Friday, 14 May 2010

An Alliance For Reaction- The ConDem Coalition Agreement

by Michael Burke

It is rare in British politics for the main political parties to spell out what they actually intend to do in office. Even now on the pressing issue of the economy in the document outlining the basis of the agreement between the Tory and the LibDem parties there is very little detail about where the threatened spending cuts will be made. However the document itself should be studied closely by all those who want to resist the political and economic attacks that are planned on workers, the poor and lowly-paid as well as on their organisations.

It should also be studied by all those seeking to build an alliance to reverse those attacks and the lessons that can be learnt.

Two-Pronged Attack

The agreement amounts to an attack on the living standards of workers and the poor, but also a political attack on its institutions. Combining the two maximises the potential impact of both.

Some of the key economic measures are listed below:
• a significantly accelerated reduction in the deficit over the course of a Parliament, with the main burden of deficit reduction borne by reduced spending rather than increased taxes
  • an emergency budget within 50 days of the signing of the agreement with cuts of £6 billion to in the financial year 2010-11
  • compulsory work programmes for the unemployed
  • an independent commission to review the long term affordability of public sector pensions
  • a £10,000 personal tax threshold, to be financed by a increase in employees National Insurance, not employers NI
  • an annual limit on the number of non-EU economic migrants admitted into the UK to live and work
  • agree to phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66
  • receipt of benefits for those able to work should be conditional on the willingness to work

SEB has previously shown how, through the effect of the multiplier attached to government spending the cuts will prove highly damaging to the economy, in this case reducing growth by over £11bn and therefore leading to a net deterioration in government finances of £2.3bn.

However, this is just the tip of the iceberg, with an ‘accelerated reduction in the deficit’ mainly relying on spending cuts being the Tory plans. The Institute for Fiscal Studies calculates that their cuts amount to £64bn. This amounts to a ferocious assault on public spending, a cumulative reduction in GDP of 9.3 per cent, far greater than the recession just ended.

The point of the cuts is not to improve the economy or even to close the deficit. Those countries which have recently adopted similar measures, like Greece and Ireland, have seen their economies deteriorate and their deficits widen. The same is true of the most recent British experience. Thatcher’s huge cuts in public spending did not lead either to reduced deficits or borrowing, as the chart below from the Treasury’s databank shows. They didn’t even lead to a reduction in public spending- as even some Thatcherites have pointed out. This is because pushing people out of work reduces taxes and increases welfare payments – even when those payments are being reduced.

Instead the purpose of the cuts is to produce a long-term reduction in the share of national income attributable to labour, and to increase the share of income that goes to capital. The fall in working class living standards will not reduce the deficit, but it will increase the living standards of the rich.

This is highlighted by one of the key proposals fought for by the LibDems, the introduction of a £10,000 threshold for personal income tax. This seems an attractive policy aimed at helping the poor, and will be promoted as such. But the IFS has pointed out that the very poorest will, on average be just over £1 a week better off, while the top 80-90% of earners will be over £20 pounds a week better off. Worse, it is to be financed by a hike in National Insurance contributions for employees but not employers.

There are widespread expectations of significant resistance to draconian cuts in services, pay, jobs, pensions and welfare entitlements. It may be that a fixed 5-year term agreed between the ConDems is to guarantee they both stick the course, and prolong the administration to the last possible date to reap the benefit of any eventual economic recovery.

For the Tories and Liberal Democrats it is therefore vital that resistance to these cuts is minimized, both industrially and politically. With breath-taking hypocrisy, the parties of Ashcroft and Michael Brown say they seek to remove big money from politics.

“We also agree to pursue a detailed agreement on limiting donations and reforming party funding in order to remove big money from politics.” By this, of course they mean removing or drastically reducing trade union funding to the Labour Party. This is likely to be accompanied by legislation to outlaw strikes in ‘key’ areas of the public sector.

Such measures must be opposed by every wing of the labour and trade union movements, as well as by every democrat. Without these organisations, working people would be defenceless against all such further attacks, and the political landscape transformed entirely.


There are also wider lessons to be drawn. The leadership of the Tory party has displayed the utmost tactical and organisational flexibility in order to prosecute ruthlessly the interests of its class. Those close to Cameron hope that he has indeed transformed the British political scene for a generation or more, having “wiped out the anti-Tory majority at a stroke.”

That is not true currently outside England, and it remains to be seen whether that will be the case in aggregate in Britain as a whole. But the ConDems are not simply trusting to economic recovery and short memories in 2015.

In addition to a frontal assault on the organisations of the working class there are a series of populist measures designed to bolster support. The proposed Freedom or Great Repeal Bill will have a strong resonance, by abolishing ID cards, extending freedom of information, protecting trial by jury and circumscribing anti-terror legislation. It remains to be seen how thoroughly these commitments will be enacted. And there is a host of other repressive legislation that will be untouched- but the bulk of it will have been enacted by Labour. But there is no doubt that it will be attractive because it is somewhat less authoritarian than Labour has been. In addition, a PR-elected upper chamber, voting reform and further devolution for Wales are all popular and democratic measures that Labour should have espoused. They maybe further supported economically by taxes on banks, and venture capital funds and demagogic claims about clamping down on tax avoidance. Targets are promised for increased net lending to small businesses. Even if City lobbying prevents any or all of these, the coalition government will be able to pose as the champion of popular policies which were aimed at reversing Labour measures.

There is therefore nothing inevitable in Labour winning the next election, especially starting from 29% in the polls. In any event, those in the firing line cannot wait while Labour ‘regroups’. To reclaim office Labour will also need to display a comparable degree of flexibility to that of the Tories. As well as opposing the attacks on working people, it will need to adopt a more progressive stance on civil liberties and democracy, the national question, the issues of racism, Islamophobia and women’s rights. It will also have to reverse course on the disastrous series of wars it has prosecuted.

SEB was not surprised by Cameron’s poor showing in the election. But he has reacted to the fall in direct support for the Tory party by decisive action to transform the situation in the interests of the class he represents. Labour must respond in kind.

1 comment:

Bemused Economist said...

Great analysis as usual.

This illustrates the hopeless contradictions of capitalism. As a system it is simply incapable any longer of taking society forwards.

Even the hardcore capitalist "solution" to the crisis will only deepen it.