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The Age of Austerity

As the global economy continues to contract, Impact’s Alex Friede explores our ravaged financial and political landscape and questions which of Britain’s political parties might provide a beacon of hope, and a decisive leader to bolster us out of recession.

We have to face some brutal facts: Britain is in disastrous financial health. In his April budget, Alistair Darling announced that public spending would soon account for 48% of the national income, borrowing would reach £175 billion – or 12.5% of the national income – and public sector debt was close to reaching £1,000 billion. In the second quarter of this year, revenue from tax was down 11% from the same point last year. Government spending is increasing at a faster rate than inflation, yet our woefully under-equipped military and over-crowded prisons are facing budget cuts. Unemployment is constantly rising, as are the benefits and social welfare costs that accompany it. Indeed, while the latest quarterly review by the Bank of England suggests that the end of recession is in sight, recovery is expected to be slow and painful. Our public services are bloated with employees – according to the Financial Times, one in five Britons work for the state, and the NHS is the third largest global employer. Whoever wins the next election will be severely handicapped by enormous debt and the tough sacrifices that come with reducing it.

Of course, it is too crass to singularly blame Brown and his colleagues for our current mountain of debt. Though his chancellorship is well remembered as a period of reckless spending, it is worth recalling that the Tories backed New Labour’s excessive government expenditure when they could have urged restraint. Equally, we cannot place what is undoubtedly a global crisis squarely on Brown’s shoulders. In fact, the current administration deserves credit for their pragmatic response to the financial crisis – without government bail-outs and stimulus packages, our recession would surely have hit harder and be predicted to last longer.

However, the question facing us today is stark: who is best equipped to lead us out of our financial quagmire? David Cameron has stressed that we are entering an “age of austerity” – but who can be trusted to steer us through it? The Labour party have misjudged the mood of the British public. Britons today well understand the grim nature of our financial woes, and accept that painful reforms must be made. Regardless, the Labour cabinet prefers to discredit the Tories – as “a party for the few” (Brown), political “cross dressers” (Mandelson) and “unpatriotic” (Burnham) – rather than engage in any sort of debate on policy. Moreover, Mr. Brown appears to hold little respect for transparency in government. Rather than outlining exactly how his government will trim public spending, Brown and his colleagues have halted plans for long-term departmental budgets, called off department-by-department spending reviews and – according to The Times – suppressed reports that reveal public sector waste. Rather than admit there is no choice but to reduce public spending, the Labour administration portrays Tory rhetoric as “simply code for cuts” – despite the fact that Treasury predictions reveal real-term spending decreases.

On balance, the Conservative party have had an unspectacular summer. While David Cameron’s decisive response to the expenses scandal and continual focus on “austerity” indicates that he is a politician with his finger on the pulse, his party must set out some policy detail. The subtle complaints from shadow Education Minister Michael Gove and Lord Salisbury are welcome and accurate – the Tories simply have to clarify what they stand for. Cameron and his team have employed substantial rhetoric on their commitment to dismantling “quangocracy”, reducing the size of the state and increasing efficiency through competition but he must now flesh out how his party will achieve these goals. One suspects that his current strategy is simple: ride the wave of Labour unpopularity, play it safe and allow Brown to self-destruct. However, while the plan is likely to lead to champagne on election night, it may hamper a future Conservative government in the long-term. A Cameron-led government will surely find it easier to push forward the sort of radical reforms this country desperately needs if they have prepared the electorate, unions and other interested parties of their intentions.

Of course, this analysis based on an assumption that the Conservative party are actually planning radical reforms. Cameron’s plan to orchestrate a “post-bureaucratic age” (i.e. shrinking the size of the state) is a sensible approach to our debt crisis, but structural reforms of this nature will have more of a long-term impact. Yes, the state is in urgent need of streamlining, but the future Chancellor – whoever it is – will have to raise money now. In other words, taxes must rise. However, one suspects that Cameron and his colleagues are too sensitive to the negative public reaction – and the inevitable smearing from Brown and his cronies that would follow – to endorse tax increases. For example, raising the VAT to 20% is a sensible, short-term way to address our debt problems, yet the Tories have been ambivalent on the issue. Cameron’s support for Brown’s 50p tax for the super rich is even more worrying. Whether or not one considers it “fair” (Cameron’s words) for the richest 1% to contribute 24% of all income tax collected (as they currently do in this country), basic supply-side economic theory holds that actually, lowering tax for the very rich will result in them earning, paying and ultimately, declaring more money in tax. The theory has been proved in practice – George W. Bush managed to significantly raise the contribution of the richest 0.1% of Americans to the total amount of tax collected during his tenure – 16% to 20% – by slashing the top rate of tax from 39.6% to 35% in 2001. On the other hand, California raised its taxes for the super rich during the last decade, only to watch them emigrate. Of course, Cameron’s support for this tax has more to do with distancing the Tories from Brown’s idea that they are a party “for the few’ than any sustained economic basis. However, if Cameron and his party are to be effective, they must be brave enough to make the unpopular decisions that need to be made; they must be prepared to put the interests of the nation before the interests of their party.

Bleak as it may seem, we have entered an age of austerity and we do need austere men. Margaret Thatcher often said that she never confused the leader page of The Guardian with the vox populi – we need a leader who possesses the integrity to make the right decisions, irrespective of how they are received. Both Gordon Brown and David Cameron would be wise to follow the Iron Lady’s example.

Alex Friede

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