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The case for abandoning austerity is a no-brainer, mathematically, financially and politically

Austerity is failingLabour needs a game-changer to settle the result of the next election once and for all. As it happens it has the perfect opportunity ready to hand. Osborne is foolhardy enough to announce six months before the election that he intends to impose further cuts of £25bn to get on track to eliminate the structural deficit by 2019, which an FT analysis suggests may have to be nearly double that, or around £48bn. This is an utterly reckless pledge which Labour should be exploiting for all its worth – as opposed to the actual silence with which it greeted this faux pas. There are four powerful reasons for Labour to go on the attack.

The mathematics show that there’s not a snowball’s hope in hell that Osborne’s latest démarche can wipe out the deficit by 2019. Alastair Darling’s expansionary budgets in 2009-10 reduced the deficit (i.e. public sector net borrowing) from 10.2% of GDP to 6.9% within 2 years. Under Osborne’s public spending cuts the deficit increased to 7.2% in 2012-3, and only reduced last year to 5.7% because of the unexpected economic growth that only began in early 2013. However, that growth which has been so extravagantly talked up by Osborne and the Tory press is now rapidly deflating: in the second quarter of this year growth was reported of 0.9% and in the third quarter 0.7%, and the signs are clear that in the fourth quarter it will be just 0.5%. The deficit is set to rise again.

Financially, we were told that austerity was necessary to cut the budget deficit. Since it is not now actually reducing the deficit – it’s likely to rise this year to just over £100bn – there’s no rationale for continuing with prolonged austerity. The only reason that Osborne is persisting with austerity is, not to cut the deficit, but to carry through the real Tory objective of shrinking the State and withering the public sector, to get back to the Tory dominance of the 1930s. If Labour now repudiated austerity in favour of the far more effective way of cutting the deficit through public investment to expand the economy out of stagnation, generate real jobs, increase household incomes after a decade of steep decline, it would be a game changer at the election.

Politically there couldn’t be a better moment to strike. For all the manic talking up the recovery by the Tories, only 1 in 7 adults , according to a Populus poll last week, say they feel the benefit of a recovery where they live. If 86% of the population have not felt any recovery in their own circumstances despite a 9% real terms fall in average wages, then Labour’s message that it will abandon austerity in favour of genuine and sustainable growth would be music to their ears.

There’s one further benefit for Labour here. Cameron & co. continually lambast Labour for leaving behind an economic mess. Time to poke them in the eye with the facts: the Labour government in their 11 years before the crash (1997-2008) never ran a budget deficit bigger than 3.4% of GDP, yet the Tory government because it disastrously mismanaged the ERM from which it was unceremoniously pitched in 1992 ran budget deficits more than double that size in 1992-4. So who was the economic incompetent and who was was the prudent manager of the nation’s finances?

6 Comments

  1. David Pavett says:

    I can’t make head or tail of this piece. I have tried looking up FT articles and can’t find one corresponding to what Michael Meacher reports. I have also looked at the official data for the deficit and cannot tally them with those in this article.

    Can we please have some links to clear this up?

    Most of do not carry all this data in our heads. The beauty of the web is its ability to provide links to sources used. It is incomprehensible to me that this facility is not used in articles like this. Are we supposed to believe what we read without question? Should we not regard providing the means for readers to check sources for themselves as basic to democracy?

  2. Robert says:

    Miliband out doing the Tories will be the next step, Osborne will cut another £25 billion and Miliband will state with Ball’s who would be harder then the Tories with Darling will go £35 billion.

    Labour Tories, Tories labour.

  3. Peter Rowlands says:

    The main points Michael makes are surely amply documented, i.e. failure until 2013 to reduce deficit and greater success of Darling in doing so.
    The Tories are promising handouts and more savage cuts.Labour must oppose this. If we stick to the Balls line we will not be able to carry out even the limited measures outlined recently. How do we build 200,000 houses a year if no extra money is available?Labour must reject austerity and go for expansion, which could be based on directed quantitative easing through our new British Investment Bank.
    This is the way to win back our traditional
    support and to retain ex Lib-Dem support now apparently seeping away to the Greens.
    Michael’s arguments are as usual spot on, but it is the Labour leadership that should be making them, as loudly as possible.

    1. David Pavett says:

      Peter, you say “The main points Michael makes are surely amply documented”. Bit f a put down to someone asking for evidence for the claims made. I can take it because I am used to it but is this the way to deal with requests for evidence which is a bit harder than an hand wave to ‘what everyone knows’? If the left wants to be taken seriously then it has to do better than this. All I asked for was some links to the evidence for the claims made, Neither you nor anyone else has responded to that.

    2. David Gould says:

      The article could not be more misleading.

      Darling’s “expansionary budgets” made the deficit rocket from £36.4bn to £156.3bn. The deficit fell slightly from 2010-2011 and significantly from 2011-2012 when most of the cuts & the VAT rise came in.

      Due to the massive rise in the debt over this period, bond payments are increasing something like £7bn a year. Consequently, the deficit hasn’t fallen since then. The £20bn reduction from 2012-2013 was due to the Royal Mail privatisation.

      http://www.theguardian.com/news/datablog/2010/oct/18/deficit-debt-government-borrowing-data

      1. David Pavett says:

        Thanks. Useful link. Excellent graphic of deficit from Howe to Osborne.

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