unemployed.

In other words, far from being tough, these cuts are small. David Laws has taken to describing the UK’s fiscal position as being even worse than Greece’s as a means of explaining why the Lib Dems are suddenly so keen on early cuts in spending. But if what Laws is saying is true, these cuts are in fact remarkably timid. This timidity at the top of society is one of the recurring themes of the economic crisis. For example, during the election campaign the Lib Dems were at least honest enough to recognise that ringfencing sections of spending made little sense. If the strategy to cut the deficit by cutting spending is to be taken seriously, there can be nothing off limits, particularly health spending, which makes up about a fifth of total expenditure. Yet both the Tories and Labour, terrified of touching the hallowed National Health Service, refused to countenance cuts in that area, despite the fact that relatively small percentage savings in health would be more significant than big cutbacks in, for example, transport spending.

No wonder, then, that there is already much talk of the government taking the relatively ‘soft’ option of increasing taxes instead of making cuts, with a jump in value added tax (VAT) on purchases being the most talked-about option. Already, one of the main Conservative justifications for cutting spending now – to avoid a rise in National Insurance rates next year – has been watered down. The prime minister, David Cameron, is also facing a revolt from backbenchers over plans to increase capital gains tax.

However, these cuts are deeply undemocratic, on two levels. Firstly because the immediate cuts are only possible with the support of a party – the Lib Dems – which spent the election campaign arguing against them. Both in terms of numbers of seats and votes cast, the British electorate voted against such cuts, yet they are being pushed through regardless. Secondly the fact that all the major parties agreed that British public spending must be drastically cut in the medium term meant that we had no opportunity to vote against austerity.

Austerity does not represent an economic programme – in fact, it is a reaction to the absence of one. Running a public sector deficit is by no means necessarily a problem. What is a problem is when that spending is so totally devoted to consumption and to propping up an ailing economy as opposed to investing to create a new wave of growth. In fact, the current deficit has a lot more to do with subsidising anaemic private sector activity for the past decade or more than with the bank bailouts of 2008-2009. As Phil Mullan noted on spiked back in 2005, looking at the weak recovery from the last downturn, ‘the most significant feature of government budget deficits is not their quantitative level, but the way they have continued and expanded during the post-trough expansion, when deficits would normally contract. Budget deficits in most of the G7 countries have become even bigger since 2002.’

All the talk of job losses and austerity is uncomfortable for those of us who believe in the right of workers to demand a decent wage. Why should the majority of people be forced to pay for an economic crisis that is not of our making? But if we are going to have a thriving economy in the future, then the least we can do is have a hardheaded debate about how that economy might be built. That will mean cutting wasteful, pointless spending. It will mean underperforming companies going to the wall. Those things will happen sooner or later regardless – so let us at least make them happen in the context of a plan to build prosperity.

Britain’s economy must be remade for the twenty-first century, with a focus on innovation and investment and avoidance of petty politicking. Areas where the UK is strong include financial services, pharamaceuticals and food manufacturing, yet these are all areas that many commentators have been sniffy about. While an over-reliance on ever more exotic financial instruments and lines of credit is bad news, there is nothing wrong in principle with Britain being the world’s banker. Banker-bashing is an easy win for politicians, but it may be bad news for our economy. Drug manufacture is just the kind of high-tech, high-skill production that ministers love to pay lip service to, yet there is an underlying prejudice that somehow drug companies are a bit, you know, evil. And no other industry faces such middle-class, liberal disdain as processed food does – yet it is the UK’s biggest manufacturing export sector.

Quite apart from a snootiness about Britain’s existing strengths, there is a much bigger problem: a feeling that economic growth is at best not that important, and at worst downright dangerous. Another thing that all the major parties agree on is the need drastically to cut UK greenhouse gas emissions. In the absence of major technological advances in energy production and transportation, that cannot possibly happen without restraining economic growth. Few in the mainstream of British politics seem to have a problem with that. Hence, plans for a third runway at Heathrow have been scrapped without any recognition that Britain needs to expand transport capacity. High-speed rail is a good idea, but on its own the train can’t take the strain.

We may well be stuck with this not-really-elected government for five years. If so, we need to give our new lords and masters a hard time. What is their vision for the future? Making do with less is not a good-enough answer.

Rob Lyons is deputy editor of spiked.

Previously on spiked

Mick Hume asked what happens when the state turns off the life-support?, and warned that the no/low-growth economy might become the New Normal. Brendan O’Neill argued against austerity. Rob Lyons criticised politicians for indulging in an austerity auction and revealed the truth about the unemployment stats. Rob Killick explained why, for the economic crisis, this is only the end of the beginning. Or read more at spiked issue Economy.

To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.

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Topics Politics UK

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