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date: 10 September 2010

embargo: 00.01hrs Saturday 11 September 2010

TUC General Council statement on the economy, public spending and public services

The TUC General Council's statement on the economy, public spending and public services is published today (Saturday) ahead of the 142^nd Congress in Manchester which begins on Monday (13 September).

The statement says:

The UK's economy and society is in great danger. The new Government's reckless policy of rapid deficit reduction through unprecedented cuts to public services, procurement and investment not only poses a grave risk to the recovery but will irreparably damage our social fabric.

Ministers tell us that there is no alternative. But expert economists both here and abroad warn that Government policies could well make the deficit worse by limiting growth or even causing a double-dip recession. The cuts are not a fiscal necessity, but a highly political and economically dangerous project to fundamentally reshape our country by permanently reducing the scale and scope of Government.

In this statement the TUC General Council:

• sets out why we think these policies will risk the recovery, increase inequality and threaten social cohesion;
• argues for an alternative approach to deficit reduction that will safeguard services, jobs and growth and make the UK a fairer and more sustainable society; and
• calls for a great national campaign against the cuts that will galvanise opposition through both community organising at grass-roots level and well-planned national initiatives including a rally and lobby of parliament in October and national demonstration next March.

The economy and jobs

In the wake of the financial crisis caused by greed and irresponsible speculation in the financial system, the prospects for the UK economy are still deeply worrying. While the UK pulled out of recession at some speed, the latest indicators suggest that this may prove a short-lived respite. With mounting concern that growth in the Eurozone could be slowing and growing worries about the US economy, the UK economy will be under real pressure in 2011.

The severe public spending cuts in the Emergency Budget will inevitably constrain growth, and some think could even push us back into recession. Confidence among business and consumers is already low, driven by the fear of prolonged austerity.

But there is worse to come. October's Comprehensive Spending Review (CSR) and a probable Autumn Statement pose further threats to recovery. The Government will start to withdraw £32 billion from the economy in tax rises and spending cuts from April 2011, on top of the £8.9 billion already taken out this financial year. These cuts will not only directly affect economic activity, but further undermine confidence.

The great danger is higher unemployment. In recent months unemployment has levelled out. Although it rose sharply in the first half of 2009, it never reached the peak hit in previous recessions. Action taken by the previous Government helped. Crucially, employers and unions worked to avoid job losses and keep skilled workforces together through the downturn.

Firms have not started to hire again in any significant numbers. Unemployment is stuck at around two and a half million, with young people particularly badly hit. Previous recessions show that it can take a very long time for joblessness to fall even when recovery is secure.

There is therefore scant prospect that the private sector will now create the new jobs needed. Falling confidence suggests a stagnant labour market and at best a jobless recovery. But the prospect of further deep public spending cuts makes even this look like an optimistic scenario, as both public sector staff and employees in the many companies that depend on the public sector for orders lose their jobs.

We cannot yet know exactly how many public servants or private sector employees will lose their jobs as a direct result of cuts but the Office for Budget Responsibility (OBR) estimates that 490,000 jobs could be lost while leaked Treasury documents suggest the figure could rise as high as 600,000 with as many as a further 700,000 job losses in the private sector.

In turn this will have knock-on effects across the private sector as the newly unemployed stop spending, and even those still in work, but who fear they soon won't be, save for an uncertain future.

The OBR claims that a growing private sector will be able to absorb these job losses over the next five years. But TUC research shows that even under conditions of high growth and confidence it has taken much longer to generate the two million jobs needed after past recessions^[1]. And of course we can expect neither high levels of growth or confidence as the cuts bite.

Making hundreds of thousands of public servants redundant at any time would cause great distress and inevitably harm services. To do so with severely reduced redundancy terms for many and at a time when there is little or no chance of finding private sector employment is callous. It will not only exact a high price from those workers and their families but is likely to do serious long-term damage to the social and economic fabric of many communities in the UK as did the economic policies of the 1980s. It is particularly unjust that the damage done to the public finances by the banking system will now be paid for by hundreds of thousands of public servants and private sector workers who bear no blame for the crisis despite the Government's attempts to shift responsibility away from the City.

Deficit reduction, fairness and public services

The Government claim that the cuts will reduce inefficiency and protect the vulnerable, rather than reduce service quality and make society more unequal.

We recognise that any new Government will inevitably want to change its priorities, and unions do not oppose negotiated change or genuine efficiency savings. We welcome the decision to scrap ID cards, fewer top-down targets and greater scrutiny of the use of consultants. Plans to replace Trident should also be publicly reassessed as part of the defence review, taking into account the cost of replacement and the knock on effects of that spending on jobs in other parts of the public sector, its utility as a defensive weapon, and also the employment and skill needs of the shipbuilding, engineering and other affected industries and staff in the Ministry of Defence itself.

There should be a continuous process of improvement across the public sector - including a search for economies and better efficiency - that draws on the knowledge and experience of staff. But this process is made harder when cuts and service reductions are spun as efficiency savings, rather than accurately described as cuts. And it is dishonest to suggest that such savings can plug more than a small proportion of the deficit on the timetable the Government has set.

Nor are unions opposed to reform of public services. But the aim should be to make them better serve the public. The TUC will continue to press Government to put public sector workers, unions and service users at the heart of public service reform. The Government's top down and ideologically motivated approach to reform and spending cuts risks not just demoralising and de-motivating staff, but fundamentally reducing the quality and coverage of public service.

Major spending cuts cannot be delivered in a fair or 'progressive' fashion. The simple fact is that public services, benefits and tax credits are used far more extensively by those on middle and low incomes than those higher up the income scale.

Market economies deliver economic growth, but left to themselves drive inequality and fail to secure long-term conditions for growth such as a skilled healthy workforce, proper infrastructure and a sustainable environment. This is why public investment, regulation, public services, wealth redistribution and a welfare state have all developed in successful economies.

Deep cuts to public services, benefits and tax credits are bound to have more impact on those with low incomes. Two separate analyses of the Emergency Budget by the Institute for Fiscal Studies (IFS) confirm this^[2].

Women, disabled people and those from black and minority ethnic communities are likely to be among the biggest victims of the cuts and the greater inequality they will bring. We are deeply concerned at suggestions that ministers are failing to fulfil their legal duties to carry out full equality impact assessments. These must be prepared in advance of, and published alongside, the CSR, where appropriate using the protocol drawn up by Public Services Forum (PSF) which brings together unions, employers, government officials and is chaired by a Government minister^[3].

Unlike cuts, tax increases need not bear down on those least able to afford them, and can reduce inequality across society as a whole. But the Government will use tax increases to fund just 20 per cent of their measures to close the deficit and has chosen the UK's most regressive tax, VAT, to do most of this work. A fair tax system that asks those that gained the most from the boom years to pay a proper part in mending the damage the crash has done to the public finances has not figured on the new Government's agenda.

For these reasons, a group of charities and the TUC are calling on the coalition government to commit to a Fairness Test on any tax rises or spending cuts they introduce. The Fairness Test would be developed by the Treasury, and would ensure that decisions taken to reduce the deficit do not unfairly impact on the poorest in society.

Ministers say that the private sector can deliver better public services for less money. This is not borne out by experience. Many studies show that private sector firms have no better record in delivering services than the public sector^[4]. Our experience is that outsourcing often leads to a poorer service delivered by badly paid, poorly trained and low morale staff. The danger is that we rerun the 1980s when compulsory competitive tendering caused a very significant decline in service quality.

Major redundancies, a public sector pay freeze at a time of rising prices and large-scale reorganisations in many services, particularly the National Health Service, will seriously damage morale amongst public sector workers. At least one survey^[5] has already found managers reporting declining morale at the prospect of cuts and the Audit Commission^[6] has concluded that redundancies will lead to a loss of skills and knowledge that will damage service delivery.

Moreover the Hutton review of public service pensions has called into question the new Government's commitment to the pensions promises made to millions of public servants. The unilateral Government announcement of the change from RPI to CPI indexing of pensions, potentially significantly cutting pensions entitlements going forward, was a further major blow.

Real terms pay cuts, privatisation and restructuring, job cuts and threats to pensions all adds up to a volatile cocktail that could give rise to difficult and damaging disputes, and the TUC stands ready to support and co-ordinate union action where members decide that industrial action is necessary to defend services and those who deliver them, and we condemn those calling for Government to limit trade union rights guaranteed by the ILO and in every human rights declaration.

Rethinking deficit reduction

The new Government has adopted a deficit reduction programme that is both deeply unfair and economically dangerous - unfair because it makes those who can least afford it bear the pain and dangerous because it may well choke off recovery. This is morally and economically wrong.

It is also likely to do little to address the problems facing the public finances. The Government claims that countries such as Sweden and Canada were able to implement major austerity packages and both enjoy a falling deficit and a growing economy simultaneously. However, a recent study^[7] of 26 separate austerity packages over the last 30 years concluded that:

When countries cut in a slump, it often results in lower growth and/or higher debt-to-GDP ratios. In very few circumstances are countries able to successfully cut during a slump.

Ireland, which embarked on deep austerity measures a year and a half ago, has continued to suffer from a sluggish economy. Its credit rating has been subsequently downgraded by all three major agencies with the latest downgrade occurring as recently as August 2010.

This does not mean the UK deficit can be ignored. Even though the UK's debt is among the most long-dated among major economies it still costs money to service. It is right to reduce the deficit or longer-term debt when the economy is doing well as that provides room for much more manoeuvre when the next downturn occurs.

The country does not face a simple choice between ignoring the deficit and adopting the Government's approach. There is an alternative based on a more sensible time scale, much more flexibility and a much greater emphasis on closing the fiscal gap with fairer taxes and the proceeds of growth. We would urge the government to adopt an approach based on the following:

A timely and steady reduction

The deficit can and should be reduced over a longer time frame. Plans to completely eliminate the current budget deficit by April 2016 implies spending reductions of £99 billion and tax rises of £29 billion. Such levels are not only entirely unprecedented, but extremely optimistic as the austerity will inevitably depress the economy and lead to a lower tax take.

A longer time scale allows a greater opportunity for economic growth to play a much more significant role in shrinking the deficit, as growth will increase tax income and reduce spending on unemployment and the social effects of the downturn. A slower timetable is a more certain timetable, as it avoids the dangers of so depressing the economy that the deficit gets worse.

The speculative bubble that crashed with such damaging effects was created over decades. It is both wrong and unrealistic to expect the effects of such a damaging episode to have been reversed on the Government's rapid time scale.

It is far from clear how much of the deficit is cyclical - simply due to the economic downturn - and how much is structural, that part that would remain even when the economy has fully recovered and is growing again. It is premature to assume that growth cannot make a bigger contribution especially if a more pro-active industrial policy is implemented as described below.

A more flexible approach

We believe that greater flexibility needs to be built into the Government's plans. With the economy so uncertain and the labour market still depressed, such a major retrenchment is very dangerous. Ministers should be clear that if their economic programme fails to deliver jobs and growth, they retain the option of reviving stimulus measures or, at least, halting the spending consolidation, especially if the economy tips back into recession.

A bigger role for tax

Tax must play a much bigger role in the consolidation than it currently does. If progressive tax measures are employed - such as further reducing the tax relief offered to higher rate pensions, increasing the bank levy, introducing a Robin Hood financial transactions tax, or extending the 50 per cent tax rate to all those earning over £100,000 - then the consolidation has a better chance of achieving the fairness the Government claims it wants to see.

In addition, since the TUC first revealed the £25 billion lost to tax avoidance in The Missing Billions in early 2008, Government measures have only reduced this amount by approximately £1 billion^[8]. Further analysis has estimated that illegal tax evasion costs the Treasury around £70 billion^[9] and approximately £26 billion^[10] of tax goes uncollected. We believe these are vital sources of revenue that the Government is failing to tap.

Yet the Government is reducing resources for HMRC and sacking HMRC workers. As each HMRC worker can generate many times their employment costs in tax revenues^[11], this raises strong suspicions that this is a political project to shrink the state, rather than economic necessity.

Given these very large amounts of untapped revenue, it is disingenuous of the Government to claim that cracking down on benefit fraud (which currently costs the Treasury £1.5 billion^[12]) and welfare claimants more generally must be a leading priority in reducing the deficit.

In addition, there are worrying signs that the new Government, while sometimes talking tough, is fighting shy of curbing tax avoidance. We are concerned of indications of retreat on cracking down on bogus self-employment in construction, revising statutory residence rules as well as reports that HMRC will now take a softer line in tax avoidance disputes.

Of course the public sector should be run as efficiently as possible. Over time its priorities will change, especially when a new Government is formed. But change in the public sector - just as in the private sector - should be conducted through established channels of negotiation with trade unions. Unilateral announcements by the Government of changes to pay, pensions or conditions will only exacerbate tensions with public servants and lower morale thus damaging service delivery.

In particular, efforts to justify the deficit reduction programme by perpetuating myths about the feather-bedding of public servants through high pay, generous pensions or wasteful practices is unacceptable. The TUC General Council reminds the Government that public sector workers have already experienced constrained pay rises in recent years, reductions in headcount and a major efficiency drive by the previous government as well as having renegotiated pensions in order to share costs and risks more evenly between employers and employees.

Co-ordinating International Action

Without higher global growth and employment, the UK will find it difficult to use exports as a route to recovery, and increased global poverty will create further tensions and economic problems. The EU, OECD and the G20 need to co-ordinate more effectively to promote growth and create jobs, along the lines of the ILO Global Jobs Pact.

The recent decisions by a number of governments, enthusiastically encouraged by the UK Treasury, to introduce austerity packages simultaneously is precisely the wrong strategy when the global economy remains so precarious.

It is particularly important that international efforts are made to address the major trade imbalances in Europe and across the world which fuelled the banking and fiscal crises. Unless multilateral bodies resolve this underlying problem then the opportunities for ending the current crisis are far more limited and more likely to lead to protectionist solutions while the chances of future crises of a similar nature are almost a certainty.

Encouraging the right kind of growth

The Government is making a major error by moving away from the more pro-active industrial policy very belatedly adopted by the last Government. The faith that reducing corporation tax, holding interest rates low and improving workforce skills are enough to generate sufficient investment and consumer confidence to address unemployment and limit the damage done by spending cuts is unlikely to be borne out, especially when the Government's capital spending is to be cut by half.

The cross party commitment to unregulated free markets brought us the biggest economic crash in nearly a century. We cannot go back to business as usual. Instead, if we are to generate the growth, jobs and companies of the future in an ever more competitive global market, the state needs a new role in setting the conditions for economic success. Ending support for Sheffield Forgemasters and other manufacturing companies is exactly the opposite of what is needed. Apparent plans to downgrade, or even end the commitment, to a green investment bank is equally flawed. Without such policies we will neither reverse the UK's long-term low investment in the real economy nor build the low carbon companies that will be able to compete in this emerging global market.

To replace the failed consensus that deregulated markets and non-intervention can deliver sustained growth, we need a new approach that recognises that public investment, public procurement and regulation can drive up growth, make the UK less unequal and secure the imperative of a low carbon economy.

Campaigning for jobs, a fair economy and public services

The Government's economic policies are morally wrong, socially divisive and may even fail on their own terms.

Pledges that cuts could be achieved through efficiency savings alone, would not increase inequality and protect services have been broken even before ministers announce the full depth of their cuts programme.

Yet the new Government can claim a fresh electoral mandate. The majority of voters are worried about the effect of the cuts and are beginning to be concerned that they are both too rapid and too deep. But they do not yet share our critique or back our alternative approach.

But history shows that governments can change direction. The previous Government adopted an active industrial policy as the full effects of the crash became clear. Conservative governments abandoned the poll tax in the 1990s and similarly harsh economic policies in the 1970s.

Winning such a change in direction is no easy challenge. Much of the media reinforces the Government's message that the nation's finances are like a household's. Public sector staff have seen sustained attacks on their pay, pensions and conditions.

Yet where evidence of the cuts has hit home, such as those areas hit by scrapping Building Schools for the Future, communities have begun to mobilise.

Hardly a day goes past without evidence of different sectors speaking out against the effects of cuts. Science, the arts, environmental groups have all made strong cases against the cuts likely to hit their sectors.

New research continues to undermine ministerial claims that the cuts are progressive or fair. The impact of the cuts on the poorest and most vulnerable is already making voluntary groups speak out.

Distinguished economic commentators - including many not normally sympathetic to the trade union movement - challenge austerity. Business organisations seek to insulate their member companies from cuts in procurement but are already failing.

Government plans to fragment and marketise education and health services will lead to increased costs and poorer services. The TUC General Council reaffirms its opposition to the extension of the Academy Schools programme and introduction of so-called 'free schools', and expresses concern at the proposals contained within the NHS White Paper which will undoubtedly lead to more bureaucracy, increased private sector involvement in the delivery of health services, service fragmentation and reduced accountability to the public.

Our case is that the Government's programme of cuts, marketisation and privatisation is a political project, not an economic necessity. The deficit is being skilfully used as an excuse to bring in a programme that if put to voters at an election would be overwhelmingly rejected.

Unions and public sector workers are unlikely to achieve a fundamental change in direction on our own. But the potential to win allies and work with others is clear.

Our challenge therefore is to build a great campaign against the cuts - rooted in every community and with a clear national voice - that can win the argument for the alternative.

We invite service users, those whose livelihoods depend on public sector investment and procurement, and all those who recognise that public spending and public services are an essential thread running through any good society to join with us in calling for a fundamental change in direction.

While we are confident that the economic arguments are on our side, we recognise that most are likely to be brought into the campaign through their own experience of the cuts, either in their community or the sector in which they work, study or volunteer.

The priority for union campaigning is therefore to build the broadest possible alliance that can put the greatest possible pressure on coalition MPs both in their constituencies and at the national level to win the argument for change. Crucial to this will be involving community groups and other representatives of service users and those directly hit by the cuts.

This will require a careful combination of local work, community organisation, political engagement and national mobilisation. In each we should look for every opportunity to widen the campaign and involve new people and organisations.

Our aim is not to build a top-down national organisation where everyone agrees, but a strong and diverse movement rooted in communities and united in opposition to this savage programme of cuts. It will succeed by involving not just established campaigners but people entirely new to political engagement. The poll tax was defeated, when government MPs realised that their seats were in danger. The campaign against the cuts must deliver the same message to every vulnerable coalition MP.

The TUC and unions will support genuine new initiatives designed to help build this movement, and recognises that this will require embracing new forms of campaigning and involvement.

In particular we look to support new online campaigning tools that can help connect local campaigners up and down the country, allow cuts victims to tell their stories, build local campaigns and bypass the media with the arguments for the economic alternative.

The campaign will need careful planning and the correct balance between local, sectoral and national campaigning, all with the aim of putting maximum pressure on coalition MPs. TUC regional councils and the Wales TUC will be asked to support and co-ordinate campaigning activity across England and Wales, and the TUC will work closely with both the STUC and NICTU as we develop our campaign. The General Council sets out the following timetable for action, to which they will add further initiatives throughout the year, while continuing to emphasise the importance of working locally and in partnership with local groups.

September

• Launch of the campaign at the TUC Congress
• Lobby of delegates and fringe meetings at the Liberal Democrat and Conservative conferences
• Support for the ETUC action against austerity with TUC participation in the demonstration in Brussels.

October

• A week of action against the CSR which will include:
• A rally in Central Hall Westminster on Tuesday 19 October on the eve of the CSR. A highly targeted lobby of coalition MPs concentrating on those with small majorities or who stood on a platform of resisting cuts until the recovery was secured. This will take place both on 19 October and in constituency surgeries later that week. Lobbying should involve both service providers, service users and others who will lose out from the cuts.
• Local and regional activity - including lobbying at constituency surgeries on 22 and 23 October.
• Support for the STUC demonstration on 23 October.

November onwards

• Continuing analysis of the effects of the CSR on different sectors and localities with local and sectoral action to follow.
• Already planned are:
• UCU/NUS action on cuts 10 November
• FBU lobby of parliament 17 November
• Special Wales TUC conference 26 November.

The General Council encourages unions to use the impact of the CSR to build local campaign groups to maintain pressure on MPs - particularly coalition MPs that we have targeted - and to work with other unions and others on a sectoral basis to build awareness and opposition to the cuts announced in the CSR.

March

A major national demonstration in March 2011 on a date to be confirmed as soon as possible.

NOTES TO EDITORS:

- All TUC press releases can be found at www.tuc.org.uk

- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit www.tuc.org.uk/pressextranet

- Congress 2010 will be held at the Manchester Central Convention Complex from Monday
13 September to Thursday 16 September. Free media passes are no longer being issued. Media credentials now cost £50 and can be collected in Manchester. If you would like a media pass, please visit www.tuc.org.uk/congress/tuc-18063-f0.cfm and return the form.

Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Gibson T: 020 7467 1337 M: 07900 910624 E: egibson@tuc.org.uk

OBR: Are the Jobs Forecasts Credible?, www.touchstoneblog.org.uk, 2nd July 2010

James Browne, Personal Taxes and Distributional Impact of Budget Measures, IFS, June

2010. James Browne and Peter Levell, The distributional effect of tax and benefit

reforms to be introduced between June 2010 and April 2014: a revised assessment ,

IFS, August 2010

The PSF - which is made up of unions, employers, Government officials and is chaired

by a Government minister - recently agreed a protocol on the implementation of

equality impact assessments.

For a review of this evidence see: TUC, Rethinking Public Service Reform, 2008

Sweeping Cuts Will Cripple Public Services, Warn Worried Managers, 19th February

2010, Institute of Leadership and Management

Audit Commission (2010) Surviving the Crunch: Local Finances in the Recession and

Beyond London: Audit Commission

Arjun Jayadev and Mike Konczal, The Boom not the Slump: The Right Time for

Austerity, The Roosevelt Institute, August 2010

TUC, Stemming the Flood, December 2009

Tax Research, Tax Justice and Jobs, 2010

HMRC, 2009-10 Accounts

An answer to a parliamentary question revealed that HMRC compliance staff generate

£658,000 in tax revenues each while a recent study found that members of the

Association of Revenue and Customs could generate between 30 and 180 times their salary in tax revenues.

National Audit Office, Report by the Comptroller and Auditor General on the DWP,

July 2010

Press release (4,900 words) issued 11 Sep 2010