by Caroline Colebrook
CHANCELLOR George Osborne is strangling the economy in Britain by cutting public spending too fast and too deep, according to the National Institute of Economic and Social Research (NIESR).
Trade unions and progressives have warned him about the social consequences of cutting vital services to the poor, the disabled, the elderly, the young and other vulnerable groups.
But according to the hard-headed capitalists of the NIESR think-tank he is also killing off the very fragile economic recovery, which has just about ground to a halt because his policies have left us all too hard up to spend on anything except vital necessities and retail sales are plummeting.
And even the International Monetary Fund, which has backed Osborne’s cuts up to now, is warning that the economy is performing worse than they thought it would and if it does not start to pick up he will have to think of a Plan B to stimulate more spending.
They suggest tax cuts; if those tax cuts are just for the rich they will not work because the rich are not investing in industry right now — it’s too risky and there is more money to be made in speculating in house prices or playing the futures/hedge-funds/derivatives/wind-water-and-fairy-dust casinos. But cuts in VAT probably would help a bit.
In its quarterly report on Britain, NIESR said public finances would not improve as quickly as the Treasury expected. “Weaker growth, and in particular, weak consumer spending, are behind this.”
And the think-tank predicts that he will fail to reach his target of balancing the economy by 2015/16 by one per cent of GDP, which is about £15 billion.
“The chancellor has time to address this, and further fiscal consolidation should not be introduced now,” NIESR said. “It remains our view that in the short term, fiscal policy is too tight, and a modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility.”
The NIESR reduced its previous April growth prediction from 1.4 per cent to 1.3 per cent and said the sluggishness of UK growth was due to a dearth of domestic demand.
The main cause of this is a combination of both private and public paying off excessive debt racked up in the boom years, while a front-loaded austerity drive sees the chancellor enthusiastically attempting similar public debt reduction.
Unemployment is expected to rise this year to 7.9 per cent and again next year to 8.3 per cent as firms begin to lay off workers who were “hoarded” during the recession — and as further cuts are made to public sector jobs.
The warning came the day after the IMF said in its latest report on Britain that there are still “significant” risks to inflation, growth and unemployment with “turmoil” in the euro zone adding to the danger the Government would have to react.
Meanwhile abroad the Spanish and Italian economies are in deep trouble and may soon be in need of a bail-out, further destabilising the euro.
And in the United States an agreement on increasing the government debt limit has been achieved, along with a programme for reducing the ever-growing debt.
But, to appease the Tea-Party lunatic fringe of the Republican Party this package will involve more serious cuts to public spending, hitting America’s working class even more harshly — while the rich get away again with no tax increases.
Even after the deal was reached and the danger of a total collapse of credibility in the dollar was averted, world stock markets continued to fall, as prospects of further instability in the US — growing unemployment and falling industrial output — increase.
All around the world those banks and governments holding American debt are considering investing in something more reliable.
These are the deepening contradictions of global capitalism. Socialists are speculating as to how long it can go on like this before a total collapse — but we have not got enough money to actually put on bets.
Instead we had better be organising to take over and replace capitalism with a more sensible global economic system.