Jordan Lyon
Naked Politics Blogger
Right, this is going to get meaty so before we start let’s get some essentials out the way. Firstly, and I don’t doubt that you may already know this, but what is austerity?
Austerity:
noun
strict economic conditions created by government measures to reduce public expenditure. Current examples include cutting funding to public services (e.g. the NHS, police, fire-service), cutting tax credits (extra money given to people responsible for children, disabled workers and other workers on lower incomes), cutting subsidies for green energy development, education, housing, transport and infrastructure … the list goes on.
So the current fella in charge of the UK’s money, Chancellor of the Exchequer George Osborne, has recently laid out a swathe of austerity cuts and measures in his latest budget, including £12bn from the welfare bill which will affect middle and lower classes, the poor, the disabled, even a lot of older pensioners. £9bn of this will come from cutting the tax subsidies for working families.
“Why?” To cut public expenditure.
“Why?” To cut the deficit of course!
But what’s the deficit? Well Mr/Mrs Layman that’s a fair question. The deficit is: the amount by which the government spending is more than the money it receives. In other words, if you keep spending more money on clothes, nights out and festivals than money you receive via work/maintenance loan/the bank of Mum and Dad, resulting in you ending up knee deep in your overdraft – you’re running a deficit and are in debt.
Okay, so the country is in a lot of debt (90.6% of GDP currently), and is still recovering from the economic crisis of 2008. A country that is in recession and has to pay interest on its debts does not make for a good economy. Obviously this is bad for business, so we should tighten the belt and watch our spending right to help improve the economy surely? Being a law student I’m going to give a lawyers answer – it depends.
If you running a household and times are tough, do you start by cutting down on the essentials such as feeding yourself and your family, water/heating/electric bills, making sure your kids are clothed and go to school etc.? No of course not, you start by cutting down on all those nights out at Oceana, cancelling your sky subscription and nicking your friends Netflix instead, re-thinking about forking out for those custom Nike Air Max trainers and so on.
Half baked analogies aside, cutting welfare and public services makes no economic sense. Businesses make money from people spending money on the services offered by said business. People go out and spend money, money circulates and the economy grows. So how are people supposed to spend money at your café if austerity cuts mean they can’t afford to catch a bus into town, let alone buy any food or coffee? How can they drive their kids to your sports centre if cuts in tax credits mean they can’t afford lessons or fuel? How can that public library worker afford to spend money on everything that a big night out involves (taxi, drinks, club entry, kebab/cheesy chips) if the library’s been closed down and they now have to go on job seekers allowance?
Moral arguments aside, austerity makes no economic sense. How can you boost the economy and get people spending if people don’t have money to spend?
Lets say you own a business, odds are it’s one of the Small or Medium (SMEs) businesses that make up over 99% of the 5.2 million businesses in the UK. Maybe you work in an SME or in a large business, odds are it’ll be in the UK services industries (retail, transportation, accommodation & food, ICT, finance & insurance, real estate, professional & scientific, administrative and support service, education, health and social work, arts and recreation etc) which account for 73% of businesses, 79% of employment and 70% of turnover. How are your customers supposed to be able to pay for the services you provide if they’re struggling to (or even failing to) cover the cost of living?
Oh but they can’t be struggling that much you may scoff! (I say ‘may’ because I’m sure you’re actually quite well mannered and respectful). Well in 2008-2009 there were under 26,000 people using food banks, now in 2014-15 there are over 1 million. If people can’t afford to feed themselves you can be sure they won’t be spending money on your internet start up or your niche clothes vendor anytime soon. The top 100 wealthiest Britons own as much as the poorest 30% of Britons combined. Their wealth rose from £25bn to £257bn last year alone. That’s a lot of money not being spent at your local garage or on your new iPhone app.
But we need to cut the deficit as soon as possible you may cry! (Pull yourself together, there’s no use crying over spent deficits). According to the IMF – “While debt may be bad for growth, it does not follow that it should be paid down as quickly as possible. If fiscal space remains ample, policies to deliberately pay down debt are normally undesirable”. This has been proven to be the case. Since policies created to deliberately pay down debt were introduced in 2010, the UK government debt to GDP has risen from 52.3% to 90.6%. Austerity policies don’t appear to be helping.
So if you’re really pro-business then how can you support austerity policies that result in the vast majority of the customer base becoming significantly less wealthy? The same customers that will then will then spend less money on the services of your business. This means lower wages for you and your employees, or if you’re an employee it could mean you lose your job all together.
What’s the solution? According to Ha-Joon Chang, an economist at the University of Cambridge – “The best way to boost the economy is to redistribute wealth downward, as poorer people tend to spend a higher proportion of their income.” So if business is to survive and thrive we need to re-distribute wealth a bit. How do we do that?
1. Make cuts in the right areas.
2. Tax bodies where wealth is vastly and unequally accumulated.
3. Create money debt free.
Firstly, to jump back to my house analogy, we have to make cuts to any non-essentials. One example would be the Trident nuclear weapons program which would save £100bn immediately. This £100bn would be enough to fully fund A&E services for 40 years, employ 150,000 new nurses, build 1.5 million affordable homes, build 30,000 new primary schools, or cover tuition fees for 4 million students – all essentials which enable people to have more money to spend on business, the same essentials which austerity measures are cutting funding to.
Secondly we have to tax the wealthiest, and I mean the WEALTHIEST; that’s people who won’t even blink at losing a cool million or two, not your successful entrepreneur who might have to re-think that second holiday if the top rate of tax went up. If businesses are to survive and thrive, for earners over £150,000 – £300,000 we need a top rate of tax higher than 45%, somewhere between 50-70% is recommended by most economists. We need a wealth tax on multi-millionaires and billionaires. We need a financial transactions tax (aka – the Robin Hood Tax, which would raise £20bn a year) and other such taxes on banks. And we need to stop the £100-200bn + being lost in tax avoidance and evasion by the largest multi-national businesses and corporations; this damages the 99% of Small and Medium businesses in the UK, it isn’t good for competition and it certainly isn’t good for business as a whole.
Thirdly, creating money debt free. To start let’s dispel the myth that the crisis was caused by government overspending – it wasn’t. Any individual worth his salt knows that it was more or less caused by the collapse of the Lehman Brothers investment bank, which then triggered a domino effect resulting in the 2008 global financial crisis. If you didn’t know that I’ve just improved your salty worth (you’re welcome). But because I’m such a nice guy (read – preachy know-it-all), I’m going to go ahead and make you just that extra bit more salty and further butcher a perfectly good idiom in the process.
What is little talked about, and in reality was the biggest cause of the crash, is that the banks created too much money. Most would think that the Bank of England creates our money, but you’d only be partly right – 3% right in fact as that is how much the Bank of England creates in the form of notes and coins; the other 97% of money in circulation is created electronically by private and commercial banks. Every time a bank makes a loan, new money is created. They then used this money to push up house prices and speculate on financial markets. Eventually the debts become unpayable and thus caused a financial crisis. If you’re interested in this I would highly recommended visiting this link – http://positivemoney.org/issues/recessions-crisis/ – and exploring the site further.
We must take the power to create money electronically away from private and commercial banks, and place it in the hands of a public, accountable, democratic body. If the government can create money debt free, without being required to pay it back along with ludicrous amounts of interest, then we will be able to pay of the deficit faster than you can say ‘long term economic plan’. It can then loan money out to the public debt free (or at least at affordable rates), which then means more money for the public to spend and more money for your business.
If you truly are pro-business, you must be anti-austerity. Otherwise good luck with the business I guess. I’ll see you in the dole queue.
Sources:
– http://researchbriefings.parliament.uk/ResearchBriefing/Summary/ SN06152#fullreport
– http://www.tradingeconomics.com/united-kingdom/government-debt-to-gdp