In recommending Labour’s spending review to the House of Commons, Brown boasted that ‘we have been steadfast in our priorities – the nation’s priorities’. However, as our analysis of previous Labour budgets has shown, Labour’s concept of ‘nation’ is limited to a very select coalition. Every policy statement and every spending decision is designed to ensure that the coalition of forces which elected it to power remains, as far as possible, on its side and intact, as economic conditions deteriorate and unemployment begins to rise again. So, while serving the interests of banking and multinational capital, Labour must at the same time keep the support of the professional, middle and upper working classes.[1] Both the content and presentation of the spending review were contrived to achieve this end.
Financial discipline for the bankers
Brown began his statement to the Commons by referring to two economic reforms Labour had taken to achieve its long term aim of ‘high and stable levels of growth and employment and sustainable public services’. The first was to hand monetary policy to an ‘independent’ Bank of England – that is, putting monetary policy in the hands of the bankers. The second was to impose a new framework of financial discipline on the public sector to achieve a ‘current budget balance’ and ‘prudent levels of debt to national income’ – that is, to run the economy in the interests of the bankers. The consequences for the public sector have been devastating.
As a result of the two-year spending limit imposed by Labour in May 1997, core government spending, adjusted for inflation, actually fell by 1% during Labour’s first year of office. Brown says that ‘this fiscal tightening will be locked-in into next year.’ Public borrowing has been cut by £20bn and current budget surpluses are planned for the next three years of £7bn, £10bn and £13bn. Debt as a proportion of national income will fall below 40%. Britain, Brown proudly states, ‘is among the most prudent of our G7 partners’. Government spending as a proportion of GDP, at 39.6%, is the second lowest share in the European Union after Ireland. The European average is nearly 10 percentage points higher. Even after the increased spending proposed in the latest three-year review, it will reach only 40.6% of GDP at the end of the Parliament, lower than the 41.1% inherited from the Tories. The bankers will be pleased.
To increase capital investment in the public sector, the government will extend the so-called private finance initiative (PFI) and privatise public assets in areas where even the Tories would have found it difficult to tread. When the PFI was introduced by the Tories, Labour correctly argued that this was a cynical move to keep investment spending out of public accounts and have it financed more expensively by the private sector. Now it has become part of the creed. As a result, as environmental campaigner George Monbiot argues: ‘Much of the extra money Gordon Brown promised will travel straight into the hands of the bankers controlling the new projects’ (The Guardian 16 July 1998). Further privatisation of central and local government assets, including air traffic control, the Royal Mint and the Tote, will raise £11bn, handing out windfall profits and large commission fees to the City’s financial institutions. George Monbiot is correct to conclude: ‘Gordon Brown, is no more than a pliant manager, an obliging agent of the businessmen who have come to run this government.’
A ‘public relations fraud’
The presentation of Labour’s spending review plans was called a ‘public relations fraud’ by members of the Commons Treasury committee chaired by the right-wing Labour MP Giles Radice. The government had announced a cumulative increase in the health and education budgets of £21bn and £19bn, suggesting that spending in these key areas of concern to its ‘middle class’ supporters would be £40bn higher by the end of Parliament. The government’s own figures show that the cash increase in these budgets is £17.2bn by 2001-02 and the £40bn is achieved by adding up the increases each year over the next three years, using 1998-99 as the starting point (The Guardian 21 July 1998). In fact once inflation is taken into account, the real figure is around £11bn. But the government needed to commit this fraud to hide the fact that it is becoming increasingly difficult to govern in the interests of the banks and multinational companies, while sustaining the economic privileges of its professional, middle class and upper working class supporters. An examination of government spending in the priority health and education sectors demonstrates the real situation.
Health
In cash terms, health spending increases £8.7bn from £36.5bn in the current year to £45.2bn in 2001-02. Once inflation is taken in to account the actual increases are £2bn in 1999-2000, £1.8bn in 2000-01 and £1.6bn in 2001-02, a total of £5.4bn, barely enough to allow the NHS to stand still. A 1% increase of inflation above government estimates would wipe out half of this. Overall health spending is expected to grow by 3.7% a year in real terms for the duration of this Parliament, barely higher than the manifestly inadequate 3% a year growth during the Tory years.
Already the NHS confronts longer waiting lists and critical shortages of doctors and nurses. In 1996-7, health authorities reported a cumulative deficit of £791m, and in December 1997, 28 health authorities and 74 NHS trusts were in ‘serious financial difficulties’ according to the National Audit Office. Building new hospitals through the PFI will only make matters worse. So far, all 14 first-wave PFI schemes have involved cutting the number of acute beds by 30-50%. In addition, further reductions in medical and nursing staff will be needed to pay for the higher rates of return which private companies demand for their shareholders and to cover their larger borrowing costs. The Lothian Health Board’s proposed deal with a private consortium to rebuild Edinburgh’s Royal Infirmary will cost £25m a year to fund, which means losing nearly 20% of its work force, 1,000 doctors, nurses and clerical staff. According to Department of Health consultants, for every £200m spent on PFI developments, 1,000 staff will have to go. Finally, even all this comes at a price, the NHS will still have to improve efficiency by 3% a year to achieve a further £1bn saving, and set new targets for asset sales. This can only lead to ever greater harassment of NHS workers, already overworked, by highly paid professional managers brought in to do Labour’s dirty work.
This is the context in which the decision to restore free eye tests to pensioners at a cost of between £30m and £35m must be seen. They will only be introduced next April, nearly two years after Labour was elected to power and after an estimated 500,000 pensioners have been in danger of serious damage to their sight as a result of not being able to pay for the tests.
Education
Spending on education will grow by £1.9bn in 1999-2000, £2.3bn in 2000-01 and £1.8bn in 2001-2002, a cumulative rise of £6bn. This represents a real increase of 5.1% each year for three years to 2002, but falls to 3% a year for the length of the Parliament after the cutbacks in the first two years. The proportion of GDP spent on education will be lower than it was at the start of the Tories final term of office, 5.1% compared to 5.3%, and lower than the 5.4% of GDP given over to the education budget during the Callaghan government’s final year of office.
In January 1998 there were 484,000 infant school children and 1.4m primary school children in classes over 30. Both figures are up from last year when Labour came to power – the former by 8,000 and the latter by 100,000. Average teachers’ pay has fallen from being 36% above the average non-manual wage in the 1970s, to being 6.4%, or £1,436 more than it today. As a result and with the continual intensification and lengthening of the teaching day, unfilled vacancies for teachers rose to 2,359in January 1998, a 30% increase over the previous year. In addition, applications for teacher training from graduates have fallen by 15.4% for primary courses and 13% for secondary. With Brown’s spending review demanding ‘further modernisation and reform’ as the condition for extra spending, this Labour government has no intention of offering working class children an adequate education.
Making the working class pay
General government spending is due to rise 2.8% in real terms over the next three years, 2% per year for the full Parliament – less than the 2.6% of the last Tory Parliament. With most of the resources going into the two priority sectors of health and education, the rest of the budget programmes will grow only by 1.8% per year over the next three years, less than the growth rate of the economy. Spending on the Home Office however, including police and prisons, will rise by 5% per year in real terms, well above the average trend.
Essential to this spending review is the New Deal – the attempt to force working class people off benefits into jobs paying poverty wages to cut back public spending on social security, the largest government budget. On page 3 we discuss the minimum wage in the context of the New Deal and show what it means for the working class.
The social security budget will grow by 1.9% a year, in real terms, over the next three years, according to government figures designed to assure Labour’s City and business friends that the social security budget is being cut back. But this is another accounting deception. The real rise is 3% a year, once ‘working families’ tax credit’, which replaces family credit, is treated as benefit spending rather than foregone tax revenues. The rise in the budget will be much greater if the economy slows down and unemployment grows. That is why the government is so determined to force through its New Deal measures, and seek other ‘efficiency’ measures throughout the public sector to ensure that it will be the working class who has to pay. Public sector pay has fallen some 16% behind the private sector since 1982. In addition, pay increases in the public sector, since the Tory government first froze the pay bill in 1993, have been based on so-called ‘efficiency’ measures, in reality, a loss of 250,000 jobs. That will continue under Labour and under this spending review. Brown has set new 3-year ‘efficiency’ targets of between 3% and 10% in all departments, and money will only be released if departments keep to the government plans. With pay in the public sector increasing by 2.6% a year, half the rate of the private sector, the mass of workers in the public sector are being made to pay for Labour’s election pledge not to raise taxes on the ‘middle classes’.
As the economy slows down, with manufacturing industry already in recession and unemployment starting to rise again, even the minimal increases in public spending outlined in the spending review will eventually have to be cut back by a Labour government acting in the interests of the banks and multinationals, and determined to hold together the coalition which elected it to power. That is why the working class must break with Labour now.
The fight to defend jobs, pay and services in the public sector, the fight against Labour’s New Deal and the fight against poverty pay are one and the same fight. It is a fight against the Labour government and the capitalist system it runs in the interests of the banks and multinationals.
1. See FRFI 138 August/September 1997 and FRFI 142 April/May 1998 for a discussion of Labour’s previous budgets.
FRFI 144 August / September 1998
