Why the cuts won’t help the economy
Cutting spending is not the same as cutting the deficit
The government says that its deep, rapid cuts cannot be avoided.
Ministers claim that they are the only way to deal with the deficit. Anyone who doubts this is a "deficit denier".
We disagree – and so do many expert economists. We don't deny the deficit. It was an inevitable result of the worldwide recession. Of course it has to come down.
But that does not mean that the government's way is the only way. Its decision to close the deficit in just four years, and to do so by cutting £4 in spending for every extra £1 it will raise in tax is not the only option. There are alternatives.
Ministers want us to think that the only choice is between cutting spending and increasing tax rates (such as VAT). But there is another factor that they ignore: the amount of tax they collect depends on how strong the economy is.
If the economy does well, then that automatically helps close the deficit. If companies become more successful and more people are in work then they pay more tax.
But deep cuts will slow down the economy, and therefore reduce the tax take. This makes the deficit harder, or even impossible, to close. A longer time scale would give economic growth the chance to do much of the hard work of deficit reduction, rather than relying on cuts and tax increases.
That's why we say the cuts are a false economy.
Our economic problems run deep, and experts argue about them in ways that most people do not understand. But the basic issues at stake are not that difficult – and we do have choices about what to do.
Do we try and get rid of the deficit in four years, or let the extra tax that flows from economic growth do more work?
Do we want to see four pounds of cuts for every one pound of tax increase?
In a democracy we should all have a say – especially when neither governing party put such massive cuts to voters at the election.
The aim of False Economy is not to put forward a detailed alternative, but to challenge the myth that there are no alternatives. These deep and rapid cuts are not only damaging and unfair, but unnecessary.
But we do think that there are policy choices that can help.
- We want policies that will get the unemployed into work (and we don't mean cutting their benefits).
- We support a Robin Hood tax on financial transactions, and a crack-down on tax avoidance and evasion.
- We want to see support for investment in a low-carbon future that can help bring down unemployment and stimulate growth.
That's our approach in a nutshell. But if you'd like more detail, read on.