Pranev Sharma gives us his take on the coalitions comprehensive spending reivew.
So at long last, the comprehensive spending review is out. We know where the cuts will fall. Instead of talking about the specifics of the cuts, I’m going to talk about a few myths surrounding the issue of cuts.
Myth 1: The public support these cuts.
At the 2010 General Election, Labour and the Liberal Democrats both firmly stood against making cuts this year, as it’d risk a double-dip recession. This was the wrong time to draw Government support from the fragile economic recovery. To their credit, the Tories did say they would cut this year (but see point 2 for the deception).
And what happened in the election? 35.2% for Labour and 22.0% for the Liberal Democrats. Throw in the SNP, Greens, SDLP et al. and we have nearly two-thirds of those who voted being OPPOSED to cuts this year. The big problem comes from the Liberal Democrats doing a complete 180. Leading on to…
Myth 2: We were told about this.
The Tories told us that their cuts would come purely from efficiency savings. There was no plan to cut child benefit, there was no plan to raise VAT. David Cameron said four days before the election, “if I win the election, who comes to me and says: ‘Here are my plans’ and they involve frontline reductions, they’ll be sent straight back to their department to go away and think again.”
And what did the Liberals tell us? They told us to beware of the Tory VAT bombshell. They pledged to vote against an increase in tuition fees. They wanted to abolish Trident. They told us there’d be no cuts this year.
Needless to say, this has all been broken. Interestingly enough, prior to the election, when media reports surfaced about secret Tory plans to raise VAT to 20%, Liam Fox on Question Time categorically dismissed this with, “We have no plans to raise VAT.” So did they change their minds once they got in, or was this the Tory agenda all along but they knew the public couldn’t accept it, so they told a bunch of lies to get in? Philip Hammond revealingly said on Question Time on 21st October that the Tories had been planning this for months before and after the election.
The big shock was, of course, the Liberal Democrat betrayal. This is especially heightened by the fact that Nick Clegg’s central theme to his election was the “broken promises” of the Labour/Tory ruling elites. If you can’t beat ‘em, join ‘em.
Myth 3: TINA – There is no alternative.
The Tories, and their Liberal colluders, love to propose this argument. Such a scale of deficit reduction is wholly necessary or we’re headed the way of Greece (which is a bit strange because, as Cameron loves to say, we’re not in the Eurozone).
The alternative is to focus on growth, job creation and then receive more in taxes – this will do a lot more to alleviate the deficit than cuts ever could. This was, and is, Labour’s plan for dealing with the deficit. We are not deficit deniers, but this is the policy that makes economic sense.
Keynesian theory of getting more people in jobs, to pay taxes, to bring down the deficit makes more sense than a bunch of cuts. To cut is to repeat the mistakes Britain made after World War One (another Tory-Liberal coalition) and that Japan made in the 1990s, which led to a flatlining in growth. Two Nobel Prize winning economists, Paul Krugman and Christopher Pissarides, both agree that cuts are simply the wrong way to go right now and create a massive, and unnecessary risk with the economy.
But, the Tories are driven by ideology. By rolling back the size of the state, the Tories hope to permanently shift the fault-lines on which British politics lies, much like Thatcher did.
It may not be nice, it may cost them the 2015 election, but once the state is cut back in a certain area, it is highly unlikely to come back. The Tories are licking their lips (did you see the cheers at the end of George Osborne’s speech?).
Myth 4: This is all Labour’s fault – they racked up the deficit in the first place.
Partly true. But here is where TINA really does come into play.
The bulk of the deficit is due to the bank bailouts, undertaken by Gordon Brown and Alistair Darling. And this is where there really was no alternative.
Had the banks not been bailed out, both here and in the US, the global economy would have imploded, leading to a depression, not a recession.
The Tories opposed much of the bailout, including the nationalization of Northern Rock. So in this respect, the Tories would not have racked up a deficit. But on the other hand, they would have left us with a failing economy, massive unemployment, and no prospect of growth for years.
So it may feel nice to blame Labour. But just think how bad it would have been had Flash Gordon not been there.
Myth 5: The agenda is progressive and fair. It protects the vulnerable.
By definition, this cannot be true. Those who depend on the Government the most are the poorest. The rich can do without if the state withdraws its service. But in some ways, you can’t really blame the Government for this – it’d happen no matter who delivered the cuts.
The Institute of Fiscal Studies (IFS), a neutral think tank, has said that poorer families with children will be the “biggest losers” of the CSR, branding it as “regressive”. Nick Clegg, branded the IFS’ analysis as “distorted and a complete nonsense”, marking yet another U-turn from the pre-election Nick Clegg, who was in love with the IFS.
The other side of the equation is far more intriguing; tax rises. Firstly, not enough is being taken from tax rises to pay for the deficit, which means more cuts, which means more pain for the poor. Secondly, the taxes that are rising are the wrong ones.
VAT is going up to 20%, which is unfair and regressive in any measurable way – it is a flat rate tax that applies regardless of income i.e. the poorest are hit the hardest.
The coalition must be given credit for introducing the bank levy, which is designed to make those responsible for the mess pay for it. But on closer inspection, this is a great sleight of hand. Because what the banks pay in the levy, they will more than make up for with the giant corporation tax cut that is headed their way. Who said the Tories were no longer a party of rich, by the rich, for the rich? They just have some Liberal colluders now.
And what about tax avoidance? The glaring example here comes in the way of Lord Ashcroft, the man who practically bankrolls the Tories. He continues to avoid paying the rate of tax of a full British citizen, despite all his previous promises, though broken Tory promises are nothing new. Another is Rupert Murdoch, the world’s real-life Bond villain, whose media outlets The Times, The Sun and (to some extent) Sky News all support the coalition – what a surprise.
And tax evasion? Tax evasion costs the UK economy around £15 billion pear year, as opposed to around £1 billion in benefit fraud. But how often do we hear stories about these real cheats – the ones who swindle the taxman out of a lot more than The News of the World benefit cheat scare-story. But then again Rupert Murdoch owns The News of the World.
Myth 6: The NHS is protected.
The Independent did a brilliant exposé of this. NHS departments are shutting down up and down the country as a result of the cuts as a result of 15000 jobs being cut. A few examples include Queen Mary’s Sidcup A&E department and two wards in the Southend University Foundation Trust.
The head of the NHS confederation said that hospital beds would fill up because the cuts to local government would result in cuts to after-hospital care, leading to later discharges and fewer available beds for new inpatients.
Another sleight of hand in the CSR shifted £1bn of the social care budget into the NHS budget, meaning there will be an effective cut in the NHS budget. Any wonder that A&E times are already on the rise?
The Government’s “real term” increase in NHS spending is a measly 0.084% per year for the next four years, well below what is needed, considering that inflation is much higher in the medical sector, with costs of drugs and medical technology increasing at a rate greater than the cost of a loaf of bread. History suggests that the NHS needs approximately a 4% increase in spending above inflation to receive a real terms increase.
And who knows how much the VAT rise will affect the NHS? The NHS has to buy a lot of medical equipment and drugs from private companies, which will probably not absorb the new rate of VAT into their existing prices.
To sum up, we have a Government that nobody voted for, who have turned their back on what they said before the election, imposing a programme that nobody voted for, that will hit the poorest in society the hardest. Fair? Think again.
Pranev Sharma
