Harsh spending cuts will be all pain and no gain

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date: 15 June 2010

embargo: 00.01hrs Wednesday 16 June 2010

The next round of Government spending cuts will weaken the economy, lead to hundreds of thousands of job losses, hit the poorest in society hard through a loss of services, and leave an even deeper deficit, according to a new report published by the TUC today (Wednesday).

All Pain, No Gain: The Case Against Cuts looks at economies that have made severe spending cuts in the past - Britain in the 1980s, Canada in the 1990s and more recently Ireland - and finds that the end result for the UK in 2010 will be damaged public services, rising unemployment and increased suffering for the most vulnerable.

Nor will cuts reduce the deficit, according to the TUC report. A harsh round of spending cuts will harm the economy, causing the Government's tax receipts to fall as companies pay less tax on their profits and newly unemployed public servants no longer pay income tax. And with hundreds of thousands of newly unemployed workers on the dole, the benefits bill will rise too.

Instead of spending cuts now, the TUC report urges the Government to actively work for an international growth package, raise taxes for those most able to pay, and abandon the cuts timetable which demands that the deficit be halved by 2014.

Commenting on the report, TUC General Secretary Brendan Barber said: 'The huge spending cuts planned by the Government risk imposing a great deal of pain on the British people - especially for those at the bottom - and for absolutely no gain. But it doesn't have to be this way.

'Cuts are the worst way to plug the hole in the public finances. They have not worked in Ireland and did not work in 1980s Britain.

'The speed and severity of UK cuts is more likely to spook the markets than please them as a double-dip recession looms and Europe embraces the self-harm of deficit fetishism. Business confidence, order books and consumer demand is all very brittle.

'The cuts programme increasingly looks less like economics and more like a political project to restructure the state and roll back support for not just the poor and vulnerable but the services on which middle-income Britain depends.

'It is increasingly clear that the Government cannot eliminate the deficit on the timetable they have chosen without the deep cuts in spending advocated by Reform, the think-tank close to government, today. Voters did not vote for cuts in health, education, pensions, the police and for privatising the road under their feet.'

Politicians are wrong to think it's possible to do away with 'backroom' jobs without affecting services says the report, as any cuts to human resources, finance or administrative staff will make life much harder and more stressful for those on the frontline, says the report.

Similarly the report dismisses claims that services can be run any more efficiently or cheaply by using the private sector. With many out-sourced projects going over budget, the end result is a decline in the quality of service and poor value for money.

The report also looks at the experience of governments in Canada and Ireland to make its case against cuts:

  • Canada aggressively cut back on spending in the 1990s, slashing the budgets of key departments like education and health. Over 265,000 jobs were lost in the public sector but many economists agree that the halving of its deficit came about more as a result of healthy global growing economy than the programme of spending cuts.
  • The Irish Government embarked on a severe programme of spending cuts soon after the country entered recession in 2008, affecting child and unemployment benefit, education and transport, as well as public sector pay and pensions. Despite the cuts, the economy didn't improve, unemployment went up and the deficit has remained the same.

All Pain, No Gain urges the UK Government to turn away from its £60 billion cuts programme and manage the public deficit by:

  • Accepting that growth is the only way to tackle the deficit and work with governments around the world to maintain levels of public spending and prevent the return of another economic slowdown.
  • Increasing taxation, especially for those most able to pay, introducing a Robin Hood Tax on financial transactions made between banks, as well as closing the loopholes that wealthy individuals jump through to avoid paying tax.
  • Abandonning the restrictive timetable that demands the deficit be reduced by a half or more by 2014.

- All Pain, No Gain is available at www.tuc.org.uk/all_pain_no_gain

Contacts: Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: [email protected]
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: [email protected]

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