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Socialist Review Index (1993–1996) | Socialist Review 182 Contents
From Socialist Review, No. 182, January 1995.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive.
Marked up by Einde O’Callaghan for ETOL.
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The Tories’ puzzlement at their unpopularity only grows as new economic indicators appear. The economy is growing fast. Inflation is fairly low (although there are signs that it is growing). The Public Sector Borrowing Requirement for 1995–96 is predicted to be £8.5 billion less than it was expected to be a year ago. Unemployment is falling.
In short, economic recovery seems well under way. So why is history not repeating the experience of the 1980s, and why is the ‘feelgood factor’ not working?
The simple answer is that few people have much to feel good about. For the first time for many years incomes are not rising, and substantial numbers of people are worse off than they were a few years ago. There are two main reasons for this. Firstly there is the tax hike of the past year which is still being felt. Rises in duty on petrol, beer, cigarettes, VAT on fuel at 8 percent, taxation of insurance policies and foreign flights all mark inroads into the disposable income of every worker.
The second reason is what is happening to wages. Although many workers have won reasonable pay increases, there have also been freezes and even cuts in some areas. So millions of people in work – let alone pensioners, students and those on benefits – feel worse off and quite rightly blame this feeling on government policy. As budget tax increases bite further, so incomes are further eroded. Government and City decreed rises in interest rates will also raise the cost of housing for millions of people.
Can the Tories therefore pull another rabbit out of the hat with renewed prosperity, tax cuts in the next budget, falling unemployment and rising wages? It looks unlikely. Economic recovery may be growing, but it isn’t matched with a recovery in consumer spending. One of the main motors of increased personal consumption during the 1980s was the rising housing market, coupled with the easy availability of credit. Today house prices are still falling, credit is much tighter and the level of debt still nearly as high as when the recession began.
And it is still a ‘jobless recovery’. Unemployment even on government figures is still around 2.5 million. There are signs that much of manufacturing industry is approaching full capacity – showing just how small its base now is and how many are still left on the dole queues from the last recession.
So far the Tories have not dared let the economy rip as it did during the Lawson boom of 1986–88. They fear raging inflation, debt increases and overheating of a still fragile system. But they will be tempted in this direction as their unpopularity grows and an election nears. They hope to be able to hide behind tax cuts, further expansion and a boost in consumer spending.
Two dangers face this strategy. It can cause further recession, even deeper than the last, and will only exacerbate the problems faced by British capitalism. And politically, the Tories are now facing the possibility that their latest crude attempt at bribery of voters simply will not work.
It is obvious from the row around VAT on fuel that Clarke and Major are trying to take a hard line now, so they can distribute largess in the future. But many people may begin to wonder, why go through all this pain for not a lot of gain?
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