Truth behind the cuts orgy

A giant fraud is being perpetrated on the public by the new Labour government, the Tory opposition, the Lib Dems, the City of London and large sections of the mass media. In essence they all peddle the same message about the state of Britain's public finances - that we are in such deficit and debt as to require deep cuts in public spending and a wage freeze and reduced pension and redundancy entitlements for public-sector workers. And they have set up a largely contrived clash of policies between new Labour and its economists, who allegedly favour postponing cuts until 2011, and the Tories and theirs, who demand cuts now. Yet the reality is that public-sector cuts are not necessary on financial grounds - and the cuts have already begun.
For example, the Lib Dem-SNP coalition governing Edinburgh City Council plans to chop up to 700 jobs by April and make the elderly and disabled pay more for local services. SNP-run West Dunbartonshire is axing two libraries, two care homes and all specialist primary school teachers. Labour's North Lanarkshire Council is reducing library and school dinner provisions.

Non-SNP Scottish councils blame the Scottish Parliament for the cuts, while the SNP and the Scottish Parliament blame the Westminster government. In England, Tory-Lib Dem Birmingham City Council intends to scrap up to 2,000 jobs over the coming 12 months and another 5,000 thereafter. Notts County Council Tories are slashing their budget, selling off 13 residential care homes and ramping up day care charges. The Tories of Cheshire East are halving their council's 110-strong social worker staff while those who run Bath and North East Somerset Council intend to cut 76 jobs this year. The Tories, independents and Mebyon Kernow who control Cornwall Council - the area's biggest employer - have decided to lop 20 per cent off its budget over the next four years, jeopardising up to 1,000 jobs. In Wales, the ruling Lib Dem-Plaid Cymru group on Cardiff Council intends to shed 300 posts and privatise home care services. Swansea Council Lib Dems are threatening to chop more than 500 jobs, while Labour-run Neath and Port Talbot Council plans to close seven residential care homes and privatise the service.

This is what's happening on the ground, yet the new Labour government argues that, unlike the Tories, it is postponing cuts in public spending until 2011 for fear of provoking a "double dip" recession. But what is the truth about public expenditure? Capital programmes are being slashed this coming financial year, from an already meagre £60 billion to £47 billion, from 4 per cent of Britain's economic output (GDP) to 2.6 per cent - lower than at any time under Thatcher and Major and less than a third of Tory and Labour capital spending in the 1970s. This reflects the government's growing dependence on PFI and similar policies to keep down immediate capital costs, while boosting annual leasing payments to more than £8 billion a year until 2030 at the earliest. Current public spending in real terms is due to go up by 3.6 per cent in the 2010-11 financial year. Afterwards, spending growth will slow down by 0.8 per cent a year on average between 2011 and 2014. These plans, together with the sale of more state assets and an upturn in government revenues, are intended to slash public-sector net borrowing from around £176 billion this coming year to £96 billion by Spring 2014.

If we take last December's pre-Budget report at face value, current expenditure is intended to fall from 44 per cent of GDP to 39.6 per cent over the same period. This would take it below the levels under Thatcher in the first half of the 1980s Government borrowing is intended to fall over this period from 12 per cent of GDP this year to 4.4 per cent, which will be lower than most of the 1970s and early 1990s. These proportions indicate that even by the government's own figures reductions in spending and borrowing are unnecessary on such a scale. And they would not be needed at all if an alternative left-wing programme was pursued which cut nuclear weapons programmes, closed tax havens under British jurisdiction, raised taxes on the rich and corporate super-profits, renegotiated PFI payments, directed private capital into productive investment and boosted public-sector investment in housing, public transport, renewable energy and public services. But the cuts are underway for a number of reasons.

First, many local authorities are finding their costs rising faster than inflation estimates and central government's revenue support. Some may also be taking advantage of the hyped-up "crisis in public finances" - especially on the eve of local elections in England - to shrink their budgets. Second, local councils know that the pre-Budget report does not begin to outline the real magnitude of the cuts that they will be called upon to make whoever wins the general election. The main parliamentary parties, the Bank of England and all competent economists know that the report's projections are based on some very optimistic estimates. For instance, Britain's economy is projected to grow by around 1.25 per cent this year and then by around 3.5 per cent in 2011 and 2012. If this growth fails to materialise government revenues would be lower and cutting the public-sector deficit and national debt would rely more heavily on public spending cuts.

These projected growth rates also depend on business investment fulfilling Treasury dreams. Private-sector capital investment must fall by just 3.5 per cent or so this year - compared with the slump by nearly 19 per cent last year - and then shoot up by around 10 per cent next year and 12 per cent the year after. If this turns out to be the case, the biggest growth sector will be that of inflatable pigs. Talking of which, the pre-Budget report's optimistic assumptions about annual non-housing inflation are that it will fall from a modest peak of 2.5 per cent in Spring 2010 to below 2 per cent until the end of 2012. Higher inflation levels would eat into the real value of proposed central and local government spending limits. But the British ruling class, whose economic interests revolve around the City of London, has no intention of allowing taxes and their pressure on wages to rise and make up the difference, still less pay more taxes itself. Nor does it intend to allow higher inflation or a bigger government deficit to jeopardise Treasury credit ratings in the City. On the contrary, our rulers - whichever government is in office - see much bigger cuts in public expenditure as a vital deflationary weapon.

That is why a Treasury document leaked to the Tories in April 2009 projected a real-term reduction of 9.3 per cent in public spending between 2010 and 2014. Last September 20, press reports put the planned cuts at up to £75 billion - around 11 per cent - a year, with budgets slashed by as much as 30 per cent in transport and "defence" - the one possible silver lining. On January 22 the general secretary of the FDA civil servants union revealed that Whitehall departmental teams were drawing up plans to axe budgets by 17 per cent on average over the next three years. This underlines the need to bring trades councils, trade unions and community organisations together in local campaigns to defend public services, to show solidarity with the PCS in its strike action on March 8 and 9 and to project the People's Charter as the positive alternative.