The economy is doing fine, we are constantly told. So why are there one million fewer industrial jobs since 1997, why is investment in manufacturing at its lowest level since 1965, and taxation higher than in 1997? WORKERS takes a hard look... Take a short reality break: time for a few facts about the real economy
WORKERS, MAY 2005 ISSUE
We are hearing a lot of self-praise from Labour about its stewardship of the economy. We should remind ourselves of a few facts.
One million industrial jobs have gone since 1997. Growth is lower than under the Major government: between 1990 and 1997 it averaged 3.2% a year, since 1997, 2.4%, between 2000 and 2004, 2.3%. The infrastructure for industry is slipping away. How do we rebuild industry when universities have closed 46 engineering departments, 28 physics departments and 28 chemistry departments since 1996?
Unemployment is officially 1.5 million, intolerably high. Eight million people are classed either as unemployed or as having withdrawn from the job search (economically inactive), 124,000 more than in 2003. And 2.7 million people are on incapacity benefit, a threefold increase since 1990, costing £16 billion a year.
Under Major, productivity rose 2.4% a year, under Blair 1.4%. We have less capital invested per worker than in France, the USA and Germany, so output per hour worked is 25% higher in France, 16% higher in the USA and 8% higher in Germany.
Manufacturing
Investment in Britain's manufacturing industry is just 1.3% of Gross Domestic Product, the lowest level since the Office for National Statistics' series on business investment started in 1965. Corporate investment was 11% of GDP in 1997, 9.5% in 2004. Investment is 13.4% lower than the average of the G8 countries. Investment in R&D was 2.2% of national income in 1995, 1.8% now. Labour has cut corporation tax and taxes on shares and property, and still the capitalists do not invest in Britain.
They have other priorities, which the government has done nothing to stem. Chief Executive Officers give themselves vast salary increases (up by 16% in 2004), golden handshakes, golden hellos, bonuses unrelated to performance, huge pensions and offshore tax havens. To nobody's surprise, income inequality and wealth inequality have risen since 1997.
A fifth of job vacancies, 135,000, are unfilled, due to skills shortages. Eight million people still lack basic skills. Only 30% of British workers have craft, skilled craft or vocational qualifications compared with 65% in Germany and 51% in France. Fewer than 25% of young workers take up places on apprenticeship schemes compared to more than 60% in Germany. In 1999/2000 252,900 people started on work-based learning, but just 239,300 in 2002/2003. One million young people are neither in education, training nor employment.
Even with two incomes, households have to eat into their savings and borrow more just to stay afloat. Personal savings are falling: in 2003, households saved just 4.8% of their disposable income, in 1997, 9.4%. Household debt is a colossal £1 trillion (thousand billion). In 1997 taxation took 35.4% of national income, now it takes 36.3%. Taxes have risen faster than in any other European country.
The public sector deficit has risen from £25 billion in 2002 to £36 billion in 2003 and £34 billion last year. Public borrowing will rise by £102 billion more than Brown forecast over the next five years. The public debt incurred thanks to the Private Finance Initiatives is £35.5 billion.
Land
The government does not see farming as necessary: "The role of rural England as the food provider for the nation is no longer an essential one." Between 1995 and 2000, 5,000 dairy farms closed down. Between 1990 and 2001, 100,000 agricultural workers left the land. In 1985, a quarter of land workers worked part-time or seasonally; now it is two-thirds.
A household of four pays £800 a year extra on food because of the high prices imposed by the European Union's Common Agricultural Policy (CAP).
There is no land tax on big landowners and no tax on land sales. The rest of us pay £10 billion a year land tax in the form of council tax. Land prices have doubled since 1993, benefiting landowners but doubling tenant farmers' rents.
The EU, through the CAP, gives £2 billion a year to farming, but most goes to landowners not to working farmers. In Britain in 2003, 224 large estates received £47 million in cereals subsidies alone, an average of £210,000, £575 every day. The Duke of Westminster got an estimated £326,000, the Duke of Marlborough £369,000 and the Duke of Bedford £382,000. These figures are only estimates, because the 1979 Agricultural Statistics Act entitles landowners to withhold all information relating to any particular land or business, so they can keep secret how much public money they get.
Labour, in alliance with the Countryside Landowners' Association (now tellingly renamed Country Land and Business Association), rejected a proposal to put a limit of £187,500 on these payments to big landowners. The current CAP "reforms" will only add to the subsidies paid on the basis of land ownership not output.
Pensions
Before 1997 Britain's pension funds were solvent, with strong cash flows. Britain had £830 billion invested in private pensions to meet future pension payments, more than the rest of the EU put together.
What caused the current pensions crisis? In 1997 the government immediately decided to abolish the annual £5 billion tax credit on dividends received by pension funds. The Treasury and independent actuaries warned Brown that this would push pension schemes into deficit, close down guaranteed final salary schemes for millions of workers and cut payments to pensioners. Brown ignored them and as a result over £45 billion has been taxed from occupational pension fund investments since 1997.
By 2001 the ending of the tax credit and the inevitable fall of the stock market had wrecked the retirement plans of millions of workers. In response, Brown proposed a pension tax credit guaranteeing a minimum income, predicting that it would cost £2 billion in 2004–5. His advisers pointed out that since half the population would immediately be eligible for the credit it would cost more like £10 billion a year. Treasury civil servants warned the state would not be able to fund this scheme.
Brown said, "We're only committed to pay the credit for the next five years. We can change it after that." The questions came, "But what about after? People save for 20 years for their pensions. They won't believe in you and they won't save. And what happens to their pensions after five years?" Brown ignored them.
By 2002, Britain's pension funds were paying pensioners on average 28% less than in 1997, and two-thirds of final salary pension schemes had been closed to new members.
Diktats from the EU
Labour is obeying European Union diktats. The European Central Bank in April 2003 demanded "reductions in public pensions" and "measures to raise the effective retirement age". It also demanded "greater private involvement in healthcare financing", "the extension of working hours" and the "containment of labour costs and the abolition of overly rigid labour market regulations". On all these, Labour is doing what it is told, whatever the damage to the country.