Osborne tries to rewrite economic history as he savages the poor with his brutal cuts

George Osborne is attempting to re-write recent economic history.

1. He wants us to believe that the UK is uniquely indebted. This is quite frankly deceitful as explained in my recent blog posts.

2. He wants people to forget that it was the banking sector that caused the world economic crisis and instead seeks to suggest that it was the ‘undeserving poor’ whose extravagant benefits payments sent us into a downward spiral of government debt.

3. He wants us to think that the failure of bank regulation was a peculiarly left-wing phenomenon i.e. Labour were uniquely at fault. The truth is that Thatcher began the process of de-regulation of the financial services sector and the right-wing administration of George W Bush took the same approach in the United States as that taken by Gordon Brown in the UK. It was assumed by the political establishment on both sides of the Atlantic that Financial Services was a ‘Golden Goose’ to be allowed maximum freedom. Right and Left were both seduced by the alchemists of the City.

Let’s remember that alchemy is illusory. Many believe that the smoke and mirrors of financial services can still be a foundation of a strong economy. The gold of the city turned out to be to a great extent Fools Gold. The sooner we wake up to the fact the better.

The scale of the banking bailout is so huge that it puts every other economic mistake of the post war era in the shade.

We simply must develop alternative industries to take the place of financial services. This will require boldness and substantial investment on the part of government. During the General Election the Lib Dems highlighted green technologies as essential to our economic revival, but we have heard precious little since.

I am left wondering where the Coalition thinks the growth and new jobs are going to come from. What is their plan other than savaging the State?

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Coalition Fairness Agenda – Poor to pay for the Bankers screw ups

George Osborne told Parliament today that benefit payments to the poor and disadvantaged are to be savagely cut back. Osborne just announced an ADDITIONAL £7 Billion of cuts in benefits, making £18 Billion in all since the Coalition came to power. But the banks will fare somewhat better! No surprise there – Tories always protect their own, but it is shameful that the Lib Dem leadership are going along with this and I speak as a Lib Dem Parliamentary candidate in 2010.

Banks will face some unspecified ‘levy’ which Osborne claims will raise more than Labour’s tax on bonuses last year (£5 Billion). Well I won’t be holding my breath as we all know how clever these bankers are at protecting their money and squandering ours.

The details of the bank levy are due to be announced later this week. Even if the bank levy DOES raise more than £5 Billion per year and I repeat that we don’t have any details yet, this is a paltry sum considering the magnitude of the bank bailout (over £1 TRILLION – that’s £1,000 Billion) and the catastrophic damage to the Western economies that the banks have caused.

So the Tory Toffs (and their new found Lib Dem allies) are going to squeeze the poor whilst protecting the bankers. Same old Tories. Shame on Nick Clegg for going along with it.

Deceit over UK public debt – nail the lie

The public are being led to believe that the UK’s public debt is somehow worse than anywhere else. This is a barefaced lie. George Osborne says the UK was “on the brink of bankruptcy” when the coalition took over and that “we have the largest budget deficit in the developed world”. Sounds apocalyptic doesn’t it? And of course if his assertions about government debt were true it would help Osborne to argue for ‘savage cuts’.

But the truth is very different. Look at the USA. Last Friday the Washington Post said ‘Total U.S. government debt exceeded 84 percent of gross domestic product (GDP) in 2009, and most observers expect that percentage to keep growing.’ In Britain it’s just over 60%.

The truth is that many countries have a far higher government debt as a % of their GDP. Take Europe …

The following European countries have a higher debt level (as % of GDP) than the UK:

Netherlands;
Austria;
Ireland;
Spain;
Germany;
Hungary;
France;
Belgium and
Italy

Measures of the annual ‘structural deficits’ of different countries as opposed to their total accumulated debts, suggest that the UK is indeed in a poor position, but it is by no means the worst of all the developed world as Osborne implied on the Andrew Marr programme on BBC 1 yesterday. In fact recent analysis by the IMF shows that the United States’ structural deficit is far worse.

Budget deficits are split into structural and cyclical elements by economists. They estimate that a part of the deficit will be corrected as an economy grows and tax revenues roll in. This is the ‘cyclical’ portion. But there’s also a ‘structural’ portion to the deficit which won’t be corrected just by growth. Of course lots of assumptions have to be made in order to make the estimates of the two different portions of the deficit.

A Warning from Hungary

One thing is clear – if the coalition’s austerity measures stifle growth (as is pretty certain) or worse still if they tip us back into recession, then we could well go the way of Hungary and Ireland – the economic situation will get a LOT worse and the coalition will be to blame.

This warning appeared in a report last week by Eversheds International ‘Hungary acts as a warning for others now considering how quickly to reduce their deficits. It was in an austerity-induced slump in 2007, even before the global downturn, and since being rescued from insolvency by the EU and IMF in 2008 it has been forced to renegotiate budget targets with them because it found that the spending cuts and tax hikes pushed its economy into much deeper recession than expected.’

Savage cuts will weaken the prospects for economic growth, leading to less tax revenue and weakening the ‘cyclical’ portion of the equation. That’s the main reason why the coalition’s economic plans are so flawed.

A Positive Alternative

There is an alternative approach comprising much more modest cuts in government spending; maintaining and significantly increasing major infrastructure projects; massive investment in green technologies (which could in time create hundreds of thousands of jobs) and international action to levy a ‘Robin Hood Tax’ on the banking sector. Before we all get locked into the madness of ‘savage cuts’ let’s consider these alternatives and take heed of the warnings coming from the economic disasters of Ireland and Hungary where ‘savage cuts’ have bled their economies dry.