The Economics of Delusion

money-1067130_960_720In the beginning …..

In 2008 the public was asked to embrace the necessity for austerity measures because the Gordon Brown Labour Government bailed out the banks with taxpayers money. At the time Alistair Darling, Chancellor of the Exchequer said that these were:

“essential steps in helping the people and businesses of this country and supporting the economy as a whole”.

And the Prime Minister Gordon Brown explained that this was  “unprecedented but essential for all of us”.

The Labour Government announced a bank rescue package totalling some £500 billion.

With so much money going to prop up the banks for their own speculation and failings it meant there was less money for public services and the wages of those who work in those industries. They had to accept a pay freeze. The exception to this was elected politicians who year on year have awarded themselves pay rises. In 2018 the pay packet of MPs went up yet again this time by 1.8% to £77,379 – remember they also get expenses.

At every election since 2008 the public have been asked to accept the austerity measures inflicted upon them. This while prices rise and food banks have become the norm.

50 More Years of Austerity

The Office of Budget Responsibility announced this week that another 50 years of austerity will be needed. An aging population and the decision by Theresa May’s Tory Government that extra money would be going to the NHS means that tax increases and spending cuts worth an extra £39 billion will be required every decade for the next 50 years .

This is before Brexit has been factored in because we still do not know what any deal will look like – nothing has been agreed even though it is over 2 years since the Tory Government decided to take us out of the EU.

50 years of austerity OBR

Robert Chote, Chairman of the OBR, said:
” the more areas of spending that this and future governments decide – explicitly or implicitly – to keep stable or increase as a share of GDP, the more they will need to cut other spending or increase taxes.”

You can watch the presentation here which as well discussing the massive debt the UK Government has been accruing also looks at the situation with Student Loans. Now although that mainly affects England because they are by far the largest of the 4 nations that make up the UK, it effects the Scottish economy too. (Students in Scotland do not pay tuition fees but many do still have to take out some form of student loan, however, nowhere near as huge as students in rUK.)

An aging population

Robert Chote, Chairman of the OBR explained:

“When people are young they consume quite a bit of health care, quite a bit of education, but don’t pay much tax. In their middle years, they pay more tax, but consume less health care and education. And in their later years they pay less tax, but consume more healthcare and long-term care, as well as receiving larger welfare payments, mainly the state pension.”

This means that an aging population will be paying less tax but using more of the health and welfare services that  the state provides.

The Scottish Government does not have control over immigration – that is a power reserved to the UK Government. Despite not having any say over immigration the Scottish Government wishes to encourage young people and families to move to Scotland. Does My Country Look Big In This?

Immigration became a huge issue in England during the EU referendum and continues to be so with calls for substantial limits being placed on those who wish to come to the UK. In Scotland a different attitude prevails where immigration is seen as positive and much needed.

The Scottish Government has introduced many measures to support young families: Early Education and Care including increasing the free entitlement of early learning and childcare from 600 hours to 1,140 hours per year by 2020. In contrast to this the UK Government introduced the 2 child benefit cap and the shocking rape clause. Deleting Compassion in Society: The Rape Clause

What is Austerity?

Austerity is a series of Government policies which aims to reduce national debt by spending cuts to public services and may be accompanied by rising taxes.

So it is not something that just happens – it is the result of Government policies. A deliberate act to supposedly reduce the national debt.

In the first 3 months of 2018 UK government debt amounted to £1.78 trillion.

uk national debt

As you can see from the graph the UK national debt is continuing to rise –  and rise even though Labour, Conservative/LibDem and Conservative Governments have pursued austerity measures affecting those on low and middle incomes.

Austerity measures have very little effect on high earners and those with large private incomes. Rises in prices, rises in tax, a freeze on wages, zero hour contracts – all these affect those on lower incomes to a much greater extent because they have less disposable income in the first place. This has resulted in many of the people who are now having to use Foodbanks being those who are in work.

The Orkney News has published many articles on Foodbanks in the UK and the startling rise in the number of people who use them.

“Between 1st April 2017 and 31st March 2018, The Trussell Trust’s foodbank network distributed 1,332,952 three day emergency food supplies to people in crisis, a 13% increase on the previous year. 484,026 of these went to children.This is a higher increase than the previous financial year, where foodbank use was up by 6%.Trussell Trust

In 2008-2009 there were 25, 899 people having to access Food banks in the UK.

Over the years of the Conservative/LibDem Coalition Government and its austerity agenda the figures of food bank use rose to a shocking 1,084,604.

Those austerity measures included the bedroom tax which is mitigated in Scotland by the Scottish Government. More than 1.5 million people in the UK, including more than 350,000 children, experienced destitution last year – Joseph Rowntree Foundation . Claims by the Liberal Democrats that they somehow put the brakes on Tory policies is not backed up by either their voting record or the results of the policies they helped to implement.

The Scottish Parliament does now have powers over some welfare payments and has affirmed that ‘social security is a human right’  but the big payments are still controlled by the UK Government. Scotland’s Social Security System Takes Shape

Brexit Shambles

BrexitNo one knows what will happen when the UK leaves the EU on 29th March 2019 because there is so far no deal.  There is a Draft Agreement which has large parts with no agreement: Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community However, any final deal must be agreed by all of the 27 states in the EU.

This week the public were warned to prepare for food shortages if there is no deal. A no deal situation would have the UK subject to World Trade Organisation rules and tariffs. Food prices would rise considerably. As with the austerity measures these would disproportionately have a negative effect on those on low and middle incomes.

So when a politican says ‘we are all in this together‘ or invokes the ‘Dunkirk spirit‘ remember that only applies to you and your community. It does not apply to the leading Brexiteer politicians like Jacob Rees Mogg who along with his wife have a  combined fortune totalling as much as £100m–£150m.

Austerity policies pursued by Labour, Conservative/LibDem and Conservative UK Governments have failed to reduce national debt but succeeded in reducing the living standards of millions of people in the UK. The public have been sold a fantasy solution to what was not a problem of their doing in the first place.

Scotland does have a way out of the failure of these economic policies and over the coming months it will have to make that decision. It’s in our own hands.

Fiona GrahameBy  Fiona Grahame



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2 replies »

  1. Everybody needs to learn that there is an alternative to the neoliberal financial policies which are causing such misery. It is called Modern Monetary Theory (or MMT). Running a country is not like running a shop or a household. A country with its own sovereign currency can never go bankrupt no matter how much money it spends into existence. And it gets it all back eventually anyway. A government does not need to balance its books. Indeed it should not.

    QE proved that it is possible for a government to create enormous sums of money without it causing inflation. Consider if that money had been spent on infrastructure. Consider the jobs that would have been created.

    All this damaging austerity is a political choice. It is not an economic necessity. See this excellent talk by Professor Stephanie Kelton on the principles involved. See also the work of Professors Richard Murphy, Bill Mitchell and Steve Keen.

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