FORMER TORY Chancellor Sajid Javid has warned against a return to austerity as the bankrupt UK economy plunges into a historic disaster with its debt much greater than its Gross Domestic Product.
The Bank of England (BoE) on June 18th unleashed yet another round of Quantitative Easing (QE), adding another £100 billion to the amount of ‘free’ money they have handed out to the speculators and banks.
Since the coronavirus pandemic hit the UK in March, the BoE has increased QE by £200 billion – bringing the total amount of QE to £645 billion. Now it will reach a massive £745bn with the promise of more to come.
The UK’s debt is now worth more than its economy after the government borrowed a record £55.2bn in May, nine times higher than in May last year, and the highest since records began in 1993. This borrowing frenzy sent total government debt surging to £1.95trn, exceeding the size of the economy for the first time in more than 50 years.
The deficit – the difference between spending and tax income – for the first two months of the financial year (April and May) is now estimated to have been £103.7bn, £87bn more than last year, another record!
But the ONS estimates borrowing for the 2020-21 financial year will dwarf that, at £298bn. That will be the largest deficit since World War Two.
After this frenzy of spending, along comes former Tory Chancellor, Javid, to warn against a return to austerity as the UK bosses drown in debt. In a report by the Centre for Policy Studies, he also called for low taxes on business to aid the UK’s recovery.
The report by the think tank admitted that a quick economic bounce-back from the coronavirus crisis is unlikely. In the understatement of the century, the report says that polls suggest the UK is ‘not ready’ to return to the austerity measures introduced by former Chancellor, George Osborne, ‘necessary though they were’. In other words, in the City there is a great fear of the workers!
Javid argued in the ‘After The Virus’ report, published on Tuesday, that ‘If we want to support and stimulate employment, then axiomatically the best option is to cut the payroll tax – employer’s National Insurance.’
‘Tax employment less, and all other things being equal you will end up with more of it.’ Other recommendations made in the report include temporarily cutting VAT and bringing forward ‘shovel ready’ infrastructure projects, with Javid arguing that the ‘only way out of this crisis is growth’.
He joins former Labour Chancellor Alistair Darling in calling for an emergency VAT cut to boost consumer spending, a move undertaken by the Labour peer after the 2008 financial crisis. He is urging the Tories to build up and add to the record mountain of debt including underwriting ‘a bigger proportion of wages for those who lose their jobs’.
However the Governor of the Bank of England (BofE) Andrew Bailey yesterday threw a massive spanner into the works, just days after presiding over adding £100bn more of Quantitative Easing, boosting it up to more then £700bn, after the economy collapsed by 20.4% in the single month of May.
He ruled out more Quantitative Easing stating that before the bank raises interest rates from the current historic low of just above zero, the bank should start selling government debt. In a major shift in the Bank’s policy, the governor said he would look to unwind its ballooning balance sheet of bonds built up through Quantitative Easing first, before lifting rates from record lows.
Bailey suggested its rate-setters would need to rebuild their war chest ahead of the next downturn. The governor also issued a belated but stark warning to financial markets not to become hooked on QE.
‘When the time comes to withdraw monetary stimulus, in my opinion it may be better to consider adjusting the level of reserves first without waiting to raise interest rates on a sustained basis,’ he said in an opinion piece for Bloomberg. He warned that: ‘Elevated balance sheets could limit the room for manoeuvre in future emergencies.’
This settles the issue. The bourgeoisie cannot buy any more time! In the face of massive developing unemployment in the months ahead, workers and youth will mobilise in their millions to put an end to the capitalist system with the British socialist revolution.
Now is the time for all workers and youth to join the WRP and its youth section the YS to provide the leadership for the British socialist revolution and the socialist revolution throughout Europe that must surely accompany it.