Tuesday, 19 April 2016

RIP ‘All in it together’, buried in Panama

By Michael Burke

This Tory government, its economic and social policies and its financial scandals almost seem designed to provide illustrations of fundamental economic truths. “The history of all hitherto existing society is the history of class struggles”, famously wrote Marx and Engels in the Manifesto of the Communist Party. The Panama scandal reveals the big lie that austerity is about deficit reduction and the false mantra that ‘we are all in it together’. The entirety of government policy is an attack by one class on all its subordinates.

Whenever some Tory Minister or another announces another damaging economic policy or wholly regressive social policy and attempts to justify this in terms of a shared burden of adjustment, it can punctured by recalling just one word: Panama. ‘We’re all in it together’ has been fatally wounded.

Tory economic policies and the leaders themselves are often criticised in terms of incompetence or immorality. No doubt that these factors are present. But the same policies now in place have been pursued to different degrees before; public sector spending cuts, cuts to public sector investment, pay cuts, tax increases and benefit cuts for average and low-paid workers, tax cuts for business and the high paid, privatisations, and so on. This was the actual content of Thatcherism although it was cloaked with ‘monetarism’ and again when the pound entered the Exchange Rate Mechanism. The label changed but the policy was the same.

This policy consistency is not accidental. It represents a class interest. As a result the current government cannot be advised or implored to choose different policies. Only militant opposition combined with considered alternatives will work.

Tax haven hub

The focus of the anger has quite rightly been against David Cameron, who called tax avoidance ‘morally repugnant’ when looking for a cheap target in tax-dodging celebrities. But he is also a representative figure of the model of the British economy which his government inherited and which they are recklessly extending.

That economic model places the economy at the centre of an international hub of tax havens, with the City of London as its organisational focal point. Economic policy is aimed at promoting this international role, if necessary at the expense of other sectors of the economy. So, the departing permanent secretary to the Treasury recently told the Financial Times that steel was a ‘lame duck industry’ and should not be bailed out. This assessment clearly does not apply to the finance sector and the banks.

Table 1 below shows the level of bank liabilities (primarily deposits) in selected financial centres. They show the vast level of offshore wealth in tax havens. The data is from the latest quarterly report from the Bank for International Settlements.

Table 1. Bank Liabilities in selected centres, US$ billions
 
The US is no stranger to tax avoidance itself, although to a large extent this is done onshore, through incorporation in Delaware or Nevada. But the UK economy and its dependencies and Overseas Territories have greater bank liabilities combined than the US itself. This is not an exhaustive list, as other territories, including Gibraltar, the British Virgin Isles, Belize and others are engaged in similar schemes.

The efficient management of savings should be a positive contribution to economic prosperity, by directing savings towards the most productive areas for investment. But this is not what is happening. A global system of tax avoidance deprives countries of tax revenues that could be used to for investment or social protection or public goods. This is not just confined to Britain and the biggest victims are the populations of the Less Developed Countries.

Worse, the capital does not lie idle in the banks, offshore companies and hedge funds. It is used for speculation in financial assets, stock markets, commodities and property which further distorts economic activity, and exacerbates inequality.

The current Labour leadership has nothing to do with these rackets and has always opposed their effects. The Labour leadership can only gain from the exposure of these scandals. One of its tasks will be to formulate policies which shift the whole financial sector away from tax-dodging and speculation towards productive investment. That is a major task. But the sums involved are so large that every incremental step has the potential for a huge positive effect.

Monday, 4 April 2016

Budget shows women bearing the heaviest burden of austerity

By Kerry Abel

This government’s budget and the entire austerity policy hits women harder than men. At the same time the government are consulting on gender pay gap reporting, because as they acknowledge, the gap between men’s hourly pay and women’s still stands at 19.2% the Tories are taking 81% of their budget cuts out of women’s pockets.

Despite making cuts to local government, the NHS and other public services in the period 2010-15, including £200billion from the NHS the Chancellor has not met his target to balance the books by 2015, so has come back for more. And they are taking from those least able to afford it. According to the Women’s Budget Group, households on the lowest incomes lose out five times as much as richest households.

Fig.1 Cumulative impact of tax/benefit and spending cuts by income decile (2010-20)
Graph from: A cumulative gender impact assessment of ten years
of austerity policies, published by Women’s Budget Group

This was not neutral budget. Women tend to be in the lowest paid sections of society, more likely to be on the minimum wage and have to stretch their wages further - 90% of single parents are women. The budget’s tax cuts mainly benefit rich men because they are disproportionately high paid. Analysis by the Tax Justice Network noted before the budget that ‘if George Osborne slashes the rate further in the Budget – from 45p to 40p for those on £150,000 or more – will put even more money in men’s pockets’.

How does this work?

The first channel for the uneven distribution of austerity is the aim of cutting public sector spending by £3.5 billion by 2020. The public sector – local government, schools and hospitals are disproportionately staffed and used by women. So any cuts will affect women’s employment prospects more as well as leaving them holding the baby, the disabled relative or older family member when a cut to a service bites.

Public sector workers have had only a 1% or less pay rise in the last five years and four more years is a real terms cut of 15-20% of their wages.

The government has outlined £3.5bn additional cuts to departmental budgets – excluding those protected areas of education, health, international aid and defence – which will need to be found in 2019/20, budgets that will have already fallen in real terms by over a third since 2010.

2019/20 will also be the same year that public sector employers will be faced with a £2bn increase in contributions to unfunded public sector pension schemes, which arises from the update to the discount rate applied to pensions. The Nuffield Trust estimate that this could mean a £650 million bill for the NHS virtually wiping out the marginal 0.7% spending increase planned for that year and leading to a real terms cut in health spending in that year.

Public sector employers will also be struggling to meet additional National Insurance contributions as a result of the abolition of the second state pension, a figure just shy of £3bn. With a cap on public sector pay due to remain until 2020 and the government already committed to further savings on redundancy pay and sickness absence, it is hard to see what more can be squeezed out of a public service workforce that is beset by increasing recruitment and retention problems.

This can be broken down even further in terms of health, education and wages. In November the Health Foundation analysis showed the government commitment to increase NHS funding by £10bn in 2020/21, but this is only an increase to the NHS England budget not total health funding. The NHS has been creaking under the pressure of the last parliament’s cuts and increased pressures on health spending arises from demographic changes and cuts to other budgets, especially social care. So some vital investment has been cut and will not be restored by this budget - junior doctor training, health visiting, sexual health and vaccinations are all at risk and hospital equipment neglected over the last five years.

Money has now been allocated to local government to spend on health and this is open to politicisation and inefficiencies, the postcode lottery of contraception availability is a prime example of this. But it is also a false economy, for every £1 spent on contraception the NHS saves at least £11. The Advisory Group on Contraception research found that the average abortion rate was around 9.7 per cent higher in areas where services were restricted, compared with areas with no restrictions. And some centres like the newly refurbished Margaret Pyke centre is faced with closure despite significant investment in 2013.

Health cuts affect care services and women suffer disproportionately and end up have to bear the burden when the state fails.

There has rightly been a campaign against and media outcry about the announcement of forced ‘academisation’ of all schools by 2020. There will be a wholescale move away from the national curriculum and the nonsensical idea that parents should not have a say in how the school is run. But this will also affect how staff are paid and how that pay is collectively negotiated. The compulsory move to academies is an attack on collective bargaining, which will result in less fair and transparent pay structures and this will affect women’s pay. Collective bargaining helps to create pressure for remuneration decisions to be fair and transparent, that starting salaries are fixed, that maternity pay is the same across the country and that teachers and school staff know they are being paid a fair rate for the job. Anything that undermines this opens up multi-tier pay deals that will leave those in rural or difficult schools less well paid. Wherever collective bargaining has broken down, women’s pay suffers.

It is shameful that the gender pay gap still exists and currently stands at 19%. The biggest single policy that closed the gender pay gap was the introduction of the National Minimum Wage in 1999 and reorganised public sector pay in the 2000s as part of large scale pay and grading programmes went some way to close the pay difference, but in recent years it has stagnated. Women are at the poorest end of the wage scale and the case for equality is not taken seriously enough. Legal requirements for policies to have no detrimental impact on equalities are routinely ignored, despite many commentators highlighting this issue.

The increase in the new National Living Wage is important and 61% of beneficiaries are women. Job growth is important, but women are disproportionately in low paid part time jobs (75% of part time workers are women). The move to low paid, zero hour contracts and spurious self-employment in unstable working environments is not the solution.

On top of this, the TUC have repeatedly pointed out that the ‘motherhood penalty’ still exists, by the age of 42, mothers who are in full-time work are earning 11% less. It is still culturally linked to the idea that men should be the breadwinners, and that women are seen as less committed to work when they return as parents. Research in America found that changes in work behaviour and time out of the labour market may explain some of the motherhood pay penalty but the majority is unexplained.

Unfortunately none of this will be properly dealt with by the gender pay gap reporting proposals from the government, currently being consulted on, due to come in from 2018 because the reporting system is voluntary and companies are not required to give information detailed enough to shine a light on the main causes of the overall gender pay gap within their organisation.

Cameron and Osborne often argue that strong public services like the NHS require a strong economy. But SEB has shown that their central policy of cutting taxes on profits and on high earners has not produced a strong economy. Business investment as a proportion of GDP was higher when the Corporation Tax rate was 30% than it is now with the rate at 20%. Capital gains tax is also down, the higher rate is being reduced from 28% to 20% and the basic rate from 18% to 10% - this is what led to private equity partners paying a lower rate of tax than their cleaners.

It is true that raising the tax free personal allowance will benefit low income women lifted out of paying tax but it disproportionately benefits higher earners and doesn’t help those who already earn less than the threshold. Quite simply these measures mainly benefit double income households where both are high earners.

The reality is that austerity constitutes both a frontal assault on public services and has led to economic stagnation. Under Cameron and Osborne, neither the NHS nor the economy is strong. And, because of the greater exploitation of women and their oppression, they bear the greatest burden of this.

In effect, the Tory policy is to cut pay and public spending in order to fund tax giveaways for businesses and the rich. It is a policy that disproportionately hits women and benefits only the tiniest fraction of society. It isn’t working. There is a clear alternative based on investment in the economy for sustainable growth. The benefits of that growth can be directed to protecting and rebuilding out public services, and so ending the Tory offensive against women.

Wednesday, 30 March 2016

Rotten Tory ideology laid bare by crisis in steel

By Michael Burke

In order to defeat Osbornomics it is necessary to understand it. A central tenet is that the private sector is the key to prosperity and that therefore everything possible should be done to promote and encourage it. The state should shrink in order to release the inherent dynamism of the private sector. The argument runs that it may be that some people fail temporarily so some sort of safety net may be necessary, if affordable. In this framework, if it is necessary to cut support for disabled people and the poor in order to fund tax cuts for high earners and business, then so be it.

The attack on disabled people has rightly been the focus of hostility to Osborne’s Budget. But this is not an isolated case, as all those who have suffered those cuts can testify. This has been a repeated pattern of Osborne Budgets, supported by all Tory and LibDem MPs beginning in 2010. The right of the Labour Party has had no significant disagreements with it.

At the same time, the long-term decline of the steel industry has turned into a full-blown crisis. In a very useful report the Institute of Public Policy Research (IPPR) debunks the myth that the crisis is due to ‘dumping’ of steel in the EU. The UK loss of market share in core industries producing intermediate goods, such as steel, is twice the rate of the industrialised countries as a whole over the long-term. Despite alleged ‘dumping’ by Chinese firms in Europe, German steel production rose by 2% in 2015.

The IPPR report shows that all of these industries combined have suffered a devastating reversal. While by the end of 2014 UK GDP had recovered by 4% from its pre-crisis level in 2008, the producers of core materials used in manufacturing and construction were still 20% below their pre-crisis level. They are in a deep crisis.

Two trends

These two trends are linked in policy terms; the repeated attacks on the poor and those who should be entitled to support, combined with a decline in key industries. In this way, the central proposition of Osbornomics is revealed by the most striking simultaneous giveaway in the 2016 Budget, which was the further cuts in the tax rate on corporate profits, as well as the cuts to Capital Gains Tax (CGT). 

Osborne has cut CT so that it now stands at 20%. In the 2016 Budget the announced cut to 17% is in effect funded by attacking disabled people and cutting public services sharply in real terms (after adjusting for inflation). He also further cut CGT. It should be remembered that New Labour also cut both CT and CGT.

All of this has been cast in terms of boosting investment and ‘freeing the private sector’. It is nonsense. In Fig.1 below the level of CT is shown against the proportion of business investment in GDP. It also shows the projected level of CT rates that Osborne has announced for future years.

Fig.1 UK Corporate Tax Rate and Business Investment as % of GDP
 
Both the tax rate and the investment rate have been in a long term downtrend. The high-point for business investment over the period was in 1998 and 1999 when the CT rate was 30%. Cutting taxes has not spurred investment. The new freedom for the private sector is a greater proportion of its post-tax return is free to fund excessive boardroom pay, share buy-backs and to fund speculation in financial markets, including housing.

Britain has an investment crisis. This has led to a crisis of production and of jobs. But cutting the CT rate has done nothing to address it as business investment continues to remain weak. All other things being equal, the cut in the rate from 28% to 20% has reduced public sector tax revenues by approximately £30 billion in the current Financial Year. If the private sector will not invest, then the public sector must. Any measures to begin to reverse this unproductive cut in taxes will lead to greater revenues available for public sector investment.

Steel should be renationalised and provided with large scale investment via a National Investment Bank. This and an all-round programme for investment is the way to generate growth and prosperity. On this basis there would be no more cuts to the entitlements of disabled people and others and the cuts to incomes can be restored.

Wednesday, 23 March 2016

Building an economy that works for all

By Ken Livingstone
The following article, setting out why Tory economic policy is failing and the Labour framework set out by Jeremy Corbyn and John McDonnell is necessary, was first published by the Morning Star.
* * * 
Jeremy Corbyn was right to say last week that the Budget the Chancellor delivered was “actually a culmination of six years of failure” and that “this is a recovery built on sand.”
Almost all the growth in our wealth in recent years has gone to the richest 1 per cent, while working-class and middle-class families have seen real incomes cut by 9 per cent since the banking crisis.

Yet in much of the media, we are still subjected to the big lie — repeated again by George Osborne this week — that we are in this mess because the last Labour government spent and borrowed too much.

The truth is that in the 36 years since Thatcher came to power there were only two years in which the Tories produced a balanced budget, and three years in which Labour did. All governments have borrowed to fund their revenue spending, but there has not been enough investment in infrastructure and rebalancing our economy.

The Tories constantly say Thatcher’s economic strategy “saved Britain” and claim that Osborne’s austerity is now building on this legacy. But when Thatcher died The Economist, which devoted six pages to her record, did not mention growth in the economy or investment.

We were told that breaking the power of the unions, cutting taxes for the wealthiest and big corporations and deregulating the banks would unleash a wave of investment and growth. But in the 30 years following Thatcher’s election the British economy only grew at two-thirds of the rate it did in the 30 years before Thatcher came to power.

And while the Tories say manufacturing was past its sell-by date and did nothing to invest in it, Germany did and one-fifth of its economy is still manufacturing, whereas ours is now less than 10 per cent. That matters because more than half of all our exports come from this sector, which is why we now have the biggest trade deficit in our history.

Now the ideologically driven austerity of Thatcher’s heirs, confirmed again in the Budget last week, threatens even our fragile economic recovery.

As John McDonnell put it, “productivity growth, the essential ingredient in delivering rising living standards, has stagnated,” while “the gap between the UK’s productivity and those of the Germany, the US and France is the widest it has been for a generation.”

The scale of these problems requires leadership from people who can think outside the box and present a clear, radical alterative. Jeremy, John and the talented team that has been put together have shown in their response to the Budget this week that they are up to this challenge, and have put the issue of investment in our economy centre stage.

What holds back Britain’s economy is a lack of investment, both public and private, which is now running at its lowest level since WWII.

Nearly all economists now agree that investment is not just the most important factor in economic growth, but outweighs all others put together. This is why, when Cameron and Osborne took power and slashed the last Labour government’s investment spending, it pushed our economy back into recession.

In contrast, Labour’s economic plan for a big expansion of investment in transport, housing and upgrading our broadband system is crucial in turning the British economy around.

Given the very low level of interest rates this is the best time to borrow in order to invest. When I persuaded the last Labour government to put £5 billion into building Crossrail, ministers knew that the growth generated by the project would give them between £10bn and £15bn more in tax.

Another big Tory lie repeated ad nauseum is that Labour will increase our taxes, but we don’t need to do that as long as everyone pays their fair share.

The scandal of Google, Starbucks and Amazon is just the tip of the iceberg. Tax avoidance and evasion, mainly by international corporations, could be the equivalent of a quarter of the government’s Budget. Experts believe that tax avoidance and evasion equals 10 per cent of our annual GDP, at least £120bn and perhaps as much as £150bn.

Jeremy has made it clear he will crack down on the tax dodgers, and that can help provide the money we need for the healthcare and education we all have the right to expect.

Britain is the fifth largest economy in the world and the idea that we can’t make the changes necessary to give all our people the chance to succeed is rubbish.

The Labour leadership’s clear position on the economy can win the 2020 general election for Labour. Jeremy and John’s ability to speak clearly and provide a real alternative to cuts and austerity is what’s needed now because they are offering hope for a better future to a generation that has had no hope. Let’s make it happen.

Ken Livingstone is re-running for the Labour Party’s National Executive Committee as part of the Centre-Left Grassroots Alliance (CLGA) ticket. Nominations are now open and each constituency party can nominate up to six candidates. You can follow his campaign at facebook.com/Ken4LabourNEC and @Ken4LabourNEC, and find out more information about the CLGA at grassrootslabour.net.

This article was first published by the Morning Star, where it can read here.