Growth, not cuts, is the way forward

By Jon Trickett MP

The Tory narrative is now clear. To get the economy back on track the population will apparently have to pay a heavy price with deep cuts to basic services. This painful remedy, so the story goes, is necessary to address years of reckless expenditure by Labour on the public services.

The coalition appears to be treading the path taken by Ronald Reagan who once famously said that government is not the solution to our problem but that the government is the problem.

Not only is this a deeply ideological agenda, but it does not add up economically. The deficit has overwhelmingly come about because tax receipts plummeted during the deepest recession since 1929-31. It’s certainly not the result of government profligacy. Increased government spending was required to maintain demand and prevent an even deeper downturn.

There’s a real risk than a cuts agenda will send the economy backwards. Far from tackling the deficit such a development would see it rise as tax revenues fall further. Such viscous circles are already hitting Greece, Ireland and Spain.

So if not cuts, then what? We need to go for growth.

All the economies that have suffered badly in this recession have seen a huge collapse in investment. In Britain, the fall in investment accounts for around £6 out of every £10 by which the economy has shrunk.

Without investment to generate demand and rebuild the economy, we will fall back into recession or like Japan be left with years of low growth. In these times when the private sector will not invest, the government needs to step in.

Not only would this boost the economy from which all would benefit, but a programme of major investment works presents a great opportunity to reshape the economy away from its imbalance on the financial sector and onto a higher skill base.

This would help address the scars of greater inequality, a sense of vulnerability and a race to the bottom in conditions and wages which is the legacy of the domination by neo-liberalism and finance sectors of the past 30 years.

Government investment to modernise the economy, especially in housing and transport where investment has most collapsed during the recession and a focus on developing a low-carbon economy and a higher skills base by investing in education, would boost the economy in the short term as well as improving long-term growth and prosperity.

The Green New Deal is one example. HSBC has said that in some green industries every £1 invested can expand the economy by as much as £4. Much of this would then come back to the government in taxes. The Green New Deal group of economists says a £10 billion green investment would re-skill 1.5 million people, bringing 120,000 people back into the work force and increasing the earnings of those on low incomes by a total of more than £15 billion. Such investments would save the government billions of pounds in reduced benefits and increased taxes alone.

Government investment in transport would have a similar impact. Consultancy firm KPMG said investment in high speed rail would “drive economic growth and ultimately bring substantial additional tax revenue to the exchequer. It could “contribute between 25,000 and 42,000 additional jobs…[and] additional annual economic impacts on this scale could increase annual tax receipts by between £6bn and £10bn by 2040. The greater economic impacts would be in the north of the country and really could help narrow the prosperity gap with the South East and London.”

The economic benefits of these two examples could easily apply to a programme of massive council house building – addressing a critical social need and employing the more than 300,000 construction workers who have lost their jobs.

We can learn from history on this. In the aftermath of the Second World War, Britain’s national debt was at 250% of GDP but the government embarked on a massive infrastructure programme to get the economy back on track that included the creation of the NHS and greater levels of council housing.

Cuts may now be the consensus of the elites. But with every person set to be affected by these savage cuts the urgent task of all progressive today is to put in place the policies and alliances to create a counter consensus.

Eve of Budget discussion: PROGRESSIVE ALTERNATIVES TO THE CUTS AGENDA

Monday June 21st, 7.30pm Committee Room 10, House of Commons (Main entrance)

Speakers include:

* Jon Trickett MP

* Jon Cruddas MP

* Larry Elliot, Guardian economics Editor

* Ann Pettifor, New Economics Foundation and Green New Deal Group

* Kate Hudson, CND

* Mehdi Hasan, New Statesman

Public meeting hosted by Jon Trickett MP. To register please email [email protected]