Cooking the Books: How would you like your cut? (2025)

The Cooking the Books column from the December 2025 issue of the Socialist Standard

Like local councils everywhere, the London Borough of Lambeth doesn’t have enough money to pay for adequate social amenities such as parks, playgrounds, libraries, and social centres. In fact, to balance the books over the coming years it will have to cut back on these even further:

‘Lambeth Council has to make huge savings from its budget, equal to more than a third of its annual spending, and is asking local people to give their ideas about how to save money at this time of unprecedented challenge. Over the next four years the council must find £84 million in savings, on top of £99 million in savings already agreed.’

Normally, this would be decided by the council’s cabinet, made up from members of the political party or parties with a majority of councillors (in the case of Lambeth, it’s Labour). This is an unenviable task which makes the council and councillors unpopular. Lambeth Council has come up with a way to try to avoid this, asking people living in the area which services they think should be given priority — and which, by implication, should not. The idea being that, when the cuts are made, the councillors can turn round and say that they were only doing what the public had suggested.

So, those living in Lambeth were asked to choose where the axe should fall. They had to click their way through an online survey and to choose which 3 out of 18 services they wanted to prioritise, leaving the remaining 15 as targets for cutting. Critics have likened this to giving someone sentenced to death a choice between being shot or hanged. They also question why ‘no cuts’ wasn’t an option. The answer to that question goes to the heart of matter.

‘No cuts’ is not an option because the council simply does not have the money, and the council does not have the money because the central government has not allocated it enough. Why? Because the central government is responsible for running things in the general interest of the capitalist class. Profits are what drive the economy, and governments must avoid doing anything that impedes profit-making on pain of provoking an economic downturn. Governments are financed by taxes that ultimately fall on profits and so cannot increase taxes just to improve services and amenities for the general public (they can only provide those that directly or indirectly benefit capitalist production and then at minimum cost). Governments are managing capitalism and have to abide by the economic law of capitalism that decrees that profit-making comes first.

So cuts there have to be, at both national and local level. The only question is who should decide to make them and where they should fall. The national government decides on cuts to national spending while local councils decide on cuts to local spending. Local councils blame the government. So Lambeth’s Labour Council Leader talks of ‘14 years of structural underfunding of local government’. But it’s not the fault of national government, whether Tory or Labour. Such underfunding is chronic because meeting people’s needs is not what capitalism is about.

The fact is that it doesn’t matter who decides to make the cuts; they have to be made. But it is not an extension of democracy to involve the working class in the decision. That’s just a way to get workers to act against their own interest and take responsibility for the worsening conditions capitalism imposes on them. Socialists living in Lambeth refused to take part in the charade, as did many others.

Never trust a Trust (1993)

 

From the November 1993 issue of the Socialist Standard

The government has recently announced that thirty more district health authorities are to become self-governing in the fourth wave of trusts, and that the remainder will follow suit within two years.

The National Health Service enjoys considerable public support and attempts to return to private medicine have to be carried out cautiously whilst protesting vociferously that there is no such intention. But despite this cautious approach at least three-fifths of all self-governing trusts have run into financial difficulties. And in August, four London hospitals announced that they were going to cancel routine operations for the rest of this financial year. With seven months to go, from the date of these cancellations, to the next financial year, the waiting list for treatment will continue to grow, with pain and discomfort for patients.

The financial difficulties experienced by the health service trusts is only to be expected as an internal market does not put any more money into the system but costs considerably more to administer it. Whilst administrative costs have risen sharply to cope with the extra paperwork many newly-qualified nurses have been unable to obtain jobs and others have been given temporary contracts, only to find themselves unemployed three or six months later.

Despite the greater technological expertise required for modem nursing, the number of qualified nursing staff fell by 5.2 percent between September 1990 and September 1991 according to the Department of Health. But unqualified staff have increased by 17 percent. (Nursing Times. 1993, no.7)

The increase in total staff has been necessary to compensate for the removal of student nurses from the wards into colleges for the Project 2000 training courses. This change from traditional training methods has been introduced to improve academic standards and technical knowledge but also to pay students less by giving them grants instead of employing them as salaried workers.

Despite the dearth of jobs, financial hardship and the prospect of unemployment at the completion of training has led to a 5.5 percent wastage rate for Project 2000 students compared with 4.7 percent for students undertaking traditional training (Nursing Times). While the government juggles with the figures and nurses find out the hard way that professional status counts for little in the job market, the waiting list for treatment has increased by 60,000. A number of hospital trusts have changed nurses’ patterns of shift work, worsening their conditions of service and reversing some of the hard-won gains of the last thirty years. The Bradford Hospital Trust announced up to 300 redundancies shortly after it became a trust.

During recessions the bargaining power of workers is weakened and they are vulnerable to attacks upon their living standards. This will always be the case while capitalism lasts because trade unions tackle effects and not causes. Thus, any gains made during booms will be attacked by employers when there is a surplus of labour during a slump.

The government has repeatedly stated that it wishes to reduce public expenditure. Indeed, public health service employees have been held to a 1.5 percent pay increase this year (equivalent to a pay cut after allowing for inflation), and a proposed wage freeze for next year.

At first glance it seems curious and inconsistent to try to reduce expenditure on the one hand and to increase it on the other by opting for a system of management which is much more expensive. But a consideration of the ideological and political motives underlying the formation of the National Health Service and the reasons for the attempts to dismantle it show that both courses of action are consistent with capitalism’s priorities. When Henry Willink, Conservative Minister of Health in the wartime Churchill coalition government presented the 1944 White Paper setting out the proposals for a unified national health service, free at the point of use, centrally funded and administered by Local Authorities it was because it was recognized that after the sacrifices made by the working class in fighting a lengthy war to protect the capitalists’ interests they were not prepared to accept a return to the heartbreak conditions of the 1930s. It was also recognized that, with an acute shortage of labour, a reliable health service would be needed to conserve workers’ health in the critical postwar years of reconstructing industry. It was also necessary to provide concessions to blunt working-class militancy as strikes would have placed British capitalists at a disadvantage with their competitors.

A centrally-administered health service was more efficient and cost effective than the fragmented, piecemeal provision of health care which had hitherto been available in the 1930s. But by the 1980s, capitalism’s priorities had changed. A worldwide recession had reduced the capitalists’ profits making less money available for social programmes; a large pool of unemployed labour had weakened the power of the trade unions and made it no longer necessary to conserve the health of all the workers. The National Health Service now represents a cost against production that the capitalists would prefer to see drastically reduced if not abolished.

The NHS is an institution welcomed by the working class and its abolition, however desirable from capital’s point of view, is politically damaging, therefore, the moves towards replacing it with private services have been gradual. Laundering, catering and Portering services have been contracted out private companies in the last few years with reduction of staff, lower wages and poorer working conditions in the majority of cases.

Once all district health authorities become self-governing trusts it will be possible to break the power of the trade unions by dismantling the Whitley Council which negotiates health service employees’ pay. The trusts will be able to set their own pay and conditions which will lead to further downward pressure on wages. And with each trust being independent and no longer part of a nationally administered service then a national strike by health service employees over a dispute in an individual trust would be considered to be an illegal "sympathy" strike. Also with an internal market in place it will be possible for a hospital trust to break a strike by sending patients to other hospitals.

It has been claimed that the internal market, with buying and selling of health care on business lines, can make the most efficient use of resources and expertise by sending patients to other hospitals for services which may be in short supply in their own areas, but the 60,000 increase in the waiting list for treatment shows this not to be the case. There is a consultation process between health districts, regional health authorities and the public at each trust application but the public’s response is not disclosed by the Department of Health. We can be certain that if the public’s response to hospital trusts was enthusiastic then this would be widely publicised and trumpeted as a vindication of the government's policies. The secrecy surrounding this information is an attempt to conceal the lack of support for their plans. The announcement by the Government that it intends all health districts to become trusts within the next two years makes a mockery of the so-called consultation process and makes the public meetings little more than a declaration of intent.

In addition to the plans for NHS trusts, the 1989 White Paper Working for Patients (sic) provides for a range of optional extras such as single rooms, television and a choice of meals for those who wish to pay for them which will create a two-tier system with only basic amenities being provided for the poor and better services being provided for the not-so-poor.

A visit to any of the older district general hospitals will provide evidence of expensive refurbishment having been carried out on some of the surgical wards whilst, in many cases, even basic repairs are not carried out on the geriatric wards, reflecting capitalism's attitude to non-producers. Obviously, the majority of elderly patients will be unable to pay for "extras’' out of their pensions. A return to Victorian values, particularly the Victorian workhouse, is beginning to look an unpleasant reality for the poor and needy.

The government’s policies have caused problems for the mentally handicapped. Dr David Tod, President of the National Association of Fundholding Practitioners, told the Conservative Party conference in October that he cannot accept any more mentally handicapped patients in his practice without extra funding (Independent, 9 October).

The proportion of pay which general practitioners earn from the number of patients that they have on their books has been increased from 46 percent to at least 60 percent and this has, predictably, led to a reluctance to treat patients requiring a lot of medical care. There is no doubt that further attacks will be made on the NHS and that the present cumbersome structure is being set up with a view to selling it off to private speculators in due course. For the poor, only the most basic provision will be retained, and the mentally ill will continue to swell the ranks of the homeless as long-stay hospitals continue to be closed without adequate alternative care being allocated.

But the attacks on the NHS provide an object lesson to those who wish to reform capitalism. The reforms were gained only after years of struggle, implemented when it was no longer in capital’s interests to obstruct them, and are being reversed when it was no longer expedient for capital to accede to workers' demands and a recession makes it difficult for workers to resist the encroachment upon their living standards. Nothing less than the complete overthrow of capitalism and its replacement by socialism can prevent this happening to reforms over and over again.

Carl Pinel

Cooking the Books: Axe the rich (2025)

The Cooking the Books column from the August 2025 issue of the Socialist Standard

One of the measures being urged on the government to solve its ‘fiscal problem’ is ‘tax the rich’ by means of a levy on the personal wealth of some capitalists.

‘Advocates of a UK wealth tax, including Lord Kinnock, have proposed an annual 2% tax on wealth above £10m. Wealth tax campaign group Tax Justice UK has calculated this would affect about 20,000 people — fewer than 0.04% of the population — and raise £24bn a year’ (Sky News).

According to the latest figures (for the period 2020 to 2022) from the Office for National Statistics, ‘The wealthiest 1% of households had wealth of at least £3,121,500’.

So, the proposal would only affect some of the super-rich, not even all of the ‘top 1 percent’, let alone the whole of the capitalist class.

The ‘fiscal problem’ facing the British capitalist state, which Labour currently has responsibility for running, is how to pay for its essential spending on such things as the military, education and health for the working class, ‘benefits’ for those not in work, as well as its own administration. This can only be covered by money raised from taxes or through borrowing. The government doesn’t want to borrow more since this risks raising the rate of interest it has to pay lenders; which in turn increases the amount of tax it would need to raise, since taxation is the only source it has of money to pay the interest on its debts (the so-called ‘National Debt’).

The irony is that all taxes already fall in the end on property and property income, irrespective of who pays them in the first instance. Obviously corporation tax, income tax on dividends, capital gains tax, inheritance tax, and employers’ national insurance do so directly. But other taxes do so indirectly.

To be able to work efficiently workers require a given standard of living and an adequate money income to pay for this. By and large, though not automatically, what workers are paid goes up in line with the cost of living. If this rises, so sooner or later will wages. Taxes such as VAT on what workers need to buy to maintain their working skills are in effect passed on to employers. Similarly with a direct tax on wages; this too gets passed on. In fact, with PAYE, workers never even see the tax part of their nominal wages; what counts in terms of maintaining a standard of living appropriate to their working skills is their take-home pay and what it will buy.

Arguments about taxation are essentially arguments about how much in taxes particular sections of the property-owning class should pay. Taxes on wages and on what workers consume fall on employers. A wealth tax would be a tax on what capitalists consume in extravagant living and would enable part of the burden of taxation to be shifted from employers on to the super-rich. It wouldn’t make any difference to workers.

A wealth tax also implies the continued existence of the super-rich. One of their arguments against it is precisely that one effect of such a tax would be to drive some of them out of the jurisdiction of the British capitalist state.

Socialists don’t want to maintain the rich so that the state can milk them. Nor do we want to redistribute their wealth amongst the rest of the population so as to try to achieve a more equal society contrary to capitalism’s nature. We want the means for producing wealth to be commonly owned by society as a whole so that they can be used, under democratic control, to directly provide what people need. We don’t want to tax the rich. We want to abolish the division of society into the rich and the rest.

The state of the state’s finances (2025)

From the August 2025 issue of the Socialist Standard

Politicians love talking big numbers: ‘We’re spending £5 million to stop The Thing.’ Or ‘We will spend an additional £20 million to increase The Pittance by a penny.’ When Starmer and his chums came into office they mummered and howled over discovering the astronomical £22 billion ‘fiscal black hole’ left in the public accounts by the Tories. Of course, for the majority of people living on pennies at a time, such figures represent unimaginable amounts. Eking out a few quid from week to week and making every pound work is the lot of most people, so such sums seem like an unforgivable profligacy.

Everyone in politics knew there was a gap in spending plans, and that Labour, despite all its promises not to increase taxation, would have to find a way to close this spending gap. The Tories had arguably laid a trap for Labour, in the form of the Office for Budget Responsibility (OBR), a supposedly apolitical authority that marks the UK government’s financial homework. The problem is, if politicians and press just ignore it, it doesn’t do much good.

It does provide useful data, though. Its Brief Guide to the Public Finances provides a lot of the clarity regarding government spending that is missing from much of the daily rhetoric. The key piece of data is the total spend by the government: ‘In 2024-25, we expect it to spend £1,278.6 billion, equivalent to around £45,000 per household or 44.4 per cent of national income.’ Against that background, £22 billion is a rounding error that could easily be sorted by knocking a few invoices into the next financial year.

The issue is that the income for the state is expected to be ‘£1,141.2 billion, equivalent to around £40,000 per household or 39.7 per cent of national income.’ This is the infamous deficit of £137.3 billion. This means adding to a rising national debt: ‘in 2024-25, we expect debt to be equivalent to 95.9 per cent of national income. It is equivalent to around £2.8 trillion or £98,000 per household’. This is significant, because the government has to pay interest on that debt: ‘Net interest payments on the national debt are expected to cost £105.2 billion in 2024-25’.

To put that in perspective: ‘The biggest items [of public spending] are health £193.3 billion, education £89.2 billion and defence £37.6 billion.’ Whilst, in theory, the state is immortal and need never pay back its total debts (when particular debts fall due, it can just roll them over and borrow more money to pay its creditors), servicing the interest bill can become expensive, especially if confidence in any particular government falls and creditors demand higher interest rates to cover their risks. This means the government has to manage the size of its debt: this is why deficits become such an all-consuming obsession.

Politicians, however, point to the difference between capital spending and current spending. The government invests ‘£146.1 billion – 11 per cent of the total – on capital investment such as roads and buildings and on loans to businesses and individuals’. This spending is backed by physical infrastructure and leads to ownership of assets. On top of that it spends ‘£450.7 billion on the day-to-day ‘current’ running costs of public services, grants and administration. This is 35 per cent of public spending’. Additionally, the government spends £313.0 billion on welfare payments (£150.7 billion of which is pensions).

The government thus prefers to look at the current deficit which: ‘counts all receipts and all current spending, but excludes spending on net investment’. The current deficit stands at £60.7 billion.

This accounts for why Labour made politically disastrous decisions, such as freezing winter fuel payments and cutting Personal Independence Payments (for a paltry £5 billion in savings, which is tiny compared to overall spending, but one twelfth of the current deficit).

They can, if they are lucky, rely on economic growth (which raises tax receipts, and lowers welfare costs) to cover much of the gap: but the plan is to have a current surplus, which gives the Chancellor of the Exchequer space to either cut taxes or increase spending in fresh areas. The expectation is to have £9.9 billion of such headroom by the next election: so the strategy is pain today and jam tomorrow.

As the OBR notes in its Economic and Fiscal Outlook – March 2025:: ‘The tax-to-GDP ratio is forecast to increase to a post-war high of 37.7 per cent of GDP in 2027-28. Part of this increase is driven by the policies announced at the previous Budget, including the increase in employer National Insurance Contributions and increases to capital taxes’. From the point of view of the capitalist class, in general, that money going to taxation comes from their available profits and lowers the amount of money available for their profitable capital investment. A record high tax rate, especially one fuelled by an effective employee tax (National Insurance employers’ contributions) will be concerning for them in terms of international competitiveness.

In their eyes, then, government indebtedness is preferable, as it forms a means of funding the state under the control and discretion of the rich, with interest rates being a kind of vote of confidence in the way a government handles the debt. The money from interest payments is also welcome to those of them who lend the government money.

The March report also notes that the government is committed to ‘increase defence spending to 3 per cent of GDP over the next Parliament, which would be equivalent to £17.3 billion in 2029-30’. This would in part be paid for by a £6.8 billion cut in overseas development spending (this simply represents a change from soft to hard power). This unplanned shift in spending priorities shows how the government’s carefully laid plans to generate a current surplus can easily be thrown off course.

All this wealth, though, was originally produced by the efforts of the working class. How much better and more efficient would it be if that effort was directly focused on human needs, instead of producing taxable money?

Pik Smeet

Letter: Taxes and Labour (1978)

Letter to the Editors from the March 1978 issue of the Socialist Standard

Taxes and Labour

Thank you very much for your stimulating reply to my letter which was published in your January, 1978 issue. In order to clarify my ideas, I should like the opportunity to answer the criticisms made of my theories.

Firstly, you asserted that, where my hypothesis assumes a retrenchment in the rate of direct taxation (and, ergo, a fall in government revenue from paye), unless the total cost of administration also decreases, then the government has to make an equal increase in the amount of tax collected directly from the capitalists (I presume that here you allude to Corporation Tax). However, if we assume that the cost of administration has remained the same, are there not other sources of government revenue which would obviate the need for more tax to be collected directly from the capitalists. For example, indirect taxation and loans which are not collected from the capitalists.

Secondly, you maintain that it cannot be assumed that a reduction of PAYE can enable the workers to improve their bargaining power increasing their net pay. But if you accept the above explanation of alternative sources of government revenue, which enable the total outlay of the capitalist to remain the same, then perhaps you will also agree that the capitalist will not be concerned about the in creased net pay of his workers since his aggregate outlay on tax and wages has not increased. In fact, he may be pleased if the fall in the rate of tax, by increasing the net pay of his workers, forestalls pressure for higher gross wages, which, if successful, would increase his total disbursements on wages and tax.

P. S. Maloney, 

Palmers Green

 

Reply:

In your earlier letter (SS January 1978) you accepted the proposition "that taxes are paid by the employing class", but argued that a reduction of PAYE would benefit the workers without costing the employers anything. You forgot that if government total expenditure remained the same (which was assumed in your letter) they would have to raise additional tax revenue to meet it. Our reply took the simplest case, that of additional taxes on profits.

You now accept that you had overlooked that if government expenditure remained the same they would need to raise additional revenue following the reduction of PAYE, but you say the government could increase indirect taxation or raise revenue by loans.

Without wishing to go into the complex question of the effect that indirect taxes have on the price level, we can take both cases, i.e. that prices remain the same, or that they rise.

If the capitalists' selling prices remain the same but indirect taxes go up his profits are reduced. If prices go up then the workers have an additional inducement to press for higher wages—and again his profits are affected.

About loans you also overlook the fact that government borrowing via the banks goes along with the persistent increase of the note issue with its effect in raising the price level.

The more important issue is whether the struggle that workers have to engage in to maintain or increase real wages can somehow be avoided by a reduction of PAYE; the implication being that if workers' wages did not come into the scope of Income Tax at all they would be better off. In the 19th century hardly any workers came into the Income Tax range. Are we to suppose that this made it easier for them to maintain or increase real wages?

The fact is that any concession received by the workers lessens the urgency with which they will press for more, as is shown in every strike settlement. Mr. Healey's strategy clearly lecognises this. He has told the Unions that if he succeeds in limiting the increase of money wages to 10 per cent he will make tax concessions, but will not give both a higher increase of money wages and a reduction of PAYE.

The one weapon the workers have on the industrial field is the strike. It is a dangerous illusion that the class struggle can somehow be side-stepped by campaigning for tax reductions.

Editors.

The Capitalist Class. By Karl Kautsky (continued) (1908)

From the June 1908 issue of the Socialist Standard

Continued from the May 1908 issue.

Specially translated for the Socialist Party of Great Britain and approved by the Author.

5.—The Taxes.

While the ground landlord cuts to an ever larger extent into the share of the capitalist in the surplus-value—either indirectly or directly— the State is active in a similar direction. The modern State has grown up with and through the capitalist class, and was the most powerful agent in advancing the interests of that class. Each has assisted the other. The capitalist class cannot dispense with the State. They are in need of its protection both at home and abroad.

The more the capitalist mode of production develops the keener becomes the antagonism of interests and the more conspicuous grow the contradictions produced; but the more complicated also becomes the entire system, and the greater, too, grows the dependency of one individual upon another, and the greater also grows the need of an authority standing above and charged with making each fulfil the duties arising from his economic function

.

Far less than the previous methods of production can a system so sensitive as the present bear the prosecution of antagonisms and disputes by the autonomy of those immediately interested in the fray. In the place of self-aid enters “Justice,” which is watched over by the State.

Capitalist exploitation is by no means the product of certain rights ; it is its needs that have brought forth and given domination to the rights prevailing to-day. That “justice” does not cause exploitation, but sees to it that this process, like others in economic life, proceeds as smoothly as possible. While we have before described competition as the motive power of the present mode of production, we may regard “State justice” as the “machine oil,” which has the effect of minimising the friction in the capitalist system. The more this friction grows, the more intense the antagonism becomes between exploiters and exploited, between property owners and propertyless ; the larger, more especially, is the slum proletariat; the more does each single capitalist become dependent upon the prompt co-operation of numerous other capitalists for the undisturbed conduct of his concern. So the desire for “justice” for this purpose grows stronger, and the greater grows the need to requisition its organs—law-courts and police, and a strong State force capable of supporting “justice,” if need be.

But the capitalists are not only concerned with being able to produce, buy, and sell undisturbed within their own country. From the start the commerce outside plays an important part in capitalist production, and the more this method becomes the predominating one, the greater appears to be the need for securing and extending the outside market in the interest of the whole nation. But in the world market the capitalists of one nation meet competitors belonging to other nations. In order to oust these they call in the aid of the State, which is expected to demand, by means of the armed force, respect for their claims, or—what is better still—to crush the foreign competitors altogether. As States and monarchs become evermore dependent upon the capitalist class, so the armies cease to serve merely the personal ends of the monarchs, and are utilised increasingly for purposes of the capitalist class. Wars are less and less dynastic, and more and more commercial and national, which in the last instance can only be traced back to the economic conflicts between the capitalists of the various nations.

The capitalist State, therefore, is not only in need of an extensive army of officials for the purposes of law and police (besides, of course, for the administration of its finances), but it requires also a strong military force. Both armies are ever on the increase in capitalist States, but in recent times the military force grows more rapidly than the army of officials.

So long as the application of science had not begun to play a part in the technicalities of industry, the technical aspect of war changed but slowly. As soon, however, as machinery came to dominate industry and subjected the latter to continuous evolution, war machines ceased to be stationary in development. Every day brings new inventions and discoveries, which, scarcely examined and introduced, at great expense, are already superseded by a new revolutionising improvement or addition. And the war machinery constantly increases in extent, complication and costliness. At the same time the progress in the means of transit makes it possible to concentrate an ever larger number of troops on the battlefield ; hence armies are continually increased.

In these circumstances the State expenditure for purposes of war (in which the greater portion of national debts is included) have with all great European powers grown within the last twenty years to an absolutely maddening extent.

The State grows ever more expensive, and its burdens become always more oppressive. The capitalists and large landowners naturally seek (having everywhere the law in their own hands) to transfer the burdens as much as possible from their own shoulders to those of the other sections of the community. But as time goes on there is ever less to be obtained from those sections, and thus in spite of all the trickery of the exploiters their surplus-value has to be encroached upon for the benefit of the State.

[To be continued]

Cuts in Education (1976)

From the July 1976 issue of the Socialist Standard

Once again capitalism is going through a pretty severe crisis. There is of course nothing new in this. Nor is there anything unusual. On the contrary, it is merely evidence of the normal working of capitalism; a society in which crisis is as endemic as weeds to a flower bed. Marx pointed out over a hundred years ago, that capitalism would inevitably move in phases, one of which was crisis which is what is happening now. When capitalism in Britain or elsewhere gets into a financial crisis its government must turn to anything which offers a prospect of saving the situation, one vulnerable arm of expenditure is education. The direct benefits of investment in education are not as evident to all the capitalist class as is investment in plant or machinery. It takes some considerable time to get any return on the expense of getting children ready for “the work of life” (one of the Oxford English Dictionary’s definitions of education); at least ten years in school to make a labourer, considerably longer for a worker with a technical degree, even longer for a scientist capable of inventing a new type of warhead. So capitalism cuts.

This cannot be in the long-term interests of capitalism. Advanced capitalism needs well-trained labour. Without it, the individual capitalist state may fall behind its competitors in world markets. But long-term interests seldom enter into it. To make his workers redundant, close his plant etc. means less profit for the capitalist, yet nevertheless the capitalist class finds itself doing just that. So also with education. The dictates of this crazy system do not allow for common-sense (even from the point of view of capital). For one thing there are no jobs available for all those expensively-trained students (especially those coming out of so-called higher education). The Times reported (16th January 1976) over 1750 vacancies in colleges, universities and polytechnics which could not be filled in the south-east alone. From the point of view of the capitalist class, with a situation like that, why not cut?

So the hatchet men of the capitalist class (currently the Labour party) start looking for ways of saving the capitalist class’s money. Apart from straight cutting, a future hatchet “person”, Mrs. Thatcher has been suggesting one way for the capitalist class to have its cake and eat it. The method? Easy; you have more colleges, universities etc., without the State paying for them. Which is in effect what she recommended when she open the new University College of Buckingham. This was launched in February of this year as the first "private” university to be started this century in the UK. It is private because there are no direct “public funds” being used for its establishment and maintenance as distinct from other universities in the country. Of course in the long run if this experiment survives, most of the money will come from the capitalist class anyway, but for the moment the state is not being asked to fork out directly. Which is what Mrs. Thatcher meant when she said that she hoped in the future universities would be “encouraged to take their destinies more into their own hands and to embark upon institutional adventures which do not involve the lobbying of public opinion or government departments.” (Times Higher Education Supplement, 13th February 1976). She means of course those that do not require direct public funding.

But apart from this limited possibility, the capitalist class must look at the situation as it is. It must have been clear to the capitalist class what education was costing them. In the financial year 1975/76 for example the total cost of education (admittedly including “libraries, science and arts” government figures) will be £6,164 million. The only item of government expenditure which would cost more this year is the one misleadingly called “social security”. The remedy was to cut £618 million for next year and £1,000 million from the education budget for the following two financial years.

The effects of the cuts were predicted in the run-up to the publication of the government White Paper on public expenditure. One result forecast by the Times education correspondent (23 January 1976) was a large number of staff redundancies; hardly a difficult prediction since there was a serious unemployment problem in the teaching profession before the cuts were introduced. Among the other estimated effects from the cuts are higher school meals charges, reductions in the numbers of students undertaking higher education courses from an estimated 800,000 to 600,000 in the year 1981, a standstill on staff appointments, a reduction in the target for the number of teachers, a standstill on the numbers of children able to attend nursery education etc.

The reaction of the teacher unions was as predictable as the results of the cuts themselves. Fred Jarvis, general secretary of the National Union of Teachers, was typical. He complained about the wastage: it had cost millions of pounds to train teachers who were to be made redundant. “The amount of public money wasted in training them would be about £50m. ‘This is the economics of Bedlam’, he said.” (The Times 20 January 1976.) But it is the economics of capitalism, which unfortunately he and most of his members continue to support. Most of the unions talked of “action” to oppose the cuts. Teacher unions received motion after motion with “demands” for no cuts, opposition to redundancies, opposition to closures, etc. The National Association of Teachers in Higher and Further Education for its 1976 conference has a list of 111 motions almost all of which relate to opposition to the cuts, or financing and salaries. All about as effective as trying to stop Concorde by throwing paper darts at it.

In all the loud and useless flannel of the unions, there are few signs of any realization that the chaos in their lives and those of their children is the result of the capitalist system. For example the Technical Journal for December 1975 when commenting on the disastrous effects the cuts would have in higher education grudgingly acknowledged that as the funding of much of further education “is closely linked to industry, this sector of education has always encountered the occasional potential redundancy situation due to such factors as a declining industry.” Although that could qualify for the understatement of the year, it nonetheless demonstrates something of an awareness (as yet alas, dim) that anarchy in production must lead to havoc in human existence.

Of course it often used to be possible for expensively trained teachers who were suddenly made expensively unemployed to leave the UK and find work abroad, at least in some of the Commonwealth countries. But just as capitalism is world-wide, so also are its periodic crises and so also therefore is unemployment. The Observer (8th February 1976) reported that it is no longer possible for British teachers to get jobs abroad. It even warns teachers against accepting jobs if lucky enough to be offered them. The article ends by pointing out that in the USA teachers can find education authorities running out of money and not having sufficient to pay the wages! So much for “successful” capitalism.

The SPGB is not joining in the campaign to oppose cuts or redundancies. It is pointing out to workers instead, that the cutting down in teachers and resources, while schools are short of both, is yet another of the endless dilemmas created by a social system where cost is paramount. The dilemma in this case is for those who protest at cuts but cannot suggest where the money is to come from, and will go on supporting capitalism which creates such problems.

Ronnie Warrington

Cooking the Books: The spending revue (2025)

The Cooking The Books column from the July 2025 issue of the Socialist Standard

Governments can’t control the way that the capitalist economy works. They can, however, decide how they are going to spend the money that they have or plan to have. This is the annual budget. From time to time, in Britain, the government takes a longer view and sets out their spending plans over a period of three or four years.

One such event occurred on 11 June when the Chancellor of the Exchequer Rachel Reeves stood up in the House of Commons and delivered a ‘spending review’, a ‘comprehensive’ one, no less, as it was broken down by government department. For weeks before, the media had been speculating which departments would be favoured and which would suffer cuts.

She announced that the total amount to be spent over the next three years or so was to be £2.2 trillion, a figure that the Times (12 June) commented ‘may be so large as to be meaningless’. Yes, what is a trillion? A million million? A thousand billion? Anyone know off-hand?

It’s the same every time. The Chancellor’s statement is followed by the Shadow Chancellor getting up and accusing the government of double counting or complaining that not enough is being spent on this or too much on that. And asking where’s the money coming from (a good question). From time to time MPs join in, cheering or booing.

A spending review, as its name suggests, only covers spending not where the money to spend is going to come from. Since governments as such don’t generate any income or wealth, their income has to come from elsewhere, the two sources being taxation and borrowing. This is where the workings of the capitalist economy come in.

Taxes ultimately fall on profits and profits are what drive the capitalist economy. This places limits on what the government can raise without provoking an economic downturn. Governments borrow from capitalist financial organisations at home and abroad and are competing with other capitalist states for loans from these speculators. Any hint that the government may be planning to spend money without credible funding from taxation is seen as increasing, however slightly, the risk of the speculators not getting their money back. This leads to an increase in the rate of interest they charge a government for lending it money. This, in turn, will mean that the government has to allocate more of the money it raises in taxes towards paying the higher interest payments. Another restriction on how much a government can spend.

Reeves is always tweeting that she is ‘fighting to put more money in the pockets of working people’ (though not of non-working people; she wants to stop money going into the pocket of many of them). She seems to mean increasing take-home pay.

Nothing in her spending review does this. That’s because it’s not from the government that she expects the money to come but from employers once the economy is growing. There is an element of truth in this in that, as Marx pointed out at the end of Wage Labour and Capital, ‘the rapid growth of capital is the most favourable condition for wage labour’ as the employers’ increased demand for labour power bids up its price. The trouble for Reeves is that the rapid growth of capital is not something that a government can engineer. It is just something that happens from time to time as capitalism moves through its regular boom-slump cycle.

Space in British Aerospace (1981)

From the November 1981 issue of the Socialist Standard

The view is widely held that workers in the aircraft industry are somehow cosseted from the worst effects of booms and slumps in the economic cycle; the fact that, until very recently, the industry in Britain had apparently been little affected by the current recession gave some support to the idea. The truth, however, is that the fortunes of the industry fluctuate just as much as those of any other in the capitalist economy, as those aircraft workers involved in such recent traumas as the TSR2 cancellation will testify.

One of the reasons for this is the sheer size of the product, the design timescale of which has escalated tremendously in the industry’s comparatively short life. Nowadays the time from drawing board to entry into service can be twelve years or more, which means that a vast expenditure over a long period is required before there can be any hope of a profit. The necessary funding has therefore increasingly been provided by government agencies, so making the industry more and more susceptible to the political climate. Charles Gardner, in his history of the British Aircraft Corporation (Batsford, 1981), maintains that in 1970 Wedgwood Benn, Minister of Technology in the Labour Government, would have approved the loan requested by BAC for the 311 airliner, but the Tory government which was elected that year had other ideas. Similarly, a large defence contract signed with Libya in 1968, centring about Thunderbird and Rapier, was terminated after a military coup the following year. The main factors which influence these government decisions are thus not necessarily economic: the industry has suffered severe setbacks in times of general expansion and, conversely, has until recently expanded its workload in some areas in the face of recession.

Further political influences have been introduced as a result of international co-operation in the building of new aircraft. From such has come, among others, the Anglo-French Concorde, the European Airbus Industry and, in the military field, the Anglo-French Jaguar and Anglo-German-Italian Tornado. Amalgamation within the industry has also proceeded with breakneck speed. In Britain at the end of World War II there were 27 different aerospace companies; by 1960 the development of the industry, with some government pushing, had reduced these to only two — British Aircraft Corporation and Hawker Siddley, each with their aircraft and guided weapons divisions. The subsequent amalgamation into British Aerospace, involving so-called “nationalisation" followed by “denationalisation", will be considered later. The development of joint projects with European concerns is a natural continuation of the amalgamation process. If the separate governments concerned could always agree on all matters affecting the projects, perhaps no additional uncertainties would be injected. Under capitalism however such an idyllic situation cannot be expected. Differences between the partners have appeared in connection with all the projects just mentioned. Currently some French interests are pressing for the abandonment of Concorde, whereas earlier it was the French government, who had committed Air France to the plane, which resisted waverers on the British side. All these political factors increase the feeling of insecurity within the industry.

Running parallel with the amalgamation of the companies, and arising from the same economic causes, has been a change in the nature of the work itself. On the production side automation has proceeded much as in engineering in general. Big changes have taken place on the design side also, with the old type of boffin little in evidence. Computer aided design and the large structural analysis programmes now available have taken most of the glamour out of the process. Each worker can now be assigned routine, boring tasks. One effect has been to increase the militancy among designers as the apparent differences between them and workers on the factory floor are eroded. Another is that it is now possible to stress complicated structures more uniformly than before. Under the constant competitive pressure to reduce weight and cost, aircraft are being produced which have smaller safety margins, and this is reflected in an increasing number of fatigue problems.

The current recession is having its effect on the industry despite appearances to the contrary. Although Keynesian economic theories are still quite widely upheld, particularly in France and in the British Labour Party, governments have generally reacted to a slump by trying to reduce their expenditure, as was done in Britain in the 1930s. On defence, the commitment to Trident reduces the amount available for other projects. Another factor is that contractors whose markets in the civil sector have shrunk are delivering defence goods faster and presenting bills for payment more quickly than anticipated. In fact, there has been no overall reduction in defence spending and the 3 per cent increase promised to NATO may well be kept. But even with an increase in defence spending jobs can be lost, as Herman Rebhan, General Secretary of the International Metalworkers’ Federation, made clear when he addressed the United Nations.

There has been a steady increase in military spending in the United States in the past five years. In 1975 there were 97,300 members of the machinists union employed on military contracts. By 1978 there were 85,000, a drop of 12,300. It is because military production operates at the very fringe of technological development. Military industries are both capital intensive and technologically highly advanced. Both aspects mean a decline in labour. Even with a massive new twist in the arms race the military industry is the worst place in which to invest with a view to creating jobs.

(Tridents into Ploughshares by Bill Niven, New Statesman, 12.6.81)

The British Government, having earlier resisted the efforts of West Germany to cut back on Tornado production, is now having second thoughts, possibly reflecting a toughening attitude following the recent Cabinet reshuffle. At the same time British Aerospace has been forced to ask for aid on interest payments to enable it to continue as a partner in the Airbus project. These cashflow problems are threatening to strangle at birth the latest aircraft to appear on the drawing board, the P106/P110 (information on this project can be obtained from an article in The Times, 22.4.81 by the air correspondent Arthur Reed). The Lancashire Evening Post (15.9.81) reports that the Tory Conference would be lobbied in an attempt to save the enterprise.

How is the workforce in British Aerospace reacting to this escalating uncertainty? Some of the younger workers have gone on contract work, mainly in the United States. This offers high rates of pay in the short term, often enabling them to accumulate some savings. However, it does nothing to banish insecurity or lack of job satisfaction; indeed these are rather intensified — contract workers at Boeing have been on as little as one hour’s notice. It is noteworthy that the AV8B contract with McDonnell Douglas was presented on the British media (BBC1 9 o 'clock News, 24.8.81) in terms of the number of jobs it would “secure”. This would not have happened in the United States, where the effect on company profitability may have been stressed but “job security” is not considered possible. Attempts by British Aerospace workers to “do something about it” are confined to fights for a change in government policy. Despite the lip service now being paid to disarmament, this can lead to open advocacy of increased arms expenditure. The slogan “Jobs not bombs" has a hollow ring to these people because to them, bombs and bombers are jobs. The recent cancellation of Skyflash II and delays to the Sea Eagle programme in the 1981 Defence Estimates caused 600 redundancies at the Hatfield and Lostock (near Boston) missile plants. The New Statesman (12.6.81) reports that immediately shop stewards went to lobby Parliament to openly urge the continuation of these projects. The Chairman of Vickers combined shop stewards committee summed this feeling up when he said on television earlier this year: “We don’t sec anything else that could secure full employment. We would welcome five Tridents on our slipways” (New Statesman, 12.6.81). Behind all this activity is the old illusion that capitalism contrary to its nature, can somehow be run in the workers’ interests.

The forced amalgamation of BAC and Hawker Siddley in 1977, to form the “nationalised” British Aerospace, followed this year by "denationalisation” in the form of a public limited company, has introduced another red herring. Not even the most starry-eyed Leftie among the employees can argue that his position as a wage slave has been in any way altered by these changes. Indeed, management in both cases issued statements making clear that terms of employment would remain unchanged. Yet among those active in the trade unions and reformist politics there is still strong support for the nationalisation concept. These workers do not understand that nationalised industries under capitalism are intended to provide a service to the capitalist class as a whole, and are administered in this way by the state, “the executive committee of the ruling class”.

The present discussion on arms conversion and alternative products must not be confused with the position of future socialist society deciding how best to make use of available resources. In the latter case, arms production of all kinds will have ceased and things will be produced solely for use and not for sale with a view to profit. With production geared to satisfying human needs and free access to all goods and services, a decision to cut back on articles no longer required could not menace anybody’s livelihood; a complete contrast to the situation under capitalism. Most of those now discussing “alternatives” believe that disarmament is perfectly feasible under capitalism. While this is manifest nonsense, it does not follow that these ideas can be totally dismissed. We have already seen that increased arms production cannot always prevent contraction in the workforce employed. Also, both the United States and Russia have more than enough arms stockpiled to knock each other out. They could severely limit arms production and still retain this capability, although there is admittedly no sign of such a reduction right now. It is possible however to envisage the capitalists faced with the very difficult problem of unused resources formerly employed on arms production, and needing to convert these to other uses with the minimum of social unrest. The position of the Labour Party, as declared in their latest manifesto, is that

A Labour government will plan to ensure that savings in military expenditure do not lead to unemployment for those working in the defence industries. We shall give material support and encouragement to plans for industrial conversion so that the valuable resources of the defence industries can be used for the production of socially needed goods.

In the United States these ideas have been carried a stage further. A Defence Economic Adjustment Act has actually been introduced into the Senate (Congressional Record, volume 125, No. 50, 26.4.79), the principal sponsors being George McGovern and Charles Mathias. (The first Bill on these lines was put to Congress as early as 1963.) It legislates for the social problems resulting from the arms race. Professor Seymour Mellman, co-chairman of the peace organisation Sane, is quoted: “Economic conversion is the only way of reconciling fear of job loss with opposition to the arms race” (New Statesman, 12.6. 81).

Despite the optimistic phraseology in the wording of the Bill and by some of its supporters, suggesting belief that capitalism can disarm itself, such an Act never be more than a capitalist answer to one of capitalism’s problems. As for “socially needed goods”, even in the deepest recession a little cash could doubtless be found for a pilot scheme to produce a few of these. The problem, as shown by such absurdities as the butter mountain, is how to sell these goods once they are produced. It is this vital point that the Left and other well-meaning reformers seem unable to grasp.

E. C. Edge

Growing pains of capitalism (1996)

From the June 1996 issue of the Socialist Standard

How far the present Tory — or a future Labour — government is
 willing, or able, to spend money is a question which is at the heart
of every other issue — from education to the NHS. No government,
regardless of which economic guru it paid lip service to, has ever
 intervened to make the capitalist economy run smoothly. As even a
cursory look at its own history reveals, the idea that the Labour 
Party will succeed where every other party in the history of
 capitalism has failed is an insult to the intelligence of the working 
class on whose votes the fate of the Labour Party's
 bid for power depends.

Once upon a time governments believed that they could intervene in the economy to ensure its smooth operation without economic crises, slumps and unemployment. The seminal 1944 White Paper on Employment, issued under the National government of Churchill and Attlee, affirmed that governments should intervene to maintain adequate levels of employment and growth in the post-war period. It was inspired by the doctrines of John Maynard Keynes, the economist who claimed that capitalism could operate without the existence of slumps given correct government intervention and appropriate state expenditure. The Keynesian doctrine led the labour Party to famously state that “if bad trade and general unemployment threatens, this means that total purchasing power has fallen too low. Therefore we should at once increase expenditure, both on consumption and on development, i.e. on both consumer goods and capital goods. We should give people more money and not less, to spend” (Full Employment and Financial Policy). The view that full employment and economic growth were the overriding considerations of government was repeated in the Radcliffe Report of 1959 and publicly by ministers. Today, in the wake of the return of seemingly permanent mass unemployment and severe economic crises, no major political party in Britain (or elsewhere for that matter) still holds to what was termed the‘‘past-war consensus” on government spending, growth and employment.

It was Jim Callaghan, when Prime Minister in the late 1970s, who told the Labour Party conference that the option of governments spending their way out of an economic crisis ‘‘no longer existed” after years of Keynesian intervention failed to stop the reappearance of slump. This was a view enthusiastically endorsed by Mrs Thatcher and her successor, whose aim has been to reduce government expenditure as a way of assisting the economy, instead of selectively increasing it as a stimulus to trade. The current government aim is to reduce government spending to under 40 percent of GNP, a target which they do not look like achieving in the near future or anything like it. In actual fact, despite protestation to the contrary over the last twenty years or so, government spending has been rising as rapidly as ever.

That this is so is not because of any systematic attempt to boost spending to avert unemployment and economic disaster on Keynesian lines, but is precisely because these factors (unemployment, etc.) have been in operation due to the normal workings of the capitalist economy, and the governments of the world have all but given up trying to do anything about them. No government or major party pledges itself to a swift return to what used to be called "full employment" and none is likely to because they realise, implicitly if not explicitly, that the capitalist trade cycle is beyond their control. Furthermore, government expenditure has been rising fast without any conscious reformist action by governments to avert the problems. All governments now do is attempt to clean up the mess left by innumerable market failures and this alone costs them an increasing amount.

Spend, spend, spend

Economics correspondent David Smith has claimed that “public spending, once lifted, is virtually impossible to lower” (Sunday Times, 24 March) and this seems to be confirmed by recent history of the ongoing costs of the inefficient capitalist system and the failures of the market economy keep building up. During the last Labour government, for instance, real government spending rose by 9.4 percent, which was matched by a 9.4 percent rise during the first Thatcher parliament, excluding proceeds from privatisations which are a one-off bonus. Thatcher’s second term, aided by signs of economic recovery, saw the increase in expenditure slow to 7 percent. Between the 1987 General Election and 1992 the increase slowed further to 5.9 percent, but since then with the return of slump government spending has risen by a colossal 11.3 percent in real terms, the biggest rise since the onset of economic crisis under Ted Heath in the early 1970s. The 1992 Conservative Election Manifesto claimed “Our policy is . . . to reduce the share of national income taken by the public sector”, but this has not happened.

This increase in state expenditure in recent decades has caused a massive burden to be placed on the surplus value extracted by the capitalists from the workers, which ,as we have explained on many previous occasions, is in the last analysis the sole source of state finance, whether through taxation or borrowing. As everyone should by now know, the tax burden has continued to rise under the Conservative and government indebtedness is heavy, the Public Sector Borrowing Requirement being £32 billion at present even though the slump “officially” ended three years ago (this in turn is one of the factors behind the still historically high real rates of interest being charged in the financial system).

The only conceivable way this huge burden of government expenditure is going to be cut back, easing the pressure on surplus value, is for there to be an unusually strong period of economic growth. This what all the parties — especially Labour — are banking on after the next general election. But is it a realistic prospect?

Road to nowhere

It seems that even many of the capitalists and their representatives doubt this. A recent report from the Directorate-General of Economic and Social Affairs of the European Commission is a good example. It suggests that even on an optimistic basis, a growth rate of 3.3 percent annually across the European Union is needed if there is to be “a serious contribution” to reducing unemployment and reliance on state benefits, the biggest factor in state expenditure rises. But over the past five years the growth rate has been only 1.6 percent. The average annual growth rate since 1973 has actually been little more than 2 percent, rising in booms and falling in slumps, with a general downward trend since the previous period.

The plans of the European Union for “an optimal growth path” were last met at times during the period 1950-73 after which there was a break in growth and labour productivity, rises in real interest rates and soaring unemployment as the crisis began to bite. And yet the report accounts for this by suggesting that “in secular terms the 1950-60 period was an exceptionally favourable period of reconstruction and catching up in Europe and was thus not likely to last forever . . . " That the EU growth and employment plans were last met during, and in the aftermath of, an “exceptional period” characterised by post-war reconstruction really says all there needs to be said on the matter.

The European Union still intends, however, to implement measures at the bloc level to attract employment and stimulate growth. These include reforms in the hours of working (notoriously difficult to implement and likely to be successfully resisted for their own good reasons by the capitalist class), minor changes in tax laws relating to the labour supply, and what the Commission calls “the widening of wage-cost distribution”, encouraging workers to take lower-paid jobs, if necessary subsidising them do so. This latter proposal would, as the report admits, “have a high budget cost” and could not be guaranteed to solve the problem. Interestingly, the report also adds that any measures taken should also act “to safeguard the existing human capital of the unemployed in order to prevent social exclusion and to maintain social cohesion”.

Afraid of the consequences should they not, it is quite clear that the EU, its member states and capitalist political parties are incapable of restoring the levels of growth characterised by the post-war reconstruction. The situation in Britain is typical. Labour and the Conservatives are vacuous political entities now even by reformist standards. In the face of mass unemployment, burgeoning debt, rising taxation, expenditure and burdens on profit, they have nowhere to run. They have no solutions other than to pray that the miracle of economic growth may somehow descend from the heavens to save them. All the indications, even from their own economists, is that it is a pious hope indeed barring capitalism’s own particular solution, the barbarism of world war and “reconstruction”.

Dave Perrin

Cooking the Books: The really big slump (2020)

The Cooking the Books column from the November 2020 issue of the Socialist Standard

We know that capitalist production moves in ever-repeating cycles of boom and slump and that governments can do nothing to prevent this. But they can produce a slump, either unintentionally through a mistaken policy or deliberately. The present slump is an example in that it has been largely government-induced rather than resulting from the normal workings of capitalism.

The lockdown imposed by the government at the end of March and maintained for the next three months led, according to the Office for National Statistics (ONS) at the end of September, to a fall in GDP during those three months of 19.8 percent, which they described as ‘the largest quarterly contraction in the UK economy since quarterly records began in 1955’.

This was a much higher fall than in many other countries:

‘Revised figures yesterday from Germany showed that its GDP fell by 9.7 per cent, less than half the UK’s decline, while the eurozone and European Union falls were 12.1 per cent and 11.9 per cent respectively … The United States recorded a similar drop to Germany, just under 10 per cent’ (David Smith, Times, 26 August).

Why this difference? Was the government-induced slump in Britain really twice as deep as in Germany and the US? If so, why? It turns out that it was mainly due to the different way that the ONS statisticians calculated the fall compared with those in other countries.

GDP is measured in various ways, one of which is to add up what persons spend, what businesses invest and what the government spends. With only key workers, as in the health service and food distribution, allowed to go to work during the period and the income of some 9.4 million reduced to 80 percent of their previous earnings, private consumption fell by 23.1 percent, manufacturing production by 16.9 percent and business investment by 31.4 percent. Government spending, on the other hand, went up by 14.1 percent. Calculating GDP in this way gave a fall of 14.5 percent.

This way of calculating the fall didn’t satisfy the ONS as, while the government spent more, it did not provide the same level of ‘service’. In calculating GDP, the government is regarded as providing various services – education, health care, ‘defence’, ‘justice’, administration,etc – which have to be priced.

Normally this is simply the amount of money the government spends on them. During the lockout, however, although the government spent the same amount on education, because schools were closed it didn’t provide the same level of ‘service’; similarly with normal NHS services.

Taking this into account, the ONS reduced government ‘output’, so increasing the fall in GDP from 14.5 to 19.8 percent. Other countries didn’t do this.

We don’t want to get involved in the arguments amongst statisticians as to the best way to calculate GDP except to point out that the concept of government ‘output’ is rather dubious. Governments as such produce nothing; everything they spend derives ultimately from surplus value produced in the profit-making sector of the economy and is obtained by them either through taxation or by borrowing.

So all its spending is as much a ‘transfer payment’ as are benefits and pensions.

In any event, whether the fall – the plunge, in fact – in GDP over the three months was 19.8 or 14.5 percent it was much more than in any slump caused by

the normal workings of capitalism. In the previous biggest slump since accurate records began, the one that followed the Crash of 2008, GDP fell by only 4.6 percent and that over a period of 16 months.

Cooking the Books: The National Debt: whose debt? (2020)

The Cooking the Books column from the November 2020 issue of the Socialist Standard

‘The UK’s national debt hit a record £2.024 trillion at the end of August, £249.5 billion more than the same time last year’, reported the Evening Standard (25 September). Presumably seeking to be helpful but actually confusing the picture, the report went on:

‘To put the figures in some perspective, the debt level works out at roughly £30,000 per person living in the UK’.

So we are all on average £30,000 in debt, are we? No, it’s the government’s debt not ours. What is popularly called the ‘national debt’ is the outstanding debt, accumulated over the years, of the capitalist state and so is no concern of ours. To be fair to the statisticians at the Office for National Statistics (ONS) who compile the figures, their official name for it is the ‘General Government Gross Debt’. The total debt owed by persons is called ‘Household Debt’. At the end of March 2018 this totalled £1.28 trillion, most of which was mortgages. The two statistics are quite different.

Note that since 1974 a ‘trillion’ means only a thousand billion (not the billion billion it used to be). But it makes a more sensational headline to say that the government’s debt is £2.024 (with a full stop) trillion rather than £2,024 billion (with a comma).

Governments (unless they are directly involved in capitalist production themselves) generate no income of their own. The money they spend comes from two main sources, mostly taxes. If a government wants to spend more than what this brings in it has to resort to borrowing. This is normally done by selling short-term (Treasury) bills or longer-term bonds (gilts). The interest on these has to be paid from tax revenue.

Another statistic we are urged to get worked up about (but needn’t) is the ‘General Government Deficit’. This is the difference between what the government spends and what it raises through taxes and which has to be made up by borrowing. At the end of June it was £128.8 billion. If, on the other hand, a government’s income from taxes is greater than what it borrows, then there is a surplus which can be used to pay off a part of its debt.

Marx had something to say on the origin and consequences of the ‘National Debt’:

‘The state’s creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. But furthermore, and quite apart from the class of idle rentiers thus created, the improvised wealth of the financiers who play the role of middlemen between the government and the nation, and the tax-farmers, merchants and private manufacturers, for whom a good part of every national loan renders the service of a capital fallen from heaven, apart from all these people, the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to speculation, in a word to stock-exchange gambling and the modern bankocracy.’ (Capital, Penguin edition, Volume I, Chapter 31).

This is a fair description which still applies today but, unfortunately, is a source of many currency crank theories. Marx was aware of this and warned:

‘The great part that the public debt and the fiscal system corresponding with it have played in the capitalization of wealth and the expropriation of the masses, has led many writers, like Cobbett, Doubleday and others, to seek here, incorrectly, the fundamental cause of the misery of the people in modern times.’

The fundamental cause of this misery is not the financial system but the class ownership of the means of life and production for profit. What is required to remove it is not monetary reform but common ownership and production directly to satisfy people’s need.

Kinnock in Wonderland (1983)

From the October 1983 issue of the Socialist Standard

Neil Kinnock, the bookmakers’ favourite to become the next Leader of the Labour Party, has a very simple explanation for the current economic depression in Britain. In a speech read to the Cardiff Fabian Society on 1 July he attributed it to a "deliberate Government policy", to a decision by the previous Tory government to pursue “policies of slump":

The Tories are caught in a trap of their own making. They set a target for reducing public spending and tax. Then they cut public spending. The economy shrinks. That reduces tax revenue and the Government has to increase borrowing. So they cut public spending some more and push up taxes. The economy slides, more people lose their jobs, and the crumble becomes a collapse, as the economy gets smaller and weaker.

The trap is their obsession about public spending. Our plans are based on using public spending for what it is good at — for investing in our industry, our people and our public services, for providing useful work for people and stable markets for the equipment they use. That is all commonsense.

We know how to achieve economic growth — how to put the country back to work. The Tories don’t.

So, for Kinnock, the present slump has been caused by the Tories’ policy of cutting government spending rather than being part of the depression phase of the economic cycle through which the world capitalist economy is currently passing. In fact, on this matter the Conservative Party can legitimately plead not guilty. The present slump is not their fault; it has not resulted from the policies they have chosen to pursue. The present slump in Britain is part of a world wide capitalist depression and the Tory governments in office since 1979 have merely passively adapted their policy to the world economic situation as any government, including Labour, would have had to do (and did do when they were in office during an earlier stage of the world depression).

If Kinnock’s explanation was the right one then, logically, the slump could be ended by a change of policy, either by a new government or even by the present Tory government. And this of course is the conclusion Kinnock wants to reach. As he put it in his election address to the voters in his constituency of Islwyn in South Wales:

We will expand the economy, by providing a measured increase in spending. Spending money creates jobs. If we increase pensions and child benefits, it means more spending power for the elderly and for parents, more bought in local shops, more orders for goods and more jobs in factories. More spending means that the economy will begin to expand; and growth will provide new wealth for higher wages and better living standards, the right climate for industry to invest and more resources for the public services.

At first sight this may seem plausible — "commonsense”, as Kinnock puts it. Since one of the features of a slump is a shrinking of the market, a lack of demand for goods, why not simply give people more money to spend? But it is not as simple as that. Slumps are provoked by the rate of profit having fallen too low to make it attractive enough for capitalists to continue investing as much in production as they had previously. The resulting cut back in production is at the same time a cutback in incomes derived from production (profits, wages, taxes). The shrinking of the market in a slump is thus a consequence of the slump, not its cause. Similarly, the “way out” can only come from a revival of profitability, not from an increase in purchasing power artificially pumped into the economy. And a revival of profitability is a slow process which will indeed come sooner or later, but which governments can do little to hasten beyond continuing to give priority to profits and profit-making.

In these circumstances what would be the effect of an increase in government spending such as advocated by Kinnock? That would depend on how it was financed. There are three ways in which a government obtains the money it spends: taxation (and in the end all taxes fall on property and property incomes, since taxes on wages and on articles consumed by wage-earners are ultimately passed on to the employer); borrowing (overwhelmingly also from property-owners since only they have the sums of money the government is likely to be interested in); and the printing press.

If the government’s increase in spending is financed by increased taxation this would inevitably come out of profits. Suppose the government used this extra money to “increase pensions and child benefits” — as Kinnock suggested in his election(eering) address. This would certainly mean “more spending power for the elderly and parents” but it would also mean less spending power for shareholders and capitalists. The extra spending by pensioners and parents would be offset by the decrease in spending by capitalists, either on their own consumption or in reinvesting in production. There would therefore be no overall increase in spending of the sort Kinnock wants to rely on to get the economy expanding again. The government would have simply robbed Peter to pay Paul, the overall level of demand in the economy remaining the same.

But suppose that the government used the extra money raised by taxation “for investing in our industry", as Kinnock suggested to the Cardiff Fabians. Once again the overall level of demand would remain the same, with the government simply investing, spending on productive activity, what private capitalist industry had previously been doing. It is indeed possible that the capitalists had been hoarding or lending to the financial market rather than themselves re-investing their profits in production, but this would have been due to the absence of profitable sales outlets. The fact that their profits were taxed away and re-invested by the government would not alter this situation for the government would find it just as difficult as the private capitalists would have done to sell the extra goods it had invested in. To the extent that it did succeed in selling them this could only be at the expense of sales by private capitalist industry. So once again the economy would not expand. The most that would happen would be a change in the pattern of what was produced.

The situation would be just the same if the government decided to finance this increased investment by borrowing, inevitably from private capitalists. For these latter would only be prepared to lend their capital rather than investing it themselves in production because they would have judged that no profits, or insufficient profits compared to the rate of interest on loan capital, were to be made from producing goods. As to the final theoretical option, even Kinnock has not suggested borrowing money at interest from private capitalists to increase pensions and child benefits!

In the end, then, if government spending is to have any chance of having the effect that Kinnock wants it to have, if it is to be a real injection of extra purchasing power into the economy rather than a mere redistribution of already existing purchasing power, it will have to be financed by using the printing press. This is what Kinnock is in effect advocating. But the result would not be to expand the economy, which will only begin to expand of its own accord when profit prospects improve; it would rather be to expand the rate at which prices are rising. For printing money in excess of what the economy needs at any particular time for its various transactions can only result in the depreciation of the currency, reflecting itself as a rise in the general price level.

Internally this does not matter too much since people can get used to the changing value of the paper tokens they use in their economic transactions, but it can have serious effects on the competitive position in the world market of the country which practises it. A higher rate of inflation than the world average, or than those of a country’s main commercial rivals, will mean that the prices of its exports will rise faster than those of its rivals and so become uncompetitive. This will reflect itself in falling sales and so in falling profits and then in falling output and rising unemployment.

In his speech to the Cardiff Fabians Kinnock cited the last Labour period of office from 1974-79 as an example of what a government “committed to planned growth" could do. Certainly the world depression had only just begun then and had still not reached its lowest point at the time the Callaghan government was voted out of office in 1979. It is however strange that Kinnock should refer back to this period since Callaghan is on record as having, on the basis of an actual experience of running capitalism, expressed the exact opposite view to that which Kinnock and the Labour Party, now in opposition, advance:

We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candour, that that option no longer exists and that in so far as it ever did exist, it only worked on each occasion since the war by injecting bigger doses of inflation into the economy, followed by higher levels of unemployment (The Times, 29 September 1976).

No wonder the Labour Party has lost all credibility. Out of office "More spending means the economy will begin to expand”; in office they suddenly discover that “that option no longer exists”. As a matter of fact it never did exist. The idea that a government can spend its way out of a depression is based on a complete misunderstanding of how capitalism works. But then the Labour Party never did understand capitalism. Kinnock doesn’t either, which must make him a typical Leader for the Labour Party.

Adam Buick