The Tories are using Britain’s budget deficit to justify an assault on the working class. The deficit—the gap between government spending and tax revenues—is currently around £155 billion. They say this is so high that they have no choice but to cut spending to reduce it.
They are lying.
David Cameron and George Osborne claim that Britain has the biggest budget deficit of the G20 top countries. But their own Office for Budget Responsibility predicts Britain’s deficit will be 10.1 percent of gross domestic product (GDP) this year—less than the 11 percent in the US.
And the deficit has been higher in the past—without a clamour for swingeing cuts.
The Tories are fond of comparing the national debt to personal credit cards, arguing that, like individuals, the state can’t go on getting into ever higher levels of debt.
But Britain’s level of debt is relatively low. In the late 1940s government debt was almost 250 percent of GDP. Far from Britain’s economy being wrecked, it went on to have the longest boom in its history.
Compared to other countries, the debt is not high. It is estimated to be around 78 percent of the GDP—compared to 93 percent in the US, 133 percent in Greece and 227 percent in Japan.
The Tories paint a false picture of a Britain bankrupted by heavy debt repayments. The Institute of Fiscal Studies points out that government debt interest payments are expected to peak at 2.5 percent of national income in 2012-3, and then decline.
This means they would be lower than at any point between 1950 and 2000. And the Tories’ planned cuts would result in a budget surplus by 2014-5.
This shows up their real agenda: they want to use the economic crisis as cover to reduce the size of the state, increase the profitability of British companies and transfer more wealth from the poor to the rich.
Their argument ignores the fact that the government spent £1.4 trillion bailing out the banks. Our rulers were quite happy to get into debt when the bankers’ necks were on the line.
But they refuse to tolerate a deficit to ensure decent living standards for the majority.
And even if it was necessary to cut the deficit, it isn’t necessary to cut jobs and services. The government could scrap military spending or increase its income by raising the top rate of tax. The rich should pay for their crisis.
These are the kind of demands that we can raise now—and they can be won if we fight against the cuts in a powerful and a united way. These demands lay the basis for a much bigger challenge to the rich’s power.
But what if a left wing government came to power refusing to cut spending to reduce the deficit?
If it was determined to do this, and didn’t want to increase taxes as well, it would become more reliant on outside investment and borrowing.
Governments borrow by selling their bonds to investors. Investors buy them because they are guaranteed to get a certain amount of interest.
But if the government they held bonds in continued to increase its debt, their investments would seem more uncertain.
In this situation, the rich may demand higher rates of interest to cover their increased “risk”—pushing Britain deeper into debt—or they may refuse to invest altogether.
This is what happened to Greece. The bankers and bondholders withheld their money to blackmail the government into making cuts—and it worked.
If a government did default on its debt repayments, the rich would do everything in their power to punish it. They would try to take their money out of the country. They would invest in competitor states and buy up competitor currencies.
The rich would go on the rampage—and the outcome would depend on how the government and workers responded.
One response is to be terrified of the rich and to draw back from radical measures. But resistance can scare our rulers into retreat.
Ultimately, we would need to meet any bullying demands with more resolute measures—controlling foreign exchange, taking over the banks under social control, planning and controlling industry and services.
Capitalism is incredibly wealthy, yet because it puts profit before need it can’t meet the most basic of millions of people. The choice is clear—watch our living standards collapse or fight for a socialist system that is run in the interests of the majority.