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Socialist Review Index (1993–1996) | Socialist Review 170 Contents

Socialist Review, December 1993

Notes of the Month


High risk strategy

From Socialist Review, No. 170, December 1993.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive.
Marked up by Einde O’Callaghan for ETOL.

‘Ian Paisley will never vote to put VAT on the Bible’. The comment of one minister neatly sums up the Tory dilemma. They depend on the votes of Ulster Unionists to force through unpopular measures, but they cannot even rely on that band of bigots. Their room for manoeuvre is extremely limited. Both the budget and public spending are largely constrained by the previous decisions announced by Norman Lamont.

Whatever Clarke’s claims about inflation and interest rates, 85 percent of the increase in tax revenues comes from workers and the poor – the freeze on tax allowances, VAT on fuel and increased National Insurance rates.

But the Tory strategy is a very high risk one. The assault on welfare and public sector pay will coincide with an increase in inflation. While the ‘headline’ rate of inflation may not rise above 4 percent, the impact of increases in rents and the cost of fuel and transport will be much heavier. Attacks on living standards and welfare right across the board make the possibility of widespread resistance much more likely now than this time last year.

Workers have already faced a massive attack on their living standards with pay freezes in industry and the 1.5 percent pay limit in the public sector during the past 12 months. Yet resistance so far has been muted – and the official statistics for strikes in September are the lowest on record.

However there are several reasons why this is likely to change. First, every pay policy or freeze introduced in the past has always met with little resistance in the first year. That was as true of the Tory ‘pay pause’ in 1957 as Labour’s Social Contract two decades later in 1975.

Second, inflation has fallen steeply in the past year or so. In April 1992 the inflation rate was 4.3 percent; recently it has been less than 1.5 percent. These figures reflect the experience of millions of workers: the cost of people’s mortgages has come down rapidly, supermarkets have been discounting food prices, clothes shops have had permanent sales.

Third, earnings still rose faster than prices despite the attack on pay. In some cases much faster. According to the official earnings figures for the 12 months to April 1993, the earnings of British Rail workers went up by more than 10 percent. Council staff had increases of between 7 percent and 9 percent. Civil servants had pay rises of between 8 percent and 11 percent.

These statistics reflect the fact that these workers received two pay increases in 12 months because their previous pay rise was delayed. Teachers’ pay, by contrast, only rose by 3 or 4 percent because they only had one increase in the period (though this is still more than inflation). But the point is that many workers in the public sector did not feel particularly hard pressed over pay. Despite this there were still large minorities prepared to vote for strike action, for example in the councils and the ambulance service.

Things are quite different now. Their last increase was 1.5 percent or less. Now public sector workers are being told to accept no increase at all at a time of rising costs and thumping tax increases.

The problem for the Tories is that this is not just risky – it doesn’t solve their problems. If they get away with a pay freeze it may save them £2-3 billion, at least for a time. But in the current financial year alone, the interest the government pays on public sector debt will be more than £19 billion. Its spending plans are so tight that, on one estimate, if inflation were to rise to 4 percent the government would have to spend an extra £20 billion to maintain the current level of services.

The Tories can cover their debts if the economy grows fast enough, but this year the recovery of British capitalism is both fragile and feverish, constrained by the slump in the rest of Europe and very low investment levels. British capitalism does not have the capacity to grow rapidly without sucking in imports and stoking inflation. Investment has been low for a long time, but the last recession depressed it much further. The official figures show the value of public sector investment fell by more than half between 1988 and 1992. Manufacturing investment, measured as a proportion of output, is at its lowest level for more than 30 years. A recent National Opinion Poll survey of 450 companies shows only one in seven of them increased investment last year, despite the introduction of special 40 percent tax breaks.

As an article by Financial Times economist Sam Brittan argues, ‘The productivity of workers using existing capacity is increasing rapidly, but at the same time there is inadequate capacity to support a true recovery.’

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