TUC leader sets out his alternative to government austerity

By agency reporter
6 Apr 2011

Trades Union Congress general secretary Brendan Barber has set out his vision for how the UK economy can recover from austerity to prosperity.

Delivering the 'Distinguished Executive Address' at the University of the West of England campus in Bristol on the evening of 6 April 2011, Mr Barber said that deep and rapid spending cuts are not the solution to the UK's economic problems.

What is needed, he declared, are policies that produce growth and jobs. This calls for a complete rebalancing of the economy, reform of the financial system, boosting manufacturing and higher wages for ordinary workers.

Brendan Barber declared: "The government's decision to cut £81 billion from public spending over the next four years will have a devastating impact on the services that millions of people rely on - among them frontline services such as the NHS, schools and the police.

In full, he continued: "You don't have to look far to find evidence of damaging cuts here in the South West. Some 3,300 NHS jobs are being lost in this region, including those of doctors and nurses. Around 10,500 local authority jobs are being cut, with 340 going at Bristol City Council alone. Social care in Devon is facing a £7.5 million cut. And the regional flood defence budget is being trimmed by 16 per cent.

"As well as [destroying] services, these cuts also risk undermining the economy. Even before austerity really takes effect, the signs are alarming - with the economy contracting by 0.6 per cent in the final quarter of last year. With unemployment rising towards three million, the outlook is bleak. Assuming we avoid a double dip recession, an anaemic, jobless recovery looks like the best we can hope for.

"Now the government seems to think that as it drastically cuts the public sector, the private sector will automatically step in and fill the void. But with large swathes of UK plc dependent on the £200 billion plus the state spends procuring its goods and services, this appears to be wishful thinking.

"Ministers believe the private sector will create 2.5 million new jobs during the course of this parliament - but TUC research looking at what happened after previous recessions suggests it could take the private sector 14 years to create enough jobs to get employment back to pre-recession levels.

"For workers, spending cuts, a weak economy and rising joblessness add up to a pretty unpleasant cocktail. In January Mervyn King noted that the combination of cuts, tax and benefit changes and rising inflation added up to the biggest attack on living standards in almost a century. Tellingly, real wages this year are expected to be no higher than in 2005.

"So be in no doubt: we are in a very deep hole. And the government has bet everything on a colossal gamble - its plan to wipe out our structural deficit in a single parliament.

"Now the TUC are not deficit deniers, we know that borrowing one pound in every four we spend is unsustainable, and we agree that spending more on servicing debt interest than on educating our children is just plain wrong. But [what] we need is a Plan B.

"When it comes to getting the deficit down, what matters is what works in the long term. My concern is that the government's answer - to slash public spending with reckless speed - is based not on a sound reading of the evidence, but on an ideological zeal to shrink the size of the state.

"Instead we need a more realistic timetable for deficit reduction, with jobs and growth our top priority - keeping people in work, keeping tax revenues flowing, limiting the huge social costs of unemployment. And rather than swingeing cuts, we need a much more prominent role for progressive taxes - not least on the bankers who caused this mess.

"So far, so good, you might say: but where's the evidence to support this argument? Well, the case for jobs and growth is overwhelming. The lesson of economic history is clear, this is the best way of getting the public finances under control in the long run. Massive cuts are a false economy. As we saw in the 1930s, austerity begets more austerity - more unemployment, more misery for working people, and yes, more national debt.

"Ireland has made eye-watering cuts to satisfy the markets and latterly the IMF, but it remains locked in an economic death spiral, with figures released last month showing unemployment has reached almost 15 per cent - and its deficit is getting worse not better. Contrast this with the experience of the United States, which has kept the spending taps on, and where jobs, growth, tax revenues and consumer confidence are now returning.

"Perhaps it's no surprise that a vast body of economic opinion is against savage cuts in public spending and in favour of pro-growth policies. Not just the usual suspects like former MPC member Danny Blanchflower and Keynes biographer Lord Skidelsky, but pro-market commentators such as Martin Wolf and Sam Brittan at the FT.

"And just as the case for pro-growth policies is compelling, so too are the arguments for fair tax. The government has made the decision to make £4 of spending cuts for every £1 of tax rises - the bulk of which is coming from higher VAT, a clearly regressive tax. The TUC believes this balance needs to change, with the tax burden falling on those most responsible for the crisis we now face.

"That's why we're calling for a determined clamp down on the £25 billion of tax avoidance committed by UK plc and the super rich, why we want to see a much bolder banking levy, more robust taxes on bankers' bonuses, and a Robin Hood Tax on financial transactions.

"So there is a genuine alternative - with fair tax, growth and jobs at its heart. And these arguments are increasingly resonating with the public. With bankers paying themselves £7 billion in bonuses this spring, there is a growing clamour for change - as we saw in London the weekend before last.

"But as the TUC sets out our alternative to austerity we are also thinking about the longer term. If the immediate challenge we face is getting the deficit under control, then the fundamental challenge beyond that is to build a fairer, more stable economy that delivers prosperity for all.

"We need to make a decisive break from the failed neoliberal model of the recent past, a model that delivered the biggest financial crash in living memory, created huge inequalities, and saw a massive explosion of household debt.

"We need an economic narrative that stands up to the central challenges we face in the first half of the 21st century - climate change, globalisation, mass migration and our ageing society. And the obvious place to start is with root and branch reform of the City, because we need to build a financial system that funds the real economy rather than enriches itself.

"As we reform the banks, we also need to nurture new sources of competitive advantage, building on areas of strength such as biotechnology, aerospace and pharmaceuticals and investing more in the likes of high-speed rail, clean coal and electric vehicle manufacture.

"Rather than allowing market forces to simply reinforce existing imbalances, we want to see Britain adopt the kind of intelligent industrial strategy that has worked so well in Germany. Not a return to the failed intervention of the 1970s, but a recognition that a smart, active state can and should support strategically important industries.

"We also need a change in the relationship between capital and labour - so that our labour market is fairer, so that we address the yawning chasm between those at the top and everyone else, so that we deliver higher wages for ordinary people. What President Obama has called 'spreading the wealth around' is ultimately the best way of building stable demand.

"The case for a fundamental recasting of the employment relationship is overwhelming. One of the most pernicious legacies of the long neoliberal ascendancy has been the falling share of GDP going to workers in the form of wages. In 1973, 65 per cent of Britain's output ended up in people's pay packets - by 2009, that had fallen to just 53 per cent. And as those at the top prospered, low and middle earners saw their incomes squeezed.

"Even before the economic crisis struck, sage voices were calling for change. In 2006, Ben Bernanke, the chairman of the Federal Reserve, urged corporations to use higher profits 'to meet demands for higher wages from workers'. More recently, the eminent Chicago academic and former IMF chief economist Raghuran Rajan has said the primary cause of the global financial crisis was the growing wealth gap between a tiny financial elite and everybody else - with ordinary workers forced to borrow dangerous amounts to maintain living standards.

"And there is recognition too that higher wages are essential to economic recovery. Just last week, Steve Nickell, an economist at the independent Office for Budget Responsibility, told the Commons Treasury Committee that if wages failed to keep pace with inflation, then consumption would decline and growth would be weak. 'That, in some senses, is the worst of all possible worlds', he noted.

"None of this strikes me as particularly revolutionary stuff. Consumer demand based on wages, as opposed to debt, sounds like plain common sense to me. So we need to invest more in education, training and skills, in an ever more competitive global economy, the importance of that is surely self evident. The only sustainable way to pay for higher wages is through higher productivity, and that requires higher skills.

"But it seems to me we need to be more ambitious than this and think about the really fundamental questions. How companies operate, how they engage and involve staff, and how they distribute reward.

"One of the possible answers is high-performance workplaces. Workplaces that are characterised by high employment standards and high-trust relationships - where workers are not only well rewarded and fairly treated, but involved in shaping the process of change. They have innovative systems of employee engagement and consensual management, unions are involved as partners, and the productivity gains can be significant, as research by the OECD, Work Foundation and others has shown.

"So it seems to me that Britain has a fundamental choice to make about its long-term destiny. Do we compete on quality and standards like our most successful neighbours? Or do we compete on cost, by driving down standards and wages? I think you can guess which option I'd go for.

"All of this poses a real challenge to government, to business - and yes to unions too. It requires new thinking about what kind of workplaces we want to nurture and what kind of labour market we want to develop. This is not about going back to the future, somehow transplanting a reheated version of the 1970s into the 2010s. It's about re-engineering employment and economic relationships for what is a vastly changed world.

"One thing's for sure. We cannot return to the mistakes of the recent past. Financial speculation, debt-fuelled growth, a lop-sided British economy, rising inequality, stagnant wages - these are the traps that we must avoid at all costs. And in the short term, we must be wary of the biggest economic trap of them all: spending cuts of a scale and speed not seen in our lifetimes.

"Britain is at a turning point. The decisions we make now - about the way we tackle the deficit, and the way we rebuild our economy - will shape our national life for generations to come. With imagination, Britain can succeed in the decades ahead. We can get the public finances back on track and safeguard valuable services. We can reconfigure our economy to meet the challenges of the future. And we can move from austerity to prosperity. I just hope the government finds a reverse gear before it's too late."

More about the TUC: http://www.tuc.org.uk/

[Ekk/3]

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