The UK government mantra that it’s imperative to reduce the deficit (the difference between the money coming in and going out) is one of the greatest confidence tricks to have ever been fostered on the British people. In reality, the deficit could be wiped out at a stroke. In his documentary film The Spirit of ’45, Ken Loach highlighted that in the decade after the war, the UK government built 300,000 affordable homes a year and brought the NHS into being.
The chart below shows at that time UK national debt – the accumulation of deficits – stood at about 180% of GDP. At present it’s about a third of that.
UK National Debt since 1900.
So why in 2015 are we apparently unable to afford to prevent the most vulnerable in society from committing suicide as a result of cuts to their benefits, yet after the war we were able to build hundreds of thousands of affordable homes for people to live in as well as bring our NHS into being? Why the insistence on getting the deficit down especially since there is no law forcing the government to repay the debt?
The answer to those questions is that since the crisis hit in 2008, there’s been an iron clad consensus between both the Labour Party hierarchy and the Tory right, predicated on neoliberal ideology which is used as a weapon with which to beat the poor with by way of the former’s support for, and the latter’s implementation of, a sustained programme of austerity and cuts. It’s this iron clad consensus that Jeremy Corbyn wants to break.
The notion that it’s imperative the British government “balances the budget” in order to reduce government debt is nonsense, as is the analogy that national budgets need to be treated just like household budgets. The bailiffs won’t be entering the House of Commons or the Bank Of England any time soon. The truth is, unlike personal debt, the deficits and debts of governments’ are not of primary importance.
When he became chancellor in 2010, Gideon Osborne boasted that he would eliminate the deficit by April 2015. But that plan is in tatters. He has now put back the promise to 2018/19. The government had to borrow £3.7 billion more in the first seven months of last year. This was partly because North Sea oil and gas revenues plummeted to a four year low.
The UK is a relatively low wage economy compared to it’s major rivals and its productivity gap with these nations’ is at the widest it’s been for 20 years. Moreover, because many of the new jobs created in Britain are mainly part time (against a backdrop of the longest drop in real wages since records began), means that tax revenues are low.
In order to make up the shortfall between real and expected revenues, the government borrows money by selling bonds which are essentially IOUs with the promise of future repayment. In the meantime, the government pays interest on these bonds which are sold to banks, insurance firms and even pension funds. The total of bonds that have been sold is called “public debt”.
In a crisis like the one we’ve had since 2008, bond buyers can demand higher interest payments which they have done. This explains why the cost to the government in terms of the interest on the national debt has risen since the beginning of the crisis as illustrated in the table below.
To appease the bond buyers, the government has imposed austerity on the people. We constantly read in the gutter press about the rail workers allegedly holding the government to ransom, but never the bankers – funny that!
During the peak of the swinging sixties, government debt was greater than it is in 2015 and yet, unlike those golden days, we are told that both the government and the citizens of today have to tighten their belts as though we were living the austere days of the Great Depression in the 1930s.
The truth is the post war Keynesian boom resulted in a steadily declining debt from it’s peak in the 1950s. This is because higher wages and high employment means greater spending power, which in turn means greater economic activity and higher government tax revenues.
This is precisely the kind of argument progressive capitalists like Nick Hanauer point to. The reason billionaires like him argue for a doubling in the national minimum wage is not because they are altruistic but because they understand that it’s in their best interests’ and that of the capitalist system as a whole. That message needs to be relayed to Cameron and Osborne.