Britain is open for business – wide open

 From Michael Roberts' Blog

The same applies here in the US of course. 

Britain is open for business – wide open

March 28, 2011 by michael roberts

At the weekend, the streets of London saw the largest protest demonstration against government policy since one million marched against the UK’s involvement in the invasion of Iraq in 2003.  This demonstration was against the cuts in public services and jobs and against the increases in taxation and the reduction in welfare benefits being imposed by the Conservative-Liberal Democrat coalition over the next four years.  As such, the half million or so who marched constituted the largest trade union-led demonstration ever in London.

The battle of ideas over the issue of public spending cuts and job losses remains.  A public opinion poll released just before the march showed that over half those interviewed thought the cuts and fiscal austerity measures were necessary in order to ‘get the budget deficit and government debt down’.    Those in favour of the cuts knew that much of the ‘excessive’ public spending and increases in government debt had been caused by the financial collapse and the bailing out of the banking system.  So they wanted the cuts to be ‘fair’ i.e. mainly meted out on the rich and the bankers.  But they saw no alternative to the cuts if the British economy was to get back on its feet.

Of course, this view is both utopian and misguided.  First, the cuts in spending and the job losses are not being imposed on the banks or on the rich.  They fall directly on those not responsible for the crisis in the first place: public sector workers, welfare payments to the poor and vulnerable; higher taxes and charges to average working families.  Second, the view is misguided because these cuts will not correct the economy.  Under a system of production for profit, only sufficiently increased profitability for private businesses can restore investment and eventually employment.  And so far, we have not bled enough to encourage capitalist multinationals to reinvest in Britain.

Thus we have the Conservative answer to the crisis: we must make sure Britain is “open for business” as the Tory Chancellor of the Exchequer (finance minister) George Osborne proclaimed when he presented his budget for 2011 to the British parliament just days before the big march.  And that is clearly his intention to make British people open for business – wide open!

Osborne’s main measure in the budget was to cut the corporation tax on business profits from 28% to 23%, starting with 2% pts off now and 1% pt each for the next three years.  That would make the UK’s tax on business profits the lowest of the top seven economies in the world – something he and his ministers were keen to boast.

The headline tax rate is no guide to how much corporations actually pay in tax as a share of their gross profits.  A recent survey by Price Waterhouse, the accountants, found that because of exemptions, ‘investment allowances’ and other loopholes, although Ireland has a headline corporation tax rate of only 12.5% (jealously guarded by its capitalist politicians), the effective tax rate in France and other European countries is actually only 8-9% even though they seem to have higher rates than Ireland!
We already know about the huge scandals of major British corporations paying little or no tax to the British government (like Rupert Murdoch’s News Corporation), or Vodafone owing £6bn in tax after selling off a company but persuading the head of the Inland Revenue (against the advice of his inspectors) in a secret deal to pay just £1.2bn over four years.  Or the realisation that Britain’s banks (now partially state-owned) paid only 2-5% of their global profits to the British tax coffers last year.  Indeed, George Osborne in his quest to open Britain for business, announced that he was going to reduce the tax on overseas profits of British companies to just 5% to encourage them to keep their businesses here!  And those rich foreigners called ‘non-doms’ (people not domiciled in Britain but still live here permanently) will be able to avoid a flat-rate tax on their earnings if they ‘invest’ money into UK businesses.

It has now been established that there is a ‘tax gap’ of between £40bn (the official government estimate) and £120bn (independent estimates) generated by corporations refusing to comply with estimated tax bills, or finding loopholes in the tax regulations or salting profits abroad in lower tax zones.  If correct, recovering this money alone would close the government’s budget deficits over the next four years.   The realisation of this has led to the campaigns of direct action conducted by organisations like Uncut against big business tax dodgers, visible in the weekend march.

But again, to argue that the cuts can be avoided by closing the tax gap is misguided.  Under a system of production for profit, if corporations are to see a sizeable share of their profits disappear in taxes, they are not going to invest in new technology to grow faster or reemploy sacked workers.  And they are going to try and flee the jurisdiction of the UK’s tax officials.  Much more effective policies are needed.

The biggest reason why ‘alternative policies’ to the cuts are not supported by the majority of people in the UK is that the Labour opposition leaders and many trade union leaders also think spending cuts are necessary.  When in government, Labour advocated similar cuts to the Tories – the differences were minimal.  The ‘alternative’ of the new Labour leader, Ed Miliband, that he presented to the marchers, is that the cuts should be less deep and slower in implementation.  This is really just Chinese water torture as an alternative to a quick execution.

Most of the trade union leaders advocate an alternative based on closing the tax gap and expanding investment to grow the economy out of trouble.  Again, this is utopian and contradictory.  If you want to give ‘incentives’ for capitalist corporations, including the privately-owned banks, to lend, invest and employ more, you can hardly raise taxes on their profits.  What hope is there that these multinationals will be ready and willing to invest in new transport, communications, housing programmes and infrastructure with their recently recovered profits if the government is going to tax them more, regulate them more and even direct them to invest more?  It’s the thin end of the wedge.

The reality is that the UK economy is not growing faster but slowing down, something even admitted by the government which downgraded its estimate for 2011 real GDP growth from 2.1% to 1.7% and for 2012 from 2.6% to 2.5%.  Already the financial crisis and ensuing Great Recession delivered to us under the capitalist system of production will have cut real household incomes by 1.6% from 2008 to the end of this year – the biggest three-year drop in real living standards since 1980-83.  Households are about 6% worse off than they might have expected had incomes risen in the normal way. 

According to another survey, average British households have seen more than £1000 come off their annual take-home pay from work, already no more than £21,000 a year.  And the cuts have yet to bite.  Real incomes for the average family in 2013 will still be below the level they reached in 2008, the largest five-year drop in over 40 years.

And for those who think higher taxes are the alternative to cuts, note that the biggest loss in income for average families so far has come from the increase in VAT (sales tax) imposed by successive governments to reduce budget deficits.  VAT is the most regressive tax of all, hitting lower-income earners hardest.

It was the collapse in the capitalist private sector that caused the crisis and led to the loss of national output, incomes and employment.  The message of the government (and the opposition) is that the private sector must be put back on its feet by making the public sector pay (through a reduction in services, jobs and pensions) and through higher taxes and lower living standards for the average family.

But there is an alternative to waiting and expecting the private sector to invest and employ more while the economy slumps.  It is to put the public sector into the leading role for recovery and expansion.  But to do that would mean ending private capitalist interests in strategic sectors of the economy.  For example, instead handing back the partially publicly-owned banks to the private sector, the whole banking sector should be publicly-owned and controlled.  Then  banks would not engage in speculating in exotic and risky financial instruments to boost returns to shareholders and provide huge pay and bonus packages to their managers.  Instead they would become a public service like the UK’s health service, but providing loans not medicine to businesses to invest and loans to households.

Public ownership and control of the major investment sectors like transport and infrastructure, construction and communications would allow a proper plan for growth to work in conjunction with credit from the banks.

Such an alternative is not on the agenda of those who addressed the half million marchers at the weekend.  So instead, we shall continue with making Britain wide open for business.