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Slow, painful economic recovery – massive cuts on way

The UK economy has officially come out of recession. Unemployment has fallen for the first time in two years. Consumers spent more than expected in the Christmas sales, the housing market appears buoyant and manufacturing companies are reporting levels of optimism not seen for more than two years.

But the recovery will be a long, arduous process. Head of the Bank of England Mervyn King recently said: “The patience of UK households is likely to be sorely tried over the next couple of years.”

Unemployment is expected to rise again soon, pensions are at risk and consumer spending has reached its limit with people trying to pay off debts, while inflation has also started to rise and is now at 2.9 per cent. If left unchecked, inflation could choke off any recovery.

Then there is the debt problem. The amount the government will borrow this year to fund its expenditure will be about £175bn. This is a big increase over the past two years and can, if left to rise, undermine the recovery.

As neither party wants to recoup this money through significantly higher taxes on the rich and corporations, they are determined to make cuts in public expenditure to reduce the deficit. The debate between t hem is about the speed and where the cuts fall.

Labour cuts

Gordon Brown says the government will halve the deficit within four years, cutting about £78bn. In his pre-budget report in December, Darling put forward plans to bring finances under control by 2016 and reduce their share of GDP. But he promised some real increases in spending on schools up to 2014 and to match NHS spending with inflation until 2014-5. But apart from reducing waste and public sector wage restraint, he said little about where the cuts will fall.

We can expect cuts to the benefits bill. The Welfare Reform Bill is a weapon to drive people who are ill into work. Spending on rail, buses and affordable houses will all be hit too. Labour has already overseen private sector inroads into the NHS such as PFI, and more will follow. And Labour will target education and health cuts later when the economy has fully recovered, with sharp cuts in higher education already underway.

Tory cuts

David Cameron and the rest of the shadow cabinet have refused to detail their cuts. The reason is simple – if they were upfront about the full scale of the cuts they will introduce, it would hit their election chances. But they have given some clues.

Cameron launched his campaign this year with airbrushed posters saying he will cut the deficit not the NHS. Despite this pledge, Private Eye reports he has been meeting with Nurses for Reform, a group of Tories dedicated to privatising the NHS.

His shadow chancellor, George Osborne, talks of immediate cuts after taking office, but has only come up with proposals to hold down workers’ wages in the public sector, remove child tax credits for those on £50,000 or more.

Osborne has in the past been a cheerleader for the Irish economy. In December, Ireland introduce a budget that saw:

  • Public sector workers had pay cuts (not “just” a pay freeze)
  • Child, unemployment, disability benefits were reduced
  • Health charges were introduced for a raft of charges for health services and a 50 per cent hike in the cost of prescriptions

The budget was a huge attack on public services and a big transfer of wealth from workers to the rich.

And just look at the last Tory government that faced a serious recession: Margaret Thatcher’s in 1979.

State spending was slashed, VAT was raised but the rich had their tax rates reduced and controls on the city of London were removed. The result was a collapse in manufacturing industry, unemployment rising to over 3 million, the cowing of the unions and a big transfer of wealth from the poor to the rich.

These are the sort of policies Cameron and the Tories have in store for us.

Let’s be clear, that Labour’s pro-boss policies have paved the way for the Tories to be on the verge of winning the election. Labour has attacked workers, privatised industry, pursued wars in alliance with a reactionary US government and actively ruled on the behalf the City of London and multinationals. We should demand that even at this late hour they should drop their pro-boss agenda and adopt policies to help workers.

But we should not let the election year dampen our fighting spirit. The best way to ensure the defeat of the coming austerity cuts is to fight now to build up our strength, organisation and confidence to take on the new, cutting government.

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