Thursday, May 13, 2010

What the coalition means.

I have been somewhat alarmed and depressed to see a number of perfectly sane liberals, by no means leaning to the right-wing of liberalism, applauding - or at least offering measured approval of - the Clameron coalition. Even on Labour List, there's a commentary suggesting that this will allow Cameron to fulfil his genuinely progressive aspirations and sideline the Tory right. Others are talking about the tax measures that have been included, such as rises in capital gains tax, dropping the cuts on inheritance tax, raising the tax threshold to £10k per annum. And there has been some excitement over the possibility of Vince Cable socking it to the banks. The liberals, it has to be said, think they have won. Perhaps they have - but if so, it is a victory at the expense of many of their voters.

Cameron is not a progressive. He is an old school Thatcherite whose record on economic as on social issues is reactionary - from demanding tax cuts for the rich to support for homophobic legislation. He and his party spent the 2010 general election race-baiting on immigration. Cameron himself is an opponent of multiculturalism, and he was quite happy to participate in the Muslim-bashing fiasco when it reached a nasty crescendo in 2006. His foreign policy is impeccably neoconservative, and William Hague is already sending out the policy signals - eg, he wants to change legislation that might be used against Israeli war criminals. When Nick Clegg was in opposition, he suggested that Britain might stop arming Israel for as long as it was using those weapons to engage in wholesale butchery in Gaza that shocked even some of Israel's most unwavering supporters. Now he is part of a government that will be, if anything, more fanatically pro-Israel than the last.. On the whole, Cameron is a man who instinctively identifies with wealth and privilege, and oozes disdain in every nuance of his speech and comportment for the poor and oppressed. If Cameron's policy record, rather than his broken record PR spin, is what is at issue here, then calling him a progressive is as perverse as labelling the Pope a member of the Saviours Sect.

The idea of Vincent Cable laying into the banks may have a certain allure, and a British equivalent of Glass-Steagall may be a surprising development to come from any Tory-led administration. After all, the Tories fought the election on a manifesto that seemed to confirm that they were determined to protect the bankers' dominant position. By allowing the Bank of England to be the main regulator of the City (thus effectively allowing the City to be self-regulating), and by delegating a minister to fight for the City's interests in Europe, they showed no sign of Cable's reforming zeal before they cut an agreement with the Liberal Democrats. But the Tories have actually given themselves considerable room for manoeuvre here. All they've agreed to on this score is an independent commission to investigate the possibility of one day separating retail and investment banking "in a sustainable way" (ie in a way that doesn't offend the City). Meanwhile, Larry Elliott reports that a factional struggle is already under way between Osborne and Cable over who will have final say over any banking reform. This is a fight that Osborne is likely to win since Cable is in his position as a member of a junior partner in a coalition. The Liberals have agreed with the Tories that the B of E will become the key regulator of the City although the FSA will continue to operate, presumably as a subordinate body. That basically does mean effective self-regulation for the City. Both parties had already been in agreement on the idea of some sort of banking levy, but its terms lack any specificity, so that any policy that finally emerges is likely to be the result of domestic and international lobbying and horse-trading. In general, the City has breathed a collective sigh of relief at the terms of this agreement, as well they should.

Much is made of the fact that the coalition's current tax policy is an improvement on the Tory original, though even superficially laudable ideas such as a higher tax threshold are actually regressive in their impact. More importantly, when it comes to the big fiscal issue, the tax changes are small beer, and their overall effect is to increase cuts in public spending. And this is where it becomes most interesting. The coalition is committed to speeding up the reduction of Britain's structural deficit. This is in its agreement, and both parties favoured this before the election. Yet, they have not said how they will do this. Beyond some placatory noises on protecting key public services, there are tens of billions of pounds simply unaccounted for here. Today's FT reports:

First, the Treasury’s existing plans for public spending already imply cuts to government departments of £37bn (2.5 per cent of national income) a year by 2013-14.

Added to this, the coalition agreement has committed the parties to increases in spending on overseas aid with an annual cost of £4bn; fresh income tax cuts with a price tag of about £5bn, as a downpayment on the Lib Dem plan to raise income tax thresholds; £3bn a year for avoiding some Labour tax increases; faster deficit reduction, which implies additional spending reductions of about a further £8bn; a jobs package at £600m; more funding for poor school pupils at £2.5bn; and higher old-age pensions costing about £2bn.

Set against this are near-term plans to raise taxes on aviation of £3bn and capital gains tax of about £2bn.

Put this together and Mr Osborne will have to announce public spending cuts of £57bn a year by 2013-14 from a non-protected budget of about £260bn – cuts of about 22 per cent. [emphasis added]

You heard that - cuts of more than a fifth in all non-protected departments. That's what the coalition means: education, transport, justice, and welfare will all experience unprecedented cuts. Only the NHS as a department is protected, though there are protected 'frontline' areas in education that will not be cut. John Lanchester, as I've mentioned in previous posts, has spelled out the implications of even smaller cuts than these - it would be equivalent in justice to closing all courts; in transport to cutting a third of Network Rail grants. In defence, it would be equivalent to closing down the armed forces. Since the coalition is explicitly committed to Trident and implicitly committed to the on-going occupation in Afghanistan, I can't see that happening - which means deeper cuts for other departments. As for schools and welfare, the mind boggles. Losing a fifth of the non-protected education budget hasn't even been tested to my knowledge. Research on a hypothetical 2% cut, prompted by Ed Balls' drive for 'efficiency savings', suggests that it will lead to a serious reduction in the quality of education as lay offs led to bigger classes.

The welfare system is likely to be one of the most contentious areas where cuts are introduced. Given that pensions are projected to rise, and the link with earnings eventually restored, the main brunt of any cuts will probably fall on benefit claimants, whether they are on the risibly low job-seekers allowance or disability allowance. The Liberals and Tories have agreed on bringing forward workfare proposals. At the moment, private companies are given lucrative contracts to harrass and bully the unemployed back to work on the assumption that unemployment is voluntary and results from a lack of moral fibre. Such schemes begin within 12 months of one having been on the unemployment rolls, as things currently stand. The new government will ensure that people are immediately transferred to one of these schemes, as soon as they start to claim. As I understand the Tories' policies on workfare, they intend to build on New Labour schemes to hound the disabled and single mothers to seek work, and force those on job seekers allowance to perform menial labour for private contractors so that they remain 'in the habit' of working. (Of course, those doing the work won't be entitled to the minimum wage, much less the 'Living Wage', or employee protections). In the long run, the Tory-Lib coalition anticipates a reduction in benefits due to these measures. So, I would guess we're talking about a serious attack on the welfare state, an attempt to force more and more people off welfare rolls, and mass redundancies in the civil services as the welfare system is 'streamlined' and downsized. In addition, since both Liberals and Tories are ideologically committed privatizers, we can also look forward to state assets such as the Royal Mail being auctioned off at bargain basement prices.

Obviously, this entails a highly confrontational government, one whose outlines are not disclosed in the soothing bromides about strong and stable government that the coalition partners are laying on us. The Tories had already warned in opposition that they were prepared to take on the unions in a big way to ensure that the cuts go through, and the Liberals will back them. And the fact is that what they will be fighting for involves cutting slashing core services that are needed most by the poorest, then throwing hundreds of thousands of people on the dole, while at the same time introducing more punitive measures to drive them off the benefit rolls. It won't be long before this manifests itself with brutal clarity, at which point the government's "progressive" well-wishers will have some uncomfortable choices to make.