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

Bankers' government is bankrupt

Is there such a thing as a banking “expert”? We ask this question in the light of today’s announcement that New Labour has recruited a top City banker to the government to – wait for it – try and save the banking system. 

Mervyn Davies, chairman of Standard Chartered, will become Minister of State in Lord Mandelson's Department of Business, Enterprise and Regulatory Reform. He will be granted a peerage so that he can sit in the House of Lords, Downing Street said in a statement. 

According to the Daily Telegraph, Davies was personally courted by the prime minister for his “banking expertise”. He was involved in the government's autumn bank bail-out – which prevented bankruptcy but has signally failed to lift the financial system off life support. 

Davies’ appointment is unlikely to make any difference, therefore, except confirm that we truly have a bankers’ government in every aspect of the term. Such is the dire state of affairs in the world of capitalist finance that the government itself has essentially been transformed into a bank. From being the nominal property of the people who elected it, New Labour has become demutualised, privatised. It could and should be renamed New Labour Investments, Savings and Loans PLC.

How else can you explain Mandelson’s announcement today that the government is to guarantee up to £20 billion in bank loans to small businesses? This is the state transferring yet more taxpayers’ money to banks who have helped crash the economy. This is how desperate New Labour has become in trying and stave off what is looking more and more like an economy heading for a catastrophic slump. 

Business leaders have painted a bleak picture of the UK economy, with a survey suggesting the end of 2008 saw a "frightening deterioration". The British Chambers of Commerce (BCC) said its survey results were "awful" and the worst since it began in 1989. Elsewhere, a separate report suggested it had been the worst December for UK retail sales in at least 14 years. The British Retail Consortium figures on sales from the High Street and online said that like-for-like sales in December were down 3.3% on a year ago while total sales shrank 1.4%. This is despite the government cut in value added tax (VAT), which took effect in December.

New Labour is running out of options. It is desperate to avoid the direct printing of money to pump into the financial system because a) it’s the last throw of the dice b) nobody knows if it would work and c) it’s a recipe for runaway inflation. Little surprise, therefore, at a new survey shows that people in Britain are now less likely to trust banks, the stock market or the government's economic management than people in comparable nations.   

Asked to rate their trust in the government's management of the financial situation, British people award the government 4.5 out of 10, below the worldwide average of 5.2 and just ahead of Iceland on 4.4. Only Germany and Japan are gloomier, scoring 4.0 and 3.0 respectively in the poll. Britain ranks 16th out of 17 countries for public trust in its banks. 

What the survey indicates is that the government has no mandate for handing over vast sums of money to banks or any other form of capitalist enterprise. This is a bankers’ regime governing on behalf of the narrowest of monied interests, using the powers of the capitalist state. New Labour’s argument that there is no alternative is another big lie. None of the bail-outs have succeeded in halting the economy’s downward plunge. The banks are effectively bankrupt and so is the government. 

Paul Feldman
AWTW communications editor