By Mick Brooks
On Sunday 19th November Chancellor Philip Hammond declared on TV, “There are no unemployed people” – to the astonishment of 1.4 million officially unemployed, plus millions more on disabilities looking for work and those struggling to get by on temporary and part-time casual jobs. He seems to be the finance minister for cloud cuckoo land rather than the UK.
Meanwhile, back in the real world, Labour’s Shadow Chancellor John McDonnell sounded the alarm. He declared that what the country needs is an emergency budget:
- To pause the roll-out of Universal Credit to fix delays in benefits payments
- Fund public sector pay rises
- Put more money into infrastructure such as road and rail projects
- Increase funding for health, education, and local government
- Launch a large-scale house-building programme.
Finally Hammond launched his budget on November 22nd. Hammond had a problem. As a member of the Tory Cabinet he couldn’t and didn’t want to do anything to deal with the problems of working people, but had to look as if he was concerned. So he has tinkered with the economy.
Most of his tinkering is too trivial to comment on. The big picture, as Jeremy Corbyn commented, is of “falling pay, slow growth and rising poverty.” The budget does nothing to change any of this. Hammond only pretended to deal with a few of John McDonnell’s principal concerns:
- He has not paused the roll-out of the flawed Universal Credit, but has reduced the delay in payments from six to five weeks. Big deal! This will still leave 100,000 people going hungry over Christmas.
- The Tories have various schemes to increase house-building to a target of 300,000 homes a year. They seem to have forgotten that they already have a target of building 250,000 houses, which they are nowhere near reaching.
- The budget pledges to set up a Task Force in order to halve homelessness by 2022. The only problem with this is that homelessness has doubled since 2010 – when the Tories took office.
- The NHS has been allocated £3bn extra over two years. This is a sticking plaster. Even Simon Stevens, the hard-faced head of NHS England, believes our health service urgently needs an emergency injection of £4bn – now. The prestigious British Medical Journal has recently reported 120,000 excess deaths in the UK since 2010 as a direct result of cuts in health and social care.
- The Tories have made a big song and dance about introducing a discounted railcard for 26-30 year olds. In fact this is a generation whose livelihoods they have done their best to ruin through presiding over spiralling house prices and rents, exorbitant student fees and debt, and insecure and poorly paid work in the ‘gig economy’. Rail fares from the privatised train operating companies have actually gone up by 32% since 2010, while real incomes have stagnated or fallen back. So how much of a bonanza is the new railcard?
The wretched state of the British economy has left little room for manoeuvre for Hammond. He is boxed in because of previous policy decisions by the Tory government – above all the imposition of austerity on us all as the order of the day. The Institute for Fiscal Studies (IFS) noted beforehand, “It is hard to see how the Chancellor can both maintain the credibility of his fiscal targets and respond effectively to the growing demands for spending.”
Background to the Budget
Normally there are two policy levers available to try to influence the behaviour of a capitalist economy – fiscal and monetary policy. Fiscal policy means manipulating the amount of money the government gets in and spends. Keynesians recommend that in hard times the state should spend money (including money it hasn’t got) in order to stimulate the economy. That would involve running a deficit in government finances, borrowing the difference.
Now the Tories since 2010 have set their faces like flint against Keynesian reflation and demanded austerity to pay off the deficit, condemning working people to indefinite hardship. But here’s the rub. They’re still running a deficit – spending more than they are getting in as tax. George Osborne as Chancellor pledged to eliminate the deficit by 2015. He failed utterly. Hammond is resigned to seeing his target to eliminate the deficit recede into the distant future. The IFS predicts that borrowing could rise to almost £70bn by 2021-22.
The other way of messing about with a capitalist economy is with monetary policy. This is conducted by the Bank of England, which was granted operational independence by Gordon Brown in 1997. Brown’s action (which was not mentioned in Labour’s 1997 manifesto) represented his capitulation to right wing neoliberal economic theory. This asserted that governments were always too eager to spend money in order to win popularity, because they are elected. The only effect of increasing the money supply (spending more money) was supposed to cause inflation. Monetary policy should therefore be removed from democratic control and put in to the hands of technocratic central bankers. Events over the past ten years have shown how fundamentally false this theory was and is.
Monetary policy since 1997 has not been co-ordinated with fiscal policy. While the Tories were determined to impose a fiscal squeeze, the Bank realised the British economy was in a desperate plight and they had to do something. They reduced interest rates from 5% before recession struck to ½% and then to ¼% in 2015. This is the lowest bank rate has been set since the Bank was established in 1694. It was supposed to give an incentive to boost investment. It didn’t happen. The money was there to be borrowed for next to nothing; you can take a horse to the water but you can’t necessarily make it drink
Ultra-low interest rates proved to be not enough to revive the economy. In common with other central banks, in 2009 the Bank of England began a policy of quantitative easing (QE). This is in effect printing money. Since we live in the twenty-first century the printing presses did not roll. The Bank just created an extra column or row on a spreadsheet – dead simple. Bingo – they created £375bn, just like that! Orthodox economic theory suggested this would cause an explosion of inflation. Orthodox theory was wrong. But what happened to all that money?
The Bank lent it to the commercial banks and other financial institutions by buying bonds from them with the money they had conjured out of thin air. Bonds are government securities, pieces of paper that pay interest. That interest is of course can only come from a share in the unpaid labour of the working class.
Real capital consists of machinery etc. owned by capitalists and used to exploit workers. If the firm is then floated on the stock exchange or issues bonds these pieces of paper entitle the owner to a share in the surplus value. Marx called such pieces of paper, including government securities, ‘fictitious capital’.
If more people are suddenly trying to buy something, whether fish or bonds, the price is likely to rise. If the price of financial assets rises, then the beneficiaries are likely to be the owners of financial assets – the rich. As the rich got richer they hurried out to buy still more financial assets, creating a classic bubble. A bubble is where prices are going up because people are buying and people are buying because prices are going up. Figure that out!
We treat houses as roof over our heads, but they can also be an appreciating asset, subject to the same chance of bubbles forming as with financial assets, putting house prices further and further out of the reach of working people.
What did QE do for the real economy? Little or nothing. The hope was that all this extra money sloshing about would find its way into investment. Hard headed capitalists invest only if they’re fairly sure of a decent profit. In the wake of the Great Recession few were ready to venture their money (or even other people’s money) on investment in the productive sector. Instead there was an orgy of speculation.
Some try to argue that QE stopped the situation from getting even worse. Maybe. But as Nicholas Macpherson, former permanent to the Treasury, tweeted, “QE like heroin – need ever-increasing fixes to create a high. Meanwhile negative side effects increase.”
Our Future under the Tories
Back to the real world and the real economy. The reason the economy is just crawling ahead and the reason why the deficit is not being paid down, as Hammond admitted, is because productivity has not really gone up since the recession – rising by just 0.4% a year. Raising productivity is the only way that rising living standards and improved public services can be paid for in the longer term.
The Office for Budget Responsibility has consistently overestimated the future rise in productivity. David Blanchflower, a former member of the Monetary Policy Committee of the Bank of England, is scathing about these predictions. “In each of the disastrous 16 forecasts it predicted that productivity would rise like a rocket, when in fact it has remained as flat as a pancake…It remains unclear whether the OBR is just incompetent or whether it is the government’s poodle. The public pays for this nonsense.”
The Great Recession of 2008 gave a body blow to the strength and cohesion of the working class movement. Workers with secure permanent employment found themselves unemployed and had to resort to part-time precarious jobs. The bosses were quick to put the boot in with a proliferation of bogus self employment, agency labour and zero-hours contracts. The Tories are determined to load the burden of hard times on to working class living standards and social benefits.
There are a further £12bn in welfare cuts to go through if this government lasts out its full term. If Hammond has his way, the public sector pay squeeze will go on and on. According to the Resolution Foundation, working class living standards will not recover their 2008 level till 2022.
There are no serious attempts in this budget to deliver the investment needed for a better future – just gimmicks.
Life under the Tories is likely to remain bleak. Fortunately their grip on office looks fragile. Labour under Corbyn has been regenerated and is ready to take over at any time. We need to take radical action against capitalism – the cause of our woes. That is the only hope to defend and improve wages and living standards for the British working class.November 23 2017
