FROM Greece to the UK, the electorate have every right to say they haven’t got what they thought they had been promised, writes Brian Monteith
Seldom can there have been a week when the electorates of two European countries have been so arrogantly dismissed by their leaders contrary to expectations, but that is precisely what has happened in Greece and the United Kingdom.
Last Sunday, the Greek people voted by a resounding majority to reject the further austerity being offered to them by the eurozone finance ministers led by Germany. Greek prime minister Alexis Tsipras had unexpectedly called a referendum and campaigned for the No vote that put the eurozone countries and EU leaders on the back foot. He had strengthened his negotiating hand – or so it appeared. Inexplicably, in a further surprise development on Friday, Tsipras put forward a new proposal for debt rescheduling that amounted to even greater austerity measures than his electorate had just rejected. Why had there been a referendum if the vote was to count for nothing?
Even long-in-the-tooth EU observers thought it surprising, and it is hard to fathom what the Greek people will make of the motives behind this latest twist. Irrespective of the deal being welcomed or rejected by the eurozone countries, in economic terms the electorate went to bed with Tsipras but have woken up to Merkel.
On Wednesday, we had the first Conservative Budget for 18 years and, given that fact alone, the expectations were about just how radical Chancellor George Osborne would be. No longer would he need to look over his shoulder to satisfy his erstwhile Liberal Democrat partners who had previously said they had intervened to stop all sorts of nasty and unpleasant things. More importantly, having won the argument in the general election to reject the Labour Party’s more gradual economic policies for bringing the deficit back into surplus, he had a mandate to deliver what he has called his long-term economic plan.
After Osborne sat down from his lengthy speech, Westminster was dumbfounded by how he had stolen so many of Labour’s economic clothes. The focus has mostly been on his manipulation of the minimum wage into a new National Living Wage that is worth more than what Labour had itself suggested. Unfortunately, this has taken attention away from the fact that ending the deficit has been pushed back a further year, from 2018-19 to 2019-20. The national debt is now expected to be £18bn higher in 2020 and the Office of Budget Responsibility (OBR) has identified £3.5bn of that total as a direct consequence of Osborne’s actions.
Whatever one might want to call Osborne’s Budget, it is not further austerity; it is expansionary – with greater public spending requiring greater borrowing over a longer period of time.
The Chancellor and his boss, the Prime Minister, had campaigned on the basis of tough measures being required to see the job through of maintaining the economic recovery – and had won a mandate from a public that had displayed little confidence in either Ed Miliband or then shadow chancellor, Ed Balls. And yet, just as in Greece, the electorate has been ignored if not betrayed. They went to bed with Osborne and have woken up with Balls.
There are many in the Conservative Party and amongst their cheerleaders that appear to think this political gamesmanship is a great wheeze, but I certainly cannot share their admiration for such low cunning. Rejoicing about Osborne wrong-footing the Labour Party ignores the fact that the Chancellor has also wrong-footed the UK electorate, something that Osborne and his supporters may in time regret. People that voted Conservative can rightly ask why they were asked to endorse prudent national housekeeping that would eventually bring them tax cuts, only for the mandate they delivered to be so blatantly ignored?
The tax revenues raised by his announcements amount to £47bn of additional income over five years, compared with the £23bn of tax cuts his changes in allowances and thresholds delivered. Likewise, his proposed £42bn of public spending cuts by 2018-19 that he announced only in March has now been reduced to £18bn. Even the £12bn reduction in welfare spending is now being phased in over four years instead of the previously announced two, with some of those changes only applying to people who are yet to become eligible, meaning some people cannot feel the pain of losing something they never had. It may be smart politics, but it is not what he was selling in May.
This is not to say the Budget lacked some welcome announcements and brought some overdue reforms, but the Conservatives’ general direction of travel is now to extend the period that the UK’s public finances will be in deficit, increase the total of the national debt, raise more tax than it cut and make taxation more complicated. And when it comes to the National Living Wage, it has adopted a Labour-plus approach rather than applying more typical Conservative reforms that could have been far more effective.
Fixing a higher rate will undoubtedly cost jobs – 60,000 during improving economic circumstances says the independent OBR. A tax-cutting alternative of reducing the employees’ and employers’ National Insurance rate would have targeted relief more accurately towards workers and encouraged companies to raise wages. Instead, Osborne has reduced the rate of corporation tax to cross-subsidise the imposition of the National Living Wage – but this benefit only goes to those companies making profits; it does not help employers struggling to break even, or the public or third sectors. With this policy change, we will now see some 20 per cent, or six million workers, having their earnings determined by the state. To not expect this to have a perverse and detrimental impact on the employment of the unskilled, young and vulnerable is to ignore the lessons of state intervention over recent decades.
Whatever the reason for Tsipras reversing right, Osborne’s lurch to the left on the issue of wage price fixing is obvious: he is seeking to crowd out Labour from the middle ground so that it becomes the advocate of high-welfare, high-subsidy, big-state policies – appealing to a narrower and narrowing electoral base. There was a time when the Conservative Party sought to create a level economic playing field so that people could decide for themselves their best economic choices. Not any more. Now Osborne’s Budgets are as politically loaded as Gordon Brown’s ever were, and just as likely to deliver disastrous, unintended consequences because of it.