Vol. 74/No. 29      August 2, 2010

George Osborne, chancellor of the exchequer and a Conservative, urged support for the budget’s tax increases, a freeze on public-sector pay and child benefits, and limited access to housing benefits.

Osborne also announced future reductions in the rate at which social benefits rise, by changing the way benefit increases are calculated. In a concession to Liberal Democrat coalition partners, who face pressure from their ranks, the budget increases the threshold at which income tax is paid. More than 600,000 households will lose an average of £1,000 per year in housing benefits, according to the Chartered Institute for Housing (£1=US$1.50).

The Institute for Fiscal Studies said the United Kingdom faces the “longest, deepest, sustained period of cuts to public services spending at least since World War II.”

Reflecting concern that the government’s projections were insufficient to turn around the crisis, Ian King in The Times noted that Osborne’s “problem is that plenty of things could blow this off course, not least the continued economic problems in the eurozone, Britain’s biggest trading partner.” The signs of a further downturn in the U.S. economy will inevitably impact on Europe. Britain’s bosses face not only a widening trade deficit with the rest of the world, but also a sharp decline in already relatively low productivity through the recession.

Some commentators in the big-business press complained that cuts in the social wage had not gone far enough. The new government has inherited the second largest budget deficit in Europe. Calling the cuts “modest,” The Sunday Times complained that the government had chosen “the line of least resistance” and “has too easily accepted that the NHS [National Health Service] leviathan cannot be touched.” Instead, the paper said, Osborne should have ended universal access to child benefits and pensioners’ access to winter fuel allowances. Former Conservative minister Norman Tebbit urged the government to ensure “there is no backsliding” by its Liberal Democrat allies.  
 
No room for maneuver
Meanwhile, others are concerned that the cuts will impact the very fragile economy, as short-term interest rates are already at the historically low level of 0.5 percent—leaving no room for maneuver. The UK economy declined 6.4 percent from the second quarter of 2008 to the third quarter of 2009. Writing in the Financial Times June 18, columnist Samuel Brittan said, “[Prime Minister] David Cameron and George Osborne are behaving like owners of a whelk stall rather than economic managers of a nation with its own currency.”

Unease over the government’s course reflects the crisis of bourgeois leadership in the face of challenges before the UK capitalist class. Bank lending, key to economic recovery, remains negative—that is, more money is being paid back to the banks than they’re lending out.

The British government’s course also marks a divergence with the Barack Obama administration. In a letter to G-20 leaders Obama noted that in the past “stimulus was too quickly withdrawn and resulted in renewed hardships and recession.”

This has been the thrust of the Labour Party in opposition as it was during the election campaign. Labour has concentrated its fire on the Liberal Democrats, calling for their members of Parliament (MP) to vote against cuts that they said they opposed when they were in opposition. But while still in government, then-Labour chancellor of the exchequer Alistair Darling had already projected the deepest cuts since the 1950s.

Figures released in mid-June reveal a glimpse of the escalating impact of unemployment—with the numbers classified as “economically inactive” reaching a record high. Official figures now claim a 7.9 percent unemployment rate. The numbers out of work for more than a year increased by 85,000, while unemployment for 16 to 24-year-olds rose to just under a million.

The number of people forced to work part-time because they can’t get full-time work has risen to more than a million. Workers’ real incomes are being hit hard with pay rises averaging only 1.9 percent while retail price inflation has gone over 5 percent. Fuel costs rose 25 percent over the past year. Those declared insolvent, or bankrupt, hit a record high in the first three months of 2010.

Some leaders of trade unions, in particular in the public sector, have talked about protest action, but their “restraint” has won the praise of the government’s business secretary, Liberal Democrat Vincent Cable. “Many of the unions deserve a lot of credit,” he told The Times. “One of the miracles of this crisis … is that people have taken pay cuts and part-time working and the unions very often have cooperated with management to see this happen.”

Speeches by labor leaders at the Durham Miners Gala July 10 did little to counter that judgment. Condemning “high octane,” “unfettered” capitalism and calling for a government that would expand entitlements, they urged workers to look to the next general elections some five years away for change.

Labour MP Jeremy Corbyn and former London mayor Ken Livingstone harked back to the post-World War II Labour government that enacted the NHS, council house building, and the welfare state. Livingstone called this “the most important advance in history.” David Guy of the National Union of Mineworkers said the next general election would be the “day of reckoning.”

Jonathan Silberman and Pete Clifford contributed to this article.  
 
 
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