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UK economy: 20 years of pain?

The Tory government’s new Budget, due on 20 March, will be the focus of a TUC evening rally against austerity, supported by Shelter and the Child Poverty Action Group. Called A Future for Families it will be addressed by TUC general secretary Frances O’Grady and Labour Party deputy leader Harriet Harman.

 

It will highlight cuts to public services like Sure Start centres and the National Health Service, punitive cuts in tax credits and benefit caps like the “Bedroom Tax”, likely to affect 670,000 households by an average of £700 a year.

 

This comes as Chancellor George Osborne has pushed through a tax cut for the highest earners, from 50 per cent to 45 per cent, and as austerity threatens to tip Britain into a triple dip recession.

 

A recent United Nations report has revealed that Britain has “an exceptionally high degree of inequality”, with the richest fifth earning 10 times more than the poorest fifth, making Britain the most unequal country in the Western world. This income gap between rich and poor is similar to Nigeria’s, and goes alongside evidence that the poorest fifth of people in Britain are worse off than those in other Western countries, earning roughly the same as their equivalents in Hungary, 32 per cent less than their equivalents in the United States, and 44 per cent less than their equivalents in the Netherlands.

 

Much the same story emerges from other sources. A report commissioned by the Labour Party reveals that Britain has seen average real wages decline in the last two years at a rate faster than any European Union country apart from Greece, Cyprus and the Netherlands, while a TUC report shows British workers suffering the biggest drop in real wages (nominal income adjusted for inflation) of the world’s wealthiest economies, worse than in Italy or Japan at 4.5 per cent between 2007 and 2011. The bulk of this decline took place during 2011, in the first full year after George Osborne’s autumn 2010 spending review.

 

At the same time the FTSE 100 Index of Britain’s largest publicly traded companies reached a five-year high on 8 March, anticipating signs of employment growth in the United States, while the Japanese Nikkei index has recovered to its level prior to the global financial crisis that brought down Lehman Brothers in September 2008.

 

The FTSE had previously achieved a two-year high on 4 January, despite poor growth in Britain’s banking and services sectors, again in response to US economic news. Globally, share prices are at their highest since mid-2008, before the recession officially began.

 

What this adds up to is something that any socialist or working class militant should easily be able to understand: that Tory austerity has been aimed to hit working class people – and the poorest in particular – in order to restore profitability for capitalist corporations and the rich.

 

And yet the much-promised recovery has not yet materialized. The inflation that is eating away at the value of our incomes – again, hitting the poorest the hardest – is at least partly a result of low interest rates and “quantitative easing”, policies it is claimed will stimulate the economy by encouraging lending and investment. Yet the largest industrial and commercial companies are sitting on a trillion pound “corporate cash mountain”, hoarding their reserves, using their customers and suppliers as a source of credit, and reluctant to rely on the banks to lend to them when required.

 

The banks, for their part, have done much the same, using the supply of artificially cheap credit to try to repair the damage done to their balance sheets by a financial crisis that stemmed from the results of a whole previous fifteen years of artificially cheap credit.

 

On some projections, UK gross domestic product – the value of all goods and services produced – will not return to pre-recession levels until 2017, almost a decade after the “sub-prime” lending crisis that heralded the global financial crisis of 2008.

 

Worse still, as columnist Fraser Nelson of the right wing Spectator magazine has noted, Osborne’s budget bases itself on an assumption that real incomes will not return to pre-recession levels until 2027. They might not shout about it, but the Tory government’s policy of austerity and cuts needs us to suffer a whole twenty years of stagnant or shrinking wages – exacerbated by the destruction or marketisation of public services – to make it work.

 

Anyone whose knows anything about Japan’s “lost decade” of stagnation in the 1990s should regard this as a wake-up call. We are already seeing the features of that period here and now: of an increasingly precarious job market, with millions forced into part-time or temporary jobs or bogus “self-employment” by a toughened benefits regime, alongside mass unemployment.

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