The Tories have trashed the economy – you can’t CUT your way out of a DEFICIT

The economy simply doesn’t work the way the Tories are telling you.

Cutting government spending, as the Tories have been (saying they’ve been) doing for the last seven years, merely means there is less money travelling through the UK economy – making it impossible to clear our debts because the tax take cannot bridge the gap.

In fact, it seems more likely that the Tories have been using austerity as an excuse to shrink the state – providing fewer, and lower-quality, government services – and provide tax cuts to the extremely, obscenely rich.

That’s not because they need the money, but in order to deny ordinary people the benefit of the services for which they have paid, throughout their lives, in taxes.

The only way to expand the economy is for government ministers to stop sitting on their thumbs and take an active role, investing wisely in economic movers and shakers that put more money in the hands of the poor.

Why there?

Simply because the economic multiplier for every pound is greater, the more hands it passes between; if you give a pound to a very poor person, by the time it gets back to the Treasury in the form of tax it will have generated many more pounds worth of benefit to the economy.

But you have a government that does not understand economics. Philip Hammond would rather put money directly into Conservative Party donors’ offshore bank accounts, I expect, thereby taking it out of the economy altogether.

That is why the deficit is behaving as the BBC reports here:

Government borrowing increased last month after the state was forced to pay higher interest on its debt.

Public sector net borrowing, excluding state-owned banks, rose to £6.9bn in June, up £2bn from a year earlier.

The government’s debt costs jumped by more than a third in June from a year earlier after rising inflation pushed up interest on index-linked bonds.

For the financial year to date, borrowing is up £1.9bn to £22.8bn, the Office for National Statistics said.

The Office for Budget Responsibility (OBR) – the fiscal watchdog – has forecast that borrowing will be £58.3bn during the current financial year. In the financial year to March 2017, borrowing was £46.2bn according to the latest estimates from the ONS.

 

The national debt has risen by £128.5 billion in the year from June 2016 to June 2017, though. Don’t ask me why the deficit figure and the debt figure are different – visit the Office for National Statistics’ report on the government website, which is likely to be far more illuminating.

Labour has responded to the new figures in exactly the right way.

John McDonnell, shadow Chancellor, said:

“These figures reveal the continued failure of Philip Hammond and the Conservatives. Seven years of Tory cuts have left our economy weaker with falling wages, yet the deficit has not been eliminated two years after they claimed it would be, and the national debt continues to rise.

“The Chancellor should stop handing out massive tax giveaways to big businesses and the super-rich, and instead give our hard-pressed public sector workers a pay rise; so we can end the travesty in our country of nurses having to rely on food banks.

“Only a Labour Government will set out a serious plan for the public finances with strategic investment underpinned by our Fiscal Credibility Rule, to help build the high wage, high skill economy of the future for the many not the few.”

That’s right – an end to tax giveaways for the fantastically rich and a shift to investment in the real movers and shakers in the UK economy, meaning the people who do all the work and spend most of their money.

Some might tell you it’s the economics of the “loony left”.

In fact, it’s common sense.


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14 thoughts on “The Tories have trashed the economy – you can’t CUT your way out of a DEFICIT

  1. Samuel Miller (@Hephaestus7)

    That concept is called velocity of money. The U.S. Federal Reserve defines velocity of money like this: The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time.

    Welfare benefits are generally spent quickly, so there’s a velocity of money into the economy. In 2014, Wal-mart issued a profit warning because of U.S. government food stamp cuts.

    Wal-Mart warns food stamp cuts to hit earnings – Jan. 31, 2014 http://money.cnn.com/2014/01/31/news/companies/walmart-food-stamps/index.html

  2. Florence

    I have been revisiting the speeches given at the New Economics events organised by John McDonnell (all available on the Labour web site and YouTube). They make fascinating listening and anybody who is interested in finding out what is possible instead of ideological austerity (neo liberalism) will find a lot to help in describing how the transformation planned by John McDonnell is based on solid ground. Oh, and he’s a socialist.

      1. Florence

        OK here are a few,, ..
        The New Economics page:
        http://www.labour.org.uk/blog/entry/the-new-economics
        Some of my favourites (including Yanis, of course)
        https://youtu.be/IMDzBWPJfm4
        https://youtu.be/tZruyeTIOY4
        https://youtu.be/MO-akxKFsVY
        https://youtu.be/rot9jGp8ly8
        Johns full conference speech 2016
        https://youtu.be/1-o165fbX_E
        Yanis on Basic INcome as a necessity
        https://youtu.be/BvgdtF3y0Ss
        Paul Mason on New Economics
        https://youtu.be/3Y-bi6-hWGE
        Labour Manifesto (of course)
        http://www.labour.org.uk/index.php/manifesto2017

  3. Jeffrey davies

    They should all be shot for this that stupid letter left behind by labour had done enough damage has people believed it the peasants should be ashamed of themselves if they voted tory they sold off our silverware were has this money gone into their grubby back pockets has it hasn’t been used to bring the debt down they robbed us blind under this austerity

    1. Zippi

      Aye, it was a silly thing to do but what people failed to realise (and the Tories have been playing this tune, ad nauseum, ever since) is that the reason why there was no money is because of the global financial crisis. People believe that it was £abour profligacy and financial incompetence; that is the problem. When will people realise that our £abour Party was not responsible for the financial woes of Greece, Italy, Spain, Ireland, France, Iceland or even the U.S.A.? It didn’t help any, that £abour M.P.s too, started repeating this lie. Is it any wonder, then, that people, who feared for their jobs and living standards, voted Tory? £abour needs to start shouting the truth, from the rooftops, to all who have ears! It is the Tories who are financially inept and always have been.

  4. Barry Davies

    Spot on mike the more people who have money to spend the more money gets spent, which means the economy grows, all this top trickle down nonsense will never work.

  5. David Mortimer

    None of the current UK political parties have a viable long term economic policy & none of them are willing to end the fractional reserve banking system putting money creation back in to public hands or to hold the bankers who caused the crash to account.

  6. NMac

    Basically, it’s all part of the Tory plan to take the country back to the 18th century.

  7. damo

    They realy have the tories realy have ****ed up the economy and brexit will make it even worse for the man and woman on the street this country under the tories is becomeing or has become a disaster for the poorest for public services for the economy ….butwe have a chouice vot for corbynand the tories….are gone

  8. Zippi

    17th July, 2016
    Andrew Marr: “Back in 2010, you warned that the £abour government could rise the national debt to £1.5 trillion; what is it now?”
    Philip Hammond: “It’s 1.7 trillion, as you very well know, Andrew.”
    How is it that these fraudsters have fooled everybody, time and again, into believing that they are the Party of financially credibility, responsibility, competence? Even £ord Oakeshott called Gideon an “Chancellor on work experience,” although, I thought that the idea of work experience is that you learn from the people with whom you are working?
    It is commonsense that if you keep taking money out of the economy, said economy will shrink. How many of those wealthy persons and rich corporations spend their money in this country? That they don’t pay proper tax is telling; that many of our home grown industries are owned by foreign entities is also telling. The rich spend their money amongst themselves; theirs is a ghost economy, a vampyr economy, which sucks money from the national economy in order to fuel its own existence and fund the lavish and unneccesary lifestyles of those who contribute not one jot to the country that furnishes them.

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