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.