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The Tories want a Boarded Up Britain

Posted by William Bain, MP for Glasgow North East, at 20:09, Mon 28 June 2010:

The Budget we are voting on tonight weakens the prospects for growth during the next two years, fails the task of returning the country to high levels of employment after the recession, and at a time when a renewed effort is needed to tackle the inequalities of wealth and assets in society, is deeply unfair in its outcomes.

It does nothing to boost demand in the economy, which is still the biggest inhibitor of growth.

This Budget marks an important point in the life of this Government, for in breaking election promise after election promise on VAT to child tax credits, the new politics has given way to old Thatcherite economics.

We were promised a government led by compassionate Conservatives, but this is an approach to the economy which is straight out of the Chicago school – a Budget of which Milton Friedman would have been proud.

I spent the weekend talking to my constituents in Glasgow, who were resolute but unsurprised at the measures in this deflationary Budget, and under no illusion about the harm it would do to the living standards of the poorest. They expected such a Budget from the Conservatives, but they could not accept how a party which campaigned for progressive votes before the election, could impose such a reactionary Budget on the country after the election. And it is not just my constituents who are angry with the Liberal Democrats – just 9% of Scottish voters say they would back them now, and only 16% of voters across the UK.

On growth, the Government's own Office for Budget Responsibility has downgraded growth from 1.3% to 1.2% in 2010 and from 2.6% to 2.3% in 2011, and predicts that unemployment will be 100,000 higher in each of the next four years.

As Lord Skidelsky, formerly an economic adviser to Mrs Thatcher in the 1980s Conservative Government, wrote in The Independent last Friday: “At a time when the UK economy has an estimated "output gap" … of between 4 and 6 per cent, I do not believe the Government should take money out of the economy … I don't understand how you help growth by reducing spending.”

The pace and level of fiscal consolidation being carried out by this Budget is for ideological reasons. George Osborne said on 30 October 2008 that a fiscal stimulus was akin to "a cruise missile aimed at the heart of the economy".

The theory which underpins the Chancellor’s policies is that public demand must be cut back sharply and immediately, to allow the crowded out private sector to take up the slack in the economy. But where is the evidence for this? What is the Government’s alternative strategy if this doesn’t work – engage in more quantitative easing, which the Chancellor described on 5 May 2009 as “a leap in the dark” and the “last resort”?

As the Nobel prize winning economist Joseph Stiglitz argued in relation to the fiscal conservatism being pursued by European governments, in an interview with the Independent on Sunday yesterday:

"... we know what will happen: economies will get weaker, investment will get stymied and it's a downward vicious spiral.

… cutbacks in Germany, Britain and France will mean all of Europe will suffer. The cuts will all feed back negatively. And if everyone follows this policy, their budget deficits will get worse, so they will have to make more cuts and raise taxes more … We're now looking at a long, hard, slow recovery with the possibility of a double dip if everybody cuts back at the same time.”

How can it be fair when unemployment is at 2.5million, and youth unemployment is over 900,000, to remove the additional roll out of the Future Jobs Fund for the young unemployed this autumn and winter, and the jobs guarantee for the long-term unemployed out of work for two years or more while the Government’s new Work Programme does not even begin until next spring? What hope is there this autumn and winter for the 300 young people in my constituency who have been out of work for six months or more? Has the Government learned nothing from the lost generation of the 1980s and early 1990s that it is prepared to abandon thousands of young people with no support to get them into work?

How can it be fair to stigmatise those who cannot find work, when the Government is removing the ladder of opportunity at the same time? In the absence of a proper regional and industrial policy, when this Government instructs people to abandon their communities to look for work under threat of losing benefits, it is danger of creating a Boarded Up Britain.

There is overwhelming evidence from the Institute for Fiscal Studies and others that this is a regressive Budget, and that the poorest will suffer the most.

The Government is likely to introduce average spending cuts of 25% across non-protected Government departments, which the Financial Times revealed last Monday will impact severely on Scotland and the North East of England. In a study published yesterday by Tim Horton and Howard Reed for the TUC and Unison, it concludes (p 3), excluding benefit cuts, the Budget committed to an additional £34bn expenditure cuts by 2012-13, and that:

“the impact of these cuts will be highly regressive. All households are hit considerably, but the poorest households are hit the hardest.”

Assuming a cut of 25% in each non-protected department, the report finds that the average annual cut in spending on the poorest households will be £1,344 a year, or 20.5% of their households income, whereas the spending cuts will affect the richest 10% of households is £1,135, just 1.6% of household income, and the magnitude of the spending cuts far outweighs the effect of the taxation and benefit changes in the Budget.

At the same time as creating higher unemployment, the Government will now freeze in cash terms, and cut in real terms benefits for the sick and the disabled, freeze child benefit, cut housing benefit, and increase VAT from 17.5% to 20% next January.

Together they will draw in £24bn, impacting most severely on people on low and modest incomes, while the much-trailed banking levy brings in on some estimates only £1.3bn, less than the bankers bonus tax under the previous Government, and with the corporation tax cuts in this Budget taken into account, may not produce any net revenue at all. These are acts of extreme economic unfairness.

The Prime Minister told Conservative supporters in an e-mail last week: “By this Budget, you will have the measure of this Government”. For once I agree with him.

It is a Budget which creates unnecessary hardship, and removes demand from the economy this year and the next. It breaches promise after promise made during the election by both coalition parties. A day of reckoning will come for this Government – perhaps not today, or even next year, but come it certainly will. This is a deeply unfair Budget which takes the country in the wrong direction, and all who believe in equality and a more progressive society should reject it. There is an alternative – and Labour will set it out in the coming months.

WILLIAM BAIN MP