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An Alternative to Cuts

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The establishment of a coalition between Conservatives and Liberal Democrats in Westminster requires a fundamental re-analysis of the political landscape in the United Kingdom. A good starting point would be to set aside all those delusional and self-serving suggestions that the Cameron/Clegg axis is bound to be only a temporary aberration, destined to fall apart under the weight of its own internal contradictions. Of course there are enormous tensions within the coalition and, in particular, inside its two component parties. But, in coalition politics, power is centrifugal: it drives those who exercise it together, rather than apart – if only because of the dire consequences which lie in wait through acting otherwise. The evidence from Wales, Scotland and local authorities up and down the land is that, once formed, coalitions last the course.

Of course, things at Westminster will be different. The ramshackle coalition which has, for example, run Swansea City Council now for more than seven years does not operate under the glare of constant media scrutiny, always and everywhere on the  look-out for anything which might be portrayed as a ‘split’ or a ‘schism’. Nevertheless, the likelihood remains that Labour will be out of office for years, rather than months. In that context, a re-think of our position becomes a necessity.

It does not require the lens of history, it seems to me, to see that the most pressing question which Labour has to ask is how, while we were still in office, we did not simply allow, but actively encouraged the aftermath of a crisis created by finance capitalism to be turned into a debate about public expenditure cuts. No wonder we found it difficult to strike a resonant chord with voters, when our message appeared to be that the public, who had shouldered the burden of saving the system would now be penalised, while those who created the problem were t be allowed to run off with the prize.

And yet, at one stage, it all looked as if it might have been very different. It was the revived Keynesianism of Brown and Darling which rescued the system from imminent collapse. Without it, the state of the UK and indeed the world economy would be much, much worse. Writing in The Observer on 13th September 2009, Will Hutton described the “breathtaking success of the most aggressively Keynesian economic stance taken since the war”.

Having demonstrated the relevance and practicality  of such solutions, however, Labour appeared progressively to lose faith in them over the eighteen months which followed. By the time of the 2010 General Election we had failed to identify clearly enough the real problem to be solved – the £40 billion of structural deficit between revenue raised and expended which would have to be reduced significantly over the lifetime of the next Parliament. Instead, the Tories had been allowed to muddy the waters with a deliberate confusion over debt, and a conflation of structural and cyclical deficits.

Not only did we fail to make clear the nature of the problem to be solved, but we ceded the ground over potential solutions. By the time of the General Election a taken-for-granted wisdom suggested that cuts in public expenditure were the way in which the deficit might be closed. Of course, this was not, and is not, the case. Indeed ample space existed for exposing the way in which such a single-club strategy would be likely to create harm, rather than help, as jobs are lost and local economies suffer.

The alternative proposition set out here is that while governments can spend less, they can also raise more in revenue. None of the proposals here are original. They draw very largely on work already by the TUC, Compass and others. Taken together they comprise ten specific proposals for raising revenue, each one of them designed to lighten the load of those who can very well afford it.

  • Make the present, temporary, banker’s bonus windfall tax permanent, raising in excess of £500 million a year.
  • Extend the banker’s bonus windfall tax to other financial institutions – such as hedge funds and private equity houses. An extension to hedge funds alone would raise in excess of £700 million.
  • Introduce a short-term ceiling on total remuneration, given as both cash and share options, saving around £520 million from RSB bonus payments in this year alone.
  • Set a 50% income tax band for gross incomes over £100,000, raising £4.7 billion annually, or £2.3 billion more than the sum raised by setting the band at its present £150,000.
  • Uncap National Insurance Contributions, so that they are paid at 11% on all incomes, including investment income above £110 per week. The extra tax take would be £9.1 billion.
  • Introduce minimum tax rates of 40% and 50% on incomes above £100,000 and £150,000 respectively in order to mitigate the ability of higher earners to displace tax burdens. The tax rates set out above would raise an additional £14.9 billion annually.
  • Institute a 0.05% financial transaction tax on instant sterling transfers between UK financial institutions, raising some £38 billion a year, sufficient, if devoted to deficit reduction alone, to halve the deficit by 2013/14.
  • Take concentrated action to bear down on tax lost within the existing system – the £25 billion which goes missing through tax avoidance; the £28 billion of tax bills which the Treasury Select Committee (November 2009) concluded were agreed but had not yet been paid; the £70 billion which the Public and Commercial Services Union has estimated to be lost through tax evasion, such as illegal non-declaration of income on which tax might be due, or fraudulent claims for unjustified tax relief.
  • Separate retail and investment banking, removing the ‘moral hazard’ in which recklessness within finance capitalism is bailed out by the tax payer.
  • Establish a High Pay Commission to apply a permanent public interest test into the setting of senior salaries.

None of this is exhaustive. None of the ideas here are from the fringes of either political or economic thinking. Rather, they are mainstream proposals which could, and ought, to have formed part of the Labour Party prospectus at the May 2010 General Election. As the Cameron administration emerges quickly in its true neo-con colours, so that need to recapture just this sort of thinking, and these sorts of practical proposals in the armoury of Labour will become equally as urgent.


  1. DevonChap says:

    “in coalition politics, power is centrifugal: it drives those who exercise it together, rather than apart “.

    WRONG! Centrifugal means “Moving or directed away from a center or axis”. Centripetal forces hold things togther. Exposing your lack of knowledge of physics and economics at the same time.

  2. Dafydd says:

    Well, DevonChap, you have excelled in pedanticism as far as physics are concerned. But copy-and-pasting definitions to prove your point regarding centrifugal force does not expose any economic errors in the article. Perhaps you would care to elaborate?

  3. Bob Clay says:

    Hurrah! This is an absolutely key piece.

    For those who haven’t checked out the ‘contributors’ link, can I just emphasise that comrade Drakeford was until very recently the special advisor to the cabinet of the Welsh Assembly government and is widely regarded in Wales as the author of the “Clear Red Water” strategy. Now is the time for Clear Red Water to spread to the rest of Britain, offering a sharp and compelling alternative to the ConDem coalition and the corpse of New Labour.

    Mark’s view on how long the coalition will last may be contradictory.

    Ironically, if the Labour Party were to adopt his ideas (which would rapidly gain the enthusiastic support of the majority of the electorate) it is difficult to see how the LibDems could stay in, unless they were all prepared to lose their seats.
    In any case, with the simple power and clarity of these ideas, the most ruthless Tory government would find it difficult to hold out against the mass opposition and direct action that would build relentlessly.
    Why not go on the offensive? Looking at Mark’s arithmetic, it is clear that the full package he describes could do a lot more than close the ‘structural deficit’.

    It could fund a generous and radical restructuring of all pension provision, demonstrating that pension funds are better supervised by a democratically accountable public sector than the gamblers who have wasted them for years and caused the growing pension crisis.

    It could fund the most massive house building program with a huge emphasis on socially affordable and sustainable accommodation.

    It could provide support and encouragement for a huge expansion of the new green technologies, renewable energy and a revival of integrated public transport.

    And it could do quite a lot more ! And the accelerated return to growth that these measures created would bring billions more income for further public sector driven investment.

  4. Brian MacGiobuin says:

    While I might not look up Mark Drakeford in the Yellow Pages when my centrifuge breaks down, I think his political analysis is spot on.

    Ever since the global meltdown descended upon us, David Cameron has argued that we face a “made in Britain by Gordon Brown” crisis. This seemed to be good pre-election knock about. However if you read Cameron’s speech of June 7th, the most frightening thing is that this was not rhetoric — he believes it and is implementing policies on that basis.

    In his speech, he says that those who argue that our problems are due to the global meltdown are wrong. And so the Conservative economic policy proceeds on the basis that the biggest global economic downturn in a three quarters of a century is irrelevant.

    Mark is correct in saying that some of our problems are due to structural debt. They will have to be addressed in a progressive and measured way and Mark has given some useful signposts as to the way our thinking should go.

    If Cameron suddenly pulls away the massive public spending support that was needed to stabilise our economy during the global meltdown, we really do run the risk of a double dip recession. While the recovery that is underway might just survive such a shock, it is a frightening risk to take.

    Coalitions do tend to hang together — look at the Greens and Fianna Fail in Ireland. On a postive note however, I was pleased to see today that Irish opinion polls have now rated the Irish Labour Party as the most popular party in the state —- for the very first time ever. Where the Irish Greens have gone, maybe the UK Liberal Democrats are likely to follow.

  5. Supercrab says:

    Would the author care to elaborate on how he has accounted for the sizeable proportion of hedge funds which could jump ship if financial transaction taxes (crippling to several investment techniques) and other windfall taxes are made permanent? Low Capital gains tax is what brought these fickle people here and tax increases will send them away.

    Whilst progressive taxation is undoubtedly fairer, I feel that it is nigh impossible to make it a long term strategy for deficit reduction.

    Not to say I don’t agree with implementing these kinds of taxes. IMO the UK would be better off without the majority of The City financial firms (splitting high street banks from their “casino” cousins would be an excellent move). It is a fundamentally regressive means of wealth creation, putting huge amounts of wealth into the hands of very few people, whilst strengthening sterling to cripple exports.

    Investment in science and high tech industry creates far greater numbers of jobs with much fairer wage structure (just compare a company like Rolls Royce to a whole cluster of hedge funds).

    In short, I think we are sadly left with little choice but to take a fair bit of pain from the recession over the next few years. I only hope we can learn from the successful Scandinavian and Rhineland economies to help close the gap a few years down the line!

  6. DBirkin says:

    Oh, dear god. This reads like the ingredients of a disaster.

    Punish bankers, punish bankers, punish bankers, over tax people, over tax people, over tax people, institute an anti-business tax, (then a collect tax idea which is framed in a way that suggests the treasury is turning down money and isn’t trying to do this all along), interfering in private companies and then the last one, I agree with, for the public sector only.

    At the end, what we have is a recipe to punish anyone that wishes to excel.

    Just between you and me, I don’t think it was those paying 25% of our tax that screwed us up.

    Is not only immoral to laden the few with the cost of the many, it is also …well dumb, as one of your posters has already pointed out, these are the exactly the same people that can up and leave.

    What I think would make a big difference is 1) rebalancing the pay between public and private so the government isn’t paying 35% more for a worker than the private sector.

    2) Cut the £42.5 billion a year over spent in “bang for buck” analysis by the IFS & ONS .

    3)Stop tinkering with the system, lower corporation tax, increase interest rates to help lower inflation,….in short re-introduce supply and demand.

    Isn’t a magic pill, but a slow medcine

    1. Jon Lansman says:

      Goodness knows where you got the stats from on public v private sector pay and the cost of “bang for buck” analysis. And you seem to forget that the world economic crisis is the result of three decades of neo-liberalism.

  7. Phil C. says:

    @ Jon Lansman
    I take the view that the bulk of ordinary taxpayers are pretty much the bulk of customers for business.
    Some on the right seem to be in denial of this identity.
    e.g. some right-wingers talk of acting in the taxpayers’ interest, while simultaneously thinking it’s a good idea for privatised companies, such as the energy/ utilities companies, to charge a baffling array of tariffs, charge consumers more than necessary, pay huge salaries to top executives. And, erm, they expect all this to be allowed without any scrutiny.
    What’s wrong for the customer is, basically, wrong for the ordinary taxpayer – as they are often the very same people.
    Top rate taxpayers may of course be different.

  8. Phil C. says:

    @ Jon Lansman
    Being so new to reading Left Futures, I hadn’t read the above article until today.

    It’s an excellent piece!
    But one thing I’d like to see being considered, by people more knowledgeable than me, is a slight reduction in taxes on EARNED INCOME, with the ‘shortfall’ being made up by levying taxation on UNEARNED income.

    It certainly seems to me that the tax system needs to be adjusted and improved. The recent and current balance isn’t the best.

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