The state and local government

1.31 million people were made redundant during the recession – double the net fall in employment and equivalent to 4.4 per cent of people in work before the downturn.

There were 6.2 million fresh claims for Jobseeker’s Allowance between April 2008 and November 2009 – 7.5 times the rise in the unemployment claimant count during the recession, highlighting the degree to which many people are struggling to find permanent jobs.

Two-thirds of people made redundant during the recession who subsequently found work were paid less in their new job. The average pay penalty was 28 per cent.¹⁹³

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Blanchflower therefore argues that

public spending cuts make absolutely no sense. The government should be increasing spending now – and by a lot – not least because it can borrow at such a low long-run rate of interest. In such circumstances, infrastructure and education are smart investments for all our futures.¹⁹⁴
He concluded with a question for Gordon Brown, David Cameron and Nick Clegg:
What plans do you have to get unemployment down any time soon? If you want to transform a recession into a depression, go ahead and cut public spending. I would advise against it and so, I believe, would John Maynard Keynes. Voters want jobs.¹⁹⁵

The decision by the Monetary Policy Committee to carry on with the emergency strategy of printing money to reflate the economy, moreover, shocked observers: because, as Nick Cohen noted, the Bank of England evidently feared that ‘the rise in the markets was not a sign of a return to growth but a "sucker's rally"’.¹⁹⁶ In June 1930, a delegation of bishops and bankers begged President Hoover to help find work for the unemployed. "Gentleman, you have come 60 days too late," Hoover replied. "The depression is over." Within a year, soup kitchens had spread across America. Christina Romer, head of President Obama's Council of Economic Advisers, has warned him not to repeat a similar failure to grasp how fragile recoveries can be. In 1937, when the American economy was at last on the mend, Roosevelt's administration thought that it could restore order to the public finances, only to see its spending cuts and tax rises send a healthy economy back over the edge. Meanwhile, throughout Japan's "lost decade" of the 1990s, every sucker who announced that normality was returning later recanted. As Cohen concludes:
At least far-sighted Americans lobbied Hoover in 1930. Polite society in Britain today is not even asking what it will do if there are hundreds of thousands of justifiably furious young people on the streets.¹⁹⁷
And, although the support of Lord Turner, the chairman of the Financial Services Authority, for a Tobin transaction tax on the City indicates that some leading policymakers now understand the dangers of a return to "business as usual", there is no recognition of this by the City.¹⁹⁸ Moreover, as Polly Toynbee noted, Gordon Brown’s ‘sudden espousal of the Tobin tax’ – at the G20 finance ministers meeting in November 2009 – was ‘unconvincing’.¹⁹⁹ For, on 3 September 2009, Gordon Brown had joined Angela Merkel and Nicolas Sarkozy in calling for G20 leaders to impose tough global rules on bank bonuses, after holding out for days to weaken plans for caps on individual payments. Brown, according to French sources, delayed joining the Franco-German plan for three days until a proposal for an absolute cap on individual traders' bonuses linked to company profits or revenue was watered down. Hence, as Patrick Wintour observed: ‘Brown, determined to protect the interests of the City of London, insisted that the French plan for a bonus cap should only be examined, rather than endorsed, leaving a Labour prime minister taking a less radical stance than the two conservative European leaders'.²⁰⁰

The former New Labour government was therefore caught unawares by Barak Obama’s proposals on 21 January 2010 to restrict the size of banks and stop banks running hedge funds, private equity arms and taking bets on markets with customer deposits. However, unlike the Glass-Steagall Act 1933 – which was not repealed until the Gramm-Leach-Bliley Act 1999 during Bill Clinton’s presidency – Obama’s proposals do not establish a clear split between retail and investment banking: for example, they would still allow banks to continue proprietary trading if it benefits their customers.²⁰¹ Fears in the City of London that Britain might follow Obama’s line led shares in the FTSE 100 to fall by 33 points and the Dow Jones on Wall Street to suffer its biggest fall since June 2009.²⁰² However, as Alistair Darling told Isabel Oakshott and David Smith he thought ‘bankers have been punished enough’ and ‘Obama is acting for domestic political reasons only’, New Labour would not have followed Obama’s lead.²⁰³ Darling also maintained that ‘Obama’s proposals…would not have prevented the crisis and risk undermining the international consensus on reforming the financial system’.²⁰⁴ Hence once again New Labour was to the right of the Conservatives and Liberal Democrats who both supported Obama’s proposals.

In October 2009 the Duke of York said bonuses were “minute”; and Lord Griffiths, vice-chair of Goldman Sachs International and a former adviser to Margaret Thatcher, said he was not ashamed of the bank’s bonuses and that we should learn to “tolerate the inequality” of such payouts.²⁰⁵ Such tolerance of ‘City bankers living the high life again’, as David Smith and Robert Watts noted ‘will be difficult to find among people struggling with their own finances as the wider economy remains in recession’.²⁰⁶ For the Duke of York – ‘who used £30,000 of taxpayers’ money for a 50-mile helicopter ride so that he could have lunch with Arab dignitaries – the million-dollar bonuses received by bankers do seem trifling.’ Conversely, as Gary Younge argues:
Bonuses are the most stark illustration of an economic culture that that treats those who actually create wealth – workers – with contempt, while handsomely rewarding those who profit from that wealth. While perfectly competent public sector employees who are doing useful jobs face lay-offs because of the economic crisis, the overpaid people responsible for the crisis are getting huge rises.²⁰⁷
Moreover, as Will Hutton noted, the G20’s communiqué on 5 September 2009 was ‘disappointingly minimalist’:

On the supercharged issue of bonuses, the agreement is that banks should claw them back if they move from profit to loss, while publishing details of their top salary earners. There is to be no cap; no outlawing of guaranteed bonuses; nor transparency in the process of bonus setting.²⁰⁸
Furthermore, as Hutton also pointed out:
The bonus culture works on a London/New York axis, with financiers having a sense of entitlement to astonishing earnings that have no economic justification in terms of value creation or relation to profitability. In the US, for example, Merrill Lynch lost $27 billion in 2008: 700 employees received bonuses in excess of £1 million. AIG, the world’s biggest insurance company, paid 377 members of the financial products division that lost $40.5 billion (provoking AIG’s bail-out by the US government) $220 billion in bonuses.²⁰⁹
In Britain Barclays offered a team of investment bankers it was poaching £30 million guaranteed bonuses. In 2008, London paid £7.6 billion in bonuses – only 40 per cent down in a year when the system imploded. And the pool of money set aside to pay bonuses at the end of 2009 was £14 billion – nearly ‘double’ the previous year’s total and ‘close to a record.’²¹⁰ Yet
90 per cent of investment bank profits is not directed to strengthen balance sheets or shareholders in dividends, or to customers in lower fees, nor to taxpayers – it goes as bankers bonuses. Our role is to bail them out when things go wrong.²¹¹
Far fewer financiers have been arrested in this crisis compared with the much smaller Savings and Loans debacle in the 1980s. Yet Whitehall and Washington oppose more action on bonuses as “impractical”, which Hutton rejects because:
If G20 governments demanded limits and made continued liquidity provision dependent upon compliance, no bank could refuse. The threat of an exodus of bankers is nonsense. No bank trading outside the G20 in financial centres such as Dubai, Hon Kong or Dublin could muster the capital or scale to pay mega bonuses.²¹²
Hutton’s prediction – made in September 2009 – was confirmed in January 2010, when a report by the property consultants King Sturge showed that City of London rents were set to soar as banks and hedge funds dropped threats to move elsewhere because of the government’s new one-off tax on bonuses and public anger.²¹³

Yet, despite a succession of ex-ministers accusing the City of lining its pockets by planning to pay more than 5,000 executives bonuses worth over a million pounds (including former City minister Lord Myners who claimed he would veto big bonuses), former business secretary Lord Mandelson only called for banks to show restraint.²¹⁴ Thus, as Peter Boone and Simon Johnson stressed
...a year after the world came to the brink of financial meltdown and great pain was inflicted on millions of investors and workers, our leaders are lining us up to suffer the same horrible experience again….the British and Americans….only want minor adjustments that will not solve the real problems….[by P.L.] responding to bursting bubbles, rather than using regulation to deflate them before they start growing….we teach our finance sector a lesson - you can safely take too much risk because, when you lose, the taxpayer will pick up the bill.²¹⁵
That is, as Left Economics Advisory Panel (LEAP) co-ordinator Andrew Fisher, argues ‘only bank nationalisation, full public control and redistributive taxation will solve these tensions’.²¹⁶

Nearly all orthodox commentators also assume that it is ‘inevitable that new phases of accumulation will emerge from the aftermath of what now promises to be an enormous and protracted shake-out.’²¹⁷ Conversely, Gopal Balakrishnan argues that ‘this scenario of capitalist renewal is distinctly less likely than a long-term drift towards what the classical political economists used to call “the stationary state” of civilization”’: which ‘Marx’s later critique of political economy was, in part, an attempt to reconceptualise…transforming it into an account of an ever more difficult to surmount socio-economic impasse of accumulation’.²¹⁸ In particular, as Balakrishnan suggests
certain external social costs rise over the long term that cannot be counteracted by productivity gains elsewhere in the economy. Advanced capitalism would get a new lease on life if it found a way to decrease significantly the costs of health, education and age care without drastically reducing the level and quality of provision. But the productivity revolutions that reduced the agricultural population to single digits, and are now doing the same to industrial workforces – of course, counteracted by outsourcing to cheaper labour zones – are unlikely to be repeated for large parts of what is called the service economy. This is the main reason why capitalist economies eventually head towards the stationary state.²¹⁹
Hence ‘the most likely development’, according to Balakrishnan, is ‘a concert of powers to stave off financial meltdowns, but incapable of orchestrating a transition to a new phase of sustainable capitalist development’.²²⁰ State monopoly capitalism’s crisis is therefore systemic. That is, as Gramsci stated:
Incurable structural contradictions have revealed themselves…and…despite this, the political forces which are struggling to conserve and defend the existing structure itself are making every effort to cure them, within certain limits, and to overcome them. These incessant and persistent efforts (since no social formation will ever admit that it has been superseded) form the terrain of the ‘conjunctural’, and it is upon this terrain that the forces of opposition organise.²²¹

CR WINTER 09

Similarly, Robert Griffiths argues that – although the ‘monopoly capitalists, their politicians and their intellectuals want the public to regard this crisis as entirely a financial one, flowing from the “credit crunch”…all the fault of reckless mortgage companies and banks; of low-paid workers who borrowed beyond their means; and of greedy bankers who should not have lent them the money in the first place’ – the ‘truth, of course, is that this is a systemic crisis, a crisis intrinsic to the system of capitalism itself, what Marx characterised as a periodic crisis of overproduction’.²²² Griffiths also thinks we should
note a significant feature of the current crisis, namely the role of what Marx in Volume Three of Capital defined as 'fictitious capital'. By this he usually meant, according to a narrow definition, interest bearing financial paper, in particular government bonds comprising the National Debt. But he also employed a broader definition which embraced bills of exchange, commodity contracts and all kinds of stocks and shares. When traded on the financial markets, these instruments increase their money-value way beyond the reproduction and expansion of capital in the production of real commodities for real consumption. They are still capital in the sense that they derive from real capital once invested in the production or circulation process. Like other forms of capital, their money-value also represents a future entitlement – when cashed in – to the product of labour. But, Marx pointed out, this capital has become 'fictitious': it has been used up in its original form and now survives only nominally, on paper; its value has since been determined more or less independently of the reproduction of capital in the production process; it now bears no relation to the money-value of the original capital invested in the government or enterprise. Marx called the process of forming fictitious capital 'capitalisation', although it does not correspond completely to the bourgeois category which can reflect the expansion of real capital as well as fictitious capital. For that reason, some Marxists prefer the term 'financialisation'.²²³

According to the Bank for International Settlements, by June 2007, on the eve of the financial crisis, the nominal future value of all the financial instruments, physical assets, credit risks and betting slips (on future economic factors and indicators) being traded in world markets as financial derivatives – the main vehicle for fictitious capital – had reached $516 trillion. Share and bond market capitalisation totalled $111 trillion. The combined and largely fictitious value of $627 trillion was 13 times greater than the world's GDP of $48 trillion in 2006. While world GDP grew annually from 2.7 per cent in 1995 and by up to 3.9 per cent in 2006, the notional amount of value in the derivatives market ballooned by 24 per cent a year, and in the equity and bond markets by 11 per cent and 9 per cent a year respectively. Originating in the reproduction and then overproduction of real capital, these fictitious capital values could never be realised upon maturity in the future. Sooner or later, realism would break out as nervousness and then panic stepped in. But in the meantime, this fictitious value enabled a massive extension of corporate, personal and government debt, which in turn further intensified and prolonged the boom in most leading capitalist economies. Financialisation thereby ensured that when the crash came it would be severe. And by placing the banks, mortgage companies and the money and financial markets in mortal danger, it compelled governments and central banks to bail them out on an unprecedented scale, at the expense of support for productive industry, at the expense of public services, and to the cost of future generations forced to pay off additional public debt. Although the financial crisis broke out shortly before the generalised economic recession began, it was a signal rather than the cause. There is a dialectical relationship between the two. The over-production of capital provides the basis for transforming a portion of real capital into fictitious capital. Fictitious capital values accelerate demand through credit and thus steepen the descent into recession, which the financial crisis then prolongs the financial sector and a credit strike by the banks and money markets. But the surest sign of an impending cyclical crisis of over-production had already shown itself two years before the collapse of US and then other banks and financial institutions in summer 2007. From May 2005, year-on-year crude steel production had begun to drop significantly in the European Union and the USA, although it temporarily recovered in the following year. Here is conclusive evidence, as Griffiths also notes, that a cyclical crisis of overproduction was on the way before the ‘credit crunch’ occurred.

Marx ‘did not mince his words when referring to the agents of “capitalisation” or financialisation’, as Griffiths also reminds us:
He called them 'gamblers', 'swindlers' and 'bandits'. They perform no socially useful function except to vindicate the demand of socialists and Communists that the whole financial sector be taken into democratic public ownership, under new management, pursuing very different policies and objectives. This demand represents a qualitative advance from tighter national and international regulation or measures such as a Tobin tax on cross-border financial transactions. Democratic public ownership represents part of the transition to what Communists used to call an advanced anti-monopoly democracy – the stage which sets the scene for the decisive, revolutionary struggle for state power. Yet even if measures to regulate or nationalise the financial sector could be achieved under capitalism, periodic crises of overproduction would still exist for as long as capitalism exists.²²⁴
Moreover, as Larry Elliott argues, all the orthodox neoliberal remedies – Schumpeterian creative destruction; business as usual favoured by the City, Wall Street and the Conservatives; and business as usual with extras favoured by New Labour – were sowing the seeds of the next crisis.²²⁵ Indeed, news of the debt crisis in Dubai at the end of November 2009 saw share prices suffer their biggest fall since March 2009 amid fears that it indicated a new phase in the global financial meltdown and the possibility of a double-dip recession in 2010.²²⁶ British banks, according to analysts, had greater exposure than their rivals due to Britain’s traditional links to the Middle East, with London-based institutions such as HSBC and Standard Chartered heavily focused on lending to emerging markets during the Dubai property boom.²²⁷

Alistair Darling’s 9 December 2009 Pre-Budget Report (PBR) predicted a 4.75 per cent decline in output in 2009 – much worse than the 3.5 per cent decline forecast in his April budget.²²⁸ Bankers faced an immediate one-off levy of 50 per cent on any personal bonuses above £25,000 that had to be paid directly to the government – though accountants were already preparing avoidance schemes.²²⁹ However, by January 2010 it had become clear, as Jill Treanor showed, that:
Despite efforts by Alistair Darling…the biggest employers will absorb the cost of the tax rather than cut the size of the bonus pools they amass throughout the year. This will mean that while proceeds from the tax could top £2 billion – more than four times the £550 million estimated by the chancellor in the pre-budget report – the government will have failed to alter the traditional bonus culture in the City.²³⁰
Huge public spending cuts across the board were also planned over the next four years to reduce government borrowing by half. Over the first two years (2011-12 and 2012 -13) departmental expenditure limits were to be cut by 3 per cent a year, or £22.9bn in total. ‘Front-line’ health, schools, Sure Start and Overseas Aid were to be ‘protected’. But other areas faced average cuts of 6.4 per cent a year, or £25.5 billion in total; and there were to be severe cuts in higher and further education, transport and housing. For example, in addition to the £180 million cut signalled in the PBR, former Business Secretary Peter Mandelson told the Higher Education Funding Council for England on 23 December 2009 that £135 million (6.6 per cent) would be cut from the 2010/11 higher education budget.²³¹ Moreover, the European Services Strategy Unit estimates that Leeds University’s proposed £35 million budget cut by the beginning of the 2011/12 academic year will result in: between 625-700 university job losses; a further loss of between 250-280 jobs in the Yorkshire and Humber regional economy; and a total UK loss of between 1,187 and 1,330 jobs directly.²³² And a survey by the Association of Colleges published in February 2010 also showed that seven thousand jobs were at risk in English colleges as cuts of nearly £200 million threatened to close adult training courses in engineering, construction, electrical installation, catering, security, hospitality and care.²³³

Hence, as Gemma Tetlow of the Institute of Fiscal Studies stated: ‘All of the increase in central government spending on public services over Labour’s second and third term’ were to be ‘reversed by 2013–14’.²³⁴ Yet the former Chancellor announced that the government had managed to find an extra £2.5 billion towards the cost of the Afghan war in 2010/11. That is, the last New Labour government had moved beyond efficiencies and was already cutting programmes. For example, by 2010/13, £340 million out of housing regeneration programmes, £160 million from other Community and Local Government schemes, £250 million from residential care, £300 million from the skills budget, £360 million from criminal justice, and £600 million from higher education and science. Even the services that were to be relatively protected would have to have funded a substantial part of their cash increases in 2011/12 and 2012/13 through generating efficiency savings. Hence the new Con-Lib Dem coalition government’s decision to accelerate these cuts (see below) risks damaging economic recovery and pushing up unemployment – which will add to the government’s costs and depress tax revenues. Conversely, growing the economy is a key way of reducing the deficit and, at this point in the economic cycle, public spending is still a key generator of economic activity. 

Early signs of just how hard councils were already being hit, moreover, was demonstrated by Barking and Dagenham London Borough Council’s announcement of up to 150 redundancies, due to the recession, and likely cuts in public sector spending over the next three years. The council warned it would need to find £13 million savings in 2010/11s. Savings will include shedding agency staff, redeploying existing staff, leaving vacant council posts empty, bringing forward a voluntary redundancy scheme for staff to take early retirement and compulsory redundancies.²³⁵ Leaders of Birmingham City Council, Europe’s largest local authority, announced in January 2010 that 1,300 staff are at risk across the city’s social and leisure services. Councillor Alan Rudge, who holds Birmingham’s human resources portfolio, stated at a cabinet meeting that the authority ‘cannot employ people for the sake of it’.²³⁶ Senior officers at Edinburgh City Council are encouraging staff to work part time, take unpaid holiday leave, retire early and warning of hundreds of redundancies to slash a £90 million deficit. Rising demand on services, declining land values and rising fuel prices has left the council exposed to even worse financial strains than they had expected during the downturn. Edinburgh’s total annual budget is £1 billion and its leaders have also targeted 4 per cent across-the-board service savings to help balance the books.²³⁷

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Local government started 2010 by intensifying its search for new revenues, moreover, amid concern that Whitehall is moving too slowly to replace grants earmarked for cuts. Mark Conrad and Chris Smith in January 2010 reported that – following calls, led by Newcastle City Council and Kent Council, for the reissue of local government bonds and other alternative finance tools, to raise vital investment cash, as councils and businesses struggle to secure traditional finance – Local Government Association representatives were meeting senior City figures to discuss establishing a local government ‘fund of funds’ which could invest hundreds of millions of pounds in critical regeneration projects, threatened by the financial crunch and Britain’s spiralling debt. Senior officials are also considering the use of cash from the £120 billion Local Government Pension Scheme for local investment purposes. There is also ‘widespread disappointment’ by councils at the Treasury’s failure to endorse their use of tax increment financing (TIF) in December’s pre-Budget Report (PBR). TIF, a US-inspired regeneration model, works by allowing councils to invest upfront in developments by drawing forward an anticipated increase in business rate income; and Treasury officials first promised to study TIF options in the April 2009 Budget, and local government anticipated a decision in the PBR. Instead, ex-chancellor Alistair Darling merely promised further research: because Whitehall is concerned many of local government’s potential alternative funding models – bonds and TIF, for example – would create higher debt across the public sector, putting at risk Britain’s cherished ‘Triple-A’ credit rating.²³⁸

Furthermore, according to Danny Fortson: ‘Whitehall is working on secret plans to privatise up to a quarter of the public sector to help slash the country’s £187 billion deficit’ by ‘creating at least two public-sector “outsourcing giants” – that could eventually be worth £4 billion each’.²³⁹ The work is being overseen by Gerry Grimstone, a former Treasury mandarin who led the sell-off of household names such as British Telecom and British Gas in the 1980s. The new organisations will consolidate functions from within government departments and agencies; and be modelled on Capita and Serco, which already provide IT and other services to government and in some cases have taken over entire operations, such as the London congestion charge. Grimstone said the government could use similar groups to handle outsourced contracts across the civil service. The plan was approved by the former prime minister and Alistair Darling. It gives the Shareholder Executive, the in-house corporate finance arm of the Treasury, the power to pick businesses out of different departments and combine them into new companies under professional managers: which could ultimately be listed on the public market.

Meanwhile banks and building societies, according to the CBI’s quarterly review of the financial services industry published in January 2010, were reporting a range of factors working against their short-term recovery. For example, retail savers, who had flocked to major banks as a safe haven for their cash over the previous 18 months, were now switching to investment products to escape low savings interest rates at a time when banks have become increasingly reliant on savings deposits to back lending. These findings undermined claims that banks were returning to health and will raise lending this year in tune with government demands. Responses to the CBI survey also jeopardised Treasury predictions that Britain's economy will bounce back in 2010 and record healthy growth in 2011.²⁴⁰

An alternative economic and political strategy is therefore now essential – that explains the current crisis, advances immediate proposals but also opens the way for more fundamental change and is not, as proposed by New Labour, the Tories and Liberal Democrats, based on making the working class pay for the crisis. The Labour Representation Committee’s Left Economics Advisory Panel (LEAP) provides the basis for such an alternative.²⁴¹ In 2008 LEAP’s Graham Turner argued that the outsourcing of the multinationals put pressure on wages, so that economic growth had to rely more and more on credit; and in 2009 he predicted that the world economy is likely to fall back again in 2010, after its recent slight upturn. Turner also links his analysis to Marx’s law of the tendency of the falling rate of profit and countervailing tendencies: viz. other avenues into which excess capital flows such as private equity, hedge funds and other speculative or fictitious capital plus war. In addition, Turner pours cold water on bail-outs that restore the balance sheets and profits of banks but fail to halt the tide of unemployment, bankruptcy and home repossessions.²⁴² His answer is to take banks into real public ownership, so that the flow of business credit and home mortgages can be turned on with low interest rates.

The Communist Party of Britain’s Left Wing Programme includes the following key economic, environmental and social policies:

• 
  no more imperialist wars and occupations for big business, scrap Britain's weapons of mass destruction
  
• 
  increased taxes on the rich and big business, including a wealth tax on the super-rich and a windfall tax on energy, banking and supermarket profits, to boost public spending
  
• 
  restoring the value of  state pensions and benefits and reintroducing student grants in place of fees
  
• 
  price controls on basic foods, household fuel and petrol and cuts in VAT on essential goods and services such as children's clothes
  
• 
  a wages offensive by the trade union movement to increase public and private sector pay, including a drive to win bargaining rights for the TUC to negotiate with the government on the national minimum wage
  
• 
  state intervention to stop mass redundancies in viable enterprises, impose import levies on companies which have exported jobs from Britain and to rebuild Britain's industrial base
  
• 
  controls on the export of capital and directed investment into civilian research, development and manufacturing production with an emphasis on green technology and sustainable energy production
  
• 
  public ownership of the railways, bus transport, energy utilities, armaments and pharmaceuticals, together with the reconstruction of a state banking sector
  
• 
  ending all forms of privatisation, profiteering and marketisation in the public sector
  
• 
  a massive programme of council house building to provide affordable housing and create jobs.²⁴³
  

This ten-point programme would not only make the monopoly capitalists pay for their crisis and raise the quality of life of many millions of people. It would also begin to shift the balance of wealth of power in favour of the working class, pointing the way forward to Britain's road to socialism.

Moreover, as Wales UNISON’s head of local government Dominic MacAskill points out, under Margaret Thatcher the tax burden was equivalent to 38 per cent of GDP - four percentage points more than the current tax burden.²⁴⁴ And there is clearly scope for significant progressive tax increases with rises applied to the wealthy and big business not to workers and their families. The new top rate of income tax should start at £100,000, not just for the top one per cent who receive more than £150,000 a year, and be set at 60 per cent rather 50 per cent. Some public expenditure could also be cut such as the £70 billion Trident renewal programme and the money wasted on foreign wars.

But, as John Foster argues, without ‘democratisation, progressive economic reform is not sustainable'. This requires ‘the restoration of the democratic powers of the House of Commons’, which would require repeal of the relevant sections of the EU treaties preventing the introduction of ‘integrated public ownership and planning of transport and energy, the ending of “competition” in the NHS, the state support for industry and the scale of public borrowing required for council housing and the repurchase of privatised assets’. The revival of class politics on the scale needed also requires ‘the mobilisation of trade unions and constituency parties to fight for the restoration of internal Labour Party democracy…which could be driven forward and given momentum by mass campaigning in a way which impacts directly upon the struggle between left and right inside the trade union movement and the Labour Party’.²⁴⁵ Hence – although the vote by around 66 per cent of the delegates at the 2009 Labour Party Conference in favour of giving all members a vote to determine who sits on the National Policy Forum rule was a significant victory²⁴⁶ – as John Haylett noted: ‘Long gone are the days when Labour conferences used to be motion-based to decide party policy’.²⁴⁷

The current economic downturn is likely to be more severe for Britain than in any other advanced capitalist country – because of its high level of dependence on the financial sector that is at the core of the crisis. And, although the preliminary estimate by the Office for National Statistics was that gross domestic product (GDP) increased 0.1 per cent in the fourth quarter of 2009 and decreased 3.2 per cent overall in 2009²⁴⁸: some analysts think the economy only returned to minimal growth because of ultra-low interest rates and £200 billion of “quantitative easing”, which was ended by the Bank of England’s Monetary Policy Committee on 4 February 2010.²⁴⁹ The latter decision coincided with announcements by Shell and GSK of jobs cuts of 4,000 and 1,000, respectively; and financial markets tumbling around the world as increased concern about rising deficits in Greece, Spain, Portugal and eastern Europe combined with-worse-than expected unemployment in the United States.²⁵⁰ Moreover, as Ashley Seager and Patrick Wintour note, the 0.1 per cent increase in GDP ‘brought to an end six consecutive quarters of contraction, which saw the economy sink by about 6 per cent – or 10 per cent compared with where it would now have been had the slump not occurred’.²⁵¹ This suggests, according to economist Colin Ellis at Daiwa Capital Markets, “that, on an underlying basis, the economy only stagnated at best”²⁵² – confirming Gopal Balakrishnan’s “stationary state” thesis (see above) and warnings by the TUC and Left economists that when public spending is cut there will be a double-dip recession.²⁵³ Similarly, in November 2009, continuing increases in unemployment/underemployment and wage cuts/freezes saw property prices across Britain fall for the first time in seven months, according to the website FindaProperty, which warned of ‘a growing risk of a double-dip housing recession’; and that typical deposits had risen to £57,000, equivalent to 1.8 times the gross annual income of the average household.²⁵⁴ Moreover, on the day the 0.1 per cent increase in GDP was announced, Bill Goss of Pimco – the California-based fund managers who are the world’s biggest buyers of bonds – warned that:
The UK was a must to avoid. Its gilts are resting on a bed of nitro-glycerine. High debt with the potential to devalue its currency present high risk for investors.²⁵⁵
Goss also described Britain as posing risks for investors because it has “the highest debt levels and a finance-oriented economy”; and warned that Britain was in Pimco’s “ring of fire” where a country’s public debt could exceed 90 per cent of GDP in a few years’ time.²⁵⁶ Yet, as Andrew Fisher pointed out before the general election:
The reality is the deficit is not actually a problem… relatively. Despite that the Tory press screams ‘crisis’ preceded by ‘deficit’ on a regular basis, a massively unreported fact is that the UK has the smallest deficit of any G7 nation. This is because New Labour has sought to fund so much of its public sector investment off the books — through PFI schemes and the like.²⁵⁷
And the socialist response to the deficit is that:
First there is £125 billion of tax going uncollected through non-collection, evasion and avoidance. If the Government would invest in HM Revenue & Customs and legislate to close the loopholes, a fair chunk of this annual loss could be reclaimed. If only one sixth of this total could be reclaimed each year, the deficit would be halved within four years – without a single job or programme cut, or a single salary frozen….some simple reprioritisation would free billions, such as cutting Trident...ending the inefficiency of rail franchising and scrapping the FiReControl project (integrating the emergency services in regional control services)….public ownership of banking and other industries to generate a surplus to the Exchequer.²⁵⁸
But:

Since there is no short term prospect of such a government, this crisis is only going to deepen. The probably temporary emergence from recession will be a false dawn before a renewed and deep economic and political crisis takes hold.²⁵⁹

William Keagan, moreover, reminded us after the general election

how minor the public debt 'crisis' of today appears when compared with...1932...the debt problem facing our strange coalition is hardly on the same scale....61.9 per cent of gross domestic product in 2010/11 (against 177 per cent in 1932) and debt interest at 6.3 per cent of total public expenditure in 2010/11 (against 40 per cent in 1932).²⁶⁰
The Bank of international Settlements also shows that the "average maturity" of Britain's debt is 14 years. By comparison, other advanced capitalist countries, including the US and Germany, have maturities of under nine years; and non-residents hold under 30 per cent of government debt in Britain, which is lower than in Greece (70 per cent), Italy (50), the US (50) and Spain (40).²⁶¹ Hence, as Keegan concludes, the 'prime minister and chancellor, along with their Lib Dem collaborators, should be prosecuted under the Trade Descriptions Act for distorting the scale of our fiscal problems'.²⁶² The most likely effect of Thatcherism Mark Two, therefore, is 'prolonged stagnation as a result of misguided fiscal tightening'.²⁶³
The People’s Charter

The People’s Charter – A Charter for Change, launched on the 11 March 2009, provides a unifying focus. The Charter’s introduction refers to the current economic crisis, pointing out that, ‘every time there is a slump, the politicians and financiers seem mystified as to how the system has failed. But boom and bust is the way it works. It’s not stable.’ It notes that government is spending billions of pounds of our money bailing the banks and big business out of their crisis; declares that we want that money better spent; and ‘sets out what must be done to get out of this crisis and put the people first, before the interests of bankers and speculators.’ The Charter consists of six short passages on: 1. A fair economy for a fairer Britain, 2. More and better jobs, 3. Decent homes for all, 4. Protect and improve our public services – no cuts, 5. Fairness and Justice, 6. Build a secure and sustainable future for all.²⁶⁴ And the Charter aims to gather one million signatures before it is presented to the government.