Austerity Means The Rich Get Richer Whilst The Rest Of Us Suffer

Austerity for the rich:

• Rising wealth – 50 richest people from this region increased their wealth by £3.46 billion last year to a record £28.5 billion.
• Falling taxes – top rate of tax cut from 50% to 45% for those earning over £150,000 a year. This is 1% of the population who earn 13% of the income.
• No mansion tax and caps on council tax mean that the highest value properties are taxed proportionately less than average houses.
• Benefited most from Quantitative Easing (QE) – the Bank of England say that as 50% of households have little or no financial assets, almost all the financial benefit of QE was for the wealthiest 50% of households, with the wealthiest 10% taking the lions share
• Tax free living – extremely wealthy individuals can access tax avoidance schemes which contribute to the £25bn of tax which is avoided every year, as profits are shifted offshore to join the estimated £13 trillion of assets siphoned off from our economy.

Austerity for the rest of us:

• Wages rising slower than prices, benefits will rise even slower than wages.
• Unemployment – recently numbers have been falling slowly around the UK, because of a huge rise in underemployment (where people are working part time and looking for full time work), because of large numbers of people becoming self-employed, perhaps after pressure from a work programme provider so they can get paid for finding someone a “job”, and because the government counts people on forced unpaid workfare schemes as being in employment.
• Food, gas and electric prices rising at over 4%, rent increasing too
• VAT increased to 20%
• Bedroom Tax making people in social housing pay for spare bedrooms that aren’t really spare or move to smaller houses even though there are nowhere near enough smaller properties available, meaning people will move to more expensive private rentals
• Council Tax benefit cuts meaning unemployed and some disabled people in Birmingham paying 20% council tax – an average £5/week
• The worst economic recovery in over 100 years
• A rising deficit we’ll have to pay for

New Poster Available Now – Austerity Isn’t Working

We’ve got a new poster available
If you come to one of our planning meetings, then you can pick up copies there – if you can’t come, please email BirminghamAgainstTheCuts@Gmail.com and we’ll look to arrange delivery to you via someone in your area who can collect from us.

We’ve argued that austerity cannot solve our economic problems – and the GDP figures for the first quarter of 2012 confirmed that we are back in recession – a double-dip recession because we never grew back to where we were before 2008.

Put the poster up in your window or workplace and help spread the message – austerity isn’t working, Britain is better off with the alternatives.

Budget Day Protest Video: Austerity Isn’t Working

Last Wednesday, workers, students and claimants formed a mock dole queue outside the Council House in Birmingham in protest at this governments austerity policies that are failing this country. Watch the video of the protest:

The protest was called by PCS Midlands, and supported by Birmingham Against the Cuts, Unison and Right To Work.

You can see more photos from the event, taken by Geoff, at his Flickr Page here.

Spread the video, get the message out – Austerity Isn’t Working, Britain’s Better Off With The Alternatives.
You can find out more about the alternatives to the cuts and austerity at these places:
False Economy – Cuts are Not The Cure
Birmingham Against The Cuts – Alternatives
PCS – Alternative To The Cuts

And get involved with anti-cuts and anti-austerity actions.
If you’re in or around Birmingham, look at our Upcoming Events page or see if there is a local group near you.
If you are outside Birmingham, look for a local campaign group near you on the False Economy website, or with a national group like UK Uncut or Right to Work.

Together we can defeat this government.

The video was produced by Tom with photos and filming by Geoff Dexter-Sherbourne Publications. Music is “No Banker Left Behind” by Ry Cooder.

Is Austerity Solving Our Economic Problems?

6 months ago, I wrote this post, asking whether austerity measures can solve the deficit problem, and I thought it was time to have a look at what I said in that post, and what has happened since then.

In the post, I argue that austerity measures prevent the economy from growing, or even cause it to go into recession, and that the lack of growth means that it will not be possible to remove the deficit, and trying to do so would not just fail, but hurt many people along the way.

The economic data for the UK has not been encouraging. Unemployment has risen to 2.68 million people, with youth unemployment comfortably over 1 million. In addition to this, hundreds of thousands of people have taken part time jobs because they have been unable to find full time work.
In Birmingham, the rates are higher than nationally, with 4 of the highest unemployment rates of parliamentary constituencies – Ladywood (highest in the UK – 20%), Hodge Hill (2nd), Erdington (9th) and Hall Green (11th)

Recently, Jaguar had 20,000 applications for 1,000 positions, and a new hotel had 1,500 applications for 100 positions.

GDP has not been good either, with the UK contracting by 0.2% in Q4 of 2011, and period that will have been boosted by Christmas sales. If, as is expected, we have a further contraction in the first quarter of 2012, then we will be officially back in recession – and since we never grew back to the point we were before 2008, this will be a “double-dip recession”.

Looking to Europe we can see similar things happening. In Ireland, the deficit has actually grown, from €19bn to €25bn as austerity measures kill the economy. In Greece, austerity measures have also presided over a rising deficit, with a 15% increase from Sept. 2010 to Sept. 2011. (This has since been reduced by writing off large amounts of debt).

Across southern Europe, we see rising unemployment, and especially youth unemployment. Spain now has a staggering 50% of 16-24 year olds out of work, with Portugal, Italy and Greece not far behind. Indeed only 3 EU countries (Germany, Austria and Netherlands) have youth unemployment rates under 10%.
In November, the UK had a youth unemployment rate of 20.4%, and youth unemployment has risen since then. Additionally, around 1/3rd of people in Birmingham are under 25 – we are the youngest city in the UK – which means that we are feeling the impact of youth unemployment more heavily than elsewhere.

So unemployment is up, growth is down and inflation is still hovering around 4%-5% (whilst average wages increased at only 1.9% in 2011 – a real terms pay cut for most of us.. not so for the FTSE 100 directors who saw a pay increase of 49%). All of this is bad of course, and no politician will deny that. But, they say, it is the price we have to pay to clear our deficit. We must get through this pain, all in it together (except, of course, the wealthiest people who are seeing their wealth increase at staggering rates).
So what has happened to our deficit? We have seen that Ireland and Greece have increased their deficit whilst taking austerity measures, how is the UK doing?

In August 2011, we set a record for the biggest August deficit on record, and across the year things are not much better. We have managed to reduce our deficit, but according to the Autumn Statement (PDF – table on p81) we were on course to reduce our deficit by just £4.7bn in 2011. This is in contrast to the claims of reducing the deficit by £20bn each year made in 2010, when the coalition set out their cuts agenda.

With the economy shrinking in the final quarter of 2011, it seems likely that the forecast done for the budget statement will prove to be wrong, and unless the economy picks up in 2012, we are likely to see an even smaller reduction, or even a growing deficit as in Ireland and Greece, despite huge cuts in spending.

Update, May 3rd 2012: The CBI have predicted that the budget deficit for 2012-13 will be around £128bn – £8bn more than the £120bn George Osborne claimed in the budget, and £2bn more than the £126bn deficit for 2011-12. If this prediction is right, then austerity will have increased the deficit.

As explained in the earlier post, cutting spending at a time when the economy is not doing well only serves to reduce demand in the economy, putting people out of work which in turn causes tax receipts to fall and government spending to rise. Indeed, every 100,000 people who become unemployed costs the government £500 million.

To reduce the deficit we need an alternative to austerity. We need to invest in our economy to create jobs and growth, and we can do this in ways that provide other bonuses, such as investing in new, environmentally efficient social housing, that will both act to reduce the housing benefit bill by bringing rental costs down and also provide high quality affordable housing that is suitable for a sustainable future.

There are many ways in which we could invest in our economy, some of which are outlined in this post about keynesian stimulus. Future posts will explore the possibility of a “Green New Deal” and of other infrastructure projects.
Other alternatives to austerity can be found in our alternatives series, or on the False Economy website.

Alternatives to the Cuts: Keynesian stimulus

This post forms part of the alternatives to cuts series, an exploration into why cuts won’t work, and what we could be doing instead.

As I wrote in the Will Austerity Solve the Deficit Problem? post, there is a clear relationship between the size of the deficit, and periods of growth/recession.  During periods of growth the deficit shrinks, and if the problem you are seeking to solve is the size of the deficit, then one thing you want to do is ensure that there is growth in the economy.  In that post I showed that austerity is not producing growth now, rather the economy has flatlined., and that this will fundamentally undermine the spending cuts in their effect on the deficit.

In this post I am not going to explore deeply the theory behind why governments borrowing and spending money produces growth, if people want it, I will try to write a post on that.

The basic idea is that recessions happen because of a lack of demand.  People stop spending money, and so the level of production/trade in the country decreases to match this new level of spending.  Unfortunately, there is a vicious circle effect, because as people lose their jobs, their spending (demand) decreases, causing further reduction in the level of aggregate demand, which in turn causes reduction in the level of production/trade and so on.

Governments have the ability to step in and produce demand during these periods, and to turn the vicious circle into a virtuous circle of rising demand and employment.  There are a number of ways they can do this, and Quantitative Easing was one of them.  But this produced jobless growth, as it reduced the level of debt (or at least the level of risk associated with the debt) of the private sector, allowing some growth in value of the economy, without a commensurate increase in employment.

Now is the time where a government should be spending money to invest in the economy, in order to stimulate demand and in turn stimulate the private sector back into growth.  There are many proposals as to how this money should be spent, and I will outline some of them here.

The best way to spend money for a Keynesian stimulus is by investing in infrastructure, or in areas which are either too risky, or have a rate of return that is too long for private companies to invest in.  If these investments can also help to forward other policy aims, then so much the better.

Please note that the inclusion of a possible policy here does not constitute a statement of support for that policy by Birmingham Against the Cuts.  There are other discussions to be had about the merits of each of them, which I am not going to enter here.

■Investment in Green Manufacturing / Green New Deal / Green Jobs for Growth

Variously called by different titles, this set of investment would see government funds invested in the manufacturing sector surrounding “green” industries.  The most likely place for much of this money to go would be into the design and manufacture of wind turbines – particularly offshore wind turbines- tidal and wave generators.  The UK has some of the best resources for renewable energy in each of these areas, and could be world leaders in these technologies.  Investing in these could replace some of the industries that have been largely lost, such as shipbuilding or steel production.

Additionally, it would make sense that the UK would start as the major customer of the industry in this country, and doing so would help us to reduce our reliance on fossil fuels and combat climate change.  Along with this, we need to reduce our dependency on oil and gas, and become (more) self-sustained in terms of energy usage.

I will do a lengthier post on this at some point.

■HS2 railway

This is particularly controversial at the moment, and I must emphasise that its inclusion here does not imply support or dislike for the project.  I am including it here because it is a good example of an investment whose returns will take too long for a private company to invest.  There is never likely to be the profit in a short enough space of time for a company to invest in such a project, which will take many years to construct, and many more before a return on investment is possible (if ever, given the amount of subsidies that are paid to railways already).

■Social Housing

The great council house sell-off, and the ban on councils investing in new housing is part of the reason why house prices are so high today (there are other factors, but the lack of a widescale, reasonably priced, rental market has allowed rent and house prices to rise).  We hear often of issues with affordable housing, particularly in London, or with a lack of housing.  These houses could be built to the highest environmental standards, and would be very cheap to heat during the winter.  With ever rising gas prices, this could be especially helpful for elderly people.

Additionally, the construction industry is always hit hard by a recession, and this would help that sector in particular.

■Buildings projects

Schools, Hospitals and many other public buildings could use renovating or replacing.  Such projects should not be done using PFI, which has been shown to be expensive, but would improve public services, through a one-off payment.

There are many other ways to produce a Keynesian stimulus.  The key is that increased government spending produces demand, and that it is easy for that spending to be removed once the need for the stimulus is over.  The unemployment benefit system is an example of an existing keynesian stimulus, which works almost naturally – as we enter recession, more people become unemployed, and government spending on unemployment benefits increases.  As the private sector moves back to growth, people get jobs and spending on unemployment benefits decreases.  But this is not enough – it is already existing in the system, it limits the depth of a recession but will not take us out of one.

Join us in calling for an alternative to austerity, on Sunday 18th September, outside the Liberal Democrat Conference in Birmingham.
For more information about alternatives, you can also see False Economy

Alternatives to the Cuts: Will Austerity Solve the Deficit Problem?

This post is going to explore what effect the austerity agenda being pursued by the government is likely to have on the levels of deficit and debt for the UK government.

This is part of the alternatives to the cuts series, which will seek to explore and explain why the cuts won’t work, and what the alternatives are.  You can  see an archive of posts in the series here.

The problem, so we are told, is that the government is spending too much money.  We are borrowing in an unsustainable fashion and our deficit – the amount of money we need to borrow each month or year – is spiralling out of control.  This means that our national debt – the amount of money that we owe in total – is rising to a point where we might face a sovereign debt crisis.

I’m going to explore how true that is in another post, but for now let us accept that this is more or less true.  Let us say that we do need to reduce the deficit, and in a serious manner, in order to avoid the problems that we can see happening in Greece, Portugal, Spain, Italy and Ireland whose credit ratings are being downgraded, and their governments are being forced to borrow even more money – or possibly default on debts.

The question we must ask is will cutting spending solve this problem, and in this post I am going to outline some of the reasons why it won’t.  Don’t just take my word for it, have a look at what some of the experts have to say.

First off, some graphs:

This graph shows the level of debt as a % of GDP (the inset shows from the start of the 20th century).  You can see that right up until the point that Northern Rock collapsed, the debt was at a lower level than for much of the time under Thatcher.

This graph shows changes in the deficit level.  One thing that is clear from this is that recessions (ie: the recession in the early 1990s) increase the size of the deficit, whilst in periods of growth (such as the late 80s, or late 90s/early 00s) act to reduce the deficit.

So we can say that if we want to reduce the deficit, the last thing we want is a recession – or at least, a recession would be unhelpful in our pursuit of deficit reduction. Conversely we can say that strong growth – in particular the kind of growth which comes from increases in employment – would be helpful.

So what’s been happening to GDP recently?

This graph shows changes in GDP – the bars are for that quarter, whilst the line shows an average of the previous year.  You can see the recession following the banking collapse with a fall of nearly 6% in GDP between 2008 & 2009.  Then there is a recovery, towards the end of 2009.  It should be noted however that this growth did not produce a significant fall in unemployment nationally (although interestingly, and something I didn’t know until I saw that graph, the West Midlands did see a fall in unemployment in that period).

Then something happens around Q2 of 2010.. sometime between March and April the GDP growth peaks (can you think of any significant event happening between March and April 2010?), and although there is GDP growth in Q3 2010, it is less than the previous quarter.  OK, seasonal variation, nothing significant it just happens to be less.. but then in Q4 2010, there is actual shrinking of the economy of -0.5%.  Osborne blamed the snow, but the following quarter saw growth of just 0.5%, which means that the bounceback effect of deferred spending from the previous quarter was not enough to produce growth over the 6 months following the budget review which revealed the true scale of cuts that the ConDems are planning.  Technically not a recession, as that requires two consecutive quarters of contraction in the economy, rather than an average over 6 months.

The next quarter’s initial figures will be out in the next week or so, but indications put it at 0% to 0.3%, hardly the kind of levels of growth required to put the economy back on track, and produce the growth and jobs that would provide an increase in taxation revenues, and a reduction in benefit payments for the government, and which would naturally reduce the level of deficit until – just like after the recession in the 90s – we reach a point where we are running at a surplus and paying off that debt.

At some point I’ll write a post that explores more theoretically why cutting spending at this point in the economic cycle, and in the circumstances the world, and particularly some of our close neighbours, find themselves in will not produce growth, as Paul Krugmann (Nobel Prize winner for Economics, 2008) argues.

I will highly recommend Krugmann’s blog – although focussed on the USA, he provides an important source of information – sometimes his posts are very technical, but often they are highly accessible and useful in giving yourself the information you need to win arguments about spending cuts.

So we can see that the economy has gone from moderate growth to flatlining between Q4 2010 and (presumably) Q2 2011 – in the 9 months since the ConDems budget review revealed the scale of cuts to come.  In that time we have also had a rise in VAT, and council budgets around the country revealing the job losses and pay cuts to come in local government.  People around the UK are very aware that if they, or someone they know, works in the public sector they might well lose their job, or face a pay cut.  Because of this, we have cut back our spending.  This decreases demand, and in doing so puts the private sector at risk.  Recently we have seen a slew of high street names entering administration, and construction industry growth slowing as well – often an early indicator of trouble to come.

So far from growing to fill the space that the public sector has left (the idea being that the public sector is “crowding out” the private sector), the private sector may well shrink as well.  This could lead to another recession (the “double-dip recession”), and another recession will mean that the deficit will rise as tax income falls and welfare payments rise.  Whether spending cuts can keep pace with those factors is not the question, the question is whether there is a solution (or group of solutions) that can reduce the deficit without producing recession – these are the alternatives to cuts, and I will be producing posts detailing each of them.

This strand of discussion also links heavily to one of the alternatives that will be discussed in a future post – policies for growth.