The Austerity Myth
UK politics are currently dominated by a single issue: austerity. The official mantra of austerity is all pervasive, finding echo chambers within echo chambers. We are told there is a national debt of £1.56 trillion that can’t be serviced. We are told the UK’s annual budget deficit is out of control. We are told public services and the welfare state must therefore be cut. It is presented as reality and consequence.
Until this year it was a mantra that went largely unchallenged in Westminster, the City of London, and most of the mainstream media. That we even have a semblance of a debate taking place is largely thanks to the SNP and the people who have taken to the streets in protest.
The UK’s national debt of £1.56 trillion – and the growing annual budget deficit – is the justification for the UK government’s austerity programme. It is presented as a given the way a religion refuses to question the existence of its god.
The religion of austerity needs to be challenged not just with slogans but with viable alternative economic strategies.
Although government budgets are more fluid and flexible than household budgets there are still two columns that need balancing out against each other: income and expenditure. This is kindergarten stuff. Yet the Tory mantra about reducing national debt – through reducing the annual budget deficit – has put all its economic eggs in the basket case solution of cuts to expenditure. The social cost of these cuts don’t even register. Ears are closed to alternatives.
If we lived in a thriving healthy democracy, where government and governed were serious about the economics of the state, there would be an urgent and ongoing national debate taking place in every corner of the land about whether the road to a sustainable national economy would be better achieved by putting the emphasis on reducing expenditure or increasing government income.
We’re still waiting for this national debate to begin. Do the authorities and their media outlets think the punters on the street are too stupid to understand economics? When people’s livelihoods, and the social fabric of their communities, depend upon understanding economics, then the basics will be grasped. Budgets are balanced every day in every household. It’s not rocket science.
Amazon announced that their UK sales revenue for 2014 was a staggering £5.4billion. Leaving aside the carnage this particular corporation are doing to other (tax-paying) retail outlets, Amazon declared a UK profit of just £34.4 million. Their tax bill was a miserly £11.9 million. Like so many multinationals they used accountants and loop holes in the UK tax system to shift their profits to somewhere else. In Amazon’s case their accountants shunted income and profits to the zero tax state of Luxembourg.
Source: Amazon’s UK business paid just Â£11.9m in tax last year | Technology | The Guardian
It’s not just Amazon and other high-profile corporations who are it. Anyone who has read Nicholas Shaxson’s book Treasure Islands (pretty much required reading for anyone with an interest in social democracy) will know that the collective wealth created within the UK is being systematically siphoned off and redirected to so-called “tax havens”.
George Osborne has slashed the headline rate of corporation tax from 28% to 20% and working hard is turning the UK itself into an international tax haven. London’s Square Mile is now the epicentre of a vast global network of legal tax avoidance.
The Guardian reported on 18th June:
“But it is not just on the rate that Osborne has competed hard: new favourable tax regimes for multinationals with offshore financing subsidiaries as well as new tax breaks for patent-owning companies have also been central to aggressive tax competition policy.
These and other measures have seen a wave of companies shifting their European headquarters or research and development arms to the UK – much to the anger of other member states. The UK has seen an influx of multinationals – among them Aon, Fiat Industrial, and Starbucks’s European operations – looking to gain tax advantages through the optimal location of the often small number of headquarters staff.
Last month the US seed and agrochemicals group Monsanto announced that, should it succeed in taking over Swiss firm Syngenta, it planned to move its headquarters to the UK.”
Corporate tax avoidance is the biggest political racket of our times. It is the rule not the exception. A Tax Justice Network report calculated that an estimated $255 billion per year globally is lost in tax every year through these so-called tax havens.
This is a problem that the sharpest economic minds need to tackle head-on if we’re to create a social democracy worthy of the name. Tackle corporate tax evasion and austerity is a political non sequitur. Our public services would meet the needs of the people, beyond anything we’ve enjoyed before.
There is also the related but separate matter of illegal tax avoidance. The loopholes and scams that the Government turn a blind eye to. Or the tax they pretend to chase but let go.
A Compass paper In Place Of Cuts argued for a range of Tax Reforms and stated: “Minimise personal and corporate tax avoidance by requiring tax havens to disclose information fully and changing the definition of ‘tax residence’”.
When the Compass paper was published in 2010 they calculated that these two reforms alone were estimated minimally to yield a minimum of £10 billion.
Yet even this modest reform of tax havens, one of many workable alternatives, would negate the need for this year’s proposed £12 billion welfare cuts.
Fair taxation IS a viable alternative to austerity. (As is the socially responsible Keynesian alternative of growing the economy through increases in public spending in order to increase the overall tax take). But we also need to recognise that the UK’s national debt is not yet at a crisis level. Even the annual budget deficit is manageable in the short-medium term.
The UK’s national debt is around 80% of GDP. The IMF, quoted in today’s Guardian, state that a national debt of 120% of GDP is “a level considered sustainable”:
“When the IMF reviewed its programme in Greece in July 2014 it assumed that Greek debt would fall from its current 175% of GDP to 120% of GDP by 2020, a level considered sustainable.”
Source: Alexis Tsipras’s homework has been thrown back in his face | Business | The Guardian
Austerity is little more than an excuse to shrink the welfare state and public services. It is ideological in nature not an economic necessity. It’s an ideological pose to pretend otherwise.
To challenge ideological austerity we need a national debate on alternative economic strategies which put the concept of fair taxation, closing tax loop holes, collecting what is owed, at their centre.