The Tories still claim that Labour’s “reckless spending” caused a debt crisis. But this was always nonsense.
The debt skyrocketed after the banking crash as the US and British governments pumped trillions into saving the bankers.
The consensus is that the British government has to “balance the budget”.
Ed Balls promised that Labour would be “tough on the deficit and tough on the causes of the deficit too”.
But what this “balancing” means is workers paying for the bankers’ debt.
The dubious analogy is that national budgets are just like household budgets. You have to pay off your debts or face the bailiffs.
But what do “deficit” and “debt” actually mean—and do they really matter?
The main source of government revenue comes from taxes. But governments generally spend more each year than the amount that comes into their coffers.
It’s this annual gap that’s known as the “deficit”.
When he became chancellor in 2010, Tory George Osborne boasted that he would eliminate the deficit by April 2015. But that plan is now in tatters.
He has now put back the promise to April 2019.
The government had to borrow £3.7 billion more in the first seven months of this year.
This is partly because North Sea oil and gas revenue plummeted to a four year low.
But it’s also because of low wages. Despite all the talk about falling unemployment, the new jobs are mainly part time and low wage.
That’s on top of the longest drop in real wages since records began.
Low paid jobs don’t bring in high tax revenue.
While income tax and national insurance revenue was forecast to increase at a 5 percent annual rate, it only grew at 1.8 percent.
In order to make up this gap, governments borrow money by selling bonds.
These are essentially IOUs with the promise of future repayment, but in the meantime the government pays interest on them.
Bonds are sold to banks, insurance firms and even pension funds. The total of bonds that have been sold is called “public debt”.
There’s no law about when debt has to be paid back—so why do our rulers obsess about it?
In a crisis, bond buyers can demand higher interest payments or even stage an “investment strike”.
To appease them, governments impose austerity.
The Tories argued that high debt would lead to low growth in the long term. But this doesn’t stack up, even in their terms.
The debt was much higher after the Second World War. But the government didn’t take spending back to 1930s levels.
The unprecedented capitalist boom brought down the debt.
That hints at the real problem facing the ruling class today—capitalism’s long term crisis of profitability.
The austerity program isn’t simply about “balancing the books”.
The ruling class is trying to maintain their profits by squeezing more and more out of workers.
That’s where the pay freeze, piling on workloads and slashing welfare comes in.
Many radical left parties across Europe oppose austerity, but accept the debt has to be repaid.
But that debt was racked up by decades of wars and the bank bailout—and we shouldn’t have to pay it back.
We have to break with that logic and argue that its the bankers who should pay for the economic crisis.