Left must call for sanity on spending cuts

Progressive political forces in Europe need to act in concert to battle the austerity measures threatening economic nightmares

It is undoubtedly right that the Labour party goes through a period of self-analysis and debate before electing its new leader but the timing could not be worse. Just as the British left retreats into months of introspection, a mammoth crisis emerges across Europe which screams out for protest and mobilisation.

The £6.25bn of savings for the UK announced today are potentially damaging enough but when set in a wider context of the cuts-mania gripping the European Union they become positively terrifying. £6.25bn may not look like a vast amount in the context of overall spending but as a recent analysis revealed, cutting that amount will lead to thousands of job losses and damage growth. And this is, of course, just the beginning, with a full comprehensive spending review planned for the autumn.

Alongside cuts to local services, today’s announcement also included cuts in areas specifically designed to help the economy: such as employment programmes for young people and regional development. And there are rumours of cuts to be announced in industrial investment. It is looking as though a big proportion of these measures that Labour put in place to support the economy through uncertain times is facing the chop.

These plans alongside similar announcements being made across Europe put the future of the UK and the continent at risk. This is not just an economic concern, unpalatable political forces could well flourish in the resulting downturn. Angela Merkel may be under enormous political pressure at home but by leading the calls for eye-watering cuts, the German chancellor is at great risk of repeating historical mistakes that damaged the advanced economies incalculably in the 1930s and the developing economies in the 1970s, 1980s and 1990s. The political consequences in both cases were rarely pretty.

The really tragic part is the austerity packages being unveiled across Europe will not work. Cuts in one country are dangerous enough for a national economy close to recession but simultaneous cuts across a continent still reeling from the biggest financial crisis and recession in decades is absurdly risky.

The damage done to European economies and hence to tax revenues and the public finances could be huge. Deficits will widen and the markets will continue to panic. Indeed, for all the Tory talk of how the bond markets want to see deep and urgent cuts, there are clear signs that the markets are equally worried about the impact of austerity packages on the European and global economies.

The senior politician one might have expected to have intervened early in this situation with some good sense, Vince Cable, is clearly not in a position to speak out. It is only the opposition and wider progressive forces, hopefully supported by a wider movement, that can urgently start calling for some sanity. Alistair Darling has made a typically understatedintervention along these lines but something much noisier is required.

Progressive forces must demand that the EU acts closely together to take the necessary action to restimulate and rebalance the whole European economy. Yes, that will mean richer nations, particularly Germany, stumping up the cash and honestly acknowledging that their economic model is as much to blame for the problems afflicting the EU as any other. And if some restructuring of sovereign debt is required, so be it. The alternative route of deep austerity is to risk a leap into a fiscal, economic and political nightmare. The right may be happy to see Europe sleepwalk into this, the left must shake the continent awake.

Guardian 24 May 2010

New warning coalition could split the Lib Dems

As the new coalition government unveiled its full programme this morning, David Cameron’s old politics tutor and leading constitutional expert Vernon Bogdanorwarned that the Liberal Democrats risked being split and “swallowed up” – as happened during all previous coalitions between the old parties – and that coalition government had “always benefited the Conservatives”.

David-Cameron-Nick-Clegg-front-benchWriting in this week’s New Statesman, Professor Bogdanor sets out the historical context in outlining one possible scenario:

“Coalitions have been of less benefit to the Liberals. In fact, they have always led to, or have been the product of, a party split – for example, with the Liberal Unionists, who split from the Liberals over Home Rule in 1886, and the Liberal Nationals in the 1930s. One wing of the party would subsequently be swallowed up by the Conservatives, while the other wing remained independent.

“In 1932, when one group of Liberals left the National Government over free trade, the Liberal Nationals (later National Liberals) remained, and, under the leadership of Sir John Simon, became even more enthu siastic appeasers of Nazi Germany than the Conservatives.

“A similar split could easily occur today, with the right wing of the Liberal Democrats under David Laws merging with the Conservatives, while the left, under Vince Cable and Simon Hughes, deserts the coalition, perhaps to seek an arrangement with Labour.”

Professor Bogdanor also calls Nick Clegg’s campaign “tactically shrewd” for not stressing which way he would jump in the event of a hung parliament, enabling the Lib Dems to take votes off Labour to ‘keep the Tories out’ and vice versa off Tory voters:

“Nick Clegg was tactically shrewd in not making his preference known; had he done so, the Lib Dems would have secured fewer than the 57 seats they won. But in Oxford West and Abingdon, the seat lost by Dr Evan Harris, leaflets were delivered to electors telling them that voting Liberal Democrat was the only way to keep the Conservatives out, given that Labour, a distant third, had no chance.

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Conservative and Lib Dem promises: then and now

Cathy Newman checks it out 12/05/10
“We are all going to have things we said thrown back at us,” the new PM said today, when asked if he regretted saying his favourite joke was “Nick Clegg” (video here). And you’ve got to hand it to him – he must be the first politician to pre-announce cabinet splits. He said: “If you want to spend the next five years finding Lib Dem politicians who slightly disagree with Conservative politicians about this, or a slightly nuanced policy, you can find lots.”

The new coalition government set out their joint policy statement on key issues today – but how many U-turns have they performed since leaving the campaign trail? FactCheck has been finding out.

Over the team for the analysis

Cutting the deficit
What the Lib Dems said before:
The Lib Dems want to make spending cuts – but not until the economy is strong enough. Their manifesto, published just a month ago, assumed this wouldn’t be until 2011-12. Cutting sooner would “undermine the much-needed recovery and cost jobs,” it said. Vince Cable also dismissed the Tories’ planned £6bn of efficiency savings this year as “school boy economics” when they were announced at the end of March. “They haven’t a first clue about how these savings are going to be realised,” he said. “Unless they can say how they will realise these savings, the Tory proposals aren’t worth the paper that they are written on.”
Coalition policy: To start cutting the deficit this year, by making £6bn of “non-frontline” cuts. Cuts to the child trust fund and child tax credits for higher earners are in the pipeline too.

Scrapping the national insurance rise
What the Lib Dems said before: The Lib Dems criticised the national insurance increase planned by Labour as a  “damaging tax on jobs and unfair to employees”. But they said ensuring the health of the public finances was more important, and didn’t believe the efficiency savings the Tories planned to use to reverse the national insurance rise were credible (see above).
Coalition policy: The original Tory policy was bigger – to scrap most of Labour’s increase in both employees’ and employers’ national insurance. The new alliance will just cut the employers’ part of the tax rise.

Immigration cap
What the Lib Dems said before: Clegg challenged Cameron for “proposing a cap but you don’t know what the cap would be” in the second TV debate. “Let’s not pretend that you can put forward these ideas which have got no substance, haven’t been thought through,” he said.
Coalition policy: The Tories’ plan to cap non-EU immigration is being carried through.

Trident
What the Conservatives said before: “I agree with Gordon,” said David Cameron at thesecond leaders’ debate, after Brown had told Nick Clegg to “get real” about the need to replace Trident. “You cannot rustle up a nuclear deterrent at the last minute as the Liberal Democrats seem to think you can,” the Tory leader said.
Coalition policy: The government is commited to the maintenance of Britain’s nuclear deterrent, but “Liberal Democrats will continue to make the case for alternatives”.

Fixed-term parliaments
What the Conservatives said before: David Cameron did indicate he was moving towards the idea of setting the length of a parliament earlier this year but the 25-page “change politics” section in the Tory manifesto made no mention of fixed-term parliaments.
Coalition policy: A Lib Dem win.The next election will take place in five years’ time, rather than at a date chosen by the prime minister. There is a get-out-early clause: parliament could be dissolved before that if 55 per cent of MPs agree.

Raising the income tax threshold
What the Conservatives said before: “I would love to take everyone out of their first £10,000 of income tax, Nick,” said David Cameron at the first leader’s debate. “It’s a beautiful idea, a lovely idea. We cannot afford it.”
Coalition policy: By keeping part of the NI rise and increasing capital gains tax, the Conservative-led coalition has found itself able to afford at least some of it. The tax-free personal allowance will get a “substantial” increase from next year so more of the lowest earners don’t have to pay tax on their wages. It will be increased to £10,000 in the longer term.

Goverment departments
What the Lib Dems said before: Although not a manifesto commitment, the Lib Dems have said the Scotland office and the business department were ripe for the chop.
Coalition policy: Nick Clegg’s chief of staff Danny Alexander is to be Scotland Secretary; Vince Cable will be the Business Secretary.

Voting reform
What the Conservatives said before: Changing the voting system was firmly off the agenda. “We support the first-past-the-post system for Westminster elections because it gives voters the chance to kick out a government they are fed up with,” the Tory manifestosaid.
Coalition policy: MPs will be instructed to vote for a referendum on moving to the alternative vote system, although this doesn’t mean the Tories have to back a yes vote when it comes to putting the choice to the public. Still, AV’s not the full proportional representation the Lib Dems called for – though they have said it’s a “small step in the right direction”.

Cathy Newman’s verdict
The Conservatives and Liberal Democrats are proof that it takes two to tango. In their desire to shimmy up Downing Street together, they’ve had to agree on policies they bitterly contested just a week ago. The Lib Dems have had to swallow their words on spending cuts, and immigration, and they’re probably only too happy to think again about scrapping the Scotland Office and the Business Department – now their bums are on those cabinet seats.

But the Tories have had to dance to their coalition partners’ tune on voting reform and fixed-term parliaments. That much is clear. But one thing I would like to know: if Nick Clegg used to be David Cameron’s favourite joke, what was the Liberal Democrat’s favourite gag about his new boss?

Channel 4 Fact Check

“The biggest shake up of our democracy since 1832, when the Great Reform Act redrew the boundaries of British democracy, for the first time extending the franchise beyond the landed classes.” – Fiction says Channel 4 fact Finder

Nick Clegg MP, deputy prime minister, speech on constitutional reform, 19 May 2010

Cathy Newman checks it out
Hold onto your hats: the deputy PM is promising a democratic big bang – the biggest changes to our political system for nearly 200 years. That’s some ambition.

But does getting rid of identity cards and introducing fixed-term parliaments really stand comparison with 19th-century reforms which extended the vote beyond the landed gentry and abolished the rotten boroughs?

Over to the team for the analysis

The Great Reform Act of 1832 abolished the old pockets where just a handful of voters could send MPs to parliament – and extended the vote to “new” towns such as Manchester. It let men owning property worth more than £10 go to the polls – so still excluding much of the working class, and women.

It was the start of significant empowerment of voters – although a subsequent reform act in 1867 did more to increase the number of people who could actually vote.

Today the deputy PM promised a smorgasbord of parliamentary changes, including giving voters the right to sack their MP, an elected House of Lords, fixed-term parliaments, a referendum on moving to the alternative vote system for general elections, and tightening up the rules on lobbying and party funding.

As part of the political “big bang”, Clegg also set out civil liberties measures such as giving people the right to choose which laws to repeal, getting rid of the ContactPoint children’s database, and scrapping ID cards, and promised more power to the people and less centralised bureaucracy.

So does this add up to the biggest shake-up in nearly 200 years?

Clegg’s claim is more hyperbole than fact, says Professor Justin Fisher, director of theMagna Carta Institute at Brunel University.

“He’s not going to just say, ‘this is quite interesting’ – any new reform is going to want to seem like the best thing since sliced bread,” Professor Fisher said. “But Clegg’s ignoring a number of reforms in the 19th century. You could point to lots of shake-ups which were at least as significant as this today.”

To name a few, the introduction of secret ballots in 1872, or the 1883 outlawing of bribery in elections, meaning aspiring politicians were no longer allowed to ply voters with booze and food.

In 1918, the vote was extended to all men – and there’s the small matter of allowing women to vote, too.

The last government might well be able to make a similar shake-up claim, said Fisher, about the almost complete abolition of hereditary peers overnight in 1998, or the establishment of the Scottish parliament for the first time since the early 1700s – plus the Welsh and Northern Ireland assemblies.

You could also argue that some of Clegg’s promises are building on Labour’s foundations, rather than a genuine revolution. Labour promised to bring in a completely elected House of Lords in its 2005 manifesto, for example, and MPs voted overwhelmingly in favour of elected peers in 2007.

And although something like scrapping ID cards curbs the powers of the state, it’s a policy rollback rather than a radical change to a long-standing constitutional principle in the way that, say, giving women the vote was.

A Cabinet Office spokesman said that although there had been significant political reforms in the past, but said that the deputy PM had today outlined a comprehensive package with many different reform elements.

Cathy Newman’s verdict

Nick Clegg might not want to extol the virtues of the political partner he jilted at the altar. But by airbrushing Labour’s democratic reforms out of the history books, the new deputy PM is sounding a bit as though power’s gone to his head.

The aim to transform politics is laudable. But unless he’s got something up his sleeve, giving women the same voting rights as men in 1928 and even Labour’s devolution of power to Scotland and Wales in 1998 were more transformational than anything set out today.

Fact Check

Osborne’s fiscal policies risks stalling recovery

The new Chancellor of the Exchequer, George Osborne, received a letter from the Governor of the Bank of England Mervyn King today, explaining the latest rise in inflation. Official figures from the Office for National Statistics (ONS) show consumer price inflation increased to 3.7 per cent in April, while retail price inflation rose to 5.3 per cent, its highest rate since July 1991. Consumer price inflation has now been 1 percentage point or more above its target rate of 2 per cent for four consecutive months.

Inflation-figures-18-05-10.jpg

The Governor was able to point to some special factors that have boosted inflation in the UK, including the increase in the standard rate of VAT from 15 per cent to 17.5 per cent in January, record petrol prices and the lingering effects of sterling’s 25 per cent depreciation in 2007-08 (though the last should have just about worked through the system by now).

He also reiterated the Bank’s view, expressed in last week’s Inflation Report, that inflation will fall sharply in the second half of the year. But it is an uncomfortable fact that prices in the UK have been increasing far more rapidly than the Bank, or indeed most other forecasters, expected.

This is important for three reasons.

First, the Chancellor’s plans to make savings of £6 billion in public spending in the current financial year are predicated on the assumption that monetary policy can remain extremely loose well into 2011. If the Monetary Policy Committee thinks inflation expectations are increasing, as a result of high recorded inflation, they may have to rethink the timing of the first moves to reduce quantitative easing or increase interest rates.

If so, the economy could face a simultaneous monetary and fiscal policy squeeze at a time when the recovery remains very fragile.

Second, wage inflation is very low, so high price inflation means real wages are contracting. Unless households are prepared to save less or borrow more – and the Conservatives believe that the opposite is desirable – consumer spending will grow very little, and could contract, in coming quarters.

As a consequence, the economic recovery could fail to pick up momentum and may be at risk of stalling.

Third, Mr Osborne may be contemplating an increase in VAT and/or in other indirect taxes in his ‘emergency Budget’ on June 22. To do so while inflation is already at uncomfortably high levels would be to increase the risk of weaker growth in the short-term and of higher inflation expectations in the medium-term.

Not a good first move as Chancellor.

It is, perhaps, natural for a new Government to want to be seen to be putting its own stamp on economic policy as soon as possible – but the economic situation in the UK is very delicate and argues for extreme caution in coming months; the less that is in the emergency Budget, the better.

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