Swingeing cuts and capital controls

February 3, 2010

Seems Alistair Darling, and the relatively more sane sections of British capital, have drummed home the message:

A Conservative government would not make “swingeing cuts” to public spending during its first year, party leader David Cameron has told the BBC.

But he said it was right to make a start on cutting the deficit, to avoid the same “scale of problems” as Greece, where public finances are in ruins.

There are good reasons why the Tories haven’t quite sealed the deal on the election, and amongst that list must be their inability to present themselves as vaguely credible managers of British capitalism, as this new wobbliness demonstrates. Darling et al still look like the better bet for the City – although for the rest of us the electoral choice on offer is white or Brown bread on our shit sandwiches, with all sides offering cuts in the near future.

Nonetheless, Cameron finally seems to have grasped that immediately hacking away at public spending in a depressed economy is on a par with sawing your legs off to save on shoe-leather. But keeping the government funds flowing is uneasily dependent on what the other major economies are doing. If they’re all spending too, it works; but the minute the markets get a whiff of some rollback elsewhere, they’ll start noticing the parlous state of the UK’s finances.

And that won’t be pleasant: stopping a massive flight of capital will mean trashing the domestic economy, with ‘swingeing’ cuts to public services, and an assault on real wages. Cameron mentioned Greece.

An obvious alternative, of course, would be to stick two proverbial fingers up to the financial markets and introduce capital controls, stopping big money leaving the country. But given the determined cravenness of the British political class before the markets, that’s not an option a future government will want to contemplate – not, at least, without a Left capable of forcing the issue.


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