Economics and politics - comment and analysis
1. February 2016 I Will Denayer I Countries and Regions, Economic Policy, General Politics

The hell of British austerity and the authoritarian Tory state

Two years ago, I was involved in a research project that dealt with the consequences of labour activation policies (‘workfare’) on the livelihoods of unemployed mature students who live in deprived areas. When I told the lead investigator that no cost-benefit or any other assessment had ever been made of these activation policies, he did not believe me. The government pinched every cent, cuts were being made everywhere. Why would the government implement workfare if it would not gain from it? Similar policies were being introduced all over Europe. Didn’t I believe that people knew what they were doing?

This is a difficult question. As Paul Krugman wrote, the last few years many policy-makers engaged in one of history’s most remarkable displays of collective wishful thinking (see here). He has a nice anecdote about it. When GOP foreman Boehner opposed US stimulus plans on the grounds that “American families are tightening their belt, but they don’t see government tightening its belt,” many economists cringed at so much ignorance (see here). However, a few months later the same line showed up in Obama’s speeches. The line was too good to waste. European and American policy-makers have been telling the public for years that austerity is the only road back to growth, that austerity does not trigger stagnation because it fosters confidence-inspiring policies. Do they understand or believe what they are saying?

It is easy to see that austerity will never lead to increasing returns, a combination of strong profits, increased tax receipts, rising wages and improving living standards. Austerity is about much more – and much else – than balancing books and other paraphernalia austerians concoct. Cameron inflicts deeper wounds to British society than Thatcher in the 1980s: the welfare state, the public health sector, public infrastructure, affordable third level education, social housing, the model of social concertation, workers protections, union rights, citizens access to justice and democratic election procedures are all under attack. Paul Mason calls it the ultra-neoliberal authoritarian Tory state (see here). Krugman reports another remarkable fait divers (see here). Economists were quick to figure out that austerity would never work. The picture was clear. Every country that introduced austerity saw its economy suffer. More austerity led to less recovery. Slow growth caused high debt and not the other way around, as austerians argue. The IMF admitted that it massively underestimated the damage of spending cuts on recessionary economies. All over the world, the case for austerity was crumbling. But what happened in the UK? On the same day that the Centre for Macroeconomics revealed that the great majority of British economists (4 out of every 5) disagreed that austerity leads to growth, the Telegraph published on its front page a letter from 100 business leader declaring the opposite. So, Krugman asked, what is going on? Are the corporate elite not interested in policies that produce strong sales and hence strong profits? Why do they oppose Keynesian expansionary policies so vehemently?

It is clear that austerity and its endless scare tactics about suffocating government deficits is used to great effect: demonize the working class, demand lower wages, destroy protections, crush the unions, promote socio-economic fragility and zero hours contracts and poison the ideological landscape by propagating discourses about the fickleness of the undeserving poor, the lazy unemployed, welfare scroungers, welfare frauds and immigrants who all cost the country enormous amounts of money. Whether any of this makes sense or is true is unimportant.

The other reason why the corporate elite favour austerity is because the sell-off of public goods is lucrative beyond belief. The Mirror published 70 names of Conservative MPs who benefit directly from the selling-off of parts of the National Health Service (see here). The same newspaper published a list of 11 companies that will benefit enormously from the same sell-off – the total amounts to £780 million (see here). The Mirror dubbed it the largest privatisation deal in history. Who cares that austerity leads to sluggish growth when such deals can be made?

According to Tom McTague in The Independent (see here), Osborne sold off more public assets than any Chancellor in UK history. Osborne privatised £37.7bn of public assets since he became Chancellor in 2010 and he schedules to sell off another £20bn by the end of this year. The combined privatisation of Thatcher’s most prominent chancellors amounted to £55.8bn (in today’s money). Osborne will sell off £57.7bn in just six years and he has another four years in front of him. Osborne sold Northern Rock Bank, which had been bailed out by taxpayers during the financial crisis, to Virgin at a £400m loss. The profit-making Royal Mail was sold off at a £1bn loss to the taxpayer in 2013.  The first tranche of the government’s £45bn stake in the Royal Bank of Scotland in was sold off at a £1bn loss (see also here). Graham Vanbergen from TruePublica adds to this that in the last decade water bills rose by 64%, electricity and gas bills rose by 75%, train travel rose by 33% and everywhere people are paying more to use or rent formerly public assets that the older generations built and paid for, but which are now being sold off (see here).

Yet, despite massive public opposition (even among Tory voters), Osborne plans another mass sell off. The Student Loan will go under the hammer, although the Institute for Fiscal Studies dismisses Osborne’s claims that new student loans can be financed by selling old ones as economic nonsense and the Financial Times lamenting the whole idea as ‘economic illiteracy’ (see here). The taxpayer contributed £44 bn to the total housing stock worth £133 billion (see here). Cameron ended lifetime tenancies for council tenants for the first time since 1945. Investors will kick low income tenants out, bulldoze the place and build new estates, providing houses that low income groups will never be able to afford (starting price will be ca. £ 250.000).

Researchers from the Public Services International Research Unit of Greenwich University estimate that bringing water in England back into public hands could produce savings in the range of £900m a year (see here). All this, writes Vanbergen, while the water companies mire themselves in debt to ensure they do not pay tax on profits, with the 19 CEOs paying themselves £100 million annually (see here).

Austerity is far from just a spending cut machine. If policies entail costs, the calculation is that they are worth it. Nothing illustrates this better than a report by the government’s own financial watchdog that came out last December. In England, between 2010 and 2013 over one million recipients of the out-of-work disability benefit had their eligibility reassessed. I previously reported that every 10.000 assessments lead to around six suicides (see here). Since there have been more than 1 million assessments, there may be more than 600 people who have taken their own lives who otherwise would have not (see here for the epidemiological study). In the meantime, it turned out that the DWP’s sadism towards the weakest in society costs more than it saves (see here and here). The DWP will spend £ 1.6 bn on work assessment tests between now and 2020. It is expected to save the government less than £1 bn during the same period. The cost of the program is therefore more than £ 120 million a year. Who said that austerity is all about cutting costs?

Let’s address austerity’s social consequences. Gentleman reports in the Guardian that in 2014 almost 900,000 people were sanctioned by the DWP (see here). They risk losing some or all of their benefits payments for a minimum of four weeks, rising to three years in exceptional cases (see here for figures). Many end up on zero income. Charities and welfare advice organisations warned the government about the use of these sanctions. The Trussell Trust, which handed out over 900,000 three-day food parcels in 2013 and 2014, said that 83% of its food banks report that sanctioning is causing rising numbers to turn to them.

According to the London’s Poverty Profile report from the New Policy Institute, 27% of Londoners live in poverty. The majority are working families. The poverty threshold is understood as households with incomes of less than 60% of the national median, with housing costs included. Cameron boosts that employment is up. It is true. The number of unemployed adults in London is at its lowest level since 2008 (just over 300.000). But as employment increased, so did poverty. The number of people in poverty increased from 700.000 to 1.2 million in the last decade – an increase of 70%. The reason is simple. The number of low-paid jobs is up for the fifth consecutive year in London. The number of temporary contracts and ‘lower-quality’ jobs is at a ten-year high. Employment is up, but living standards are down. Average wages continue to fall. GDP per capita is still about 6% lower today than in 2008 (see here).

Homelessness is up 40% nationally. In London homelessness more than doubled in five years. Long gone are the days that most homeless people were drug addicts, ex-convicts or alcoholics. The new homelessness is due to a toxic mix of benefit cuts, broken careers, government failure and indifference and an affordable housing shortage (see here and here).

Osborne and Cameron oversaw £12bn cuts to the poorest in society. As a result, close to five million children live in poverty, thirteen million adults live in poverty and more than a million people use food banks in order to feed themselves. The conservative answer to all of this consists of nothing but sheer negation, indifference and lack of empathy (see here). Cameron’s mantra is that we never had it so good and that people need to take responsibility for their own lives. According to Cameron, there is no link between increasing poverty and benefit cuts. There is no conflict between benefit cuts and fighting poverty (see here).

The despised bedroom tax leaves nearly four of every five of those affected penniless by the end of the month. The bedroom tax cuts the percentage of rent eligible for support for low income tenants by 14% for one unused bedroom and 25% for more. Three-quarters of people affected say they have to cut back on food and on clothing. Almost half has to cut back on heating. It is clear that the bedroom tax does not work: it does not free up accommodation for families (see also here and here).

The elderly are yet another category at risk. This winter, the cold weather death toll is expected to top 40,000 (see here). As professor Davies explains, these excess deaths are not just deaths of those who would have died anyway in the next few weeks or months due to illness or old age. There is strong evidence that some of these deaths are ‘extra.’ Age UK warned that one person could die every seven minutes this winter. According to the charity, these deaths are due to a combination of Britain having some of the coldest, most draughty homes in Europe in combination with high energy bills, the absence of an energy efficiency scheme that supports older people in insulating their homes and the unwillingness of the government to address fuel poverty. With just under one million older people living in fuel poverty, many cannot afford to heat their homes to a temperature high enough to keep warm.

What did austerity achieve? The years between 2010 and 2020 are set to be worst decade for pay growth in almost a century and the third worst since 1860. Real-term wage growth is forecast to average at 6.2% this decade. Between 2000 and 2010, it was 12.7%. Osborne is now blaming China, Russia or the Middle East, but the crisis is clearly home grown. Public sector debt stands at around £1.6 trillion or 81% of GDP. Osborne doubled it since he came to power (see here).

According to report by London City University, the Treasury underestimated the impacts of welfare and departmental spending cuts on the broader economy and cuts to public sector investment (see here). Without a boost in public infrastructure, private sector businesses will continue to limit investments, leading to lower productivity and depressed GDP growth. The net result will be that by 2020, the government will look at a £40bn deficit instead of the planned £10bn surplus (see here). The Tories will be £50bn off. It will be the fault of the unemployed and the Chinese.

Inman reports in the Guardian on a study by the IMF that shows that cuts to public expenditure during recession result in lower growth, depressed tax receipts and the need for higher borrowing. The Tories ignore it (see here). Richard Murphy from London City University cites a report by Standard & Poor on his blog Tax Research UK which argues that every extra increase in public investment spending of 1% of GDP in one year would lead to a multiplier effect of two-and-a-half times over three years. Such investment would add more than 300,000 jobs in the same year as the increase occurred.

The dominant view within the Tory party is that the minimum wage should go. It is considered a machine that destroys jobs all over Europe (see here). And according to Institute of Economic Affairs, a ‘free-market’ think tank, a ‘rescue plan’ for the country is in order, involving much deeper spending cuts, a loosening of the planning system and reduced employee protections (see here). These people, all of which are very close to the conservative party, are currently winning. Nothing makes this clearer than a vote in the House of Commons two weeks ago, when a proposal from the Labour party stipulating that housing has to be fit for human habitation was defeated on the grounds that this would result in unnecessary regulation and cost to landlords (see here). To the conservative MPs (73 of which are landlords (see here)) there is no problem, although according to an estimate by the Citizens Advice Bureau, private landlords are taking £5.6bn in rent on homes that do not meet legal standards. The Bureau believes that 740,000 families in the English private rent sector are living in homes that present a threat to the occupants’ health, for example because of the presence of mould.

The message is clear. Austerity will drive the plebs back to 19th Century-like slums. It does not matter to the authoritarian right that a great majority of people are opposed to further privatisations and spending cuts (see here). The Tories will continue to impoverish the population, serve the elites – democracy, elementary fairness and rational economic policies that would turn the country around be damned. Austerity is an aggressive agenda aimed at privatisations, crushing political opponents, turning back the accomplishments of social democracy and emancipation in general, usurping the political power of the population and consolidating an authoritarian corporate state.