Tuesday, June 22, 2010

And Labour's cuts begin

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Yes Labour cuts. These cuts were inevitable when Labour spent all of this government's money during the last government. Tax rises are also Labour's fault - they have already spent all the money any new taxes will raise.

Yet to hear them, you'd think this was all unnecessary. We could keep spending. Deficits don't matter. Cuts are ideological. Well maybe they are for some, but it is hardly a criticism you can make when you have £44bn of cuts in your own fiscal plans.

To be clear, Labour do not have a leg to stand on when they criticise the first £44bn of cuts. Their objections are cynical duplicitous cant.

And if £44bn were the limit of their ambition for deficit reduction, they would be avoiding some cuts now for much greater cuts in the future as debt continues to balloon.

Some "opponents of cuts" will refer to Krugman, as if to say "look, borrowing is OK". If you are one of these, I ask you this: how much borrowing is OK? Why bother collecting taxes at all? Where does Krugman say that borrowing 10% of GDP year on year is a good idea? If we previously thought that a deficit of 2% of GDP were sustainable, then Krugman might convince us that 3% or 4% would be OK. Fine. All parties went into the election planning merely to halve the deficit, more or less, anyway.

The next defence is that huge reckless spending was necessary to maintain the economy at a time of crisis. Well yes and no. The need to spend money wisely was as great as ever, but I agree that the cuts shouldn't have started in earnest in 2008 or 2009. The problem is that Labour had already abandoned prudence and the golden rule, and was already borrowing over £80bn in 2008/9. Prudence in the good years would have left a lot more room for fiscal expansion during the banking crisis without leaving such a massive debt.

The last gasp defence is about the timing. Make us prudent, Lord, but not today. But the fact is that economic data is never clear or timely enough for the best timing of a fiscal change to be known with any certainty. All we can do is eschew dogma and respond as best we can to the economic data we have. But why do that when there is a rallying cry of "stop the cuts" to be sounded?

Is this sort of cynical opportunist politics inevitable? Won't governments always spend before an election because they might not have the chance afterwards? And won't this always condemn us to higher debt than we might rationally incur?

Well no, there is good news. The evidence suggests that sounder public finances do seem to be a consequence of (not just our) coalition government. Of course this makes sense. If there are two or more parties in a government, it is more likely that one of them will be in the next government, and will therefore be opposed to a scorched earth policy today. Three cheers for the new politics.

11 comments:

Anonymous said...

Absolutely agree with the assessment

Anonymous said...

This is spot-on. Sadly many Lib Dems do not seem to get it and call the budget economically illiterate. Not hard to see who is really being economically illiterate. Both coalition parties have behaved very responsibly and I hope that voters with short memories as to who got us into this mess won't punish them for it.

Martin said...

Great post! And it's nice to make your virtual acquaintance again (Baz, knew you at Uni in the late 80s / early 90s).

Joe Otten said...

Thanks Baz. How's things?

Julian said...

The budget is described as economically illiterate because the sweeping cuts will inevitable cause widespread job losses which will drastically increase unemployment and may contribute to a double dip recession.

Yes, something drastic had to be done. Yes, a lot of this is Labours fault (for being too right-wing). The thing that has made people angry is how it has been done. Cut welfare, freeze child benefits, cut front line services, and increase VAT. This is regressive and the poorest 10% is the 3rd hardest hit in Gideon's own figures (Which don't include the VAT). Yes, the £1k rise in allowance is nice but swamped by other things affecting the poor.

The city got us into this, how do we ask them to pay it back? We allow entrepreneurs a tax break for their first £5million? Five fucking million pounds, when people on disability benefits are asked to tighten their belt?

Then we have a cut in corporation tax, a pathetic change in capital gains for the rich (We have labour to blame for taking it so low. Also as indexation has been removed we are rewarding people for making risky short-term investments while punishing people who are thinking long term for say their retirement.), and the banking levy pathetically does not punish the speculative stuff that caused the crisis, but all bank assets.

It is not the scale of the budget which is worrying us, but the people who are hit. Listen to the far right Tory back benchers and the bank managers who are saying it is "not as bad as expected". This just show the rich who got us in to this mess are happy that they don't have to pay their way out of it again. It sends a clear message to the UK gamblers who contributed to the global downturn: "Don't worry you can still buy your mansion, we will just cut social housing. You can still have your yachts, we will privatise education and cut free school meals."

We are all in this together? Bullshit. He makes me sick! As do any Lib Dems who have turned their back on their voters.

Anonymous said...

If what Mr Otten says is reflective of what Lib Dem MPs think that is one thing - but out in the real world, especially in the South of England where the Lib Dems are the only party that left leaning voters can hope to get elected, people will think very differently. The Lib dems will also be wiped out along with the Tories in the next Scottish Parliament elections then see how many in Westminster start to look to their own self interest and their consituencies to see whcih way the wind blows - New Politics ? as Jim Royle woud say "my ar**e". If I am wrong then the next election will priobably be fought between Labour and either a unified Tory Lib Dem party or we will see an SDP type fracture in LibDem land. I predict, contrary to what Nigel and Shirley said last night with Paxman, there WILL be unrest on the streets of the UK once again because of a loss of hope amiong the disenfranchised poor and low income earners and where will all the police be to combat this with cuts overtime bans etc etc ? - no Government has taken on teachers, nurses, doctors, firefighters, police etc all at the same time - if Clegg and Cameron think they can and win they also are deluding themselves. Osborne winked at cameron yesterday after he sat down - like a naughty schoolboy who has just diddled the tuck shop - and these people are running the country with Lib Dem backing ? Do me a favour !

Joe Otten said...

Anon, it is wishful thinking on your part to think that many people will actually believe Labour's position, that all these cuts and tax rises are unnecessary, and that they had a secret pot of magic money that would have made it all better.

And compared to the number of Labour budgets that put all the pressure on Council Tax, which is far more regressive than VAT, this budget is fairly progressive in balance.

And don't overestimate the amount of benefit low earners actually enjoy from the state - it isn't that great a deal for very many of them compared to the taxes they pay - another good reason to push up the personal allowance - and another reason Labour is out of touch with its supposed core vote.

Gareth said...

I have just got annoyed at a Labour MP in parliament having a go at Simon Hughes for backing a "tory budget".

What get's me is that if they thought that VAT would be brought in by the Tories and welfare cuts would be targetted at there core vote why didn't they try harder to stay in power and form a rainbow coalition. If i genuinely believed in my policies i owuld have camped at Westminster to ensure votes went through.

No the reality is they knew what mess they had left the country in wanted a period out of power whilst the government tried to clear and the mess and be re-elected on a tide of coalition unpopularity.

In any interview i would remind the voters that Labour could have formed a rainbow coalition to prevent these cuts happening.

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Joe Otten said...

Thankyou julia. I like your comment even though you appear to be a robot.

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