Gwion Malik argues that the Coalition government’s aim is to dismantle the welfare state rather than tackle the deficit
Labour is losing the argument. The British ‘left’ is once again being sidelined by the well-oiled forces of right-wing Conservatism. Not only is the State being rolled back, but the public is being made to pay for the greed of our City’s financiers. Pensions are being attacked. Jobs are being swept away. Public services are being shredded – and all of this, in the name of ‘prudence’ and ‘fairness’.
At the heart of those decisions lies an overarching philosophy. In a nutshell, the Coalition Government is attempting a radical overhaul of British society. Not just minor re-adjustments to the workings of central Government, but a complete transformation of the role of ‘State’ and ‘Citizen’. It is this ideology that will fundamentally redefine the face of modern Britain.
The main argument used by Cameron and Clegg is that unless we accept the solutions that they offer we face “bankruptcy” and economic ruin. The use of such rhetoric and ‘emotionally-loaded’ language by the Government is no accident. As Naomi Klein pointed out in her book The Shock Doctrine, it is common for right-wing zealots (as opposed to moderate Conservatives) to deliberately instil a sense of fear and foreboding in the public when pushing through a programme of radical and extreme social policies.
But these ideological policies are being hammered through on the back of a myth. A deliberate ‘misdirection’ or intellectual slight-of-hand that is as dangerous as it is wrong. The Coalition claims that Britain must eradicate its budget deficit (which currently stands at £158 billion) in a single Parliament. It is this economic ‘strategy’ that is being used as a justification for the attack on our services. On the face of it, the argument is a compelling one. Britain’s debt must be serviced before the economy is crippled by interest repayments or a loss of confidence by ‘The Market’. They claim that unless we get the public finances under control today, there will be greater and more painful problems ahead of us tomorrow.
We would do well to examine the claim more closely. Essentially, there are two parts to the UK’s debt issue. The first is the annual deficit which is running at approximately £158 billion a year – and it is this figure that is the focus of the Government’s attention. The annual deficit represents the difference between what our Government spends and raises in tax. The Coalition has decided to reduce this deficit to zero in a single Parliament – in effect, wiping out the country’s annual overdraft. But the problem with this approach is that it will have a destructive effect on the quality of public services.
The second part to the debt crisis (which some commentators have confused with the £158 billion ‘annual deficit’) is Britain’s ‘national debt’. This comprises the liabilities that the Government will have to meet in the future, including:
- Projected pension payments.
- The cost of ‘Public Finance Initiative’ (PFI) schemes that are still to be paid for.
- The amount we paid for the bank bailout package.
Official figures put the ‘national debt’ at nearly £1 trillion (that is, a thousand billion pounds). However, some commentators estimate that it could be as high as £4 trillion, as the bank bail-out alone totalled nearly £1 trillion and is not included in the official figures – and neither are a number of other liabilities (like PFI). However, the current cuts programme will have no effect on the size of our ‘national debt’ despite it being 10-20 times higher than the ‘annual deficit’.
When the financial crisis arose in 2007 following the collapse of several international banks, Britain’s national debt as a percentage of Gross Domestic Product was 37 percent. Now it is about 60 per cent. However, while the amount of projected debt for the Government is something to worry about, it is both manageable and serviceable.
The state of Britain’s finances also compares better with most other countries, including our European partners (like France and Germany) and also with the US. We should also remember that from 1918-1961 Britain’s ‘national debt’ was over 100% per cent- and at times has even been as high as 250 per cent. Despite these historical debts over the last 100 years, Britain still managed to:
- Create the NHS.
- Build a world-class Comprehensive School system.
- Build millions of council homes.
- Fund state pensions.
- Nationalise a range of industries.
So living with debt is not something that we should fear. But we should not allow ourselves to be taken in by the ideological zealots in the Government. They would have us believe that unless we swallow their unpleasant economic medicine, we will face an Orwellian nightmare and certain economic doom. What’s more, they would ask us to passively accept the inevitability of their cuts programme. But we should not willingly follow the Government down this dangerous and socially divisive road. We should oppose it because their ‘slash-and-burn’ strategy is economically unsound, will permanently damage our communities and (perhaps more importantly) is completely unnecessary.
Many also believe that the Coalition is deliberately misrepresenting the facts by overstating the seriousness of our fiscal problems. For instance, last week Britain’s new Nobel prize-winning economist, Professor Christopher Pissarides, said, “The Chancellor has exaggerated the sovereign risks that are threatening the economy”.
Pissarides is not the only eminent economist who disagrees with Cameron, Clegg and Osborne. The list of esteemed dissenters also includes Joseph Stiglitz (ex World Bank Chief Economist), Oliver Blanchard (IMF Chief Economist), David Blanchflower (former member of the Bank of England) and even George Soros (the ‘high priest’ of Western capitalism).
Those who take an interest in the personalities of modern day capitalism will know that the economists mentioned are not just minor players in the economic world – they are capitalist celebrities famed for their immense economic nous. As such, when we consider the Government’s policies in this light, it is easy to see that their policies are not driven by prudence or robust intellectual rigour, but instead by ideology that has at its core a single mission – to trash as much of the welfare state as possible.
Unfortunately, however, the counter-arguments are being lost in the field of political battle. Not because they lack validity or do not stand up to scrutiny, but because the Government is setting the political agenda and therefore framing the terms of the debate. Moreover, the media is perpetuating the Governments’ narrative that our economic woes are all about the profligacy of the public sector.
Another obstacle undermining the effectiveness of any real opposition to the cuts is the Labour Party seeking to maintain a centrist line. It has become embroiled in how much the cuts should be rather than whether or not they should take place at all. The inevitable result is that the public – unfamiliar with economic policy – is buying into the Tory argument that eradicating the debt is preferable to doing nothing at all.
The Government knows that the majority of the public are not economists and it is this knowledge that emboldens it to construct its arguments safe in the knowledge that whatever they say to be the truth becomes the truth. In an environment in which the Government can argue that black is white, or that fiction is fact, we are perhaps not faced with David Cameron as an opponent, but the illusionist David Blaine. Perhaps for his next trick, he is going to make public services and the welfare state disappear completely. At no other time has Robert A. Heinlein’s quote been more apt, when he said: “Love your country, but never trust its Government”.
Many believe that the current arguments regarding the ‘debt crisis’ can be broken down into a single, underlying issue – whether we should adopt a ‘Keynesian’ approach or a ‘Monetarist’ one. Britain’s most famous economist, John Maynard Keynes, argued that when a country is in a ‘downturn’ or a ‘recession’ its only sensible option is to increase Government expenditure to stimulate the economy. Conversely, ‘monetarism’ (advocated by Milton Friedman) is a doctrine embraced by the free-marketeers who believe in the restriction of the money-supply and give primacy to the market and private enterprise over everything else.
However, whilst the Coalition Government are adopting a ‘monetarist’ approach (as opposed to a Keynesian one), such a simplified analysis ignores another more sinister fact. This is that Government is being driven by their political motivations rather than economic considerations. In fact, the Conservatives are willing to jettison building a balanced, fair and strong economy so that they can finally, and permanently, trash the welfare state and bury its legacy.
Meanwhile, monetarist policies like those being employed by the Government won’t work. A fiscal stimulus is needed to address our troubled economy. However, that misses the point. The Coalition is relatively unconcerned with whether or not it is better for jobs to be protected than to be lost, or whether tax avoidance should be properly tackled to bolster the Treasury’s coffers. The Conservatives have waited 30 years for the opportunity to dismantle the welfare state.
5 thoughts on “Tory myth-making over the national debt”
“Labour is losing the argument. The British ‘left’ is once again being sidelined by the well-oiled forces of right-wing Conservatism.”
Gwion surely knows full well that in Wales, the recent Yougov poll shows an opposite result- the left actually winning, and the two most popular parties (in a Welsh election) being parties of the left.
It raises the question, why is Gwion- or any progressive person in Labour- still tied to the notion of the United Kingdom and Britain? Which after all is an imperialist and institutionally centre-right state.
It is a fact that the British ‘left’ (in the form of Labour) can only ever wield power by shifting to the right.
In Wales a different politics exists. Progressive labourites should embrace this by shifting to Plaid Cymru and making a gradualist argument for full self-government and eventually independence.
Gwion sounds like he has more in common with a Plaid member than with Chris Bryant, Peter Hain, Phil Woolas or David Miliband.
This article raises a few questions for me. 1) What is the author’s opinion on the current level of annual overdraft and should it be brought down to some degree if not to the almost ludicrous target of eradicating it all in one parliament? And where would you make the cuts?
2) What exactly is behind the Conservative ideology of trashing the welfare state? Seeing as a fairer and protective society leads to greater ecomomic prosperity it doesn’t make much sense really unless you’re immensely wealthy already.
A fine analysis, Gwion, of what is going on!
The Conservatives, including their annexed puppets, the LibDems, are driven entirely by dogma on this! And Wales is set to suffer most!
But as Nick J says – with insight like yours, what are you doing still supporting the Labour party, and the union?
Thank you for your comments – I was hoping that my article would stimulate some debate around the nature of the current cuts programme and a realisation of how unnecessary those cuts are in practice.
To address (rather quickly) some of the issues/questions raised:
I am not of the opinion that the cuts are necessary at the present time. If people disagree with that perspective – and believe that the annual deficit needs to be reduced – then it should not be along the lines of 80% public spending cuts and a 20% increase in taxation.
That formula should either be 50-50 (cuts v taxation) or, more straightforwardly, a re-prioritising of spending. For instance:
a) military spending can be halved to bring us in line with Germany, whose economy is twice our size;
b) cancellation of the Trident programme;
c) a higher top rate of tax;
d) addressing, finally, tax avoidance (from individuals and corporations) that would bring in approx £24 billion a year – i.e. around £100 billion over a 5-year Parliament;
e) a Tobin Tax (or ‘Robin Hood Tax’ on the banks).
With regards to the point raised about joining Plaid Cymru, I believe that the Labour Party is currently the most effective mechanism to realise a progressive and Socialist agenda, both within Wales and across Britain. I am in favour of further Devolved Powers to the Senedd and hopefully Labour will be instrumental in the next phase of the campaign, just as it was in 1997.
A large welfare state, giving out handouts to those who can’t won’t don’t or refuse to work produces more of the same. It quietly robs people of there independence self respect self reliance and motivation. It is good for us to have to get up and work for our daily bread, not rely on hand outs. This has been the human condition since the dawn of time. State spending is inefficient and produces no sense of ownership or pride because it belongs to no one, other than the monolithic faceless state. It is also bottomless pit . Real wealth is only generated by the private sector , and THE ONLY source of income the state has via taxation. If we make our taxation system unattractive to to real wealth creators, the private sector, they create wealth elsewhere, and move operations away from the uk. Wouldn’t you? So your argument , we are only sinking slowly into debt and it’s only a little bit just doesn’t wash.. The coalition has not gone far enough and has only slowed the rate of sinking so far. Cut taxes , they are like an anchor to real wealth creation, cut spending and let people stand on their own two feet, and watch this country rise back to the great hard working inventive dynamic place it can be. Ponce of with your all controlling life robbing depression inducing state systems. Go and do something useful instead of suggesting more ways to waste other peoples money.
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