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This Budget is about ideology as much as fiscal responsibility

It was Maggie Thatcher who stole milk from schoolchildren. Now this government will take money from

By Jon Trickett Published 24 June 2010 17:44

The Budget showed that, for the Conservatives, the problem facing the country is one of government rather than of the market. The Tories believe that the problem lies with the state, the size of which should be reduced, and not with the banks which collapsed.

That much is clear from how the burden of the Budget will fall: of the £40bn additional fiscal tightening being proposed, it looks as though £13bn will be achieved by raising VAT and £11bn by an attack on welfare. In contrast, £2bn is being raised by the banking levy. This reveals the priorities of this Conservative-led coalition.

The burden of the changes introduced will fall particularly heavily on the poorest and on working people more generally. The Chancellor said that he had a choice between raising income tax or VAT. About £1 of every £7 that poor people spend goes on VAT, while for the rich, the figure is about £1 in every £25. It is highly regressive and that it was increased reflects the right-wing agenda being elaborated by this government.

People have reason to fear other elements of the Budget. It was Margaret Thatcher who stole milk from schoolchildren. Now this government will take money from poorer mothers.

According to the TUC, the announcements made show that poorer mothers will lose about £1,200 a year. This may not affect the 22 millionaires sitting around the cabinet, but it can make a difference to many children and families. Whatever my differences with them, I do not believe people joined the Liberal Democrat party to attack poorer mothers, but that is what this Budget does.

It would not be my priority at this time to go for further fiscal tightening, given the fragility of the economy and the lack of demand elsewhere in the world. This view has been expressed by others, including President Barack Obama in his letter to the G20. The chief economist at KPMG, Andrew Smith, has described the Budget as a "kill or cure" plan, and went on to say:

The aim is to eliminate the structural deficit over this parliament, but it risks choking off the recovery. There is no guarantee that private demand will rebound just because the government retrenches.

Paul Krugman, the Nobel Prize-winning economist, asked how hard it could be to understand that governments can save economies rather than destroy them. Yet, as he said: "politicians seem determined to do the reverse. They're eager to short-change the economy when it needs help."

We are taking a huge risk with the future of our economy. Two million private-sector employees work for companies that are dependent on government contracts. Further damage will inevitably be done to the private sector by cuts aimed at the public sector.

When we look at the performance of the private sector, we see that it, rather than the public sector, has brought about the reduction in GDP, especially in investment. People may not like to use the word, but if there is a strike going on at the moment: an investment strike in the private sector. We can understand why it happened, but nonetheless, £6 of every £10 of the reduction in GDP is down to the decline in private-sector investment.

It is not clear to me how cuts now will suddenly lead to growth in private-sector investment. Furthermore, the Budget shows a decline in public-sector investment from £47bn in 2008-2009 to £21bn by 2014.

The underlying economic philosophy of the Budget is that, by reducing the state, the private sector will flourish. The reverse is true, as we know from J M Keynes and from what happened in the Great Depression of the 1930s. Roosevelt's New Deal rebuilt the American infrastructure and economy. The private sector was able to revive through expenditure, not cuts.

The May election gave no legitimacy for the course the government has set. Inevitably, there will be resistance both in parliament and outside. It is for the Labour Party to reflect carefully on how we respond. It will want to react responsibly, but we should place ourselves alongside people and communities who are resisting the cuts.

Jon Trickett is the Labour Party MP for Hemsworth.

Tags: Budget 2010

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9 comments

Thu, 2010-06-24 21:31 — Drew (not verified)

As I said in my response to the "Osborne's 'progressive facade'" article, but clearly more suitable here -

"The same mantra the wealthy elite have been chanting since Milton Friedman reared his ugly head from the womb touting ridiculous Randian rhetoric. The real issue here is the slow and utter failure of capitalist ideals in any circumstance over the last 30 years and the complete ignorance of it by the media and those in power.

Change is coming, and this is the tip of the iceberg, but the real questions remain to be answered... How long will the majority of the population remain complacent and/or ignorant? How long will the capitalist system fight its slow suffocation? Will change come before we reach the one-way street to oblivion, fascism, or both?"

Ask Immanuel Wallerstein what he thinks the problem with economics these days is...

The ruthless growth doctrine and greed of capitalism has reached its limit, and now it's just a question of how long the wealthy and powerful can maintain their grip on the writhing eel of progression and ultimately the impending loss of their unearned privilege.

As Sue said - it's all ideology, and the greed-smothering facade of fiscal responsibility.

Thu, 2010-06-24 22:00 — swatantra

The best laid plans of mice and men ... Its all about ideology and future thinking and planning. Retirement, pensions in 2016? Bring it on, and further delay, even more. i/4 pop over 65? Todays youngsters cannot be expected to pay for their upkeep and care. Its unfair. Its back to work we go. The promises made 40 years ago cannot be expected to be kept.

Fri, 2010-06-25 01:48 — Nick9

Whatever your views of of the new Labour days, there's no denying that it did a great deal to moderate the extreme left wing to a more centred ground and likewise the Tories had to ditch many of their right wing ways. The Liberals seemed to represent a medium between the two. But this regressive budget has just created a reversion to the days of the far right and consequently the divide will become greater than it has been for a long time. The Liberals have lost all standing.

Fri, 2010-06-25 03:28 — 08euevllgeqj

Drew, do yourself a favour kid and try and give up smoking the cannabis, eh ?

Fri, 2010-06-25 09:20 — Nick (not verified)

There is nothing remotely responsible about this budget. In the short time that Cameron and Clegg have been in power they have put a black cloud over the prospect of economic growth by dramatically blaming it on the big black hole being worse than they 'thought'. In the same short time they've seemingly also identified exactly where these savings are needed. There is no way that any responsible government can make such decisions in such a short time. If they claim they didn't know the extent of the debt through the figures being hidden, then it's simply not credible to say they have readily identified exactly where the axe must fall. A government should act prudently and without rash decision making. What makes this all the worse, is its been done solely in an attempt to please the wider voting public who are fooled by misleading media portrayal. The resultant damage is upon the lives of those least able to defend themselves.

The way the Liberals have suddenly changed their political values is astonishing; it's the biggest farce in ages and I'm very sure it'll be the last coalition ever.

Fri, 2010-06-25 11:09 — tomjoad

There is no doubt that thanks to the cretins who ran the banking sector, who are the main culprits in this recession, many hard choices were going to have to be made.
Labour would have tackled the problem in a more careful and considered way that would have kept more people in work and the fragile recovery going.
The current mad,frenetic slash and burn by the Tory Party is totally avoidable despite the constant drip drip of spin by Cameron and the Tory media.
And for Gods sake stop calling this goverment a coalition.For twenty pieces of silver Clegg,Cable etc have trampled on their 'resolute' Liberal ideas and have morphed into a group of tassle waving giggly Tory cheerleaders.

Fri, 2010-06-25 12:08 — Danny (not verified)

Well said Jon.

Labour did some good things over the past 13 years - but also many things that alienated large sections of society and as a result its coalition broke down.

Alistair Darling's remarks that Labour would be "tougher than Thatcher" were the last straw form many,

As you say, the key task for Labour now is to put forward a clear, alternative and side with those opposing the cuts. It certainly should not cede to the cuts agenda.

Those fetishing the deficit do so for ideological, not economic, reasons. Their solutions will actually make the deficit work as people will be thrown out of work, more benefits paid out, business tax revenue will plummet as once viable firms go out of business etc. A viscous circle will result.

As Roosevelt showed, a government investment led recovery will stimulate both private business and government taxes, which can pay down the deficit. Labour should put forward a growth strategy, which is the real way to get the public finances back on track.

Fri, 2010-06-25 20:37 — Drew (not verified)

Mr Hassan, your response does nothing to add to the conversation except to demonstrate that your rejection of my opinion (and Immanuel's) is at best a poor attempt at humour or insult. Why not offer something useful like a logical argument espousing the merits and long term stability of Capitalism in these trying times... eh? Continue on in denial or ignorance friend.