Editorial

Capitalist market prescribes diet of cuts

There is now the bizarre spectacle of the Tories and New Labour trying to outdo each other with promises of cuts after the next general election to reduce the public finance deficit. Tory leader David Cameron declared the need for an "age of austerity". Now Labour government ministers Alistair Darling, Gordon Brown and Peter Mandelson have said that Labour will also cut spending, but not as savagely as the Tories, they claim.

Tory cuts are likely to be the most brutal, but the level of anger towards Labour was shown in the results of a recent poll: more people thought that a Labour government rather than a Tory government would make the most damaging cuts.

While promising a diet of cuts for ordinary people, neither the Tories or Labour are willing to legislate to stop city bankers from getting obscene levels of pay and bonuses, not even in the banks that are now fully or partially owned by the government.

The Centre for Economic and Business Research has estimated that bankers could receive £4 billion of bonuses this year, up from £3.3 billion last year. This is after £1.2 trillion of taxpayers' money has been given or loaned to the banking system.

While most public sector workers suffered an effective pay freeze last year and the average wage increase for ordinary private sector workers was 3.1%, the pay of Britain's top company executives increased by 10%.

Whether New Labour or the Tories are in power, the dictates of the capitalist market will reign supreme, so under pressure to reduce the public debt, it is the public sector rather than fat cats' profits and pay that they will try to cut.

Huge deficit

The growing public deficit, expected to reach at least £175 billion this year, is the highest annual deficit in the UK since the second world war. The April budget set out cuts and tax rises aimed at halving the deficit in the four years from 2010/11. But since then it has increased further, due to the government's stimulus measures, falling tax receipts and because two areas of expenditure are inevitably rising during the recession: social security and interest payments on the debt.

However, although alarmed by the size of the deficit, ordinary working people are not in a position to tolerate further public sector cuts. Trades Union Congress leader Brendan Barber reflected this when he spoke of the possibility of riots breaking out, like those in Liverpool's Toxteth in 1981.

He also echoed the wing of capitalist economists who argue that drastic spending cuts would cut across economic recovery and plunge Britain into the second dip of a 'double dip' recession. They argue for a Keynesian stance; for the public deficit to stay high, and government and Bank of England stimulus measures to be maintained, to avoid a collapse back into deep recession.

Other economists say the opposite, that government financial intervention should be wound down now, to prevent it fuelling future inflation. There is a growing chorus for public spending cuts from this quarter.

The government is in a no-win situation, but faces more dangers with the second course of action than the first at present. The unprecedented feeding of the economy with public money has staved off a depression of the severity of the 1930s, but too sudden a move away from it could lead to renewed downturn.

Cutting public spending or increasing taxes will further reduce the money in people's pockets, reduce their spending power, and so also be a brake on economic recovery.

At best, recovery is expected to be anaemic, and is still uncertain. Many banks are insolvent in reality and still failing to issue much credit. The signs of recovery being played up by top politicians and the media can be explained largely by the effects of the stimulus measures, which are temporary, and to cyclical factors within the overall recessionary period, such as renewal of run-down stocks.

For sustainable expansion, a steady increase in consumer demand is needed, but there is no sign of this yet. On the contrary, consumer demand is still being held back by pay freezes and job losses.

Around three quarters of a million people have already lost their jobs in this recession, the jobless total is expected to rise over 2.5 million this week and could reach over four million if the government doesn't prevent it. Recovery, when it comes, is expected to be 'jobs-light', but it could even be a 'jobs-loss' recovery.

Belt tightening

Workers were told to tighten their belts because of the recession, and now will be told to tighten them further so as not to threaten recovery. But even during the boom years before the recession, workers faced cuts in services and the share of GDP spent on their wages went down.

The high public debt and the severity of the recession are due to the extravagance and greed of the wealthy and not the wages and services of working class people. The fact that workers' trade unions provide over 70% of the funding of New Labour - an out and out party of capitalist big business and finance - is ever more nonsensical and ludicrous. It is a burning necessity that there should be workers' candidates standing against Labour and the other main parties in the general election, as a step towards the formation of a new mass workers' party.