Pre Budget Statement - No Way Near Enough
This is an article I wrote for the Guardian's Commemt is Free just prior to the Pre Budget statement. I am an admirer of Robbie Burns but the choice of title is not mine.
Cowering, timorous beastie
This is no time for fearful half measures. Darling must seize the nettle of major, redistributive tax reform and bank nationalisation
Whether the government intended it or not, Alistair Darling's pre-budget statement is rapidly becoming seen as a make-or-break move by a government desperate to prevent the recession becoming a depression.
Just before he finalises his plans, it would pay the chancellor to look up some of the ideas of the last group of Labour politicians who experienced an economic depression.
In the 1930s John Strachey, later a member of Attlee's cabinet, analysed the causes and the response to the depression in his books The Nature of Capitalist Crisis and A Programme for Progress.
His mixture of Keynes and Marx reflected the intellectual climate which influenced the policies of governments for the next 30 years. Step by step, the response to recession was first to cut interest rates fast and hard, second to redistribute income from the rich to the poor by taxation and to increase pensions and benefits also paid for by printing money, third to promote large-scale public investment and fourth to develop a "national and public as opposed to a commercial and profit-making banking system."
Against this checklist the government's response so far looks tentative, indeed pretty feeble, and needs radical change.
Following Strachey's model on monetary policy the government cannot afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. Handing control over interest rates to the Bank of England may have been seen as an adroit manoeuvre in 1997 to reassure the markets as Labour came back into power, but now is definitely not the time for political novices of any sort, even if they are senior bankers. It is time for the government to take back control from the prevaricating Bank of England.
It is also time to recognise that the government's policy towards the banks has been an unmitigated failure. The billions in bail-outs have done little to increase lending, and we are witnessing a startling rise in home repossessions by the very institutions bailed out with taxpayers' money.
The government now needs to move towards the full nationalisation of the banking sector to create a national public banking system run in the interests of the British people.
Darling is trailing a significant fiscal stimulus and a large-scale public works programme paid for by substantial borrowing and deferred tax increases. The introduction of a higher rate of tax for high earners is long overdue but the government's proposals are hardly radical and delaying them until after the next election is pointless.
The higher rate should be the start of creating a fair tax-reform agenda, redistributing wealth from the super-rich in order to take the low paid out of taxation altogether. The public revulsion over City bonuses and bank executive salaries has opened the way for radical tax reform. The government must seize the moment.
Just 18 months ago, Gordon Brown used his final budget speech to abolish the 10p tax rate – raising taxes on the lowest earners. Frank Field and others are right to be demanding that this group is compensated. I would go further by raising the personal allowance so that what was the 10p rate is now a 0p rate. This would put money back in to the pockets of those who need it most and those who will spend it most – bringing the maximum benefit to the economy.
But it is also those out of work who must be protected. Jobseeker's Allowance at just £60 per week is an absolute disgrace. As more and more people are thrown out of work, how can it be just that they are expected to live on less than one-third of the pitifully low minimum wage? The same calculation also applies to the 2 million pensioners, who still live in poverty and who still await a decent pension and the restoration of the link with earnings.
Paying for the fiscal package by borrowing will prove counterproductive and the threat of later tax increases simply encourages hoarding not spending.
Instead the necessary boost in expenditure should be paid for by tax redistribution, lifting the cap on National Insurance contributions and introducing a wealth tax but more importantly by ensuring the corporate sector pays its way.
In its 11 years in office, New Labour has cut corporation tax from 33% to 28% – and much of it remains avoided through various avoidance schemes and the use of offshore tax havens. The US has acted to stop the abuse of tax havens. Yet the UK continues to drag its feet, even when we know that the UK is losing at least £25bn per year – thanks to the excellent work of Richard Murphy. We therefore need legislation in the Queen's speech to tackle tax evasion by corporations and the wealthy.
If we are to depression-proof our economy we may need to pay more attention to the radical ideas and policies of those who witnessed the misery inflicted on so many during the 1930s.
Cowering, timorous beastie
This is no time for fearful half measures. Darling must seize the nettle of major, redistributive tax reform and bank nationalisation
Whether the government intended it or not, Alistair Darling's pre-budget statement is rapidly becoming seen as a make-or-break move by a government desperate to prevent the recession becoming a depression.
Just before he finalises his plans, it would pay the chancellor to look up some of the ideas of the last group of Labour politicians who experienced an economic depression.
In the 1930s John Strachey, later a member of Attlee's cabinet, analysed the causes and the response to the depression in his books The Nature of Capitalist Crisis and A Programme for Progress.
His mixture of Keynes and Marx reflected the intellectual climate which influenced the policies of governments for the next 30 years. Step by step, the response to recession was first to cut interest rates fast and hard, second to redistribute income from the rich to the poor by taxation and to increase pensions and benefits also paid for by printing money, third to promote large-scale public investment and fourth to develop a "national and public as opposed to a commercial and profit-making banking system."
Against this checklist the government's response so far looks tentative, indeed pretty feeble, and needs radical change.
Following Strachey's model on monetary policy the government cannot afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. Handing control over interest rates to the Bank of England may have been seen as an adroit manoeuvre in 1997 to reassure the markets as Labour came back into power, but now is definitely not the time for political novices of any sort, even if they are senior bankers. It is time for the government to take back control from the prevaricating Bank of England.
It is also time to recognise that the government's policy towards the banks has been an unmitigated failure. The billions in bail-outs have done little to increase lending, and we are witnessing a startling rise in home repossessions by the very institutions bailed out with taxpayers' money.
The government now needs to move towards the full nationalisation of the banking sector to create a national public banking system run in the interests of the British people.
Darling is trailing a significant fiscal stimulus and a large-scale public works programme paid for by substantial borrowing and deferred tax increases. The introduction of a higher rate of tax for high earners is long overdue but the government's proposals are hardly radical and delaying them until after the next election is pointless.
The higher rate should be the start of creating a fair tax-reform agenda, redistributing wealth from the super-rich in order to take the low paid out of taxation altogether. The public revulsion over City bonuses and bank executive salaries has opened the way for radical tax reform. The government must seize the moment.
Just 18 months ago, Gordon Brown used his final budget speech to abolish the 10p tax rate – raising taxes on the lowest earners. Frank Field and others are right to be demanding that this group is compensated. I would go further by raising the personal allowance so that what was the 10p rate is now a 0p rate. This would put money back in to the pockets of those who need it most and those who will spend it most – bringing the maximum benefit to the economy.
But it is also those out of work who must be protected. Jobseeker's Allowance at just £60 per week is an absolute disgrace. As more and more people are thrown out of work, how can it be just that they are expected to live on less than one-third of the pitifully low minimum wage? The same calculation also applies to the 2 million pensioners, who still live in poverty and who still await a decent pension and the restoration of the link with earnings.
Paying for the fiscal package by borrowing will prove counterproductive and the threat of later tax increases simply encourages hoarding not spending.
Instead the necessary boost in expenditure should be paid for by tax redistribution, lifting the cap on National Insurance contributions and introducing a wealth tax but more importantly by ensuring the corporate sector pays its way.
In its 11 years in office, New Labour has cut corporation tax from 33% to 28% – and much of it remains avoided through various avoidance schemes and the use of offshore tax havens. The US has acted to stop the abuse of tax havens. Yet the UK continues to drag its feet, even when we know that the UK is losing at least £25bn per year – thanks to the excellent work of Richard Murphy. We therefore need legislation in the Queen's speech to tackle tax evasion by corporations and the wealthy.
If we are to depression-proof our economy we may need to pay more attention to the radical ideas and policies of those who witnessed the misery inflicted on so many during the 1930s.
posted by John at 9:10 AM
10 Comments:
This was my version -
http://threescoreyearsandten.blogspot.com/2008/11/spend-and-tax.html
I agree with John. The fundamental problem is the system itself. The government should scrap its obsession with privatising the public sector which is costing billions and damaging the very services it is supposed to improve. Also, PFI which will cost future generations dearly.
The measures announced will not solve the crisis, a real change in how society operates and a move away from the corrupt free market system is what is needed.
Woolies v bad - I worked for EUK twice in Hayes and I know it provided many local jobs.
Deepak Chopra on CNN spoke on Mumbai situation just now worth listening to, wants peace between India and Pakistan.
John - although I very much admire you, I think your response on this occasion is a bit lacking, - and if I may be so bold, I will tell you why.
Just before The Labour Party took office in 1997, I was a post- graduate student in International Relations at Sussex University. During this period, I attended a talk given by the then Labour Party's election/publicity guru, Philip Gould. As a left wing Labour Party member myself, I could see that the central message of his talk was a nasty foretaste of things to come. For me, the message has also since explained why the Labour Party has gone the way it has, and why the left have failed to mount an effective challenge.
Gould said he had worked on many election campaigns all over the world (including Clintons election in the US), and was of the opinion that due to such things as, the fall of the Soviet Union; the globalisation and liberalisation of the international economy; availability of 24 hour instant news, and professionally run election campaigns, it would be virtually impossible for any party to get elected on a socialist platform anywhere in the developed world.
In other words we are so structurally integrated within global capitalism, that to all intents and purposes we do not really have a national economy anymore - and in reality, that much political autonomy (i.e. all Governments work on the private good-public bad premise). So how can we return to a quasi socialist-Keynesian system complete with nationalised banks/ welfare state/ publicly owned industry and system of public transport/public sector employment and Attlee post-war style Labour Government etc, and remain part of a global free market, with its ethos, and more importantly, it's associated political shell ?.
Of course some might say, that I am wrong because the recent bail out of banks heralds the return of Keynesianism. But I think this is a delusion. If governments around the world do adopt a new maxim, it will probably amount to no more than, `private good-but public if we have to'. Too much is invested for it to be otherwise.
Likewise we shouldn't delude ourselves into thinking this marks the return of socialism within the Labour Party. The rise of the right in the Labour Party occurred, as did the Thatcher/Major Tory Government before it, in response to the liberalisation of the global economy. So it's not just Labour `going through one of it's phases'.
Yes of course it would be best for the people of this Country if we could go back to Keynesianism. People might then start to get basics that are now mostly no longer affordable (such as food, warmth, a roof, and commuting), but the world has changed so much over the last forty odd years that it would only become possible if we adopted an isolationist approach.
Look forward to hearing John, and other peoples views on this.
If the starting point for tax was raised from £6,035 a year to £15,000 then 10 million people would be take out of tax and it would only cost £8 billion per year. This would be a means of putting money into the pockets of the low paid instead of trying to get them buying crap via a puny VAT reduction.
I understand where anonymous is coming from but then again Venezuela is just as much integrated into the globalised world as we are; if a small country can do it so can we.
We have to push back to create new structures and transform world institutions. That can only come about through a move to a people not profit ethos taking root.
There is all to play for and the corrupt system we have now is by no means assured of winning the battle.
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The suggestion by Chris Gale, that it would be possible for Britain to be a socialist country, while taking part in global capitalism, because Venezuela does, is, with respect, wrong in my view.
Yes I understand that Venezuela seems to have retained it's autonomy, while being part of the global capitalist economy, but I would suggest that this has only been possible because of oil (oil is a strong bargaining tool that Britain doesn't really have - as North Sea Oil is increasingly insignificant). This is why when the US say jump, we say how high.
Also I think it's debatable as to whether Venezuela is really socialist. Obviously, it calls itself socialist (or claims to be heading that way), and has developed quite a bit of state/public owned industry recently, but as I understand it, it's economy is still in the main privately owned. The figures on public spending/welfare are quite disappointing too (and incidentally, way below what we and other developed Countries spend).
Anyway, the question remains, how can a country be socialist, while taking part in global capitalism?. In my view, if a Country is part of a capitalist system that exploits workers in other parts of the world, it cannot call itself socialist.
Yes, in an ideal world we would create new structures and transform world institutions, but I fear this utopia is very far away. So I would suggest the only way we could adopt socialism, would be by closing ourselves off and becoming isolationist. But as this would probably be unacceptable to most people in this Country, the best we can hope for is a less harsh form of capitalism - and of course this is what New Labour is really about.
I did not actually say we should take part in global capitalism.
I am against the global capitalist system.
What I am saying is it is possible to take a new path and work in solidarity with other countries and movements that are showing the way.Venezuela is a start.
New Labour is just the status quo with a shiny name, it is capitalism run rampant.
We need wholesale change and that means public services not private profit and an ethos which cares for people and our world.
Dear anonymous,
Britain is full of other resources: natural, human, infrastructure, everything. Bankers have got grip of this honourable nation due to the pioneering historical role this nation has in socialism movement.
Roadside Waif
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