Political system 'incapable' of solving crisis, warns leading Tory

The ConDem government’s plan to, in effect, engineer a state-financed, speculative housing boom in a bid to stimulate expansion, sums up the increasingly desperate state of both the economy and the political classes.

So much so that a leading Tory commentator suggests that yesterday’s Budget signals the absolute inability of representative democracy to tackle the crisis. A Coalition brought together to tackle the budget deficit and restore some balance to the economy, has patently failed to do either. Moreover, there are indications that the ConDems don’t really have a clue what to do next.

Chancellor George Osborne’s package of tax cuts for big business and state funding to underwrite house buying, combined with cheaper beer and a continuing pay freeze for public sector workers, was announced against a background of a worsening economy.

The Office for Budget Responsibility has revised its forecasts for growth down (yet again) and its projections for government debt up (yet again). Despite the savagery of Osborne’s austerity policies, the total of state debt is actually rising.

According to yesterday’s figures, it is scheduled to stand at approximately £1,400 billion in 2015, up from the £800 billion inherited from Labour in 2010 – a rise of £600 billion in just five years. Net debt is forecast to peak at 85.6% per cent of GDP in 2016-17. Back in June 2010, it was forecast to peak at 70.3% of GDP this year.  

The expansion of the economy that would bring the levels down through greater tax receipts exists only in the imagination. As the Financial Times gloomily commented: “Growth is, once again, jam tomorrow but never jam today.”

As to underwriting house buying through mortgage guarantees, the verdict is pretty unanimous. Builders and estate agents will get rich quickly, while house prices will soar and create another asset bubble ready to go pop when someone misses a payment.

Ian Williams, analyst at Peel Hunt, said: “As a policy for driving economic growth – limited. For solving the national shortage of housing – no impact. For wrecking long-term affordability of housing – tremendous.”  

With incentives to extract shale gas and various other concessions, the chancellor budget’s will accelerate climate change in pursuit of growth that simply won’t happen, in Britain or anywhere else. Today’s news about deepening downturn in leading eurozone economies confirms that.

With the Financial Times, describing the Budget as a “failure” which won’t make a difference, what will? The paper that speaks for significant sections of capitalism demands “greater radicalism”, without further elaboration.

As  resistance to austerity grows across in Britain and the rest of Europe, the ruling classes are faced with a serious problem. There are no rabbit-in-the-hat solutions, as the Budget shows. Political elites are struggling to cope, which brings us back to Peter Oborne of the Daily Telegraph.

An astute commentator, whose Triumph of the political class is worth reading, he now concludes that the political system is incapable of doing what’s necessary. He derides not only the chancellor but Labour for not having “the faintest idea how to confront the economic crisis” or appreciates of “the scale, let alone the nature, of the disaster we are now facing”. In other words, the political will to take the axe to public spending is not there (not that would actually do the trick, anyway). Oborne adds:

 “So we should all ponder whether there is an ugly truth lurking out there: is the British electoral system simply incapable of coping any more with serious economic crises?  Alexis de Tocqueville remarked that: 'The American Republic will endure until the day Congress discovers it can bribe the public with the public’s money.' This observation is just as true of British representative democracy.

“The Coalition, brought together to confront the national economic emergency, has failed in its mission. So we are entering a momentous period in our national life: if the politicians cannot address the problem – and they can’t – who will?”

So we have a combined crisis of the economy, politics and ecology which parliament cannot address. The implication of Oborne’s article is that some form of dictatorship may be the outcome. With the Bank of England getting new powers and the Privy Council dusted down for action, you can’t say we haven’t been warned.

Paul Feldman

Communications editor

  

A panic Budget as economy worsens

Figures published by the Office for Budget Responsibility on the morning of the Budget statement, and the Office for National Statistics today tell us more about the state of the economy than George Osborne did.

The austerity programme introduced to reduce government debt and attract investment has so far failed. Savage cuts in public sector services and jobs were supposed to lead to a resurgence of the private sector, and pave the way for the growth that capitalism feeds off. It hasn’t worked.

According to the OBR's pre-Budget forecast in June 2010 growth in the UK was supposed to be driven by business investment, which was predicted to grow by 8% in 2011, 9.8% in 2012 and in double digits after that. It turns out that in 2011 it grew by 0.2% and in the new, equally over-optimistic forecast the OBR expects investment to in 2012 to grow by only 0.7%.

Government borrowing hit a record for the month of February, rising to £15.18 billion, double what many expected.

UK retail sales volumes fell by 0.8% in February compared with the previous month, according to the ONS, and January's unexpectedly strong growth in sales volumes of 0.9% was also revised down to show an expansion of only 0.3% compared with December.

The lack of growth has meant that tax receipts are down 2.7% on a year ago, principally from declining income tax receipts. Government spending is up by 8.3% on a year ago, because of higher social benefits due to rising unemployment.

So the immediate 1% additional reduction in corporation tax, whilst the increase in personal allowances for those fortunate to be still in work is deferred for a year, shows something of the panic behind the confident bluster of the Coalition’s Budget.

The wrecking of the planning system (reducing more than 1000 pages of controls to 50), combined with measures to further drive down wages is designed to encourage investment from international capital markets into low wage areas of the UK.

Reducing the 50 pence top rate of tax will have no impact on the rich, but the reduction in age-related allowances will further reduce living standards for millions of older people who already receive amongst the lowest pensions in Europe.

The 2012 programme of Budget measures are a precursor for a far more brutal assault on living standards as global economic conditions continue to deteriorate. As astute Tory commentator Peter Oborne puts it today, “the risks ahead are immense – eurozone collapse, war with Iran, economic stagnation. It must be said that Mr Osborne does not have the air of a man who is fully in control.”

Gerry Gold
Economics editor

The incorporation of Labour

The assimilation of Labour into accepting the Tory Party’s narrative is moving at such a pace that it is no wonder that David Cameron finds his party ahead in the polls.

In virtually every major policy area, Labour’s own views are hardly distinguishable from those of the government; on crime, immigration and anti-terror laws, Ed Miliband’s crew are actually to the right of the ConDem coalition.

Only this week, Liam Byrne, the shadow work and pensions secretary, claimed that the benefits system had “skewed social behaviour”, provided “unearned support” and run up an unsustainable housing benefits bill.

In an articlefor the Guardian, Byrne called for “fresh thinking” and an abandonment of the party’s “old agenda”. In practice, Byrne and Labour are backing Iain Duncan Smith’s “welfare reform” bill.

On education, where Michael Gove is busily breaking up what remains of the comprehensive schools system, there is tacit backing from Labour. As the astute Tory commentator Peter Oborne
notes: “Gove is the first post-war education secretary to challenge effectively the power of the teaching unions – and move against an educational establishment that is constitutionally opposed to excellence and high standards. Amazingly, he seems to be bringing the Labour Party with him.”

Similarly on the economy. The ConDems have insisted draconian cuts in spending were made necessary partly because of the failed economic policies of the Blair/Brown governments. Shadow chancellor Ed Balls originally rejected this simplistic, half-truth.

Now, according to Oborne, even Balls agrees with “the need for drastic cuts in public spending” and only “the relatively minor detail of timing” is in dispute. “In all essentials, Ed Miliband’s Labour Party now accepts the fundamental economic insights of the Cameron Coalition.”

No surprise then that Miliband, propelled into the party’s leadership by the three largest trade unions in the hope he would be their prisoner, is struggling to find a coherent strategy that differentiates Labour from the Tories. Enter Lord Glasman, a founder of so-called Blue Labour and a Miliband advisor, whose statements on immigration could have come from the right-wing of the Tories.

Just to make sure Miliband gets the message, Glasman has told him that “there seems to be no strategy, no narrative and little energy” at the top of the party. Glasman urges the termination of what he terms “an unhappy and abusive relationship with the unions” and to end being identified with the interests of public sector workers.

Miliband is almost there. He opposed last year’s strikes in defence of public sector pensions and there are reports that he intends to reduce the reliance on trade union funding (Rod Aldridge, the former chief of outsourcing firm Capita who donated £1m to Labour was given a knighthood in the New Year list. One of Miliband's newest advisers is Andrew Rosenfeld, the property tycoon who has also given £1m)

Glasman is kicking at an open door when he urges Miliband to “leave behind stale orthodoxies and trust his instinct that change is essential”.

Oborne’s view that the “facts of life are Conservative” and that Labour has accepted this is, of course, used to damn what he terms the “Left” which he identifies with the 13 years of Blair/Brown governments.

This is historically inaccurate as well as misleading. New Labour long ago accepted the facts of corporate-driven globalisation and came to believe in a “new paradigm” of a crisis-free capitalism, with uninterrupted growth and riches for all. It was a view shared by many economists and politicians around the world, including the present Tory leadership.

The “facts of life” are actually those of an economic and financial system in profound crisis globally and not principally because governments spent too much. Reliance on credit/debt was the only way to sustain ever-growing consumption and, more significantly, profit levels.

So the credit crunch and financial meltdown was an expression of this permanent, inner-tension between production and profit that lies at the heart of capitalism. And the result is not just the wiping out of vast areas of capacity, leading to mass unemployment, but the integration of Labour into the ConDems’ desperate strategy to turn things round.

Paul Feldman
Communications editor