U.K.: Can you Cut Public Spending to 1930s Level with 2014-18 Cost of Living?*

U.K.: Can you Cut Public Spending to 1930s Level with 2014-8 Cost of Living?*

George Osborne’s Autumn Statement today has deftly underscored a point we have been making at Scriptonite Daily since 2010 – Austerity is not a temporary measure to balance the books, but an ideological commitment to remove the NHS and the rest of the post World War II welfare state. According to the Office for Budget Responsibility, Osborne’s latest round of planned cuts will reduce public spending to the levels of the 1930’s.

On arrival in government, the Conservative section of the Coalition government were keen to present austerity as temporary, necessary and purely practical.  Back in 2010, Cameron claimed that he “didn’t come into politics to make cuts”, and that austerity was simply temporary spending restraint based on a necessary effort to cut the deficit, not “some ideological zeal”.

In 2014, ‘Austerity’ is delivering the half century long ambition of the Conservative party:  to revoke the post-war social contract of the United Kingdom.

The modern welfare state: decent pensions, affordable and decent social housing, a publicly funded and managed healthcare system, a reliable and low cost transport system, the guarantee of a decent education regardless of circumstances of birth.  This was the social contract the UK public signed up to in the post war period.  Why? Because these generations had lived through the horrific consequences of unrestrained capitalism; enormous inequality, widespread poverty and destitution, starving and malnourished children, an entrenched class system, the benefits of the hard work of the many enjoyed by a privileged and undeserving few.

Osborne’s Autumn Statement has revealed that this mission will be complete by the budget of 2019/20 if their current budget plans remain unchallenged.

In 2010, Osborne presented Austerity as the solution to our budget deficit – it was an unpleasant but necessary short term measure to restore stability.  It would take just one parliament, he said.  But what has austerity actually delivered?

In 2010, Osborne promised public borrowing would have fallen to £76bn – it stands at £91bn this year.  The UK government is currently borrowing £2bn a week just to meet it’s spending commitments, this is up 10% on last year when it should have fallen 12%. As a result, Britain’s national debt is not falling, but increasing. The national debt has now hit 87.2% of GDP, worse than the EU average and rising at a faster rate.

In 2010, Osborne promised the deficit would stand at just 1.2% of GDP, it stands at almost 6%.  This is incomprehensible, when compared to the performance of the Eurozone. The eurozone’s deficit has fallen through the same period, down to just 2.9% in 2013.

What economic growth there has been has come at the expense, predominantly of working people – in the form of pay cuts and drastic reductions in terms and conditions.  In short, it is not true economic growth.  While companies have increased their profits, the associated rise in wages and living conditions has not happened.  Why? Because these profits have been made by cutting wages and living conditions of employed and unemployed people.

If Austerity hasn’t delivered falling public borrowing, or eliminated the deficit, or increased the living conditions of the UK population – what has it actually achieved?

Life at the Top

Corporation Tax is lower today than at any time in its history.  Company taxes now constitute only 12.5% (Corporation Tax is just 7%) of the tax revenues of the UK.  In comparison, the people’s taxes, (income tax and VAT) make up more than 60% of the tax income.

UK Corporation Tax in 1984 was 52%.  By 1986 it was 36%.  In 1999 it dropped to 30%.  Under the Coalition, Corporation Tax has been cut from 28% to 20%.

The Top Rate of Tax has been cut by 5% – meaning that someone earning £1million a year will be saving £107,500 a year.

Yet in spite of this largesse from government, tax avoidance is costing us almost £70bn each year.

Only one in four of the UK’s top companies pay their taxes, meanwhile they receive tax credits to the tune of hundreds of millions of pounds by people who did pay their taxes.

The Assault on the Welfare State

The Health & Social Care Act has effectively privatised half of the National Health Service, whilst new competition regulations going live in April open the service up to the highest bidders to take over.

The Academy and Free Schools programmes turn public schools in profit making companies, and PFI debt is transferring ownership of schools from the state sector to banks.

The profit making public asset of the Royal Mail was sold off for less than half its value, gifting a working service and vast profits to wealthy investors while defrauding the taxpayer.

Public sector workers (nurses, street cleaners, teachers, scientists) have had their pay restricted to a 1% rise each year.  With inflation at almost 3% this amounts to a real terms wage cut of 2% for the last three years.

The cut in Council Tax Benefit (which supports the same groups) rolled out this April will mean rise of up to 333% in council tax bills.

Workfare has been imposed which has ended the tradition of a contribution based social security system.  Workfare means despite a person’s contributions, they are forced to work full time for months at a time for corporations in order to receive the social security payment they are already entitled to.  If they refuse, they lose their benefit.

The cumulative impact of the Bedroom Tax, the Benefits Cap and cuts to disability benefit meant 600,000 disabled people losing as much as £131 a week.

Over 90% of all care home provision (up from 61% in 1990) to elderly people is in the independent/private sector after the public sector was encouraged to outsource provision in an effort to cut costs.  The same period has seen an astronomical rise is the cost of care home places.

Life at the Bottom

The cost of living is rising at four times the rate of wages.  In fact UK wages are falling faster than any other ‘developed’ country.

Thirty four disabled people have killed themselves, and 32 have died every week while undergoing stressful ATOS ‘work capability assessments’ over the last three years.  Hate crimes against disabled people shot up 25% in 2012.

The number of people reliant on Food Banks tripled in the last year, with 350,000 people unable to feed themselves without charity support.  This winter, the Red Cross will be launching its first emergency food aid programme on UK soil since World War II.

Statutory Homelessness rose by 21% in England and 17% in Wales in 2012[2]. While Rough Sleeping has risen even faster, at 31% in England.  Outreach workers from Homeless Charity Crisis performed a count in London which found a 62% rise in rough sleepers in the capital in just the last two years .

The average cost of a single room in a care home has risen to over £27,000 a year.  This is higher than the average UK annual wage (£26,000) and more than double the average annual pension income of £13,208.  In fact since 2011, care home costs have risen at twice the rate of inflation. Yet last year, the regulatory body for the UKs care homes The Care Quality Commission (CQC) published a damning report that showed that more than half of all elderly and people with disabilities in care homes were being denied basic care.

1 in 6 British pensioners now live in poverty, and 24,000 will die this winter because they cannot afford to heat their homes.

For every new wave of disaster caused by the ideology of neoliberalism, it’s proponents prescribe more neoliberalism to ‘cure’ it.

Osborne’s neoliberal Austerity has delivered nothing to the UK expect ever deepening economic inequality, and destitution for the poorest and most vulnerable communities in the country – so what did Osborne announce today?  Four more years of it.   He said today:

“Do we squander the economic security we have gained, go back to the disastrous decisions on spending and borrowing and welfare that got us into this mess?”

But it was none of those things that caused the Financial Crisis. The crisis was caused by the derivatives market of the Financial Services industry.  It was also entirely foreseeable, and was predicted by critics of neo-liberalism.  The world’s second richest man, Warren Buffet warned us in 2003 that the derivatives market was ‘devised by madmen’ and a ‘weapon of mass destruction’ – and when it blew up in 2007/8, government’s used public money to plug the hole.

In the bailout of 2008/9, the UK government guaranteed funding to the banking sector of 101% of GDP.  That is, the UK diverted over £2trn of tax payer money from public expenditure, to a handful of banks.

This is equivalent to almost 3 times its entire annual budgettwenty years of NHS spending (£106.7bn a year); forty years of education spending (£48.2bn); or five hundred years of job seekers allowance (£4.9bn a year).

This is what punched a hole in the nation’s finances, not on an overgenerous welfare state and public spending programmes.

Worse, the next financial crash is moving ever closer as the behaviours that caused it (and went unpunished) continue today.

The news that should have us all worried is: the derivatives market contains $700trn of these debts yet to implode.  As global GDP stands at $69.4trn a year, this means that (primarily) Wall Street and the City of London have run up phantom paper debts of more than ten times the annual earnings of the entire planet.

What are Osborne and co putting in place to prevent this? Nothing. More public spending cuts, more tax cuts.

The OBR’s report on Osborne’s budget plans makes the stark warning that 60% of the spending cuts have not yet been implemented in this parliament, and Osborne’s planned cuts will mean that by the end of the next government (if the Conservative parties lead said government) public spending is projected to fall to its lowest level as a proportion of GDP since the 1930s. A decade in which we had no public education system, no National Health Service, no council housing.  Something will break – either the public finances, or the public services…and you already know exactly what solution Osborne will recommend then.


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