The austerity agenda is based on a series of deceits

Western Mail

Former Welsh Secretary Peter Hain – one of Labour’s most senior figures – has urged his party to abandon its commitment to more cuts if it returns to government after May’s General Election.

Here, in the first of a series of extracts from his new book – Back to the Future of Socialism – Mr Hain outlines what he sees as the folly of the austerity agenda, and how a right-wing media narrative in sections of the London-based press is falsely representing Labour’s years at the helm of the economy:

‘The obsessive pre-election debate surrounding still more savage cuts to “cure” the deficit is based upon a whole series of deceits.

The first of these is that the last Labour government left the country with a mountainous levels of national debt, a budget deficit and the need for public borrowing because we spent too much.

In truth Labour cut national debt as a share of national income from over 42 per cent inherited from the Conservatives in 1996-97 to less than 30 per cent in 2001-02; though it rose to 36 per cent by 2007-08, that was still well below Tory debt levels.

Britain’s national debt as a share of national income was lower than that of France, Germany, the US, Italy or Japan, having fallen by 6 per cent since 1997 (worth some £90bn today).

Lower government debt meant Labour saved the taxpayer about £3bn in annual interest payments: we did indeed “fix the roof when the sun was shining”.

This helped to establish a stable economic foundation and delivered a decade of record investment in public services that so desperately needed repairing; from the dismal inheritance of patients dying on trolleys in hospital corridors and sinking school standards to the worst railways in Western Europe.

By June 2007 Labour had delivered a historically unprecedented decade of steady economic growth, low inflation and low interest rates which had taken employment to record heights as GDP per head grew faster than for any other member of the Group of Seven leading developed economies.

The low yields on government bonds before, during and after the 2008 credit crunch under Labour bore eloquent testimony to the fact that the international markets had full confidence in our policies; and that they were not clamouring for the right-wing cuts dogma subsequently visited upon Britain.

Before the global financial crisis, government borrowing was some £15bn lower in today’s money than in the Tories’ last year in office in 1996-97.

In fact the Tories have borrowed more money in the last five years than Labour did in the entire 13 years of our government.

International Monetary Fund figures showed that Britain’s 2007 public sector deficit, at 2.7 per cent of GDP, was also low: the same as that of France and the US.

The deficit too had been significantly cut from the one Labour inherited.

Indeed, so desperate was he to identify with Labour’s success that David Cameron in September 2007 even pledged to match Labour’s spending plans for three further years up to 2010.

In his subsequent lurid, repetitive denunciations of “Labour bankrupting Britain” he seems to have been struck by a prolonged bout of amnesia.

Labour’s spending was in fact lower than in France, Germany, the Netherlands, Norway and Sweden, and was never “out of control”.

But then came the international banking crisis, the global credit crunch and the worst recession in Britain for 80 years.

The proposition that by building so many new hospitals and new schools, by recruiting tens of thousands of extra nurses, doctors, teachers and police officers in Britain, Labour triggered the subprime mortgage defaults in the US that ricocheted throughout the world’s financial institutions is preposterous.

It wasn’t Labour’s public spending that triggered Britain’s or the world’s economic crisis. It was the global interdependency of reckless banking practices that in 2008 caused an economic meltdown in Britain and right across the globe.

Britain under Labour, just like the other G20 governments, took on record annual budget deficits by agreeing to boost public spending and borrowing through multi-billion bank bailouts.

But these were deficits which stopped a banking collapse and a slide into slump; and also laid the basis for recovery from the biggest shock to hit the world economy in peacetime since the 1930s Great Depression.

However the new Tory-led government that took office in May 2010 embarked upon massive and immediate public spending cuts which turned a fragile but real recovery from the banking crisis under Labour into a fresh recession under the Tory/Lib Dem coalition.

The budget deficit wasn’t caused by Labour’s “reckless spending and borrowing”, but by irresponsible bankers.

Today after all the cuts, the deficit is still more than double the target in the Tory plan for this Parliament. And yet – cheered on by the Daily Mail, Telegraph and Murdoch stables and echoed by broadcasters – their plan of action is still more savage cuts if they win.

It may be good politics for the Tories, leading Labour on the economy according to pollsters. But it is lousy economics, because it hasn’t worked.

Before the last election David Cameron luridly trumpeted that Labour’s commitment to halve the budget deficit would take Britain over “the brink into bankruptcy”.

It was necessary to eliminate the whole deficit he insisted, pledging to cut government borrowing by 2014-15 to exactly half what Labour had planned, £37bn instead of £74bn.

Yet official forecasts expect government borrowing to exceed £91bn – nearly £20bn more than Labour’s allegedly “disastrously high” target, and over £50bn above the Tory one. So the Tories have simply moved the goalposts, insisting their “plan” is working after all.

The problem is that none of this deceitful propaganda confronts the fact that the kind of capitalism we face today is a more financially unstable and more unfair system than ever before: productive but prone to paralysis, dynamic but discriminatory.

My book, Back to the Future of Socialism, explains why and provides a practical political alternative to reform Britain’s economy and generate sustainable growth.

It confronts the right wing orthodoxy of recent decades – an ideology favouring market forces wherever possible and tolerating state regulation only where absolutely necessary.

Although that same ideology caused the banking crisis, it has clung on nevertheless, as if somehow it were not the very root of the problem all along.

Nevertheless, despite having backed Labour’s spending plans in 2007, David Cameron suddenly switched after the banking crisis to announce in October 2009: “It is more government that got us into this mess.”

He made no mention of irresponsible bankers, still less of the failure of politicians to control them. The entire global banking crash was apparently nothing to do with Big Finance: it was all the fault of Big Government. The cause was too much public spending – not too little public regulation.

But the real culprit was that governments across the world (including Labour’s) allowed the financial system over a 30-year period to get out of control and become a law unto itself.

Takeovers and mergers led to banks so big they couldn’t be allowed by government to fail.

Bankers bent rules to lend ever more riskily without anything like enough capital cover, until it all unravelled to catastrophic effect.

In truth – at the very least in terms of finance – governments were too small and too passive, not too big and too active.

Back to the Future of Socialism explains why and insists that the real choice facing voters in the May election should be between the right’s insistence on minimalist government and the left’s belief in active government; between the right’s insistence on a free market free-for-all, and the left’s belief in harnessing markets for the common good.

Zero Hours Contracts

Mr Peter Hain (Neath) (Lab): In welcoming the new Minister to his post, may I suggest that, instead of trying to do an impression of a jumped-up rottweiler, he should try to understand and recognise the reality of the miserable state of employment for far too many workers in Wales, whether they are on zero-hours contracts, are among the 150,000 who are underemployed and want to work more hours but cannot, or are among the 50,000 people who are being shoved off disability benefits and into a world of work that is mean, difficult and hard?

Alun Cairns: The abuse of zero-hours contracts is an important issue and that is why this Government are taking action to ban them. The right hon. Gentleman mentioned people in part-time employment. Only 19% of part-time employees are looking for full-time work. We will take strong action against those employers that are abusing zero-hours contracts, but zero-hours contracts are important to many people, such as carers, to encourage and facilitate their path back to the workplace.

Going for Growth


The key to a successful Labour government from May 2015 lies in abandoning Tory/Lib Dem austerity and going for growth.

All our ambitions for seeing that everyone shares in higher living standards, for restoring security at work, for expanding public services, for building a fairer society, and above all a strong economy, depend on economic growth.

For political credibility, Labour needs a programme that is prudent and demonstrates that we will not be profligate.

But we must offer a clear alternative to Cameron and Osborne’s vision that only by shrinking the state can recovery be ensured and the public finances repaired. Labour cannot win in 2015 without confronting this.

George Osborne pretends that in austerity he has found a formula for growth. As proof he points to the UK’s recent recovery, with GDP at last having reached its pre-crisis 2008 level early in 2014. He doesn’t explain why this has been the slowest UK recovery for over a century, or why it took the UK six years to escape recession when the American and German economies did it in only three.

Osborne choked off the fragile but real recovery that Labour got under way in 2010, with a savage tax and spending squeeze. And it wasn’t any deliberate relaxation in that fiscal grip that led the economy very belatedly to start emerging from recession in 2013.

What came to Britain’s semi-rescue was unexpectedly weak tax revenues and Osborne’s consequential failure to hit his budget deficit and debt-reduction targets. If he had stuck to those, the economy would still be stagnating today. We were saved by the economy’s automatic stabilisers – the tendency for government borrowing to rise in recessions as tax revenues fall, offsetting some of the drop in private sector spending.

What Britain needs now is for growth to continue and speed up, like it did when the economy emerged from the Great Depression when, between 1933 and 1936, UK growth averaged over four per cent per year, fuelled by a new house building boom.

By contrast, the prospects for continued UK growth today look poor under the coalition government. Disturbingly, in August 2014, the Bank of England and 20 independent forecasters all expected UK growth to slow down in 2015, not persist or accelerate, dropping back well below three per cent.

Yet faster growth is eminently feasible. The Office for Budget Responsibility and the Bank of England fret about an economy facing an imminent labour shortage. But plenty of other economists see sufficient slack in the economy for the UK to experience years of ‘catch-up’ growth, above average growth as spare capacity is brought back into production, the three million people currently underemployed find the jobs or increased working hours they seek, and business investment revives, further increasing the economy’s productive potential, as in the 1930s.

Here lies the key to achieving Labour’s immediate ambitions. The next five years will be tight ones for public sector budgets. That is inescapable. But Labour could allow faster economic growth to bear more of the burden of bringing down the budget deficit – instead of more savage Tory cuts. We should be aiming at annual growth rates of four per cent or more in the next parliament.

It is essential to minimise any slowdown in 2015 and maintain or preferably enhance the momentum for growth in the following years. How to do it? Start with an immediate economic stimulus, including a big boost to public investment in house building, as Ed Miliband and Ed Balls have promised.

It may mean more government borrowing in the very short term. But higher public spending and borrowing today can mean lower borrowing tomorrow if it keeps the economy growing, with tax revenues rising as total spending in the economy increases and welfare bills falling as unemployment shrinks. So borrowing should fall in the medium term.

President Obama’s 2009 stimulus initially added to the US federal deficit but the US economy began growing again, unemployment fell, and as a proportion of America’s expanding GDP her overall deficit fell every year from 2009 to 2013.

Osborne has already revealed that, if he has his way, he will tighten the fiscal screws again in 2016 as part of his plan to cut top rates of tax and reduce national debt to pre-crisis levels, or lower, by shrinking the state.

A Labour government should scrap as many Tory plans for further public spending cuts as possible. The scope for doing so is greater than many realise. It depends on how fast the economy grows. Oxford Economics noted in February 2014 that ‘if the most optimistic forecasters prove correct then none of the spending cuts planned beyond 2014-15 would be needed to return the deficit to pre-crisis levels’.

Just as exercise is vital to improving the nation’s health, economic growth holds the key to overcoming Britain’s budget deficit and national debt problems. A Labour budget boost in 2015 means easing the squeeze on public investment in particular, and being ready to raise current public spending too, financed by fairer taxes such as the commitment to return to a 50p higher rate. But the faster the economy grows the easier it will be to scrap another five years of cuts without having to raise taxes or charges for public services.

Neath Families Facing up to £1000 Cuts Catastrophe says Hain

Almost £1000 a year has been taken away from the hardest hit families and communities across Neath as a result of changes to the benefit system it has been revealed.

A report from Sheffield Hallam University has investigated the effects of welfare reforms on South Wales, concluding that the original forecasts severely underestimated the financial losses to the Valleys.

Throughout the Neath constituency residents have lost £640 per annum on average because of cuts to the welfare system with residents in Neath town centre hardest hit, losing £833 per annum.

The full devastation of welfare changes throughout South Wales is said to be as much as £430 million a year.

Peter Hain MP said: “We warned everyone this would happen because of the callous indifference to disabled and vulnerable people by the Tory-Lib Dem government who couldn’t care a damn for our Valleys and towns. It is just pain and misery for our communities all over again.

‘These cuts to the welfare budget are pushing people into real poverty, it is no coincidence that in the hardest hit areas in the constituency – Neath town centre and Ystalyfera – there are Foodbanks to help those struggling to make ends meet or pay the bills.”

See full table of averages below

Neath Loss per working age adult
Aberdulais 650
Allt-wen 550
Blaengwrach 720
Bryn-coch North 410
Bryn-coch South 560
Cadoxton 440
Cimla 490
Crynant 550
Cwmllynfell 590
Dyffryn 640
Glynneath 670
Godre’r graig 680
Gwaun-Cae-Gurwen 760
Lower Brynamman 690
Neath East 930
Neath North 810
Neath South 760
Onllwyn 750
Pelenna 640
Pontardawe 700
Resolven 640
Rhos 480
Seven Sisters 690
Tonna 480
Trebanos 580
Ystalyfera 800
Figures from Sheffield Hallam

Former Welsh Secretary Peter Hain challenges David Cameron over impact of spending cuts on councils

Western Mail,

David Cameron has been warned by former Welsh Secretary Peter Hain that continuing to slash budgets for local authorities will have irreversible consequences and leave councils with the bare minimum of services.

Mr Hain’s intervention comes as local authorities look to make further savings to plug their budget deficits with Neath Port Talbot alone looking at a cut of between £50m and £60m on top of the £30m already taken out in the last five years.

In a stinging letter to the Prime Minister, the Neath MP said: “I am deeply perturbed by the devastating effect your Government’s swingeing cuts are having on the ability of local authorities to carry out their functions.

“Difficult decisions have already been made to cut highly-valued services and to reduce the size of the workforce to enable the council to meet the budget shortfall. Only through the hard work of the councillors, officers, trade unions and staff have compulsory redundancies been avoided, which is vital given the high unemployment rate in the constituency.

“If cuts of this magnitude continue to be passed down from Westminster, which is what local authorities are anticipating until 2020, it will effectively reduce them to the bare minimum of providing the statutory functions required of them. Local services will be decimated and no longer meet the taxpayer’s own expectations.”

Mr Hain went on to tell the Prime Minister that questions would be asked over the role of councils with reduced functions and services, adding: “I fear this is the Government’s long-term aim – to reduce the functions and role of local authorities to the point that they are no longer viable or necessary.”

He said substantial cuts had already been made to Neath Port Talbot’s budget with many of the visible services affected, libraries closed or transferred to local groups. The once “gold standard” service of school crossing patrols had been reduced to national standards, funding to third sector groups cut and jobs lost.

The letter goes on to say: “The further cuts of between £50m and £60m are a fifth of Neath Port Talbot’s total budget. The trajectory of these cuts emanating from Westminster is unsustainable. Cuts of this magnitude are forcing councils to think of costs and changes are being driven by savings, which is not what local representatives were elected to do and not what many of the workforce came into public service for. For many it is heartbreaking not to be able to provide the standard of service they would like.

“At a time when you and the Chancellor laud that the economy is growing these continuing cuts are out of step with your own proclamations. If the economy is doing as well as you profess then I fully expect the Welsh settlement to increase.

“If on the other hand it continues to be reduced I fear that very soon local authorities will reach a crisis point in delivering services and will not be able to meet the demands placed on them. The implications for the future will be major and it is questionable whether the effects can even be reversed.

“Margaret Thatcher’s legacy in Neath is the decimation of the mining communities. Yours will be the decimation of all communities with the dismantling of local government and the services they provide. Quite simply the continuation of the callous cuts by the Government will leave local authorities, including Neath Port Talbot, with skeleton services and this cannot be allowed to happen.”

The Prime Minister’s response is awaited. Ministers challenged about the impact of cuts invariably refer to the need to cut the deficit.