The Bank of England's recent economic growth forecast and yesterday's prediction that employers will have to start laying people off if the slump continues should have set the alarm bells ringing in the Treasury. Whether it takes heed remains to be seen.
I don't pretend to be an economist, but even I can figure out that a recession reduces the tax take and makes the deficit bigger, not smaller. This, in turn, pushes up borrowing which, of course, increases the deficit even further. Slashing public spending to balance the books has the exact opposite effect. Making public sector staff redundant means they pay less, or no, tax. Cutting back on services and capital projects reduces private sector opportunities to bid for contracts. In the medium term the welfare spend will go up, more claims being made by former public sector employees with no jobs to go to.
Not surprisingly, I've concluded that austerity is making the situation worse. While I'm not naive about the significance of the Eurozone crisis, there is much that we can be doing at home to try to improve the situation.
First and foremost, we need a longer timescale for reducing the deficit. 'Slash and burn' simply isn't working. Let's not forget that there are two halfs to this deficit: cyclical and structural. The structural deficit is the legacy of bailing out the banks. We simply don't know how big this structural deficit is, and we won't know until the economy is performing again. This puts the onus on the cyclical deficit, caused wholly by the recession. Tackle this and we know exactly where we stand. So priority one is a growth strategy, with job creation at its heart. Keynes was right then and he is right now.
And what about tackling the deficit here and now, and in the future, post recession? Whether the politicians like it or not, taxation has to play its part. Given the role played by the banks in the crisis, I'd like to see a temporary 'reparation' tax levied on them, in addition to corporation tax. Coupled to this, we should introduce the much publicised Tobin, or 'Robin Hood' tax, the one percent levy on the huge financial transactions that take place in the City. I don't buy the argument that the banks would 'up and leave'; they are here because they have a cushy number compared to other countries, and it would still be cushy even if they had to pay a bit more.
I've read that the Tobin tax could raise as much as £800 billion. Astonishing. An aggressive pursuit of tax dodgers and the closing of tax loopholes is another must.
It's the human misery that austerity creates that irks me the most, and the fact that it isn't working just raises my blood pressure even more.