The shape of cuts to come

Submitted by martin on 30 March, 2010 - 5:17 Author: Martin Thomas

Q. The Tories promise an emergency cuts Budget within fifty days if they win the general election on 6 May. What will that include?

A. The Tories aren't saying.

This is a longer version of this article than in the printed paper.
Q. What's our best guess?

A. The Tories look for models to the Moderate-led Swedish government of 1991-4, and the Liberal Canadian government of 1993-8.
When the global financial crisis hit its peak, in September-October 2008, David Cameron commented: "I will discuss the crisis... with Carl Bildt, the Swedish prime minister who 15 years ago showed how a centre-right government can intervene decisively in a financial crisis while protecting the taxpayer".
The Canadian model is referred to more often by the Lib-Dems, but also by the Tories.

Q. What happened in Sweden?

A. In the 1970s and 80s, like other capitalist countries, Sweden had growing economic troubles. In 1991 the Social Democrats, who ruled Sweden almost all the time since 1932 and built one of the world's most comprehensive welfare states, were voted out and replaced by a right-wing coalition led by Carl Bildt of the Moderate Party, who vowed to "transform the Swedish model".
A particularly large slew of cuts was made in September 1992, as the government sought to stop a flight of capital from Sweden. Finally, after a frenzy in which the rate of interest was briefly raised to 500% to stop the outflow of cash, the government devalued the currency, but continued cuts.
Bildt followed two main lines of attack. One was to reduce welfare payments, which brought immediate bottom-line gain for the government budget.
The other was to privatise public services: voucher schools, liberalised markets for telecommunications and energy, privatisation of health care, privatisation of the post office.
Privatisation didn't bring the same immediate budget gains, but longer-term increased the ratio of paid-for services to publicly-provided ones, and increased the pressure on health, education, and other service workers.
In the 1980s Sweden had a markedly lower unemployment than most capitalist countries. After the cuts, it had a higher unemployment rate than the USA (an average of 7.1%, 1990-7).
The Tories' manifesto says:
"We will raise public sector productivity by increasing diversity of provision, extending payment by results, giving more power to consumers and improving financial controls.
"Our radical school reforms will break open the state monopoly on taxpayer-funded education by removing the obstacles that prevent new providers setting up the new state schools that parents want.
"Our welfare and prison reforms will bring in private and voluntary providers who will be paid by results".
It says nothing about welfare payment cuts, but there the Tories can easily build on the Welfare Reform Act already legislated by New Labour in November 2009. Tax-credit and pension-credit payments brought in by New Labour must also be a likely target.

Q. And Canada?

A. The Liberal government of 1993-8 responded to a crisis in which Canada's credit ratings had fallen in global markets.
They slashed public expenditure by a fifth. Some 23% of public servants (45,000 jobs) were made redundant. Business and agricultural subsidies were cut by 40%-60%. Military spending dropped 15%. The transport and science budgets were halved, and some ministries were abolished altogether.
A report in the New Statesman from Toronto, after the cuts had been pushed through (24 June 2000), gives the picture:
"Cardboard villages are being established in underpasses on the lakefront. With budget cuts eroding full-time jobs, nurses either work a series of part-time shifts or move to the United States to look for a secure post. Select medical services are ebbing away; for example, 200 of 1,700 severely disabled children in Ontario receive specialist care.
"Teachers coping with ever larger class sizes now face the prospect of compulsory (and unpaid) after-hours supervision of children's activities..."
University fees were raised, and courses cut. The minimum wage was frozen for several years.

Q. But I thought the Liberals were the less right-wing of Canada's two main parties? If similar cuts can be introduced by the "centre-left" in Canada, and the "centre-right" in Sweden, there's really no difference.

A. You could even strengthen that point by noting that Carl Bildt's biggest cuts package, in September 1992, was introduced by agreement with Sweden's Social Democrat opposition.
Whereas the Canadian Liberals had a huge parliamentary majority to help them make cuts - they had reduced Canada's other traditional party of government, the Progressive Conservatives, to just two seats, in a parliament of 289 members, in the 1993 election - Bildt's was a minority government.
For the big, comprehensive, drastic cuts package, Bildt did not want to have to rely on negotiating support from the other main opposition, a UKIP-type group, now defunct, called New Democracy.
The Social Democrats agreed a cuts package in just four days of negotiations, panicked by the thought that if they didn't, then they would not be seen as responsible people to lead Sweden in times of economic crisis.
They also hoped, or said, that they had managed by negotiation to limit the cuts and impose some conditions on Bildt. In fact Bildt went on to make further cuts piecemeal, using support from New Democracy.

Q. As I said, no difference.

A. There is a distinction between the Canadian Liberals, who have never been anything but a straight bourgeois party, and the Swedish Social Democrats, who like Labour are what Marxists call a "bourgeois workers' party", with links to the unions and to some working-class activist and electoral base.
But, yes, the history certainly shows that "centre-left" parties or even "bourgeois workers' parties" cannot be relied on to defend social provision. Or even to make smaller cuts than outright Tory-type parties.
There are differences, though. Bildt did not come to office promising big cuts, but he did come committed to "transform the Swedish model".
Tory-type parties are structurally better attuned to such cuts. Behind the smooth-talkers like Cameron the Tories have people like Nick Walkley, chief executive of Barnet's Tory council, who has said: "My view is we can’t waste this crisis".
Alan Budd, named by the Tories as one of the people who will monitor their budget cuts, has said about his time as an economic adviser to Thatcher's government:
"There may have been people making the actual policy decisions... who never believed for a moment that this was the correct way to bring down inflation. They did, however, see that it would be a very, very good way to raise unemployment, and raising unemployment was an extremely desirable way of reducing the strength of the working classes.... what was engineered there in Marxist terms was a crisis of capitalism which re-created a reserve army of labour and has allowed the capitalists to make high profits ever since. I worry whether that indeed was really what was going on".
In immediate practical terms: a Tory election victory means immediate cuts, and at a pace which will involve union-breaking unless the unions simply submit.
A New Labour victory should be a signal for the unions to fight to hold the Labour leaders to their promises about "front-line services".
The Labour leaders cannot keep those promises and at the same time introduce cuts which will be, on Alistair Darling's own account, deeper than Thatcher's.
If the unions don't fight, Labour cuts may end up just as bad as Tory cuts. But it is defeatist to give up on that now, and say in advance: "It makes no difference whether we get the Tories, with a mandate for immediate cuts, or not".

Q. Even the Tories have promised to maintain frontline spending on the health service. It may all be not so bad.

A. There's a trick here. The cost of maintaining the same level of health service rises faster than general inflation, because the population is ageing and because new treatments keep people alive (expensively) when before they would have died (cheaply). So maintaining, or even increasing, "real" NHS spending will mean cuts in services.
To say that "frontline services" can be kept intact while overall public spending is axed is obviously a lie, anyway.

Q. A lot of backroom costs could be cut.

A. The Trident replacement (maybe £30 billion) could be cut. Military spending (total £37 billion a year) could be reduced. Spending on "business consultants" (about £3 billion a year); the vast administrative costs of the internal market in the health service; and payments to private contractors under PFI schemes (up to £10 billion a year) could be axed.
In fact, the main "backroom" cuts proposed by both Tories and New Labour consist of upping work pressure and squeezing wages for routine "backroom" workers.
The Tories promise to "cut Whitehall and quangos by a third". They have also talked of ending the current two-tier system of public sector pensions, by levelling down, or even scrapping all pension schemes which offer public sector workers a defined pension (rather than a pay-out depending on stock-market fortunes).

Q. How much will the cuts total?

A. All figures now are notional. In the first place, no-one knows whether increased tax receipts, from an economic upturn, will narrow the budget deficit more or less automatically - or reduced tax receipts, from a new general economic crisis, will widen the deficit. In the second place, there is no iron law setting a maximum deficit.

Q. The budget deficit has to be ended. The government has to balance its budget.

A. No, it doesn't. The limits on budget deficits are very elastic. Britain had a much bigger accumulated government debt, in proportion to annual output, in 1945 than now. The 1945 government did not make cuts in social provision. On the contrary, it introduced the modern welfare state.

Q. It's different now, because then there were strict controls on currency exchanges. The government could stretch its credit - in pounds - with a smaller risk of a flight of capital, or of having to pay inflated interest rates. Today, governments operate in fast-moving global financial markets, which will punish them instantly - as they are now punishing the Greek government - if they run big deficits.

A. Yes, any government immersed in global financial markets will make cuts. We want a workers' government that will take over high finance and link up with workers' governments and workers' movements in other countries rather than through the financial markets.

Q. But any government short of that revolutionary assault on high finance will make cuts?

A. Some. But the amount of cuts is not fixed in advance. Nor is whether the burden of deficit-reduction falls on the Trident replacement, on military spending, on fat-cat "consultants", on taxing the rich, or on health-care, schools, and welfare payments for the worst-off.
Working-class activists should refuse even to discuss supporting cuts in social provision until the Trident replacement has been axed, military spending has been cut, and taxes on the rich and business have been raised.

Q. New Labour says that the Tories' rapid cuts may crash the economy into a further downturn. Is that true?

A. The Tories' counter-argument is that rapid cuts, restoring the government's credit in global financial markets, will allow lower interest rates and thus quicker expansion. But will things work that way? If people's welfare payments are cut, and public service jobs are lost, then that reduces market demand, and tends to generate further job cuts in private industry.
A further downturn will probably mean even bigger public service cuts. Neither the Bildt government in Sweden, nor the Chrétien Liberal government in Canada, came to office promising big cuts.

Q. So what do we do?

A. Stop a Tory victory on 6 May; get the unions mobilised now to demand Labour cuts military spending and taxes the rich, rather than chopping welfare payments, public services, and jobs.

Add new comment

This website uses cookies, you can find out more and set your preferences here.
By continuing to use this website, you agree to our Privacy Policy and Terms & Conditions.