The April 2009 Budget

A Cheer for Alistair

Despite the fact that he doesn’t act on most of my recommendations, I like Alistair Darling. Crucially, he knows that ‘you cannot cut your way out of a recession’.

The measures the government has taken (fiscal and monetary) have not been bold enough. Nevertheless, it is likely that they will restrict the fall in output this year to around 4% (instead of 7 or 8%), and unemployment to around 3 million (instead of 4 or 5 million).

The Tory response is pathetic, dishonest and opportunist. Gordon Brown is right to call them ‘the do nothing Party’. They oppose government policies, without offering any of their own.

They are dishonest in blaming Gordon Brown, when the financial and economic mess we are in originated in the Thatcher years. New Labour’s mistake was to continue with the Thatcher policies (e g privatisation and low taxes for the rich).

Because they are the Opposition they cannot be blamed for opposing government policies. But their lack of any ideas of their own means they are not a credible alternative government.

Vince Cable and the Liberal Democrats are a different matter. They do have relevant policies, some of which Labour would do well to adopt (e g raising personal tax allowances to take the lower paid out of tax brackets).


A Missed Opportunity

However, sadly, the budget was a missed opportunity. The political context prevented the radical measures (requiring more spending) necessary for a speedy recovery.

Instead of apologising for the 50% tax on incomes over £150,000, it should have been accompanied by further measures: to raise revenue and to create a more equal society. For example:

(i) a wealth tax;
(ii) an increased capital gains tax;
(iii) a windfall tax on excessive profits;
(iv) a 55% tax rate on incomes over £200,000.

Such measures might, as vested interests claim, cause some to leave to reside in countries with lower tax rates. Why should we be concerned about this? The most likely to leave are the financiers who precipitated the current crisis.


Better Late Than Never

Such policies, along with cuts in expenditure (mainly on defence – e g Trident), must be matters for a late summer budget. The revenue raised must permit a credible strategy for repaying borrowing, and for further expenditure on:

(i) new jobs in the green energy sphere;
(ii) job support to keep people in work;
(iii) tax relief for the lower paid;
(iv) support for the housing market, especially first time buyers.

All of these measures require a political context which banishes any thought of returning to the capitalism which caused the crisis: instead, it must place the emphasis on creating a more equal, a more democratic and a more compassionate society.

DAVID BLANCHFLOWER: HE WAS RIGHT

Blanchflower’s Predictions

In the Guardian last week (Thursday 19 March 2009), David Blanchflower reminds us that, a year ago, he told the Treasury Select Committee that 'something horrible might come’. He was one of the very few to predict a serious recession.

He was largely ignored. It took the Bank of England’s Monetary Policy Committee six months (after his warning) to even start cutting interest rates. Yet, well before then, it was clear to many of us (especially those losing jobs) that there was an economic crisis deepening by the day.

Blanchflower’s Guardian article is headed ‘Now for the Jobs Stimulus’ He expresses the fear, now shared by many, that, unless the government acts speedily and decisively, unemployment will exceed 3 million.



Labour’s Opportunity: £100 Billion Stimulus


In his article, Blanchflower is, in effect, arguing for government expenditure along the lines I have proposed in earlier Blogs. Gordon Brown and Barack Obama, we are told, will argue for a worldwide fiscal stimulus at the G20 meeting in London next month

Blanchflower’s emphasis is on creating jobs, and taking steps to prevent long-term unemployment, especially amongst young people,

I would add (and I have no reason for thinking that Blanchflower, Brown and Obama would disagree) that the action taken should also aim to create a fairer, and more equal, society.

Government Borrowing and Repayment

For a package on this scale it is obvious that there would be a major increase in government borrowing. However, this is a problem only if there is no clear strategy for repayment

Such a strategy should be developed in a context of creating greater equality. This means higher income tax for people earning over £80,000 a year, with progressively higher rates.

£80,000 45%

£110,000 50%

£150,000 55%

£200,000+ 65%

In this context, part of the spending should be used to take at least 1,000,000 of the lower paid out of tax brackets and increase unemployment benefits. For obvious reasons, this extra income would be spent - a stimulus to the economy.

The second element of the repayment strategy should be a windfall tax on companies with excessive profits (e g utilities and oil companies).

The third element should be cuts to expenditure on defence and government quangos (by abolishing them).


This is Labour’s opportunity. A recent opinion poll (also published last week) indicated that 82% of respondents supported higher taxation for the better off.

Gloom and Doom: Kick It Out

In my last blog (Urgent Action To End Recession) I pointed out that most of the forecasts for 2008 were widely inaccurate. So what notice should we take of what they are predicting for 2009?

It is obvious that we are in a recession and almost all the news is bad: indeed, it sometimes appears that the media has resolved to report only bad news. So the forecasters join in, with most of them predicting that things will get either worse, or much worse.

The underlying belief is that market forces beyond our control will continue to cause havoc and hardship. Governments, most commontators believe, can do very little to end the recession.

When the government takes action, the standard response of the Conservative opposition, and in much of the media, is to claim that it will not work. What they do not explain is what will work.

The impression they give is that they do not believe any government action will work - so do nothing, and leave it all to 'market forces'.

'Doing nothing' cannot be regarded as an acceptable response of politicians who are elected to serve all members of society. It is likely that over 70% of the population will survive the recession largely unscathed: it is for the other 30% that urgent, and radical, action is required.

The relevant criticism of the government is not that it has taken too much action, but too little. What it should do is outlined in my previous blog: Urgent Action To End Recession.

Pessimism will continue to reign if it is believed that government will allow thr recession to take its course. The challenge is that the action required can occur only with radical policy changes; changes which not only stimulate economic recovery, but also create a more fair and equal society.

Although there is no objection to government borrowing in the short term, a convincing strategy for repayment is essential. As I have argued in previous blogs (see The Current Crisis: A Layman's Perspective) , the resources can, and must, be acquired from:

(i) a windfall tax on excessive profits;

(ii) closing tax loopholes used by companies and wealthy individuals;

(iii) progressively higher rates of tax for incomes over £100,000 a year;

(iv) heavy cuts in defence expenditure (including Trident), based on a policy of not getting involved in wars.

This is not only the appropriate and necessary action but it would, I am convinced, receive widespread public support.

The Labour Party and Socialism 1950s-1970s

The Labour Party and Socialism I 1950s-1970s

The Failure of Capitalism

With a few notable exceptions, such as Tony Benn and Eric Robinson, people move to the right as they grow older. There are plenty of examples of this in the present government. Instead of challenging the Establishment, most cabinet ministers become part of it.

Although not notable, I have moved in the opposite direction. I have never doubted the relevance of socialism: with the experience under new Labour, I am more convinced than ever that if offers the only solution.

No doubt this is the reason I have been ignored for the last 30 of my 50 years membership of the Labour Party. Nevertheless, I am willing to help the present government in its hour of need. All it has to do is to ‘turn a deafen’ to the City of London, Washington, the Daily Mail and listen to me, representing (as I’m sure I do) the views of some 3-4 million people in the Labour Party and the trade unions.

As opponents of privatisation, and of restrictions on the range of public services, we are not associated with the policies of recent years. What we are saying, in a general sense, is that rampant capitalism has had its chance and has landed us in an almighty mess.

‘Socialism’ must not only dare to speak its name, but also have the courage to explain how its policies are the most relevant for addressing the economic and social challenges we currently face.

Labour in the 1950s

In the 1950s there appeared to be a real prospect of improvement in the quality of life of all citizens. A free health service had been established by the Attlee government, and the railways, coal mines and utilities (gas, water, electricity, communications) were under public control.

The post-war re-building by the Attlee governments 1945-1951 placed the economy on a firm footing. By the mid 1950s the standard of living had developed to the point where Harold Macmillan’s ‘we have never had it so good’ was widely recognised.

The ‘we’, however, was far from including everybody and there was a great deal to do to create a fair and equal society.

Labour in the 1960s

Harold Wilson, who had resigned with Aneurin Bevan when Gaitskell imposed health charges in 1951, believed that people could be lifted out of poverty as a result of the economic benefits flowing from ‘the white heat of the technological revolution’.

The strategy of raising the living standards of the less well off from economic growth, as an alternative to a more progressive tax system to redistribute wealth, has persisted throughout all Labour governments since.

By the 1970s it was clear that the ‘equality from economic growth’ strategy did not work and only very modest progress had been made towards a fairer society. However, taking a world view, the balance of power between capitalism (led by the USA) and communism (led by the USSR) appeared to be maintaining a relatively stable world.

For the UK, North Sea Oil held the prospect of improved living standards for all UK citizens with, in addition, sufficient resources for investment in developing countries. It was also possible to be optimistic about democracy; particularly given the balancing powers of government, local authorities and trade unions.

Rights, laws and recognised procedures to protect employees, won by working-class struggles over the previous century, provided reasonable protection for citizens threatened by vested interests and bureaucrats. Although there was a great deal to do to eliminate poverty, create equality, and improve public services, it appeared doable.

However, at the end of the 1970s, the country took a wrong turning which will be described in the next blog episode.