12 Nov 2012

Privatisation and the Deficit

A few weeks back the IMF published from information showing that the UK deficit was primarily caused by a reduction in revenue, rather than increase in spending. This is partly why they are now also saying that austerity won't help. Cutting spending won't deal with the problem of reduced revenue in the long term, and will in fact have a negative impact on revenue because of the consequent shrinking of the economy. We know this, and we know that the government is in denial about it. And taking £35 billion from the BoE as a fig leaf is not going to convince anyone. The Tories are naked and refusing to admit it.

Over the weekend the Observer, more usually a light-weight, published a story showing that three of the largest water companies in the UK have parent companies in Jersey, and pay no, or next to no, tax in the UK despite making enormous profits - and note profits not simply turnover:

So these companies that benefited so hugely from the free market experiment repay us by sucking money out of the UK economy. Money that all used to go to the government.

We've also been hearing about how other large companies such as Amazon, Google, and Starbucks make fools of the UK people and its government by avoiding paying tax here, again despite making healthy profits.

Should we be surprised that large corporation have no sense of social responsibility? Well, no. Let's not be naive, these companies are set up to transfer wealth to the wealthy and no other reason. The service they provide has become incidental. The naivety has been on the part of successive governments. The ideology of the free market religion is that by allowing companies free reign (and all the while piling more and more regulations on individuals) that we all benefit. There never was evidence to support this ideology, its just something that some rather brilliant, but completely unrealistic, theorists came up with and won Nobel Prizes for. It never related to the real world, and still does not.

We now have 40 years worth of evidence now. And what the evidence shows is that free markets lead to long term economic instability - crisis after crisis across the planet; and to increasing economic inequality, which also leads to social unrest. Regarding inequality the free market religion facilitates the greed of the already wealthy and allows them to circumvent regulations requiring them to be good citizens. When people behave that way they are labelled anti-social and given punishments. But the free market religion does not see the dark side of business, it only sees the light.

It is true that privatisation has often produced benefits in terms of service. It's not all bad. But the cost has yet to be really counted. Indeed I think we are beginning to see the true cost in articles such as the one in the Observer. How long can we afford to pander to these companies that have no loyalty to the community which feeds them. It's like having a pit-bull terrier as a pet. It's only a matter of time before it turns on us or our family and decides to bite us.

I think we also have a problem with the middle classes in the UK. They are too comfortable, and too willing to put up with the squeeze. They are happy if they can maintain their standard of living, or a semblance of it. But they aren't paying attention to the consequences of having their heads in the sand. A happy middle class existence is dependent on social cohesion, and long term stability. We're in danger of losing both of these. 

Governments need to stop being so naive about the intentions of business. If the aim of government is stability and prosperity for all, which is what it should be, then some kind of decisive reform is necessary. If a business is operating at a considerable profit in the UK and paying no tax on it's income then something has gone disastrously wrong. If we're going to tax wages and profit, and profit is adept at avoiding paying any tax, then all of the burden falls on wages. Such a situation cannot be allowed to continue. If that company is the healthy beneficiary of a government sponsored monopoly like a water company, then the fact that they don't pay any tax is an indictment of both the company and the government. Making a profit and paying no tax is immoral, even if the law is so stupid as to allow it.

The dark side of privatisation then is the huge negative impact that it's had on government revenue. That government is in denial about the real impact of small government and privatisation is not helpful. Just as the UK was in denial about Jimmy Saville and his child abuse. Companies like Anglian Water are abusing this country. We can't just stand by and watch it happen. Or maybe we can?

For a government staking its reputation on balancing the budget, the obsession with spending at the expense of revenue, the abject failure to deal with rich cheats while continually bashing the poor, leaves it looking more naive than average, more clumsy and blindly ideologically driven than any government since the 1970s. And that is saying something.

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Keep is seemly & on-topic. Thanks.