Chancellor Osborne’s Public Spending Review: a savage assault on the working class
On Wednesday 20 October, the Chancellor of the Exchequer, George Osborne, announced his long-awaited public spending review. Everybody knew that massive spending cuts were coming equal to around £81 billion over 4 years, but it was at last announced where the cuts would fall, and it became clearer whose jobs and benefits are most likely to go.
A major change over earlier cuts announcements is that there is to be a far deeper attack on welfare benefits than had previously been envisaged: “By taking the axe to the welfare budget – slashing benefit payments by another £7 billion on top of the £11 billion already announced – [Osborne] was able to agree average departmental cuts of 19 per cent, even less than the 20 per cent planned by Labour before the general election” (Hugo Duncan, ‘Spending Review: warning of jobs bloodbath’, Daily Mail, 20 October 2010). However local governments face reductions of nearly 30% and even the police are to have their budget cut by 16%. Military spending too will be hit:
“In a bid to streamline its armed forces and help reduce its daunting levels of national debt, the British government on Tuesday [19 October] announced plans to cuts its military personnel by 10 percent, scrap 40 percent of the army’s artillery and tanks, withdraw all of its troops from Germany within 10 years, and cut 25,000 civilian jobs in its Defense Ministry” (John F Burns, ‘Britain announces severe military cutbacks, New York Times, 19 October 2010).
Besides the £18 billion of benefit cuts, the biggest assault on the working class is the destruction of 490,000 public sector jobs (8% of total public sector jobs). In all this will mean an increase in unemployment of around 1 million: “PricewaterhouseCoopers warned that the austerity drive would also cost half a million private sector jobs as businesses that rely on public spending cut back” (Hugo Duncan, ibid). With a callousness worthy of Marie Antoinette, George Osborne has claimed that the public sector employees who lose their jobs can take jobs in the private sector! What a good idea: but what jobs, exactly? Hugo Duncan (op.cit) notes that Osborne “said the private sector was capable of taking up the slack, and pointed out that 178,000 jobs were created in the last three months alone.
“What he failed to point out, however, was that 143,000 of them were part-time, and after months of improvement, the jobs market now looks to be on the turn.”
Furthermore, we are not told how many jobs were lost in the time these 178,000 new jobs were supposedly created. According to the IMF’s latest World Economic Outlook reduction of government expenditure by 1% of GDP tends to reduce real domestic demand by 0.5 per cent over two years. It follows that the effect of Osborne’s cuts will be to lower real demand by a total of 8% and GDP by 4% over the same period and further that with such a low demand for commodities, the demand for workers to produce those commodities will be even lower!
The various cuts will adversely affect virtually all working class and middle class people in Britain as these include the following:
· The £553million education maintenance allowance scheme, which pays young people from low income families up to £30 a week to stay at school for the 6th form, is being scrapped in favour of a “targeted” programme of only £50million.
· University students face large increases in tuition fees as government funding for higher education is slashed by almost half – from £7.2billion a year to £4.2billion by 2014-5.
· Incapacity Benefit (now called the Employment and Support Allowance) will now only be available for one year.
· Disability Allowance for those people in care is to be cut altogether.
· Council Tax benefit is to be cut by 10%.
· Help given to working families for childcare is to be reduced.
· Although much has been made of a 60p a week increase in child tax credit, this is more than offset by a plan to cut by 10% the help given with childcare costs in the tax credits system. Families will lose up to £30 a week as a result of this cut.
· Local authorities, faced with a 28% cut over the next 4 years, will be forced to slash services including home help, community care and support for the elderly..
· Rents for new council house tenants will rise to 80% of the market rate.
· The state pension age for men and women is going up to 66 by 2020 -four years earlier than previously announced, and the timescale for increasing it to 67 and then 68 will also be accelerated.
· The state pension age for women will rise to 65 from November 2018.,
· Commuters face 20% price rises in the next four years after George Osborne allowed train companies to put up fares 3% above the inflation rate. This could lead to an increase of over £1,000 for an annual season ticket by 2014-15
· A £300m cut in subsidies for bus fares means that bus users can expect poorer services and higher fares.
· According to the Financial Times of 30/31 October (Chris Cook, ‘Coalition sums mask severity of school cuts’), although education spending is supposedly ring-fenced, in actual fact current spending per pupil will decline by 2.25%, and in addition the schools attended by 62% of primary school children and 84% of secondary school children will be affected by budget cuts. On top of this, a 60% reduction in capital funding on infrastructure (e.g., repairing leaking roofs, etc.) will affect schools above all.
The ‘fairness’ of the cuts
Osborne has claimed that his proposals for cuts are ‘fair’ in that, according to him, those with the ‘broadest shoulders’ are bearing the brunt of the cuts.
This claim is clearly absurd, since there are no proposals to appropriate any part of the vast fortunes of the stinking rich. According to The Guardian of 26 April 2010, “The collective wealth of the country’s 1,000 richest people rose 30% last year … by more than £77bn to £333.5bn, the biggest annual increase in the 22-year history of the Sunday Times rich list. The number of billionaires rose by 10 to 53.” It has been pointed out by others that if these richest 1,000 handed over 25% of their wealth to the government, they would still remain stinking rich, and yet could take the burden of paying for the crisis off the backs of the working class. Yet these ‘fair’ cuts no more involve shaking out the pockets of the mega rich than did those of the preceding Labour government.
Instead, “Mr Osborne is taking more than £80 bn from public spending over the next four years … [of which] nearly a quarter comes from welfare, “ “the arithmetic speaks for itself: the losers will be the biggest consumers of public services who also happen to be the least well off.” (Philip Stephens, ‘Cutting back with no plan B’, Financial Times, 21 October 2010). Moreover, the Institute for Fiscal Studies has pointed out that, as a percentage of income, the poorest are paying more than the very rich. The Institute “agreed that the top 2 per cent of earners will bear the heaviest burden, but said that once all of the Government’s benefit changes are considered, those on lower incomes will lose most as a proportion of their incomes and expenditure” (Tim Shipman and James Chapman, ‘Cuts hammer working families the hardest: IFS gives withering verdict on spending review’, Daily Mail, 23 October 2010). This article also points out that “On average, families with children will see the cash in their pocket after tax cut by nearly 7 per cent by 2014-15 … A family with a household income of just under £16,000 will lose more than £1,100 under the changes [nearly 7%], while a family with £47,000 in takehome pay would lose more than £2,200 [under 5%]”. Pensioners may be dying in their thousands every winter of hypothermia and malnutrition, but at least the cuts will only reduce their incomes by an average of 3%.
The public at large well understands that there is no way the cuts can be described as ‘fair’. According to Andrew Grice (‘Voters reject claims of fairness as majority say cuts hit poorest hardest’, The Independent, 23 October 2010), “Six out of 10 people (59 per cent) believe the cuts the Chancellor announced in his government-wide spending review … are unfair because they will hit the poorest people …
“One in three people (34 per cent) who voted Conservative in May and 59 per cent of those who backed the Liberal Democrats think the cuts are unfair … Some 80 per cent of people who supported Labour think Mr Osborne’s measures are not fair”.
It is clear that, given his assumption that the working class is going to have to pay for the capitalist crisis, Osborne is trying at least to some extent to favour those most likely to vote, and perhaps within that sector, those who are most likely to vote Conservative, who are by and large those earning above average wages. This is the real reason that these ‘fair’ cuts hammer the poorest sections of society hardest, for they are the ones that tend to have understood that none of the bourgeois parties represents their interests and who therefore tend not to bother to vote.
The fact of the matter is that the cuts are unfair to everybody who is to be adversely affected. We live in a society of quite unprecedented productivity, so technologically advanced that it is possible, if everybody of working age had a suitable job, to produce more than enough of the necessities of both physical and cultural life for everybody to live to a decent standard of living. So what is the government doing actually decreeing that the standard of living of the whole working class, both those who earn more than average and those who subsist on less, must be severely slashed? What is the government doing depriving thousands of people of their work? What has driven the government to behaviour that in a wider context cannot but be irrational in the extreme?
Cuts dictated by the capitalist world crisis of overproduction
The absurdity of the cuts was well illustrated at the time of the Great Depression by the following passage taken from a book describing the life of miners in America:
“A miner’s son asked his mother: ’why don’t you light the fire? It’s so cold.’
“’Because we have no coal. Your father is out of work, and we have no money to buy coal.’
“’But why is he out of work, mother?’
“’Because there’s too much coal.’”
This is a problem, an unavoidable design fault, inherent in the capitalist system. ‘Free competition’ drives capitalists to produce more and more cheaply, by replacing workers with machines and paying those workers who remain as little as possible. To recover the cost of the machines, the capitalist must sell more and more, at the expense of his competitors, many of whom are unable to keep up and are forced to close down, with the loss of even more jobs and further impoverishment of workers. As capitalists become richer and richer, the working class becomes, relatively speaking, poorer and poorer. This effect may be somewhat counteracted by the phenomenon that the necessities of life that the worker needs for his subsistence and recreation get cheaper as a result of the improved technology. However, relative to the mass of goods and services that the capitalists are throwing on to the market, the working class is getting poorer, as a result of which it becomes harder and harder to find enough buyers for the commodities the capitalists need to sell. A crisis ensues which is, as in the case of the American coal miner, a crisis of ‘overproduction’. It is not that more has been produced than people can use. It is only that more has been produced than people can buy. This causes the capitalists to shut down production, lay off their workers, and generally to worsen the relative poverty of the working class, at the same time deepening the crisis.
As is well known, the capitalist world is suffering a crisis today that is usually admitted to be comparable to the Great Depression. It is usually thought of as a financial crisis, affecting primarily the banks, which can make it hard to see that it is in fact a crisis of overproduction. The reason that the crisis of overproduction presents as a financial crisis is that the onset of the negative effects of the crisis of overproduction were delayed all over the world by the banks lending money so that people and countries could continue to buy, notwithstanding their relative poverty. This, however, could not carry on indefinitely because there comes a point when the borrower can no longer make the necessary repayments and therefore defaults. Mass defaults, of which those in the subprime mortgage market have been the most notorious, meant that it was the near collapse of the banks which lent the money that was the first sign of the underlying crisis of overproduction.
Because the crisis of necessity causes capitalists to scale back production, their profits diminish and thousands of workers lose their jobs. All this means that the government is able to collect less tax. Its income falls, so it cannot afford to spend – on public services or anything else – as much as it did before. Insofar as it still has income, it has to choose its priorities as to where the money is to be spent. For our bourgeois governments, whether Labour or Tory, the priority was to try to shore up the capitalist system by pouring in billions to save the banks, replacing the money that they had lost through systemic bad debt.
As a result, British public debt, which stood at £350 billion when Labour came to power in 1997 is now £952 billion (64.6% of GDP), and is increasing by billions every month. For example the government borrowed £16.2 billion in September this year, up from £15.5 billion in the same month last year, and the highest ever in September. The reasons for the continuing increase in borrowing are (a) that much less can be raised in taxes because of economic decline and unemployment, (b) much more has to be paid out in unemployment benefit to the thousands whose jobs have been lost, and (c) much more has to be paid in interest on the spiralling government debt: “Interest payments will rise from £43.3 billion this year to £63 billion in 2014-15 – more than is spent on education and smaller only than the government’s spending on health and benefits” (Hugo Duncan, ibid.). Temporarily at least the money markets have been so enthused by Osborne’s cuts that they are prepared to lend to the British government at favourable rates of interest – obviously Osborne’s problems would have multiplied considerably had the money markets sought to charge the same rates they were imposing on Greece. It has not yet come to that, though no doubt it will.
The consequence of the government’s reduced income and increased expenditure is that the budget deficit (excess of spending over income) now stands at 11% of GDP, the second highest in Europe after Ireland.
This is why the British working class – all sections of it, even if some more than others, is being required to ‘tighten its belt’.
It should be self-evident, however, that since the whole problem has arisen as a result of a crisis of overproduction, all further impoverishment of the working class, and all further reduction of government spending, can only exacerbate the crisis and give rise to the conditions that will see whichever party is in government in 5 years’ time demanding yet more cuts.
In fact the whole debate on whether the cuts are ‘fair’ or not is distracting attention from the real issue, which is that there is no way that workers should be prepared to tolerate ANY cuts in their standard of living, and that they should fight to the death to defend themselves. British capitalism cannot save itself by imposing these cuts, any more than it could save itself by the spending splurge engaged in on its behalf by Gordon Brown in what was always a vain attempt to stave off the worst. Of course when capitalism sinks it takes us all down with it – unless first we overthrow it and establish socialism.
Belief in the inevitability of cuts
Unfortunately, these truths are not understood by the majority of the British working class, the reason being that there are not enough communists out there explaining the facts of life to counter the lies told by the media all controlled by the billionaire capitalist class (the bourgeoisie).
Several opinion polls were commissioned when the results of the Public Spending Review were announced. The purpose behind them was no doubt to try to get a feel for whether the British working class would fight back with the same resolve as the workers of Greece, France and Spain, or whether they could be expected to be led to the slaughter with relative docility.
The results, if we assume that they have been honestly given, are depressing.
A YouGov survey for The Sun found that 58% of voters thought there was no alternative to the spending review, even though 41% thought the cuts would have an adverse impact on the economy (as compared to another 41% who apparently thought the impact would be favourable!). A poll conducted by ComRes for BBC2’s Daily Politics programme found that 52% supported the cuts (13% “strongly”) as against only 39% who oppose them.
The YouGov survey also found that 47% of voters put the blame for the crisis on the previous Labour government!!! It is thus that capitalism has been able to survive for so long, blaming its devoted and loyal servants for its own inherent defects. In fact, the Conservatives or indeed any other bourgeois party, had they been in government at the time, would have followed similar policies to Gordon Brown’s to try to stave off the effects of crisis, because that is how the most prestigious economic advisers considered the crisis could be turned back.
Jonathan Freedland correctly reminds us in guardian.co.uk on 19 October that the real source of the fiscal deficit is “the colossal borrowing Labour had to undertake to prevent the crash of 2008 engulfing the entire economy … It had to pump money into the economy to prevent a recession turning into a depression, to prevent the spiralling unemployment, house repossessions and bankruptcies that had accompanied previous downturns, to stop the banks collapsing …” The deficit, he says should be regarded as “the price that had to be paid to prevent unemployment tripling, interest rates galloping and the economy falling off a cliff. Lots of countries, from the US to Japan, have paid it with deficits of their own … are [those] all Labour’s fault too?”.
What Jonathan Freedland does not appreciate is that ultimately the policy of spending to avert crisis had to fail. The woes of the Greek government which found itself teetering on the verge of bankruptcy and unable to borrow except at astronomic rates of interest that would decimate the government’s budget highlighted the impossibility of spending one’s way out of crisis. Hence the volte face in economic policy throughout Europe. The laws of capitalist economics cannot be gainsaid. Once an economic crisis is on a roll there is no way within capitalism of turning it back until it has run its devastatingly destructive course – even if it can be temporarily slowed down, only to gush forth with even more violence once any Keynesian obstacle has been removed . To blame Labour rather than capitalism for the crisis is a delusion which leads straight to belief that the bourgeois alternative to Labour could do better. It obviously can’t.
The popular delusions highlighted by the surveys mentioned above seem to indicate that, for the time being at least, there seems to be little prospect of stiff resistance in Britain to the cuts. Of course, they have merely been announced, not for the most part implemented. It remains to be seen whether attitudes change as the cuts begin to bite.
Cuts will aggravate the crisis
And if the working class is quiescent now, when they are being assured that as a result of the cuts, everything will be put back in order in 4 years’ time, it does not at all follow that they would remain quiescent when in 4 years’ time they instead find further cuts imposed on them, with unemployment still rising. David Blanchflower, a member of the Bank of England’s rate-setting committee and a professor of economics, says that a double-dip recession is now inevitable. His view is that the “The austerity package is likely to turn out to be the greatest macro-economic mistake in a century”, a view which he apparently shares with the likes of Kenneth Clarke and Boris Johnson (See David Blanchflower’s article ‘Osborne has taken the coward’s way out’ in guardian.co.uk 18 October 2010). While it is true that Blanchflower only opposes the Osborne delusions because he himself is a victim of Keynesian delusions, he is still quite right in his assessment that Osborne is delusional.
The Daily Mirror graphically described the nefarious effects that the spending cuts will have on the UK economy:
“Every public sector job that goes sucks money out of the economy. Each family stripped of its breadwinner will have to slash their spending, hitting takings at shops, pubs and restaurants.
“As those businesses see their sales slide they will order less stock and abandon plans to invest for the future and hire more staff.
“If orders really dry up – and there are many private firms supplying hospitals, schools and other public services – the knock-on will be even more severe.
“These companies will scrap overtime and even lay people off, shredding the spending power of those families.
“Even those who don’t get thrown on the scrapheap are less inclined to take on more debt like loans and mortgages. This means the housing market will grind to a halt and banks will suffer.
“Lawyers, estate agents, DIY stores and everyone else associated with the property market will also share the pain…
“And that’s not all. As incomes shrink people pay less income tax and buy less hitting VAT. Some experts believe £4.5 billion could be lost.
“All this at exactly the time the Treasury needs more money to pay dole to those being thrown out of work.
“Best estimates suggest the benefit bill could soar by £6bn. That is a total of £10bn from the £12.5bn being slashed from the public sector wage bill. In short it is the economics of the madhouse.” (Clinton Manning, ‘Tory spending cuts will ripple out and tear the economy apart’, Daily Mirror, 21 October 2010 – one can only wonder what line the Daily Mirror would have taken if the Labour government had won the election and it was Gordon Brown’s cuts that were going to have these effects).
The danger of world war
When everything has been tried and failed, the capitalist governments invariably seek to find a way out of crisis by expanding sales at each other’s expense. Sooner or later they resort to force in their desperation to expand. A likely target for the aggression of western imperialist countries is China whose ability to undersell them and capture swathes of what was once their exclusive preserve in the markets of Africa and Latin America is identified by western imperialists as an obstacle to their economic recovery. The human and environmental costs, to say nothing of the losses of material wealth, that would be caused by any such a war are beyond imagination. Yet this is undoubtedly the direction in which this crisis is heading if the proletariat is unable to stop it by overthrowing capitalism.
Manipulation of ideas within the working-class movement
The multi-billionaires who need capitalism to remain in place are but a handful, to be counted in the hundreds at most. Those who are losing out as a result of the prolongation of the life of the capitalist system well beyond its sell-by date can be counted in the tens of millions in the UK and thousands of millions round the world. If such a powerful force is not rising up to smash capitalism it is solely because it has not understood the necessity for doing so. This is not through inability to understand but mainly because of the propaganda emanating from the bourgeois media. This propaganda holds out the hope that the as a result of the cuts, things will get much better, growth will be restored and after a short period of discomfort, a mere 4 years, things will start looking up again. It also plays on dividing people workers against each other, blaming, say, immigrants for lack of jobs and inadequacy of services, or setting off the poorest sections of the working class against those who are slightly better off, and vice versa. And of course, not only the media but also the entire education system is primed to brainwash people into believing that communist societies, i.e., those that have replaced capitalism with socialism, are unfree, incompetent and generally horrible. In spite of this, there are always workers who, seeing a problem, feel that it is incumbent on them to do their best to fix it. These workers gravitate towards the working class movement with a view to fighting back against capitalist society’s injustices.
However, the bourgeoisie does not neglect its need to keep the working-class movement away from taking upon itself the task of overthrowing capitalism, which is the only way out of the crisis, as is shown, for instance, by the fact that throughout the Great Depression of the 1930s, the economy of the Soviet Union was totally unaffected by the crisis but was, on the contrary, growing exponentially. The bourgeoisie influences the movement to keep the proletariat from the revolutionary path by flooding it with reformist and anti-communist ideology. Its opportunist agents in the working-class movement forever hold out the hope that capitalism can be reformed. Some take the line least threatening to the bourgeoisie that securing reforms is just a question of changing the government – a ConDem government to be replaced by a Labour government, or a Labour government by a Left Labour government. Others step in to bridle those who have seen through the swindle of bourgeois parliamentarism and put more emphasis on strikes and protests – but strictly to secure reforms within capitalism. All of them strive virulently to spread hatred of actual communist countries which they vilify as undemocratic and miserable. The only point of doing this is to steer the working-class movement into activity that is least dangerous to bourgeois interests.
A demonstration called by the National Shop Stewards’ Network in London on Saturday 23 October, was flooded with the Trotskyite Socialist Worker placards denouncing the “ConDem cuts”. Actually it is well known that Labour had been contemplating equally severe cuts had they won the last election. Landon Thomas Junior reminds us in an article in the New York Times of 20 October 2010 (‘Europe seen avoiding Keynes’ cure for recession’) that “Even the previous Labour government of Prime Minister Gordon Brown proposed substantial budget cuts before losing office in May, many of them incorporated by Mr Osborne into his four-year spending review”. Yet still it is sought to hold out hope to the more advanced workers who participate in the working-class movement that getting Labour back in could make all the difference. Maybe it would for some. Perhaps less could be given to pensioners and more to the unemployed. Or vice versa. Some workers could be better off, while some would be worse off to compensate. This is just a recipe for turning workers against each other rather than uniting all of them in the fight to get rid of the irrationality that is capitalism.
At some point the misery that the bourgeoisie is heaping on the working-class masses is going to provoke a strong and angry response. Work needs to start immediately, and must be undertaken with extreme urgency, to cleanse the working-class movement of the reformist and anti-communist prejudices that would keep it back from effecting the only possible cure for the ills of capitalism, namely its overthrow and the establishment of a socialist planned economy. There are those who shun these tasks as “divisive” because they fear that those who wield bourgeois ideological influence in the movement will deprive them of mass support. What has to be understood about the masses, however, is that they and they alone are the makers of history. Whom they follow and whom they don’t follow depends entirely on their general level of consciousness. If the revolutionaries have neglected to counter the bourgeois prejudices spread in the working-class movement by the various opportunist trends, then the masses will not at the critical time be ideologically equipped to make history and overthrow the bourgeoisie. They will follow the opportunists and not the revolutionaries.
Let us organise ourselves into shock brigades to tackle reformism and anti-communism in the working-class movement so that capitalism can be overthrown at long last and socialism established.
Forward to the new society!