The Economic Strategy of the Coalition The Economics of the Madhouse

Raphie de Santos Scottish Socialist Party

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Their Strategy

Cut burden on state by rolling back public services to 1945 levels Out source NHS to private sector New stagnant capitalism cannot support current public services

Temporarily increase taxation Cut real wages and increases productivity through threat of unemployment/welfare

cuts Endure recession in first half of term See recovery based on private sector innovation in second half of term

Driven by corporate tax cuts & incentives and “new” self-employed Elected on the back of this recovery

Is this s realistic proposition or the economics of the madhouse?

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The Scale of their Cuts

The coalition are intending to reduce the debt/deficit by £113bn by the end of the parliament.

This is made up of £83bn of cuts and £30bn of tax rises.Labour had planned £51bn in cuts and $21bn in tax rises

The figures may be larger on the cuts if they go for 40% instead of 25% cuts if the economy is weaker than they estimated which I think will be the case.

NHS strategy to out source and reduce costsPrivate sector can provide “same” services more cheaply

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Who Will The Cuts Effect

• The budget will take more than twice the income from the poorest 10% of households as a share of their annual incomes than from the second-richest group (richest 80% to 90%) which has four times as much income a year after tax and benefits the report says. The richest 20% of households has 16 times the income of the bottom 20% of households before tax and benefits are taken into account.

• Yet the cuts planned by 2014 fall much more on families with children than on the childless and pensioners.  The single beneficiaries of the budget the report concludes are childless households in the richest half of society.  This puts to bed Nick Clegg’s claim that what the coalition’s budget is setting out to do is create the opportunity for greater social mobility.

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How Many Jobs Will Be Lost?

• Capital economics- 750,000 public sector jobs

• Oxford Research 2.2m private jobs linked to public sector• 650,000 will go as a result of public sector cuts

• And the recession cuts will induce will see another 500,00 jobs go

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State of World Economy

• Developed countries’ economies slowing down sharply• 40% chanced of second recession• Only 90% of pre peak production of developed countries reached• Restocking of inventory finished• No sign of consumer led demand• Individuals and corporation still deleveraging• Mass unemployment• Banks unwilling to lend – still polluted by debt • Danger of hard landing in China – property and stock market bubble• China recovery was import driven with infrastructure and lending to

banks – tapped tuned off• Trade war developing through currency devaluation• Benefits to west will disappear

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The Current State of the UK Economy

• Mild recovery in 2009 Q4 and Q1 2010• Q2 2010 saw benefit of delayed construction spending and weak

pound now passed• Unemployment starting to rise prior to cuts• Housing market falling 5of last 7 months (Halifax data) • Bank lending to corporations declined for 11 successive months • Bank lending to individuals a fraction of pre credit crunch• Retail sales falling • Record trade deficit• Inflation still high on damaged production capacity, weak pound and

demand from emerging middle class in developing world • With cuts second recession looks certain

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Banks Have Recovered But Why?

Rise in financial markets in Q1 2010 now reversedBig cuts in jobs and wagesAttacks on employees pension schemesBig margins on current lending because of historically

low central bank borrowing rateBut still lending declining to corporations and individualsFuture profits will be hit by declining house prices

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Looming Government Debt Crisis

Current Total £950bn end 2009/2011 Government forecast over next five years to grow by £535bn £270bn of existing loans have to renewed over next 5 yearsInterest payments total £40 bn per year rising to £60bn at a

rate of 4.4% a total of £250bn over next five yearsHolders of debt 30% overseasWe have to find a £1.1 trillion over next five yearsWeak pound and economy (receipts)Have to borrow IMF

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Structure of UK EconomyFails on All Points

Small manufacturing XLarge Services sector X large bank sector X housing boom X Credit XLarge Public Sector X

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Can The Private Sector Provide Jobs?

Declining rate of profit has continued in UK during recession and recovery Capital flowed east

Lower wage rates Higher rate of exploitation More human labour means higher rate of profit

We cannot compete this strategy will fail

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New Industries & Self Employed

Needs investment and help from government e.g. Renewable energy Bio technologiesFree market approach of coalition will preclude this Self employed is dependent on growing private personal

consumption through creditAt odds with what is happening

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Coalition to Extreme Right Of Global Economic Policies

Monterey Policy is at dead end No scope for lowering ratesQE not putting money into the economy - banks holding

onto moneyOther Governments now looking to infrastructure

spending and direct help to new innovations

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Alternative to the Madhouse Part One

• Rather than cut future projects that provide services you could cut Trident’s replacement saving £20 billion of the defence budget cuts – this expenditure saving could see a swords for ploughshares conversion of defence for social useful projects.•You could reduce spending on defence by half and withdraw from the Afghanistan and Iraq saving up to £40 billion per year on expenditure.• Rather than raise national insurance you could introduce a minimum wage of £8 per hour. •Instead of raising indirect taxes or widening there scope you could raise taxes on corporations which have seen their tax rates halved under successive Conservative and Labour governments and a further 4% cut is planned in the budget. This could raise an additional £50 billion a year in revenues.•Instead of the cuts in services you could close the loop holes in tax avoidance schemes - this would save £20 billion a year.•You could tax the rich and wealthy. A one off 10% tax on Britain’s richest people would raise £35 billion. This would be used to provide millions of much needed houses through building conversion, building renovation and housing insulation and all the jobs that would be needed to achieve that.•

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Alternative Part 2

• You could shift the burden of taxation from the poor and middle earners to the wealthiest 20% in society who earn 16 times more than the poorest 20% of society. Per head of the population the UK is the third richest country in the world but the second most unequal. This could generate up to an extra £70 billion a year – a local progressive service tax replacement in Scotland could generate an extra £1.5 billion a year for local council spending.•You could take the banks under full social ownership and control – they have £560 billion in liquid cash and £5 trillion of assets. This would not only allow us to recoup the £375 billion that we have ploughed into them during the financial crisis but allow us to fund socially useful projects. An example of this would be a renewable energy programme.  The design, administration, construction, maintenance, running, assembly, commissioning and servicing of the programme would create hundreds of thousands of jobs and apprenticeships for our young and old.

•  • •Taking North Sea Oil under common control and ownership would generate an extra £50 billion a year for

15 years.•

•Instead of cutting pensions and demanding people pay more towards their pensions you could look to provide an alternative retirement provision that is not dependent on the whims of the financial markets.  You could provide for all people over 60 free rented housing, electricity and gas, public transport and free access to cultural and sports facilities. 

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