One side of the commons wants controlled austerity, whereas the other wants to keep borrowing to boost growth while risking the loss of our credit rating, which could lead to emergency austerity (and/or inflation), as currently being experienced by Spain, Italy, Ireland and Portugal.
Nobody likes cuts. Taxpayers in the private sector who have paid into the social system all their working lives, now find out that the services they have paid for will be cut, and public sector workers are hit with a combination of job losses, pay freezes and reduced pensions.
So far the debate has been presented to the public as a straight choice between the Coalition cuts agenda and the Labour anti-cuts agenda. But is there a secret third option? Is there really no way of balancing the budget without austerity measures.
This blog argues that it is possible to balance the budget without austerity and it is possible to boost growth without excessive spending.
Nobody likes cuts. Taxpayers in the private sector who have paid into the social system all their working lives, now find out that the services they have paid for will be cut, and public sector workers are hit with a combination of job losses, pay freezes and reduced pensions.
So far the debate has been presented to the public as a straight choice between the Coalition cuts agenda and the Labour anti-cuts agenda. But is there a secret third option? Is there really no way of balancing the budget without austerity measures.
This blog argues that it is possible to balance the budget without austerity and it is possible to boost growth without excessive spending.
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UK government finances deteriorated dramatically during the Labour ‘boom’ years, where debt soared and Darling and Brown set up a super agency to 'regulate' the banks and then borrowed billions of pounds to bail them out. Now that Labour are in opposition, ever since the coalition was formed in 2010, they have been opposing the government’s program of public spending cuts, such the reform of child tax credits, and the benefit cap etc.
The argument has revolved around two points of view:
The argument has revolved around two points of view:
1) Cut spending – in order to balance the budget and begin paying off debt by 2015.
This is coalition policy. The government is on target to balance the budget by this time, but borrowing is still rising. If one compares the UK with similar European economies, this policy seems to be very sensible, as we can see what happens when governments lose control of their debts – interest rates rise, credit ratings crumble, homes are repossessed etc.
The risk of this strategy is that if you slash spending too fast, aggregate demand falls, and austerity becomes self defeating – the falling incomes lead to falling consumer spending which in turn stifles growth.
The memorable phrases from Ed Balls’ saying that “growth is flatlining” and that the Tories are cutting “too far and too fast,” show that Labour have consistently articulated this, despite admitting that if they were in government they would probably be forced to implement a cuts agenda anyway.
2) Keep on spending – in order to boost growth with taxpayer funded projects and public sector jobs and postpone balancing the budget for a future government.
This is the easy way out. It means doing more of the same, and not facing up to the reality that the country’s finances are in a mess. On the outset, it seems like a ludicrous proposition, as excessive spending was what caused the crisis in the first place, and to risk our credit rating and low interest rates at a time when banks are fragile is a very risky move. However, there may be an argument for cutting the deficit over a longer time frame if it keeps demand from falling. When many countries attempt austerity at the same time, overall trade diminishes and all the participating countries suffer as a result.
However, the unpopularity of public spending cuts puts wind in the sails of left wing popular calls for a 'change of course.' Osborne has had to downgrade his growth forecasts, and Balls has got one up on him. Labour have succeeded in stirring up widespread discontent for ‘the cuts,’ and is proposing more taxes, as usual, for ‘the rich’ and 'the bankers.'
Before taking sides in this debate it is important to understand exactly what is happening with our public finances. The coalition is not ‘cutting’ spending. So far they have begun only to cut the amount of borrowing. Each year, the government continues to spend more than it earns. This means that the total public debt will peak in 2015 and then we can start paying it off.
It is therefore absolutely essential, and plain common sense, that we do not carry on spending more than we earn, and that we reduce spending to get our house in order. However, as we all know, if this is done “too far too fast,” it can be self defeating.
The real questions is: 1) how do we cut spending without stifling growth?
It is therefore absolutely essential, and plain common sense, that we do not carry on spending more than we earn, and that we reduce spending to get our house in order. However, as we all know, if this is done “too far too fast,” it can be self defeating.
The real questions is: 1) how do we cut spending without stifling growth?
We want to see growth in our economy but to do this via public spending risks our line of credit.
We should ask ourselves: 2) how do we promote growth without excessive spending?
This article deals with the first question, and the second will be dealt with in part two of this series. So, how do we balance the budget without cutting public services? What can we cut from the budget that does not impose austerity and job losses? Howabout: overseas spending.
Each and every year the UK spends billions of pounds on payments to other countries, the vast majority of which are ineffective at achieving their stated goals and unwisely remain unquestioned.
This article deals with the first question, and the second will be dealt with in part two of this series. So, how do we balance the budget without cutting public services? What can we cut from the budget that does not impose austerity and job losses? Howabout: overseas spending.
Each and every year the UK spends billions of pounds on payments to other countries, the vast majority of which are ineffective at achieving their stated goals and unwisely remain unquestioned.
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| We can sack Cameron, but not Barroso, |
Around £20 billion goes to the EU each year, of which supposedly £10 billion finds its way back into Britain. Astronomical amounts are spent on funding large bureaucracies and highly paid tax-exempt officials in Brussels. (Over 1000 of them are paid more than David Cameron!)
What is left of the money is spent on creating rules and regulations and employing and subsidising more and more people.
The EU budget is set to rise next year. At a time when all governments in Europe are being forced to make savings and austerity measures, the EU wants to spend even more of our money than last year.
Wastefulness stems from a lack of accountability. If British politicians spent our money profligately, they would be held to account by the public and wouldn’t be reelected (hopefully). The EU politicians are not elected, so when they spend our money recklessly (on expenses and holidays for example), no one is there to hold them to account.
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| Kirchner of Argentina since 2007 |
»» Payments made to countries outside of the EU are classified as ‘aid.’ However, the effectiveness of these payments for fighting poverty is debateable.
In times of natural disasters, drought, famine and war, there is always a strong case to be made for emergency aid. Few would disagree with this. However, continuous annual payments to foreign governments have a tendency to be misappropriated, and can even stifle free enterprise as governments need rely less on their voters, and recipient communities organise their affairs around qualifying for the ‘free’ money instead of expanding their trade.
“Foreign Aid takes money from poor people in rich countries and gives it to rich people in poor countries”
Ron Paul
There is also cause to question the reasoning for some foreign aid payments on the basis of ethics. A case can be made for Argentina, whose leaders have expressed willingness to attack British sovereign territories, and some nations in the Middle East with questionable motives or those that harbour organisations hostile to the UK.
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| Lagarde of the IMF |
»» In addition to these direct payments to foreign governments, payments are also made ‘through the back door’ via institutions such as the IMF. Traditionally our commitments to the IMF have been honourable, in that the money goes towards rescuing ailing economies to provide global stability. Recently however, the IMF has been concentrating on shoring up the Euro currency, which many commentators openly say cannot and will not survive.
The United Nations also spends a sizeable chunk of our overseas budget. And it is dubious whether we couldn't do better spending it ourselves, even if it is on foreign aid.
The United Nations also spends a sizeable chunk of our overseas budget. And it is dubious whether we couldn't do better spending it ourselves, even if it is on foreign aid.
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»» Perhaps most important of all, our government continues to fight foreign wars, insisting that they are in the national interest, spending billions of pounds, and getting our soldiers killed in the process. Of course, this subject is part of much wider debate, but there are certainly many savings to made by pulling our troops from Afghanistan, not least to avert the possibility of getting caught up in a war in Pakistan too.
Surely, at a time when domestic finances are tight, common sense should be allowed to prevail.
Surely now is a good time to review our historical commitments, quarrels and relationships with these foreign powers, especially when many of the motives and results of these payments are questionable.
Surely our rulers must realise that the consequences of bad economic leadership, and a failure to get out of this recession, will undermine our ability to make these payments anyway. Before long, we could be the ones asking for aid.
Surely it is high time parliament at least recognised that overseas spending is not untouchable and stopped presenting the public with a disingenuous trade off of austerity VS more debt.
The sad truth of modern British politics is that our two party political system no longer addresses many of the issues that really matter to the people, and this is a prime example.
Surely, at a time when domestic finances are tight, common sense should be allowed to prevail.
Surely now is a good time to review our historical commitments, quarrels and relationships with these foreign powers, especially when many of the motives and results of these payments are questionable.
Surely our rulers must realise that the consequences of bad economic leadership, and a failure to get out of this recession, will undermine our ability to make these payments anyway. Before long, we could be the ones asking for aid.
Surely it is high time parliament at least recognised that overseas spending is not untouchable and stopped presenting the public with a disingenuous trade off of austerity VS more debt.
The sad truth of modern British politics is that our two party political system no longer addresses many of the issues that really matter to the people, and this is a prime example.
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