Ahead of George Osborne’s Autumn Statement, can we please start talking about the real economy?

Deborah Harrington, National Health Action Party campaign organiser, guest blogs here on the need for politicians to wise up to the fact that public spending is not a drain on the economy – but a boost to the economy.

Deborah’s blog post reinforces the point that Naveen Judah made, back in March 2014 at the first public meeting in Halifax to save our A&Es, that NHS spending has a “multiplier effect” – so that for every £1 of NHS funding, £1.80 recirculates in the economy. The Body Economic: Why Austerity Kills – a study by Dr David Stuckler and Dr Sanjay Basu – found a bigger multiplier effect for health spending:  investments in health saw multiplier greater than 3 – so each £1 generated up to a £3 return. This is why cutting NHS spending will shrink the economy. We need to keep on demolishing the myth that the NHS is financially unsustainable and that it needs to make £22bn of “efficiency cuts” between now and 2020. Deborah takes a timely swipe at this myth here.

When is Labour going to start talking about the real economy, instead of just tagging along behind George Osborne and his balanced budgets? With the Autumn Statement looming I reckon now would be a good time.

In response to questions about how Labour would close the shortfall in funds for the NHS Heidi Alexander, the Shadow Health Secretary, reportedly said, according to the Telegraph that:

“the NHS should get every penny it needs”.

However when pressed on how much more was needed and where the money would come from, Ms Alexander said:

“I don’t know the answer to that, sat here today.”

She added:

“I’m five weeks into this job and I need to talk to my colleagues in the shadow Treasury team and clearly we will need to review the requirements of the NHS and care system.”

Public sector doesn’t ‘drain’ money from the economy

The only reason that there is any need for Heidi Alexander to be worrying about where the money comes from, is because governments for the last 30 years have been busy telling us that government spending works like a household budget and that the public sector ‘drains’ money from the economy. It doesn’t and we should say that loud and often.

When the government pays for public services it puts money in the pockets of public employees, who spend it in shops, on rent, on holidays – in short, in the private sector. It also fills the order books of the private sector – with railway lines, and lightbulbs, books for schools, hospital equipment….

Every penny we spend training doctors, nurses, teachers, creates a safe and secure cohort of professionals to look after us and our descendants in the years ahead. Every penny we ‘save’ by not investing in the infrastructure that supports our public services or the trained professionals to staff them robs that future of their most precious support services.

When governments spend they boost the economy – and ensure the provision of affordable essential services for all.

All our essential public services are affordable – it’s about a political choice

It doesn’t have to be like that – there’s a choice. We can be like the Victorians and have the grotesque levels of private opulence and public squalor that go along with unsustainable levels of inequality and where ‘poor relief’ depends entirely on the whim of the rich. I can see George Osborne smiling with delight at the prospect….in November he will no doubt cut public service expenditure once again, and drain the economy of yet more money.

So, yes, all those essential services are affordable. What’s not affordable is the wasted talent of future generations with limited access to decent housing, good schooling and accessible, comprehensive, universal healthcare, increasing inequalities and reducing the life chances of those on low incomes. That’s a higher a price to pay than running a deficit.

Government deficit spending = money circulating in the economy keeping everyone in it healthy. How long will it take to get the message out that this is about what kind of society we want and what investment we think should be made for the future?

Posted from here.

One thought on “Ahead of George Osborne’s Autumn Statement, can we please start talking about the real economy?

  1. Deborah,

    It’s actually a lot worse than you suggest. The Government has just pushed it’s budget deficit down to about 4.5%. If that extra money stayed in the economy to stimulate growth that would be fine but there’s also an external deficit in trade and other financial transactions to consider which is about 5% of GDP.

    So even with what many economists might consider to be high budget deficit the economy is losing spending power overall. This will inevitably bring on a new economic crash in the next year or two unless it is immediately reversed.

    The options, in order of sensibility, for the government would be:

    1) Increase spending on the NHS, education, infrastructure projects etc, put VAT back to 15%, and run a budget deficit of something like 7-8% to stimulate the economy. Only when inflation became an issue would it need to back off a little.

    2) Keep the deficit as it is but devalue the pound to bring exports and imports into more equal balance.

    3) Carry on as it is doing, cutting spending and raising taxes, which will certainly crash the economy!