Budget sets out plan for permanent austerity

By Nicky Dempsey

George Osborne’s latest Budget makes it clear that austerity policies will continue for years to come, for at least another five years. He also announced a cap on welfare expenditure, a toxic effort to blame the poor and unemployed for the crisis of the financial sector and capital in general.

The stated purpose is to reduce the public sector deficit. The actual purpose is to lower wages and increase the profit share for capital. Once accomplished, firms may begin to increase investment once more. On both counts the policy has so far failed and yet will be maintained until at least the second aim is met.

The current crisis is both severe and prolonged, the sharpest and the deepest recession in living memory. It has been followed by the slowest recovery on record. The main risk from these policies is that the decline in living standards, real pay and public services will become embedded over the long term.

GDP in context

GDP relative to pre-recession peak, measured at quarterly intervals following that peak

The current crisis remains a crisis of investment. The fall in investment is now almost three times as large as the decline in GDP since the recession began. Investment has fallen by £58bn since the beginning of 2008 while GDP has declined by £21bn over the same period. It is possible for jobs to be created under these circumstances, but not decent well-paid ones. The latest data show that one million jobs have been created in the last two years, but less than half of them have been permanent, full-time jobs. Part-time, zero-hours and temp jobs have grown alongside fake ‘self-employment’, people getting by on minimal hours working odd jobs.

Austerity measures, such as cuts to social security simply cause misery and deepen the current crisis by forcing poorer households to increase their debt. Instead, a Labour government could increase the level of state investment as well as forcing firms to invest some of the cash mountain they have hoarded. Where firms refuse to invest in housing, transport, and the switch to renewables and other key areas, they can be regulated, taxed or nationalised to achieve it. The state-controlled banks could be directed towards funding these investments.

The economic case for increased state-led investment follows from these facts about the cause of the crisis and the consequence of the corporate cash hoard. But the resistance to it is based on class. Productive investment creates the means of production. If the state builds homes, directs investment away from fossil fuels or renationalises the railways this would remove entire sectors of the economy from private hands for a prolonged period. Private capital will not be able make profits directly from these industries.

The opposition to state-led investment is not based on economic logic. Increased investment would of course lead to higher growth. But in economics, fundamental arguments are not settled by logic but by the clash of social forces. Reversing cuts and increasing investment to restore growth, well-paid jobs and decent public services corresponds to the needs of the overwhelming majority of society. The pro-austerity parties reject the argument for investment, not cuts because they are intent on maintaining in full the interests of the capitalist class. This is why they plan to implement semi-permanent austerity.

After the 2015 election, a Labour government could only succeed if it rejects permanent austerity and organises the necessary investment to boost growth. But the Labour leadership currently plans to continue the austerity framework.

It is imperative to build up a movement in opposition to this austerity consensus and resist the vile campaigns scapegoating migrants and the poor. The People’s Assembly Against Austerity provides a framework that can unite broad forces in the struggle ahead. This Saturday’s anti-racism demonstration in London marks the start of a serious fight back against scapegoating.