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It's a lonely place if you agree that austerity isn't the way forward

By Neil Gibson

Published 22/09/2015

Jeremy Corbyn
Jeremy Corbyn

The success of Jeremy Corbyn in the Labour leadership election has elicited some rather alarmist press that it will bring disaster. There has been very little critical debate of his economic policies - instead, they have been largely lumped in the 'looney' category. Is this fair? The short answer is, no.

The UK electorate has been largely convinced of the idea that there is only one choice looking ahead, and that is austerity, with the only debate concerning the pace and scale of cuts. This is clearly not true. The government could choose to end the cuts or spend more if it wanted, but yet this alternate path seems to gain little serious debate.

The basic premise of the austerity argument is that we cannot live on an ever growing debt mountain and the government must control its spending to balance the books. However, this trivialises the complexities of the choices.

The government could try to encourage faster growth - or, in economic parlance, provide stimulus, to grow the tax base to meet the spending. We know of a long list of forthcoming infrastructure needs; why not bring forward spending and encourage growth and economic expansion in that way?

Many readers of this column will have personal debt way above the government's current burden of 80%. Can you imagine a bank advisor telling you that taking out a mortgage at 90% of your income would be foolish and you should focus on paying off all debt? If the government can finance the debt at a reasonable rate, then why the alarmist concern? But spending more is not without risks.

The government does not find it easy to cut spending even when times are good and, thus, it can lead to uncontrollable debt spirals if not kept in check. It can push up inflation. There is also the thorny issue of waste - the government may spend the money badly.

Regardless of where one sits on the debate of the need for cuts, it comes back to a point that both other commentators and I make frequently - it is about choice.

We could choose to tax more and continue to spend, or to borrow more, or print money, or cut pay to preserve workers. But the debate is too narrow and many choices are dismissed without the necessary analysis. Could the Northern Ireland public service have kept all its workers by controlling or reducing pay? Yes - and yet that debate has barely been mentioned. Could we have raised local taxes to preserve the welfare state in its pre-Tory cuts form? Again, the answer is yes.

Corbyn's plans to spend more would not, based on scenarios run within the Cambridge Centre for Business Research and Ulster University Economic Policy Centre (UUEPC) economic forecast model, devastate the economy.

It would marginally improve the employment outlook, albeit at the cost of a slightly higher national debt and modestly accelerated inflation rate.

There are heated debates we can have over Corbyn's other economic policies such as renationalisation and people's quantitative easing, but on the basic point over the need for austerity, this is not lunacy.

Faced with careful analysis, individuals may come up with an approach they are comfortable with that does not fit with a current economic or political doctrine.

Surely Northern Ireland's response to welfare reform, if it was not comfortable with the plan, should have been: "We disagree with the Conservative plans. We are going to raise local taxes to maintain the system. We will ensure our local population is comfortable with the tax increase and we will show the rest of the UK the folly of its policy by making our welfare state best in class"?

To suggest that we needed to keep the system unaltered is missing the critical point that welfare is redistribution of tax income to help those most in need but, critically, it needs to have the money to redistribute.

If you believe austerity is not necessary in its current guise, but that the welfare state and public services do need reform (including wages); that Northern Ireland does need a lower corporate tax rate to attract more firms, but you also feel that wage disparities are a concern along with short-termist dividend maximising policies in the private sector, then welcome to my world - it is a relatively lonely place.

Neil Gibson, NI Economic Policy Centre at UU

Belfast Telegraph

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