Socialist Economic Bulletin

.170ZCorporation Tax Cuts Don’t Lead To ProsperityBy Michael Burke

In George Osborne’s Budget in June 2010 it was announced that the rate of corporation tax will be cut in a series of steps from 28% to 24%. This was part of a series of measures which, it is claimed, would boost growth. In fact they comprised part of a series of tax cuts for companies and the highly paid which amount to a giveaway of £12.4bn in 2014/15, almost exactly equal to the yield from the VAT hike of £13.45bn – which in contrast will come overwhelmingly from the pockets of the poor.

But, just as the package of tax measures are not about deficit-reduction at all, but a transfer of incomes from the poor to the rich, so the claim that lowering tax rates will lead to growth is also incorrect. The claim is that lower taxes increase the flow of Foreign Direct Investment (FDI). But the recent FDI Barometer produced by Think London, the agency that promotes FDI in London, shows that overseas investors are less likely to invest in London, not more likely because of recent developments in UK economic policy. In a survey of over 300 executives responsible for making FDI allocations, 60% said the lower tax rate would not change the attractiveness of London as an investment destination, 13% said it would make them more likely to investment, but 22% said it would make them less likely to invest. Therefore a net balance of 9% said lower corporate taxes would make London less attractive to investors!

In fact those surveyed were much more agitated about racist immigration policies – with 48% opposed to the Tory-led Coalition’s cap on non-EU immigration.

This is because FDI is not driven by corporate tax rates. At one end of the scale the highest corporate tax rates in the OECD are imposed by the US and Japan at 39%. Germany has a 30% rate. The lowest rates are in Iceland (15%) and Ireland (12.5%), which should be more a warning than a model!

FDI, in common with all investment, is driven by prospective rates of return. Some factors, such as geographical location are outside policymakers’ hands. But the quality of road, rail, air and port infrastructure are not. Likewise, the size of the market is outside policymakers’ hands, except over the very long run, but economic growth rates are not. In particular, studies repeatedly show that it is the quality and skills of the workforce that is the main policy-driven factor in attracting FDI.

Ireland, with the lowest corporation tax rate in the OECD, demonstrates this reality. It is an article of faith for the Dublin government and its supporters that the 12.5% rate is the key to attracting FDI. Both the Taoiseach Brian Cowen and the Finance Minister Brian Lenihan have taking to describing it as “our international brand”. In the 1998 Budget (introduced in December 1997) their predecessor as Finance Minister, Charlie McCreevey, introduced the legislation for a new regime of corporation tax that led to the phased introduction of the 12.5% rate of corporation tax from 1 January 2003 – down from 32%.

Figure 1 below shows what actually happened to FDI in Ireland before and after the cut to 12.5% corporation tax. In the period since the corporation tax was slashed there have been many quarters where there was a net outflow of FDI and the annual average total was an inflow of just €2.3bn. Before the rate was cut that annual average inflow was €17.7bn, and there was only one quarter of net outflow in FDI.

Figure 1

If FDI were measured relative to either the level of GDP or as a proportion of total investment, the before and after contrast would be even starker.

Clearly, low corporate tax rates did not leads to higher inflows of FDI, and are not responsible for it. But over a prolonged period the Irish economy has had a much greater share of world FDI inflows than would be suggested by the small size of the domestic economy.

Figure 2 below shows one of the main reasons why that is the case. It shows the percentage of the 20-24 year old population in EU countries who achieved at least an upper second level education. Ireland comes out top.

Figure 2

This also helps to explains why FDI investors don’t relish tax cuts. They aren’t fools. They know that low-tax economies do not have the resources to pay for investment in infrastructure, transport links and above all education- the factors that actually attract FDI. Low corporate taxes therefore do not attract, even deter FDI, as the London survey and the Irish experience demonstrate.

But George Osborne is a long-time fan of his fellow Thatcherites in Ireland. In fact the current Dublin government has far more fans in Downing Street than in Ireland, with its opinion poll rating dropping to 14% even before the latest resignations of nearly half the Cabinet. Determined to emulate the effects of Ireland’s Thatcherite economic policymaking, the Tory-led government has set out a course to lower corporate taxes. This will not attract FDI, but it does have the effect of allowing established companies to retain a greater proportion of their profits- and lowering wages and increasing capital’s ability to generate profits remains the essence of government policy. Reality shows there will be no increase in FDI to Britain due to lower corporate taxes.2

.724ZyesCorporation Tax Cuts Don’t Lead To Prosperity

By Michael Burke

In George Osborne’s Budget in June 2010 it was announced that the rate of corporation tax will be cut in a series of steps from 28% to 24%. This was part of a series of measures which, it is claimed, would boost growth. In fact they comprised part of a series of tax cuts for companies and the highly paid which amount to a giveaway of £12.4bn in 2014/15, almost exactly equal to the yield from the VAT hike of £13.45bn – which in contrast will come overwhelmingly from the pockets of the poor.

But, just as the package of tax measures are not about deficit-reduction at all, but a transfer of incomes from the poor to the rich, so the claim that lowering tax rates will lead to growth is also incorrect. The claim is that lower taxes increase the flow of Foreign Direct Investment (FDI). But the recent FDI Barometer produced by Think London, the agency that promotes FDI in London, shows that overseas investors are less likely to invest in London, not more likely because of recent developments in UK economic policy. In a survey of over 300 executives responsible for making FDI allocations, 60% said the lower tax rate would not change the attractiveness of London as an investment destination, 13% said it would make them more likely to investment, but 22% said it would make them less likely to invest. Therefore a net balance of 9% said lower corporate taxes would make London less attractive to investors!

In fact those surveyed were much more agitated about racist immigration policies – with 48% opposed to the Tory-led Coalition’s cap on non-EU immigration.
This is because FDI is not driven by corporate tax rates. At one end of the scale the highest corporate tax rates in the OECD are imposed by the US and Japan at 39%. Germany has a 30% rate. The lowest rates are in Iceland (15%) and Ireland (12.5%), which should be more a warning than a model!
FDI, in common with all investment, is driven by prospective rates of return. Some factors, such as geographical location are outside policymakers’ hands. But the quality of road, rail, air and port infrastructure are not. Likewise, the size of the market is outside policymakers’ hands, except over the very long run, but economic growth rates are not. In particular, studies repeatedly show that it is the quality and skills of the workforce that is the main policy-driven factor in attracting FDI.
Ireland, with the lowest corporation tax rate in the OECD, demonstrates this reality. It is an article of faith for the Dublin government and its supporters that the 12.5% rate is the key to attracting FDI. Both the Taoiseach Brian Cowen and the Finance Minister Brian Lenihan have taking to describing it as “our international brand”. In the 1998 Budget (introduced in December 1997) their predecessor as Finance Minister, Charlie McCreevey, introduced the legislation for a new regime of corporation tax that led to the phased introduction of the 12.5% rate of corporation tax from 1 January 2003 – down from 32%.
Figure 1 below shows what actually happened to FDI in Ireland before and after the cut to 12.5% corporation tax. In the period since the corporation tax was slashed there have been many quarters where there was a net outflow of FDI and the annual average total was an inflow of just €2.3bn. Before the rate was cut that annual average inflow was €17.7bn, and there was only one quarter of net outflow in FDI.

Figure 1

If FDI were measured relative to either the level of GDP or as a proportion of total investment, the before and after contrast would be even starker.

Clearly, low corporate tax rates did not leads to higher inflows of FDI, and are not responsible for it. But over a prolonged period the Irish economy has had a much greater share of world FDI inflows than would be suggested by the small size of the domestic economy.

Figure 2 below shows one of the main reasons why that is the case. It shows the percentage of the 20-24 year old population in EU countries who achieved at least an upper second level education. Ireland comes out top.

Figure 2

This also helps to explains why FDI investors don’t relish tax cuts. They aren’t fools. They know that low-tax economies do not have the resources to pay for investment in infrastructure, transport links and above all education- the factors that actually attract FDI. Low corporate taxes therefore do not attract, even deter FDI, as the London survey and the Irish experience demonstrate.

But George Osborne is a long-time fan of his fellow Thatcherites in Ireland. In fact the current Dublin government has far more fans in Downing Street than in Ireland, with its opinion poll rating dropping to 14% even before the latest resignations of nearly half the Cabinet. Determined to emulate the effects of Ireland’s Thatcherite economic policymaking, the Tory-led government has set out a course to lower corporate taxes. This will not attract FDI, but it does have the effect of allowing established companies to retain a greater proportion of their profits- and lowering wages and increasing capital’s ability to generate profits remains the essence of government policy. Reality shows there will be no increase in FDI to Britain due to lower corporate taxes.

John Rosshttps://www.blogger.com/profile/08908982031768337864noreply@blogger.com0

.269ZInflation Causes Slump In Living Standards

By Michael Burke

The level of consumer price inflation (CPI) accelerated to 3.7% in December from a year ago. Retail Price Inflation (RPI), which also includes housing costs and other items, is rising at the even faster pace of 4.8% year-on-year.

The current pace of inflation compared to income increases is disastrous for workers and the poor. Average weekly earnings are growing at a much more modest pace of 2.1% year-on-year. This earnings growth is set to subside further in 2011 under the impact of public sector pay freezes and local government pay reductions. In addition, growth in private sector pay is likely to slow further under the impact of rising unemployment and as companies look to rebuild profit margins.

Mainstream economists talk of a ‘demonstration effect’ whereby it is hoped that public sector pay cuts will drive down private sector pay levels. It is this effect that the government is clearly hoping for. There is too the insufficiently understood change to the calculation of most benefits away from RPI towards the CPI, which would currently leave benefits falling 1.7% in real terms, even before any actual cuts take effect.

Taken together, flat wage growth and sharp rises in the cost of living amount to a significant reduction in the real living standards of literally millions of people – the overwhelming majority of society. Put another way, the Tory-led Coalition’s cuts this year of £41bn are equivalent to a reduction in national income of 2.7%. But the gap between prices on the one hand and pay and benefits on the other is likely to be even greater.

The January data will record the effects of the VAT hike and well as increases in fares from the mainly privatised public transport system. A series of formerly public utilities such as gas, water and electricity companies have been allowed to increase their tarriffs way above the rate of inflation, while train companies are much better treated than benefit claimants- being allowed to increase fares by between 1% an 3% above the RPI, not the lower CPI .

This is highlighted in the most recent inflation data, where the single biggest rise in prices over the last 12 months is transport, up 6.5%, followed by food and drink at 6.1% and alcohol and tobacco at 5.8%. In addition, the government’s own changes to indirect taxation have pushed prices considerably higher.

This is shown in Figure 1 which, alongside the RPI at 4.8% also shows the official CPIY measure of inflation which is currently at 2%. CPIY is the Office of National Statistics’ measure of inflation excluding changes in indirect taxation such as VAT. The gap between two is a measure of the government’s role in raising the price level.

Figure 1

This is not to say that price rises are solely the responsibility of government policy. The UN’s Food and Agriculture Organisation says international food prices are at an all-time high having risen 30% in the last 6 months, and other commodities prices have also soared. Many of these price rises have yet to impact on the later stages of the production chain. An example is cotton, the price of which has more than doubled in the last 12 months, and will begin to impact on clothes’ prices only later this year.

But the inflation effects of indirect taxes mean that the government has room to soften the impact of the prices rises by reversing its own increase in indirect taxes. Cutting the VAT rate would reduce prices and increase disposable incomes for all, especially the poor. It could easily be paid for by reversing the tax cuts made in the June 2010 Budget- cuts to the corporate tax rate, small business profits’ rate, employers’ National Insurance and the freeze on the upper earnings limit on National Insurance for the highly paid. All these measures and more – to benefit the owners of capital and the highly paid – were a tax giveaway approximately equal to the VAT hike, which hit the poor hardest.

Those cuts represent a government policy that is not concerned with deficit-reduction but with a transfer of incomes for the poor to the rich. In addition, the campaign for higher Bank of England interest rates is well under way and supported by the Tory-led Coalition, as SEB has previously pointed out. Financial markets are now pricing in three interest rate hikes this year of 0.25% each, which will prove disastrous for mortgage-holders and many others.

The immediate effect of the strong Sterling campaign has been to increase the value of the pound. Versus the US Dollar, the pound has risen from 1.53 at year-end close to 1.60 in a matter of weeks. British-based banks are awash with cash as private sector surpluses have soared under the impact of growing profits and the financial assets of the rich. They have no intention of investing this productively in the British economy, and instead seek to buy overseas financial assets. A knock-down price can be achieved if the pound is much higher.

Yet even before rate rises the economy will struggle to maintain its modest momentum in 2011, as that was generated by the rise in government spending from Labour’s policies. This government’s hopes are pinned on rising exports but its support for higher rates and a stronger currency will hit the brakes on any export drive.

The Great Depression was characterised by the polices of high interest rates, overvalued currencies in key countries, and the drive towards balanced budgets- all aimed at pushing down wages and designed in this country to meet the specific needs of finance capital. Thankfully this time, strong growth in other areas of the world economy, led by China, India and Brazil will serve to prevent a repeat of that on a global scale this time. But no thanks to this government, which is determined to replay the crises of the past.

.362ZWidening Trade Gap Highlights Pernicious Role of the Banks

By Michael Burke

The UK trade gap widened in November to £4.1bn. The trade gap is clearly on a widening trend. The latest deficit compares to a deficit of £2.3bn in November 2009. Taking the latest 3 months data together to smooth the volatility of monthly data, the trade gap was £12.2bn, compared to £7.8bn for the same period in 2009. The total trade deficit in goods and services for 2009 was £29.7bn. But the deficit in the first 11 months of this year is £41.3bn, and may threaten the record annual deficit of £43bn at the height of the boom in 2007.

The chart below shows the monthly trade deficit from 2007.

Figure 1

Government forecasts for sustained economic recovery are based on export-led growth. Exports are growing, and much more strongly than forecast by the Office of Budget Responsibility (OBR). At the time of the June Budget the OBR forecast a 4.3% rise in exports in 2010. But in the latest 3 months exports are 10.3% higher than a year ago as world trade has recovered. Exports have reached a new peak reflecting the upturn in demand in key export markets and are now 3.2% above the previous high seen in 2008.

However, imports are rising still more strongly. In June the OBR forecast a 5.6% rise in exports in 2010. But in the latest 3 months exports are 13.5% higher than a year ago as demand for imports has significantly outstripped export growth.

As SEB has previously warned, without any rise in investment the British economy would tend to become even more uncompetitive, and any new upturn in demand would lead to a widening of the deficit. Imports in any economy are either directly consumed or used as inputs for production. The deficit in finished manufactured goods – a key component of directly consumed imports – was £15.1bn in November, a large multiple of the total deficit. The deficit in this category is both chronic and acute.

The rational response to this situation would be a sharp increase in investment to improve competitiveness combined with a Sterling depreciation. But unlike other categories of economic activity private investment has barely recovered and now accounts for £40.4bn of the £54.3bn loss in output since the recession, three-quarters of the total.

Yet there is now a growing lobby to raise interest rates in order to increase the value of Sterling. Andrew Sentance, one of the members of the Bank of England’s Monetary Policy Committee has repeatedly voted and campaigned for higher rates and now leads a chorus of City-based economists calling for higher rates , even though unemployment is rising and the economic outlook is far from benign.

This campaign, which has received the support of David Cameron is cloaked in terms of combating inflation, but the VAT hike will contribute to rising prices. Other administered prices rises such as rail, bus tube fare increases and the inflation-plus hike in utility bills have the same effect, and could all be avoided by different policy choices. The campaign’s aim is to increase the value of Sterling, irrespective of the effect on the trade balance and the competitiveness of local production – and it is increasingly embraced by the financial sector and the Tory-led government.

This is because the private sector is running a very large surplus, as shown in the chart below, reproduced from this website.

Figure 2

This surplus is not being invested in productive investment in the British economy. The cash balances are being held in British banks, and they in turn want to invest these in overseas financial assets. But much better to invest those with a strong pound than a weak one- the same funds will buy more assets if the currency is overvalued. Typically, a build-up in these corporate surpluses is followed by policies to increase the value of the pound, including higher interest rates.

Once again, the City and the Tory government are moving towards adopting a policy to meet the interests of the banks with no care for the outlook for jobs, investment and the economy as a whole.

.463ZyesWidening Trade Gap Highlights Pernicious Role of the Banks

The UK trade gap widened in November to £4.1bn. The trade gap is clearly on a widening trend. The latest deficit compares to a deficit of £2.3bn in November 2009. Taking the latest 3 months data together to smooth the volatility of monthly data, the trade gap was £12.2bn, compared to £7.8bn for the same period in 2009. The total trade deficit in goods and services for 2009 was £29.7bn. But the deficit in the first 11 months of this year is £41.3bn, and may threaten the record annual deficit of £43bn at the height of the boom in 2007.

The chart below shows the monthly trade deficit from 2007.

Figure 1

Government forecasts for sustained economic recovery are based on export-led growth. Exports are growing, and much more strongly than forecast by the Office of Budget Responsibility (OBR). At the time of the June Budget the OBR forecast a 4.3% rise in exports in 2010. But in the latest 3 months exports are 10.3% higher than a year ago as world trade has recovered. Exports have reached a new peak reflecting the upturn in demand in key export markets and are now 3.2% above the previous high seen in 2008.

However, imports are rising more strongly. In June the OBR forecast a 5.6% rise in exports in 2010. But in the latest 3 months exports are 13.5% higher than a year ago as demand for imports has significantly outstripped export growth.

As SEB has previously warned, without any rise in investment the British economy would become even more uncompetitive, and any new upturn in demand would lead to a widening of the deficit. Imports in any economy are either directly consumed or used as inputs for production. The deficit in finished manufactured goods – a key component imports directly consumed imports – was £15.1bn in November, a large multiple of the total deficit. The deficit in this category is both chronic and acute.

The rational response to this situation would be a sharp increase in investment to improve competitiveness combined with a Sterling depreciation. But unlike other categories of economic activity private investment has barely recovered and now accounts for £40.4bn of the £54.3bn loss in output since the recession, three-quarters of the total.

Yet there is now a growing lobby to raise interest rates in order to increase the value of Sterling. Andrew Sentance, one of the members of the Bank of England’s Monetary Policy Committee has repeatedly voted and campaigned for higher rates and now leads a chorus of City-based economists calling for higher rates , even though unemployment is rising and the economic outlook is far from benign.

This campaign, which has received the support of David Cameron is cloaked in terms of combating inflation, but the VAT hike will contribute to rising prices. Other administered prices rises such as rail, bus tube fare increases and the inflation-plus hike in utility bills have the same effect, and could all be avoided by different policy choices. The campaign’s aim is to increase the value of Sterling, irrespective of the effect on the trade balance and the competitiveness of local production – and it is increasingly embraced by the financial sector and the Tory-led government.

This is because the private sector is running a very large surplus, as shown in the chart below, reproduced from this website.

Figure 2

This surplus is not being invested in productive investment in the British economy. The cash balances are being held in British banks, and they in turn want to invest these in overseas financial assets. But much better to invest those with a strong pound than a weak one- the same funds will buy more assets if the currency is overvalued. Typically, a build-up in these corporate surpluses is followed by policies to increase the value of the pound, including higher interest rates.

Once again, the City and the Tory government will adopt a policy to meet the interests of the banks with no care for the outlook for jobs, investment and the economy as a whole.

John Rosshttps://www.blogger.com/profile/08908982031768337864noreply@blogger.com0

.569ZNew deterioration in the US savings rate and its implications

By John Ross

The revised 3rd quarter 2010 US GDP figures show a downturn in the percentage of domestic savings in US GDP – see Figure 1. This shift is small, from 11.8% to 11.7% of GDP, but the trend is highly significant.

Figure 1

Figure 1 confirms the continuation of the long term downward trend of US savings, with inevitable oscillations in business cycles, since 1981. Each cyclical savings peak was lower than previous one – 21.4% of GDP in 1981, 19.0% in 1998, and 16.4% in 2006. Each cyclical trough was also lower than the one before – 14.2% in 1992, 13.6% in 2003, 10.2% in 2009.

A small cyclical recovery in US saving took place, from the 10.2% of GDP trough in the 3^rd quarter of 2009 until the second quarter of 2010 at 11.8%, and it is this which stalled in the 3rd quarter of 2010.

Even more striking is that the 3^rd quarter of 2010 is the 10^th consecutive three month period in which US net domestic savings, i.e. gross domestic savings minus capital consumption, has been negative – as shown in Figure 2. The last time US net savings were negative was during the Great Depression in 1931-34 – see Figure 3.

Figure 2

Figure 3

To put it in deliberately provocative, but accurate, language this means that the world’s number 1 capitalist economy has for the last 10 quarters not produced net capital – US capital creation is less than US capital consumption.

The implications of this new drop in the US savings rate, particular if maintained in coming quarters, are numerous. Two interlinked ones, with major implications for US economic performance, immediately stand out.

First, the core of the US Great Recession is a severe fall in fixed investment. Rapid US growth cannot take place without a sharp recovery in fixed investment – which in turn must be financed by savings. If US domestic savings remain depressed, then either US fixed investment will remain low, which implies a slow US upturn, or the US must finance a new higher level of investment from abroad – i.e. there must be a new widening of the US balance of payments deficit.

Second, one of the major theories of the international financial crisis, outlined most influentially by Martin Wolf, chief economics commentator of the Financial Times, was that it would lead to an overcoming of “global imbalances”, that is the balance of payments deficit of the US and the surplus of China and other states, through an increase in US saving.

As the US balance of payments deficit, by accounting identity, is equal to the US shortfall of domestic savings compared to domestic investment, the US balance of payments deficit could decrease through either, or both, an increase in savings or a decline in investment. But, as shown above, US savings have stalled, and partially reversed, as a percentage of GDP at a historically low level. The improvement in the US balance of payments since the beginning of the international financial crisis is primarily due to a fall in fixed investment, not to a rise in savings. An analysis that international financial imbalances would be corrected via a rise in US savings has not been been factually confirmed.

These two issues are evidently interrelated. A major rise in US savings, which would permit an increase in US fixed investment simultaneously with a narrowing of the US balance of payments deficit, would provide the basis for relatively rapid US economic growth. The current factual trend, that of a continuing low level of US savings, does not permit rapid US growth except in conditions of worsening of the US balance of payments deficit.

The current trend of US savings therefore continues to point to relatively slow US growth unless the US is prepared to permit a significant deterioration of its balance of payments position – i.e. a new, and in the long term, unsustainable worsening of global imbalances. Short term fluctuations in US growth must therefore be judged against this strategic background.

* * *

This article originally appeared on the blog Key Trends in Globalisation.

John Rosshttps://www.blogger.com/profile/08908982031768337864noreply@blogger.com0

.710ZyesTesting

John Rosshttps://www.blogger.com/profile/08908982031768337864noreply@blogger.com0

.378ZLabour Must Oppose Tory Local Government Cuts

By Michael Burke

The Tory-led Coalition has announced its plans for funding of local government over the next 4 years. Tony Travers, LSE professor specialising in local government, described them as ‘apocalyptic’. Local government has already been in the firing line, shouldering £1.8bn of the first £6.1bn of cuts in the government’s ‘emergency’ measures announced shortly after taking office.

Now, in line with Comprehensive Spending Review, total spending on local government will fall to £24.1bn in 2014/15 from £29.8bn in the last year of the Labour government. This represents a fall of 31% in real terms (using the official forecasts of 13% inflation over the years Financial Year (FY) 2010-2015 from the Office of Budget Responsibility).

A comprehensive survey by the Chartered Institute of Public Finance & Accountancy prior to the latest announcement shows that councils expected cuts of 20% or more in a range of areas, from capital investment (where 44% of councils expected cuts of at least that magnitude), to both economic regeneration and community safety (28%) environmental health (14%), and despite 1.75m households on council waiting lists, housing is expected to be cut by 20% or more in some local authorities (8% of the total). There were even 3% of councils which expect children’s social care to be cut by 20% (4% of councils expecting that for adult social care). From the 40% of councils who responded to the survey, it was estimated that 73,500 jobs would be lost in the first year alone.

The cuts are closely targeted at the poorest, Labour-voting areas . In the South-East, Hackney, Newham and Tower Hamlets will each experience 8.9% cuts in the next Financial Year (FY), while Essex has just 1.3% cuts. Manchester, Rochdale, Knowsley, Liverpool -St Helens, Doncaster and South Tyneside are among the 36 local authorities that take the maximum cut of 8.9%. Meanwhile Dorset gets a 0.25% increase in funding and Windsor and Maidenhead, Poole, West Sussex, Wokingham, Richmond upon Thames and Buckinghamshire all get cuts of less than 1%.

But these represent only total revenue cuts. Once other income streams, such as Council Tax and other charges are taken into account the government proportion of those budgets has fallen by up to 17%, in some cases in the first year alone. In addition, it now includes a number of social care responsibilities formerly carried out by the NHS.

Within local authority areas, the poor are hardest hit. Not only are they obliged to use a greater number of the services now being axed, but will also be hit by the freeze on Council Tax. The Council Tax is a moderately progressive tax, mainly due to the waivers and exemption on the very poorest. Freezing the rate while slashing services will benefit the rich at the expense of the poor.

Political Attack

There is no accident that this ferocious attack singles out councils. In the first instance it can appear as if the cuts are not Tory cuts, as they will be carried out by a variety of political parties including Labour in office. Secondly, these councils can themselves sow confusion as to who is responsible – if they seek to justify or defend the cuts. Wherever that is the case, Labour councillors will be acting as stooges and mouthpieces for the most ferocious assault on the local welfare state since its effective establishment in 1945. The ‘localism’ of creating a dozen new Mayors is entirely fake as many will be appointed at first, and all increasingly operate under the dictat of central government.

At the very least, Labour elected representatives should continually explain that the source of the cuts is the Tory-led Coalition. In addition, where they are in office, every practical step should be taken to oppose the cuts, to minimise the effects on the poor and to ensure the preservation of services, jobs and non-managerial pay. In addition, a host of revenue-raising measures can be pursued – where these have the effect of helping to reverse the government’s transfer of incomes from the poor to the rich.

It is unlikely that any illegal budgets will be set. Without significant strike action by either local government workers or others, councillors can easily be picked off under current legislation. But that does not alter the obligation to work closely with local trade unions, especially as their members are often best placed to identify genuine waste and savings which harm neither services nor non-managerial jobs. Of course, all protests by either unions or local residents against the cuts should be supported. A government which claimed concessions were made to students after two militant demonstrations can be forced to make more substantial concessions by much larger, militant protest.

The key to the struggle is achieving the maximum unity around opposition to all damaging cuts, to services, jobs or pay. And ensuring lasting political damage is inflicted on those responsible- the Tory-led Coalition and its policy of stealing from the poor to give to the rich- Robin Hood in reverse.

.551ZCuts Will Deepen Recession – Latest Chapter of British Misrule in IrelandBy Michael Burke

There is a sharp contrast between the moderate recovery in the British economy, which is now entering its second year, and the continued contraction of the economy in ‘Northern Ireland’. Current British government policy and the entire structural relationship with Britain continue to exacerbate those negative trends.

There is no timely official data for the economy in the North that corresponds with the official data for Britain. But the Ulster Bank, a division of RBS, produces monthly PMI surveys for the Northern economy . Surveys of activity by purchasing managers are an internationally reliable method of gauging activity in the private sector. The Ulster Bank output PMI in the North fell again in November 2010, at its fastest rate since April 2009. As the chart below shows, the private sector of the economy has been contracting continuously since the beginning of 2008. Surveys of new business orders and employment have fared even worse.

Chart 1

This extended recession in the North is now 12 quarters old, compared to six quarters for the British economy. It is not only now still turning down, but has also been far more severe, as shown in Chart 2.

Chart 2

Government Response

Owen Patterson, the Tory Northern Ireland Secretary recently made the empty boast that: ‘The [government] Spending Review builds on the measures we took in May and in the Budget in June and will ensure that this country is set firmly on the path to sustainable economic recovery and financial solvency’.

Whichever country he was referring to, the British colony in the North of Ireland was not one of them. With the private sector mired in a much worse recession than in Britain, the Tories’ answer is to cut government spending too. Even worse, the attack on living standards is greater than almost anywhere else. The IFS has conducted research into the ‘regional’ impact of the cuts to benefits and tax changes arising from the Labour Budget of March 2010, as well as the Tory Budget of June 2010 and the Comprehensive Spending Review. It finds only London is more badly hit than the North of Ireland.

Chart 3. Geographical Impact of Tax and Benefit Changes 2010-2015

In addition, the poorest sections of the community within the North of Ireland will be hardest hit. As the IFS chart below shows, the poorest are much harder hit by the policy changes than the rich. In addition, in both cases, the Institute for Fiscal Studies (IFS) does not include the impact of changes in services, which of course hit both the poor, and poorer geographical areas harder. In total the effects are much worse than these aspects of taxes and benefits highlighted by the IFS.

Chart 4. Impact of Tax and Benefit Changes 2010-2015 by Income Group In North of Ireland

The British government is deepening the economic crisis in the North of Ireland, and its attack is focused on the poorest sections of the population.

The Fightback

The Scottish and Welsh Assemblies have already agreed their budgets with Westminster. This is not the case in the North of Ireland as Sinn Fein has opposed the imposition of £4bn in cuts. The Unionist parties and the SDLP were initially willing to accept the cuts. But Sinn Fein’s opposition has forced a repositioning. The campaign has focused on £18bn of investment promised for the North in the St Andrew’s Agreement, which has not been delivered. Sinn Fein has also attempted to build support directly for raising revenues to protect services and support investment, including an ongoing campaign for the repatriation of tax and spending powers which is increasingly popular and supported to some extent by Unionist parties.

It is widely expected that there will be an early general election in the South of Ireland in the first few months of 2011. A key task will be pressing any new Dublin government to insist that the British government meet its £18bn investment commitments, as these were made under international Treaty obligations between two governments. Along with local revenue-raising measures, even a phased introduction of the £18bn would have a powerful antidote effect to the private sector recession and government attacks on living standards.

Even so, this increased investment could do little more than off-set the cyclical effect of the recession and the government attacks. Comparative studies have shown the much lower effectiveness of investment in the North of Ireland than in the South.

From the late 1980s onwards, similar levels of EU investment in both parts of Ireland have produced hugely different outcomes. This is because the North is not at all integrated into the world economy. Participation in the global economy through the international division of labour raises the effectiveness of investment. “Northern Ireland’s” status as a colony of Britain cuts it off from the rest of the world economically- exporting little and importing less.

In this conjuncture, opposition to the cuts and campaigning for increased investment is entirely correct. Otherwise, the Tory-led government would be allowed to degrade the economy of the North of Ireland at a far greater rate even than in Britain. But strategically, the only route towards prosperity for the whole population of the North of Ireland is by breaking the link with Britain.

John Rosshttps://www.blogger.com/profile/08908982031768337864noreply@blogger.com2

.559ZAirport chaos shows what happens when you privatise monopolies

The Guardian’s ‘Comment is Free’ carries an excellent article by Neil Clark examining the connection between the privatisation of Britain’s airports and the chaos at London’s Heathrow and other airports faced with the bad winter weather. We reproduce extracts below and readers are urged to read the whole article.

There is, however, one important point in addition to those made by Neil Clark. Airports are a classic case of privatisation of monopolies or quasi-monopolies. In most cities or regions there is only one airport, even in a very large city such as London, where there is more than one airport, Heathrow is entirely dominant, and, because of the times involved in long flights, there are for a large number of journeys no practical alternative to going by air.

There is nothing whatever in economic theory that indicates that a private sector monopoly will do anything other than deliver an overpriced service – which can be either good quality service provided at an excessively high price, a low quality service delivered at an average price, or a low quality service provided at a high price. The privatisation of airports shows this reality vividly.

Due to the necessary dynamics of private sector monopolies, a monopoly needs to be taken into the public sector where it can be subject to public control. Even then, of course, there will be a tough fight to deal with bureaucracy and temptations to monopolistic behaviour by the management etc but at least serious tools exist to deal with the situation via public accountability. A private sector monopoly, as Neil Clark illustrates, is merely a formula for price gouging and low quality services.

A large amount of infrastructure is in the monopoly category, and that is why Neil Clark is entirely correct in showing why much infrastructure needs to be publicly owned.

Neil Clark writes:

“… The privatisation of the state-owned British Airport Authority (BAA), we were told, would ensure that “better services are provided for all airline passengers”.

“I wonder if the Earl of Caithness [the Minister for Introducing the measure] (or even Margaret Thatcher herself), would have the courage to pop down to Hounslow and tell that to the tens of thousands of holidaymakers stranded at the BAA-owned Heathrow airport for the past three days. Even before this week’s events, our privatised airports, with their shortage of public seating, their lack of reasonably priced food and drink outlets, and their depressing, unfriendly atmosphere, were an international disgrace.

“But their spectacular failure to adequately deal with recent snowfalls has surely exposed to all but the most fanatical free marketeers, the enormous price we pay for having our infrastructure in private ownership.

“Writing in the Guardian in 2007, the designer Sir Terence Conran told a story that illustrates perfectly the difference between the ethos of a publicly owned infrastructure company and a privately owned one.

“Conran revealed that when he was working on the design of the state-owned Heathrow Terminal 1 and the North Terminal of Gatwick airport in the 1960s, he was pressed to make sure that he provided “lots of seating” for the public. Conran contrasted… the much more commercial attitude of BAA today, where “every square inch must be turned over to retail space”.

“the privately owned BAA is seemingly guided by just one concern: maximising profits for its Spanish-owned parent company, Ferrovial. That means out with public seating areas, and in with forcing people to pay to sit down in rip-off cafes and restaurants. And it also means, as we saw this week, not ordering anywhere near enough snow ploughs to keep the runways open in the case of extreme weather. BAA is on course to post record profits of over £1bn this year – yet only spent £500,000 on materials and equipment to help clear the runways…

It’s revealing that one major airport in Britain that does manage to keep its passengers happy is one which is in full public ownership. Manchester airport, owned by local councils, was crowned best regional UK airport earlier this year and currently holds four out of the five major travel awards in the airport industry.”

via www.guardian.co.uk