Fantasy Budget

The budget today reminded me of those things that were the fashion a few years ago where you drew up a fantasy football team and so on. It was a fantasy Budget in which the Chancellor listed a number of measures he'd like to see implemented, but most of which are outside his control, and will never happen. Even Norman Lamont, interviewed on BBC said that the proposal to cut unprotected Budgets by 25%, was only “an ambition”.

What is interesting in the Budget from that perspective is the Cuts that are within their control, and the main means by which those Cuts will be effected. So, one of the biggest savings will be through freezing Public Sector wages. Provided, of course, that the Government can impose such a freeze – and they have made that more likely both by putting the frighteners on Public Sector workers with the threat of huge job losses resulting from a 25% cut in Budgets, and by dividing the workforce by guaranteeing a flat rate pay rise for all Public Sector workers earning less than £21,000 a year – then the saving in real terms from that is a known figure. If, as I have been arguing for some time, the real means of reducing the deficit is achieved through a hefty dose of inflation, then the higher that inflation, the bigger the nominal saving achieved.

My belief that they intend to cut the deficit via inflation has been strengthened by other factors in the Budget. Firstly, they have made a big play of restoring the link between Pensions and incomes. But, of course, given that a large number of workers – in the Public Sector – will be experiencing a pay freeze, and wages in the private sector are unlikely to be rising rapidly, that is hardly something Pensioners should look forward to. Having suffered for the last 20 years or so as wages outpaced prices, they are now to get their pensions linked to wages just at the time when prices are going to outpace wages! Secondly, the Liberal-Tories have said that they are going to link Public Sector pensions, and benefits to the Consumer Prices Index rather than the Retail Price Index. All of these indices are a con, because they significantly understate the price rises most workers face, and understate the price rises faced by low-paid workers, and pensioners even more so. But, of the two the CPI is far more of a con than the RPI. It excludes many items that comprise normal expenses. As a result, whereas the CPI is currently at around 3%, the RPI is standing at nearly 5.5%! Given all those factors I have been warning about for months – and China has now effectively scrapped the peg of its currency to the dollar, which means that Chinese export prices will rise, sending the prices of all those multitude of things we now import from China soaring, especially as Chinese workers are now demanding with the support of their Government pay rises of between 30-50%! - which, with the loose money policy will send inflation much higher before the end of the year, and with the deliberate boost to that inflation that the Liberal-Tory VAT “Tax Bombshell” will now impose, pegging benefits and Public sector pensions to CPI will mean a huge real terms cut. The Liberal-Tories must know this, must know that inflation is going to rise, because the only reason for making this switch – and they have admitted that the switch will bring in several billions in savings – can only work if that is the case.

And, of course, the VAT rise, which is not a rise of just 2.5%, but is actually a rise of around 12%, will more than wipe out the small benefit for lower paid workers of the rise in the basic rate Tax Allowance. Before the election when the Liberals were campaigning against the Tories VAT tax bombshell, they said that it would take around £375 out of the average person's pocket. The change in Tax Allowances, which goes nowhere near the rise to £10,000 the Liberals had been asking for, will save them only £175. That is before the losses from all the other Benefits are taken into account. As I said before the main emphasis would be on hitting Benefits, because it hits people who are atomised, and in no position to effectively resist. But, the Liberal-Tories' VAT rise will also itself mean more people put on Benefits. They both opposed Labour's proposed National Insurance increase as a “Jobs Tax”, but any tax which takes effective demand out of the economy under such conditions is a Job's Tax. By increasing the prices of the things people have to buy every day, and transferring that money via the Government's coffers into the pockets of the bankers and financiers who lend to the Government – that's right those same people who caused the financial crisis inh the first place – it will lead to ordinary people buying less. Reduced demand will mean, reduced income for businesses, reduced work for those employed by them. In short it means directly raising unemployment, a fact that was even set out in the figures provided by the Government's new Quango, the Office For Budget Responsibility. In so doing, it will mean raising unproductive Government Spending in benefits, just as happened under Thatcher in the 80's, to pay people to do nothing, whereas previously they were actually producing new value – a consequence, which is also itself inflationary – at the same time as reducing the income received in taxes on profits, and from Income Tax. What it will do as was Thatcher's policy in the 80's, is that by raising unemployment it will act to put pressure on workers to accept lower wages, thereby boosting profits. So much for the idea that we are all in this together.

But, the other big feature of the Budget was the announcement of that 25% cut in non-protected budgets. Of course, the details of that are not to be set out until the CSR in the Autumn. Let's be clear, a 25% cut would be a big deal. But, put it in context. It in now way comes close to reversing the massive increase in Public Spending introduced by Labour even just over the last few years. Even at the most alarming estimate it would mean around half a million job losses in the Public Sector, whilst under Labour Public Sector employment rose by more than a million. Also to put it in context, it amounts to around a 5% cut per year. If as I expect inflation rises rapidly a large part of that cut could be effected by that means alone. But, the truth is, as Norman Lamont hinted at, there is no way in hell that such a cut is going to happen. In the 1980's under the rapacious Thatcher Government, at a time when year's of industrial disputes had left the Trade Unions isolated as the passive majority sought some form of “order”, with a Labour Movement subdued after a series of defeats culminating in the defeat of the Miners, and despite the public pronouncements of that Government that it intended to cut the State down to size, the opposite happened. The size of the State continued to rise, just as it did under Thatcher's evil Twin, Reagan in the US.

Yes, there will be attacks, there will be cuts in places, but the reality is that Capitalism needs a big State. Whatever, the intentions of the Government, the permanent State bureaucracy will frustrate any large cuts in the size of the State, which might threaten the economic recovery. Not only would such cuts not be in the interest of Capital under the current conditions, but they would certainly not be in the interests of that permanent State bureaucracy, which has its own vested interests, which it pushes whenever it can. If cuts come, whatever the intentions of the government, that bureaucracy will ensure that they come in frontline services where the most public opposition will be raised. It will ensure that at the same time it buttresses the back-room staff – who are usually higher status higher paid, and therefore, more significant in the process of Empire Building for the top bureaucrats. As in the past the consequence will be a bigger State in terms of more, higher paid, higher status bureaucrats employed, with a diminution in the actual services provided.

Of course, that is no reason not to oppose the Liberal-Tory plans. They claim to want to involve everyone in determining where those cuts should fall, though they didn't apply that to today's Budget. After last night's “Dispatches” Programme where in general there was support for defending most services etc., and support for reducing Britain's Defence commitment significantly down to the European average, the Liberal-Tories might decide that such involvement would not be a good idea. But, now they have proposed it, we should take it up. The Labour Party and the Unions should organise local Conferences in each area to discuss what should be cut, and what should not. But, more than that, if we really want to mobilise the majority of people, we have to address some of those real concerns that they have over the inadequacy, the bureaucracy and inefficiency of many Public Services like the NHS. We have to address those concerns by arguing that we need at least far greater democracy in the way such services are controlled. In truth we have to point out that such democratic control can only ever be achieved if we bring these services directly under our own ownership, and out of the hands of the bosses bureaucratic state.