So cutting the deficit more slowly (the Ed Balls prescription) would elongate the agony and produce a decade of debt, according to Slasher. So on that logic why not do it even faster than the 5 years the Tories have in mind to eliminate the deficit, and reduce the debt overload even more? What Osborne is blithely disregarding of course is the risk to the fragile recovery (if you can still call it that) when all the new signals are now flashing red.
Since he first unveiled his massive spending cuts nearly 4 months ago, several of the economic indices have turned negative. Growth in the US has faltered and unemployment is rising. In the UK output has slowed and house prices have fallen back. The weapons of monetary policy (£200b QE and ultra-low interest rates) have markedly failed to produce a sustained recovery. The banks are still ploughing taxpayers’ money into speculation rather than business investment. And a risk of competitive devaluation and a 1930s-type return to protectionism is beginning to emerge.
Choose this moment now to cut deep and fast? Those whom the gods would destroy they first make mad. And Osborne’s plan at this point in the cycle is mad. So is there an alternative to this gathering impasse? Yes, there is.
There are in fact four ways to cut the deficit, not one, and it is blindingly obvious that at this point of extreme risk that one – spending cuts – should be minimised and the other alternatives brought more fully into play. First is economic growth, provided the Tories don’t wreck it which they show every sign of doing. Hitherto the Government’s official economic forecasts predict average growth over the next 5 years at 2.7% per annum. That (with a 40% Government take of the increase in national income) would reduce the £155b deficit by about £63b.
Regarding the remaining £92b, both Compass and the IPPR have spelt out in detail how a rise in taxes and ending of tax break for those with incomes over £100,000 a year (thus leaving 98% of the population unaffected), plus a much tougher crackdown on tax havens and a Financial Activities Tax (FAT) on the banks, could raise some £53b a year.
That leaves a residual debt of about £39b. By far the best way to cut the deficit is a major public sector-driven jobs and growth programme centred on infrastrucure renewal, the new green digital economy, and a big revival in house-building. But can in be paid for in current circumstances? Yes, even the IMF last month admitted that the UK could actually raise its debt by no less than 50% (though nobody is suggesting that anything like that is necessary) before it ran into a vicious debt spiral. Labour should now spell out to the nation the very real alternatives to scorched earth economics.