A conversation about cuts

Here is a conversation I had with a freind who, like me, works in the public sector about the cuts.

My friend

I have to warn you, this is going to be the longest facebook comment I have ever made. I can’t remember being this angry with politicians before. Well, actually, I was this angry with Blair over Iraq and detention without charge and ID cards. But I wasn’t this frightened and I wasn’t this desperate and I wasn’t crying over it.

If people think these cuts are necessary, that’s fine, it’s their right to think it. But pretending that the cuts announced since the coalition took power are not going to hurt the poor the most is insulting.

Cuts to council tax benefit and housing benefit/ LHA, reduction in entitlement to ESA, scrapping EMA, cutting the childcare element of WTC, huge public sector job losses etc etc etc… there is no way this will not hurt the poorer and needier the most. My initial worries about losing my job are obviously for myself and my family, but then I think about all the people whose lives will be harder and worse when people like me are not there to help them.

Tax rises? I have no problem with tax rises, but I am not talking raising taxes on people earning average wages. It’s the rich who need to elarn what tax rises are. If I was ever deluded enough to seek power and slimy enough to get it, the taxes I would impose on wealthy individuals and big business would make people like Murdoch weep. I have no time whatsoever for the “oh but if we make them pay what they should be paying they’ll leave” arguments I keep hearing. So what? Fuck ’em. They can go. I don’t need people like that in my society. I need people who don’t think ‘fairness’ means some people spending more on a pair of socks than whole families spend on food for a week. I need people who don’t think the poor deserve to be poor and the way to take people out of poverty is to make life at the bottom absolute bloody hell. I need people who genuinely give a shit about the poor, the vulnerable, the sick, the young. These cuts have decimated our children’s future.

The announcements made on Wednesday were an ideological attack on the welfare state and public services. They were made by someone who has no idea whatsoever of what it is like to have a bill come through that you cannot pay (through no fault of his own, but god, could he not have LISTENED to people who do understand?). His children will be able to attend uni whether fees are £7k or £70k. Mine, on the other hand, have no fucking chance.

Me

We can all do anger. I’m angry with the people who started running budget deficits back in 2002, FIVE YEARS before the banking crisis, and I was over the moon to see the back of them in April.

We have to be clear over what’s going on here. Today, October 22nd 2010, a dreary Friday, the British government will borrow £450 million pounds. It will borrow £450 million more tomorrow, another £450 million on Sunday…Increasing our national debt at the rate of £4,000 every single second simply is not possible. The deficit needs to be dealt with.

So do we raise taxes or cut spending? All the evidence, and I do mean all of it, shows that countries that deal with a situation like ours by cutting spending see better, far batter, results in terms of economic growth and prosperity than those that try to tax their way out of it.

And if we are going to have public services we need the money that comes from this growth to pay for them; the private sector needs to generate money before the public sector can even think about spending it.

So why are cuts going to affect the less well off? Simple. If you cut government spending it is blindingly obvious that those who get most of their income from government will suffer more than those who don’t. I’m amazed when people get angry and ask why cuts aren’t affecting the rich. It’s obvious, the government isn’t spending any money on them, they’re rich, there’s nothing to cut in the first place!

So lets talk about tax. You say “the rich who need to elarn what tax rises are”. Would this be the same rich who are already paying a marginal tax rate of 50%? Would it be the top 1% of earners who pay 25% of all income tax? And as I say, when you take the cuts from yesterday and put them with the tax rises brought in by Labour and kept by the coalition it is the richest 10% who are hit hardest by this.

You say the taxes you would “impose on wealthy individuals and big business would make people like Murdoch weep”. Ill return to business taxation in a while but do you really think Rupert Murdoch, or anyone, would sit around weeping while you tax then at God knows what rate? No, as you acknowledge, theyd clear off. And then you can tax 90% of nothing.

In fact we tried this back in the 1970s with tax rates of 83%. Trouble is that hardly anyone paid it. They all moved abroad or stopped working. The economy ground to a halt and unemployment started to rise to over 1.25 million in 1979. If that’s helping the poor…

Which brings me to business taxation. ‘Ive said that we need economic growth from the private sector to pay for public services. I don’t think anyone would disagree. But how do you think yanking up business tax is going to help that? ‘Ive been made redundant twice in two years from small companies who were struggling to get by as it was, raising their tax bills would kill them and many others. Then you will be, again, taxing a higher rate of nothing to pay for all the unemployed people youve created.

There’s the question of ideology. I don’t doubt there’s an element of that. But wasn’t it just as ideological when Labour added 700,000 staff to the public sector? Wasn’t it just as ideological when Labour began borrowing money way back in 2002 to pay for this?

And how far have the coalition pushed this ideology? Not very is the answer. In cash terms government spending is actually going to increase in every single year of this Parliament. The national debt is set to double from its 2009 level even after these supposedly ‘savage’ cuts’. The state will be back to the size it was not in the Dickensian nightmare of 1906 but in 2006. Even with the proposed public sector job losses (which can actually be achieved through natural wastage) the state will be employing more people in 2015 than it was at any period between 1993 and 2003.

The announcements made on Wednesday were an utterly necessary response to a situation where, by 2014, 9p in every single pound paid in tax will be going, not on welfare, nurses, doctors or firemen, but on paying the interest on government debt. To allow that situation to continue or to, instead, strangle the wealth generating private sector upon which the public sector depends really would decimate our children’s future.

My friend

NO. The rich are not hit hardest.

They may lose more money. They may lose a greater proportion of their income. But to be hit harder they would have to lose a proportion of their income which would take them to the point that they are literally unable to make ends meet. If you’re on £50k, losing £30/week isn’t going to mean you can’t both heat and feed yourself. If you’re on £15k, if might well do. If you’re on £9k, it definitely will.

No one says the deficit does not need to be dealt with. But it does not NEED to be eradicated by 2015. There is no countdown.

There is no consensus that this approach to our current situation is the best. Growth will slow. Tax revenues are going to drop dramatically just as benefit claims will rocket. The knock on effect of cutting public spending to this extent is going to strangle the private sector. Where is this magical private sector growth going to come from?

Again, the old ‘if you tax them they will go’ threat is meaningless to me. They can go, and their businesses with them, and we can replace them. Don’t want to pay tax here? Fine, you don’t get to earn a penny here either. We’re suckered into believing that we need the big corporations and that no one else can provide what they do. Such bollocks. Such total lies. Radically rethinking our approach would do this country wonders.

Capitalism sucks. Before you tell me that communism sucks too, I’m not advocating it. It’s a beautiful theory, it generally fails in practice. But the system we have now is failing, too. Boom and bust, boom and bust: that’s inevitable with capitalism. We need to get out of this mindset that we cannot afford to ensure a decent quality of life for everyone: we CAN. We just have to knock on the head this idea that there needs to be some sort of super wealthy class.

Closing tax loopholes, making people like Ashcroft pay their taxes… where was this sort of action on Wednesday?

Labour’s biggest mistake was to be so afraid of the reaction of the right wing press and big business that they failed to raise taxes. Well, actually, I suppose their biggest mistake was to be so afraid of those elements that they allowed the bridge between rich and poor to grow so much. I’m not much of a New Labour fan, because really, they weren’t so different from the Tories. “We have no problem with people becoming filthy rich” was one of the most offensive soundbites of the new Labour era, because what it translated as was “we have no problem with some having wealth beyond most people’s dreams at the same time as others have nothing”. That wasn’t a true Labour government. They did some fantastic things- the NMW, elements of the tax credits system, sure start and children’s centres, off the top of my head-but in general, they were centrist and Blairite and not true Labour.

Working people are going to suffer. I’ve seen quite a few people smirkingly say that “it’s the benefits classes, not the working classes” who will lose out. Oh come on. People on low wages are housing benefit claimants, tax credit recipents, social housing tenants. Their kids get EMA. They use public services. You live in London, you know rent costs there far better than me. Who could earn minimum wage in London and afford to live there without HB, council tax benefit and tax credits? Is that possible? If not, how much of their income must they spend on commuting in? How much of their time?

Why not set rent ceilings at the same time as pegging social housing rents to the private sector?

I didn’t advocate raising taxes on small businesses, btw. I want to see the wealthy and major businesses taxed.

Me

You do not work for free. Neither do I. Neither does anyone in my office, nurses, teachers, council staff, road sweepers etc…we are all paid for the work we do. Someone, somewhere, has to earn the money and pay the tax to pay all of us. T…his is the private sector and individual workers. You cannot have public sector spending without taxing the private sector and individuals first.

So no one is “suckered into believing that we need the big corporations”, we do. How else are we to pay for public spending? Money does not grow on trees and you cannot borrow £450 million every single day indefinitely.

Likewise, you say that the “‘if you tax them they will go’ threat is meaningless to me” but if you are at all serious about funding public services it should be anything but meaningless. You have to ask yourself a question; what is the reason for taxing people? Is it to raise revenue to pay for essential services? Or is it to piss Rupert Murdoch (who doesn’t live here anyway) off by, er, making him live in the Seychelles as a tax exile?

As I say, you can set rates at 83% and feel wonderful about how you’ve stuck it to the rich. This was done in in the 1970s. The rich all moved to Monaco and watched on TV as those left in Britain went bankrupt and public services were cut. National bankruptcy is too high a price to pay for winding up the rich.

You say you “want to see the wealthy and major businesses taxed”. They are. As I’ve said, the richest 1% of the UK population pay 25% of all income tax, a huge disparity. And if you want to tax “major businesses” do you not think they will relocate? They already do exactly that. And what threshold do you set above which a small business becomes a major business? And what incentive would a small business have to grow if it was going to be clobbered by higher taxes?

You say that if they do go “we can replace them”, with what? Another 700,000 civil servants? More council staff? More welfare workers? This is crucial because, to repeat, how are you going to pay these people?

It’s vital to note that, however worthy they are, none of these activities generate any income, they are not providing a good or service which people are willing (or able) to pay for. If liquidating the private sector and making everyone a state employed bureaucrat was a path to economic success the Soviet Union would not have been the economic disaster it was.

I do agree that we need to radically rethink our approach but whatever approach we end up choosing we have to be able to afford it. This means economic growth generating the wealth which will enable us to choose what we do with our public services.

One of the few areas where there is near unanimous agreement among economists is that raising productivity, greater efficiency at turning inputs of land, labour and capital into outputs, is the source of all economic growth and, thus, rising wealth. To generate the wealth to pay for public services we need to improve our productivity.

Given this, the public sector is too large. Too many of Britain’s factors of production listed above are locked up in non productive activities which consume wealth and do not generate it. This needs to change. We need to rebalance the economy away from consumption in the public sector towards investment in the private sector to generate the wealth we need for public services.

I agree with you that we need to close tax loopholes (Ashcroft paid every penny of tax he was legally liable for actually) but are you prepared to do what it takes to do that? We have tax loopholes because we have a complex tax system. Simplify the system, introduce a flat rate of tax as they have in eastern Europe, and eliminate almost every loophole at a stroke.

You ask “Why not set rent ceilings”? Well we did between the First World War and the 1950s. It was a disaster. As basic economics predicted the supply of private rented housing shriveled.

I can’t agree with your assertion that “Labour’s biggest mistake was to be so afraid of the reaction of the right wing press and big business that they failed to raise taxes”. Sure, they failed to raise taxes sufficient to cover their spending and ran deficits from 2002. But it wasn’t because they were scared of “the right wing press and big business” it was because they knew the voters wouldn’t stand for it. People, quite simply, are not willing to pay the taxes to fund the current size of the public sector. That is why it will shrink.

Neither can I agree that “in general, they were centrist and Blairite and not true Labour”. They were solidly in the Labour tradition of spending money they didn’t have ruining the economy. On every single occasion since World War II when a Conservative government has taken over from a Labour one; 1951, 1970, 1979 and 2010, it has done so in the midst of economic chaos. The Blair/Brown government kept up this tradition and proved the truth of Maggie Thatcher’s old quote; “The trouble with socialism is that it always runs out of somebody else’s money”

As a final reflection I’ll give you one little example of just how utterly bogus the claims that this government is evil really are. My brother earns £11,000 per year. In the good times when the economy was growing, the last Labour government abolished the 10p tax band which put him in the 22% band doubling his taxes overnight. In the middle of the deepest recession since the 1930’s this ‘evil’ coalition government cut his taxes and he is better off.

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The economics of the London Living Wage just don’t add up

The first thing to note about the London Living Wage is that it is nothing of the sort. The website of Citizens UK says the Living Wage is intended to enable workers to “earn enough to provide their family with the essentials of life”.

But defining “the essentials of life” is rather tricky. Once upon a time it meant food, clothing and shelter. The free markets for food and clothing work quite well in providing these essentials (the housing market with its substantial government interference works noticeably less well). Between 1982 and 2005, according to the Office of National Statistics Family Spending Report, the average family’s spending on food fell from 21% of family spending to 16%. The cost of clothes fell by 2.6% per year between 1998 and 2008. Indeed, as far back as 1959 Barbara Castle told the Labour Party conference that “the poverty and unemployment which we came into existence to fight have been largely conquered”

So if the “essentials of life” are being readily provided ever more cheaply why the Living Wage campaign?

Quite simply “the essentials of life” were redefined. Poverty was no longer an absolute state threatening continued life but a state of wealth compared to others. Thus, in 1999 the Child Poverty Action Group said that the lack of a video recorder was a sign of poverty. In 2006 a US government report found that among officially ‘poor’ Americans 97% owned a colour TV, 62% have cable or satellite and 89% own microwaves. The Living Wage is really just a Higher Wage.

If the Living Wage is not, in fact, going to protect workers from imminent death what will its effects be?

There are few more basic propositions in economics than that an increase in the price of something leads to a fall in the amount of that something people demand. So it is with labour. If a government mandated rise in wages makes hiring workers more expensive companies will hire less of them.

Sadly analysis of the correctness of this theory in practice indicates the truth in the old joke that if you laid all the world’s economists end to end you wouldn’t reach a conclusion. Studies of the effects on employment of introduction or raises in minimum wages either tell you it has reduced employment (Machin, Manning and Rahman, 2003 and Stewart and Swaffield, 2006) or that it hasn’t (Metcalf, 2007).

Much of the doubt stems from the fact that minimum wages are typically set at around the market wage anyway. Despite casting doubt on the point of a minimum wage in the first place, this fact also raises another question; what happens if it rises too far? Here there is consensus; if the minimum wage rises too far employment will fall. Those in work will benefit at the expense of those out of it.

And this is where the Living Wage (sic) could be dangerous. At £7.85 per hour it is £2 higher than the national minimum wage and has increased 33% in the last five years. Coming at a time when university budgets face severe cuts the higher wage will become less affordable for employers. This will lead to less cleaning and other services being provided around campus and fewer jobs. Or it could mean a rise in your tuition fees.

The Living Wage Campaign is simply a higher minimum wage campaign and its current name is dishonest and emotive nonsense. When set at a rate around the market level its effects on employment are small but it is also pointless. But when it rises by a third in five years and universities have less money, something will have to give.

Andy Burnham

Andy Burnham had the comrades cackling with glee when he opened his stint as Shadow Education Minister yesterday, attacking Michael Gove for failing “to understand the difference between being a minister and a journalist”

Gove was a journalist for many years but look again at that sentence and it highlights something interesting; Gove has had a career outside politics. If that sentence were directed at Burnham what would you replace “journalist” with?

It’s difficult to tell. Gaining a Masters in English from Cambridge Burnham went straight into politics, working as a researcher for Tess Jowell from 1994 to 1997. After the election Jowell became Minister of State in the Department of Health which made Burnham the obvious choice to be appointed Parliamentary Officer for the NHS Confederation, a pressure group for health service providers. Nice work if you can get it!

In December 1997 Burnham’s experience of the health service made him an obvious choice to be appointed to the Football Task Force, a body set up by the Blair government to either revamp football in the UK or pump out a lot of hot air courting the football vote depending on your opinion of Blair’s sincerity.

In 1998 Burnham got itchy feet again. He became special advisor to the Secretary of State for Culture, Media and Sport, Chris Smith. Burnham remained in this role until he himself was elected to the Commons in 2001.

Given this background Burnham was unwise to draw attention to Gove’s life before politics; Burnham never had one. Despite his regional accent and man of the people schtick, Andy Burnham is another of the class of professional politicians who go straight from university into politics and bounce from one cushy non job to the next waiting for their turn at the Parliamentary trough.

Burnham isn’t the only one, indeed, politics today seems to be filled with characters like this, but given his background Burnham would be well advised to leave Michael Gove’s CV out of this.

Bob Crow vs Ronald Reagan

Students new to London ought to get used to this. On the evening of Monday September 6th London Underground workers headed out on strike. London ground to a halt and was not back to normal until Wednesday evening. Similar strikes are expected to continue for another few months.

Tube union leader Bob Crow (as close as London has to Public Enemy Number 1) claims the strikes are in response to the proposed reduction of ticket office hours at outlying tube stations which will lead to the loss of 800 jobs. He claims this will affect tube safety.

Crow’s safety concerns can be doubted. Back in 2004 he shut the network to protest the sacking of a number of maintenance workers who had been caught boozing on the job. So much for safety!

In truth Crow is simply indulging in the age old union trick of cloaking sheer self-interest as concern for the public, the very public he and his union plan to screw next week.

It needn’t be like this. It would be entirely possible for Crow and the RMT union to turn up to work as normal and simply open the gates; hit Transport for London in the pocket but leave the rest of us out of it. What Crow calls ‘industrial action’ is, in fact, industrial inaction.

Crow complains about the effects of coalition cuts on the London economy but his strike is estimated to cost London £48 million pounds. But, as Crow once said, “I’m not one of those union officials who continually say they regret the inconvenience caused by industrial action”.

Indeed, it needn’t be like this. In 1981 the American air traffic controllers union went on strike looking for higher pay and shorter hours. President Ronald Reagan gave the 13,000 controllers 48 hours to get back to work. When they ignored him he sacked them.

It worked. With help from military air traffic controllers Reagan kept the skies open, broke the union, and freed the average American flyer from their whims.

Perhaps this points a way forward in London? First, see if the RMT will agree to limit its industrial dispute to the disputing parties; itself and the RMT. Failing that, bring in trained personnel to operate the Underground network so that a resource we all pay for cannot be turned on and off by workers who earn around £30,000 a year and get 35 to 40 days holiday (the average in London is £26,000 and 20 days each).

So, as you fight your way onto a bus during a tube strike, lets hope the capital’s answer to Reagan isn’t far away. In the meantime, welcome to London.

Written for Caerulean, October 2010