“Austerity is a political choice, not an economic necessity.”
By Andrew Fisher
During the election campaign the ex-Bank of England economist David Blanchflower was a main signatory to a letter to the Guardian praising Labour’s economic plans.
It said:
“we believe that Labour provides a credible economic alternative across all these dimensions, and that Keir Starmer and Rachel Reeves offer a combination of stability and an ambitious set of reforms to help grow the economy”
Last month, Blanchflower said this:
“Seems Labour as I feared were not thinking boldly about how to transform working lives but were simply going to repeat austerity and not even light”.
“I was hoping that was an election ploy and behind the scenes they were thinking and exploring. They weren’t.”
It should worry the Labour leadership that enthusiastic backers just a few months ago have become disillusioned.
Another signatory to that letter, Professor Simon Wren-Lewis, recently published a blog estimating it would cost £70 billion to £100 billion to end austerity.
Last October, to coincide with Labour conference, John McDonnell MP and I looked at the same question in a report we published ‘What’s in the in-tray of an incoming Labour government?’
Our report set out what sort of spending is required to meet existing key performance targets, or to restore funding to 2010 levels, or to meet the average spend in particular policy areas among comparable nations.
We did not attribute costs where the Labour leadership had ruled out policies (like on scrapping tuition fees). We only looked at the biggest spending areas: health & social care, education, social security, local government, and public sector pay overall.
Our modest estimate, for those areas alone, without new policy commitments was – and I quote – “likely to be in excess of £70 billion extra in day-to-day spending” – so about the same as Professor Simon Wren-Lewis calculated.
Just to remind you, Labour’s manifesto promised an extra £7 billion of spending – and most of that was hypothecated to new measures like mental health support in schools, and free breakfast clubs.
Good, small policies but not core funding that will transform public services.
So even the economists who were cheerleading Keir Starmer and Rachel Reeves in the election campaign – are now saying something different.
Keir Starmer said to Congress this morning:
“No one in this room wants to hear such a gloomy forecast and I get that. I don’t want to be saying it either. It’s not how any government would want to begin its work.”
Austerity is a political choice, not an economic necessity.
We’ve had a succession of ministers in recent days, saying if they didn’t cut pensioners Winter Fuel Payments, it would risk economic stability. One even suggested there would be a run on the pound.
Winter Fuel Payments are less than 0.1% of total government spending.
Cutting them saves just £1.3 billion. And that’s before any extra take-up in Pension Credit – which if every pensioner entitled to it claimed it, it would cost 3 times as much as the savings from Winter Fuel Payments.
And that’s before the costs that will fall on the NHS from increased col-related illnesses.
This is the problem with treating economics as accountancy. It’s the same with leaving children in poverty. It’s estimated that child poverty costs the economy £39 billion a year, due to the greater risk of unemployment and lower earnings potential of adults who grew up in poverty, and of the additional amount spent on public services to help address the damage done to children growing up in poverty.
If we equalised the rate of Capital Gains Tax with rates of income tax – so that those who make their money from investments pay the same as those who work for it – it would raise £16 billion every year.
Seven Labour MPs were suspended from the Labour Party for voting to end a Tory policy, the two-child limit … which would cost just over £2 billion to scrap.
So do you want to tax wealthy people at the same rate as workers – or do you want kick pensioners and leave children in poverty?
You cannot solve the social and economic problems caused by austerity with more austerity. If you continue with failed policies, you will fail.
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