Winter Statement of Discontent

Some have characterised the presentation of the Chancellor's autumn statement yesterday as a paradox of political theatre: how could a man who comes to the house to admit that he has failed in all the objectives he set himself possibly look so cheerful? And how can the opposition perform so badly in response? The key to the answer lies in the word theatre: what the Tories do so well is the debating they learned in their public schools, which they perform with the panache of those educated to know that they have the right to rule.

And from another perspective, of course, Osborne has been one of the Conservatives' most successful chancellors. He has used the financial crisis to advance the interests of capital in ways that would have seemed impossibly radical before 2008. The measures offer clearer evidence yet of the Tory strategy of using the debt to achieve long-desired political objectives.

Item 1 is the cut to corporation tax, now to be reduced by 3% in April rather than the promised 2%, meaning an official rate of 21% from 26% last year: a full 5% reduction in the contribution from business at the very time they are in the dock for avoiding the tax they are supposed to pay. Osborne boasted of his generosity to corporates: 'This is the lowest rate of any major western economy. It is an advert for our country that says: come here; invest here; create jobs here; Britain is open for business.' The headline UK rate has already been reduced from 26% to 24% this year. The rates of 40% in the US, 33% in France and 29% in Germany make it clear which Chancellor is really the capitalist's friend and help to explain why we can no longer afford to fund our public services.

Items 2 is cuts to welfare, with a three-year freeze meaning real reductions and real hardship for all except pensioners. It is basic arithmetic to explain why those on the lowest incomes can least afford to see their incomes squeezed by inflation since the marginal impact on them of rising prices is so much strong. The justice of this situation is about not depriving the poor of the means to survive, rather than some new conservative commitment to income differentials. And meanwhile the stigmatisation of all those who claim welfare (which is probably around 99% of us at some point in our lives) stokes the fires of prejudice and fear.

The best news in the budget is the retreat from an earlier announcement of an end to national public sector pay. In the poorer areas of the country, nationally negotiated pay rates for public-sector workers can keep local businesses afloat in desperate economic times like these. Negotiating deals for teachers and doctors that relates to local labour-markets would have sucked more money out of the regions, exacerbating the inequalities between regions that have already increased throughout this Recession. Presumably the U-turn here was a result of Liberal Democrat pressure.

The 'greenest government ever' banner now lies in tatters at the Chancellor's feet as he lures investors into the sorts of developments that will drive economic growth at any cost, threatens to abandon Labour's climate change targets, and offers subsidies to the frackers. With 30 gas-fired power-stations looming and the final abandonment of the fuel-duty escalator we can wave goodbye to any hope of doing out part to prevent carbon dioxide emissions from spiralling out of control.

The language used by the Chancellor is also deceptive and oppressive, although I find it helps to substitute the word 'capital' for the word 'business', making sense of Osborne's repeated claims to be 'prioritising the interests of business'. I am also intrigued by the constant repetition of the phrase 'the economy is healing'. Is the personification of a complex system made up of a mass of individuals supposed to win or empathy? Or to soften the perception of the stark economic news? It is fairly clear that, rather than healing, the economy is like a patient that has been stitched up leaving a festering wound inside. Proper healing would have required tackling the distorted financial and monetary systems rather than ignoring their flaws and hoping that they will somehow mend themselves.
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Lord High Executioner Targets People and Planet

It's 18 years since Peter Lilley performed his widely ridiculed parody of the 'little list' song from The Mikado at the Tory party conference. It has taken that long for the heirs to the Thatcher legacy to make good on his promises to cut down the disabled, the vulnerable and those suffering various shades of misfortune. Yesterday's budget, whose measures such as limiting housing benefit and cutting welfare payments will make those who are the poorest in our society pay for the banking excesses, made it a shameful day to be British.

The targets have been chosen with care: while Osborne was less explicit than Lilley, it is the same groups of people that are routinely excoriated by the gutter press who will take the pain, including (in Lilley's words)'benefit offenders' 'those who make up bogus claims in half a dozen names', 'Young ladies who get pregnant just to jump the housing list'. The hate politics of the 1980s has returned with a smiling face and smoother presentation.

This is bad politics and it is also bad economics. Withdrawing money from those who were most likely to spend it can only increase the likelihood of recession becoming depression. By contrast, the money poured into the banks since 2008 has disappeared into various black-holes and offshore investments. The reductions in corporation tax and limited increase in rates of capital gains tax are being packaged as a stimulus to the business sector, which is supposed to lead us out of the recession. But given that all countries alike are cutting spending and seeing reduced incomes amongst their consumers, who will be buying?

Beyond this narrow debate, for those of us with an interest in life on earth beyond this parliament, the misguided suggestions that divisive budget-cutting now will lead to future economic growth also misses the point. Living within our means requires an acceptance of the limits of what the planet can provide, and then a principled decision to share that bounty fairly. Without the chimera of growth we are left with a more balanced lesson about the need for compassion and community.

The inclination of these heirs to Thatcher to beat up on the vulnerable is unsurprising, but our response must not be a return to the last-century struggle over value between earners and owners while the planet suffers. The economics of degrowth can offer the chance of a future of equality as well as sustainability. This is the politics of the new century and of a shared future. Tweet

Busted Budget

This has been an extraordinary budget season. Our economic destiny for the next 50 years is being changed and, because of the way the red, yellow and blue parties have adopted mix-and-match policies in recent years, there is no real political debate. I was sorely disappointed by the Green Party's response, which focused on the £5bn. of investment in the economy and ignored the £175bn. of borrowing (itself a significant underestimate) which will really determine the future of the economy and of our society and environment.

There are three reasons why we must reject this level of government borrowing, and in fact the whole system of money creation based on debt. The first is that it is socially unjust: it operates as a means of transferring wealth from working people who pay taxes to those who live from investment earnings. In order to buy government bonds you need to have spare money to invest, but the interest that they return will be paid by those who earn their money through work.

The role of public debt in enabling a transfer of wealth from poor to rich is sufficiently routine after 300 years to raise no qualms, but the less advantaged in our society will surely notice the pressure of the debt that Labour has taken on over the past year through increases in taxation and reductions in public services, which will combine with the rises in unemployment brought by the Recession. We already hear rumblings from union leaders. Dave Prentis’s ‘carats for the rich; the stick for the poor’ speech is only the beginning of a return to the conflictual politics that massive borrowing makes inevitable. Unless the policy is changed we face a period of social unrest and community breakdown that will make the 1970s look like Blue Peter, and perhaps an even more right-wing political backlash.

The third reason to oppose a debt-based economic policy is that it creates an in-built pressure on the planet and its resources. When the government creates money through issuing bonds it creates a parallel future demand for goods and services—goods and services which can only be produced using energy and resources. So the system of paying for future consumption by public debt, just like the system of creating money as private debt, is the central cause of exponential economic growth and the environmental destruction it brings with it. Building up an ecological debt that is far more serious than a mere balance-sheet.

So what is to be done about this fine mess that capitalist economics has gotten us into? If we begin from the understanding that the debt is unpayable, then our only alternative is to bring the debtor and creditor nations together for a negotiated round of debt forgiveness, a global jubilee. Without such a deal the decade ahead looks grim as we face internal unrest over the struggle for diminishing output and trade wars and possibly worse abroad. Rather than reliving the sad history of the 1930s Depression and the Second World War, we could just fast forward to Bretton Woods and negotiate a stable and balanced financial architecture based on the abandonment of the reserve currency system and a trade system that treats all the world’s nations fairly. Tweet

Darling fiddles on while the planet burns

You can't really feel surprised by the pitiful response politicians show in the face of global meltdown, it's the pusillanimous hypocrisy of making grand claims and then coming up with policies to confront plastic bags that really sticks in the craw. If the Chancellor can't fight his way out of a wet one of those, how can we trust him to steer a course through the choppy waters that unquestionably lie ahead?

Of course the main issue is not confronting climate change, it is confronting the corporate power blocs that are - if you will forgive a mixed metaphor - driving us towards the abyss. If anything became clear this year it is that finance capitalism is a high-risk strategy, but Darling has shown no courage in confronting this threat either. Of course the two threats are inextricably intertwined. The creation of money as debt forces economic growth; companies founded on debt have to grow exponentially if they are to avoid implosion.

Last year and this, the Green Party's policy supremo Brian Heatley has taxed his brain (no civil servants at his disposal except himself) to work through a budget that counts carbon as well as cash. The maths may be complex (and fairly heroic!); the policies are not. We can afford to raise the state pension to £100 as well as offering free personal care for the elderly, free school meals to all children, and the reintroducing student fees and maintenance grants. How do we pay for this? By addressing the real source of growing inequality - the unfair tax changes introduced since the time of Thatcherism with a new 60% tax rate for those receiving more than £100,000 per year.

For the excitement of fiscal nerds, other policies include re-introduction of the fuel-duty escalator to fund public transport investment; an increase in Air Passenger Duty to £100 for all flights; and the reduction of all speed limits to outlaw inefficient motoring. In addition, in a package that is revenue-neutral but would cut emissions by 6-9% in one year, the Party proposes to insulate at the public expense every home in Britain and offer £500m. in incentives for renewable energy.

That's right, Alastair, the art of the possible. That's what you signed up for: and all of this is possible, so why aren't you doing it? Tweet

Not as Green as Cabbage Looking

How excited should we be getting about the political dinosaurs’ battle over the green ground of politics? How much can we expect from this budget, hyped as the greenest ever? It is obvious that, as a green economist, I would be calling for progressive taxation on air flights, but even David Cameron has reached that point. Should we just be packing up and sitting under a tree?

Not so fast. Contrary to popular wisdom, green economics is not about providing incentives within the existing economic structure and constraining its worst excesses. Far from it. Otherwise I probably would spend more time sitting under a tree. Green economics requires us to ask searching questions about some of the basic assumptions underpinning our economic system.

Let’s start with growth. Policies to counteract climate change are not being introduced for fear that they would threaten this holy grail of our economic system, although in reality it is the constant striving for economic growth that is driving planetary destruction. The fact that economic growth does not increase happiness has been recognized by even mainstream economists and yet the way our economy works means we must still pursue this pointless and destructive course. Within this framework climate change is just another opportunity to increase growth and profits by selling a different range of products. Instead we should be curtailing consumption and relocalising production.

So a green chancellor would not fear introducing measures that would reduce economic growth, such as significant increases in fuel duty and aviation taxes—or why not go the whole hog and introduce a carbon tax on all fuels at the point of extraction to deal with the supply side? And to deal with the demand side we should have DTQs (domestic tradable quotas)—an annual carbon allowance forcing us to control our production of carbon dioxide while allowing us choice about what we spend it on.

As the UK manufacturing sector is exported to China our carbon dioxide emissions are counted in China’s total rather than our own, hence the increasing emphasis in the climate change negotiations on putting pressure on China to reduce its emissions. This is grossly unfair when the products they make are consumed by us. Figures from the Carbon Trust show that, if these indirect emissions are taken into account, our consumption of food, household goods and ‘health and hygiene’ goods actually produce around 22MtC each of our annual total of around 176MtC, each comparable in size to the 24MtC contributed by space heating. These are the values that climate change policies need to focus on, and the budget should include a commitment to measuring indirect as well as direct carbon emissions, as well as including transport-related emissions within the negotiated totals (they were omitted during the Kyoto process).

The nature of money creation within capitalism is the primary pressure for growth within the economy. Because money is created as debt by banks, rather than by governments, this automatically puts a pressure on the economy to grow as people have to work to repay those debts. The real economy is always under pressure to catch up with the money supply. Debt and growth are the Scylla and Charybdis of the modern economy: if we stopped borrowing or stopped growing the economy would implode. Politicians need to regain control over the levers of the economy, and taking back the right to create money within democratic control, rather than borrowing money from banks, would be a useful first start. A green chancellor would also welcome a diversity of currencies. LETS and local currencies should be allowed to flourish, without bureaucratic involvement or threats of taxation from the Treasury.

The modern corporation has become detached from the real economy and from local communities. The pressure for ever-increasing shareholder value has led to gross inequalities as corporations play one national government against another to exert downward pressure on tax rates. A courageous green chancellor would abandon the pose of powerlessness and stand up to the corporate bullies. The budget could include measures to stimulate local production, such as banding corporation tax so that smaller businesses pay at a lower rate than larger businesses. Windfall taxes would become routine in the case of companies making profits because of factors beyond their control, such as weather changes or wars causing increases in oil prices. To address the problem of inequality and the social divisiveness it causes we should have legislation for a maximum differential—say five times—between the highest and lowest earners.

The government missed an important opportunity in the Companies Bill to exert political influence over the behaviour of businesses. A green chancellor would not be so cowardly and would amend the Act to make reporting of environmental and social standards along the whole supply chain compulsory and create penalties for companies not reaching agreed standards. Companies would also be required to undergo, at the public expense, an annual audit carried out by state auditors. The results, including the real as well as nominal value of all listed companies, would be made publicly available.

And finally, while we’re talking about markets, why not have some real competition? The Office of Fair Trading should use its powers to enforce competition to break up some of our largest companies—why not start with Tesco? Tweet