Guest Blogpost: Richard Lynch – No medal-winning performance from the coalition

During the past month, Britain’s sporting heroes in Team GB have taken on the world at the Olympic Games and, with performances which exceeded expectations, have delivered our biggest haul of medals for over 100 years. What a contrast with the other Team GB, the Conservative/LibDem coalition, which also promised success but has delivered a shrinking economy, increased unemployment and debt, poorer social provision and the biggest squeeze on the living standards of ordinary people in living memory!

When the coalition took office two years ago, it inherited an economy which had been hit hard by the worst global recession since the 1930s but was recovering and had been growing for five quarters. Instead of consolidating and encouraging that growth, however, it embarked on an unnecessary and unnecessarily savage austerity programme which choked off recovery, led to growth contracting over five of the following seven quarters and resulted in a return to recession.

Yet, when announcing his first budget after taking office, George Osborne said that if he didn’t introduce a harsh programme of tax increases and spending cuts, Britain would face:

‘Higher interest rates, more business failures, sharper rises in unemployment, and potentially even a catastrophic loss of confidence and the end of the recovery. We cannot let that happen. This budget is needed to deal with our country’s debts. This budget is needed to give confidence to the economy. This is an unavoidable budget.’

George Osborne at Conservative Spring Forum 20...
George Osborne at Conservative Spring Forum 2006 in Manchester. (Photo credit: Wikipedia)

Bold words but what has been the outcome? Interest rates have remained low but, as Nobel prizewinning economist Paul Krugman has pointed out, they have remained low in the USA and Japan as well, countries with higher debt levels which didn’t rush into austerity.

On the downside, however, business failures have continued, with almost 4,000 companies going under in the last quarter and retail insolvencies rising by 10.3%. Unemployment remains well above the level Osborne inherited in May 2010, over a million young people are out of work and underemployment has become a major problem with a record 1.42 million people working part time because they can’t find full-time employment. Business and consumer confidence has collapsed to levels not seen since the worst point of the original recession, we have the highest trade deficit in 15 years, national debt is rising and the economy has contracted in the last three quarters, driving us into a double dip recession for only the second time since the Second World War.

And there’s no good news on the horizon either: The Bank of England is predicting a 0.2% contraction in growth this year and probably five further years of economic pain. The National Institute of Economic and Social Research is prediction a 0.5% contraction and the IMF has stated that Britain’s economic outlook is now deteriorating faster than that of any other major economy.

When Britain was facing big economic problems in the 1970s, Dennis Healy said that the first thing to do when you found yourself in a hole was to stop digging. Another smart bloke (either Albert Einstein or Roy Keane, I can’t remember which) said that the definition of insanity was doing the same thing over and over again and expecting different results. But Osborne remains adamant that he will not change course and that there is no Plan B for the economy. Such arrogance from a chancellor and cabinet which have clearly lost the plot is now coming under increasing attack, not only from unions and political opponents but from coalition politicians (one of whom called Osborne a ‘work experience chancellor’), from business organisations and leaders and from the general public. The majority of economists who backed the austerity programme during the 2010 general election are now calling on Osborne to change course. And the IMF, which also previously backed austerity, is now urging the chancellor to think again about cutting back and to focus on growth and on ‘boosting the bargaining power of labour’ to get more demand into the economy.

It’s not as if there is a shortage of good ideas about rebuilding confidence and demand and getting the economy back on its feet again.  For example, stopping or slowing down the public sector and benefit cutbacks (even if only temporarily) would help lower the rate of unemployment, keep people paying taxes and maintain demand in the economy. Borrowing, at our famously low interest rates, to rebuild our creaking infrastructure and to build houses for people to live in, would boost employment in construction and related industries and get people spending again. Putting money back in the hands of ordinary people by cutting VAT (even if only temporarily), ending the freeze on public sector pay and even introducing quantitative easing for people, by creating money to put in the hands of the most needy rather than in the coffers of the banks, would all boost demand and encourage spending.

Indeed PPI refunds by the banks, which totalled £4.8 billion up to May, have already done more to boost the economy than the coalition, because people who have had money refunded have gone out and spent it!

The Olympics showed us that we don’t have to accept mediocrity or assume that we cannot reach new heights. We may have the fight of our lives on our hands but, as the TUC’s Frances O’Grady said, if we keep people together, build confidence and give a sense of hope and vision that things don’t have to be like this, we can build a better world. We can help win that better world by defending our rights in our workplaces and communities. But we can also help win it by mobilising now for the TUC’s national demonstration for a future that works on 20 October. It’s time to stop agonising and start organising!

Richard Lynch is a Dudden Hill resident. He is a retired Unite the Union official and currently conducts voluntary work on employment rights for the Brent Community Law Centre. He also acts as an accompanying representative for the GMB union.

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Guest Blogpost from Richard Lynch: Sharp fall in January inflation

The latest Office for National Statistics figures show inflation falling sharply in January, as the effects of last year’s VAT increase fell out of the calculations. However, prices are still rising faster than wage increases and faster than in the large majority of competitor economies.

The figures for the year to end January 2012 (and end December 2011) are as follows:

Retail Prices Index (RPI)                                –                       3.9% (4.8%)

RPI excluding mortgage interest (RPIX)        –                       4.0% (5.0%)

Consumer Prices Index (CPI)                                    –                       3.6% (4.2%)

Much of the fall was due to technical reasons, mainly because current prices are now being compared with prices after the VAT increase from 17.5% to 20% last year, rather than prices prior to that increase. The increase in VAT is estimated to have added around 0.76% to inflation figures during 2011 and a fall in the figures was therefore expected when it was no longer a factor in the calculations.

However, there were also other downward pressures on inflation in January with the CPI, for example, affected by lower prices for clothing and footwear, furniture and household goods, due to the new year sales.

But there were upward pressures as well. In the case of the CPI, these included annual increases in the prices of alcoholic beverages and tobacco (6%), electricity (13.2%), gas (18.7%), tools and equipment for houses and gardens (16.8%), air transport (9.6%), jewellery, clocks and watches (8.4%) and transport insurance (15.5%). Upward pressures on the RPI came from increases in the price of biscuits and cakes (10%), beef (11.6%), lamb (16.2%), pork (11.7%), coffee and other hot drinks (15.2%), tobacco (8.8%), electricity (13.2%), gas (19.1%), vehicle tax and insurance (14.2%) and CDs (6.5%).

UK inflation is now no longer the highest in the EU but our 3.6% CPI is still higher than the CPI rate in the Euro Area (2.6%), in the EU as a whole (2.9%) and in 22 of the 27 member countries. These lower-inflation countries include Ireland (1.3%), Spain (2%), Greece (2.1%), Germany (2.3%), France (2.6%) and Italy (3.4%). It also compares badly to CPI rates in Japan (0.1%), Switzerland (-0.9%) and the US (2.9%).

Almost all economists are predicting that inflation will be lower in 2012 than in 2011, but there are mixed views on whether there will be sustained reductions during the year or whether prices will remain stubbornly high. The Bank of England is predicting significant falls by the end of the year, but they have made similar predictions over recent years and they have been consistently wrong. In addition, recent figures showing diesel prices at a record high of 143.7p a litre and petrol prices at a record high of 137.4 p a litre, suggest that there is more bad news to come.

Richard Lynch is a Dudden Hill resident. He is a retired Unite the Union official and currently conducts voluntary work on employment rights for the Brent Community Law Centre. He also acts as an accompanying representative for the GMB union.

GUEST BLOG POST FROM RICHARD LYNCH ON INFLATION

Just how bad is UK inflation?

UK inflation is now at its highest level for over 20 years and prices are rising faster here than in almost all of our European neighbours and global competitors. The figures for the year to end September 2011 (with August figures in brackets) show the following increases, together with some frightening underlying increases:

Retail Prices Index (RPI) – 5.6% (5.2%)

RPI excluding mortgage interest (RPIX) – 5.7% (5.3%)

Consumer Prices Index (CPI) – 5.2% (4.5%)

The main reason for the rise in the RPI was an 18.8% increase in the cost of fuel and light, which included a 28.2% increase in the cost of domestic oil and other fuels, a 22.4% increase in the cost of gas and a 12.9% increase in the cost of electricity. Other reasons for the higher RPI included increases in the cost of tobacco (13.1%), clothing and footwear (11.1%), motoring expenditure (8.7%), fares (8.5%) and food (6.9%). Leisure costs, however, had a negative effect on the figures and cost of leisure goods actually fell by 2.4%.

The main reason for the rise in the CPI included increases in the cost of gas (13%), alcohol and tobacco (10%), transport (8.9%), electricity (7.5%) and food (6.4%).

The RPI is now at its highest point since June 1991, when John Major was Prime Minister, and it has been at or above 5% on ten occasions in the year and a half since the coalition took office. By way of comparison, it only reached or exceeded 5% on four occasions during the 13 years of the previous Labour government. The CPI is also abnormally high and its current level of 5.2% has never been exceeded since the index came into existence.

This CPI figure is also higher than comparable figures in Ireland (1.3%), France (2.4%), Germany (2.9%), Greece (2.9%), Spain (3%), the EU as a whole (3.3%) and Italy (3.9%). In fact only one EU country has higher CPI inflation than the UK – Estonia at 5.4%. The difference is even more extreme when we look at non-EU competitors, including Japan, which has zero inflation and the US, which has 0.3% inflation – 17 times lower than our figure!

And what we thought was the one bit of slightly good news, namely that state pensions and benefits would be going up by 5.2% (the September CPI figure) next April, is being questioned. George Osborne, the Minister for Misery, has now announced a review of the link with the September inflation figure and is considering a freeze or sub-inflation increases in these benefits instead!

Richard Lynch is a Dudden Hill resident. He is a retired Unite the Union official and currently conducts voluntary work on employment rights for the Brent Community Law Centre. He also acts as an accompanying representative for the GMB union.