Wheeling Out the “Structural Deficit”

June 8, 2010

In a speech yesterday, prime minister David Cameron argued a number of points, most of which are wrong. On one hand, he confirmed figures produced by Labour chancellor Alasdair Darling, which suggested that the UK’s national debt would rise from its current level of £952bn to some £1.4tn by 2014. Cameron added another figure, that of interest payments to the nation’s creditors. Such payments will rise from £41bn now, to around £70bn over the same time period.

The magnitude of such figures is not really the issue. With the UK’s debt rising from 64 percent of GDP, to around 75 percent, this would still leave it at a level below historic highs (during periods of rapid economic growth and rising public spending) and below contemporary nations such as Japan and Italy. It would still not be an existential crisis, yet this is how the government is portraying the debt situation.

Putting that aside, Cameron used his speech as a bludgeon to demand rapid, “savage” cuts in public expenditure. In his telling of recent economic history, “if you look behind the headline figures, you see why we face such a massive deficit today…Because while the private sector of the economy was shrinking, the public sector was continuing its inexorable expansion.” Cameron counterposed private sector heroes struggling against adversity, with a self satisfied secure public sector, summing up his narrative as a “a tale of two economies.”

But that is precisely what it is, a tale. In his world, the roots of the deficit “crisis” lie in the imbalance between Britain’s private and public sectors, a situation produced not by government efforts to stimulate the economy after the financial crash, but by prior spending increases under Tony Blair, which created a mammoth “structural deficit” (a concept ripped straight from Thatcherite ideologues and the Institute for Fiscal Studies). According to Cameron, it is this structural deficit which now imperils investment. As he put it, “if you start with a large structural deficit, ramping up spending even further is likely to undermine confidence and investment, not encourage it.”

But there is no evidence that this is the case, nor that it is a problem. Cameron continues to warn that the deficit is turning off investors in British debt, yet all indicators suggest that demand for government bonds is extremely healthy and public debt remains a solid option for investors spooked by private sector volatility. In a sense, the state continues to bail out private sector investors who use taxpayers money as a convenient hedge, while placing riskier bets on speculative trading and equities. Yet for Cameron, the end is near.

In reality, Cameron is making a political case for stripping the public sector. From schools to hospitals, the axe is primed to slash, all in the name of “investor confidence.” Investors in outsourcing solutions and privatization deals will, no doubt, be becoming more confident by the hour, but for capital as a whole, the major problems remains not government debt, but financial turmoil in the private sector and reduced demand in the global economy as a whole. Cameron’s deficit fetish is essentially peripheral to this wider problem and, in fact, will probably compromise Britain’s position in the global economy as training budgets fall, infrastructure decays, jobs are cut and wage packets stagnate.

What his rhetoric does imply, however, is of great interest to capital in general. In seeking to shift the emphasis from the massive failure of privately owned financial institutions to produce stability and finance production (rather than speculative transactions), Cameron is placing the burden squarely on public employees. The poor are being taught to despise the publicly employed slightly less poor, to take the heat off the very rich, who are resisting reform of their own tax affairs and corporate governance.

As Cameron states, “We are not doing this because we want to, driven by theory or ideology.” No, they are driven by the politics of economic power. The wealthiest in society are mobilising against any attempts to legislate against their interests. On Capital Gains Tax, for example, as the Guardian’s Patrick Collinson puts it, “A campaign by property speculators is desperately trying to halt the new government’s planned rise in CGT from 18% to 40%, presenting it as an attack on the nest-eggs of hard-working savers.”

Even the government’s measly gestures towards reining in the City are being torn to shreds. That is, when they are not actively furthering the interests of the wealthy. Instead of trying to shut down tax havens which siphon money away from public spending (and the private sector in the UK, it should be added), the Tories are reportedly trying to set Northern Ireland up as the latest venue for those wanting to offload their profits.

It is obvious that the Tories have no interest in compelling the wealthy to pay their way, and it is equally clear that the whipping boys to shield the wealthy will be public sector workers who, inefficient though they may be at times, are not the reason Britain now confronts a pile of debt. And culling them will do nothing to solve that debt problem, which in any case is hugely overstated, for now. After millions more people become jobless and their wages stop entering the economic circuits of local communities, it may be a different story. And if that happens, don’t blame the poor, the immigrants, or the public sector – all of them are pawns in Cameron’s game.


2 Responses to “Wheeling Out the “Structural Deficit””

  1. watsonlow Says:

    It seems that we are all to be invited to contribute ideas as to what to cut and how. Last night’s Dispatches programme about Surrey Social Services showed a demoralised set of people offering a grossly inadequate service which they expected to be cut by 30%. If this is not a front-line service I don’t know what is. A Family Support Officer asks his boss if she fears there may be a Baby P situation in their area. The boss replies that such a thing certainly is to be feared but only if they have not found a pretext to close the case before it all comes to light.

  2. […] While George Osborne and David Cameron manipulate the media to focus on public sector cuts as our route to salvation, there is little attention given to the taxation option.  It comes down to priorities, and it is clear that this government is about protecting the interests of the rich.  The Channel 4 Dispatches programme on Monday highlighted the plight of children at risk in Surrey, offered minimal support by a demoralised Social Services department and a blandly indifferent County Council.  We need to have the well-being of the disadvantaged at the core of government policy.  We voted for people who don’t give a toss about such things and sadly the New Labour alternative was and is no better. Posted by watsonlow Filed in Uncategorized Leave a Comment » […]

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