A profoundly dangerous gamble with the economy

By Chris Williamson MP / @ChriswMP

The Comprehensive Spending Review has now been completed and the chancellor has made his statement in the house trying to justify the most vicious cuts in living memory.

But in spite of the harmful implications for millions of ordinary people, and the ConDem government’s profoundly dangerous gamble with the economy, Thursday’s parliamentary debate on the CSR was curtailed.

The ConDem coalition stuck to the line that the public sector is irrelevant to the economy. They believe the private sector will lead us to the economic promised land.

At PMQs on Wednesday, David Cameron claimed that growth figures were “twice as good as market expectations” and that it was “largely driven by the private sector.” Of course the reality is official figures indicate that growth was half what it was in the second quarter of 2010. But the construction sector is critical to a private sector led recovery. It provides a £223m trade surplus to the UK, employs 3m workers (8% of the workforce) and 300,000 firms work in the sector. And 92p in every £1 spent on construction is retained in the UK.

Furthermore, every £1 invested by the public sector in construction yields a return of 56p to the exchequer and generates £2.84 in total economic activity.

Coincidentally, on the morning of the CSR debate I met with representatives of the UK Construction Group. This body speaks for the country’s leading construction contractors with an annual turnover of more than £36bn – some 30% of the construction industry’s total. Its representatives told me that the published growth figures for turnover in the construction sector were “unbelievable”. Their members actually expect to see output falling over the next couple of years, not least because public sector investment represents around 40% of the industry’s turnover. The ConDem coalition’s decision to scrap the Building Schools for the Future programme has severely knocked confidence in the construction sector.

It’s not just the evidence from the UK Construction Group that demonstrates George Osborne and Danny Alexander’s prospectus is based on false premise. On October 13th, PricewaterhouseCoopers published a report into the impact of the fiscal squeeze. PWC suggested that the construction sector could see a reduction in output of 5% directly leading to the loss of 100,000 jobs and a further 900,000 in other areas.

Of course the ConDem coalition continue to repeat their clichéd mantra that “there is no alternative”. But writing in the New Statesman, David Blanchflower said a Harvard economist had told him the ConDem coalition’s fiscal deficit reduction programme is the biggest macroeconomic experiment in any of our lifetimes – and that was before the Comprehensive Spending Review. Blanchflower says economists and policymakers from around the world are astonished that the UK government is ignoring the risks and are proceeding to slash public spending and raise taxes during a once-in-a-hundred-years financial crisis.

Of course the Tories actually supported Labour’s spending plans until the economic recession started to bite and the duplicitous Lib Dems did so until they took their 30 pieces of silver. But the Tories have used the downturn as a cover to revert to the nasty Tories of old, committed to harsh social policies and a small state.

It’s worth remembering that when the last recession hit, poverty increased, record numbers of people lost their homes, public services were ravaged and unemployment reached almost 4 million. By contrast the last Labour government intervened to reduce poverty, support homeowners, maintain employment levels and protect frontline public services.

When the market fails, it is vital that the public sector intervenes to promote growth and assist the private sector to grow. Such an approach reduces the social security bill, maximises tax revenues and stimulates demand in the economy thereby creating an economic virtuous circle.

The ConDem coalition constantly talk about taking difficult decisions as if it’s some sort of macho badge of honour. But the only people that their decisions are difficult for are hard pressed low paid and middle income families along with the most vulnerable groups in society. In other words most of the population, but not the numerous millionaire former Bullingdon Club members sitting on the government benches. These individuals haven’t got a clue what life is like for ordinary people and don’t seem to care about the impact of their cuts on the population at large.

The UK economy is heading for a perfect storm and George Osborne’s hand is firmly on the tiller. My worry is that millions of our fellow citizens could be washed overboard and drowned after the crazed skipper destroyed the lifeboats.