“Six more years of austerity” trumpeted the Financial Times in reporting George Osborne’s promise to carry on squeezing welfare and other public spending to meet “a new fiscal target”; that the UK should run a budget surplus by 2020. The scale of such a promise can by measured by the OBR’s projection that the budget deficit for 2017-18 will be £42 billion. With masterly under-statement, the FT says that to turn that into a surplus by 2020 will be “a challenging objective”. It will be equivalent to wiping out more than a third of the health budget. Far from mending the roof whilst the sun shines this is a recipe for letting the rain in owing to insufficient resources to mend the holes in the roof.
The irony of this policy to drive down government debt is that it goes hand in hand with encouraging ‘irresponsible lending’. The government’s decision to rush forward the second stage of ‘Help to Buy’ (HTB) is an indication that they are not so sure about the state of the economy as they would like to pretend. Stage 2 of HTB not only includes state support for people rich enough to buy a house worth £600,000, but a guarantee to the lenders of mortgages, should the borrowers default on their loan. Good heavens, is this not ‘interference in the workings of the free market’. The banks and institutions whose reckless lending brought about the crash are being offered state support so that they return (albeit on a smaller scale) to some more reckless lending.
Whilst most debate has centred on the danger of HTB encouraging a ‘housing bubble’, the risk to individuals has barely been considered. Yet, HTB is nothing more than a measure to encourage people who do not have the resources for a mortgage to take one on. I have explained elsewhere the detail of HTB. Suffice it to say that people who sign up to it are being hoodwinked. They still will have to pay up to 25% equivalent of a deposit, it’s just that the major part of the payment will be delayed. Like the famous ‘sub prime’ mortgages there is a sting in the tail after 5 years of an interest free loan. They will have to pay an annual fee which will rise above the rate of inflation (RPI plus 1%). Should interest rates arise above their historically unprecedented low levels, these people are going to get caught out.
The idea of achieving a surplus undoubtedly has a tactical political purpose aimed at boxing Labour into a corner. Miliband and Balls have already said they would stick to Tory spending levels if elected in 2015. Osborne will now try to tie them down further. Do they agree that a budget surplus should be “a new fiscal target”? Or are they wedded to ‘unsustainable’ debt, they will be asked. The answer, of course, is that Osborne is encouraging unsustainable private debt, whilst destroying the fabric of public services and impoverishing millions of people. Whilst he condemns the idea of ‘interfering’ in the energy market, he is quite happy to offer state support for the financial institutions, and cover losses resulting from foreclosure of mortgages.
There is another irony which appears to be lost on Osborne. His medicine hasn’t worked, therefore more of it is required. He promises to keep cutting spending all the way through the next Parliament. The consequences would be drastic. The leader of the Tory Councillors, Merrick Cockell, is already warning of local Councillors going bust. This is a recipe for collapse of the local state and the services it provides. As ever, the victims will be the poor and the disabled. The juxtaposition between cutting benefit of people who are expected to live on £71 a week with state support for people buying a £600,000 house shows where the priorities of this government lie.
George Osborne thinks he is a very clever man. But he is not as clever as he imagines. The ‘recovery’ is not secure. The rushing forward of HTB stage 2 was partly the result of fears in Tory circles about Miliband’s commitment to an energy freeze. An increase in GDP tells little of the real situation that the population faces in the economy. As the Economist said in August “the wallets of many bear little evidence” that the economy is moving from “rescue to recovery”. Not only are wide sections of the population angry about the way that the financial institutions have been let off scot free for the crisis they caused, but they are also angry at the way that the privatised utilities rip them off. That’s why the Tories are worried that Miliband struck a chord when proposing a price freeze.
The talking up of the economy by Osborne jars with the real life experience of the mass of the population. Even those who are traditionally considered to be middle class are struggling faced with declining wages and rising bills. Precarious employment has spread amongst sections of the economy which previously had secure employment. Witness the zero hours contracts in education, even amongst lecturers.
As the Economist pointed out lending to companies is (accounting for inflation) 32% lower than its 2008 peak and lending to businesses is falling. It adds:
“Credit to the manufacturing sector has been sharply cut, with lending to firms that make chemicals and electronics 30% lower than the peak. In fashion and food the crunch has culled 39% and 47% of loans.”
Overall business investment has fallen 34% in 5 years. Britain’s investment-to-GDP ratio was 159th in the world in in 2012. It’s Research and Development spending “puts it towards the bottom of the rich world table, too.”
A recent issue of the FT underlines the “piles of cash” that British companies are sitting on rather than investing it. The “net cash position of FTSE 100 companies has risen from £12.2 billion in 2008 to £73.9 billion this year”. Francis Hudson, strategist of Standard Life Investments says that “High levels of cash on companies balance sheets reflect a lack of confidence about the future and continuing difficulties in securing bank financing.”
Even if GDP figures improve, ‘growth’ will leave wide swathes of the population struggling to get by. It’s difficult to see how six more years of austerity can be a winner for the Tories. The Economist reports that “at current rates, real earnings will have shrunk by £6,600 under the 2010-15 Parliament”. Instead of a ‘rebalanced’ economy we have Wonga and Bright House, exploiting the poorest, and the phenomenal growth of food banks. We have an economy in which secure and well-paid jobs have been replaced by much part-time and precarious employment and the growth of ultra-exploitative zero housrs contracts.
Six more years of austerity offers more of the same. Let us finish the job, said Cameron. That’s just what millions of people are worried about.
Martin Wicks 