Is the high level of Government debt a justification for austerity?

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In the piece posted below, Henry Stewart exposes Osborne’s sleight of hand by using the high level of government debt to justify his cuts – the debt that has grown under Osborne’s stewardship from £960 billion in April 2010, just before the coalition government was elected, to £1.5 trillion five years later.  Nevertheless…

UK government interest payments at lowest since war

By Henry Stewart : @happyhenry

Government debt was, in 2010 and 2015, a key element in the general election. The high level of debt is the justification for austerity. Politicians on the right and left have explained that the high cost of servicing the debt prevent spending on health, education and other areas.

The natural assumption is that this has been such a key issue in 2010 and 2015 because the cost of interest payments on the debts were particular high in those years. An analysis of government statistics reveals that the opposite is the case. The cost of interest payments were, proportionately, at their lowest levels since the war in the years 2010 and 2015.

UK Interest Payments lowest as % of government spending

There are two ways of comparing the cost of interest payments: as a percentage of overall government spending or a percentage of UK GDP. Interest payments were 4.3% of government spending in 2010 and 4.9% in 2015. As the graph below shows, the level was higher in all other post-war years. At the end of the previous Conservative government, in 1997, interest payments represented 9.7% of government spending.

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UK Interest payments lowest as % of GDP

UK interest payments are also at their lowest in terms of proportion of GDP. In 2010 the figure was a post-war low of 1.7%. In 2015 the figure was 1.8%, equal lowest with the years 2003 and 2004. In this case the figure at the end of the last Conservative government in 1997 was 3.3%

A key reason for the low cost of interest payments is clearly the low interest rates at which money can currently be borrowed. However, as many economists have pointed out, the low interest rates make this the best time since the war to invest in the public infrastructure rather than cut back.

And if the main problem with debt is the cost of servicing it, why has this only become an issue when that cost is at a post-war low?

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These figures are taken directly from the PSF (Public Sector Finances) aggregates databank: http://budgetresponsibility.independent.gov.uk/data/

Contact Details Henry Stewart can be contacted on henry@happy.co.uk,

or on Twitter: @happyhenry

Editor’s note:

William Keegan wrote in the Guardian, October 2015:

‘George Osborne is what is known in the trade as a “chancer”. Chancers often get found out. William Hill has made the chancellor hot favourite to succeed David Cameron. We shall see. The wider implications of his unnecessary policy of austerity are gradually being brought home to the middle classes and all those middle-England voters whom the new leaders of the Labour party are accused of ignoring. The “cuts” are affecting surgeons, GP surgeries, local authority social services for the old and the infirm, and reaching into many other corners of everyday life.’

 

 

Midwives Standing Together – When We Have Had #ENOUGH

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There are many good people  in working reponsible roles in society. They are not earning a fortune; they are doing jobs because they care, careers they are proud of – because they want to make a difference.

But caring is not enough. Everyone derserves a life, a family, a home. The government’s treatment of our skilled health professionals, on whom we depend for our lives is appalling.  Staff are working long shifts with no mealtimes, with wages frozen and no prospects of improving conditions. Remember this is in  one of the richest countries in the world, one where where bankers have bonuses, where  global corporations hold democracy to ransom, and where they seek to silence dissent. We should be ashamed. Now it is time to say, “Enough”!

This plea from Hayley, a midwife,  is calling time on this government’s treatment of our workers, on the erosion of our public services. We will take no more.

A Midwife’s Call for An End  to Abuse of Good Will

By Hayley Huntoon

Twitter: @hayleyhuntoon

Yesterday a man came to me livid with frustration ‘this is not good enough’. He told me ‘my daughter has been waiting hours to be seen’ . He went on to tell me, ‘it isn’t you. It isn’t the other midwives – the care has been impeccable but the situation just isn’t good enough.’

I know. I agree. I have shed too many tears over a career I could not love more because there is nothing I can do. What he didn’t know was that heartbreakingly this is a daily occurrence in my life as a midwife. What he didn’t know was that actually yesterday was a rare Saturday off for me yet I had come into work so that my amazing colleagues could have a break from their 13 hour shift. A break they won’t be paid for whether they take it or not, but that they physically need as human beings. I had come into the unit so that women like his daughter could be seen. So that our unit could be open to women who needed our skills as midwives, doctors, health care professionals. Women who were in labour. Women who’s babies weren’t moving much. Women who were concerned about their own wellbeing.

5 maternity units in the north-west have been closed over the weekend. These women need our care. We are literally being worked to the ground. I am watching amazing midwives leave a profession they love because the workload and stress is too high.

Today is a rare Sunday off for me. But I will be spending it supporting our rights as workers. The NHS is run on good will. But there is only so much we can take. We joke at work that midwives don’t need to eat. To rehydrate. To empty our bladders. To sleep. Let us look after ourselves so that we can look after our women. Our future generation of children.

Earlier this year, our country voted for a government that said no to more midwives. The Conservative party have demonstrated five years of austerity, falling living standards, pay freezes and huge cuts to public services. They have threatened to make cuts to our night shift and weekend enhancements. Over the past 4 years I have missed Christmas days. New Years days. Family’s birthdays. Countless nights out. I had a good education and did very well at school. I am 22. I have held the hands of women through the most emotional times of their lives. I have dressed Angels we have had to say goodbye too. I have supported women to make decisions that empower them. I have been scared myself. Tired, stressed, emotional every day. Yet I am not and will not be paid well like my friends who have chosen business careers. I am not offered pay rises for my efforts or successes. I don’t care because I get something more valuable than that from what I do. I love what I do. I’m passionate about what I do that’s why I do it. But I do care that we are the ones who are being threatened with further cuts. Further strain.

Enough

So today I stand with doctors, midwives, nurses, teachers, firemen and many other amazing people to spread awareness of a situation that has gone too far. To share information that the general public are oblivious to because as midwives, we will not let these women be failed. I am regularly met by stunned responses from women and their partners to the situation they watch me working under. But Hayleytoday I say no. Enough is enough.

I have shed too many tears over a career I love. Missed too many meal breaks. Not physically been able to care for too many women the way I wanted to. Spent too many days off in work. Lost too much sleep over the stress I am under. Watched more of my colleagues than I could count (myself included) be signed off work with stress in the early years of their career. Watched too many good midwives leave careers they love. This is not humane.

Please let’s end this. Protect your NHS. Your children’s future. Your education system. The core foundations of Great Britain.

I have recently learned the world is a selfish place. But I have also learned that there are a lot of very good people in it. The NHS is run on good will and because of this we have been pushed too far. Let’s change this.

Further Reading:

How Labour should deal with Fiscal Responsibility Act

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How Labour should deal with the Fiscal Responsibility Act

By Michael Burke 

Previously Published on Social Economic Bulletin here 

Jeremy Corbyn and John McDonnell are frequently in advance of many of their supporters on economic matters, including their supporters in academia and economic commentators. They are correct to argue against permanent budget deficits and in favour of the central role of public investment as the path out of the crisis, identify People’s Quantitative Easing as a useful policy tool, and to question the ‘independence’ of the Bank of England. They have faced unwarranted and confused criticism on all of these from some on ‘the left’.

The recent indicators point to a slower pace of economic activity and the Tory government is about to embark on Austerity Mark II, in nominal terms exactly the same level of cuts and tax increases as the £37 billion George Osborne announced in 2010. As the Tories have little popularity (the second lowest popular share of the vote for any government) it has been necessary for this project that there is a pretence that this not a return to austerity, after the boost to consumption that helped the Tories get re-elected. So, there was the fiction that recently there was a ‘One Nation’ Tory Budget, that Osborne was ‘stealing Labour’s ideas’ and similar nonsense.

Politically it is crucial for the Tories that there is no opposition to the latest version of cuts, as this would show the blantant falsity of the claim that the Tories have a commanding parliamentary majority and that There Is No Alternative. This necessity explains why the other Labour leadership candidates were so wrong to give the Tories a free pass on welfare cuts.

However the election of Jeremy Corbyn and the appointment of John McDonnell as Shadow Chancellor changes the previous situation in which Labour did not in fact challenge the Tories’ central economic policies. Now the Tory tactic is to set a series of political traps for the new team in the hope of detaching them from either, or both, the majority of the population or their base of supporters. This is taking place primarily on the area of foreign affairs and the military. But on the economic front this will be the introduction of an amendment to the Fiscal Responsibility Act. This proposed Act precludes borrowing in normal circumstances/over the course of the cycle not only for current government expenditure but also for investment. It also commits future governments to run budget surpluses when the economy is growing, to be overseen by the Office for Budget Responsibility.

Labour’s response

Initially, George Osborne hoped that by announcing the new law and holding it over to the autumn that it would dominate the Labour leadership campaign. That has failed spectacularly. Instead it is possible to turn the tables on Osborne and use the debate and vote to set out clear differences with him.

To achieve this it is necessary to approach these questions soberly and intelligently. To paraphrase a remark by Trotsky, the appropriate economic policy is not at all automatically derived from the policies of George Osborne, simply bearing only the opposite sign to him – this would make every madcap pundit an economics guru. It is necessary for Labour to put forward a positive economic policy based on a correct economic theory.

Labour should formulate its own policy and pose that sharply in contrast Osborne’s. It must be based on a clear understanding of the difference between consumption and investment. Investment is the chief motor of economic growth, with the latter in turn being the chief determinant of the population’s living standard. Therefore the way to ‘grow the economy out of the crisis’, as Jeremy Corbyn and John McDonnell have correctly put it, is to increase the economy’s level of investment. As the private sector has failed to do this the state should step in. This should be expressed in a policy to increase state investment, and to create National Investment Bank – which should finance both state and private investment.

The key question is where the savings equivalent to such investment should come from, and this in turn relates to the current expenditure in the budget. Current expenditure can be financed in one of two fundamental says. It can be financed by borrowing, but in that case this reduces the proportion of the economy devoted to savings/investment, which is undesirable as it will slow economic growth and therefore the increase in living standards. Or consumption can be financed by taxation, in which case it merely means privately financed consumption is being replaced by government financed consumption (either government final expenditure or transfer payments) in which case the level of investment is not being reduced and growth will not be reduced.

It therefore follows that for a coherent and sustainable policy current government expenditure should be financed out of taxation, in particular on higher incomes and luxury consumption, and not out of borrowing.

Expressed in terms of budget deficits and borrowing his means that the aim should be for a balanced current budget over the business cycle, but reserving the right to borrow for state investment. This is the correct position expressed by John McDonnell. This therefore means that an amendment to Osborne’s Bill expressing that position, of no deficit over the cycle for current expenditure but permitting borrowing for investment, should be moved by Labour. This will establish its position clearly.

But, in the likelihood an amendment of this type were to fall, although some other parties may vote for it, then Labour should vote against the entire bill – as it excludes borrowing for investment. (In fact the level of state borrowing for investment currently should be considerable, up approximately 3-5% of GDP). Labour should explain its position of voting against the bill as a whole because of the defeat of its amendment.

In this way, Labour’s approach would be very clear. It is not in favour of public borrowing to fund current expenditure and is in favour of borrowing to fund investment. As a balanced budget law does not allow that investment, Labour would be opposed to the Tory policy.

Labour should not support the Bill without this amendment as this would preclude borrowing to invest and leave the economy at the mercy of a private sector which has achieved only chronic under-investment. Neither should it simply oppose the Bill without offering an alternative, especially not on the spurious grounds that any public sector surplus should be ruled out because it ‘obliges the private sector to run a deficit’. Sometimes the private sector, or at least the business component should be obliged to run down its savings, if it is hoarding cash and refusing to invest. Many countries accumulate budget surpluses in their sovereign wealth funds, to be used for investment at a later date. This is what should have occurred with the windfall of North Sea oil, rather than wasting it on consumption in the ‘Lawson Boom.’

In taking a clearly different approach, Labour’s new leadership will be able to demonstrate it has an entirely different policy to the Tories based on increasing investment to increase prosperity.

Voting for Corbyn – What it’s all about …

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Hat-tip Chelley Ryan for bringing this celebratory video compiled by Nenasadie to Think Left’s attention – it’s a joy!

Voting for Corbyn – What it’s all about