There’s no excuse for cuts. Public spending is the solution.

by Katy Clark

Public spending is the way to overcome the economic mess that bankers’ greed created. In an extensive report, Dave Hall of Greenwich university business school nails the lie that cuts are inevitable. The fair way out of this crisis is to restore sustained economic growth. The empirical evidence contained within Dave Hall’s report, Why we Need Public Spending, provides the weapons that our movement needs to win the battle of ideas. There are no economic justifications for these cuts.

During the last Parliament, I voted against our government when it introduced legislation to cut the deficit in half by 2010. I was not willing to vote for such massive cuts and thought that having a fixed timetable was far too rigid, took no account of what future economic challenges we might face and was largely silent on growth. I was blissfully unaware that a debate supporting my concerns was taking place around the cabinet table. Ed Balls was leading the charge against setting a timetable while also arguing that we needed to prioritise policies that deliver growth.

He was right to do so. If history has taught anything, it is that you don’t cut public expenditure during a period of sluggish growth. We need look no further than the Republic of Ireland to see this. During the last two years, a series of emergency budgets have been introduced to supposedly combat the effects of the economic crisis. They each brought additional cuts that went further and further into the bone. Yet, their economy is once again on the brink of recession, having contracted during the last quarter. The real spectre haunting us is the possibility of a decade-long depression and a return to the disastrous economic failures of the 1930s.

Our leading indicators are already pointing towards another recession – house prices are falling, growth is slowing, lending is drying-up and consumer confidence is shrinking. And Osborne’s cuts will make matters far worse. The Financial Times has already highlighted what dangerous nonsense it is to presume that the private sector is immune to cuts. The FT predicts that 500,000 private sector jobs will vanish as a result of the comprehensive spending review. All of a sudden, there is a ring of truth to ‘we are all in this together’.

But not in the way that the Tories would have us believe. The looming cuts will saddle an entire generation of working people with high levels of unemployment. That is why we in the Labour party must work with our trade union allies to build community-based campaigns to stop these dangerous cuts.

The reality is that it will be years before we know the full cost of the bank bailout. According to the international monetary fund, the bill so far is at least £130 billion. The crisis has also wiped out more than £80 billion from our gross domestic product (GDP). This resulted in shrinking tax receipts at a time when public expenditure soared to deal with the consequences of recession.

It did not help that funding for our public spending increases was largely dependent on meek taxes on the windfall profits of our unregulated financial sector. Blair’s and Brown’s obsession with ‘not frightening the city horses’ made them shy away from introducing proper regulation and creating the broader tax base that would have  stood us in better stead. Make no mistake, the deficit will need to be dealt with. The argument is about how and when we do it.

The united nations estimates that we need to increase public spending by between 1.5 and 2% of GDP and then keep it at this level, if we are significantly to reduce our carbon emissions. This means raising public expenditure by between £20 – £35 billion per year. If we direct this investment towards increasing our renewable energy capacity, improving public transport provision, creating a homes and building insulation programme and a low carbon manufacturing base, then a million new direct jobs will be created with almost as many more emerging elsewhere in the economy. Tax receipts will rise and there will be a sharp fall in benefits payments. If, after this, a gap still remains between government income and expenditure, then fair taxes which minimise loopholes, tackling tax evasion together with a levy on financial transactions, must make-up the shortfall. This is the just way to get rid of our deficit.

It was neo-liberal policies that brought us to the edge of abyss. We need to replace them with adequate regulation, progressive taxation, an end to privatization in all its guises (including PPP, PFI and the like) and a greater role for government intervention in economic affairs – including public ownership.

We on the Labour benches won’t be fooled by the Tories. We know that, for most of them, the budget deficit is just a convenient excuse to kill off our welfare state. As the Tories and their Liberal Dem stooges spread the politics of fear, let us spread the politics of hope. In the same way as we created the NHS from the ashes of the second world war in defiance of economic orthodoxy, let us now be bold enough to break away from the shackles of monetarism. Let’s use public spending to build the twenty first century low carbon economy that we so badly need.

Katy Clark is Labour MP for North Ayrshire and Arran.


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5 Responses to “There’s no excuse for cuts. Public spending is the solution.”

  1. les says:

    Hilarious – Are you mad woman? there is no money left

  2. little angussie says:

    no excuse dor cuts? Excuse me please but the last Labour Government pissed all the money away like a drunken sailor in a bar on pet projects like keeping the unemployed dependent on welfare, allowing a culture of entitlement to spawn.

    Now we are onto third generation families who have adopted this lifestyle! The global crunch did Labour a massive favour. This country was over its head in debt when the credit crunch hit – allowing Brown a convenient alibi but make no mistake that is all it was – it disguised Brown’s failings to a large extent and allowed him to blame it all on the USA.

    Thankfully most of the electorate (the sensible right of centre votors anyway) realise that cuts are imperative and that the best way to perform the cuts is by getting them out of the way quickly. With labours plans we would still be paying over 130 million pounds interest daily 10 years from now.

    we have a chance of prosperity within the term of this parliament if we all hold firm and allow the medicine to work. There is no danger of a double dip, this is just scaremongering by Labour as their last chance to hold what little credibility they have left on economic rectitude. Never forget – each time a labour government has been elected the Conservatives have had to return to put right the carnage wreaken on our economy. Granted, Blair and Brown took longer to do it this time but boy they really made sure that there was a scorched earth plan before they went!

    As for you MP Clark – I hope your electorate reads this and remembers your total abdication of responsibility by endorsing this madness.

  3. Well said Katy -keep making the case for growth – not slump. If we don’t come out fighting against these draconian and unnecessary cuts this generation willl not forgive us.Coalition policy on pensions, tuition fees, welfare benefits is set to make it the most hated in living memory.
    Labour must be at the forefront of the fightback and must have an alternative in place – not just a weaker version of the same. It looks dangerously as if that’s what Johnson and Miliband are proposing

  4. Syzygy says:

    (I posted this on another site, but it seems pretty appropriate to also post it here in support of Katy Clark)

    I remember, when I was a little girl after a primary school history lesson, trying to get my head around the idea of putting people in to the debtor’s prison until they had paid their debts.

    It seems to me that the parallel is clear. Increasing unemployment decreases the country’s tax revenue, and so without increasing any spending, the structural deficit will get larger. In fact, the structural deficit left by the last government was largely due to tax receipts falling after the recession caused by the banks. Therefore, the only solution to reducing the structural deficit is to increase tax receipts either by reducing unemployment through growth and/or by progressive taxation of the most wealthy and the banks.

    I am also aware that the structural deficit after WW2 was 2x the present deficit, and to date I haven’t felt the need to fret over it! I believe that the IMF also said that the UK could borrow as much again without being at risk from a sovereign debt crisis … partly because only 30% of gilts are financed from foreign lenders. The interest paid to the remaining 60% is recycled in the form of British pensions paid out by the pension companies who hold the bulk of government debt.

    Ed Balls, Krugman, Stiglitz etc seem to me to be much more likely to have got it right than Mr Osborne who,prior to the GE, was repeatedly rated by the city as being less competent than Vince Cable or Darling. In that sense, I am certainly a ‘deficit denier’.

  5. @little angussie – people who think Labour wants to keep people dependent on welfare have never tried to get out the vote on a council estate.

    Believe me, Labour needs people to work. Because otherwise they don’t bloody vote.

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