Vicious circle which will mean dole queues grow

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Roger Taylor makes some interesting and some strange points in his attacks on Labour your say Friday 17th Feb).

Let me be clear about this, the deficit has to come down. Whatever we do that needs to be the case. We need politicians with vision, courage and honesty to achieve this. Everyone agrees. The one thing we don’t need is politicians who put their head in the sand and ignore reality. What we are doing now isn’t working and the unemployment figures show it isn’t Roger. The only guarantee we have is that doing more of the same will generate more of the same.

We have a vicious circle of cuts leading to stagnation and reduced tax revenues. Government spending is going up as the dole queue rises. We need a government that can see this and direct its efforts so the economy grows and is rebalanced with manufacturing at the heart of things. The private sector needs support to grow and provide jobs. Bombardier trains or Sheffield forgemasters could have done with some but instead those jobs have gone elsewhere.

Smoke and mirrors might be used to try and confuse us but let’s be clear again, the deficit isn’t the same as public spending. The deficit is the gap between public spending (the amount the government spends) and tax revenue (the amount it raises in taxes). So public spending isn’t the only thing that matters: if tax revenue falls, the deficit increases.

Let’s also blow the fog away. The deficit increased because of the banking crash and recession that followed. Before 2008, the Labour government was running a relatively small deficit – less than that of the previous Conservative government. But the banking crash and recession caused tax revenue to go down (for instance companies made smaller profits and so paid less corporation tax) and public spending to go up (people lost their jobs and so received more benefits). Mistakes were made in the storm here and in almost every country in the world. I’ll admit that with sadness because of all those it hurt and humility too. At the same time I’ll focus on the future because that’s the only thing that counts.

Now though we can see cutting spending has caused tax revenue to fall. Obviously cutting public spending puts public sector workers out of work. They no longer pay taxes or spend as much in local shops and businesses, worsening the recession. Without a plan B to promote private sector growth there’s a knock-on effect – and the result is less tax that would help cut the deficit and at the same time private sector workers lose their jobs too!

Finally let us shine one bright light of truth. Only economic growth will shrink the deficit. Right now there is so little demand in the economy that things are just getting worse. The only way out is for government to fill the gap, by switching from cuts to investment. It needs to be done with vision, courage and honesty.

Anthony Rutherford